Hiring Your First Employee in Japan

two woman chatting 1311518 - Hiring Your First Employee in Japan

Hiring your first employee in Japan can be a big step.

You will need to decide whether you should hire the person as an employee or as a contractor. 

Most people prefer to be hired as an employee as they are afforded more protection and benefits. However, hiring someone as an employee in Japan is usually more expensive as you will have to pay social insurance (approx. 15 percent) and unemployment insurance (about 1 percent).

The dismissal process in Japan is very restrictive and usually requires the employer to pay around three months equivalent of salary to the employee being dismissed. This is true even if the person was incapable of doing their job. 

If a person works under your direct supervision they will probably be regarded as an employee. 

Taxes on Salary

You are required to withhold income taxes from your employee’s salary. And, you will need to pay withholding tax twice a year (July and January). Before paying the January payment of the tax, you will have to complete the year-end-adjustment and re-calculate your employee’s income based on their declaration of a mortgage interest paid, life insurance, social insurance, number of dependents etc.

Social Insurance

As previously mentioned, you will need to pay about 15-18 percent of your employee’s salary as social insurance contribution (health insurance and pension). You will need to withhold the same amount from employee’s salary. So, the total burden is approximately 30 percent. This shared 50-50 between employer and employee.

The unemployment/labor insurance is roughly 1 percent. This is a reasonable amount as it can be quite beneficial for any employees that become unemployed. The current benefit is approximately 70 percent of the monthly salary for 3 to 11 months of unemployment.