Hire and pay employees in Japan

Employer of Record (EOR) vs. entity

First things first, you need to determine whether you want to hire Japanese employees through an EOR or set up your own entity. 

• Legal entity in Japan. This requires registering with local authorities, opening a local bank account, and consulting with experts on Japanese tax and labor laws. You may also need to enlist the help of local experts to ensure you're in compliance with all the tax and labor laws. 
• Japanese EOR. An EOR is a third-party service that becomes the legal employer on behalf of foreign companies—so no need to set up your own entity.

This decision depends entirely on your company’s size, resources, and expansion goals. Here are some pros and cons to consider:

If you decide an EOR makes more sense right now, check out our guide on hiring through an EOR in Japan—and see how Rippling can help you onboard Japanese employees in 90 seconds.

Classifying Japanese workers: employees vs. contractors

When hiring in Japan, you need to comply with the worker classification laws and regulations set forth by the Japanese Labor Standards Act and the Labor Contracts Act.

Let’s look at some of the  key differences in how Japan defines contractors and employees:

Read our classification guide to make sure you’re staying compliant with Japan’s labor and employment regulations—it even includes a quiz!

Work permits for Japanese employees

Before you can hire a candidate in Japan, you need to confirm they are legally authorized to work there. There are several types of work permits in Japan, each tailored to fit a different employment circumstance. Here are some of the most relevant options:

• Engineer/Specialist in Humanities/International Services: This is for foreign nationals involved in highly skilled professions with technical knowledge in sciences, engineering, human sciences, supplier services, or international services.
• Intra-company Transferee Visa: Employees can use this to transfer to the Japanese branch of their current employer after at least one year at the company. 
• Business Manager Visa: This is intended for individuals intending to start or manage a business in Japan. 
• Highly Skilled Professional Visa: This is a points-based system aimed at attracting highly skilled foreign professionals. Points are awarded based on factors like academic background, professional experience, and salary. 
• Specified Skilled Worker Visa (SSV): There are two categories: SSV1 for those who cannot bring their family members, and SSV2 for those with more advanced skills and allows the holder to bring their family members.
• Working Holiday Visa: This visa allows young people from certain countries to travel and work in Japan for up to a year. It’s a great option for freelancers or contractors from eligible countries who want to experience living in Japan.
• Medical Services Visa and Nursing Care Visa: These are designed for foreign nationals who intend to engage in medical services or provide nursing care in Japan.

The requirements for each of these work permits vary based on education, professional experience, and other factors. Read our guide on work permits for employees in Japan for more information on the application process.

New hire onboarding checklist

Once you’ve done your due diligence and confirmed that your candidate is legally authorized to work in Japan, it’s time to shift your attention to onboarding.

Before their first day

• Complete a background check. 
• Send an offer letter (more on that in the next section).
• Prepare for tax withholdings. 
• Enroll them in benefits.
• Add them to payroll. 
• Order and configure their devices. 
• Schedule their orientation.

On Day 1

• Make sure their workspace is good to go. 
• Send a “welcome to the team” email.
• Give them an agenda. 
• Schedule a meeting with their onboarding mentor. 
• Give them an office tour. 

During their first 90 days

• Schedule training. 
• Assign work and help them set goals. 
• Schedule regular check-ins. 
• Seek their feedback on how to improve the experience.

What to include in an offer letter in Japan

Now for one of the most exciting parts of the onboarding process: offer letters. Also known as employment agreements, these documents lay out the conditions of employment, so it’s important to make sure you cover all your bases in order to avoid legal disputes down the road. 

Ready to extend an offer to an employee in Japan? Here’s a checklist of what you need to include in their employment agreement:

• Position, job description, start date, and probationary period
• Working hours
• Compensation and benefits
• Termination policy
• Confidentiality and non-disclosure
• Company policy details
• Contact information
• Non-compete and non-solicit agreements
• Personal data collection information
• Intellectual property expectations
• Workplace health and safety
• Location

Get more details on each of the requirements in our guide to creating legally compliant offer letters in Japan.

NDAs and confidentiality agreements in Japan

A non-disclosure agreement (NDA) is a legal contract that prohibits employees from disclosing confidential company information to any third parties.

There are two main types of NDAs in Japan: unilateral and mutual. With a unilateral NDA, only one of the parties is obligated to maintain confidentiality, whereas, with a mutual NDA, both parties are required to protect each other’s sensitive information. 

In Japan, an NDA can protect a broad range of information, such as:

• Trade secrets
• Intellectual property (more on this later)
• Financial information
• Business strategies
• Customer and supplier information

Read our beginner’s guide to NDAs for more information on each of these protections, and find out what makes an NDA enforceable in Japan.

Running background checks on Japanese employees

Conducting background checks on new employees minimizes the risk of bringing on potential threats to your company. However, Japan deeply values the privacy rights of its citizens and discourages companies from screening their candidates, so it’s not mandatory to run background checks. 

If your company still decides to screen candidates in Japan, you are obligated to communicate the purpose behind personal information collection and obtain their written consent beforehand. 

Here are some of the common types of background checks in Japan, along with some less common ones to consider:

Read more about background checks in Japan, and find out which ones are illegal, in our guide.

Paying employees in Japan

Once you’ve decided whether to use an EOR or establish your own entity, it’s time to select an international payroll solution. If it’s your first time paying employees in Japan, it’s important to do your homework—miss a step and you could wind up in legal trouble with the National Tax Agency (NTA). 

After finding a global payroll solution, follow this checklist:

• Determine your workers’ employment status.
• Collect your new Japanese hires’ payroll information.
• Understand the implications of paying in Japanese Yen.
• Run payroll.
• File your taxes in Japan.

For a deeper dive into each of these steps, check out our full guide on paying employees in Japan.

Mandatory employee benefits in Japan

Japan’s Labor Standards Act sets the minimum working conditions for the country’s employees through mandatory benefits programs. It’s important to be aware of these minimum requirements, not only to ensure you’re treating your Japanese employees fairly but also to dodge hefty fines. 

Here are the mandatory benefits in Japan: 

• Pension. Most Japanese residents between 20 to 59 years old must be covered by the National Pension System, with the premiums split 50-50 between employers and employees. 
• Health insurance. Japan has a statutory health insurance system funded by taxes and contributions. Employment-based plans are split 50-50 by employees and employers, based on an employee’s salary.
• Labor insurance. While Japan’s “social insurance” includes healthcare and pension schemes, which employers and employees split contributory costs for, the following two benefits are better known as “labor insurance,” which are designed to protect workers who’ve encountered unexpected hardship. 
• Workers compensation insurance. Almost all employers are required to cover workers compensation insurance, which provides medical care, income indemnity, and accidental death coverage for work-related injuries. Employers pay 100% of these premiums.

• Unemployment insurance. Japanese employees are entitled to a subsidized allowance in case they lose their job. Payments are split between employer and employee, and they're calculated based on an employee’s age, salary, and reason for leaving. 
• Long-term care insurance. This mandatory benefit provides Japanese residents ages 65 and older with nursing home and at-home services from long-term care attendants. All Japanese employees 40 and older make contributions depending on their income. 
• Paid leave entitlements. According to the Labor Standards Act, employers are required to give paid annual leave to any employee who has worked for at least six months. There are other paid leave entitlements, including maternity leave, child care leave, and caregiver leave.
• Statutory holidays. Employees in Japan are entitled to paid time off during the 15 statutory holidays. If the holiday falls on a weekend, the next workday will generally be off.

While these are the legally required benefits, we encourage your company to explore other supplemental options as well. Read our guide to offering benefits in Japan for more information on minimum requirements, as well as perks you could offer to attract and retain top talent.

Managing remote employees’ computers and apps

Setting up your employees in Japan with the devices, apps, tools, and integrations they’ll need to do their jobs is an essential part of the onboarding process. But without an organized system, managing your Japanese employees’ devices can be a logistical nightmare, especially if any of them are remote. 

Rippling’s all-in-one platform makes setting up and securing employees’ accounts—and ensuring they all have the access and permissions they need—a seamless experience. 

Learn more about managing remote employee devices in our guide.

Protecting company IP in Japan

Throughout the onboarding process and beyond, your employees in Japan will inevitably gain access to sensitive company information. Without putting proper protections in place, this can pose a huge risk to your company’s competitive advantage. 

To avoid your intellectual property getting stolen, it’s necessary to understand the unique IP laws and regulations in Japan.

In short, the Japanese Patent Office (JPO) protects:

• Patents: protect third parties from profiting off an invention
• Copyrights: protect literary, scientific, and artistic works
• Trademarks: protect words and logos that represent your brand
• Design rights: protect the visual hallmarks of your company and its products
• Utility models: protect new technical inventions (not processes)
• Unfair competition: protect the unlawful acquisition, disclosure, and usage of your trade secrets

Read our beginner’s guide on IP ownership and rights in Japan to make sure you’re abiding by the country’s specific laws.

Complying with Japanese labor laws

One of the most important considerations when bringing on new employees is making sure you’re complying with labor laws—which are different in every country. In Japan, some of these laws even vary across the country’s 47 prefectures. 

Here are a few of Japan’s regulations:

1. Working hours are limited to 40 hours over five working days. Japan's Labor Standards Act restricts these working hours for full-time employees unless you negotiate an "Article 36 Agreement" (known as 36 kyotei) that allows for overtime work or work on scheduled days off.
2. Employees must be enrolled in the social insurance program. Employers are obliged to enroll employees who work 20 hours or more per week in the Shakai Hoken (Social Insurance) program—which includes healthcare, pension, and unemployment insurance. Half of the premium is covered by the employer, and the other half is deducted from the employee's salary.
3. Different industries have special working hours and overtime pay rules. Some sectors have unique rules under labor and employment law. For example, in the banking sector, employees in managerial roles might not be entitled to overtime pay due to the "White Collar Exemption" clause. 

Our guide on Japanese labor and employment laws includes other regulations to keep in mind, along with information on how to avoid hefty fines.

Terminating employees in Japan

Japan has one of the lengthiest employment tenures in the world—with the average duration of service at 12.4 years. Nonetheless, it’s wise to be prepared for when your time with an employee does come to a close. 

Here are some things to know about employment contract termination policies in Japan:

1. The standard notice period is 30 days. Employers are required to give employees 30 days' notice or pay out compensation for that duration. For voluntary resignation, an employee needs to give at least two weeks’ notice.
2. No severance pay is required by Japanese employment law. While it’s not legally required to offer a severance package in Japan, many companies still decide to include it in their contracts. 
3. Japan has a fast-track procedure for challenging dismissals. To ensure that termination disputes are resolved quickly, Japan introduced the Labor Tribunal Act, which limits the number of court hearings to a maximum of three sittings. 

Check out our primer on terminations in Japan for more legal requirements and tips for complying with them.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.