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  1. Overview: Japan
  2. Work permit for hiring expats via PEO
  3. Global PEO and payroll
  4. Global HR Compliance
  5. Expand without a company set up
  6. Contractor vs. employee: which is better?
  7. Global Payroll Calculator
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Global HR Compliance in Japan

If you hire an international workforce or plan to hire, then the Hiring and Firing Workforce in Japan Guide below will help you understand the nuances of labour legislation in the country.

When the company plans to enter a new foreign market in Japan and needs to employ a local national there, the first question to answer is how to make local hires.

We have designed our Global Employer of Record service to help you outsource the global employment of your foreign workforce to companies like ours.

This solution helps you employ your global sales force in Japan as well as in other 180+ countries of the world, provide pay and benefits to your employees, as well as administer any business expenses with our help.

Our solution is different from other hiring modes in that it helps you engage your foreign workforce in full compliance with the local labour legislation. This means you are protected from non-compliance and employee misclassification risks, while we bear all employment risks, not you.

So, it looks very much like hiring your in-house sales force in your home country. However, you focus only on your global business development while we administer your global HR. In addition, you don’t need to open your own entities in foreign countries and can leverage our infrastructure in Japan instead. With our service, you can become a global company with reduced costs and minimized time and effort on your end.

Your employed foreign sales force will devote 100% of their time to your company product and may stay with you longer than foreign independent sales reps.

Global Employer of Record solution is a 100% compliant solution that guarantees you and your employees full compliance with local legislation in Japan.

We are experts in global workforce employment in Japan, and our goal is to become your single provider. Instead of working with numerous local staffing agencies and legal advisors, Acumen International can solve your global business challenges and save you time, costs, and resources.

Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need it, regardless of time zones. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with local employment laws.

With our knowledge and deep understanding of local nuances, you easily satisfy your need for skilled professionals in your global industry. With our qualified local partners, you can trust that your global workforce satisfies all local tax, social security, and immigration requirements in Japan.

See the Hiring and Firing Workforce in Japan Guide below for a general overview of labour rules and regulations in the country. Or contact us if you need to employ workers in Japan or would like to get more details.

Avoiding Permanent Establishment Risk in Japan

When you operate a business entity in Japan, your organization becomes subject to comprehensive corporate taxes and legal obligations under Japanese law. This entails liability for taxes on all profits earned within the country, along with potential charges, including interest and late fees, on any unpaid taxes.

A critical aspect to understand is the concept of ‘permanent establishment’ as defined by the recent Japanese Corporate Tax Law amendments. This law categorizes permanent establishments into three distinct types:

  1. Direct Permanent Establishment includes physical presence such as branches, factories, and specific business locations.
  2. Construction Permanent Establishment: This encompasses projects related to construction, assembly, and installation, particularly those extending beyond one year.
  3. Agent Permanent Establishment: This pertains to individuals who represent a business, acting in capacities such as contract-concluding agents, order-fulfilling agents, and order-securing agents.

It’s important to note that engaging independent contractors in Japan could potentially classify your operations as a permanent establishment. This is especially relevant if these contractors are representing your business or are instrumental in generating revenue within the country. Therefore, understanding these classifications and their implications is crucial for compliance and strategic planning in the Japanese market. As a Global Employer of Record, we help you mitigate Permanent Establishment Risk.

Hiring and Firing Workforce in Japan Guide

The fact that Japan opens a gateway to huge Asian markets and is ranked among the leading industrial powers in the world makes it a really enticing site for businessmen who want to extend their operations, particularly to the Asian market. Japan’s business environment is highly sophisticated, has a well-developed business-friendly infrastructure, and provides good conditions for living. Despite these good factors, research shows that many foreign companies still find it difficult to start their business in Japan, mainly due to its complex business culture. To help you Overcome this challenge, Express Global Employment has developed an express global EOR solution that will help you actualize your dreams of penetrating the Japanese market in a cost-effective, timely, compliant and risk-free fashion.

Below are some facts you need to know about operating a business in Japan.

Employment Agreements in Japan

Employment contracts in Japan must be either without a definite term or with a term of three years or less, except in the following cases:

  • An employment agreement with a term is required to complete a specified project.
  • An employment agreement between an employer and the employee with an advanced level of expertise, knowledge, skills or experience and who is actually employed to perform activities requiring a prescribed advanced level of expert knowledge.
  • An employment agreement between an employer and an employee who is 60 years old or above.

With regard to employment agreements in situations 2 or 3 above, the maximum term is five years. As regards employment agreements in situation 1 above, there is no cap on the term as long as the term is required for the completion of the project. Furthermore, it should be noted that fixed-term contract employees whose contract periods reach over five years in total will be granted a statutory option to convert into employees without a definite term. The working terms and conditions for the converted employee shall be the same as those set forth in the preexisting fixed-term employment contract, except for its contract term, unless otherwise provided.

Employment Termination and Severance Pay (Dismissal)

The Labor Contracts Act (LCA) requires any dismissal to be based on objectively reasonable grounds and appropriate in general societal terms. Based on accepted customs in Japan, established by numerous court precedents, in general, the following grounds for dismissal are permitted:

  • A worker’s lack of ability or appropriateness to work.
  • A worker’s poor performance.
  • A worker’s breach of discipline (in this case, ordinary dismissal or disciplinary dismissal can be taken).
  • Redundancy.
  • A request from a union based on a union shop agreement.

Notice period in Japan

The employer must give the employee to be dismissed at least 30 days prior notice or make payment of the average wage in lieu of the notice. Exceptions for the requirement of prior notice or payment in lieu of notice are:

  • Workers who are employed on a daily basis and who have not been employed consecutively for more than one month.
  • Workers who are employed for a fixed period of no longer than two months and have not been employed consecutively for more than the period set forth in the employment contract.
  • Workers employed in seasonal work for a fixed period of no longer than four months and who have not been employed consecutively for more than the period set forth in the employment contract.
  • Workers in a probationary period who have not been employed consecutively for more than 14 days.
  • When the worker is dismissed because the continuance of the business has become impossible due to natural disasters or other unavoidable reasons, the employer obtains the approval of the relevant government agency with respect to the reason in question.
  • When the worker is dismissed for a reason attributable to the worker, the employer obtains the approval of the relevant government agency with respect to the reason in question.

In addition, any dismissal that lacks objectively reasonable grounds and is not considered appropriate in general societal terms will be treated as invalid.

Severance payments

The employer must give the employee to be dismissed at least 30 days prior notice, and if the 30 days prior notice is not given, the employer must pay the average wage in lieu of notice corresponding to the number of days short of the required 30-day notice period. Except for payment in lieu of notice, there is no rule regarding severance pay under Japanese law, and workers do not have any rights to severance pay.  No concept under Japanese labour law allows an employer to dismiss an employee by paying a specified amount of money in order to validate the dismissal. Dismissal of the employee is only allowed based on objectively reasonable grounds and must be appropriate in general societal terms. As the validity of dismissal is strictly examined by the courts if disputed, employees generally provide severance payments to employees in order to give them incentives to agree to resign voluntarily. The calculation method of the severance pay varies in each company; however, in general, the amount of severance pay is calculated based on the employee’s length of service.

Employee Benefits and Contributions

Paid Vacation – The Labor Law stipulates employees’ minimum amount of paid vacation . The number of days of paid vacation is based on the seniority of the company. Employees may accumulate up to two years’ unused paid vacation.

Health Care – There is a National Universal Health care system in Japan. All Japanese employees enrolled in Social Insurance, benefit from the national coverage. Employees receive a Social Insurance card.

Pension – When employee registers with Social Insurance, they also register with the Employee Pension system. This system provides a pension to employees who have worked in Japan for at least 25 years from age 60. Pension benefits depend form individual career, so there are no standard payments. However, since pension payments are relatively low, some companies who wish to keep their employees till retirement age give employees either a lump sum payment when they reach retirement age or a fixed-term pension.

Maternity/Paternity Leave – Employees have Maternity and Child care leave rights.

Annual Physical Checkup Benefit – Employees registered under the social insurance general system “Kyokai Kempo” are entitled to receive as a benefit an annual physical checkup at any hospital designated by “Kyokai-Kempo”.

Probationary period in Japan

Many Japanese employers set probationary periods for their new employees, and this is acceptable under Japanese law. Probation is understood to be an employment agreement where an employer specifically reserves a right to terminate the employment agreement during the probationary period. The provisions of the LSA and other labour laws generally apply during the probationary period. There is no explicit restriction on the length of a probationary period. However, it is generally understood that a probationary period is effective only for a period reasonably necessary. If a probationary period is unreasonably long, then formal employment may be deemed to have commenced after a reasonable probationary period.

Overtime in Japan

In principle, Statutory Overtime Work must not exceed 45 hours per month and 360 hours per year. However, if there is a temporary and special reason necessitating Statutory Overtime Work, Statutory Overtime Work exceeding those limits is allowed on the condition that all of the following requirements are satisfied:

  • The monthly upper limit of 45 hours can be exceeded only six times per year.
  • Total hours of Statutory Overtime Work in any year must not exceed 720 hours.
  • Total hours of Statutory Overtime Work and Statutory Holiday Work in any month must be less than 100 hours.
  • A monthly average of total hours of Statutory Overtime Work and Statutory Holiday Work must not exceed 80 hours in any period of two, three, four, five, or six months.

However, these rules do not apply to “supervisors and managers” (“kanri-kantokusha”) who, regardless of their titles, are affiliated with management with respect to decisions about working conditions and other issues of management of work (“Supervisor(s) and Manager(s)”)

Work hours

The statutory working week is 40 hours per week or eight hours per day, excluding breaks. There are a number of business-related exceptions under which 44-hour working weeks are acceptable. Employers must file a labour management agreement with the Labour Standards Inspection Office if they wish employees to work overtime or on statutory days off.

Annual leave in Japan

Employees who have been employed continuously for six months and worked at least 80% of all working days are entitled to ten days of annual leave. Holiday entitlements increase over time in proportion to the length of service.

Sick leave

In Japan, there are Social Security Services providing certain benefits to employees who take leaves due to injury or disease.

Work-related Injuries 

The Workers’ Accident Insurance Scheme, managed by the Japanese government, provides certain benefits concerning injuries and diseases caused in relation to employees’ work or on the way to and from their workplace. If a Labor Standard Inspection Office concludes that the employee’s injury or disease is a “work-related injury or disease” or “caused on the way to and from his or her workplace” for purposes of the IACIA, the government will pay suspension compensation to such employee from the fourth day such employee is unable to work and thereafter.

Non-work-related Injuries

Another example of a Social Security Services benefit is a health insurance scheme managed by the Japanese government or a health insurance association under the Health Insurance Act (HIA), which provides certain benefits concerning non-work-related injuries and diseases. Employers and employees must enrol in this health insurance scheme. Health insurance premiums are borne equally by employers and employees, although it is employers who are obliged to pay the entire premium to the government or the health insurance association that they enrol in. Usually, the premium to be borne by employees is withheld from their wages.

Parental leave in Japan

Maternity leave

Under the LSA, if a female employee who is to give birth within six weeks (14 weeks if expecting more than one child) makes a request not to work, her employer may not require her to work. Similarly, an employer is prohibited from allowing a female employee to return to work within eight weeks after giving birth, even if she wants to do so, except that she may return to work after six weeks from childbirth at her request if it is allowed by a doctor. There is no legal requirement to pay for this absence from work.

Paternity leave

A male or female employee raising a child under elementary school age is entitled to take unpaid nursing care leave of up to five days per year in order to take care of their sick or injured child or accompany their child for a medical checkup or vaccination. If they are raising two or more children in elementary school, they are entitled to take such nursing care leave for up to 10 days per year.

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