Your guide to payroll in Japan

Complying with local payroll laws is essential to attracting and retaining top talent in Japan. With strict labor regulations, complex statutory benefits, and multiple social contributions, handling payroll in Japan requires a strong understanding of the legal and administrative requirements.

Working with an Employer of Record (EOR) like Payoneer Workforce Management offers a streamlined and compliant way to pay employees in Japan. An EOR helps handle the entire Japan payroll process, from drafting employment contracts to managing tax deductions and remitting payments on your behalf.

Payroll in Japan: Wages and other payments

Companies looking to hire in Japan must follow strict labor laws when it comes to wage payments, leave entitlements, bonuses, and more. Below is a breakdown of the key components involved in managing your Japan payroll.

Japan’s payroll cycle

The typical Japanese payroll process follows a monthly payment schedule. Employees are usually paid monthly on a fixed date, most commonly the 25th. Payment must be made in Japanese yen and transferred directly to the employee’s bank account.

Under Japanese labor law, wages must be paid in full and on time. Employers must not withhold wages unless legally authorized. While the 25th is a common payday, some companies may choose another date if agreed upon in writing.

Minimum wage and overtime

The national minimum wage in Japan is JPY 1,113 per hour. However, minimum wage levels are set regionally, and cities like Tokyo may have higher rates. Employers must ensure they comply with the applicable minimum wage in the area where the employee works. They should also note that the minimum wage is reviewed annually.

Under the Labor Standards Act, employers must pay employees in Japan premium wages for overtime. The pay rate is at least 25% above the regular hourly wage, and 35% for work during holidays.  Night shifts, defined as work between 10 pm and 5 am, also attract a 25% premium.

Usually, the overtime is capped at 45 hours per month.

Maternity pay

Pregnant employees in Japan are entitled to maternity leave starting 6 weeks before the expected delivery date, or 14 weeks in the case of multiple births. They are also entitled to 8 weeks of postpartum leave.

Employers are not obligated to pay salaries during maternity leave. However, if the employee is enrolled in the national health insurance system, they may receive a maternity allowance as per the policy.  

13th- and 14th-month salary

Although not mandatory, it is customary for companies to offer a 13th-month salary, paid in June, and a 14th-month salary, paid in December. These payments are considered summer and winter bonuses. While not mandatory under Japanese law, they are commonly written into employment contracts, especially in domestic firms. Global companies managing payroll in Japan may choose to simplify this by offering fixed annual salaries instead.

Sick pay

There is no statutory requirement for paid sick leave in Japan. If an employee is unable to work due to illness, they are expected to use accrued paid leave or unpaid leave. In some cases, employees may apply for benefits under the health insurance system to recover part of their income during extended illness.

Japan payroll tax: Contributions and deductions

Both employers and employees are responsible for several statutory contributions in Japan. These deductions fund public welfare systems and must be accurately calculated to ensure compliance with Japan’s payroll tax laws.

Income tax

Japan’s payroll tax system applies a progressive income tax structure from 5% to 45%. 

Social security contributions

Japan’s payroll tax includes both employee and employer contributions to pensions, health insurance, and unemployment insurance. 

Contribution types	Employer	Employee
Health insurance	4.99% to 4.955%	4.99% to 4.955%
Nursing care insurance (for employees aged 40-64 only)	0.80% to 0.795%	0.80% to 0.795%
Unemployment insurance	0.95% to 0.90%	0.60% to 0.55%

These contributions must be calculated accurately and submitted along with other Japan payroll tax obligations each month.

Japan payroll compliance best practices

To manage payroll in Japan successfully, businesses must stay compliant with tax filing deadlines and labor laws. Payroll contributions are typically due by the 10th of the following month.

Recommended best practices include:

• Monitoring updates to Japan’s payroll and labor laws
• Conducting periodic payroll audits
• Providing payroll compliance training to relevant staff
• Using dedicated payroll solutions in Japan to streamline operations

Many companies use global employment platforms like Payoneer Workforce Management to manage their Japan payroll tax obligations without the need for a local entity. This simplifies compliance, minimizes risk, and improves efficiency.

Ways to pay employees in Japan

There are three primary options to pay employees in Japan:

1. Set up a legal entity: Registering a local business in Japan allows you to hire employees directly. However, the process is time-consuming and requires significant administrative work, including incorporation, local tax registration, and opening a bank account.
2. Hire independent contractors: Some companies engage contractors instead of full-time employees. While this option offers flexibility, it carries compliance risks. If a contractor is later reclassified as an employee, your company may face penalties and back payments.
3. Use an Employer of Record: An EOR provides a compliant way to manage payroll in Japan. The EOR acts as the legal employer, handling everything from employment contracts to social insurance contributions, while you maintain day-to-day control over the employee’s work.

Try Payoneer Workforce Management’s EOR in Japan for compliant payroll support, along with onboarding, benefits, compliance, and more.

Book a demo today.

FAQs

1) What is the payroll in Japan?

Payroll in Japan involves paying employees monthly, withholding taxes, and contributing to pension, health insurance, and other statutory programs. Employers must also report and remit taxes by the 10th of the following month.

2) How do salaries work in Japan?

Salaries are paid monthly in Japanese Yen, most commonly on the 25th. Payments must be made directly to the employee’s bank account, and all statutory deductions must be included.

3) Does Japan give 13th-month pay?

Yes, it is common to offer 13th- and 14th-month bonuses in Japan. These are typically paid in June and December, but are not legally required unless specified in the employment contract.