How to Set Up Business in Japan

Laws & Regulations on Setting Up Business in Japan

Section 4. Human Resource Management

4.4 Wages

4.4.1 Principles of wage payment

Employers must pay wages in legal tender, directly to the employee, not less than once per month, and on a specified date. However, employers are allowed to remit wages into a bank account specified by the employee where the employee agrees to that method of payment, and may also deduct social insurance premiums, taxes and similar expenses from wages.

4.4.2 Guarantee of minimum wage

The minimum wage is determined according to region and industry. Where an employee is subject to two different minimums, the employee is entitled to the higher of the two minimum wages. The employer must pay the employee a wage that is not less than the minimum wage. The minimum wages in main prefectures are as follows (effective from October 1, 2015).

Prefectures Minimum hourly wage (yen) Prefectures Minimum hourly wage (yen)
Tokyo 907 Chiba 817
Kanagawa 905 Hokkaido 764
Osaka 858 Miyagi 726
Aichi 820 Hiroshima 769
Hyogo 794 Fukuoka 743

4.4.3 Wage system

It is typical for Japanese companies to pay wages on a monthly basis, and to pay employees summer and winter bonuses. One characteristic of Japanese wages is the make-up: monthly wages usually include a basic wage and a range of allowances, which may include accommodation, family and transportation allowances. Another characteristic is that the amount paid in bonuses makes up a relatively high proportion of total wages paid to employees*1. An effect of the high proportion of wages made up of various allowances and bonuses consequently is to lower the rate of overtime pay paid for work outside normal working hours. This system also allows labor costs to be immediately reduced in the event of a recession, for example. Although more businesses are adopting a yearly wage system, there are often few benefits for employers in practice under Japanese labor law*2. Further information is available through the Basic Survey on Wage Structure statistics collated regularly and provided by the Ministry of Health, Labor & Welfare in both Japanese and English.

*1 According to Japan Business Federation (“Keidanren”) statistics, the average bonus paid by private-sector companies in FY2015 was 4.9 months' worth of monthly base pay (for non-managerial positions in all industries).
*2 Whether or not a yearly wage system is introduced or extra wages are paid for overtime work is irrelevant. If a company in Japan introduces a yearly wage system, it almost always only covers management-level employees.

4.4.4 Severance pay system

Almost all enterprises in Japan have some form of severance pay system. Normally when a worker leaves an enterprise, his/her employer will make a one-off payment calculated according to factors including length of service and reason for leaving the enterprise. This is not subject to social insurance contributions and is treated more favorably for tax purposes than ordinary pay. Provided that certain conditions are met, an enterprise that contributes to a severance pay reserve held by a government, financial, or similar institution may recognize these contributions as expenses for accounting purposes.

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