Japan stands out as a global leader in innovation, with a highly skilled workforce excelling in electronics, automotive, and robotics. It offers a stable financial environment as one of the largest economies in purchasing power, making it attractive for international business. The country's stringent employment laws require comprehensive contracts, promoting transparency and compliance. This blend of technological prowess and regulatory clarity makes Japan an ideal destination for businesses seeking top-tier talent and efficient global expansion.

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What you need to know before hiring employees in Japan

Job market in Japan

When exploring how to hire employees in Japan, the following trends can help you hire cost-effectively and pay talent correctly. 

• Expect around 1% annual growth in 2024, supported by strong sectors such as semiconductors and automotive industries. Employers should consider these industries for high-potential investment and recruitment opportunities.
• With corporate earnings remaining robust, capital expenditure is projected to increase. This signals a favorable environment for business expansion and new investments, including hiring skilled personnel in these growing sectors.
• The return of Chinese tourists is expected to boost the tourism and related sectors. Businesses in retail, hospitality, and services should prepare for increased demand, including staffing and service enhancements.
• A forecasted shrink in consumer spending due to falling real wages may affect the retail and consumer services sectors. Companies might need to strategize on maintaining workforce efficiency and cost management.
• The outcome of the 2024 spring labor negotiations will be crucial. Businesses should stay updated on these developments as they will influence wage standards and labor costs.
• Although commercial real estate saw growth in 2023, a more cautious approach in 2024 due to potential interest rate increases could affect the property market. Companies looking for new office spaces or expansions might find varying conditions, influencing decisions on where and when to invest in physical assets.
• Continued demand for high-grade office locations and the high street retail boom, especially in areas like Ginza, suggests that premium property sectors may still offer opportunities despite broader market challenges.
• With a record-setting demand for logistics spaces driven by strengthening manufacturing supply chains, businesses involved in e-commerce, manufacturing, and distribution should consider expanding their logistics capabilities to meet expected demand

Japan Hiring Trends

• In 2024, Japan's hiring trends are influenced by economic challenges and strategic opportunities, affecting how employers plan and execute their workforce strategies. As the country faces economic contraction and persistent inflation, employers are prompted to adopt more nuanced compensation strategies. Wage adjustments are expected to lag until the annual spring negotiations, necessitating a careful balance between immediate hiring needs and future salary increases.
• The automotive sector, bolstered by strong exports, remains a bright spot, suggesting targeted growth strategies in manufacturing and export-oriented industries. However, broader economic conditions, including a slight uptick in unemployment and the anticipated end of negative interest rates, indicate a shifting labor market. Employers must navigate these changes by leveraging a larger pool of available talent and preparing for potential wage increases to maintain competitiveness and employee satisfaction.
• Additionally, changes in household financial behavior, driven by new investment-friendly policies, are likely to affect sectors like financial services, possibly increasing demand for skilled professionals in these areas. As Japan grapples with high government debt levels and the possibility of fiscal tightening, employers must also stay adaptable to shifts in government spending and taxation that could impact business operations and workforce planning.
• Japan's 2024 hiring trends require employers to blend strategic financial planning with a deep understanding of sector-specific trends and broader economic indicators to attract and retain talent effectively in a complex economic landscape.

How to hire employees from Japan

1. Set up an entity in the country

Establishing a legal entity in Japan is crucial for companies targeting sustainable growth or a permanent footprint in the market. This approach facilitates direct management of employees and provides long-term cost advantages.

The process includes choosing a business structure such as a Kabushiki Kaisha (Joint-stock Corporation) or Godo Kaisha (Limited Liability Company), registering with the local Legal Affairs Bureau, and acquiring a Corporate Number, which serves as a tax identifier.

However, setting up an entity in Japan can be intricate and expensive, requiring a profound understanding of Japanese employment laws and effective management of HR and payroll. This underscores the necessity for meticulous planning or the assistance of experts well-versed in navigating these complexities.

2. Hire independent contractors

Engaging talent as contractors in Japan involves entering into agreements with individuals or businesses for specific tasks or projects. This method offers significant flexibility, making it suitable for short-term assignments or particular project requirements. However, it's essential to classify employees accurately to avoid legal issues and potential fines under Japanese labor law. Additionally, contractors may not demonstrate the same level of commitment or loyalty as full-time, in-house employees, which is an important consideration when employing this hiring model in Japan.

3. Partner with an EOR in the country

Utilizing an Employer of Record (EOR) service in Japan offers a streamlined pathway into the Japanese market, circumventing the complexities of establishing a legal entity. This approach significantly reduces liabilities and enhances cost efficiency. Partnering with an EOR ensures adherence to Japanese labor laws, tax requirements, and regulations, effectively minimizing legal risks and ensuring compliant business operations.

Employment Laws You Must Know Before Hiring in Japan

Compliance risk while hiring in Japan

Hiring in Japan carries compliance risks due to its stringent labor laws and complex regulatory framework. Employers must adhere to strict rules on working hours, overtime compensation, and non-discrimination. Additionally, the classification of employees versus contractors must be precise to avoid penalties. Misunderstandings of Japan's unique employment practices can lead to legal challenges and financial liabilities, emphasizing the importance of thorough knowledge of local laws or partnership with knowledgeable entities like Employer of Record services to ensure compliance.

Key Aspects of Japan Labor Law:

Employment Contract: In Japan, employment contracts must be documented, ideally in written form, to clearly specify key employment terms. 

This includes:

• both parties' names and addresses, 
• employment start date, 
• job location(s), 
• job description,
•  base wage plus any additional compensation, 
• working hours, 
• annual leave, 
• and termination notice terms. 

It should also cover probation periods, overtime work, rest periods, days off, leave policies, shift changes, and policies on resignation and dismissal.

While oral agreements are valid, written contracts ensure clarity and adherence to Japanese labor laws. Contracts are typically indefinite but can be for a fixed term, not exceeding three years unless the employee possesses special skills or is aged 60 and over, in which case the term may extend to five years.

Wages must be clearly defined and calculated, excluding retirement allowances and special wages. For fixed-term contracts repeatedly renewed beyond five years, employees can request conversion to an indefinite term, which the employer must accept. This framework ensures robust employee protection and compliance with local employment standards.

Working Hours: In Japan, the customary work schedule entails dedicating 8 hours daily and 40 hours weekly to employment.

Overtime: 

Minimum Wage: In Japan, the national minimum wage varies by prefecture, with hourly rates ranging from 896 JPY to 1,113 JPY. Tokyo sets the highest rate at 1,113 JPY, followed by Osaka at 1,064 JPY, and Kyoto at 1,009 JPY. This decentralized system ensures that minimum wages reflect the cost of living in each region, addressing local economic differences.

Payroll laws in Japan

The payroll cycle in Japan follows a monthly schedule.

Employment benefits in Japan

Leave Policies in Japan

Paid Time Off:

Note: Unused days expire after two years.

Public Holidays:

There are 16 national holidays in Japan.

Sick Days:

Sick leave is not obligatory in Japan. While certain companies may establish their own sick leave regulations, employees commonly utilize their vacation days to compensate for sick leave or rely on social insurance benefits. This approach reflects the absence of a standardized sick leave requirement and the flexibility for companies to implement their own policies regarding employee illness.

Maternity Leave:

Female employees in Japan are entitled to maternity benefits comprising 14 weeks of paid leave, split into six weeks before the expected due date and eight weeks following childbirth. The Social Insurance provides maternity payments calculated at the National Health Insurance rates, currently at 420,000 JPY per child. Alternatively, if the employee is covered by employees’ health insurance, they may receive a maternity allowance equivalent to two-thirds of their regular salary rate, beginning 42 days prior to delivery and continuing for 56 days after childbirth.

Paternity Leave:

In Japan, fathers are eligible for paid paternity leave, referred to as childcare leave, for up to one year following the birth. Although the leave doesn't include salary unless stipulated otherwise in the employment contract, partial allowances are provided by social security. Within eight weeks post-birth, male employees are entitled to four weeks of leave, which can be taken in one or two segments. This "Childcare at Birth Leave" offers benefits equivalent to 67% of covered pay, similar to maternity leave.

Public Health Insurance 

In Japan, public health insurance is mandatory, ensuring universal coverage through two primary schemes: Employees' Health Insurance and National Health Insurance. Employees' Health Insurance is for company employees, who share premium costs with their employers, while National Health Insurance caters to self-employed individuals, students, and retirees, with premiums based on income and family size.

 Both systems cover about 70% of most medical costs, including treatments and medications, with the insured paying the remaining 30%. Japan also offers Long-Term Care Insurance for the elderly, supporting those needing help with daily activities. This comprehensive system plays a crucial role in maintaining Japan's high healthcare standards.

Filing tax in Japan

Income Tax:

In Japan, income tax rates are progressive, with varying percentages based on income levels. Residents face different rates ranging from a low percentage for incomes up to a certain threshold to a higher percentage for top earners. Additionally, there is a standard local income tax based on the previous year’s income. Non-residents pay a flat national income tax rate on gross compensation and may be subject to local inhabitant’s tax if registered as residents by the start of the year. For a comprehensive view of Japan’s tax structure, please refer to our detailed guide.

Other Tax and Social Security Contributions:

In Japan, both employers and employees contribute to social security systems, covering health, pension, and more. Employers contribute percentages for pension, health insurance, nursing care, unemployment insurance, work injury insurance, and family allowances. On the employee side, contributions include pension, health insurance, unemployment insurance, and nursing care. These contributions are crucial for ensuring comprehensive coverage and support across various welfare programs, providing essential security for the workforce. For a complete overview of the tax and social security contributions in Japan, please refer to our detailed guide.

Business culture in Japan

• Japanese business culture places a high emphasis on hierarchy. Respect for seniority and authority is paramount, and it is expected that juniors will follow the lead of their seniors without question. Addressing individuals by their proper titles and using polite language is standard practice.
• Decision-making often involves obtaining the consensus of all parties involved, reflecting the cultural value of harmony. This process can be time-consuming, as it typically involves several rounds of meetings and discussions to ensure every stakeholder agrees.
• Being on time is a sign of respect in Japanese culture. Arriving late is seen as a sign of unreliability and disrespect. For meetings, it is advisable to arrive a few minutes early to demonstrate your commitment.
• Exchanging gifts is a common practice in Japanese business culture, especially when meeting someone for the first time or closing a deal. Gifts should be modest and thoughtfully wrapped. Remember that the act of giving is often more important than the gift itself.
• Dressing conservatively is the norm in Japanese business settings. Dark-colored business suits are typical for both men and women. It’s important to present a neat and orderly appearance, as it reflects your professionalism.
• Pay attention to non-verbal cues. For example, bowing is a traditional Japanese greeting, though handshakes are becoming more common in a global context. Maintaining a polite and somewhat reserved demeanor can help in fostering good relationships, and being too expressive or loud might be seen as disruptive or disrespectful.

Top sectors to hire from in Japan

1. Manufacturing

As the largest employment sector, manufacturing employs approximately 10.55 million individuals. It is renowned for its innovation in electronics, automotive, and heavy industry, providing a skilled workforce in engineering, production management, and technological development.

2. Wholesale and Retail Trade

This sector is a major employer with about 10.41 million workers, crucial for roles in consumer sales, supply chain management, and customer service. It offers opportunities in both traditional and e-commerce platforms.

3. Technology and IT

A hub for cutting-edge innovation, especially in electronics and computer technology, the technology sector is vital for finding experts in software development, cybersecurity, and IT management.

4. Healthcare and Life Sciences

With Japan’s aging population, this sector is increasingly important, offering positions for medical professionals, research scientists, and various healthcare support roles.

Banking and Financial Services: As a leading financial center, this sector is ripe for professionals skilled in financial analysis, risk management, and regulatory compliance.

5. Engineering and Manufacturing 

Known for precision engineering and robotics, this sector seeks individuals skilled in industrial design, automation technology, and systems engineering.

Top cities to hire from Japan

1. Tokyo: 

As the capital and economic heart of Japan, Tokyo is a global financial hub and a center for technology, electronics, and media. It is also known for its robust startup ecosystem, making it ideal for finding talent in finance, technology, marketing, and creative industries.

2. Osaka: 

Known as a commercial powerhouse in Japan, Osaka hosts numerous domestic and international corporations, especially in the fields of pharmaceuticals, industrial manufacturing, and consumer electronics. The city's diverse economy makes it a strong candidate for roles in manufacturing, life sciences, and technology.

3. Nagoya:

 Located in the central region, Nagoya is a major automotive industry hub, home to Toyota’s headquarters, and other automotive companies. It is ideal for hiring in automotive engineering, manufacturing, and related supply chain sectors.

4. Yokohama: 

Situated close to Tokyo, Yokohama features a significant shipping and logistics industry due to its major seaport. It's a strategic location for roles in logistics, shipping, and trade.

5. Fukuoka: 

Fukuoka is rising as a startup hub, particularly in the tech sector, due to its supportive local government policies and programs aimed at fostering innovation. This city is perfect for recruiting young, tech-savvy professionals.

Hire in Japan  compliantly with Gloroots

Gloroots, as an Employer of Record (EOR) in Japan, offers a streamlined solution to the challenges of entering and operating in the Japanese market. Our EOR platform facilitates rapid candidate onboarding, ensuring quick operational setup while strictly adhering to both local and international compliance standards. Tailored for businesses of all sizes, Gloroots simplifies payroll management, benefits administration, and tax handling, eliminating the need for establishing a local entity. This enables companies to efficiently build and manage a remote team in Japan. For more information on how Gloroots can support your hiring needs in Japan, please contact us.

Frequently Asked Questions 

What are the key legal requirements for hiring employees in Japan?

When hiring in Japan, it is essential to understand the legal requirements including the need to prepare written employment contracts detailing terms of employment, remuneration, working hours, and resignation or termination policies. Employers must also ensure compliance with Japan's labor standards on working hours, overtime compensation, and social security contributions including health, pension, and employment insurance.

How does the cultural context influence business practices and employee management in Japan?

Japanese business culture highly values hierarchy, consensus, and harmony. Understanding these cultural nuances is crucial for effective employee management and team integration. Practices such as gift-giving, meticulous attention to meeting protocols, and the proper use of titles and respectful language are important for fostering a positive workplace environment and successful business relationships.

Can foreign companies hire employees in Japan without establishing a local entity?

Yes, foreign companies can hire employees in Japan without setting up a local entity by using an Employer of Record (EOR) service. An EOR handles all legal and administrative aspects of employment, including payroll, tax, and compliance with local labor laws, allowing companies to focus on their core business activities and manage their workforce remotely. This is a viable option for companies looking to enter the Japanese market with minimal initial investment in local infrastructure.