Guide to Hiring in Japan

Labour Law – Basics

What are the basic requirements for employers in Japan?

For employers to legally employ employees in Japan, they must have the following registered:

• A registered Japanese bank account (In principle, Japanese taxes, social insurance premiums, and labor insurance premiums can only be paid from a Japanese bank account)
• Workers’ accident insurance
• Public Employment Service Center registration for unemployment insurance
• Japan Pension Service registration (this registration is for health insurance and employees’ pension)
• Tax registration
• Inhabitant tax registration

Upon the onboarding of new employees, employers must submit the respective pension and health insurance forms within 5 days of onboarding. This applies to both local and foreign employees who work in Japan, except for some employees seconded from overseas corporations.

In Japan, the Labor Standards Act stipulates five principles of wage (salary) payment: (1) in currency, (2) directly from employer to the employees, (3) the full amount, (4) at least once a month, and (5) Payment must be made on a fixed date.

In Japan, bonuses are generally paid twice a year during the summer and the winter. However, if payment is stipulated in the rules of employment or the employment contract, it is necessary to pay, but if there is no such provision, there is no problem if payment is not made. In addition, the amount to be paid and the number of payments per year will be determined by each company based on the company’s business performance and employment regulations.

What to remember when hiring new employees?

• Background checks:

• • The Act on the Protection of Personal Information (2003) states that personal information such as race, creed, social status, medical history, criminal records and having suffered damage by a crime must not be collected, unless an applicant’s consent has been taken.
  • The Employment Security Act states that an employer is prohibited from acquiring information which may become a cause for social discrimination including race, ethnicity, social status, family origin, domicile or birthplace, creed, personal beliefs, or history of union membership.

• Restrictions on employee interview questions: During an interview process, employers should not ask the following:

• • Domicile of origin or birthplace
  • Family members’ status such as social status, education, etc.
  • Housing situation
  • Life and home environment
  • Religion
  • Political party support
  • Philosophy and personal creed
  • Person to respect
  • Personal beliefs
  • Union membership or activities
  • Preferred newspaper, magazines, and books.

What are the different discrimination laws in Japan?

Japan’s Labor Standards Act includes:

• Principle of Working Conditions
• Determination of Working Conditions
• Equal Treatment
• Principle of Equal Wages for Men and Women
• Prohibition of Forced Labour
• Elimination of Intermediate Exploitation
• Guarantee of the Exercise of Civil Rights

In addition to the Labor Standards Act, there are the following provisions in the Act on Securing, Etc. of Equal Opportunity and Treatment between Men and Women in Employment.

• [Article 5] With regard to the recruitment and employment of workers, employers shall provide equal opportunities for all persons regardless of sex.
• [Article 6] With regard to the following matters, employers shall not discriminate against workers based on sex.
  • (I) Assignment (including allocation of duties and grant of authority), promotion, demotion, and training of workers;
  • (ii) Loans for housing and other similar fringe benefits as provided by Ordinance of the Ministry of Health, Labor and Welfare;
  • (iii) Change in job type and employment status of workers; and
  • (iv) Encouragement of retirement, mandatory retirement age, dismissal, and renewal of the labor contract.

What are the working hours in Japan?

Working hours are stipulated by the Labor Standards Act of Japan as follows.

• Article 32:
  • (1) An employer must not have workers work more than 40 hours per week, excluding break periods.
  • (2) An employer must not have workers work more than 8 hours per day for each day of the week, excluding break periods.

However, if the following agreement is established between labor and management, it is possible to work overtime (so-called 36 agreements).

• Article 36(1) Notwithstanding the provisions on working hours in Articles 32 through 32-5 and Article 40 (hereinafter in this Article referred to as “working hours”) and the provisions on days off in the preceding Article (hereinafter in this Article referred to as “days off”), if an employer has concluded a written agreement with the labor union that has been organized by a majority of the workers at that workplace, if there is one, or with a person representing a majority of the workers at that workplace, if there is no such union, and has filed a notification of this agreement with the relevant government agency pursuant to the provisions of Order of the Ministry of Health, Labor and Welfare, the employer may extend the working hours or have a worker work on a day off, in accordance with the provisions of that agreement.

Regarding break time, The Labor Standards Act stipulates the following.

• Article 34(1) An employer must provide a worker with at least 45 minutes of break periods during working hours if working hours exceed 6 hours, and at least one hour of break periods during working hours if working hours exceed 8 hours.

What is the legal probation period in Japan?

While a probationary period is not mandatory, they typically last about three to six months for full-time employees.

What are the minimum wage requirements in Japan?

As of October 2022, Japan increased its minimum wage to JPY961 per hour.

However, please note that the above is just a nationwide average amount, and there is a difference from 853 JPY to 1072 JPY depending on the prefecture where the company is located.

Source: Ministry of Health, Labour and Welfare

What to note for existing employees?

Firstly, the public insurance that employees will be enrolled in is divided into the following categories:

• Public Pension –
  • Category II insured persons in National Pension scheme in Japan are where regular employees and employees working shorter times at big companies are classified into. This is covered by the Employees’ Pension Insurance Plan.

• Old-Age Pension Benefit –
  • Employees are eligible for the following benefit at the age of 65 years.

• Disability Pension –
  • If an employee becomes disabled, he/she is eligible to receive a disability benefit in the form of a payment. The 3 classes of disability include:
    • Class 1 – Total disability requiring constant attendance.
    • Class 2 – Degree of disability restricting one’s ability to live independently.
    • Class 3 – Degree of disability restricting one’s ability to work.

• Survivors’ Pension –
  • If an employee with an eligible dependent pass, the employee’s pension will be paid to the dependent.

• Workers’ Accident Compensation Insurance –
  • Administered by the Japanese government, it is mandatory for most employes to have a workers’ compensation to cover their employees. This coverage includes medical care, loss of income, disability, or death of an employee due to occupation causes or accidents during the employee’s commute.

• Unemployment Insurance –
  • Administered by the Japanese government, this employment insurance covers all employees and provides an allowance in case of unemployment, having trouble continuing employment, or receiving job-related educational training.

• Health Insurance –
  • All Japanese employees whose most recent monthly scheduled working hours are less than three-quarters of the monthly scheduled working hours of ordinary workers employed at the same place of business are eligible for health insurance. If an employer has one or more employees, all employees who are eligible must be enrolled for health insurance.

Since Japan is a country with universal health insurance, the medical insurance system can be roughly divided as follows.

• National Health Insurance – For self-employed, retired employees and their dependents.
• Health Insurance for Employees – For employees and their dependents.
  • Long-Term Care (Nursing care) Insurance –
    • All employees aged 40 years or older must have long-term care (nursing care) insurance. The insured can receive long-term care services such as home-visit services by care attendants or at nursing homes.

Payroll Contributions – Employer vs. Employee:

Employee Income Tax:

Termination of Employment – Severance Payment & Protection Against Dismissal

In Japan, there is a minimum 30-day notice period before an employer can dismiss an employee. In the case that the employer does not wish the employee to work during the notice period, the employer can pay the employee’s salary in lieu of notice.

Some typical grounds for termination of employment in Japan include:

• An employee’s inability to provide labour due to disability, illness, injury, or permanent damage.
• Breach of work responsibilities and duties, orders, or workplace disciplines.
• Loss of job responsibility.

In Japan, terminating employees due to economic reasons such as employee redundancies is restricted. The judicial precedent has established the practice that 4 factors must be met:

1. Necessity of decreasing the number of employees
2. Necessity of adopting the “unilateral termination of employment contract” method as a means of employment adjustment
3. Adequate selection of the employees whose employment contracts are to be terminated and,
4. Adequacy of the termination procedure.

For employment contracts with an indefinite term, termination due to redundancy has to be the last resort. For fixed-term employment contracts, an employer may not dismiss employees until the expiration of the employment contract.

Severance Pay:

Under the Japanese law, there is no statutory obligation for severance payment upon the termination of an employee’s contract.

Protection Against Dismissal:

• Grounds for dismissal: The standards for individual dismissal and redundancy are severe as dismissed employees can claim reinstatement and salary based on the invalidity of the dismissal. The misconduct or breach of law must be serious to meet the standards set by the Japanese courts.

What is the retirement age in Japan?

As of April 2023, the retirement age of Japan’s national and local civil servants is 64 years old. The retirement age will be raised by one year every two years until it reaches 65 years old in fiscal 2025

In addition, it should be noted that there is an obligation to make efforts to continue employment until the age of 70.

Employment Dispute Channels

Employees can take action using the Labour Bureau.

Is employment insurance compulsory in Japan?

Known as ‘Labor Insurance’ in Japan and covering both the Labor Accident Insurance and the Employment Insurance. The Employment Insurance has two main functions:

• Unemployment Benefits – Provide employees with cash benefits incase the employee loses the job.
  • This is inclusive of:
    • Job Applicants’ Benefits
    • The Study and Training Benefits
    • The Employment Continuation Benefits

• Support employers to prevent them from laying off their employees.
  • The following consists of three components:
    • Services for employment stabilization
    • Services for developing human resources
    • Services for employees’ welfare

• Employment Insurance System:

• • The Basic Allowance for the Job Applicants:
    • Commonly referred to as the ‘Unemployment Benefits’.
    • It is mandatory for employees to have been insured for at least 12 months within two years prior to leaving the job.
      • (Retirement due to company reasons will be shortened to at least 6 months within one year)
  • Old Age Continuous Employment Benefits:
    • For older aged employees between 60 and 65 years who must be insured for at least 5 years before receiving the benefit.

Source: National Institute of Population and Social Security Research

• Rise of Part-time and temporary employment in the young and the women:
  • The 2001 Reform of the Employment Insurance abolished some criteria for part-time and temporary workers:
    • Part-time and temporary workers who work at least 20 hours per week and have worked at the same workplace for more than 30 days is eligible for the Employment Insurance.