Comprehensive Guide to Employee Benefits and Compensation in Japan

Employee benefits refer to the employee’s compensation as part of the employment contract. Also known as fringe benefits, these perks typically come in packages that include medical insurance, overtime pay, leaves, holidays, retirement benefits, etc.

Employee benefits can be both monetary and non-monetary. While financial benefits include cash incentives and bonuses, examples of non-monetary benefits are health insurance, social security programs, and the like. Usually, the employer voluntarily provides these benefits to their employees. However, in some cases, the law of the concerned country or the nature of the employment mandates employee benefits.

Employee benefits and compensation are essential from both the employer and the employees’ perspectives. From an employer’s point of view, these benefits assure your workforce that you are invested in their health, well-being, professional growth, and security. It helps you attract and retain talent in your organization. Employees feel valued when they receive perks, which means greater job satisfaction and a healthier work-life balance. Eventually, satisfied employees contribute to improving your company’s growth.

If you are new to the Japanese business and work environment, it can be relatively challenging to navigate your way around Japan’s compensation and benefits policy. However, understanding how these perks work will ensure a smooth sail for you and your employees.

In Japan, compensation and benefits for non-regular employees such as temporary staff and part-time/full-time employees cannot be much lower than regular employees. Moreover, compensation laws in Japan vary with region. Therefore, you must ensure compliance with the compensation laws applicable to the city/region where your company is located. For instance, while Tokyo has the highest minimum salary in the nation at 1,041 yen (9 USD), those at Okinawa and Kochi are lowest at 820 yen (7.09 USD) each. Since 2021, Japan’s average minimum hourly compensation has stood at 930 yen (8.04 USD).

Highlights:

• As per the compensation structure in Japan, the payroll cycle is generally monthly. Payment of the 13th-month pay is customary in Japan.
• Statutory deductions made from an employee’s salary in Japan broadly include personal income tax, social insurance, and labor insurance.
• The standard working hours in the country are 8 hours a day and 40 hours per week. However, employees working beyond the stipulated weekly hours are entitled to overtime pay as stated in employment contracts.

Part of understanding the compensation and benefits policy in Japan is designing a comprehensive employee benefits program covering all relevant aspects of the compensation structure in Japan.

Since you have several elements to factor in while creating an employee benefits program in Japan, keeping the following points in mind will help you strategize better:

Identify organizational goals and the objectives of the benefits program

Evaluating your organization’s current situation, and future roadmap will help you initiate the planning of the employee benefits program. Weigh your resources for providing employee benefits, identify the objectives of the benefits program, prioritize the essentials, and allocate a budget. Additionally, consider the total number of employees in your organization, compliance with national and local laws, etc.

Understand employee needs

As an employer, you must identify and understand the needs of your employees before you can create a compensation package in Japan. Knowing what your employees want and value the most is essential since Japan’s employee compensation and benefits will go a long way in helping achieve your organizational goals. To ensure that the provisions of the benefits package align with your employees’ ideologies, carry out a comparative benefits analysis to identify employee preferences. You must also conduct thorough legal research to stay updated with the local and national requirements.

Build a comprehensive benefits program

Once you are familiar with Japan’s compensation and benefits policy and have gathered necessary data on employee needs and organizational goals, you can start planning the benefits program. Include meaningful benefits that align with your employees’ needs and conduct surveys to understand their perspectives, if needed. However, remember that your benefits program fits your budget and is financially sustainable.

Employees are entitled to certain guaranteed benefits per Japan’s compensation and benefits policy. Below is a list of the key guaranteed benefits that employers must provide as part of the employee compensation package in Japan:

Health insurance

Employees and their dependents are eligible for the Japanese health insurance scheme that covers non-occupational illnesses and injuries. The health insurance must cover all full-time employees. Part-time employees who work more than three-quarters of full-time workers are eligible for health insurance.

Old-age pension

Individuals in Japan become eligible for old-age pension benefits at the age of 65 with a minimum of 10 years of contributions to the Japanese National Pension fund.

Disability pension

The guaranteed benefits and compensation package in Japan includes a disability pension for individuals limited by injury or sickness. The seriousness of the disability dictates the class (Class 1, 2, and 3) to which the beneficiary belongs.

Labor insurance

As part of the compensation package in Japan, labor insurance covers workers’ compensation and employment insurance. The workers’ compensation insurance includes benefits for loss of income, medical care, accidents during a commute, and disability or death in the line of service.

Unemployment insurance

The unemployment insurance covers almost all employees, except company directors and expatriates returning to their home country after employment termination in Japan. The unemployment insurance scheme helps people who have recently lost a job in Japan and are yet to find a new one.

Paid leaves

According to Japan’s compensation and benefits policies, employees get paid time off depending on their employment tenure. The paid leaves do not include public holidays. The table below summarizes the paid leave duration against the length of service.

Maternity leave/Paternity leave/Parental leave

As part of the compensation and benefits policy in Japan, all female employees are permitted 14 weeks paid maternity leave. This is divided into six and eight weeks before and after the due date. Besides maternity benefits in Japan, new fathers are entitled to up to one year of paid paternity leave. Parents can also take childcare leave until the child is a year old.

In addition, Japan’s benefits and compensation structure guarantees

• Survivors’ Pension
• National Health InsuranceLong-Term Care Insurance
• Longevity Healthcare System
• Caregiver Leave.

Social security benefits in Japan cover foreign employees working in the island country. However, expatriates must get their Japanese social security number to reap the benefits. Foreign employees in Japan can register for their social security card and residence card simultaneously.

All persons working in Japan must sign up for the Japanese social insurance system. It includes several benefits and programs, the most prominent ones being health insurance and welfare pension insurance. The employer and employee make equal contributions towards the social insurance payments. However, expats need not join the social insurance system if paid outside Japan or if the employer makes equivalent private arrangements.

Moreover, expatriates who get paid offshore may not be covered by the national labor insurance system. In such a case, foreign expatriates may consider private insurance for unemployment or accidents.

Social insurance paid by employees in Japan is deductible for income tax purposes. The following table summarizes the employers’ and employees’ contribution towards social insurance schemes in Japan:

If you are a foreign employer, you must set up an entity in Japan to hire employees and pay them salaries and benefits. However, an EOR can act as the primary employer of your international workforce without you establishing a business entity overseas.

While paying your employees from a Japanese bank account is not mandatory, you can pay taxes, social and labor premiums, and certain utility expenses only from an in-country bank account. Hence, setting up a bank account in Japan is crucial to paying benefits and compensation to your employees.

Alternatively, you can consider a PEO solution to take care of international onboarding and payroll management. Besides, you must adhere to the statutory working hours in Japan – 40 hours per week, 8 hours per day. In overtime, you have to file a written agreement with the Japanese Labor Inspection Office.

Apart from the mandatory benefits, the employee compensation policy in Japan includes various supplemental benefits that employers may provide. Below are some of them:

Housing allowance (rent subsidy)

The housing allowance or rent subsidy is a kind of housing assistance system in Japan whereby the employer pays a part of the employees’ housing expenses. However, the terms and conditions of payment depend on the employer.

Family allowance

If an employee has dependents, the employer may provide a living aid known as the family allowance. The allowance amount varies with the company and is not stipulated by law.

Commuting allowance

The commuting allowance is a supplemental benefit where the employer may bear part or whole of the employees’ commuting expenses.

Medical/Health check-up

Supplemental medical benefits for employees in Japan include paying for the employees’ annual medical examination. Moreover, companies that employ over 50 staff must conduct a yearly stress check survey.

Group medical top-up insurance

In-patients with a disease or injury are eligible for a daily and one-time surgery allowance.

Group long-term disability insurance

Under this scheme, workers hospitalized or unemployed for a long term due to disease or injury are eligible for insurance that is payable monthly.

Group personal accident

In the case of permanent disability or death, employers may provide group personal accident benefits, including medical costs.

Group life insurance

Most companies in Japan have a standard group life insurance scheme whereby the employer pays a lump sum amount in the event of an employee’s death.

For employers in Japan, compliance with Japan’s compensation and benefits policy is indispensable. Employee benefits in Japan are a vital aspect of the country’s employment laws, and employers must pay the guaranteed benefits to ensure compliance. Besides the standard benefits, employers may also offer supplemental benefits as mentioned above. Most employee benefits in Japan are taxable, including health insurance and welfare pension systems.

Onboarding international employees and managing their payroll and benefits becomes hassle-free with a global PEO and EOR service like Multiplier. Reliable and safe, Multiplier is an end-to-end platform for managing your global teams’ payroll, social contributions, and taxes while maintaining 100% compliance with local laws.