Japan Payroll and Employment Differences for Multi-National Businesses

Japan Payroll and Employment Differences for Multi-National BusinessesThe Japanese people are some of the hardest working individuals in the world. They have a culture of rigorous hours and extreme efficiency. Multinationals with employees in Japan should be aware of the cultural implications and expectations to ensure a smooth employment process and effective compliance management.  Running Japan payroll as an outsider means strict scrutiny.

The work culture is so intense that there is a word, “karoshi,” that literally means “to work yourself to death.”  To counteract the negative effects of this powerful work ethic, Japanese officials recently launched a new campaign to give employees a break. The initiative is known as “Premium Friday” and is aimed at encouraging companies to let workers leave early on the last Friday of the month. In addition, Prime Minister Shinzo Abe is striving to cap overtime enforced with random inspections. This is just a little preview of some of the cultural differences between Japan and other countries.

So, assuming you have already established the right type of entity in Japan and can legally do business there, what are some of the unique aspects of running a Japanese payroll?

Mandated Regulations in Japan Payroll

When it’s time to pay employees based in Japan, there are critical mandatory requirements that a company must follow to stay compliant.

Social Insurance Withholdings

First, a multinational organization must enroll its team members in the following social services:

• Pension benefits
• Health insurance
• Long-term care insurance
• Unemployment
• Workers’ compensation

All employees must be enrolled in these benefit programs for Japan payroll, regardless of citizenship. National insurance, covered by taxpayer funding, contributes to unemployment and workers’ compensation. In addition, employers contribute towards all of the premiums.

Tax Registration

In addition to social insurances, employers must ensure their employees are registered to pay the appropriate taxes. In Japan, there are two types of residents for tax purposes: non-permanent resident and permanent resident. As of January 2017, non-permanent residents are taxed on all income earned in Japan. In contrast, permanent residents are taxed on their worldwide income, regardless of where it is earned or paid.

Tax Rate on Japan Payroll

In Japan, income tax is charged at progressive rates ranging between five and 45 percent. It’s the employer’s responsibility to withhold the appropriate income tax for their employees and making a year-end adjustment for employees who earn JPY20 million or less per year.

Paid Time Off

Japanese employees are entitled to paid time off to use at their discretion. Employers must obey these entitlements to remain compliant with Japan payroll. According to Japan labor law, employees who have been employed continuously for six months are entitled to ten days of paid time off. The days increase thereafter, as the time of employment increases. In addition, most employers offer more time off to attract better talent.

Collective Agreements Impact on Japan Payroll

There are a number of collective agreements between Japanese employers and labor unions, which can affect the employment terms. These agreements impact actual pay and many aspects involved with the Japan payroll process, including:

• Working conditions
• Bonuses
• Benefits
• Work hours
• Dispute resolution procedures

These agreements may also regulate the relationship between Japanese employers and unions.


When it comes to Japan payroll services, employers don’t have to try and manage it all on their own. Rely on the simplest, most complete payroll solution in the market. Celergo’s consolidated payroll service helps ensure that every part of your global payroll process, whether in Japan or elsewhere, is under control, on-time, and accurate. Contact us today to learn more!



**This article is for informational purposes only. It is not intended to constitute legal advice.


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