Podcast — 27 min
Hiring employees from Japan is a great way to add diverse talent to your team, especially if you want to expand operations in Asia. The country’s robust economy, low unemployment rates, and highly talented workforce make it a favorable destination to do business.
However, while hiring in Japan or beyond, you’ll have to make sure you comply with local tax and employment laws. Japanese labor laws can be highly complex, and you’ll have to develop a good understanding of tax and compliance practices.
Any violations of Japanese labor laws can pose a significant risk to your business and may carry hefty fines and punishments. Although hiring remote employees in Japan can sound intimidating, it doesn’t have to be. A global employment service like Remote can make this process easier for you by helping you comply with Japanese laws.
This helpful guide will give you an overview of employment law in Japan, and explain how you can use Remote’s global employment services to help you compliantly grow your business globally.
To ensure your company remains compliant with the labor laws in Japan, you'll have to familiarize yourself with relevant employment laws. Japanese employees are protected under three primary acts (although several other acts also impact various aspects of hiring in the country):
The Labor Standards ACT (LSA): The Act dictates the general laws regarding employee rights in Japan such as minimum wage, discrimination laws, paid time off entitlements, and more.
The Labor Union Act (LUA): The Act protects employees' rights to unionize and establishes a baseline for working conditions in Japan, through which employees can demand that employers meet specific demands regarding collective bargaining of labor.
The Labor Relations Adjustment Law (LRAL): The Act (which works together with the LUA) provides a framework through which employers and employees can settle labor disputes.
Except for the minimum wage requirements, which vary regionally, employment laws in Japan are established on a national level and protected under the above legislation.
Any company that wishes to hire employees in Japan must either establish a legal entity in the country or use a global employment partner like Remote. Below is an overview of the three primary methods that employers use when hiring employees living in foreign countries:
Establish a local entity. The first option requires you to establish your own local entity in Japan. Not only does this take significant resources, time, and local expertise, but your hiring team will be solely responsible for ensuring compliance. Nevertheless, establishing a local entity can benefit companies that plan to hire an entire team in Japan or operate there in the long term.
Partner with a professional employer organization (PEO). This option still requires you to establish a local entity in Japan, but you can then enter a co-employment arrangement with the PEO you partner with. This means they can still manage many aspects of international hiring like onboarding, payroll, benefits, etc., but they do not take on all responsibility for you. This option is beneficial if you plan to hire a large team in Japan and want to possess expert knowledge of the local labor regulations to ensure compliance, but don't want to deal with the administrative processes of hiring employees living there.
Partner with an employer of record (EOR). When you partner with an EOR like Remote, you can quickly and compliantly grow your team abroad. Using Remote’s global employment services means you do not have to establish a local entity in Japan. Remote will hire, pay, and manage employees on your behalf.
When you work with Remote, you can get access to the knowledge of a team of specialists who have localized experience dealing with employment law in Japan. This means Remote will help you navigate all national and regional employment laws, so you don’t have to worry about staying compliant and keeping up-to-date with evolving labor laws.
Use Remote's free employee cost calculator to understand the cost of hiring employees in Japan and globally. Our easy-to-use tool gives you a breakdown of what it can cost to hire in Japan, including statutory benefits and contributions, making it easy for you to budget and plan for your global hires.
It's essential to remember that regardless of where your business is located, employees are protected under the laws and regulations that exist in their country of residence. When you’re hiring employees in Japan, you’ll have to pay attention to the statutory rights of employees in the country.
Minimum wage rates in Japan vary across prefectures, which are divided into three categories (Category A, Category B, and Category C). Category A prefectures, include big cities like Tokyo and Osaka, have higher minimum wages. The country's minimum wage ranges from JPY 790 per hour to JPY 1,113 per hour, depending on the region.
In Japan, the workweek typically lasts for five days, with work days lasting eight hours. Therefore, anything beyond 40 hours per week qualifies an employee for overtime pay. However, employees have a monthly cap on overtime, which cannot exceed 45 hours.
Overtime rates in Japan are awarded as follows:
Standard overtime rate: Additional 25% per hour
Late-night overtime rate: Additional 50% per hour
Holiday overtime rate: Additional 35% per hour
Late-night holiday overtime rate: Additional 60% per hour
Employers in Japan can establish a probation period, during which time they can assess whether an employee is a good fit. The probation period in Japan can last between three and six months.
Employees in Japan are protected from discrimination, as specified in various anti-discrimination laws. The protected attributes include the following:
Individuals on nursing leave
Individuals on childcare leave
Employees in Japan are entitled to union rights under the Labor Union Act.
As a result of legal unionization in Japan, it is common for employers to enter into collective bargaining agreements with their employees.
Employee drug screening is uncommon in Japan, and employers are not legally entitled to require it. However, an employer can request and receive a drug test in the following circumstances:
The employee consents to the drug test.
The employee's fundamental right to privacy is respected.
The employee's position within the company necessitates the drug test be conducted.
Employers are required to opt into worker's accident insurance for every employee. If a work-related accident takes place, employees can receive coverage of the following benefits:
Paid leave time
Compensation if an employee is disabled as a result of an accident at work
Family compensation if an employee dies as a result of an accident at work
Continued supportive care
In addition to the above statutory employment rights, employers should be prepared to comply with country-specific considerations while hiring remote employees abroad. Here are some points to consider before hiring in Japan.
Japan's time zone means the working hours for employees living there may differ significantly from other areas. The time difference among team members may disrupt normal business, including project delivery and communication delays.
Most people in Japan speak Japanese. Although candidates may also speak other languages, employers should be prepared for potential language barriers.
Employers will be expected to adhere to the country's seniority wage structure, which ensures employees' wages rise in accordance with their tenure at your company.
In addition to complying with the offboarding procedures dictated in the employment contract, you will need to comply with Japanese employment laws when terminating employment contracts.
Consider the following regulations regarding employee offboarding in Japan.
At-will employment does not exist in Japan. This means an employer must have a reason to terminate an employment contract. The following reasons entitle employers to end a working relationship with an employee:
An employee’s physical inability to perform their essential job duties due to illness or disability, etc.
An employee is not adequately performing their job duties or willingly violates company policy.
An employment contract is terminated due to redundancies. The following events allow termination in this case:
Your company is facing financial hardship and must reduce staff size.
Your company must be discriminating in choosing which employees are terminated.
Your company adheres to all legally protected notification and severance requirements.
In addition to meeting the above requirements to terminate an employee in Japan legally, employers are expected to provide employees with a minimum of 30 days' notice when terminating their contract, unless otherwise stated in the employment contract.
This notice period is waived if the employee is dismissed due to unacceptable behavior. In addition, employees can choose to waive this notice period but must provide employees with 30 days of pay in lieu of notification.
Terminated employees are not entitled to severance pay in Japan (except the 30-day notice pay). Any severance pay offered is at the employer's discretion. Only resigned employees are entitled to a severance package.
Accidental misclassification of employees as independent contractors is one of the most significant risk areas for international employers. What defines an employment relationship varies by country, and a worker you may consider an independent contractor per your country's guidelines may actually be considered an employee in Japan.
Consider the following clarifications regarding what differentiates an independent contractor from an employee in Japan.
In Japan, the Labor Standards Act (LSA) defines what differentiates an employee from an independent contractor. According to Japanese regulations, the type of employment relationship that a company enters with a worker is dependent on several factors, including:
Whether or not the worker has control over the projects they choose to complete
Whether or not the worker has a fixed schedule
Whether or not the worker is required to follow specific employer protocols
Whether or not the worker is compensated based on the completion of work
Whether or not the worker can delegate their work to others
The primary consideration that benefits employers when partnering with independent contractors in Japan is that the workers are not entitled to the same statutory benefits as employees.
This means employers will not be expected to enter into employment contracts or abide by the employee protections in the LSA. However, it also means employers do not have control over when and how the worker completes their assignments, so the working arrangement is mutually limited.
Employers may hire employees living in Japan under a fixed-term contract. A fixed-term contract denotes a clear starting and ending date for an employee, so although the employee is entitled to the same benefits as any other employee, the employer has more opportunities to dismiss the employee without repercussions.
However, employers should consider that fixed-term employees in Japan are being given more rights, and employers will need to remain compliant with all relevant employment laws that protect fixed-term employees, including:
Paid severance if a contract is terminated early
Paid time off after a certain period of employment
Social security contributions after a certain period of employment
Misclassifying employees as independent contractors in Japan can pose significant risks to your business. The employer may owe the employee considerable back taxes and face further legal consequences.
Consider some of the maximum penalties that employers in Japan face when misclassifying employees:
Criminal penalties resulting from employee misclassification may result in a fine of JPY 300,000 and/or imprisonment of up to six months.
Tax penalties resulting from employee misclassification may result in penalty taxes of up to 10%, including additional interest.
Social security penalties resulting from employee misclassification may result in a fine of JPY 500,000 and/or imprisonment of up to six months.
In addition to these financial repercussions, individuals may be subject to short-term imprisonment.
Employee misclassification should be taken very seriously. The best way to avoid misclassification risks is to work with a global employment partner who can correctly classify employees and promote compliance.
For more information on the potential penalties that may result from misclassifying international employees, read Remote's employee misclassification guide.
Hiring remote employees in Japan can add diversity and talent to your business and help your organization grow internationally. However, without the regional expertise to help you navigate tax and labor laws, hiring abroad can be challenging and risky.
When hiring in Japan, you’ll have to:
Decide between establishing a local entity or partnering with a professional employment organization (PEO) or an employer of record (EOR) to hire and pay your team.
Familiarize yourself with employment laws, tax practices, and regulations.
Comply with statutory employment requirements regarding standard working hours, minimum wages, paid time off, and overtime.
Ensure you don't misclassify employees living in Japan as independent contractors.
But international hiring does not have to be a hassle as long as you partner with a global employment partner like Remote to easily manage and scale your international team.
Remote’s team of employment experts will ensure you remain compliant with local regulations at all times. In addition, Remote can handle all administrative aspects of global hiring for both employees and independent contractors, including onboarding, taxes, benefits, payroll, employee offboarding, and more.
To help you understand how much it’s going to cost to hire a full-time employee in Japan, check out our free Employee Cost Calculator. For further information about employment in Japan, take a look at our Country Explorer page.
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