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Hiring Your First Employee in Japan

There are many things you need to know before you hire your first employee in Japan. Here you’ll find information on employment, payroll, tax, and potential compliance issues.

Employment in Japan

Employer and Employee Social Security in Japan

A pension insurance payment is deducted from payroll. The employee and employer pay an equal share of 17.8% of the monthly salary.

Annual Leave Entitlements in Japan

There is a statutory paid annual leave entitlement in Japan that ranges from 10 to 20 days per year depending on length of service. Unused leave can be accrued for up to 2 years.

Termination in Japan

There is a 30-day notice required for all terminations in Japan.

Tax in Japan

Income Tax Rates in Japan

Income tax rates in Japan range from 5-45 % depending on gross income level.

Corporate Tax Rates in Japan

The corporate tax rate in Japan are 4.4% of taxable profit.

Payroll in Japan

Social Security Registration in Japan

Payroll in Japan requires both the employer and employee to be registered to make monthly social security contributions.

13th/14th month bonus in Japan

It is customary, but not required to offer a 13th and 14th month bonus in Japan, one in the winter and one in the summer. However, bonuses are often already factored into the annual salary offer.

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Things to Consider Before Hiring Your First Employee in Japan

The risk of non-compliance is very high, especially when employing in a new country like Japan

Employing in an unfamiliar country like Japan can be overwhelming. The burden and risk of non-compliance is all on you and your company and you need to be careful when navigating the employment and tax laws of Japan. The information you’re looking at may be inaccurate, outdated or in another language. The consequences of non-compliance in Japan are far too high to not invest time and money into thoroughly understanding the Japanese jurisdiction.

Involving tax and immigration providers early is the number 1 most preferred method to manage compliance risks for companies, with 72% stating that they are focusing on outsourcing these services early on in the assignment.

There are many hidden costs that you may have overlooked

When employing in Japan, it is highly like that you may fail to factor in some costs involved while estimating a budget for the assignment. Usually, these costs occur during the course of employment and tend to be country-specific. They are often unpredictable and unavoidable resulting in the assignment being far more expensive than the business intended it to be. Hiring just one employee in Japan doesn’t justify the effort and cost it takes for a company to learn everything from scratch about employing in Japan.

Outsourcing services is the most preferred way for global mobility professionals to contain costs with 71% stating that they have already made outsourcing changes in an effort to maximise cost savings. Unsurprisingly, outsourcing is preferred over reducing the number of assignments, transfers, or improving in-house administrative processes as a method to save costs.

Health Insurance in Japan: Dual Coverage

There are two types of health insurance in Japan: National Health Insurance (NHI) and Employee’s/Social Health Insurance (SHI). NHI is available for non-residents who stay longer than 3 months in Japan but is mostly used by students or freelancers.

SHI is often offered to full-time employees through their Japanese employer. Either one of these will provide coverage in Japan, but not in other countries. Likewise, foreign insurance policies are not valid in Japan. So, if an expat employee travels home frequently, they will need dual coverage.

These considerations are common when hiring an employee in any new country. In our years of experience employing in Japan we have helped our clients with several other problems specific to Japan.

The Employer of Record Solution

As you can see from this overview, the process of hiring even one employee in Japan can be a real challenge for any HR department. This is why the Shield GEO Employer of Record (EOR) solution is a cost-effective and simple way to address your payroll, tax and immigration requirements. The EOR becomes the legal employer of your worker in Japan, with a registered entity that is already in place and prepared to take care of your employment needs.

Our team members can offer personal service, quick communication and the expertise of our regional partners to ensure that our EOR service is delivered seamlessly to support your staff assignments. We do have account managers and a principal office in Asia-Pacific, giving your HR department regional support for Japanese employment.

Here is a quick summary of what you can expect from your Shield GEO regional account manager:

  • A single point of contact for all employee or HR issues and questions
  • Assistance with meeting Japanese requirements for the employment contract
  • Advice on changes in legislation
  • Obtaining visas and work permits sponsored by our Japanese EOR
  • Full compliance with Japanese payroll, immigration and employment laws
  • Monthly payroll and employment administration

For a HR department located in the home country, the Shield GEO team becomes a local, dedicated resource to handle every aspect of your employee assignments. This allows you to focus on supporting your staff’s project and performance needs, while we take care of the multiple employment administration tasks for you.

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The information in this article is subject to changes in local legislation.

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