Expanding your business in Japan, a thriving $5 trillion economy and the world's third-largest, offers significant hiring and business opportunities. The synergy between technological advancements and government cooperation has fueled Japan's growth. Despite the language barriers and fierce competition in the market, the potential for success is immense. Leveraging an Employer of Record (EOR) in Japan becomes crucial, as it provides essential local expertise, ensures compliance, and streamlines the hiring process. With an EOR, employers can navigate the complexities, establish a strong presence, and tap into the vast potential of Japan's dynamic business environment.

The Japanese workforce is a valuable asset to your company. They have a reputation for politeness and a strong work ethic. However, hiring talent from this lucrative market requires carefully complying with local labor laws. 

Japan’s labor laws are vastly different from the ones in the USA, UK, etc. For example, Japanese labor laws provide strong protections for employees, making it difficult for employers to terminate their contracts without significant cause. Japan also strictly regulates the way it classifies permanent employees and independent contractors. Misclassification is a serious issue, and employers caught for employee misclassification are severely penalized.

If employers can carefully navigate these laws, they can hugely benefit from hiring highly skilled Japanese talent. Here’s where partnering with a Japan Employer of Record (EOR), like Gloroots, becomes crucial. We ensure compliance and facilitate your seamless expansion into Japan.

The pricing for EOR/PEO services in Japan is contingent on various factors, including the number of employees, the extent of services required, and the project's complexity. Typically, the pricing structure involves a monthly fee per employee or a percentage of their salary. Additional charges may be applicable for customized services or specific business needs. For a tailored and transparent pricing package that aligns with your business goals in the Japanese market, we recommend consulting with our trusted EOR partner, Gloroots. Their expertise ensures a thorough understanding of your unique requirements, facilitating a cost-effective and streamlined expansion into Japan.

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Key Metrics For Foreign Employers 

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Japan ranks 26th globally for talent competence in INSEAD’s Global Talent Competitiveness Index 2023.

The table below depicts key indicators to consider to help employers hire from Japan.

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Source: The Global Talent Competitiveness Index 2023

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Through the Gloroots’ Recrew platform, you can discover amazing talent in Japan.

Employee misclassification is when inaccuracies occur in categorizing employees as independent contractors. To effectively address and mitigate these risks, engaging a PEO/EOR is imperative. Partnering with Gloroots, a reliable ally, ensures a dedicated commitment to strict adherence to labor laws, precise worker classification, streamlined payroll management, and comprehensive employee benefits.

Labor laws in Japan are governed by a series of acts rather than a single comprehensive act. 

1. Labor Standards Act: This law covers a wide range of topics including minimum wages, working hours, overtime, holidays, leave, safety standards, and the rules for termination of employment.

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2. Industrial Safety and Health Act: This law focuses on ensuring the safety and health of workers in the workplace. It includes provisions for workplace environment, safety equipment, and measures to prevent accidents and occupational illnesses.

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3. **Labor Union Act**: This act provides the legal framework for labor unions, including their formation, activities, and the rights of union members.

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4. **Equal Employment Opportunity Act**: This act addresses issues related to gender equality in employment, prohibiting discrimination in hiring, promotion, and other employment conditions.

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5. **Child Care and Family Care Leave Act**: This law governs maternity, paternity, childcare, and family care leave, ensuring that workers are able to take necessary leave for family-related reasons without losing their job security.

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6. **Workers' Accident Compensation Insurance Act**: This law deals with compensation for workers who suffer injuries, illnesses, or death due to their job.

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Employment contract

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An Employment Contract, outlines the terms and conditions the employee must adhere to during their tenure. In Japan, most organizations issue written employment contracts, and negotiation of these contracts is generally reserved for senior managerial positions. Violation of any employment terms by either the employer or employee constitutes a breach of contract, carrying serious consequences. Employment contracts in Japan, whether written or verbal, are required to include details such as the term of employment, employment address, appointed position, wage payment, start date, termination terms, working hours (including start and end times, overtime, breaks, leave policies, and potential changes in shift timings).

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Working time

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In Japan, the typical work schedule involves 8 hours of work each day, totalling 40 hours per week.

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Overtime

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Any work exceeding the standard weekly hours in Japan is compensated as overtime and is subject to the regulations outlined in employment contracts or collective agreements. If an employee is expected to work beyond the regular hours consistently, a written agreement must be submitted to the Labour Inspection Office. When employees are required to work beyond the usual hours or on holidays, the prescribed limits are 5 hours per day, 45 hours per month, and 365 hours per year.

Overtime pay is calculated as an additional component on the regular hourly base salary, with the following rates:

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1. Overtime (typically exceeding 8 hours a day): an additional 25.00%

2. Nights (between 22:00 and 05:00): an additional 25.00%

3. Weekends and Holidays: an additional 35.00%

4. Nights (continuing from overtime): an additional 50.00%

5. Holidays (continuing from night-time): an additional 60.00%

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Overtime Duration

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Exemptions from these regulations are granted to managers and supervisors, as defined by the Labour Standards Act. However, it's important to note that the late-night work allowance still applies in such cases.

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Public Holidays

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Japan has 16 public holidays throughout the year (approximately).

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Minimum Wage

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The minimum wage in Japan is determined at the prefectural level. In Tokyo, the minimum hourly wage is 1,113 JPY, in Osaka, it is 1,064 JPY, and in Kyoto, it is set at 1,009 JPY.

Annual Leave

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Note: Unused days expire after two years.

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Paid Sick Leaves

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Sick leave is not obligatory in Japan. Certain companies may implement their own policies regarding sick leave, and employees commonly utilize their vacation days to address sick leave or opt for coverage through social insurance.

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Maternity leaves

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Every female employee is entitled to maternity benefits, encompassing 14 weeks of paid leave, six weeks before the expected due date and eight weeks after childbirth. The maternity payment is administered by Social Insurance and is calculated based on the prevailing National Health Insurance rates, currently set at 420,000 JPY per child.

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Alternatively, if the employee is covered by the employees’ health insurance, they may receive a maternity allowance equivalent to 2/3 of their regular salary rate. This allowance is applicable from 42 days before the birth until 56 days after delivery.

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Paternity leaves

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New fathers in Japan have the right to take paid paternity leave, known as 'childcare leave,' for up to one year after the child’s birth. However, during this leave, the employee does not receive a salary unless stipulated otherwise in the employment contract. Instead, they are eligible for a partial allowance from social security.

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Starting from October 1, 2022, male employees are entitled to a four-week leave within eight weeks after the birth, known as "Childcare at Birth Leave." This leave can be taken in one or two installments. Social Security will provide benefits during this period at the same rate as maternity leave, which is 67% of the total pay.

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Importantly, these existing entitlements can now also be taken in one or two separate installments, a change from the previous requirement of taking it all at once.

Tax and Social Security contribution:

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Employer Payroll Contribution

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Employee Payroll Contribution 

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Employee Income tax

Termination 

The termination process in Japan is contingent on the terms outlined in the employment and collective agreements, taking into account factors such as the type of contract, job role, region, and grounds for termination. Given the intricacies involved, termination is typically achieved through mutual agreement, often accompanied by additional compensation, reflecting the complexity of the dismissal process in the country.

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Severance Pay

In Japan, there are no legal obligations for severance payments. Due to significant restrictions on an employer's ability to terminate an employee, it's common for employees to be presented with a severance package as part of an agreement that involves a waiver and voluntary resignation.

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Notice Period

In Japan, the customary notice period is typically 30 days, and if formal notice is not provided, employers can offer compensation in lieu of notice.

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Probation period

The probationary period for permanent employees in Japan typically ranges from 3 to 6 months.

Expanding your global workforce comes with many compliance challenges, from employment laws to data protection and diversity requirements. At Gloroots, we streamline this process with a unified platform. Our experts handle everything from employment contracts to on-time payments and compliant benefits. This way, you can concentrate on talent acquisition while we ensure a stress-free global employment experience for both you and your employees. Connect with our experts today to kickstart your global hiring journey.

Grow your team in Japan, a country with major economic hubs in Tokyo, Osaka, and Kyoto. Gloroots can facilitate your business expansion in Japan. Their local expertise ensures seamless recruitment, compliance with regulations, and successful integration into the Japanese market.