Need to know what’s required, customary, and unnecessary? Here’s an overview of Employee Benefits in Japan
In most countries, “employee benefits” is a buzzword. It’s a high priority on candidates’ checklists during the interview process and could make or break whether they’ll accept a job. Want to be attractive to top talent? You have to stand out with your benefits.
But in Japan, benefits don’t work the same way.
The government offers comfortable statutory employment benefits (a.k.a. “social benefits”). In fact, because of this, 90% of individuals in Japan have no practice of maintaining their own health insurance, retirement funds nor protection coverage (such as for work-related injuries or job loss).
Plus, employees in Japan have a different value system in which they expect a combination of statutory and non-statutory benefits. These can shake up what you need in your packages because the demands might not be anything like what you hear from candidates in your home country.
Knowing your obligations can improve your budgeting, recruitment, and compliance. Here are the benefits you need to consider to set you on the path to success in Japan:
Japanese Statutory Employment Benefits
Social & Labor Insurance
All companies in Japan hiring full time or eligible employees must enroll in all of the social benefit schemes you see here in this chart (information accurate as of April 2020):
*Rates are based on the assumption that the company is in Tokyo
**Premium rate for Workmen’s Accident Compensation Insurance is 0.25% minimum. Depending on the job risk, the rate may increase.
Costs of Social and Labor Insurance
Social benefit premiums are split between the employee and employer. And every month, employee premiums are deducted from their paycheck (gross salary).
As an employer, you’ll have to pay an additional ~16%* of the employee’s gross salary towards employee benefits. It’s good to keep this number in mind when you’re budgeting salaries during the hiring process. Example: Let’s say you pay someone 500,000 JPY per month in gross salary. The total company cost including social benefits is around 580,000 JPY (the actual calculation is more complicated, but this is a good enough estimate for budgeting purposes).
Some additional things to consider: Once an employee turns 40 years old, the premium rate increases to ~17%* to include Nursing Care Insurance. It could increase to 18% or more depending on how dangerous the job is.
*Information as of Spring 2020 – please reach out to us for up-to-date rates.
Paid Leave
Employees in Japan are granted additional days of paid leave that are added to their annual balance, based on the table below, which shows the statutory minimum. The leave is effective for two years from the date awarded.
The company can grant more paid leave days if it chooses, which can be a differentiator in the market when recruiting.
The amount of paid leave days might seem low compared to other countries. However, Japan has a high number of public holidays over the course of the year so it would be good to take those into account when making your final offers to candidates.
Non-Statutory Benefits that your Employees will Expect
Candidates will likely expect you to offer commuting allowance, sick leave, Obon and New Years holidays (non-official holidays). Traditional companies also sometimes provide small allowances.
Commuting Allowance
Most Japanese companies will provide a commuting allowance to employees to cover travel between the home and the office. This is a really helpful benefit given that many employees in Japan commute for an hour or longer to work. The expense will be based on the most economic route between an employee’s home and the workplace. Commuting Allowance is not subject to income tax up to a certain amount.
Private Pension
Many employees expect this benefit from large companies in Japan. Because new companies are not able to offer this benefit in Japan (mainly because of low headcount), except for a few specific programs, foreign subsidiaries new to the market usually pay more salary to compensate. If you’d like to have a more in-depth discussion about this, please reach out to us here.
Other Supplemental Benefits
Most Japanese talent will not expect anything more than the above. However, some Japanese companies will offer some additional allowances such as housing allowance, car allowance, and paid leave on unofficial holidays.
Benefits you don’t have to provide (even though they’re attractive outside of Japan)
Anything we haven’t listed above – 401k, life insurance, disability, unlimited vacation days – are often not benefits that are important enough to employees in Japan who are joining foreign companies.
Japanese talent joining foreign subsidiaries new to the market tend to place a higher value on a salary increase or an upgrade in title and authority than they do on supplementary employee benefits. So whether or not you offer additional benefits, it may not affect their decision-making process when they’re thinking of joining your company.
We can help you learn the ins and outs of each of these benefits and how to incorporate them into your employment and HR documentation, regardless of whether or not you have an entity. Plus, we can also explain what needs to be done to avoid issues both internally and with the Japanese government.
Want to talk it through? Reach out to us, here.