Japan

Employer Of Record in Japan

As the third-largest economy in the world, Japan has long been targeted by organizations for global expansion. 

After all, with so many advantages, such as the perfect location for trade, technological advancements, and immense market potential, who would not want to expand their business in this country?

Consider this as an example. The Japanese government established ‘Invest Japan Business Support Centers (IBSCs)’ to promote FDI within JETRO (Japan External Trade Organization). 

Their primary goal is to support foreign and foreign-affiliated companies entering the Japanese market and establishing their bases after they come to Japan. 

Japan at a Glance

Estimated Population: 122.6 million

Currency: JPY Japanese Yen

Capital: Tokyo

Languages frequently used: Japanese

GDP: USD 4.26 trillion

Additionally, Japan is home to high-growth industries, such as e-commerce and digital platforms, gaming and digital entertainment, personal finance, and fintech. 

Despite these advantages, hiring in Japan can be immensely challenging without the proper guidance. 

Setting up a subsidiary in Japan can be time-consuming. Besides, employment in Japan involves several formalities and compliance with Japan labor laws and tax regulations. 

You need a robust partner who will deal with all these issues while you focus on how to grow your business better in such a foreign country. 

And that is precisely what an employer of record in Japan does. 

Skuad, as your Employer of Record company in Japan, manages all HR activities, such as payroll management, recruitment, and compliance management, to ensure you do not have to spend your resources on tasks other than expansion. 

Its unified and has an automated payroll platform that features various useful tools, such as an employee cost calculator for hiring expense estimates. It allows all stakeholders to access data and streamline all internal processes.

Hire Employees in Japan

You can hire employees in Japan by following any one of the below-mentioned methods,

• Direct hiring: setting up a subsidiary
• Hiring with an employer of record in Japan, such as Skuad. 

Direct Hiring: Setting Up A Subsidiary

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 the process may get delayed.

The first step in 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 incorporation documents. For this, you will need legal counsel to draft the articles of association for your company and duly notarize those. 

In addition, you should provide the details as well as your company's registration certificate. 

You will also need to translate these documents into Japanese, which is required 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 to 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 required for activities specific to your field of operation.

Moving on, you can now proceed with hiring in Japan. 

Once the hiring needs are identified and the job description is put down, employers must use an internal team. 

Those who fulfill all the criteria mentioned in the job description undergo an essential background screening before being shortlisted. 

The shortlisted candidates are interviewed through a series of panels, like technical and HR, to evaluate their aptitude for the job better 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 advantages, such as the availability of many prospective candidates.

It also eliminates 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 endure the tiresome procedure of filtering several applications and selecting prospective candidates who are most suitable for the job offer. This process is challenging, especially the initial screening, which is imperative that it be 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 Employees Via EOR Solutions in Japan: Skuad

A simple and effective way to hire a foreign employee without a subsidiary is to partner with EOR services in Japan, like Skuad. 

EOR solutions are beneficial in many ways. If you want to free up your time and resources to focus on other aspects of your expansion plans, outsource your human resources requirements to Japan.

Skuad’s Japan EOR solution allows for cost-saving, fast-paced, and smooth expansion without the need to establish a new entity to handle employee management processes.

It handles all the compliance and legal issues while helping you speed up hiring using its knowledge of domestic employment practices and virtual onboarding tools.

Skuad not only helps with quick recruitment but also 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 learn more.

Onboarding and Agreements

Employee onboarding entails all the measures taken to incorporate new employees into an organization, familiarize them with the company’s culture, and turn them into productive and efficient team members. 

The process begins with drafting a written formal agreement, known as the employment contract. Under the Japan employment law, an employment contract must include the following conditions: 

• Places of employment and contents of duties
• Start and finish times, breaks, day offs, and shift arrangements
• Methods of determining, calculating, and paying wages.
• Closing day of the payroll period
• Matters about wage raises
• Terms and conditions related to retirement and dismissal. 

Depending on your business's needs, you can use any of the following types of employment agreements in Japan. 

• Permanent employees: These individuals are usually hired for the long term and enjoy several benefits, such as job security and a higher average wage in Japan.

• Contract employees: The typical duration of agreed-upon contract employees is three to 12 months. Individuals generally enjoy the same rights and benefits as permanent employees, such as paid leave and, most importantly, the right not to be fired without reason. Additionally, contract employees need to be provided with the option of enrolling in the social security system.

• Temporary Employees: Commonly referred to as ‘haken’ in Japan, temporary employees are those individuals who are not directly hired but rather sent to companies by the dispatch agency they are employed by. Such agreements are usually temporary, lasting for three to six months, with a possibility of renewal.

Once you have completed the necessary paperwork for the new hire, you can proceed with the other crucial steps of the employee onboarding process, which can be categorized into two main stages.

Taxes

Below is a detailed overview of taxation requirements in Japan from both employers' and employees’ perspectives.

Compliance

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 are not counted 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.

Japan's complex and detailed employment and labor laws 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's Employment Laws are as follows:

Independent Contractors vs. Full-Time Employees

The distinction between independent contractors and employees in Japan is highly subjective. Independent contractors do not typically fall under 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?

Under Japanese law, employees are granted several protections and benefits, 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.

Fines/Penalties for Worker Misclassification

If an employer fails to classify workers correctly (whether done intentionally or not), they will be charged with severe penalties and fines under the labor laws of Japan. A few examples of such legal consequences include,

• Fines of up to JPY 300,000 and imprisonment of up to six months.
• A penalty tax at a 10% rate.
• Social security fines of up to JPY 500,000 and/or imprisonment of up to six months.

To avoid worker misclassification, it is always advisable to work with Japan EOR solutions, such as Skuad. 

These solutions can save you valuable time that would otherwise go into setting up the entire hiring process, payroll management, tax management, and other services. 

Working with an EOR of repute such as Skuad offers additional benefits such as 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.

IP Protection 

When it comes to intellectual property rights and regulations, Japan has a well-established legal framework. Some of the key laws governing IP in Japan include,

• Patent Act: This act governs the registration and protection of patents in Japan. It highlights the various requirements for obtaining patents in Japan and defines the scope of protection.
• Utility Model Act: It offers guidelines for protecting smaller inventions that may not qualify for patent protection. These include tools and household appliances.
• Designs Act: It is the primary law that oversees the registration and protection of designs in Japan.
• Trademark Act: It sets out all the rules and regulations related to registering and protecting trademarks in Japan.
• Copyright Act: Under this Act, all original works of authorship, such as literature, music, or art, are protected in Japan. 
• Unfair Competition Prevention Act: This is the primary regulation that offers protection against unfair business practices, such as passing off or misinterpreting goods and services. 

In addition to these laws, Japan is also a signatory to various international treaties that regulate the protection of intellectual property rights. 

These include the Paris Convention for the Protection of Intellectual Property and the Berne Convention for the Protection of Literary and Artistic Works.

Types Of Visas In Japan

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

To set up payroll in Japan, you must 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 need to refer to.

Payroll Details

There are various ways you pay employees in Japan.

You may choose to pay them directly via bank transfers or checks.

However, setting up a payroll system through an EOR, like Skuad, is an efficient way to pay employees.

Benefits and Compensation

The National Health Insurance (Kokuho) is the primary health insurance policy offered to both residents and foreign nationals who have stayed for more than three months in Japan. 

Under this scheme, all individuals are entitled to medical treatment for sickness and injuries. 

Japanese nationals pay insurance premiums, which are calculated based on their income in the previous fiscal year.

In addition to this, employees are entitled to Japanese retirement benefits, which are covered under the multi-tiered pension system. 

It typically consists of a basic pension (public), which is a non-income-related pension scheme, and participation is mandatory for all residents. 

The second tier covers most of the employees and provides income-related payments. The third tier is an optional scheme for larger pensions.

Worker Rights

Moving on, you, as an employer, need to understand a few other terms and conditions of employment when hiring in Japan. They include,

Standard Work Hours in Japan

The statutory work hours in Japan are forty hours a week or eight hours a day. 

However, some businesses are allowed up to 44 hours a week with a maximum of eight daily hours.

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.

Minimum Wage

If you’re wondering ‘what is minimum wage in Japan’, there’s no straight answer. The Japanese minimum salary usually differs based on prefectures and industries. 

For example, the current minimum salary in Tokyo is set at ¥1,163, whereas the minimum wage in Ishikawa is ¥984.

Probation Period

In Japan, it is common for most companies to set a probationary period ranging from three to six months for new hires. 

Anti-Discrimination Laws/Acts

Various laws and provisions in Japan forbid any form of workplace discrimination based on gender, nationality, social status, and age, among other factors. 

These include,

• The Labor Standards Act
• The Equal Opportunity Act
• The Child Care and Nursing Care Act
• The Employment Measures Act (1966)
• The Labor Union Act
• The Act on Promotion of Employment of Persons with Disabilities (1960)

Health and Safety Acts/Laws

The Japanese Industrial Safety and Health Act, enacted in 1972, is the primary law governing all workplace safety and health issues and facilitating the establishment of a comfortable working environment.

Remote & Hybrid Work

Remote work readiness is a key component of hiring in Japan. It means how well your organization, including all employees and team members, can maintain productivity while engaging in work outside of a traditional office setting.

Several factors determine a company's remote and hybrid work readiness. They include,

• Flexible Work Policies

Make sure that your company's existing work policies highlight clarity, relevance, and effectiveness. They must target some of the key areas of remote and hybrid work, including performance evaluation, communication expectations, and time management. 

• Technology and Infrastructure

Invest in proper technology and infrastructure to amplify remote work readiness at your organization. These include a stable internet connection, proper communication platforms and software, and hardware, such as laptops and mobile devices. 

• Data Privacy and Security

Implementing robust cybersecurity policies to safeguard your business’s sensitive data is extremely important, especially in a remote and hybrid work environment. This will also allow you to comply with all the data protection laws and regulations in Japan, thereby reducing the risk of potential legal challenges.

Salary

The typical Japanese salary usually differs based on various factors, such as the location of work, the organization, the nature of work, the type of industry or even the experience level of the candidates. 

When hiring in Japan, it is always advisable to learn about the latest salary trends for your business's particular industry. 

This allows you to ensure that you offer your employees the most competitive and, more importantly, fair compensation packages. 

To help you in this process, Skuad presents its salary insights tool, which allows you to unlock critical compensation data and learn about all the essentials of salary comparisons.

Additionally, remember to thoroughly understand the tax regulations in Japan and ensure 100% compliance with the country's minimum wage requirements.

Scope of Negotiating Terms

In Japan, the scope of negotiating employment terms has always been limited. The compensation packages and benefits offered to candidates are standard. 

The exact 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.

Leave Policy

Let’s take a look at the leave entitlements of employees in Japan. 

Annual Paid Leave

The annual leave entitlement in Japan depends on the number of years that an employee has served. For six months of service, the entitlement is 10 days, and this increases to 20 days for 6.5 or more years of service.

Maternity Leave

The Japanese maternity leave is 14 weeks long, of which six weeks can be taken before childbirth and eight weeks after the child is born.

Paternity Leave

Fathers are allowed to take paternity leave for a year, in two installments. The first of these may start within eight weeks of birth.

Sick Leave

There is no specific sick leave in Japan. Bereavement or condolence leave is five days.

Public Holidays

Japan has many national holidays, all of which are generally available to employees. The national holidays are the following: 

• 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

Background Checks

Background checks are a common practice in Japan that helps to verify the accuracy of a candidate’s claims and identify any potential red fags before integrating them into the organization. 

When conducting such checks, it is very important to obtain written consent from the individual and comply with the country's privacy and data regulations, such as the Act on the Protection of Personal Information.

Under the Japan labor laws, the following types of background checks are usually performed: 

• Criminal Record Check

In order to run a criminal record check, you need to obtain a police clearance certificate from the local prefectural police department. 

For example, in Tokyo, the Tokyo Metropolitan Police Department (TMPD) is responsible for issuing a police clearance certificate. 

It usually takes about two weeks to obtain the certificate, and the employee must visit the office in person to receive the document. 

• Education Verification 

Education verification is done to ascertain the accuracy of a job candidate's academic claims. 

The employer can directly contact educational institutions to uncover all key information related to the job applicant’s claimed academic degrees, certificates, and other achievements. 

• Employment Verification

An employment verification means confirming a job candidate’s past employment details. 

These include their job titles and responsibilities, dates of employment, reasons for leaving the previous job, and compensation packages.

Termination and Offboarding

Terminating employees in Japan can often be exceedingly difficult because several reasons and types of elimination permitted in other countries are not applicable in Japan. 

It is strictly prohibited to terminate employment contracts due to redundancies. 

All terminations are considerable individual decisions, and a robust reason must be given to back up the resignation. 

If an employee wishes to terminate the labor agreement by notifying the employer of their intent to do so, they must provide a notice period of two weeks. 

However, in cases where the employer offboards or dismisses an employee, they need to provide the employee with a 30 days notice of termination.

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.

Cultural Considerations

The Japanese business culture is characterized by a strong emphasis on teams instead of individual performances, long working hours, and a very formal working environment overall. 

The Japanese communication style leans towards a more polite tone.

For example, one of the key Japan cultural aspects is the importance of hierarchy and ranks. 

This can be viewed in the seating arrangements in business settings, wherein senior individuals usually occupy positions that offer the most minor convenience. 

The goal is to minimize any disruptions caused by the movement of junior participants during a business discussion.

In addition, the cultures and customs of Japanese businesses prioritize high attention to detail and quality consciousness. 

Professionals usually spend quite a lot of time and energy on planning, right down to the most minute details. 

For foreigners, this level of micromanagement may at times get frustrating; however, this is the Japanese way of guaranteeing perfection in the ultimate results.

Conclusion

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 navigating the nuances of taxation can slow down the expansion process.

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 and benefits and helping you with compliance and taxation using a Unified Employment Platform. 

Skuad has built 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.

FAQs

1) What is an employer of record in Japan?

In Japan, an Employer of Record 日本 (EOR) is a service that employs staff on behalf of another company and handles all associated legal and HR responsibilities. This includes managing Japan payroll, tax, social security, and compliance with local labor laws. It benefits foreign companies that wish to operate in Japan without establishing a regional entity. Want to know how much it costs to hire an employee in Japan? Click here. 

2) What is the employment status in Japan?

Employment status in Japan typically falls into two main categories: regular (seisin) and non-regular (hiseishain) employees. Regular employees are hired on indefinite contracts with full benefits and job security. In contrast, file non-regular employees include part-time, temporary, and contract workers, often with less job security and fewer benefits.

3) What is the Labour Standards Act in Japan?

The Labour Standards Act in Japan sets the fundamental rules for working conditions to ensure the safety and health of Japanese people. It covers various aspects of employment, such as minimum wage, working hours, overtime work, holidays, annual leave, and safety standards. It applies to all businesses and aims to protect Japanese workers' rights and improve their working conditions.

4) How many hours do Japanese work per day?

The standard working hours in Japan are 8 hours per day and 40 hours per week. However, many employees work additional hours; overtime is common and is regulated under the Labour Standards Act. The government has been actively promoting work-life balance to reduce excessive working hours.

5) What is the 5-year rule in Japan?

The 5-year rule in Japan refers to the regulation under the Labour Contract Act that if a fixed-term employee has been continuously employed for more than five years, they can request to be converted to an indefinite-term employment contract. This rule was implemented to provide excellent stability and protection for long-term contract workers.

6) Do Japanese companies do background checks?

Yes, background checks are permissible under the Japanese labor laws. Some of the most common types of employer conductors during the hiring process include criminal record checks, employment verification, and educational verification, among others.

7) How much does an EOR in Japan cost?

The total cost of hiring an employer of record services in Japan usually depends on multiple factors, such as the number of employees, the type of service required, the EOR provider, or even the location.

8) What are the differences between an EOR and a PEO?

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