Employment laws in Japan

Employment laws in Japan are governed by a well-structured legal framework. The labor laws in Japan are primarily governed by the Labor Standards Act. Along with this, there is the Trade Union Law (TUL) and Labor Relations Adjustment Law (LRAL). 

The laws cover a wide range of workplace matters, right from employment contracts to working hours, from wages to leave entitlements, from benefits to termination, and so on. Understanding the employment laws is essential for labor law compliance in Japan. 

In this guide, we will explore the key aspects of employment and labor laws in Japan, including contract types, working hours, statutory benefits, termination rules, and labor union practices.

We will also look at how EOR services like Payoneer Workforce Management can help manage compliance, payroll, and employee lifecycle processes.

Key employment laws in Japan

The Labor Standards Act is one of the primary employment laws in Japan. This act regulates the working conditions in Japan and workplace safety and hygiene. 

Apart from this, there are more labor laws in Japan, similar to those of China. They are as follows:

• The Trade Union Law (TUL) – The TUL guarantees the workers’ rights to organize and to bargain collectively. 
• Labor Relations Adjustment Law (LRAL) – LRAL deals with labor management adjustments and means of dispute settlement. 

Contract employment laws in Japan

Employment contracts in Japan are governed by the Labor Standards Act (Act No. 49 of April 7, 1947). 

While contracts can be in Japanese (preferred for legal clarity) or English, employers have to mention essential contract terms. 

Types of contract

Here are some of the most common types of employment contracts in Japan. 

• Permanent employment contracts: Permanent and lifetime employment is the tradition of Japanese employment. The employment period is not stipulated, and the job remains assured until the mandatory retirement age. 
• Fixed-term employment contracts: Fixed-term employment contracts are permitted under Chapter II, Article 14 of the Labor Standards Act. These are applicable to employees who work for a definite period of time.
• Temporary work contracts: Temporary work in Japan is governed by the Worker Dispatching Law (WDL). The worker has a contract with a worker dispatching agency, but has to work under the direction of a client company. 
• Part-time employment contracts: In Japan, part-time work is governed by the Part-Time Work Law (PTWL). Part-time workers have shorter scheduled working hours per week in the country. Such workers are considered non-regular workers. No hikes, bonus payments, or allowances apply to them. 

Essential contract terms

When preparing employment contracts in Japan, you must mention the following details in the contract: 

• Identity of the employer and the employee
• Employment contract type
• Job title and description, including the scope of work of the employee, along with the role and responsibilities
• Commencement and end date (if applicable) of the employment contract
• Working hours and overtime policy
• Wages with other benefits
• Leave entitlements
• Probation and notice period
• Termination
• Dispute resolution
• Confidentiality and non-disclosure

Minimum wage in Japan

In Japan, the national average minimum wage is ¥ 1,113 per hour. However, there are variations to this amount depending on the region. 

Working hours in Japan

The standard working hours in Japan are 8 hours per day. Japan has a 5-day work week, which makes 40 working hours per week. 

As per overtime laws in Japan (Japan’s Work Style Reform Act), employees can work overtime hours and are entitled to overtime pay. 

• The standard upper limit for overtime hours is 45 hours per month and 360 hours per year. 

There might be some extraordinary circumstances for overtime work. Even in such times, these overtime limits cannot be crossed:

• Overtime hours have to be within 720 hours per year
• Overtime hours should not be more than an average of 80 hours per month over multiple months
• Overtime hours should be less than 100 hours per month 

Employees in Japan are entitled to overtime pay, according to their overtime hours. The overtime rates vary:

• If an employee works beyond the mandatory working hours (8 hours per day and 40 hours per week), they are entitled to an overtime pay rate of a minimum of 25% of their regular hourly wage. 
• If an employee works on a statutory holiday, the overtime pay rate is a minimum of 35% above the regular hourly wage. 
• If an employee works between 10.00 pm and 05.00 am, the overtime pay rate is a minimum of 25% above the regular hourly wage. 

Mandatory benefits

Mandatory benefits are an integral part of employee rights in Japan. Employers in Japan provide these benefits to their employees. Here are some of the prominent mandatory benefits:

Termination

Termination laws in Japan are mentioned in the Labor Standards Act. Termination of a labor contract at the employer’s and worker’s initiative is governed by Article 627 of the Civil Code. 

There must be a valid and legal cause for employee termination in Japan. There might be severe legal consequences for the employer if the employee dismissal is without valid grounds. If not handled in the right way, this can lead to a violation of labor law compliance in Japan. 

Types of termination scenarios

Here are some of the probable termination scenarios in Japan:

• Termination during the probationary period
• Resignation of the employee
• Mutual agreement between the employer and the employee
• Termination by the employer due to theft of company property, inebriation at work, sexual harassment at the workplace, fraud against the employer, regular late entry or unexcused absences, committing a heinous crime, and much more. 

The procedure for termination varies depending on the scenario. 

Notice period in Japan

The notice period in Japan varies. It is different during the probation period and after the probation period. 

• Notice period during probation – The notice period during probation, which ranges from 3 to 6 months on average, is 30 days. During this span, employees have to follow the same dismissal regulations as general employees. 
• After probation period – For terminating employment in Japan after the probation period, employees have to serve a standard 30-day notice period. 

Severance payable 

In Japan, there is no legally mandated severance pay. However, many companies have policies and procedures regarding severance pay in Japan. 

Navigate employment laws in Japan with trusted support

Maintaining labor law compliance in Japan is mandatory for employers to avoid penalties and fines. Hence, employers must understand the employment laws in Japan clearly. 

An EOR service, such as Payoneer Workforce Management, helps navigate these labor laws in Japan. 

The EOR service also assists with payroll management and taxation, employee onboarding and termination, leave and benefit entitlements of employees, and much more. 

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