Payroll in Japan
Hiring employees or contractors in Japan can initially feel like a daunting prospect. While there are plenty of reasons you would want to carry out business in Japan, there is a lot you need to understand about how the payroll works within the country.
You may know your own country's labor laws and tax rules like the back of your hand, but can the same be said for those in Japan?
To save yourself the stress and headache of figuring it all out by yourself, opting for payroll services with an experienced payroll company — like Skuad — will take the guesswork out of expanding your business.
Let’s take a deeper dive into payroll in Japan and see how Skuad can help your business.
What does payroll in Japan involve?
When you employ workers in Japan, you’ll need to follow the country’s specific payroll process. How you set up your payroll, however, will depend entirely on your corporate structure. This will most likely be one of the following:
- Godo-Kaisha: Similar to a US LLC
- Goshi-Kaisha: A limited partnership company
- Gomei-Kaisha: A general partnership company
- Kabushiki-Kaisha: The Japanese version of incorporation
Before setting up payroll in Japan, your business would also have to set up bank accounts within the country, which is to be expected. You’ll then move through the process of completing several payroll registrations. You’ll also be required to register for the following:
- Withholding tax
- Social insurance
- National labor insurance
While these are specific to Japan, you’ll also have to go through the standard procedures that are required in any country you choose to employ in. These standard payroll processes include:
- Collecting starter information from your employee
- Calculating your employee’s gross pay, which is how much they earn in a month based on their rate of pay and hours worked
- Calculating their net pay, which is how much your employee’s earnings are once you’ve deducted things like social insurance and contributions, tax, and benefits
- Paying your employees, which means you’ll have to provide them with a payslip for their records and keep payroll records of your own
- Transferring deductions to the proper authorities, as you will be responsible for paying tax, social contributions, and benefits on behalf of your employees
Now, while this payroll process comes as standard for most countries, once you learn more about Japanese labor laws and work culture, you’ll find that the process is actually much more involved.
For example, aside from having to tailor your payroll process according to your Japanese business structure, you’ll also need to be aware of the payroll cycle and the 13th and 14th month salaries. Yes, two extra. These are the customary bonuses paid out in the summer and winner. Just for the record, the Japanese payroll cycle is generated monthly with payments made on the 25th.
You probably weren’t expecting that, which is why you’ll want to do your due diligence in regard to Japan’s payroll requirements.
Before you start on your homework, keep in mind that Skuad can take care of all the things you weren’t expecting when it comes to payroll in Japan.
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What do you need to know about payroll in Japan?
Well, there’s your standard info such as working hours, holidays, and paid leave. Then, there’s the more intricate areas such as benefits and employee termination.
Here’s a quick overview:
Minimum wage and currency in Japan
Japan’s national minimum wage will differ slightly based on prefecture (Japan is divided into 47 geographical jurisdictions), and Japanese employees are paid in yen (¥). If we consider the bigger cities, the minimum wage is ¥985 in Tokyo, ¥936 in Osaka, and ¥882 in Kyoto.
Typical working hours in Japan
The standard working hours in Japan are eight hours per day averaging out to 40 hours per week.
The average workday in Japan starts at 8:30 a.m. and ends at 7 p.m., usually with a one-hour lunch break. However, times may vary from 9 a.m. to 5 or 6 p.m. It’s also not uncommon for workers to continue working until much later, sometimes until 9 or 10 p.m.
Overtime rules in Japan
Employees must receive overtime pay if they accumulate more than 40 standard hours a week unless they work in a management position. It is not uncommon for Japanese companies to expect and mandate a certain amount of overtime hours for their employees.
However, employers in the country that intend to have their workers commit to overtime on a regular basis must have a written agreement between management and the employee. This agreement is referred to as “article 36,” and the employer is expected to submit it to Japan’s Labor Standards Inspection Office.
When an employee is asked to work overtime or work on holidays, the maximum of overtime hours they may work is five hours per day. This equates to 45 hours per month and 365 hours per year and overtime pay is calculated as follows:
- Overtime: additional 25.00%
- Night-time: additional 25.00%
- Weekends and Holidays: Additional 35.00%
- Night-time (continuing from overtime): additional 50.00%
- Holiday (continuing from night-time): additional 60.00%
Minimum wage requirements in Japan
Japan’s minimum wage is government-mandated, and as previously stated varies by the prefecture. Wages must be paid on a monthly basis, and employers must pay their minimum wage workers a yearly salary of ¥1,334,566.84.
Japanese workers are also rewarded based on seniority, with promotions being attributed to experience and ability.
Severance pay in Japan
In Japan, there are no statutory severance pay regulations. Therefore, it’s not mandatory for most companies to provide a severance pay package for their Japanese workers — although offering severance pay does make for an alluring benefits package.
When an employee in Japan is terminated, however, the Labor Standards Act does require that the employer pay any wages due within seven days of termination.
Want to learn more about what’s expected of your business overseas? Speak to a member of the Skuad team today.
Japan’s payroll tax and deductions
Japan has an income tax system that combines a self-assessment system with a withholding system that requires employers to withhold certain amounts based on how a Japanese citizen is classified, i.e. permanent, non-permanent, or non-resident.
Most importantly, Japan’s social security law requires that contributions be made to the National Social and Labor Insurance systems for health, welfare, and labor insurance.
The typical rates for these withholdings are:
- Employee Social Security: 15.28%
- Employer Social Security: 16.24%
Employee paid-time-off in Japan
Paid leave in Japan depends on the employment contract as well as the total years of employment. The standard amount of paid leave for employees in Japan are as followings:
- Six months of service entitles employees to 10 days of paid leave
- Up to one and a half years of service entitles employees to 11 days
- Up to two and a half years of service entitles employees to 12 days
- Up to three and a half years of service entitles employees to 14 days
- Up to four and a half years of service entitles employees to 16 days
- Up to five and a half years of service entitles employees to 18 days
- Up to six and a half years of service entitles employees to 20 days of paid leave
Additionally, there are 16 public holidays observed in Japan. While there are no legal requirements for employers to pay for paid time off on these days, it’s still very common practice to grant paid leave on these days.
Sick leave is also not mandatory in Japan, however, some companies create their own sick leave policies and employees will either use their holiday leave to cover sick days or use their social insurance.
Payroll providers in Japan: how to get started with building your team
Once you’ve decided to hire Japanese employees, there are a few ways to go about the payroll process. However, the most straightforward way that will guarantee 100% compliance is by choosing a better payroll solution in Japan.
When it comes to payroll outsourcing in Japan, you’ll want to go with a solution that can act as your dedicated HR team as well as a payroll company, like Skuad.
When you partner with Skuad you’ll reap the following benefits:
- A simplified workflow. You’ll get an international payroll system and team on one intuitive dashboard — right at your fingertips
- 100% compliance. Here at Skuad, our team consists of both payroll and global law experts that know exactly how Japan’s labor laws work. We’ll make sure you stay up to date and remain compliant at all times
- A better experience for your Japanese employees. We don’t just specialize in payroll. We’ll also work with you to put together the best benefits package possible as well as a first-class onboarding experience for your employees
- Flexibility. Here at Skuad, we provide payroll services for 160 different countries — that means you can use us to build a global workforce with fewer boundaries.
Are you ready to start hiring in Japan and everywhere else? Book a free demo today to see how Skuad can get you there.