Employer of Record in Japan

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Employer of Record in Japan

Setting up a subsidiary in Japan can be time-consuming. Besides, employment in Japan involves several formalities. Skuad, as your Employer of Record in Japan, manages all HR activities such as payroll management, recruitment, and compliance management to ensure that you do not have to spend your resources on tasks other than expansion. Its unified and automated platform allows all stakeholders to access data and streamline all internal processes.

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What You Must Know Before Employing in Japan

The primary ambit of labor laws in Japan is the relationship between the employee and the employer. Employees are not defined by nationality but by their relationship with their direct employer. As a result, independent contractors do not count as employees under Japanese labor law.

Several laws in Japan protect employees from discrimination, termination, or unfair practices. Additionally, employees in Japan get generous benefits from the government.

The complex and detailed employment and labor laws of Japan may not be easy to grasp. Partnering with an Employer of Record with rich experience in employing and hiring in Japan will expedite your expansion process with fewer resources. Learn more from Skuad experts.

Some of the provisions of Japan Employment Laws are as follows.

Title Explanation
Labor Standards Act The Labor Standards Act in Japan is one of the primary sources of employment regulations in the country. It defines healthy working conditions in Japan to ensure employees work under proper conditions. Additionally, it sets standards for contracts and the rules of employment in Japan.
Labor Contract Act The Labor Contract Act defines the relationship between employees and employers. It states the principles of agreements for labor contracts, provides reasonable protection to both parties against disobedience of the contract by the other party, and establishes the contract as the primary instrument of the relationship between the two.
Labor Union Act The Labor Union Act provides all workers the right to get together and form groups or labor unions. Its purpose is to elevate the status of unions to that of employers. It allows them to bargain with the employer for most reasons, including better working conditions, better pay, and improved benefits. It promotes the collective action of the unions.
Employment Security Act The Employment Security Act in Japan has several different purposes. Primary among them is the assurance of opportunities for every skilled citizen to gain employment. Employment Security Offices allow people to choose a job as long as it does not interfere with public welfare. Additionally, it protects employees from discrimination based on race, nationality, creed, sex, social status, family origin, previous profession, membership of a labor union, etc.

Timings, Holidays, And Leave Policies In Japan

Entitlements Explanation
Statutory Working Hours 40 hours a week or eight hours a day. However, some businesses are allowed up to 44 hours a week with a maximum of eight hours a day.
Rest Period At least 45 minutes in a day when work is more than six hours, and at least one hour if work exceeds eight hours.
Paid Public Holidays Japan has a significant number of national holidays, all of which are generally available for employees. The national holidays of Japan are as follows.
  • New Year’s Day
  • Coming of Age Day
  • National Foundation Day
  • The Emperor’s Birthday
  • Vernal Equinox Day
  • Showa Day
  • Constitutional Memorial Day
  • Greenery Day
  • Children’s Day
  • Marine Day
  • Health Sports Day
  • Mountain Day
  • Respect for the Aged Day
  • Autumnal Equinox Day
  • Culture Day
  • Labor Thanksgiving Day
Maternity Leave, Paternity Leave, and other leaves Japan has 14 weeks of maternity leave, of which six weeks can be taken before childbirth and eight weeks after the child is born.
Fathers are allowed to take paternity leave for a year, in two installments. The first of these may start within eight weeks of birth.
There is no specific sick leave in Japan. Bereavement or condolence leave is five days.
Annual Leave Entitlement The annual leave entitlement in Japan depends on the number of years that an employee has served. For six months of service, the annual leave entitlement is 10 days, and this increases up to 20 days for 6.5 or more years of service.

Contractors Vs. Full-time Employees

The distinction between independent contractors and employees in Japan is highly subjective. Independent contractors do not typically come under the ambit of employment laws. Japanese courts use several criteria to determine whether an individual is an independent contractor or an employee. Some of the main criteria that help courts to decide whether the employment is contractual or full-time are as follows:

  1. The discretion of refusal or acceptance of a job offer;
  2. The level of freedom the employee has in determining how the service should be performed or offered to the employer;
  3. Whether the individual or firm in question reports directly to the employer or not;
  4. Whether it is the employer or the purported employee who determines the working hours;
  5. Who assumes the responsibility in case of damages.

Employees are granted several protections and benefits under Japanese law, but these benefits do not extend to independent contractors. As a result, while having full-time employees can be financially more taxing for firms, it is much preferred by individuals.

Scope of Negotiating Terms

In Japan, the scope of negotiating the terms of employment has always been limited. The compensation packages and benefits offered to candidates are standard. The same positions will have little to distinguish among them. However, for higher positions, the scope for negotiation can be significantly higher and candidates can often dictate terms. Trust Skuad to take complete charge of your contracts in Japan.

Hiring in Japan

Once the hiring needs are identified, and the job description is put down, employers have to either use an internal team. Those who fulfill all the criteria mentioned in the job description go through an essential background screening before being shortlisted. The shortlisted candidates are interviewed through a series of panels, like technical and HR, to better evaluate their aptitude for the job and analyze if they are a perfect fit for the company and its culture.

After a final evaluation, the most suitable candidates are selected and offered a letter of intent or employment.

Hiring through an employment website, social media posts, or advertisements in Japan has its advantages, such as the availability of many prospective candidates. It takes away the risk of not finding the right candidate or a shortage of talent in the job pool.

On the flip side, organizations may have to go through a tiresome procedure of filtering several applications and selecting prospective candidates who are most suitable for the job offer. It is a challenging process, especially the initial screening. It is impertinent that initial screening is done accurately.

Websites like LinkedIn still have a limited reach in Japan and cannot be the sole platform to source talent, especially if you need talented professionals.

Hiring talented employees in a short span is not easy. Partnering with an Employer of Record like Skuad will prove to be more advantageous than collaborating with hiring companies in Japan because Skuad’s EOR solutions take care of all the compliance and legal issues while helping you speed up hiring using their knowledge of domestic employment practices and virtual onboarding tools.

Not only does Skuad help in quick recruitment, but it assists in other Human Resources-related functions such as payroll management, time and expense management, security and compliance, and tax filing. These features add up to a faster, cheaper, and more seamless experience for the organization and the candidates. Book a Demo to know more.

Probation & Termination

Terminating employees in Japan can often be exceedingly difficult because several reasons and types of elimination, which are permitted in other countries, are not applicable in Japan. It is strictly prohibited to terminate employment contracts due to redundancies. All terminations are considered to be individual, and a robust reason must be given to back up the resignation. Working with an EOR like Skuad helps organizations carry out such actions in compliance with local laws to avoid disputes in the future. Get in touch with Skuad today

EOR Solution

EOR solutions are beneficial in so many ways. If you are looking to free up your time and resources to focus on other aspects of your expansion plans, outsource your human resources requirement in Japan. Skuad’s Japan EOR solution allows for a cost-saving, fast-paced, and smooth expansion without the need for establishing a new entity to handle employee management processes.

You may choose to set up an entity and take up the staffing, employee management, and payroll management activities yourself, but it could be overwhelming and may run the risk of legal hurdles. Why take chances when you can collaborate with a trusted partner and employer of record. Talk to Skuad now.

Outsourcing Employment Through an EOR in Japan

Working with an Employee of Record can save you valuable time that would otherwise go into setting up the entire hiring process, payroll management, tax management, and other such services. Tailor-made contracts for your needs, establishing all processes in compliance with local laws, easy amendment of existing contracts, and convenient e-signing of documents are some additional benefits of working with an EOR of repute such as Skuad.

Types of Visas in Japan

Visa Category Explanation Duration
Working Visa The Working Visa in Japan is meant for professionals such as professors, researchers, artists, etc. It grants the bearer authorization to work in Japan for a fixed period. Between 3 months and 5 years
Highly Skilled Professional Visa This visa is meant for overseas professionals who have highly specialized skills. You cannot get this visa if you do not have either a job or a job offer from an employer in Japan. It provides the bearer certain privileges over the regular work visa that is offered in Japan. 5 years
General Visa The Japanese general visa is meant for visitors who wish to engage in cultural activities in Japan. Before you get the visa, a certificate of eligibility needs to be issued authorizing you to land in Japan. 3 months, 6 months, 1 year, or 3 years
Business Visa A Business Visa can be issued to you if you are visiting Japan for market surveys, conferences, business talks, contract signing, or business liaison. There are certain seniority criteria that you also need to meet to be eligible for a business visa. 90 days

Work Permits

If you are a foreign national who wishes to work in Japan, you cannot do so without a work permit. The work permit needs to be applied by you as well as the employer, who will also need to sponsor it.

Payroll & Taxes in Japan

To set up payrolls in Japan, you have to be aware of the local rules and the acts governing those rules. Knowing your employee profile is of utmost importance since it will help you understand which act you have to refer to.

Taxation is also a necessary process you have to pay special attention to. Here too, working with an EOR will help save time and initial costs so that you can focus on the goals and objectives of the expansion.

Payroll Details

Process Explanation
Tax Identification Number There is no specific Tax Identification Number in Japan, but rather a 12 digit ID known as My Number. This is a multipurpose unique ID that can be used for several purposes, including taxation.
Choosing a Payroll System Payroll systems must be selected, keeping several factors in mind, such as accommodation of benefits like health insurance, the requirements, vision for the business’s growth, etc.
Note Down All Employee Information Basic information, information related to wages, and regular work hours for employees are noted.
Using software or a cloud-based trading service for this step will make it easier to enter and maintain the data.

Taxation in Japan

Tax Explanation
Income Tax applied on an employee’s salary
Up to 1950000 JPY 0%
Between 1950000 JPY and 3300000 JPY 10%
Between 3300000 JPY and 6950000 JPY 20%
Between 6950000 JPY and 9000000 JPY 23%
Between 9000000 JPY and 18000000 JPY 33%
Between 18000000 JPY and 40000000 JPY 40%
Greater than 40000000 JPY 45%
Financial Year End date 31st March
Tax rebate Yes, for employees with Net taxable income less than or equal to 1950000 JPY
Corporate tax The corporate tax rate is 15% if the revenue if up to 4000000 JPY and 23.30% if it is more than 8000000 JPY.
Withholding Tax (For Non-residents) Dividends: 20%
Interest: 15-20% of interest
Rent: 20%
Royalties: 20%
Sales Tax 8%
Employer Contribution Towards Social Security 14.685 - 16.63%
Employees’ Contribution Towards Social Security 14.35 - 15.69%

Incorporation: How to Set Up a Subsidiary in Japan

Setting up a subsidiary in Japan can be a long-winded and often costly process. It is essential to be meticulous when setting up a subsidiary or else the process may get delayed.

The first step when it comes to setting up a subsidiary in Japan is reserving a trading name. You must ensure that your trading name is unique and not owned by another company in the country. In general, you will need to submit several options for approval, out of which the Trade Register will approve one based on your priority.

The next step is preparing the documents of incorporation. For this, you will need legal counsel to draft the articles of association for your company, as well as duly notarize those. In addition, you should provide the details as well as the registration certificate of your company. You will also need to get these documents translated into Japanese, which is a requirement for all foreign entities in Japan.

Next, you will need to open a corporate bank account in Japan. This will be the registered bank account that will contain your share capital. The setup of this account is also subject to certain statutory charges.

Once your bank account has been set up, you can apply with the Japanese tax authorities for social security, employment, and taxation. Once your subsidiary has been duly registered, it is easy to apply for other licenses and permits that are required for activities that are specific to the field that you are operating in.

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Professional Employer Organization (PEO)

A Professional Employer Organization (PEO) provides similar expertise in recruitment, payroll management, benefits management, and employee management. But the key area where it differs from an Employer of Record is that a PEO acts as the co-employer of your company’s employees whereas an EOR acts as a legal employer.

The final decisions in all Human Resource matters fall on the organization when working with a PEO. While this can be beneficial for reviewing every detail, it is also time-consuming, especially when it is in the middle of an expansion.

Skuad’s EOR solutions do not require organizations to form an entity in the country of expansion. Skuad completely takes over the hassles of working through the various stages of documentation and employment contracts.

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Conclusion: What Gives Skuad’s Japan Solutions an Edge?

The most important part of setting up a remote team in Japan is knowing the local laws and how they affect all employment processes. Factors like knowing the laws governing different kinds of employee types, differences in state laws, understanding the Japanese negotiation process, setting up payrolls, and getting through the nuances of taxation can draw out the process of expansion.

However, instead of setting up a new entity and understanding the impact of every law on the employment process, it is much simpler to work with a trusted partner who can take care of your HR needs. It will also ensure that your HR practices are compliant with the local legal system and you are never on the wrong side of the law.

Skuad’s globally distributed teams and experience make it simple to hire exceptional talent in Japan while also managing your payroll, benefits and helping you with compliances and taxation using a Unified Employment Platform. Skuad has managed to build trust among some prominent remote employers and continues to look for ways to make your expansion plans smoother.

Contact Skuad today to give your business expansion plans the boost they need.

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