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Employment in Japan

Japanese employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. Factors that complicate matters include complex tax withholding rules and workforce regulations.   For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Japan.

Key points on employment in Japan

There are several key areas to be aware of within Japan’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    Japan requires that workers have employment contracts that meet rules under the Japanese Labor Standards Law, and companies must have a professional who can draft local employment contracts.

  2. Probation Periods

    According to a report by DLA Piper, probationary periods in Japan normally range from three to six months and cannot exceed one year.

  3. Termination Procedures

    A.  Notice Period

    Employers must give at least 30 days’ notice of dismissal or provide payment in lieu of notice.

    B.  Procedure

    The dismissal of employees in Japan can be a difficult due to the preservation of “lifetime employment” in Japanese society.

    A guide on “Hiring to Firing” by DLA Piper mentions that even during the probationary period, an employer must have “objectively reasonable grounds”, however it is generally considered easier during the probationary period. For employees on permanent contracts, after probation, validating cause for termination becomes much harder.

    Problems with behavior and performance that would count as reasonable cause for dismissal in many jurisdictions would not be considered sufficient in Japan, meaning seeking legal advice is critical. In general, examples of valid terminations include are theft, violence, fraud (such as lying about qualifications), or non-work related sickness or injury that significantly impacts employees’ ability to perform the work. Furthermore, the employer will need to show they have taken all reasonable steps to avoid termination, such as issuing formal warnings should have been given, with performance reviews, various training, explore other positions, etc.

    The guide states that downsizing due to economic conditions is another possible cause for termination, in which case the company must prove that the economic conditions necessitate the downsize, and that the company has already tried all possible steps to avoid terminations, and that the employees that are to be terminated were picked in a fair and reasonable manner.

    C.  Severance Pay

    According to data from the International Labor Organization, there is no statutory severance pay requirement in Japan.

  4. Statutory Leave

    A.  Vacation Leave

    Japanese Labour Law stipulates the minimum amount of paid vacation for employees, based on seniority, as reported by Japan-Payroll.com:

    6 Months – 10 days

    1.5 Years – 11 days

    2.5 Years – 12 days

    3.5 Years – 14 days

    4.5 Years – 16 days

    5.5 Years – 18 days

    6.5 Years – 20 days

    Employees can accumulate up to two years’ of paid vacation.

    B.  Sick Leave

    In general, there is no formal sick leave in Japan. Instead, employees use their paid vacation to take leave for sickness.

    C.  Pregnancy / Maternity / Childcare Leave

    Japan-Payroll.com reports that guaranteed maternity leave in Japan covers a period of 6 weeks prior to the expected birth date to 8 weeks after giving birth. Employee may return to work earlier after getting approval by a medical doctor.

    Both female and male employees can apply for childcare leave. Childcare leave starts the day after the maternity leave ends, until the child reaches the age of 1. If both parents are on childcare leave, the leave may be extended to the age of 1 year and 2 months. The maximum duration however cannot exceed 1 year.

  5. Pensions and Benefits:

    A.  Statutory Pension

    According to Japan-Payroll.com, the Social Pension is the statutory fund for people 65 years and over. The pension rate as of the end of 2014 is 17.474% as of September 2014. For Social Pension, the cap is for monthly salary of 605,000Yen or more.

    B.  Health Insurance

    According to Japan-Payroll.com, Health Insurance is 9.97% of the monthly salary though it varies depending on the region. The rate is adjusted every 6 months. The cap of health Insurance tax is at the average salary of 1,175,000 JPY.

    C.  Children Upbringing insurance

    This contribution is paid only by the company and is 0.15% of the employee’s average monthly salary amount. The cap is at 605,000 JPY, the same as for the pension.

    D.  Nursing Insurance

    According to Japan-Payroll.com, employees aged 40 to 64 have to contribute to an additional Nursing insurance tax. Current rate for the Nursing insurance is 1.58% as of April 2015.

    E.  Children Upbringing insurance

    This contribution is paid only by the company and is 0.15% of the employee’s average monthly salary amount. The cap is at 605,000 JPY, the same as for the pension.

    F.  Nursing Insurance

    According to Japan-Payroll.com, employees aged 40 to 64 have to contribute to an additional Nursing insurance tax. Current rate for the Nursing insurance is 1.58% as of April 2015.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Japan. For companies which intend to employ their staff directly through their incorporated Japanese entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Japan.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Japan.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Japan

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Japan

– the company needs help with tax, employment, immigration and payroll compliance in Japan

Shield GEO can contract directly with the company to employ and payroll their staff in Japan. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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