Hire Contractors in Japan

The Japanese education system is highly acclaimed globally, with significant government investments leading to high-quality outcomes. In a recent survey, 78.63% of the country's labor force had advanced education. 

Companies that wish to hire contractors in Japan or are already hiring have surely benefited from this. A highly educated workforce is more likely to adapt better to technological changes and increase an organization's overall productivity. 

The Japanese government has also introduced several policies to attract the arrival of foreign businesses. The ‘Invest Japan Business Support Centers,’ Invest Japan Offices, and other local and national incentives are just some examples.

However, to hire in Japan successfully, you require a detailed understanding of all the other nuances of international hiring, including employment laws, tax regulations, and more. 

We will discuss how to hire overseas contractors and some challenges of hiring international contractors in Japan and their associated solutions here.

How to Hire Independent Contractors in Japan

You can hire in Japan by using either of these two methods.

• Hiring directly by opening up a subsidiary and registering your business.
• Hiring contractors in Japan easily with the help of an AOR.

Direct Hiring: Opening up A Subsidiary

You can establish a subsidiary in Japan by following the steps below.

• Choose a company representative and an office address.
• Create articles of incorporation, which should include elements like company name, registered address, business activities, etc.
• Prepare an affidavit with all information about the foreign company.
• If it is a joint-stock company, get the Articles of Incorporation notarized.
• Deposit initial capital and register the company at the registry office.
• Get the Registry and Seal Certificate, and open a corporate bank account.
• Report to the tax office and labor standards inspection office. 

This is just the first half. After registering your business, you must start with the actual hiring process. 

This means you will need to draft a job offer that will include all the details of your project, look on platforms like LinkedIn or Indeed to source candidates, interview them, and onboard them.

If you opt for this method, it can take a lot of time to successfully hire contractors. Additionally, it can be very expensive and will require a deep understanding of all the relevant laws of Japan. 

Hiring Contractors with Skuad’s AOR Solution

An agent of record in Japan, like Skuad, can simplify the entire international hiring process, if not more. 

Skuad hires the contractor on your behalf, further decreasing the legal risk of mishandling on your part.

Skuad will manage most of the legal and administrative responsibilities. These include drafting contractor agreements, paying them in accurate currencies, and onboarding them. 

The best part is that all this will be done while adhering to every labor and tax law in Japan. 

This way, you can focus on your business's core objectives instead of worrying about the contractor onboarding process. 

Moreover, to hire Japanese employees, you can use an Employer of Record Japan.

How to Pay Contractors in Japan

You can pay contractors directly by setting up a payroll in Japan. The good news is that you enjoy complete authority and transparency over the payment processing journey. 

But on the downside, it also means that you will need to learn and understand all the deductions and tax liabilities of contractors in Japan.

An easy and effective way out of this complicated process is to pay contractors with Skuad. 

Skuad’s AOR solution has various capabilities that make it easy to process timely and accurate payments to your contractors. These include,

• Multi-currency payroll.
• Regulatory compliance
• Expense and time-off management
• Real-time expense tracking and
• Flexible payment scheduling.

Hiring Contractors Directly vs Hiring Contractors with Skuad 

With this table, let’s understand the difference between hiring contractors directly and hiring with Skuad more thoroughly.

Now, let’s look at how much does it cost to hire a contractor in Japan.

Cost of Hiring Contractors in Japan

Moving forward, the cost of hiring contractors in Japan will differ based on the method you apply. 

Say you have decided to hire a contractor in Japan directly. You must deal with the business setup fees, registration charges, etc. 

After this, you will need to hire a whole team of professionals, including HR individuals, legal experts, and other managers, who will guide you through the contractor onboarding process.

But with Skuador or an agent of record in Japan, all these associated costs of international hiring are nullified. 

You will simply need to pay the service charges, and let Skuad handle all administrative operations on your behalf.

Apart from these, you must handle the contractor's hourly charges. Please remember that this will differ based on the contractor's experience level, the type of project they will be required to work on, or the industry itself.

Want to know more about converting from contractor to employee salary - Read on.

How to Convert a Contractor into A Full-time Employee

Converting contractors into full-time employees may sound complicated, but it's not true. 

Choose the contractor you wish to convert into a permanent employee. Discuss job responsibilities, salary expectations, health benefits, and other working conditions with them. 

If both parties agree, draft a formal employment agreement. Sign it, and start the onboarding process. 

As long as you are aware of the employment laws of Japan and follow those guidelines in your hiring process, you are good to go. 

For example, you can not engage your full-time employees in Japan for more than 40 hours per week or eight hours per day. 

Challenges of Hiring Contractors in Japan

Hiring contractors in Japan is undoubtedly a wise move for your business. 

But to reap the maximum benefits, you must know the recruitment hurdles mentioned below and how to solve them effectively.

1) Japan’s New Freelance Act

Japan had as many as 2.57 million freelancers, which was almost equal to 4% of the country's working population? 

With the increase in people working outside an employee-employer relationship, the government had to make various changes to properly define the category of ‘freelancers.’ 

One such notable change was the New Freelance Act.

Under this law, businesses/companies that engage freelancers or independent contractors are now bound by certain rules and obligations. 

The objective is to optimize all business transactions involving such workers and improve overall productivity. 

For example, clients/employers must now deliver a written contract under this Act when hiring contractors in Japan. 

This document must include certain essential items, such as,

• Obligation to provide 30 days or more notice of termination.
• Obligation to offer consideration during childcare and nursing care.
• Introduction of a harassment consultation system, and
• Scope of the deliverables and prohibition of late payments 

This new regulation has brought immense confusion, especially for businesses that wish to hire contractors in Japan. 

To understand the act's full scope and adhere to its highlighted guidelines, you will need a solid team of legal professionals or the help of contractor management software. 

However, both these options are extremely expensive and require a substantial investment of time and energy.

2) The Contractor Tax System in Japan 

There are three main taxes in Japan: income tax (shotokuzei), residence tax (juuminzei), and consumption tax (shouhizei).

The general rule is that the company/employer automatically deducts a withholding tax from their employee’s income before it reaches their final amount. 

The same applies to self-employed individuals in Japan, the only difference being that they must do it themselves. 

The taxation process can be quite complicated in Japan. As an employer, it is your responsibility to ensure that all the contractor's due obligations are fulfilled. 

For example, contractors in Japan are required to provide various documents when submitting their taxes. These include tax withholding slips, My Number information, Japanese residence card, and receipts for all deductibles.

After collecting all these documents, the freelancer must do their taxes online or visit their nearest tax office. The downside to online tax filing is that self-employed individuals must visit a tax office to set up passwords and ID. Then, they must track all their deductibles and expenses on another platform and enter the total amount in the e-tax platform. 

A lot can go wrong during this whole process. You should check in with your contractor during each stage to ensure they follow the legal guidelines. 

However, this can get very difficult when you are hiring multiple individuals who are freelancing in Japan.

The best solution is to partner with contractor software that can help you with international contractor payment processes. 

However, choosing the right one for your business can be expensive and sometimes even confusing.

3) Low English Proficiency

In a recent English proficiency survey, Japan ranked 92nd out of 116 non-English-speaking nations and regions. 

This is a huge disadvantage to companies hiring international workers in Japan.

Low English proficiency can lead to many communication problems in the workplace. Contractors might not be able to express their ideas and solutions freely, which can lead to reduced productivity and dissatisfaction. 

It can also directly hamper workers' confidence when communicating with their clients, ultimately jeopardizing business relationships.

As an employer, you can learn Japanese to communicate better and understand your workers. But, Japanese is relatively extremely difficult to learn, especially for English speakers.

Hire Contractors in Japan with Skuad

The main challenge of hiring international contractors is maintaining the proper employee classification. 

Each country has strict rules and regulations, and if you fail to comply diligently, you will be charged with hefty penalties and legal fees.

But with Skuad by your side, you no longer have to worry about worker misclassification. Our in-house team of legal professionals is well-versed in country-specific labor laws and regulations of over 160+ nations. 

This means you can hire contractors in Japan or any other part of the world compliantly and easily. 

Additionally, Skuad has built-in IP compliance that can safeguard your company’s IP under the laws of Japan.

Join us today and get started with a compliant and streamlined international hiring process.

FAQs

1. Can I hire a foreign contractor?

Yes, you can hire a foreign contractor from any part of the world. However, ensure you understand the country-specific labor laws and abide by them diligently to avoid legal issues.

2. What is the difference between an independent contractor and an employee in Japan?

Japanese employees enjoy various benefits under Japanese labor laws. These include paid leaves, sick days, and minimum wage. Contractors, however, are not eligible for these benefits since they are essentially self-employed individuals. 

3. What are the taxes for self-employed in Japan?

The national income tax rate of Japan is set at 5%-45%.

4. What is the employee contract in Japan?

The employee contract is a legal document that includes the terms and conditions of the working relationship between the employee and the employer. In Japan, there are three main types of employment contracts: temporary/dispatch, contract, and permanent employees.