As Asia’s economy stabilizes and grows amid global uncertainty, companies are looking East for new horizons. Entering promising global markets is crucial to diversifying income sources, but how can organizations in Canada tap into these opportunities?
One way is to build teams of international employees in key strategic markets overseas. Hiring in Japan can be one solution to access top global talent and expand your presence in Asia.
But hiring here is not so easy. The local laws are complex, and there is still a labor shortage despite a recent economic downturn, making Japan a competitive field for global employers.
But don’t fret, if you’re a Canadian company looking to onboard Japanese talent, this guide is for you. Let’s take a look at how you can hire in Japan.
Reasons to Hire in Japan
First things first, why does a Canadian company need employees in Japan? There are several reasons why organizations are turning East to pursue talent.
Skilled Workforce
Japan is one of the most educated countries in the world. Currently, its education system ranks 7th in the world. Plus, Japan produces highly-skilled talent in key industries like technology, engineering, manufacturing, and research — all areas that face labor shortages globally.
Quality and Precision
Another reason Japan is a great hiring destination is its reputation for quality and precision. The culture in Japan places utmost importance on delivering top results, so you can rest assured that your employees in Japan will do their best.
Technological Advancement
Japan is a leader in technology and innovation. It’s the 13th country on the Global Innovation Index, having steadily climbed up from the 16th spot in 2020. It’s also the 4th most innovative economy in Southeast Asia, East Asia, and Oceania; this makes Japan the perfect spot to tap into innovative talent.
Global Market Access
Strategically positioned within proximity to major Asian economies, Japan is no stranger to international markets. It’s been an important player in the global economy for years. Now, it’s slated to provide employers access to Asia's quickly rising developing economies, which are projected to grow by 5.3% in 2023.
Local Employment Laws in Japan
Hiring in Japan comes with numerous advantages. But is it easy? The reality is — not so much. Japan has many employment laws and regulations that any employer must abide by. Here are a few important things to remember if you are looking to hire in Japan.
Contracts and Onboarding
There are several different types of employment contracts under Japanese labor law. As an employer, it’s important to understand how to navigate these and what they mean for you and your staff. Here are the six main types.
- Regular (Seishain) Employment: This labor contract offers the most job security and benefits. Regular employees are usually full-time employees who have indefinite labor contracts and enjoy benefits such as health insurance, pension contributions, and paid leave. They are subject to strict employment regulations, including protections against unfair dismissal.
- Contract (Keiyaku) Employment: Companies engage contract employees for a specific period or project. They typically don’t receive as many benefits as regular employees, but there are still regulations and protections in place, as stated in their employment agreement.
- Part-Time (Arubaito) Employment: Part-time contracts involve working fewer hours than regular employees. Part-time workers may have limited benefits and job security but offer employers flexibility in staffing. There are regulations in place to ensure fair treatment of part-time employees.
- Dispatched (Haken) Employment: A staffing agency employs dispatched workers and sends them to work for their client companies. These workers have an employment contract with the staffing agency rather than the client company. Dispatched employment provides flexibility for companies, but there are regulations to protect the rights of dispatched workers.
- Temporary (Uketsuke) Employment: Temporary employment involves hiring workers for short-term or seasonal work, often daily or weekly. These contracts are common in industries such as agriculture and construction.
- Freelance (Jimu) Contracts: Freelancers or independent contractors are self-employed individuals who provide services to clients on a project basis. They typically have more control over their work schedules and clients but do not enjoy the same employment benefits as regular employees.
Payroll and Taxes
Employers are responsible for managing payroll and tax withholdings for their employees in Japan. They must pay employees monthly and administer any relevant benefits and contributions owed by them and their staff. They must also adhere to minimum wage requirements and any other payroll regulations stipulated in the labor code.
Insurance and Benefits
On top of payroll, employers must take care of their staff's insurance and benefits. Japan has a robust social security system, so much of this is handled through payroll. However, to remain competitive in the tight job market, employers may choose to provide additional benefits to their staff.
Vacation and Other Types of Leave
All Japanese employees are entitled to a variety of paid leave. Employees receive 16 public holidays in Japan as a rest day. They are also entitled to ten to twenty days of paid time off.
Sick leave is not government mandated but employers can choose to write it into their contracts. There are also 14 weeks of government-mandated maternity leave. Plus, either parent is entitled to take parental leave until their child reaches the age of one.
Employee Termination
It’s most common for employers to negotiate voluntary resignations instead of terminating employees. In any case, an employer must provide 30 days of notice to an employee if they do choose to terminate them. There are no severance pay requirements under Japanese law, but they do need to cover the 30-day notice period.
Costs of Hiring in Japan
There are several mandatory costs that you’ll need to consider if you choose to hire in Japan. Here is how much it might cost to hire someone in Japan.
Employee Compensation
First off, you’ll need to pay your international employees a salary in compliance with local minimum wage laws. Currently, the Japanese minimum wage is set at around US $1,000 per month.
However, an employee's salary will depend on their skills and experience. The actual salaries in the country are much higher than the minimum wage, especially for skilled workers. The current average salary in Japan is just under US $4,000 per month, which is on par with Canada and the US.
Overtime Pay
On top of the basic salary, you may have to pay your employees overtime if they work over the statutory working hours. The basic overtime pay rate is 25% of the regular hourly wage for the first 40-60 minutes of overtime in a day, 35% for weekends and holidays, and 50% for subsequent overtime hours.
Employer Taxes
Employers in Japan pay just over 18% in mandatory payroll taxes per employee. This includes contributions to the national pension plan, health insurance, unemployment insurance, a workplace injury fund, and a family allowance.
Benefits and Perks
Because Japan’s labor market is so competitive, you may also consider providing employees with additional perks and benefits. This could include transportation allowances, lunch, gym memberships, etc.
Workplace Costs
Finally, if you hire a substantial team in Japan, you’ll need to decide if everyone will work remotely or if you’ll need office space. This will come with another set of expenses. If you do hire a remote team, consider providing an allowance to set up a home office or access co-working spaces.
How Can I Legally Hire Japanese Employees as a Canadian Company?
Now that you have an idea of the local labor regulations in Japan, what about actually starting the hiring process? Well, there are still a couple of steps you need to complete first. You’ve got two main options for legally hiring in Japan — do it yourself or go through an Employer of Record (EOR).
Set up a local entity
If you choose to hire in Japan on your own, they’ll need first to set up a legal entity in the country. You’ll need to create either a branch or a subsidiary in Japan. This legal entity will need to have the following at a minimum:
- Tax registration
- Pension service registration
- Registration to remit unemployment insurance
- Labor Standards office registration
- Japanese bank account
You’ll also need to choose which type of legal entity to set up. Typically, foreign companies choose either a joint-stock corporation or a limited liability company.
- Kabushiki Kaisha (joint-stock corporation): KKs can be publicly traded on the Japanese stock market and are typically larger or medium-sized businesses. To set one up, you’ll need to define your business name and purpose, write articles of incorporation in Japan, obtain a Japanese resident address, and designate a local director. You may also want to appoint a board of directors.
- Godo Kaisha (limited liability company): A GK is ideal for a smaller business, although the steps to setting it up are somewhat similar. It’s a little bit cheaper to set up than a KK because of fewer bureaucratic requirements. However, you’ll still need articles of incorporation and a local address.
Engage an EOR
Alternatively, you can choose to engage Employer of Record Services. An EOR acts as the legal employer in the country where you want to hire but doesn’t have a local entity, in this case, Japan. An employer of record will help you throughout the recruitment process and support your global business expansion.
EORs make it a lot easier for you to navigate international recruitment because you don’t need to worry about compliance challenges. The EOR takes care of these for you while you focus on managing your new global team.
Compliantly Hire Japan Skilled Workers with an EOR
If you are simply looking to tap into Japanese expertise without the hassle of setting up a legal entity in the country, then an EOR is your best choice for compliant hiring.
Expertise in Local Laws
EORs has a team of experts and experience in global employment. They understand local laws and regulations, so you don’t have to. EORs keep abreast of the latest changes in hiring practices worldwide and ensure that their clients’ contracts are compliant across all legislative details.
This helps Canadian employers looking to hire abroad have peace of mind that they are not violating any regulations. It also takes much of the burden off their human resources teams so that they can focus on employee management rather than contractual details.
Global Payroll
Paying international employees has never been easier than with an EOR. A global employer of record will manage all the payroll details for you. They take care of things like monthly payments to your Japanese employees and manage tax withholdings and social security remittances.
This means a compliant, easy, and positive experience for you and your staff. EOR payment platforms are designed with the user in mind, so managing all payment-related tasks with just a few clicks is simple.
Health Insurance and Benefits Administration
On top of drafting contracts and payments, EORs also help companies manage insurance and benefits. While much of this in Japan happens through payroll, to remain competitive in Japan’s employment market, you may want to give employees extra perks.
A well-rounded EOR will offer customized benefits packages tailored specifically to the local context of each country you want to hire from. They also enable smaller companies to access larger benefits portfolios that they can offer their staff.
Streamlined Processes
Overall, an EOR streamlines the entire international hiring process for you. They act as the legal employer on your behalf, taking care of all legal proceedings. Meanwhile, you focus on managing your employees' experience and performance, fostering a positive team culture.
And if you have any questions on local work culture or the nuances of working in Japan, an EOR can lend a helping hand here too. After all, they are experts in global hiring.
Partner with Borderless
Convinced that you need an EOR to hire in Japan? Look no further than Borderless. We offer a wide range of EOR services, including global payroll, customized benefits administration, and even support with visas and immigration.
Book a demo today to learn how we can help you quickly and seamlessly hire employees in Japan and 170+ other countries worldwide.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
