Doing business with a Japan PEO & Employer of Record
Japan has long stood out as a leading player in international business, known not only for its highly sophisticated technology, automotive, and financial industries but increasingly for software, agriculture, and pharmaceutical. With 126.8 million people and an elite education system, Japan stands to offer exceptional potential in the form of globally-exposed and well-trained talent, making it even more of an attractive location for foreign investors.
Japan does, however, have an incredibly complex legal and regulatory environment that makes starting a business in Japan a difficult task. Using a professional employer organization (PEO) or employer of record (EOR) is one means of overcoming those difficulties, however. Read on to discover the benefits of using a Japan PEO/EOR and to get rankings of the top providers.
Why Use a Japan PEO / Employer of Record?
Japan has an advanced society that relies heavily on technology for communication, as do so many other countries. But while this does assist in expanding into the country in many regards, there are some significant differences in business culture that require local expertise for successful navigation. The regulatory environment is also complex, demanding local legal, accounting, and HR expertise. A Japan PEO/EOR makes a natural partner for these needs, as a PEO/EOR with a local presence in Japan will be able to assist executives in expansion and ensure a smooth market entry. Everything from the creation of contracts in the Japanese language to managing staff disputes can be handled by the PEO/EOR.
How to Hire via a Japan PEO
The best practice for creating a strong employment contract in Japan is to specify the terms of the employee’s compensation, benefits, and termination requirements in both Japanese and English. Japanese law requires employers to provide employees with a written contract at the beginning of their employment.
Both the official offer letter and employment contract should state the salary and any additional compensation or benefits in Japanese Yen currency.
Japanese culture is dedicated to making sure that all employees are given a fair, safe, and peaceful workplace. It is the responsibility of the employer to provide annual doctors appoints to all employees to ensure their health is taken care of and viewed as a top priority. If the work has the potential of being hazardous to an employee’s mental health, the employer may be required to also provide regular stress checkups.
As every culture presents different hiring challenges and opportunities, taking advantage of the recruitment channels with the highest potential is especially important for the process of hiring talented professionals in Japan. This is where your company can likely benefit from working with a Japan PEO that is already well-versed in the local regulations and possesses in-country connections.
To successfully hire in Japan, it can also be valuable to partner with a recruitment agency to simplify and expedite the process of hiring talented professionals in the country. On occasion, Japan PEO organizations will have an in-house recruitment agency that will significantly aid the process of recruiting in Japan. The benefits of using a recruitment agency to improve your overall hiring process include:
- Having access to local recruitment experts who are familiar with the Japan markets and the best hiring practices.
- Partnering with an organization that is designed to understand the specific goals of your business and that can create a recruitment search process that is designed to fulfill your exact needs.
- Being able to take advantage of the recruitment agency’s local legal expertise to ensure that your business is compliant with the local laws and regulations in regards to employment.
When you partner with a Japan PEO that also offers recruitment coverage, your company is able to receive ongoing support that includes the hiring and onboarding management, HR and payroll services, and more valuable resources in addition to those provided in the initial recruitment phase.
Below we have listed our recommendations for the 3 Best Japan PEOs and Employers of Record. These organizations all have outstanding reputations for being able to hire and manage talented professionals in Japan as well as ensure full compliance with local employment regulations.
Best Japan PEOs and Employers of Record
As Asia’s leading recruitment agency and PEO, SkyExecutive is able to meet both recruitment and day-to-day employment needs for companies looking to expand into Japan. SkyExecutive’s recruitment consultants are local experts who know not only how to find the best talent, but to keep it through their professional PEO/EOR services and talent management offerings. Many large companies, including Fortune 500s, have partnered with SkyExecutive for Japan PEO/EOR services that integrate seamlessly with recruitment, so the company makes an excellent option for foreign investors looking to recruit new teams to work in Japan.
Global PEO is a respected globalization company that has continued to provide superb global expansion guidance in recent years. The group is based in Hong Kong, but their knowledge base in other countries is localized and up-to-date with the modern working culture. Global PEO’s focus on delivering cost-effective business expansion solutions is a strong selling point for businesses expanding into Japan, and offers rates that provide strong value and remain competitive compared to industry norms. In addition to recruitment and hiring services, their Japan PEO also has the capability to take on a variety of duties based around entity setup, staffing, payroll, and a variety of administrative functions.
New Horizons Global Partners is another major Japan PEO/EOR provider in Asia, and their local consultants have the means not only to ensure compliant and efficient expansion, but to really help new staff teams feel at home in the country. With a large client list that boasts some household name brands, NHGP stands out as a trusted and reliable partner for expansion into Japan.
Velocity Global is an international company in the true sense of the word, with operations in over 185 countries. That said, with its expansive local partner network, it is able to make any foreign company confident of efficient and hassle-free integration into the Japanese business world via their Japan PEO/EOR. Their staff can handle the administrative burden of hiring staff in Japan without having to set up a local entity on the foreign company’s behalf, making the transition much easier.
If your company is looking to expand your operations into Japan, GlobalizationPedia can connect you with a PEO that best fits your needs at a cost-effective price. Fill out the form below and we’ll use our extensive database of strategic partnerships to provide you with a full rundown of the best potential Japan PEO matches for your company.
Below are a few of the reasons why it may make sense for your business to partner with one of our recommended Japan PEOs / Employers of Record.
- Your company currently has one or more independent contractors working overseas and you want to convert them to internal employees while having them continue to work in Japan. In this situation, using a Japan PEO and Employer of Record can simplify the process of transitioning the employee(s) into your own network, instead of doing it on your own by establishing your own legal entity.
- You are currently facing a situation where you are in a relationship with your contractor that is not compliant with local laws and regulations.
- The financial risk that come with maintaining a foreign entity from a compliance perspective is becoming too high to justify the potential benefits that your business could see from the endeavor in the long term.
Additional information on the process of hiring in Japan
The working week in the majority of Japan cities begins on Monday and ends on Friday. Japan employees typically work 40 hours per week, unless there have been arrangements made with working unions in advance. There must also be an agreed upon maximum number of overtime hours designated per week.
The minimum overtime rates are as listed below (percentage of base hourly wage):
Standard overtime rate – 125%
Required work on a “Rest Day” – 135%
Late night overtime (anytime from 10:00pm & 5:00am) – 150%
Late night overtime on a Rest Day – 160%
Overtime work after the threshold of 60 hours in a single month – 150%
Late night overtime after the threshold of 60 hours in a single month – 175%
It’s important to keep in mind that small to mid-size companies are exempt from the 60+ hour thresholds shown above. Supervisors, managers, and personnel in charge of “handling confidential matters” are typically exempt from receiving overtime pay.
Although it is not legally required, it is unusual for companies to not grant salaried employees in Japan the day off on national holidays. This is also the case for Japanese workers employed by foreign companies. If a holiday falls on a Sunday, the standard practice in Japan is to observe the holiday on the following Monday.
Japan celebrates 16 national holidays annually, which include:
– New Year’s Day
– Coming of Age Day
– Foundation Day
– Vernal Equinox Day
– Showa Day
– Constitution Memorial Day
– Greenery Day
– Children’s Day
– Marine Day
– Mountain Day
– Respect for the Aged Day
– Autumnal Equinox Day
– Health and Sports Day
– Culture Day
– Labour Thanksgiving Day
– The Emperor’s Birthday
Similar to US business practices, there is no legal requirement to provide bonuses to employees working in Japan. However, companies in industries where bonuses are common will often provide employees with performance-based bonus structures.
We recommend allocating approximately 10% of your Japan expansion budget to cover the potential cost of benefits in addition to the base salary of employees working in Japan.
Traditionally, employers are not required to approve paid leave to employees who are absent from work due to sickness or injury. The only exception to this rule is if your company’s employment contract specifically states otherwise.
In Japan, the policy surrounding maternity leave is as follows: when a woman becomes pregnant, she is granted maternity leave from within 6 weeks of the anticipated birth date and then up to 8 weeks following the birth. It is illegal for an employer to require a female employee to return to work within 8 weeks after giving birth unless both parties agree for the worker’s return and a doctor approves that it is safe for the female employee to return to work.
In Japan, employers are not required to pay for maternity leave unless they stipulate that benefit in the employment contract.
Termination & Severance
Japan’s laws on termination provide a high degree of legal protection for employees. It is difficult to terminate an employee working in Japan and there are strict regulations surrounding what is considered as a “justified termination.” A dismissal will be deemed invalid as an abuse of employee rights under the country’s local laws if it is not considered to be appropriate in general societal terms.
Historically, it has been very challenging for employers to successfully prove a valid cause for termination in the eyes of Japan’s legal courts. The exceptions to this rule include: employees committing crimes or violations such as theft, violence, excessive insubordination, dishonesty regarding their professional credentials, or long-term poor performance in the position.
Common Japanese business practice is to place poor-performing employees on a 3 to 6 month probationary period. If the employee continues to underperform or not meet the expectations of the company, they can be terminated without being deemed unacceptable under Japan law.
Employees must be given at least 30 days notice of termination. This stipulation is commonly included in the “work rules” as provided by the company to the employee at the time of initial hire.
In Japan, all employment income is subject to federal income tax as well as the “local inhabitants tax.” The national tax rates is applied at progressive rates depending on the amount of income. The local inhabitants tax is applied at a flat rate that is set locally.
Due to the country’s higher tax rates, Japan has a very strong and well-regarded social security system. Japan operates within their National Universal HealthCare system. This provides all employees with health insurance, welfare pension insurance, workers’ compensation, and unemployment insurance. These benefits are granted by the Japanese government, so it is uncommon for employers in Japan to offer additional insurance benefits.
Anti Discrimination & Compliance Laws
Japan does not currently have a law in place that prevents companies from discriminating against employees on the basis of age, gender, race, or disability. However, the common business practice and strong recommendation for professional conduct is to not publicly mention or discuss these matters during the recruitment, hiring, or any phase of the employment process.
Japan did recently pass an anti-hate speech law to protect Korean residents who had been subject to negative speech on the basis of their nationality.
Payroll Options in Japan
If you decide to expand into Japan and begin hiring local employees, you will need to establish a method of running employee payroll. Below are the two most common payroll options:
Option 1 – Set Up Your Own Subsidiary
Large companies will sometimes decide to handle their foreign employee payroll process on their own. In order to do this, you will be required to set up a subsidiary, register your business in Japan, and have a deep understanding of the country’s taxation, withholdings, benefits, and other local payroll conditions.
Option 2 – Work With an International PEO
When you work with GlobalPEO, our Payroll solutions make things easy by handling all of the administrative and HR duties with the employee. This frees up your business and foreign employees to focus all of your communications on the work itself.
As stated before, whenever you employ a professional workforce in Japan, you will need to create contracts prior to establishing your payroll to pay employee salary and benefits in the country.
The contracts must also specify the terms of employment, which will depend on the type and status types of your employees. For example, fixed-term contracts do not require a specified notice period, but other forms of employment will require a 30-day notice period for termination without cause.
Japan PEOs / Employers of Record will also provide assistance for managing the payroll and HR benefits of your global workforce.
How to Establish Payroll in Japan
As mentioned previously, before you can begin hiring foreign employees, you are legally required to either set up an entity in Japan or work with an Japan PEO. If you elect to do this on your own, you will need to set up a business bank account in Japan.
There are four primary ways of setting up your payroll in Japan, depending on the structure of your company:
Godo-Kaisha – Structured similarly to a LLC in the United States.
Goshi-Kaisha – A limited partnership company
Gomei Kaisha: A general partnership company.
Kabushiki – Kaisha: The most similar method to a traditional incorporation that is available in Japan.
Vacation Leave in Japan
Japan provides vacation leave as an employment entitlement to all local employees. The amount of annual paid vacation leave is based on the employee’s duration of employment with the company:
- 6 months – 10 days of annual leave
- 1.5 years – 11 days of annual leave
- 2.5 years – 12 days of annual leave
- 3.5 years – 14 days of annual leave
- 4.5 years – 16 days of annual leave
- 5.5 years – 18 days of annual leave
- 6.5 years – 20 days of annual leave
Employees are able to accrue up to 24 months of paid leave. Any unused time after this mark will expire at the end of each year.
Contact us today if you would like to learn more about the process of connecting with the right Japan PEO for your business.