Japan Management Consulting

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Payroll for foreign companies in Japan

 

This page gives an outline of the main things to know about payroll in Japan

Payroll payment date

Payroll in Japan is usually paid the 25th of the month although companies can freely decide the day of payment to the employees.

Payroll taxes in Japan

In Japan there are basically two payroll taxes:

– Social insurance that covers payment for government health insurance, government pension plan and nursing plan for elderly for people over 40 years old.

– Labor Insurance that covers employee accident insurance and unemployment insurance

Payroll taxes are paid monthly for Social Insurance and once a year in advance for Labor Insurance.

Employee withheld income tax

In Japan, income taxes on salary are calculated by companies and withheld from employee salary. There are two main taxes income tax (equivalent of Federal Tax for the US) and resident tax (equivalent of State tax for the US). Resident tax can be eventually paid directly by employees.

Payment of Employee withheld income tax

Employee withholding tax is normally paid by the 10th of the following month. However companies with less than 10 employees can file a request with tax office “noki no tokurei” and pay the withholding tax only twice a year.

Year end adjustment on employee withheld income tax

The year-end adjustment is for the calculation of the income tax due by the employee. During the year, employee tax is withheld each month from employee salary based on the rates published by the tax office. At the end of the year, we calculate the exact tax liability of the employee based on her/his special situation (such as number of dependents) and we make an adjustment so that the total amount of tax withheld during the year equals the tax liability of the employee. The amount of tax withheld from employees is reported annually in the withholding tax report “Gokeihyo” filed in January.

Resident tax adjustment

For employees whose resident tax is deducted monthly form salary by the company, new resident tax payments slips are sent by tax office to the company so that companies can update the amount of resident tax to be deducted from salary in June each year. The resident tax deduction that start in June are based on the taxable income of the previous year. Resident tax is roughly equal to 10% of the previous year taxable income. Resident tax is paid only by employees who were resident of Japan on January 1st and had taxable income in the previous year. New graduate typically do not pay

Year End Bonus payment

In Japan, the company has to calculate the tax liability of the employee at year end and adjust the tax due on the last salary payment (see article above Year End Adjustment). Since this process takes time, if a bonus is planned to be paid in December we recommend fixing the amount of bonus to be paid at beginning of December and in any case before December 8th . Generally speaking, we recommend to pay bonus in  January. A bonus paid in January can still be considered as previous fiscal year expense if the company ends its fiscal year in December.

Paid Vacation

The article 39 of the Labor Law gives the minimum amount of paid vacation for employees. The paid vacation earned is based on the seniority in the company:

Seniority Paid Vacation earned
6 Months 10 days
1.5 Years 11 days
2.5 Years 12 days
3.5 Years 14 days
4.5 Years 16 days
5.5 Years 18 days
6.5 Years 20 days

 

Employees may accumulate up to two years’ unused paid vacation. After two years, the unused paid vacation is forfeited. For example, an employee with two and half years of service may accumulate a maximum of 23 paid vacation.

The paid vacation earning schedule above is applicable only when employees had worked more than 80% of the total working days of the previous year.

Benefits in Japan

Through inscription to Social Insurance, employees get a Social Insurance Card that allows them to go any medical facilities in Japan and pay only 30% of the medical fees.

Overtime:

Please consult our Japan overtime pay for employees page

Commutation Expenses

Companies usually pay transportation fees for employees from their residence to their working place. This is an usage but not an obligation.

Disclaimer: This information is given for information purpose only . Companies should consult with a licensed social insurance consultant before making any decision

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