Employment Law

Types of Japanese Employment Contracts

Although Japanese law does not dictate the exact format of an employment contract, employers should draft written contracts for all work arrangements. The contract should provide employees with the terms and conditions relevant to their job role. Employers can satisfy these requirements by providing employees with a written employment contract and/or a copy of the company's "work rules" (shuugyou kisoku).

In Japan, the best practice for employers is to draft a written employment contract that clearly sets out the terms of employment. This should include employee pay, benefits, responsibilities, and termination rules. Any offer letter or employment contract should state salary and benefits in Japanese yen rather than in foreign currency.

Fixed Term

Indefinite

Working Hours in Japan

In Japan, the standard working week is from Monday to Friday. Each day is usually 8 hours, with a total limit of 40 hours per week. For full-time employees, these are normal working hours, unless otherwise agreed with a trade union or local employee representative. The work agreement must clearly state the maximum number of hours to which overtime is applicable.

The minimum overtime pay is as follows:

• Standard overtime pay is 125% of hourly wage
• If you work on designated rest days, overtime pay is 135% of the hourly wage.
• Late night overtime – between 10pm and 5am – the overtime rate is 150% of the hourly wage
• If you work overtime late at night on a holiday, the overtime rate is 160% of the hourly wage.
• If the overtime hours exceed 60 hours per month, the overtime rate is 150% of the hourly wage.
• If you work more than 60 hours of overtime late at night every month, the overtime rate is 175% of the hourly wage.

Small and medium-sized enterprises can be exempted from the last two overtime wages mentioned above. Additionally, employees who hold managerial or supervisory positions are generally exempt from such overtime pay.

Please note that in addition to these overtime pay requirements, there are strict limits on the amount of overtime allowed. As of 2019 (large employers) and 2020 (small businesses), the "base limit rule" is 45 hours of overtime per month, or 360 hours per year.

There is also an "extended limit rule" that stipulates that in special circumstances (such as unexpected orders), the basic limit rule can be violated. However, in this case, there is still a limit of 100 hours per month, up to a maximum of 720 hours per year.

Japan’s Mandatory Social Security Contributions

Income Tax

Employment income in Japan is subject to federal income tax as well as "local residence tax." State tax rates generally have relatively progressive rates based on the amount of income. Local resident tax is levied at a uniform rate stipulated in the local area.

Health Insurance

Japan has a national universal healthcare system. Through this system, employees generally receive four standard types of coverage:

• Health insurance
• Welfare pension insurance
• workers compensation
• unemployment insurance

Holiday Policy

Take a Vacation

Employees who have worked for the company for more than six months are entitled to at least 10 days of paid annual leave. This number increases by one day each year for the next two years of service. Each year thereafter, annual leave is increased by two days - up to a maximum of 20 days per year. Unused annual leave will expire after two years.

Sick Leave

In Japan, employers are generally not required to provide paid leave to employees who are absent from work due to illness or injury. However, there are exceptions to this rule if the employment contract expressly provides otherwise.

Maternity and Parental Leave

In Japan, female employees are entitled to maternity leave within six weeks of the expected date of delivery and eight weeks after delivery. Female employees are not allowed to return to work within eight weeks of giving birth - unless they meet the following criteria:

• The employee wants to return to work six weeks postpartum instead of eight weeks.
• Any return to work has been cleared by a doctor to cause no medical problems.

Unless otherwise stipulated in the employment contract, the employer does not require employees to pay maternity leave.

Employees in Japan are eligible for family care leave - up to 93 days per family member. Family care leave is unpaid unless provided for in your contract or work rules.

Employees are also eligible for parental leave during the period at the end of maternity leave and on the day before the child turns one. In some cases, this period can be extended until the child is one and a half years old.

Parental leave benefits:

1) One-time maternity subsidy 420,000 yen

2) Exemption from social insurance premiums

3) Maternity allowance: approximately 2-3 months’ salary during maternity leave

4) Childcare leave benefits: approximately 2-3 months’ salary during childcare leave

Termination and Severance

Japan's dismissal laws provide employees with a large degree of legal protection. It is extremely difficult for an employer to fire an employee working in Japan. Therefore, there are some limitations on the definition of “reasonable termination”. Depending on the country's local laws, dismissal may even be considered an abuse of employee rights.

Over the past few decades, employers have faced challenges in successfully proving valid legal grounds for dismissal. Exceptions to this rule include situations where an employee has committed a crime or violation of the law, such as theft, violence, excessive insubordination, dishonesty about his or her professional qualifications, or persistent poor performance on the job.  

It is a tradition in Japanese business culture to give underperforming employees a probation period of 3 to 6 months. If employees continue to perform poorly or fail to meet the company's expectations, they can be fired, which is not considered unacceptable under Japanese law.

The law requires employers to provide employees with at least 30 days' notice of termination. This provision is usually included in the "work rules" provided to employees at the time of hire.

Salary and Benefits

Japan Compensation Law

Compensation laws in Japan vary by city and region. For example, Tokyo’s minimum wage is the highest in the country – 958 yen. In Japan, employees are paid monthly rather than weekly or biweekly. Although workers are rewarded based on length of service, wages typically start at a lower level. Promotions are usually based on a combination of experience and ability. Unlike many Asian countries, Japan does not have a mandatory 13-month bonus. However, sales associates have the opportunity to earn commissions similar to those in the United States.

Japan’s Welfare Guarantee

Since starting salaries in Japan are quite low, employers often rely on additional benefits to attract prospective employees. Benefits in Japan include 10 days of paid annual leave after six months of employment with the company. Over the next two years, employees will be able to take an additional day off each year. This will continue every year thereafter until they reach the maximum of 20 days of paid annual leave.

Under Japan's social security system, employees can enjoy high-quality medical insurance. Therefore, many employers do not offer supplemental health benefits.

Japanese employment laws require employers to provide annual physical examinations to all employees. This could be extended to a "stress check" if relevant to the nature of the job. It is recommended that employers allocate 10% to 15% of their budget to benefits based on employee salaries.

Japan Welfare Management

For employers who manage their own benefits, it is important to understand Japan's security benefits and the recognized "norms". Employers should first research what other businesses offer their employees. Based on this research, employers can decide what is best for their business. However, it should be acknowledged that this process often requires significant time and travel to Japan.

Alternatively, employers may choose to work with a benefits outsourcing company. By working with a company that has experience administering benefits in Japan, the process can be made easier.

Benefits and Compensation Limitations

Since compensation laws in Japan vary from city to city, it is critical for employers to understand the latest regulations in their area. Additionally, employers must comply with Japanese tax laws to avoid fines and penalties.

Japan also has strict maternity leave restrictions. Female employees are entitled to maternity leave within six weeks of the expected date of delivery and then eight weeks after the birth. Women are prohibited from returning to work within eight weeks of giving birth unless they meet the following criteria:

The female employee wishes to return to work at least six weeks after giving birth.The female employee has a medical certificate stating that returning to work will not cause health problems.

Rather than trying to handle Japan's benefits administration alone, it's worth working with Remoly. We ensure that all employees receive adequate benefits and that your business remains compliant with Japanese employment laws.