Employer of Record Japan

Wages must be paid in full and in the local currency directly to the workers on a fixed date at least once a month. It’s common to pay between the 25th to the 31st of the month for current month salary. If salary is paid in arrears, it’s usually by the 10th of the following month.

Employers don’t have to pay variable compensation (including bonuses) if the nature of the payment is discretionary. If the work rules or employment contracts provide for fixed bonus payments — typically, dividing the annual salary in more than 12 instalments and paying the bonuses in June (Kaki Shoyo) and December (Toki Shoyo) — the payment is legally classified as wages and employers are legally obligated to pay it.

On top of salary, companies usually pay transportation fees for employees from their residence to their workplace. This commutation allowance, which is generally the cost of a monthly train pass, is usually subject to a cap and is a non-taxable allowance for the employee. Any other allowance paid on top of base salary is subject to income tax.

Japan has four different kinds of insurance system which companies are legally obliged to take part in. All workers that meet certain criteria are covered by the insurance.

• Workers’ accident compensation insurance: covers any illness or injury at work or while commuting to/from work.
• Employment insurance: provided to workers who become unemployed and helps to maintain stable employment, such as providing financial aid and subsidies.
• Health insurance and nursing care insurance: covers medical and nursing care expenses incurred by workers.
• Employees’ pension insurance: provides benefits for old age, death or disability.

Workers’ accident compensation insurance and employment insurance are known collectively as ‘labour insurance’, while health and nursing care and employees’ pension insurances are collectively referred as ‘social insurance’.

A company must enter these insurance systems when first incorporating or hiring staff/workers by submitting labour and social insurance notification forms to the relevant authorities. The company usually pays insurance premiums by deducting the portion of the premiums payable by employees/workers from their wages and paying these together with the portion of the premiums payable by the company to the relevant authorities.

Social insurance premiums are deducted from a worker’s monthly salary. Pension and health premiums are calculated as a percentage of the ‘standard salary’. The standard salary is determined by taking the average compensation of three previous months and fixing that average according to a standard salary table that provides a single amount, called the ‘standard salary’, for any salary in that taxed range. The standard salary is capped. The maximum standard salary is JPY 620,000 for pensions and JPY 1,390,000 for health. Unemployment and workers’ accident compensation insurances premiums are calculated as a percentage of the actual compensation instead of the standard salary.

Bonus payments are subject to the above insurances, but particular rules apply depending on the frequency and regularity of the payments. Also, there are annual caps on premium payments relating to bonuses.

All residents contribute to pension insurance. This premium is revised every April and is determined by factors such as price fluctuation and the real-wage index. Salaried workers under the age of 70 pay a percentage of their standard salary. The premium for salaried workers is 18.30%, paid half by the employer and half by the employee. Pension benefit is paid once the insured person is 65, unemployed and has paid pension premiums for at least 10 years. The benefit amount depends on one’s total contribution.

Non-Japanese workers who have lived and worked in Japan for less than 10 years may apply to claim a lump sum payback on their national pension when they leave Japan and no longer will be eligible to receive Japanese pension benefits. However, this only applies for those who have been covered by employees’ pension insurance for at least six months. The application must be sent within two years after leaving Japan.

Employers pay a child allowance premium (0.36%) along with the pension premium. This premium funds the government programme that provides childcare allowance to residents with children.

Health insurance provides medical coverage for all insured residents, and long-term care insurance provides elderly care benefits. It also provides allowances in cases of childbirth, injury, sickness and death.

National health insurance insures non-salaried residents under the age of 75. Employees’ health insurance covers salaried workers under 75 and their dependents under 75. Both non-salaried and salaried persons become insured under the latter-stage elderly healthcare system upon turning 75. National health and employees’ health insurances cover 70% of medical expenses for persons under 70 and those who are 70 to 74 with a standard salary of JPY 280,000 or more. Otherwise, the government covers 80% of medical expenses for those who are 70 to 74 with a standard salary below JPY 280,000 and 90% for those over 75. If total monthly medical costs of a household exceed a maximum amount, the exceeded amount will be reimbursed. The maximum is determined by the insured person’s compensation and age.

Like pension insurance, employees’ health insurance premiums are calculated based on standard salary. The percentage depends on the employer’s registered prefecture. Tokyo’s rate is 9.87%, paid half by the employer and half by the employee. Persons aged 40 to 64 are subject to an additional 1.79% premium on top of their health premium for long-term care insurance, with the employer and employee each paying half.

Unemployment insurance provides unemployment allowance, as well as childcare and family care leave allowances. The length of receiving unemployment allowance depends on age, termination reason and the period in which one has paid unemployment insurance premiums. The waiting period for the first allowance payment is four weeks if the company has terminated the employee, as opposed to a waiting period of up to three months if the employee quits on their own accord. Allowance is paid monthly from thereon provided the person can prove they are actively searching for a job.

Representative directors are not eligible for this insurance, as they’re not under an employment agreement but are under a service contract. Directors on boards of directors are also not eligible, but directors who simultaneously function as an employee (usually a high-ranking employee with a title such as department head) are eligible.

The premium rate differs according to the employer’s industry type, and the employer pays a larger percentage than the employee. For example, if an employer is in a general industry type, meaning the employer is not in agriculture, forestry, fishery, sake production or construction industries, the employer will pay a 0.60% premium and the employee 0.30%.

Workers’ accident compensation insurance provides medical care allowance for work and commuting-related injuries, diseases and deaths, as well as compensation allowance for unpaid medical leave periods that exceed four days. The same rule applies for directors as with unemployment insurance, but there are two ways in which representative directors and directors may become eligible. One way is to apply for special enrolment, which has several requirements such as industry type and number of employees. The second way is to receive unemployment insurance eligibility as a director who simultaneously functions as an employee. Representative directors are not eligible for unemployment insurance and, therefore, not applicable for this second method.

Premiums are covered by the employer. The rate depends on the employer’s industry type and can vary from 0.25% to 10.3%. Common industry types are finance, insurance and real estate (0.25%), warehousing and security (0.7%) and wholesale/retail trade, restaurant and lodging (0.4%).

Employers pay an additional 0.002% premium for asbestos insurance, which funds asbestos health damage relief.

Employer statutory benefit contributions are approximately 16% of the salary and taxable allowances.