Payroll Outsourcing in Japan

• Cost-effective payroll services
• Maintain regulatory compliance
• Enhanced payroll data security

Establish Your Business Operations In Japan

Japan is the third-largest economy in the world after the United States and China. It is home to a broad consumer market, meaning the opportunities are endless for businesses, both small and big. But even if you have the best offerings in the world, if you don’t get payroll processes right, you’ll have a hard time establishing your brand in the Japanese market.

Like most companies, if you plan on building your in-house payroll team in Japan, here’s a hard truth. While handling payroll functions in-house comes with its own benefits, it is both time-consuming and resource-intensive. You’ll have to invest a lot of capital upfront, which might strangle your budget for other business functions vital for international expansion.

A better way to ensure payroll compliance and seamless direct access to the Japanese market is by outsourcing your payroll.

Payroll Outsourcing: An Ideal Measure For Business Expansion

Operating in Japan comes with a lot of challenges. Even the most experienced foreign organizations have a hard time understanding the local regulations and business processes. So, no matter how experienced you are in your field or at global payroll processing, a little help can help you seamlessly establish yourself on Japanese soil.

When you outsource payroll, you get knowledgeable professionals handling your payroll process. This means zero payroll errors and a happy and productive workforce. Beyond ensuring your employees are paid accurately, most payroll outsourcing companies in Japan also handle the hiring, regulatory, and tax filing processes. This means you save a lot of time and can focus more on your core business.

Grow Your Business With Our Outsourced Payroll Solution

As a foreign organization, one problem you’ll face commonly in Japan is the language barrier and cultural differences. If you wish for your Japanese entry to go smoothly, you need to have a good understanding of how things work in the Japanese corporate world.

With Edge as your payroll outsourcing provider, this part of the equation will be easy to master. We will provide you with all the tools you need to make your business succeed in Japan. Plus, we will do all the legwork for you when it comes to payroll management and applicable taxes. This gives you more time and resources to improve your offerings and ensure quality assurance.

Our Initial Payroll Processing Offerings

As soon as you are onboard, we’ll help you register your business with the Japanese Labor and Social Insurance systems. Once that’s done, we’ll gather your employee data and have them enrolled in the same system. Then, we sit together with you to understand how you wish to process payroll and, based on your requirements, devise a strategy for cost savings and improved efficiency. We can also help you set up a bank account for your employees so their salaries can be transferred to this account easily every month.

Our Monthly Outsourced Payroll Functions

Considering you opt for a monthly payroll frequency, we do the following for you every month.

• We calculate employees’ gross salaries, deduct income taxes and contributions, and then determine the net wages.
• We draft payroll reports for you, statements for your employees, and payslips for tax authorities.
• We transfer the appropriate wages to employee bank accounts.

Our Yearly Payroll Outsourcing Work

Every year, we do three important payroll processing tasks for your business. First, if employees are entitled to bonuses, we handle the procedure for you. Second, we do the year-end payroll processing work, which includes filing the annual tax report, making tax adjustments, and withholding. Third, we do the annual salary report for local tax purposes.

We Make Managing Payroll Easy

At Edge, we have designed our payroll outsourcing model to fit your business goals and needs. Whether you want us to run payroll bi-weekly, monthly, or something else, we are open to doing so. As a trusted service provider, we aim to help you meet your goals and succeed in the Japanese market.

In addition to assisting you with your payroll operations in Japan, we can also help you with onboarding new employees and drafting contracts as part of our extended Human Resources services (HR services). Contact us to learn more about how we can be of help.

Processing Payroll In Japan: Everything You Should Know

Minimum Wage

The minimum wage an employee is entitled to in Japan varies based on the prefecture (Japan is divided into 47 prefectures). However, to give you an idea, in bigger cities like Tokyo, Osaka, and Kyoto, the minimum wages are around JPY 985, 936, and 882, respectively.

As an employee accumulates experience, they will have the opportunity to be promoted and receive higher wages.

When it comes to frequency, most companies work with payroll outsourcing providers and run their payroll monthly. This means the payroll outsourcing companies will complete each payroll function before the second last week of every month and transfer salaries on the 25th. Nonetheless, international companies often have varying payroll periods, with some having their outsourced payroll providers do the processes bi-weekly.

Working Hours And Overtime

In Japan, the government-mandated working time is 8 hours per day. That accounts for 40 hours per week. Most organizations run from 8:30 am to 7:00 pm, and this time slot includes a one-hour lunch break. Nonetheless, the workday time slots aren’t set in stone. Some small businesses may choose to open at 9:00 am and work till 7:30 pm. There are also businesses that close at 5:00 or 6:00 pm.

When an employee works for a significantly longer period of time in a week, they’re entitled to overtime wages. Management positions are an exception to this rule, and it is also not uncommon for employees to work a certain amount of overtime hours in Japan.

While employees working overtime occasionally isn’t a huge problem, if an employer wants their staff to work overtime regularly, a written agreement, “Article 36,” should be drafted and signed. This agreement should then be submitted to Japan’s Labor Standards Inspection Office.

The maximum overtime hours an employee can work is 5 hours each day. The wages for overtime work are calculated as shown below.

• First 60 hours of overtime – Monthly salary + extra 25%
• Overtime exceeding 60 hours – paid based on the agreement

Severance & Termination

The Japanese government has not set strict rules for severance pay. Organizations in Japan can dismiss a staff after one year of service. If an employee is dismissed without fault, they should be given a severance pay that typically accounts for around 2 months of service. Depending on how long they have been in service, this can go up to 12 months.

Both the employer and employee can also initiate a termination. But, terminations involve specific procedures and include a notice period. The duration of the notice period will depend on how long an employee has been in service and the reason for termination.

Payroll Taxes And Deductions

In Japan, the government collects taxes and insurance contributions from an employee’s paycheck. The amount collected is often based on the employment contract as well as the employee’s resident status.

The social security contributions are split between the employer and the employee, with the former paying 16.24% and the latter paying 15.28%.

Employee Paid Time Off  And Holidays

In Japan, employees get paid time based on how long they have been working at their respective organizations. Here’s how that works:

• After 6 months of being in service – 10 days of paid leave
• After 1 year and 6 months – 11 days of paid leave
• After 2 years and 6 months – 12 days of paid leave
• After 2 years and 6 months – 12 days of paid leave
• After 3 years and 6 months – 14 days of paid leave
• After 4 years and 6 months – 16 days of paid leave
• After 5 years and 6 months – 18 days of paid leave
• After 6 years and 6 months – 20 days of paid leave

Employees can accumulate their paid leaves and use it all together. But they should speak with the management before doing so. Unused annual leaves are valid for only 2 years.

There are also 16 public holidays. While employers are required to pay employees for their time off these days, many organizations still do it as an added perk. Similarly, the Japanese government doesn’t mandate sick leave, but organizations do have their own policies surrounding time off for medical emergencies.

Parental Leave

Japanese parental leave includes both maternal and paternal leave. Mothers are entitled to 6 weeks of paid leave before childbirth and 8 weeks after. It is to be noted that they don’t receive 100% of their average salary, but only 60%.

There are no strict rules surrounding paternal leaves. According to a recent law, fathers can take up to 4 weeks of paid leave within 8 weeks after childbirth.