Setting up and managing payroll in Japan
Japan’s advanced economy, ranked third largest in the world, and exceptionally strong cultural work ethic can make it an excellent place to expand your business. An important part of this kind of international expansion is hiring and paying employees locally. While this is a great way to access local expertise, the hiring and payroll processes can be complex for foreign organizations to navigate. Language barriers, cultural differences, and unique sets of regulations can all add to the confusion.
A popular way to bypass the complexity of Japanese employment is to utilize a Japan payroll outsourcing system and transition payroll administration to a global PEO. At Horizons, we can work with you to establish and run a fully compliant Japan payroll to facilitate your expansion, whether or not you already have an entity in Japan.
Why choose the Horizons payroll solution?
If you have an entity
Have you already set up a legal entity within Japan? We can take all the complex payroll administration off your hands, helping you employ locally in accordance with local employment laws, managing HR, contracts, and any associated administration.
This service is well-suited to larger organizations and those who have already registered a presence in Japan that could benefit from Japan payroll outsourcing and consultancy services.
If you don’t have an entity
Are you yet to establish a legal entity within Japan? Choose our full payroll service to use our established Japan PEO as your employer of record in the country. Through our entity, we can manage all of your in-country payroll, contracts, HR, and administration.
This flexible payroll service is perfectly suited to any organization looking to expand into Japan and Asia with low risk and has not yet established an entity.
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Japan payroll guide
What are the tax and withholding rules in Japan?
Japan follows a progressive tax model similar to most countries, with higher earners paying a higher percentage in income tax. The major taxes are a national-level income tax (set at between 5% and 45%) and a local tax which depends on the employer’s location.
Beyond these standard income taxes, both employees and their employers must pay towards the nation’s social security fund, paying 50% each. This fund provides all kinds of wide-ranging benefits, such as pension and healthcare.
The corporate tax rate is 23.2%, but this generally rises to between 30% and 34% with local taxes included.
| Pension | 9.15% |
| Unemployment Insurance | 4.98% – 5.815% |
| Health Insurance | 0.6% |
| Work Injury | 0.25% to 8.8% |
| Family Allowance | ~0.29% |
| Total Employer Cost | Up to 24.66% |
| Pension |
9.15% |
| Health Insurance |
4.935% |
| Unemployment Insurance |
0.3% |
| Total Employee Cost | 14.39% |
Up to 1.95M | 5.00% |
1.95M – 3.3M | 10.00% |
3.3M – 6.95M | 20.00% |
6.95M – 9M | 23.00% |
9M – 18M | 33.00% |
18M – 40M | 40.00% |
Over 40M | 45.00% |
Contractual rights and termination regulations
Employees in Japan should always be provided with a formal contract of employment. This contract should detail all entitlements, such as paid annual leave, sick pay, maternity leave, and so on. Paid maternity leave, for example, must legally cover six weeks prior to the birth date and eight weeks after.
Regarding termination, there is no legally required severance pay, but employees must be notified at least 30 days prior to termination.
How to establish Japan payroll outsourcing
Prior to establishing up a Japan payroll, you will need to open Japanese bank accounts and register with various official bodies. Additionally, you are legally required to sign up for withholding tax, national labor insurance, and social insurance.
The process of establishing a Japan payroll system in Japan varies for different types of organizations. Usually, an organization will fit into the categories of either Kabushiki-Kaisha (similar to an incorporation), Godo-Kaisha (close to an LLC in the USA), Gomei-Kaisha (general partnership), or Goshi Kaisha (limited partnership), but there are further classifications.
A simpler option is to utilize a system for your Japan payroll outsourcing and hand over the setup and management to Horizons. Our experts will handle everything for you, from setup to HR and compliance work. We also offer our Japanese subsidiary to act as employer of record for your in-country employees, so you can benefit from our outsourcing solutions even if you don’t have an entity in Japan.
Manage payroll in Japan
Whether it’s EOR service or just payroll management, Horizons’ employment experts can help you get started in 24h.
