Japan Employee Benefits
Happy and satisfied employees make your businessthrive and lead to even better profits. However, the specific benefits for employees in Japan might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Japan including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few.
What are Employee Benefits in Japan?
Japan’s compensation laws offer strong protection to employees. They are governed by the Labor Standards Law (LSL) and the Enforcement Ordinance, the Ministry of Health, Labor and Welfare (MHLW) and the Labor Standards Inspection Office (LSIO). Other statutes protecting employees’ rights include the Labor Union Act, Labor Contracts Law and the Industrial Health and Safety Act.
The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Specific regulations apply to minimum wages, working hours, benefits, vacations and termination and severance payments, with the risk of fines and sanctions for non-compliance.
It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect contract negotiations.
What Compensation Laws exist in Japan?
In Japan an extensive framework of employment laws and regulations guarantee employees enjoy protection in various areas. Legislation covers such as minimum wages, social insurance, redundancy, termination, and severance, working hours, vacation leave, maternity, and paternity issues and more. Statutory and mandatory minimums cannot be undercut by collective or trade union agreements that are concluded with employer organizations, although they can improve entitlements for employees.
Drawing up contracts is tricky enough, but in Japan it is vital to fulfil responsibilities to your employees over benefits, compensation, and minimum requirements. Do not take the risk of ignoring them. Compensation and benefits include:
- Social Insurance: Social security contributions are jointly made by employers and employees at a capped rate of around 31-32% during 2021. The Japanese Government also contributes to the social security system, with about 34% going to healthcare plus unemployment, pensions, nursing care and accidents.
- National Minimum Wage: The minimum wage for 2020/21 is JPY 156,173 (US$1,460) per month and with 12 payments a year equaling JPY 1.87 million (US$17,097) annually – an increase on 2019 of 2.3%. However, rates differ between the 47 prefectures, also within industries due to collective agreements but the higher rate is paid regardless of age, sex, or citizenship. In July 2021 the government proposed to increase the hourly minimum wage by a record JPY 28 (US$0.25) to JPY 930 (US$8.40). Regional differences will still apply, although the government is determined that the absolute hourly minimum should be JPY 800 (US$7.27) per hour.
- Working Hours and Breaks: The Labor Standards Law (LSL) states employees can work a maximum of eight hours a day or 40 a week. Under labor agreements, flexible hours can be approved without extra hours being counted as overtime; also, they can establish when a workday starts and finishes. The law allows for one rest day per week or four over four weeks. Employees are allowed a 45-minute break if they work between six and eight hours in a day and one hour’s rest for more than eight hours worked.
- Holiday / Vacation Leave: Mandatory minimum paid vacations for full-time employees vary between 10 and 20 days depending on length of service. Employees are entitled to 10 days holidays when they have worked six months, a minimum of 30 hours per week with at least 80% attendance rising to 20 days after six and a half years.
- Maternity / Paternity Leave: The allowance for maternity leave is six weeks pre-natal (98 days or 14 weeks for multiple births) and eight weeks post-natal. Social insurance covers maternity allowance at 66% of salary, with provision for an extra week in case of late delivery. In June 2021 the government brought in a more flexible law to come into force in October 2022. This provides a total of four weeks, which can be split into two periods, within eight weeks of the birth. The Child Leave Plan covers up to 80% of salary. Previously, fathers were allowed one year’s paternity leave with two-thirds on full pay but only 3% took up the option.
- Redundancy, Termination and Severance: Employment can only be terminated for ‘just cause’ under the Employment Contracts Law. Employers must give 30 days’ notice to terminate a fixed-term contract if it has been renewed three times or the employee has worked for at least one year. Severance pay is not a legal requirement and is usually covered contractually.
- Overtime: This applies to hours worked over eight a day or 40 a week or if employees work holidays unless they are working flexible hours under a labor agreement. The Basic Overtime Rule stipulates overtime cannot exceed 45 hours monthly or 360 hours annually. The Extended Limit Rule gives flexibility under special circumstances (e.g., to cover a busy period) but hours still must not exceed 100 per month and average 80 hours over six months). Additional pay above the normal hourly rate is 25% extra during daytime or night work; 35% for weekends and holidays. Working overtime at night and on a holiday brings a 60% increase on normal hourly rate.
Social Security in Japan
Social security contributions are jointly made by employers and employees at a capped rate of around 31-32% during 2021.
The Japanese Government also contribute to the social security system, with about 34% going to healthcare plus unemployment, pensions, nursing care and accidents.
Employer Statutory Costs in Japan
Contributing towards employees’ social security benefits are among statutory employer costs in Japan. Monthly percentage deductions from employees’ salaries, for 2021, are:
|Insurance Type||Contribution||Monthly maximum JPY (US$)|
|On salaries||4.935%||68,597 (US$630)|
|Over 40 years old||5.83%||81,037 (US$743)|
|On bonuses||4.935%||282,776 (US$2,595) per year|
|Over 40 years old||5.83%||334,059 (US$3,065) per year|
|Welfare Pension Insurance|
|On salaries||9.15%||56,730 (US$520)|
|On bonuses||9.15%||137,250 (US$1,259)|
The above is matched by the employee’s deductions. Other employer contributions, as of April 2020, can total between 1.1% and 12%.
Japanese companies are taxed on their worldwide income at varying Corporate Tax rates. The first
JPY 8million (US$73,140) per year is taxed at 15% and above JPY 8million at 23.2%; this rate also applies to companies with paid share capital over JPY 100 million (US$ 910,540). Local corporate tax is also paid at 10.3%, plus Inhabitants’ Tax and Enterprise Tax at prefecture and municipal level taking the total to over 36% for companies earning over JPY 8million (based in Tokyo).
Employers must also meet the statutory cost of paying their employees the national minimum wage. This is set at JPY 156,173 (US$1,427) monthly, although the rate varies between the 47 prefectures and tends to be higher in urban areas compared with rural regions.