Essential Guide to Hiring Employees in Japan

Japan currently stands to be the third-largest economy globally, exceeding $5 trillion in 2019. This growth’s heart is constant cooperation between technological advancements and government. Such exponential growth makes Japan a perfect market to expand your business.

Hiring employees in Japan comes with great potential and unique challenges. While language is a barrier, the highly competitive market gets tricky to navigate in other cases. 

Here is a guide on hiring staff in Japan, the challenges you might face, and much more.

The Japanese economy thrives with a highly educated and skilled workforce. Yet, Japan’s hiring process can pose a few distinct challenges owing to its unique demographics paired with the cultural scenario. Hence, you must remember a few things before beginning your recruitment process in Japan.

Shortage of labor

Before you begin the recruitment process in Japan, you should know that Japan has a significant labor shortage – almost 30% of the country’s entire population is elderly. Hence, finding skilled employees in Japan is a challenge.

Another significant factor that pushes Japan’s population further down is that the country is not exactly immigration-friendly. Owing to such a labor shortage in the country, most Japanese employees enjoy fantastic job security, making the hiring process in Japan extremely competitive. Any employee searching for a job receives offers from multiple organizations at a time, which is quite a challenge on any employer’s part and needs to be tackled strategically.

Workweek

Japanese labor law mandates the workweek in the country to be 40 hours with an 8-hour workday. Any company in Japan that wishes to extend their working hours beyond this sanctioned time must first get the government’s approval. Overtime is taken very seriously in Japan, and employers must bear overtime pay, which ranges between 25% to 50% premium on the employee’s standard wages.

Minimum wage

There isn’t any uniform minimum wage for employees in Japan as the minimum wages vary across regions and industries. Therefore, you must be aware of the minimum wage applicable to your company. For instance, the minimum wage per hour in Tokyo is 985 JPY, Osaka 936 JPY, and in Kyoto 882 JPY.

Employment terms and conditions

Your new staff members’ employment terms and conditions, including working hours, salary, holidays, etc., should be mentioned in writing. If your company has ten or more employees, you must create the work rules and submit them to the local Labor Standards Inspection Office. This office will then provide you with the necessary guidance to ensure your employment terms and conditions are compliant with domestic laws.  

Company branding

Your recruitment process in Japan can face hurdles if your company lacks local branding. Japanese employees are known to prefer bigger brands that are widely recognized. This makes hiring people in Japan challenging if it is an overseas company or a start-up. Branding is also not restricted to your company but also to the position you want to hire for. This is where the hiring process in Japan differs from other nations because you have to present your business to the applicants deemed fit for the role, and not the other way round.

Entitled paid leaves

If an employee has worked for over six months with your company, they are entitled to ten paid leaves annually. Once the six-month threshold crosses, each additional year adds an extra paid leave. For instance, if an employee has worked with your company for 18 months, they are eligible for 11 paid annual leaves. Most companies prefer to provide extra paid leaves to their employees as an extra incentive.

Social security and taxes

A part of the employee’s paycheck in Japan goes to their social security (Shakai Hoken). Japanese social security covers 

• Employees’ health insurance
• Pension
• Compensation
• Unemployment insurance. 

Thus, there is no need on the employer’s part to provide any private insurance to the employees. However, most employers in Japan provide annual health check-ups for their staff. 

Employers in Japan are also mandated to withhold the staff’s income tax. This rate follows the income tax slab provided by the Japanese Government.

Language barrier

Language is perhaps one of the greatest barriers to the recruitment process in Japan. According to several estimates, only about 30% of the Japanese population can speak English at any level, and possibly only 2% are fluent English speakers; this language barrier makes it difficult for any foreign company to hire local talent.

13th and 14th-month pay

In Japan, the 13th and 14th-month pays are customary and not mandated by law. However, Most companies offer it to boost employee morale and ensure the best talent retention in their business.

The recruitment process can become costlier when conducted from a foreign land. Before hiring people in Japan, you must consider additional costs other than the recruitment fees. 

The cost of hiring foreign employees in Japan will include the following factors:

Research

This is the primary step to hiring in a foreign land. The market is different, and before hiring employees in Japan, you must ensure that the market is suitable for your business. Hence, you must conduct thorough research before going overseas, which can be pretty expensive.

Legal help

To ensure that your recruitment process in Japan is compliant with the legalities of the country, you might need legal help. This will help you avoid any penalties in the future. However, hiring a lawyer in Japan can come with an average cost of 22,000 JPY per hour for initial business consultations.

Recruitment agencies

Hiring in a foreign land is difficult, but foreign employers face even more serious challenges in a country like Japan. Thus, most foreign employers prefer to take help from recruitment agencies. But, owing to the small size of the talent pool in the country, recruitment fees in Japan, as charged by the recruitment agencies, are higher compared to other nations. However, the fee rate is competitive and ranges between 30% to 35% of on-target earnings (OTE).

Hiring committee

For hiring new staff for your company, you can take help from a hiring committee, consisting of your own company’s members. The total hiring cost of an employee will also include the cost of this committee. If the committee has to travel throughout the country to collect fresh hires, the travel cost would be a part of your hiring cost.

Job listings

Posting for job listings online or via any print media will also come under recruitment costs. Alternatively, you can also look for free websites to post your job, but the reachability of such postings is often limited.

Cost of translator

Owing to the language barrier in Japan, you might have to hire a translator for a smooth conversation with your job applicants.

Employee Screening

Pre-employment checks are an integral part of the recruitment process in Japan or for any country. In Japan, criminal background checks are not legalized. But before hiring employees in Japan, you have to conduct other checks. For instance, academic and professional background, their immigration status, etc.

Hiring via a professional organization comes with its perks. It gives you an edge on the legalities, and you can jump-start on hiring. But, if you are not opting for such an organization, there are a few things that you have to organize and establish your company’s legality before you hire staff in Japan. 

You should possess the following before you begin the hiring process in Japan:

• A domestic bank account in Japan.
• Tax registration to withhold a part of your staff’s paycheck.
• Registration for pension service.
• Public Employment Service Center registration for extending unemployment insurance.
• Accident insurance for your employees via the Labor Standards Office.

For your recruitment process in Japan, here are your options:

• Seishain (full-time employee): Hiring full-time employees in Japan comes with benefits like work consistency, scheduling production goals or projects, etc. On the flip side, you will incur higher expenses because full-timers are entitled to various benefits like social security, unemployment insurance, pension, etc.
• Keiyakushain (contractual employee): Hiring contractual employees or freelancers for your company will significantly reduce your per-employee cost because they serve strictly on a per-project basis. You need not provide them mandatory employment incentives like health insurance or pension.
• Baito or Arubaito (part-time employee): The hiring process also offers you part-time employees you can hire for short-term work. This option is less expensive and offers increased flexibility.
• PEO: Hiring in a foreign land can be complex. A PEO or Professional Employer Organization seems to be a great option. They handle the hiring process while adhering to the local laws, while you get the scope to focus on business expansion.

You will be fully ready to begin the recruitment process once you know the hiring process. Here is a section on how to hire employees in Japan.

Creating job ads

Advertising about a vacancy in your company is the primary step. Once you have created your job listing, post it online and reach out to applicants. If you need bilingual talent, keep the listing in English; otherwise, only Japanese is sufficient. However, remember that Japanese people usually don’t look for job postings on social media. So you need to post your listing on the popular Japanese boards. If you’re looking for fresh perspectives rather than experience, you can try the shinsotsu process that focuses on hiring fresh graduates.

Application review

Once you start receiving applications, you’ve to sort them through. A hiring committee can help you review them. However, in Japan, the applicant to job ratio lies in favor of the applicants because of their labor shortage, and you may not receive ample applications like in other countries. So even though you might not get your dream employee, training them is always an option.

Conduct Interviews

An interview is the next step to finding the perfect candidate for your job. You can always opt for a remote interview where in-person interviews are not possible. For remote interviews, you must keep in mind the time difference between your country and Japan.

Conduct background checks

Before finalizing any candidate, background checks are a must. Japan has restrictions on employee criminal background checks. However, you can conduct their educational background screening, employment history screening, requesting for driving records, etc.

Drafting contracts

Once you are satisfied with the candidate’s criminal record check, you have to offer them the job formally. In this step, you would have to draft the contract, mentioning the salary they’d draw, the benefits they are entitled to, job duties, etc.

After completing these steps, you are ready to onboard your new hire.

‍Let Multiplier be your EOR platform in Japan

Creating a global team offers endless benefits. But hiring in a foreign land comes with many hurdles, like compliance with local laws, understanding the taxes, local market awareness, and many more. So, while you focus on how to grow your business in Japan, let Multiplier handle your recruitment process in Japan. 

Our team at Multiplier will take care of your employee hiring by adhering to domestic laws and managing their wage handling, taxes, and benefits. Multiplier is trusted by industry leaders and has a presence in over 150 countries. Our experts at Multiplier EOR make your international team’s employment, support, and payment more manageable, and you can concentrate on your overseas business.