Japan PEO – Employer Of Record

Japan is the third-largest economy in the world, with a per capita GDP of US$ 40,193.3. The developed economy of the country offers numerous opportunities to businesses to expand and diversify their verticals. Moreover, Japan’s dedication to quality, innovation, and global outlook make it a top destination for business expansion. 

While Japan’s quality of life and work environment attracts expatriates, migrating to the country has its challenges. Japan’s culture and local etiquette add another layer of complexity, especially for overseas businesses. Even after establishing a business presence in Japan, you need to be mindful of its local labor laws, employment contracts, payroll, benefits, etc. 

Partnering with a Japan EOR/PEO is a wise choice to mitigate the risks and complications. Multiplier’s EOR and PEO solutions can help you manage your international workforce in Japan. We take care of all your HR operations, from onboarding and employee payroll management to benefits, taxes, and other expenses.

A PEO or Professional Employer Organization is a third-party firm that partners up with a company to help the latter with employee onboarding, management, payroll processing, taxes, and other HR-related activities. In other words, the PEO shares HR responsibilities with the company based on the co-employment model. Thus, having a PEO relieves you from handling complex HR responsibilities, so you can solely focus on the business growth.

The following benefits advocate the resourcefulness of a Japan PEO: 

Regulatory compliance

A PEO in Japan can look after your HR operations while remaining up-to-date with dynamic laws and tax regimes. Thus, you can avoid regulatory risks and operate legally.

Time-saving

While workforce management is time-consuming, you will have specialists taking care of your international HR needs with a Japanese PEO, saving you considerable time. Thus, you can grow your business while the PEO looks after your human resources. 

Channelized recordkeeping

A professional and trustworthy PEO in Japan handles all the HR-related recordkeeping. The data records will ensure maximum transparency and offer real-time HR management information.

Accuracy and efficiency

Accurate information and efficient productivity are the two pillars of a Japanese PEO. PEO services ensure complete transparency regarding all tasks and compliances.

Typically, PEOs follow either a fixed or variable pricing model. On average, a professional PEO based on the fixed pricing model will cost you anywhere between $500 – $1,500 per employee per year. However, there are several factors that determine the final amount. A PEO may charge a flat fee per employee or a percentage of your company’s annual payroll. 

Multiplier’s PEO solution has an employee-based pricing model. Our flat and transparent PEO pricing starts from $300 per employee per month for full-time employees and covers international payroll, multilingual contracts, benefits administration, expenses, and leave management. The final cost may vary depending on the complexity of the employee’s jurisdiction and employment laws.

Our straightforward and convenient Japan EOR services are designed to ensure that you can run payroll and benefits for your international employees with zero hassle. Multiplier is a comprehensive and flexible PEO platform offering an effortless experience in global HR management.

Employment laws in Japan are strongly employee-centric and focused on protecting individual rights. You need to consider these laws while hiring and onboarding employees. To ensure a risk-free hiring and management process, partner with a Japan EOR, like Multiplier.

However, if you want to conduct the hiring process yourself, here are some tips to ensure a smooth expansion into Japan.

A local entity in Japan

You have the following options if you are looking to do business in Japan with a local entity:

• Limited liability company (Godo Kaisha): Only one shareholder can register a Japanese limited liability company. If the shareholder is a foreigner, the company must have at least one Japanese resident director.
• Joint-stock corporation (Kabushiki Kaisha): A Japanese joint-stock corporation is similar to a limited liability company. Both require the same paid-up capital, are formed by foreign shareholders, and must have at least one resident director.
• Free zone company: A Japanese free zone company is typically an export-oriented manufacturing business in Japan’s free trade zones.
• Limited liability partnership: Overseas business owners can also register a limited liability partnership. While it has no minimum capital requirement, at least one of the partners needs to be a Japanese resident.

Japan employment contracts

The Japan Labor Standards Act does not stipulate any format for employment contracts. However, it is a norm for employers in Japan to provide a written employment contract to their employees, including the following information:

• Terms and conditions
• Compensation in Yen
• Working hours
• Benefits
• Leaves
• Disciplinary protocols
• Termination requirements
• Workplace rules

Taxation in Japan

Japan has a progressive tax regime – the higher the income, the higher are the tax rates. There are various kinds of tax, for instance, local inhabitant’s tax and personal income tax. Japan’s prefectural and municipal governments levy local inhabitant’s tax at a flat rate of 10% on a taxpayer’s previous year’s income.

While permanent resident taxpayers in Japan are taxed on their global income, non-resident taxpayers pay tax only on their income earned in Japan. The country’s income tax rate is deducted as per the following table:

‍National Income Tax

Employers in Japan must submit employee withholding tax on the 10th of the ensuing month and report the same in an annual withholding tax report filed in January. In June, payment slips and local tax withheld from an employee’s monthly salary in Japan are submitted to the local tax office.

Japan payroll

You have several payroll options in Japan, depending on the size of your company and its requirements. Broadly, you can opt for any of the following methods to manage payroll in Japan:

• Dedicate an internal team, provided you have qualified professionals with an adequate understanding of Japanese payroll laws

• Hire a Japanese payroll outsourcing agency that can look after compliance, compensation, taxes, benefits and other aspects of payroll. However, you will be the Employer of Record and remain liable for the outsourcing company’s actions.

• Alternatively, you can hire a professional Japan EOR service. Such EOR services will manage your employees’ payroll while ensuring compliance with Japanese laws.

Employment benefits in Japan

Employees in Japan are entitled to certain guaranteed benefits, including holidays, leaves, and health benefits. Below is an overview of the major employment benefits in Japan that a PEO in Japan can manage for you. 

Social security benefits

Japan’s employment laws guarantee health care coverage, unemployment insurance, pension, and workers’ compensation to all employees. Payments towards healthcare and pension plans are split between employers and employees. Additionally, employers pay more than half of unemployment insurance premiums and the entirety of workers’ compensation premiums.

Public Holidays

Japan observes 16 public holidays. While employers are not legally bound to give time off on public holidays, it is a widely accepted tradition. The list of public holidays in Japan includes:

• New Year’s Day
• Foundation Day
• Coming of Age Day
• Showa Day
• Vernal Equinox Day
• Greenery Day
• Constitution Memorial Day
• Marine Day
• Children’s Day
• Respect for the Aged Day
• Mountain Day
• Health and Sports Day
• Autumnal Equinox Day
• Labor Thanksgiving Day
• Culture Day
• The Emperor’s Birthday

Leaves

Employees in Japan are entitled to an annual paid leave of a minimum of 10 days on completing six months of service. The leave entitlement increases by one day per year for two successive years of employment and by two days per year after that, up to 20 days per year. However, there is no official sick leave in Japan. Thus, employees generally take a leave of absence using their paid vacation when they fall sick. Some international companies may grant sick leaves as a special benefit.

In addition, pregnant employees are granted maternity leave within six weeks of the expected delivery date and eight weeks after birth. The country also provides paternity leave or childcare leave for new fathers.

Employee severance and terminations in Japan

Japan’s pro-employee labor laws guarantee solid legal protection while outlining the termination requirements. Hence, probationary periods to evaluate employee performance are common in Japan and range from 3 – 6 months to a maximum of one year. Acceptable grounds for termination in Japan include:

• Theft
• Violence
• Serious insubordination
• Severe and consistently poor performance despite formal warnings and corrective training
• Furnishing of false information regarding background or skills that directly affect performance and fulfillment of duties

Employers must give at least 30 days’ notice of termination or provide payment of average total salary in lieu of notice.

Managing HR operations in a workplace can be demanding, especially if your business is overseas. Apart from payroll processing and tax filing, having an international workforce means remaining compliant with foreign laws. To make matters more complex, governments and local authorities keep updating legislation from time to time. This is where you need a reliable PEO to navigate the intricacy of international employee management. 

Multiplier’s professional PEO in Japan solution serves as the co-employer of your Japan workforce, providing risk-free and dependable support in onboarding, payroll management, benefits, compliance, and other HR-related activities.

• Run and handle international payroll
• Provide employees locally competitive benefits and insurance
• Seamlessly manage expenses and reimbursement claims
• No need for a local entity
• 100% statutory compliance
• Maximum precision and transparency
• No transfer fees or hidden charges

A PEO or Professional Employer Organization is a third-party organization that enters into a co-employment relationship with an employer. The PEO shares the company’s employee-related responsibilities such as payroll management, benefits, taxes, deductions, and much more.

Partnering with a professional Japan PEO service helps employers hire global talent, pay, and manage their international team. Moreover, a Japan PEO solution significantly reduces the employer’s burden of handling HR-related activities by taking over the company’s global HR functions. Thus, employers can reduce the costs of hiring HR personnel and focus on other core business aspects.

On average, PEO service costs range from $500 – $1,500 per employee per year. A Japan PEO may charge a flat fee per employee or a fee based on a percentage of your company’s annual payroll.