Quickly Grow Your Business with an Employer of Record in Japan

Considering adding Japanese talent to your team? Smart move!

Japan's innovative economy and highly skilled workforce make it a prime destination for global businesses.

But how do you tackle the complexities of Japanese employment laws and cultural nuances?

Enter the Employer of Record (EOR) in Japan.

Let's explore how partnering with an EOR in Japan can be your strategic advantage for a smooth and compliant expansion.

Ready? Let's roll.

What Is an Employer of Record in Japan?

An Employer of Record in Japan is a third-party organisation that officially employs workers on your behalf and manages all local legal, HR, and payroll responsibilities.

In essence, the EOR becomes the legal employer, handling compliance and administration while you direct your team's day-to-day activities.

My pro tip: New to this concept? Check out my guide on What Does EOR Stand For to learn more.

Why do companies choose to work with an EOR in Japan?

Here's why:

• Streamlined Market Entry: Skip the lengthy process of establishing a legal entity in Japan.
• Regulatory Compliance: Navigate Japan's stringent labour laws with expert guidance.
• Cost Efficiency: Reduce overhead and administrative burdens associated with setting up locally.

In short, EOR services allow you to tap into Japan's market quickly and compliantly without the usual hassles.

But what makes Japan's labour market unique, and how can an EOR help you succeed?

Let's unpack that.

The Japanese Employment Landscape

When I first looked into hiring in Japan, I was struck by the country's comprehensive labour laws and deep-rooted work culture.

While these laws offer strong protections for employees, they can present challenges for foreign businesses unfamiliar with local regulations.

Here's what you need to know:

Working Hours and Overtime

In Japan, the standard workweek is 40 hours, typically 8 hours per day, Monday through Friday.

However, overtime is a common practice but is heavily regulated:

• Overtime Limits: Generally capped at 45 hours per month and 360 hours per year.
• Special Provisions: Extended overtime requires a special agreement and is subject to annual limits.

Overtime Pay Rates:

• 125% of the regular hourly rate for standard overtime.
• 135% for late-night work between 10 PM and 5 AM.
• 150% for work on statutory holidays.

Refer to the Japanese Labour Standards Act for detailed guidelines.

Compensation and Currency

The local currency is the Japanese Yen (JPY).

Japan does not have a national minimum wage; instead, minimum wages are set by each prefecture and by industry.

Common Compensation Practices:

• Bonuses: Typically paid twice a year, in summer and winter, often amounting to several months' salary.
• Allowances: Including transportation, housing, and family allowances.

Next, let’s look at public holidays and annual leave in Japan.

Public Holidays and Annual Leave

Japan observes 16 national public holidays.

Employees are entitled to paid leave on these days. If a holiday falls on a weekend, the following weekday is not automatically a substitute holiday, but some companies may offer it as a perk.

Annual Leave Entitlement:

• 10 days after six months of continuous employment.
• Increases by 1 day each year up to 20 days.
• Unused leave can often be carried over to the next year.

Tax Obligations and Contributions

Navigating taxes in Japan involves understanding several key components:

Income Tax

Employers must withhold income tax from employees' salaries, with progressive rates ranging from 5% to 45%.

Social Insurance Contributions

Both employers and employees contribute to Japan's social insurance programs:

• Health Insurance
• Pension Insurance
• Unemployment Insurance
• Workers' Accident Compensation Insurance

Contribution Rates:

• Employer: Approximately 15% of the employee's standard monthly salary.
• Employee: Similar percentage deducted from their salary.

For precise figures, consult the Japan Pension Service and the Ministry of Health, Labour and Welfare.

So what about leave policies and parental leave in Japan? Let’s find out.

Leave Policies and Parental Leave

Here’s what Japanese employees and employers can expect:

Sick Leave

Japan does not mandate paid sick leave. Employers often allow annual leave for sickness or provide additional sick days as part of company policy.

Maternity and Childcare Leave

• Maternity Leave: Up to 6 weeks before and 8 weeks after childbirth.
• Childcare Leave: Available for both parents until the child turns one year old (extendable under certain conditions).

During these leaves, employees may receive allowances from the social insurance system.

Probation and Termination Periods

Probation Period

• Commonly 3 to 6 months.
• Termination during probation still requires just cause and adherence to legal procedures.

Notice Period for Termination

• 30 days' notice is required for dismissal.
• Payment in lieu of notice is acceptable.

Japan's labour laws favour employee protection, making terminations complex. Legal advice is often necessary to ensure compliance.

Understanding these regulations is crucial to hiring successfully in Japan. And yes, managing all these details can be overwhelming.

That's where an Employer of Record in Japan comes into play, simplifying the process and ensuring you remain compliant every step of the way.

How to Choose the Best EOR in Japan

Selecting the ideal Employer of Record is pivotal for your expansion into Japan.

Here's what to consider:

1. In-Depth Knowledge of Japanese Labour Laws

Your EOR should have an expert understanding of the following:

• Employment Contracts: Navigating fixed-term vs. indefinite contracts.
• Labour Regulations: Ensuring compliance with the Labour Standards Act.
• Cultural Practices: Advising on customary workplace norms.

2. Comprehensive Service Suite

Look for an EOR that offers:

• Payroll Management
• Tax and Social Contribution Compliance
• HR Support and Employee Relations
• Legal Assistance

A full-service provider can handle all administrative tasks, freeing you to focus on your core business.

3. Transparent and Fair Pricing

Avoid unexpected costs by:

• Requesting a detailed fee structure.
• Understanding what services are included and what may incur additional charges.

4. Customised Solutions

An EOR should tailor their services to:

• Your Industry: Addressing sector-specific regulations.
• Company Size: Scaling services to match your growth.
• Unique Needs: Offering flexibility in policies and procedures.

5. Proven Track Record

Research potential EORs by:

• Reading client testimonials.
• Requesting case studies.
• Verifying their experience in Japan.

6. Local Presence with Global Standards

An EOR with a strong local team can offer:

• Cultural Insights: Enhancing communication and workplace harmony.
• Quick Response Times: Addressing issues promptly.

But if finding an EOR in Japan sounds tricky, there’s another solution.

Exploring Alternative Labour Markets

While Japan presents vast opportunities, it's wise to consider other markets that might suit your business goals.

For example, South Africa offers a business-friendly environment with a robust economy.

If hiring South African employees interests you, partnering with an experienced Employer of Record in South Africa can help.

Final Thoughts

And there you have it: Hiring Japanese doesn't employees have to be daunting.

By partnering with a knowledgeable Employer of Record in Japan, you can confidently navigate the complexities of local employment laws and cultural nuances.

Focus on what you do best—growing your business—while your EOR handles the rest.