Essential Guide to Employment Laws and Compliance in Japan

Employment laws or “labor laws” provide a formal structure that frames the relationship between employers and employees in the job sphere. These laws are created to protect the rights of employees because in most countries – including Japan – there is an asymmetric distribution of power amongst the employers and the employees. Therefore, without labor laws, workers could potentially be exploited. 

As per these employment laws, some mandatory provisions include minimum working age, working hours, minimum wage, paid holidays, paid sick leave, overtime compensation, etc. Simultaneously, these laws protect the employers from collective bargaining negotiation acts like strikes.

Labor act rules in Japan ensure employees are duly compensated and treated justly. There can be grave consequences if an employer violates the labor code of Japan. It can revoke business licenses, hefty government fines, and more.

The Labor act rules in Japan primarily cover the relationships between the employer and employee. These laws apply to every employed individual in Japan regardless of gender, race, nationality, etc. 

However, the board members and independent contractors are exempt from the labor regulations in Japan because they do not fall under the category of employees as stated under the Company Act (2005). Hence, they do not receive protection under employment laws in Japan.

In Japan, an LSA is defined as an employed individual who receives a stipulated salary from an organization or a business and rightfully falls under the protection of the labor regulations in Japan. 

Workers protected by labor act rules in Japan are categorized into:

• Regular workers or non-fixed-term workers
• Fixed-term workers whose employment term should not exceed three to five years
• Part-time workers.
• Temporary or dispatched workers who work under agencies requiring temporary staff hired by companies falling under the Temporary Staffing Services Law

Independent or self-employed contractors do not fall under the protection of the labor regulations in Japan. Instead, they fall under an outsourcing contract with companies or certain executives of a company like board members or corporate officers. They work per their discretion and therefore aren’t considered regular workers. The difference between independent contractors and regular workers are based on the following factors:

• If the individual has the power to refuse any assignment.
• If the individual has to follow any instructions regarding their work.
• If the individual’s place and time of work are fixed.
• If the individual receives a fixed salary in exchange for their service to the employer company.

An Employment Contract or the Employment Agreement is a written agreement between an employer and the employee and is documented officially in appointment letters and offer letters. The contract states the terms and conditions that the employee must follow to maintain employment. 

Most organizations in Japan provide a written employment contract, and only senior employees in managerial positions are allowed to negotiate their employment contracts. If an employer or employee violates one or multiple employment terms in the agreement, it becomes a breach of contract, leading to grave consequences. 

Employment contracts in Japan may be written or verbally created, and they must include:

• Term of employment
• Employment address 
• Appointment position
• Payment of wages
• Date of commencement of employment 
• Termination of employment
• Timings including starting and end time, overtime, breaks, leaves, and change in shift timings

As per the Companies Act 2005, the key provisions of the labor code in Japan that every organization and employee has to follow are:

Work hours

As per the Employment Act, the statutory maximum work hours that every employee must fulfill are eight hours a day and 40 hours per week. However, an employer has the authority to request their workers to extend their maximum work hours only if they enter under the “Article 36 Agreement” or a labor-management agreement with a union, and this agreement should be filed with the local Labor Standards Inspection Office.

Overtime

As per the Work-Style Reform Laws, legal caps have been set out for overtime hours. Fundamentally, overtime hours should not extend 45 hours in one month and 360 hours in one year. Even in exceptional circumstances, overtime hours should not exceed 720 hours a year or 100 hours a month, including work on holidays. These legal caps are applicable for both large-sized and medium-sized employers. If an employer requires employees to extend their working hours beyond 5 pm, they must pay for every overtime hour 150% of their standard wage per hour. They must also pay 135% of the regular wages per hour for working on holidays. 

Break

An employer must provide a minimum of 45 minutes when the employees’ working hours exceed six hours or one hour if the working hour exceeds eight hours. 

Work-style reform laws

Under the Work-Style Reform Laws, an employer must make necessary efforts to ensure a significant gap between the end of work time for the day and the start of work the following day.

Week off

It is a mandate for every employer to grant their workers an off-day every week. This rule is not applicable for employers providing four or more days off over a span of four weeks. 

Paid leave

An employer should grant a tentative number of paid leaves based on the length of the worker’s service. 

Minimum wage

As stated under the Minimum Wages Law, an employer must pay a stipulated compensation to every employee per month for their services. Minimum wages are fixed as per the regulations for specific industries in each district. 

Statutory working-hour regulation exemptions:

Under the Work-Style Reform Laws, workers in managerial positions are exempted from these regulations that include overtime hours and allowances, breaks, etc. 

The labor regulations in Japan have been decreed officially to protect the rights of both employers and employees who are legally employed and under an organization’s payroll. It is mandatory to adhere to the key provisions of this law. Failure to adhere to it results in the violation of this decree and can lead to severe consequences starting from penal servitude for six or more months to a fine of 300,000 Yen or more.

A regulatory compliance strategy is the pre-planned course of action that a corporation usually follows to comply with federal, state, and international laws. Regulatory compliance strategies are a part of the company’s complete structure of compliance that also includes broader corporate compliance. A sound regulatory compliance strategy effortlessly becomes a necessary part of a much bigger compliance umbrella. 

Here are some practical ways employers should consider for setting up a business in Japan:-

Ascertain what you need:

First, determine what the required goal is. It could be for reducing compliance fines, increasing employee awareness, or compliance towards one specific law that is crucial for avoiding penalties. Once you’ve identified your goals, you can create an effective compliance strategy. 

Stay informed about the necessary laws and regulations:

‍There are specific laws for certain businesses. Therefore, it is essential to determine which rules are exclusively applicable to your business. To make things easier, you can hire a lawyer to monitor the change in the current laws and help with the compliance needs. 

Clearly draft policies:

‍Policies and procedures should be well-drafted before determining a compliance strategy. Also, make sure to communicate the rules clearly to your employees. 

Train employees:

Once you have policies and procedures, you must build an effective employee training program. Employee training might vary from department to department or even employee to employee. Hence, it’s crucial to understand how to train your employees. After all, the company bears the consequences of regulatory noncompliance. Instead of rushing through training in one block, create an incremental training schedule that includes hands-on activities to train employees. 

Track code violations and plan internal audits:

‍Whenever there is a breach in compliance, the company is hit the worst. However, you can avoid this by conducting regular internal audits to check for violations. These audits will help you analyze employees individually and identify the weaknesses in the compliance strategy, allowing you to make amends. 

Organize important data and documents:

‍Data is the lifeblood of modern companies,  especially with present regulations like the CCPA and GDPR in place. You must collect and organize your company data. Plus, data mapping is essential to understand how the data is stored, used, and shared. 

To conclude, having a thorough knowledge of Japanese labor laws is mandatory before setting up any business in the country. Gathering information, staying updated with the ever-changing labor laws, and designing a foolproof compliance strategy is pivotal for avoiding legal hassles. 

Partnering with Multiplier could potentially help you remain compliant with all laws and regulations in Japan. Since we’re well-versed in the country’s laws, we can safely guide you through the process of setting up a business in Japan. Furthermore, our experts can handle other important aspects of your business like drafting contracts, payroll management, employee onboarding, and much more!