Japan’s regulatory framework is complex for many foreigners, which can often serve as a barrier to entry into this impressive market. These obstacles can be minimized with the use of a locally sourced employer of record who is familiar with the local laws and can assume most employer liabilities. Using Sky Executive’s PEO services enables foreign companies to hire local employees and run payroll without setting up a separate entity in Japan.
Benefits of Using an Employer of Record in Japan
As part of our comprehensive employer of record services, we provide compliant employment contracts that consider statutory requirements and best practices to protect the rights of our clients. This is important because the Japanese labor system is set up to protect the rights of workers.
Written Employment Contracts
Unlike in the United States where employment contracts are not as common, written contracts are the norm in Japan. The Japanese Labor Standards law requires that employment contracts meet certain rules and be in writing, although it does not require a specific format. As a Sky Executive client, you will have access to our labor contract templates that comply with all local and national laws.
Because termination is more difficult in Japan, it is important that the Japanese employment contract establish specific rules to govern employee conduct and the employment relationship. This is called “Work Rules” in Japan. Employers who have 10 or more employees must file their Work Rules with the Labor Standards Inspection Bureau. The Work Rules should include information about:
- Work hours
- Wages and compensation
- Termination of employment
Employers can meet the requirement of providing a written contract by providing a separate contract or a copy of the Work Rules to new hires. Employees who are hired via our employer of record services, will be subject to Sky Executive’s work rules. It is important when negotiating employment terms to consider the below standard benefits.
Working Hours in Japan
Japan’s standard workweek is 40 hours and runs from Monday to Friday. However, this can be adjusted based upon a union agreement or through a representative of the local employees. Any such agreement should establish the maximum hours of overtime work.
Minimum overtime hours in Japan are as follows:
- Basic overtime rate – 125% of the employee’s base pay
- Work on a rest day – 135% of the employee’s base pay
- Overtime performed between 10 p.m. and 5:00 a.m. – 150% of the employee’s base pay
- Overtime performed on a rest day between 10 p.m. and 5:00 a.m. – 160% of the employee’s base pay
- Overtime of more than 60 hours in a month – 150% of the employee’s base pay
- Overtime of more than 60 hours in a month performed between 10 p.m. and 5:00 a.m. – 175% of the employee’s base pay
Small to mid-sized businesses are exempt from the excess of 60-hour overtime rules. Additionally, supervisors, managers or workers who handle confidential matters are generally exempt from receiving overtime pay.
Public Holidays in Japan
Japan celebrates 16 public holidays during which time employees are provided the day off. These holidays include:
- New Year’s Day
- Coming of Age Day
- Foundation Day
- Vernal Equinox Day
- Showa Day
- Constitution Memorial Day
- Greenery Day
- Children’s Day
- Marine Day
- Mountain Day
- Respect for the Aged Day
- Autumnal Equinox Day
- Health and Sports Day
- Culture Day
- Labour Thanksgiving Day
- The Emperor’s Birthday
For most of these holidays, if the holiday falls on a Sunday, the next day is treated as the holiday.
Japan provides generous vacation leave as an employment entitlement. The minimum amount of paid vacation leave is based on how long the employee has been with the company as follows:
- 6 months of service – 10 days of annual leave
- 18 months of service – 11 days of annual leave
- 2.5 years of service – 12 days of annual leave
- 3.5 years of service – 14 days of annual leave
- 4.5 years of service – 16 days of annual leave
- 5.5 years of service – 18 days of annual leave
- 6.5 years of service – 20 days of annual leave
Employees can accumulate up to two years’ of paid annual leave. After this time, any unused leave expires.
Medical and Sick Leave in Japan
Japan does not have formal sick leave. Instead, employees use their earned vacation leave in the event they get sick. However, if the employer provides for sick leave in its Work Rules or employment contract, it must follow its own policy.
Maternity and Childcare Leave in Japan
Guaranteed maternity leave is provided in Japan which covers six weeks before the expected birth date to eight weeks after giving birth. A mother cannot be allowed to work within 8 weeks of giving birth unless the mother wants to work after six weeks of giving birth and returning to work will not cause any problems and a doctor certifies this. Employers are not required to pay for maternity leave unless the employment contract or Work Rules require it.
Family care leave of up to 93 days per family member may also be available. Like with maternity leave, employers are not required to pay for childcare leave.
Japan also offers childcare leave to mothers and fathers. Childcare leave commences after the final day of maternity leave up until the child is one. If both parents are on childcare leave, the leave can last until the child is one year and two months, but in any event, childcare leave cannot exceed one year.
It is typically considered easier to dismiss an employee during the probationary period than when they have more seniority with the company. These periods often range from three to six months but cannot be for longer than one year. Any option for the employer to extend the probationary period must be established in the employment contract or the Work Rules.
Japan condones the early termination of employees and considers it disruptive to the public good. Termination must be considered “socially acceptable” to be valid in Japan. Japan’s culture encourages the preservation of lifetime employment. An employer must have objectively reasonable grounds to terminate an employee, even during the probationary period. Japan is often considered to have a much higher threshold to have valid grounds to terminate an employee on a permanent contract than other areas. Possible reasons to terminate an employee include:
- Violent behavior
- Egregious insubordination
- Lying about qualifications, such as the skills or background that are necessary or that impact performance
- Serious and ongoing performance issues after formal warnings have been exhausted
- Non-work related sickness or injury that prevents the employee from working
The employer must show that it has taken all reasonable steps to avoid terminating the employ like giving the employee warnings, documenting negative performance reviews, showing that it has offered training and explored other options and other steps less than termination.
Japanese law does permit termination due to the need to downsize because of economic conditions. In this situation, the employer must be able to show the following:
- The economic conditions make the downsizing necessary
- The company has tried all reasonable steps to avoid termination
- The employees selected for termination were selected in a fair and reasonable manner
When an employer has made a decision to terminate an employee, it must provide at least 30 days’ advance notice or pay the employee’s salary for this notice period if it does not provide the required notice.
Japan provides a statutory social pension fund for individuals aged 65 and older. Employers and employees pay into this plan. Once an employee has paid into the system for 25 years, he or she becomes eligible for a pension once he or she reaches the age of 65.
Unlike many other Asian countries, Japan does not require that employers offer a bonus to employees. However, some employers may offer this benefit as an incentive to work with the company.
Japan’s Tax System
Japan has a multi-layered social security system that provides for universal health care coverage, unemployment insurance, pension and other benefits. For this reason, employers often do not provide supplemental insurance benefits since the national system typically meets most individuals’ needs.
The social security system provides the following insurance forms to employees:
- Health insurance – Premiums for this social insurance are paid 50% by employers and 50% by employees.
- Welfare pension insurance – Employers and employees are equally responsible for the premiums for this insurance.
- Workers’ compensation – The employer is responsible for this labor insurance that provides monetary benefits to workers who are injured on the job.
- Unemployment insurance – The employer is responsible for more than 50% of unemployment insurance premiums.
Employment income is subject to national income tax, which is a progressive tax form that increases as the employee’s income increases. It is also subject to local inhabitants’ tax, which is a flat rate based on the region.
Employer of Record Services in Japan
When a company takes advantage of our employer of record services, they can rest assured that we have taken care of all legal matters and operate with compliant employment contracts. Because Japan’s employment laws strongly protect workers, it is important that you have a local expert who will provide great attention to detail and who has an in-depth understanding of local practices to craft an employment contract that protects your interest.
Our full range of employer of record services allow us to recruit top talent to fill your vacancies and handle your human resources and payroll needs. We ensure that your business is in full compliance with local laws at all times without you taking on the additional burden of setting up a foreign office or subsidiary.
Working with an esteemed employer of record like Sky Executive gives you access to a more productive workforce sooner. You can concentrate on the operations of your business while we complete the administrative tasks that many foreign companies find challenging.
Contact us today to learn more about how we can help.
Access Top Talent in Asia with Sky Executive
If your business is ready to establish or enhance its presence in Asia, we have the team that can build you a dedicated, competent, and efficient workforce.Get In Touch