11 things employers need to know about Japanese labor and employment laws

Navigating Japan's labor and employment law can feel like walking a tightrope for employers looking to hire employees in Japan. Overlooking working hours, underpaying, or misclassifying employees could lead to hefty fines for employers and a damaged company reputation. We're here to guide you through the most crucial parts of these complex laws, making them easier to understand and follow.

1. The working hours limit in Japan is 40 hours over five working days

Under Japan's Labor Standards Act, a typical work week consists of statutory working hours of eight hours per day and 40 hours per week for full-time employees. Suppose your business requires additional work time. In that case, you can negotiate an "Article 36 Agreement" (known as 36 kyotei) that allows for overtime work or work on scheduled days off. However, it's essential to note that the law has specific upper limits to protect employees from overwork. For instance, overtime is capped at 45 hours a month and 360 hours a year. Breaching these limits could expose your company to penalties, including fines and imprisonment.

2. Japanese minimum wage laws vary by prefecture

Japan's Minimum Wages Law insists on fair pay for all employees. The rates are region-based and vary by prefecture and industry, with Tokyo often leading the pack with the highest minimum wage. As of 2022, Tokyo's minimum wage is 961 yen per hour, but it's worth noting that these figures change annually. So, it's your responsibility as an employer to keep an eye on these changes to prevent unfair labor practices. Underpayment isn't just unjust—it's illegal, and it can land your company with severe financial penalties.

3. Comply with mandatory workers’ benefits to ensure the welfare of workers

Employers in Japan are required by labor law to provide rest periods of at least 45 minutes for work days exceeding six hours, pay wages at least once a month on a fixed date, and respect the statutory retirement age of 65. There are strict prohibitions against unfair labor practices and regulations on night work, particularly for employees under 18 years of age.

4. The rules for part-time vs. fixed-term employees vary

You might also consider hiring part-time or fixed-term employees. Part-time and dispatched workers, also known as non-regular employees, make up a substantial portion of the Japanese workforce. Part-time workers in Japan are entitled to the same treatment as full-time regular employees, especially regarding wages, working conditions, and social insurance. It's crucial to understand that these workers are protected under the Part-Time and Dispatched Workers Act, which mandates equal treatment in terms of wages and other benefits compared to full-time employees.

5. Employers must provide maternity leave and wage compensation

Japanese labor law is quite considerate when it comes to maternity and childcare leave. Female employees are entitled to six weeks of leave prior to childbirth and eight weeks post childbirth, with wage compensation provided through health insurance. After the birth, either parent can take childcare leave up until the child turns one. Employers who fail to adhere to these maternity and family care leave regulations may face penalties under the Labor Standards Act.

6. Employees must be enrolled in the social insurance program

Employers in Japan are obliged to enroll employees who work 20 hours or more per week in the Shakai Hoken (Social Insurance) program. This program combines healthcare, pension, and unemployment insurance. Half of the premium is covered by the employer, and the other half is deducted from the employee's salary. Not meeting this requirement could result in penalties, including surcharges and delinquency charges.

7. Different industries have special working hours and overtime pay rules

Some sectors in Japan have unique rules under labor and employment law. For example, in the transportation industry, working hours can exceed the standard eight-hour limit to meet logistical demands. Similarly, in the banking sector, employees in managerial roles might not be entitled to overtime pay due to the "White Collar Exemption" clause. Therefore, ensure you're familiar with the labor laws specific to your industry.

Retirement age varies but is typically around 60. Statutory working hours must not exceed eight hours per day or 40 hours per week, excluding rest periods. Employers must also ensure timely payment of wages and grant employees their rightful paid annual leave, starting from a minimum of 10 days after six months of continuous service.

8. Arbitrary employee dismissals can lead to legal issues

Terminating an employee in Japan is not as simple as handing over a written notice. The courts in Japan tend to favor employees, and arbitrary dismissals can lead to legal issues. Employers are required to show socially acceptable reasons for any termination of employment, which means providing a valid reason for termination. Advance notice or payment in lieu of notice is also mandatory. Additionally, if an employee has worked for your company for a certain number of years, they might be entitled to a retirement allowance upon leaving.

9. Follow Japanese safety and health standards

The Industrial Safety and Health Act in Japan requires employers to provide a safe and healthy working environment. This includes implementing necessary measures for safety, preventing health impairment due to overwork, and managing the working environment properly. Employers who fail to follow these regulations can be penalized with fines or imprisonment.

10. Recognize and respect Japanese employee trade union rights

The rights of trade unions are protected in Japan—employees have the right to join or form a labor union and employers are not allowed to treat union members unfavorably. Collective bargaining is a key aspect of labor relations in Japan, and collective agreements often shape working conditions in various industries. The Trade Union Act states that employers must not discriminate against workers due to their union activities. Violation of these rights could lead to unfair labor practice claims, which can be costly and damaging to your business reputation.

11. Employers with 10 or more employees must establish work rules

In Japan, if you employ 10 or more employees, you are legally required to establish "Work Rules." These rules must be submitted to the local Labor Standards Inspection Office. The Work Rules outline the working conditions, including working hours, wages, holidays, retirement, and other crucial aspects. Not creating Work Rules, or creating them without following the necessary process, could lead to penalties.

Frequently asked questions about Japanese labor laws

What are the minimum wages in Japan?

Japan does not have a uniform minimum wage applicable across the country. Instead, the minimum wage is determined by each prefecture, considering factors like the cost of living and economic conditions.

As of 2022, Tokyo, being one of the most expensive places to live in Japan, had the highest minimum wage at 961 yen per hour. However, these figures are subject to change as they are reviewed and adjusted annually by the Minimum Wage Councils at both the national and prefectural levels. Employers should regularly check the updated rates from official sources or consult with local labor law experts to ensure compliance with the Minimum Wages Law.

What are the overtime laws in Japan?

Overtime work is a common aspect of the Japanese working culture, and it's regulated under the Labor Standards Act. Generally, employers can request employees to work up to 8 hours a day and 40 hours a week. Any work beyond these limits is considered overtime and must be compensated at a higher rate—at least 125% of the average wage for the first two hours and 150% beyond that.

There are also limits on the amount of overtime allowed, capped at 45 hours per month and 360 hours per year under normal circumstances. However, with a special agreement known as the "Article 36 Agreement," employers can extend these limits.

What are the required benefits in Japan?

In Japan, employees are entitled to several benefits mandated by law. One of the major ones is the Shakai Hoken (Social Insurance), which covers health insurance, pension, and unemployment insurance.

This is mandatory for employees working 20 hours or more per week, with both the employer and employee each covering half of the insurance premium. Besides, employees are entitled to:

• Annual paid leave, which varies based on the number of years of service, starts from ten days after six months of employment and reaches up to 20 days after 6.5 years.
• A retirement allowance system for long-serving employees, which varies significantly among companies, is generally expected to support employees upon retirement.
• Worker’s accident compensation insurance, which is a government insurance program that pays workers or their family members if the insured employee is injured, falls ill, or dies due to work circumstances.

How do I terminate employees in Japan?

Terminating an employment contract in Japan is not a straightforward process. Japanese labor law places a high degree of protection on employees, and arbitrary dismissals are considered invalid.

An employer must demonstrate a "just cause" for termination, and this justification must be deemed reasonable by societal standards. Dismissal could be justified due to severe misconduct, inability to perform the job, or severe financial difficulties for the company.

It's also important to note that the employer must provide at least 30 days of advance notice or pay the employee a salary in lieu of notice. Failure to abide by these laws can lead to litigation, with the courts often ruling in favor of the employees, potentially requiring reinstatement or payment of compensation to the dismissed employee.

How is the retirement process handled in Japan?

The retirement age in Japan is statutory, set at 65 years. Employees who have reached this age are entitled to receive a retirement allowance. The exact amount is usually defined in the work rules or the labor contract and often depends on the number of years the employee has worked for the company.

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Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.