Japanese Yen (JPY)
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This country guide is for general informational purposes only and should not be construed as legal advice, nor as binding based on your relationship with Lano. When using Lano's solutions, the specifics may depend on your EOR and Payroll setup with our partners. Although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
As the third largest economy in the world, Japan offers internationally operating companies great business perspectives. Providing a first-class technological infrastructure and a high-quality business environment, Japan is the perfect place for companies intending to venture into the Asian market.
Yet recruiting in Japan can be quite hard and challenging. The country’s talent pool is relatively small and the available recruits are often hard to win. However, using an Employer of Record, there is no reason why you should not succeed in finding the right talent for your company.
Although employment agreements do not have to be in writing in order to be legally valid, it is best practice to draft a written employment contract detailing the basic terms of employment such as:
Identification of both parties
Date of commencement and employment duration
Job description, duties and responsibilities
Basic salary as well as other compensation or benefits and payment details
Working hours and regulations on overtime
Total number of holidays
Rules on sick leave
Notice periods for employment termination and necessary procedures
Employment contracts may either be concluded for an indefinite time or for a fixed period. The latter should not exceed three years – five years maximum in case of repeated contract renewal.
New employees are usually subject to a probationary period between three and six months.
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A standard working week in Japan is 40 hours with five eight-hour days. However, working hours can be arranged flexibly as long as the average does not exceed standard working hours.
Employees working for more than six hours a day need to have a rest break of at least 45 minutes – 60 minutes if they work eight or more hours within one day. It is mandatory to give each employee at least one rest day per week.
Overtime work is permitted but must be remunerated by extra pay. According to Japanese law, the first 60 hours of overtime work per month must be paid at a rate of at least 125% of the employee’s usual hourly pay. Any additional hour must be compensated at a rate of 150%.
Additional compensation is also required for exceptional work on days off (35% more), late night work (25% more) and work on public holidays (60% more). However, these regulations do not apply to employees in manager positions.
It is mandatory to pay employees in Japan at least once a month. In most companies, payments are issued at the 25th of each calendar month.
There is no national minimum wage in Japan. Instead, minimum remuneration rates are defined by each region and also differ from one industry to the next. The minimum hourly wage in the prefecture of Tokyo currently (February 2023) stands at JPY 1,072.
As there are no legal provisions or obligations concerning sick pay, it is up to the employer to introduce adequate rules as to how much sick pay employees will receive and for how long sick pay will be provided. Employers also need to define a maximum period during which employees must return to work in order not to be dismissed.
If absence from work is due to a work-related injury, employees are legally entitled to an allowance equaling 60% of their normal wages – paid by the employer.
Annual bonuses are subject to the individual employment agreement.
Employees and employers in Japan are subject to the following tax and social security contribution rates (last review February 2023):
up to 34%
23.2% corporate tax (30% – 34% including local taxes)
10% VAT (national and local rates combined)
up to 45%
Individual income tax rates: 5% – 45% *
plus a 2.1% surtax on income tax due
plus 10% local inhabitant tax
Contributions towards unemployment, health, accident and pension insurance average 16.23%
around 15% of employee’s salary and bonuses
* Read more
* Individual income is taxed progressively based on the following tax brackets (percentage rates given only apply to income exceeding the respective tax bracket threshold):
up to JPY 1,950,000: 5%
JPY 1,950,000 to JPY 3,300,000: JPY 97,500 + 10%
JPY 3,300,000 to JPY 6,950,000: JPY 232,500 + 20%
JPY 6,950,000 to JPY 9,000,000: JPY 962,500 + 23%
JPY 9,000,000 to JPY 18,000,000: JPY 1,434,000 + 33%
JPY 18,000,000 to JPY 40,000,000: JPY 4,404,000 + 40%
above JPY 40,000,000: JPY 13,204,000 + 45%
Please note that the social security contributions indicated above do not necessarily reflect the actual employment costs. These may differ depending on the employment contract and due to other factors (e.g. 13th and 14th salary, health insurance allowances, accrual for severance pay, etc.).
Employees who have completed at least six months of service with their employer and who have not been absent from work for more than 20% of their scheduled working hours during the previous year are entitled to annual leave. However, the number of paid vacation days depends on the employee’s length of service:
six months – 10 days of paid leave
one and a half year – 11 days of paid leave
two and a half years – 12 days of paid leave
three and a half years – 14 days of paid leave
four and a half years – 16 days of paid leave
five and a half years – 18 days of paid leave
more than six and a half years – 20 days of paid leave
In addition, there are 16 public holidays in Japan. However, employers can decide whether or not to pay their employees on those additional days off.
Pregnant employees are allowed to take up to 14 weeks of maternity leave, six weeks before and eight weeks after giving birth. There is no obligation for employers to provide pay during this time since benefits are paid by the employer health insurance. The benefits are equal to two thirds of the employee's normal wages.
A new law entered into force in October 2022 which grants fathers of newborn children the right to take up to 4 weeks of paid paternity leave within the first 8 weeks after birth. During this time, the father is entitled to the same benefits as the child's mother, i.e. 67% of the usual salary. The leave period can be split in two.
Both mother and father can take childcare leave until the child turns one. Under certain circumstances, the leave can be extended beyond the child's first birthday. Similar to paternity leave, parental leave can be taken in two instalments - previously, it was only one. Parental leave is paid by the government.
All employees who have been working for an employer for more than one year and who are responsible for another family member who is in need of constant nursing are entitled to 93 days of unpaid nursing care leave and five days of leave per year to look after a sick child. Depending on the company policies, additional leave may be granted on occasions such as marriage or death of a family member.
In addition to employment termination by default – i.e. in case of a fixed-term contract – resignation and mutual agreement, Japanese labour law recognises the following reasons for dismissal (non-exhaustive list):
redundancy or any other reason related to the business’ economic situation
breach of employment agreement or any other rules and obligations linked to the job position
summary dismissal due to gross misconduct
employee’s underperformance or inability to carry out the necessary tasks
employee’s long-term illness
When dismissing an employee, employers have to give at least 30 days of notice, regardless of the employee’s length of service – not applicable during the employee’s first two weeks at the company. Pay in lieu of notice is possible. There is no legal obligation for employers to provide severance pay.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
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