Employment Law in Japan

Contracts

Japanese law requires that employers provide new employees with a hiring notice (or “rodo joken tsuchisho”), a written statement that includes the following provisions:

• The length of the employment relationship, including whether it is fixed term or indefinite
• Working hours, shift change hours (if applicable), the length of rest periods, designated holidays and amount of paid leave, and whether or not overtime work is expected
• How the employer will determine and calculate payment to the employee
• Method of payment
• Dates when payment will be made and the time periods these payments cover (including any deadlines)
• Whether or not the employment contract can be renewed, and if so, what factors will determine renewal (for fixed-term contracts)
• Grounds for termination and, if desired, a set retirement age (not to be lower than 60 years of age)

Terms of the employment contract that are not outlined above are not legally required to be in written form, but it is strongly encouraged. Worker rights such as holiday and parental leave are guaranteed to employees and override any contract terms.

For fixed-term contracts, Japanese law dictates that three years is the maximum contract length, or five years for workers aged 60+ and professional employees. Fixed-term contracts can be renewed indefinitely, but if a worker has been employed continuously for five years or more and their contract has been renewed at least one time, they can request to be converted to indefinite employment.

One important law about employment contracts in Japan that’s important to note is that they must be in a language that the employee understands. Because of this, many employers opt to draft contracts in multiple languages, for instance, Japanese and English.

As your employer of record (EOR) in Japan, we can assist you in building compliant Japanese employment contracts.

Termination and notice periods 

Terminating employees is difficult in Japan as compared to other nations. Terminations of a fixed-term contract are nearly impossible, except in cases of misconduct or extreme inability to perform work duties.

Terminations of indefinite contracts are possible, but must be deemed objective, reasonable, and appropriate — and legal precedents have ruled in favor of employees. Companies may terminate employees for reasons such as fraud, not completing work duties, and violation of workplace policies, but otherwise, Japan has a culture of “lifetime employment” and companies are discouraged from letting employees go. Staff layoffs for economic reasons are restricted, and certain procedures must legally be followed. However, Japanese employers are able to set a mandatory retirement age, which can be no lower than 60 years old.

When terminating an employee, employers must show documentation that the worker is being let go for cause, was given opportunities for improvement, and that the company attempted to negotiate with labor unions or other representatives, if applicable. Japanese employers must give 30 days’ written notice of termination, or 30 days’ wages. Severance pay is not mandatory under Japanese law, but is often agreed to in employment contracts.

Probation periods

In Japan, probation periods are not required by law, but are common in Japanese employment contracts. Traditionally, they are three months long, but can be one to six months long. Probation periods longer than six months have been deemed unduly long by Japanese courts.

Under Japanese law, employers are also given a 14-day trial period with employees. If an employer would like to terminate an employee within the first 14 days of their employment, no notice or payment is legally required.

Working hours and overtime

Typical working hours for office workers in Japan are from 9:00 a.m. to 6:00 p.m., with an hour break for lunch. However, a culture that values dedication to work means that Japanese employees are known to frequently engage in overtime work (known as “zangyou”). Therefore, the Japanese government has taken measures to try to improve Japanese workers’ work/life balance. Once such initiative is Premium Friday, the aim of which is to get Japanese employees to stop work early on the last Friday of each month.

The Japanese Labor Standards Act has set working hours at 40 per week, with overtime required for any hours beyond this. During a one-month period, employees in Japan are not permitted to work more than 45 hours of overtime.

Taxes

Employers in Japan must deduct income and resident taxes based on the amount of an employee’s salary and the location of their residence.

Employer payroll contributions

Employers in Japan must make numerous payroll contributions, as well as withholding contributions from employees’ wages. Employers in Japan are responsible for several payroll contributions.

• Social insurance (“Shakai Hoken”): Employers must pay half the cost of social insurance premiums (with employees paying the other half), which are calculated based on the employee’s salary.
• Pension insurance (“Kosei Nenkin”): Employers must also pay half the cost of contributing to the national pension fund (known as “Kokumin Nenkin”).
• Employment insurance (“Koyo Hoken”): Employers must pay 0.5% to 1% of an employee’s wages to cover Koyo Hoken, which funds national unemployment benefits and parental leave costs.
• Workers’ compensation (“Rosai Hoken”): The amount employers must pay varies by industry, with more hazardous industries paying higher amounts.

Those employing Japanese workers also must withhold the following from their pay (in addition to applicable taxes):

• Social insurance (“Shakai Hoken”): Under Japanese law, employers must register full-time and some part-time employees for Shakai Hoken. Employees pay for half the costs, with employers paying the other half.
• Pension insurance (“Kosei Nenkin”): Employees are automatically enrolled in Kosei Nenkin when you register them for Shakai Hoken. Approximately 18% of an employee’s salary must be deducted for Kosei Nenkin, with the employer and employee each paying half, or 9%.
• Employment insurance (“Koyo Hoken”): Employees also contribute a small portion of each paycheck to Kyoko Hoken, which is legally required to be withheld by employers.
• Nursing care (“Kaigo Hoken”): For any employee aged 40 or over, employers must withhold Kaigo Hoken to help cover costs related to national eldercare.