How to Set Up Business in Japan Laws & Regulations on Setting Up Business in Japan

Section 4. Human Resource Management

4.9 Japan's social security system

Japan has a universal insurance system whereby everybody residing in Japan must, in principle, take part in the public health (medical) insurance and pension insurance system.

4.9.1 Labor and social insurance systems

Japan has four different kinds of insurance system which companies are legally obliged to take part in; all workers that meet certain criteria are covered by the insurance.

  1. Workers' Accident Compensation Insurance
    This covers any illness or accident incurred by workers as a result of work or while commuting to or from work.
  2. Employment Insurance
    This provides for workers that become unemployed and helps to maintain stable employment such as by providing financial aid and subsidies.
  3. Health Insurance and Nursing Care Insurance
    These cover medical and nursing care expenses incurred by workers.
  4. Employees' Pension Insurance
    This provides for benefits to workers in their old age, or in the case of death or disability.

Generally, Workers' Accident Compensation Insurance and Employment Insurance are known collectively as "labor insurance," while Health, Nursing Care and Employees' Pension Insurances are referred to collectively as "social insurance."
A company must enter these insurance systems when first incorporating or hiring staff by submitting labor and social insurance notification forms to the relevant authorities(*). The company usually pays insurance premiums by deducting the portion of the premiums payable by employees from their wages, and paying these together with the portion of the premiums payable by the company to the relevant authorities.

4.9.2 Workers' Accident Compensation Insurance

Table 4-4

Application As a rule, this is compulsorily applicable to all workers. Principals of small and medium businesses (representative director, etc.) may be specially approved for coverage if they apply.
Benefit Benefits are paid for any illness, injury, disability or death incurred as a result of an accident caused by a work or while commuting to or from work.
Premium Premiums are generally calculated as a certain percentage of each worker's total wage. The rate of premium depends on the kind of business carried out at the workplace; the maximum premium rate was 8.8% (for metal/non-metal/coal-mining industries) and the minimum is 0.25% (for finance, insurance telecommunications and broadcasting industries) (revised on April 2015). The employer bears the burden of paying premiums.
0.002% is added to the above premium to fund benefits for asbestos-induced diseases.
Notification Notifications must be submitted to the local Labor Standards Inspection Office within a period of 10 days starting on the day following that on which participation in the insurance program was established.

4.9.3 Employment Insurance

Table 4-5

Application In principle, this applies to all general workers. However, to qualify for Employment Insurance, part-time workers' prescribed working hours must not be less than 20 hours per week, and they must expect to be employed for not less than 31 days. Employees dispatched to Japan from an overseas company head office who enroll in a scheme equivalent to employment insurance overseas are exempt from this insurance.
Benefit Benefits are paid for a predetermined period when the insured worker leaves his/her job; the amount of benefits are determined according to the reason for leaving the job, the length of time for which the insured was covered, the insured party's age, etc. There are also a number of benefits available for the purpose of maintaining stability of employment.
Premium Premiums are calculated as a certain percentage of each worker's total wage. The insurance premium rate was 1.10% (the employer paying 0.7% and the worker paying 0.4%) with the exception of a few kinds of job (revised on April 2016).
Notification Notifications must be submitted to the local Public Employment Security Office within a period of 10 days starting on the day following that on which participation in the insurance program was established.

4.9.4 Health Insurance and Nursing Care Insurance

Table 4-6

Application Applicable businesses All incorporated companies and sole proprietorships with five or more regular employees are generally obliged to take part in the insurance. Branches and sales offices of overseas companies are treated as incorporated businesses, and representative offices are treated as sole proprietorships.
Insured parties Generally, all employees of the aforementioned applicable businesses are covered. Part-time employees are covered where their prescribed working hours are not less than 75% of those of full-time employees*1. Employees dispatched from overseas company head offices are covered, as are presidents and representative directors of incorporated companies. However, persons dispatched from the United States, Belgium, France, the Netherlands, the Czech Republic, Switzerland, and Hungary to Japan who are enrolled in medical insurance in these countries are exempt from enrolling in Japan.
Dependents Insured parties' lineal ascendants, spouses, children, grandchildren and siblings whose livelihood is maintained mainly by the insured party are eligible to receive insurance benefits.
Nursing care insurance This applies only to those of 40 years or over.
Benefit Medical expenses 70% of expenses incurred for medical treatment at designated Insurance Medical Institutions (this refers to medical institutions which have been designated as acceptable for medical insurance purposes; almost all medical institutions in Japan are designated) are covered by insurance, while the insured party must pay the remaining 30%. This also applies to dental expenses.
Overseas expenses If an insured party incurs medical treatment expenses at a medical institution while staying or traveling overseas, he/she can apply to be reimbursed after returning to Japan. The amount of medical expenses incurred overseas is converted into a comparable amount of Japanese medical expenses, and 70% of that amount is reimbursed. It should be noted that this also applies to foreign nationals insured under this system who receive medical treatment in their own countries or other countries outside of Japan.
Excessive medical expenses If the amount of medical expenses (e.g., the portion of medical expenses payable by the insured party) an insured party pays to a single medical institution within a single calendar month exceeds a predetermined amount, the amount of expenses excess of that predetermined level shall be reimbursed to the insured party as "Excessive medical expenses."
Premium General insurance premiums for the Japan Health Insurance Association Run Health Insurance are 9.96% (in Tokyo*2) of each insured party's standard monthly remuneration*3 (maximum: 1.39 million yen) and standard bonus*4 (maximum: 5.73 million yen per year). For Nursing Care Insurance, premiums are 1.58%. In either case, the insured party and the employer share the premiums equally (revised on April 2016).
In the case of Union Run Health Insurance*5, a certain amount of leeway in deciding insurance premiums is granted to the managing union.
Notification Notifications must be submitted to the local Pension Office or Health Insurance Union Office within a period of five days starting on the day following that on which participation in the insurance program was established.

Ineligibility for Health Insurance (National Health Insurance)

Application People who are not eligible for Health Insurance coverage as described above must enter into the National Health Insurance scheme run by their local city, ward, town or village government.
Benefit With a few exceptions, National Health Insurance benefits are virtually the same as those under the above-described Health Insurance.
Premium Premiums are determined by each operating local government within certain limitations.

(Note) In Japan, everybody has an obligation to take out one of the above forms of public health (medical) insurance. Because you will therefore inevitably have Health Insurance in Japan, if you choose to take out private insurance with an overseas company, it is better to ensure that the coverage of that private insurance does not overlap with your Japanese public insurance coverage.
*1  From 1 October 2016, part-time employees working for an enterprise with more than 500 employees will also be insured where their prescribed working hours are at least 20 hours per week receiving a monthly pay of at least 88,000 yen with a prospect of continuous employment of at least one year.
*2  Effective from September 2009, premium rates for health insurance administered by the Japan Health Insurance Association have changed from a uniform rate to one that varies depending on prefecture.
*3  Standard monthly remuneration refers to the division of the total amount of wages and other such payments into predetermined brackets.
*4  Standard bonus refers to the amount of the bonus rounded down to the nearest unit of 1,000 yen.
*5  Union Run Health Insurance refers to an insurance scheme provided by a union run by a company or a group of companies.

4.9.5 Employees' Pension Insurance

Table 4-7

Application Applicable businesses All incorporated companies and sole proprietorships those (with five or more regular employees) are generally obliged to take part in the insurance. Branches and sales offices of overseas companies are treated as incorporated businesses, and representative offices are treated as sole proprietorships.
Insured parties Generally, all employees of the aforementioned applicable businesses are covered (with the exception of those over 70 years old). Part-time employees are covered where their prescribed working hours are approximately 75% of those of full-time employees. Employees dispatched from overseas company head offices are covered, as are presidents and representative directors of incorporated companies.
Benefit Old-age Pension This is generally paid to people not less than 65 years old who have paid Employees' Pension Insurance premiums (or been officially exempted from paying premiums) for not less than 25 years in total (this need not be consecutive). The amount of benefit is calculated according to the amount of insurance premiums paid and the length of the period over which they were paid.
Disability Pension Where the illness or injury that causes disability occurs during the period when the disabled party is insured under the Employees' Pension Insurance system, the regular pension or lump sum shall be paid to the disabled party. The amount of benefit is calculated according to the degree of disability, the amount of insurance premiums paid and the length of the period over which they were paid.
Survivor's Pension If an insured party, a person who is eligible to receive an old-age pension or a highly disabled person receiving a disability pension dies, a survivor's pension shall be paid to that person's surviving family.
Premium Rate Insurance premiums are 17.828% (until August 2016) or 18.182% (after the revision in September 2016) of the insured party's standard monthly remuneration (maximum: 620,000 yen) and standard bonus (maximum: 1.5 million yen); the insured party and the employer share the premiums equally.
Pension agreement Japan has social security agreements with Germany, the U.K., South Korea, the U.S., Belgium, France, Canada (except Quebec), Australia, the Netherlands, the Czech Republic, Spain, Ireland, Brazil, Switzerland, and Hungary. Any person insured in the pension system of one of these countries who is sent to Japan is exempted from enrolling in the Japanese pension system upon submitting the appropriate notification at a Pension Office or other appropriate agency. Japan has already signed agreements with Italy, India, Luxembourg, and the Philippines and governmental talks are underway with Sweden,
Payment upon leaving When a foreign national returns to his/her country without having received a pension, a portion of the premiums he/she paid shall be refunded. The amount of a refund is calculated according to the length of time that person was covered under Employees' Pension Insurance and the amount of premiums paid.
Notification Notifications must be submitted to the local Pension Office within a period of five days starting on the day following that on which participation in the insurance program was established.

Ineligibility for Employees' Pension Insurance (National Pension Insurance)

Application Every person aged between 20 and 59 (inclusive) residing in Japan and without Employees' Pension Insurance must be a part of the national pension system. Premiums are a fixed amount per month (16,260 yen from April 2016 to March 2017) and participants in the system are eligible for Old-age Pension, Disability Pension and Survivor's Pension as well as a payment upon leaving similar to that of the above-mentioned Employees' Pension Insurance system.

*1 From 1 October 2016, part-time employees working for an enterprise with more than 500 employees will also be insured where their prescribed working hours are at least 20 hours per week receiving a monthly pay of at least 88,000 yen with a prospect of continuous employment of at least one year.

4.9.6 Labor and social insurance coverage of representative office

Labor insurance (Workers' Accident Compensation/Employment Insurance): From the aspect of legal theory, the labor insurance coverage of an individual, who is employed by a foreign corporation and working at the representative office that has not been registered in Japan, varies depending on whether or not the individual, including the representative of the office, falls under  the definition of "workers" under the Labor Standards Act in Japan. However, since there are no established official documents issued in Japan regarding the foreign corporation which is the employer as well as no handling standards used by the government in such a case, it is currently difficult for the government to recognize the representative of the office as a "worker". On the other hand, with regard to other workers, if the representative is set as the employer, the workers can follow the procedure in order to be covered by the insurance. Therefore, in many cases, the representatives are not covered by the insurance. However, it does not mean that the representatives cannot be covered by the insurance.
Social insurance (Health/Employees' Pension Insurance): In case of a representative office with less than 5 employees, voluntary coverage with the representative of the office as the employer (the representative does not become the person insured) or voluntary coverage as the association without right capacity (registration) (including the representative) are available. If a representative office has n 5 or more employees and fall under the prescribed kinds of businesses, as a general rule, insurance coverage is mandatory. However, with regard to the procedure of including the representative as the person insured, the government does not have the specific rules for handling this matter; therefore, it is currently difficult. Accordingly, it is recommended to request the expert if necessary.

4.9.7 Review of labor and social insurance systems

Table 4-8

Insurance Benefit Coverage Premium rate (% of total annual wage) Remarks
Employer pays Worker pays
Workers' Accident Compensation Insurance Benefits are paid as compensation for medical expenses, work missed, disability or death incurred as a result of work or while commuting to or from work. All businesses that employ workers must have this insurance. 0.35% (in cases of import and trade, and sales industries) - · Special coverage available for employers
· Premium rates differ according to industry
Employment Insurance Benefits are paid to unemployed workers, workers on child care leave and the elderly. All workers whose prescribed working hours are not less than 20 hours per week must have this insurance. 0.7% 0.4% Persons enrolled in unemployment compensation programs overseas are exempt.
Health Insurance and Nursing Care Insurance Benefits are paid for illness or injury not arising as a result of work or while commuting, and for childbirth, etc. All full-time workers employed at incorporated companies, as well as part-time workers whose prescribed working hours were not less than 75% of full-time workers. 4.98% (5.77% if aged 40 or over) 4.98% (5.77% if aged 40 or over) This premium rate applies only to Japan Health Insurance Association Run Health Insurance (in Tokyo).
Employees' Pension Insurance Benefits are paid for old age, disability and death. 8.914% (9.091% from
September 2016)
8.914% (9.091% from
September 2016)
A system exists under which premiums are partially returned to foreign nationals upon withdrawal from the insurance program.
Child Benefits Contribution Contribution to a social welfare system for child benefit, and differs in nature from the welfare benefits offered to workers through their employers. 0.20% -
Total 15.144% until August 2016
(15.934% if aged 40 or over):
15.321% from September 2016 (16.111% if aged 40 or over)
14.294% until August 2016
(15.084% if aged 40 or over): 14.471% from September 2016 (15.261% if aged 40 or over)

As of June 2016

*0.002% will be added to the premium rate for Workers' Accident Compensation Insurance for the time being in order to fund benefits for asbestos-induced diseases.

Table 4-9 Social security agreements already effective and in preparation

Country

Agreement

effective from

Aggregate period Social security system subject to duplication prevention
Japan Country
Germany February 2000 Exist Public pension system Public pension system
U.K. February 2001 Not exist
Korea April 2005 Not exist
U.S. October 2005 Exist Public pension system/
Public medical insurance system
Public pension system/
Public medical insurance system
Belgium January 2007 Exist Public pension system/
Public medical insurance system/
Public accident compensation insurance system for workers/
Public employment insurance system
France June 2007 Exist Public pension system/
Public medical insurance system/
Public accident compensation insurance system for workers
Canada March 2008 Exist Public pension system Public pension system
(excluding Quebec)
Australia January 2009 Exist Retirement pension security system
Netherlands March 2009 Exist Public pension system/
Public medical insurance system
Public pension system/
Public medical insurance system, employment insurance system
the Czech Republic June 2009 Exist
Spain December 2010 Exist Public pension system Public pension system
Ireland December 2010 Exist
Brazil March 2012 Exist Public pension system Public pension system
Switzerland March 2012 Exist Public pension system/
Public medical insurance system
Public pension system/
Public medical insurance system
Hungary January 2014 Exist

Public pension system/

Public medical insurance system

Public pension system
/Public medical insurance system, employment insurance system
Italy In preparation Not exist

Public pension system/

Public employment insurance system

Public pension system/
Public employment insurance system
India In preparation Exist Public pension system Public pension system
Luxembourg In preparation Exist

Public pension system/

Public medical insurance system

Public pension system/
Public medical insurance system/
Public accident compensation insurance system for workers /
Public employment insurance system
The Philippines In preparation Exist Public pension system Public pension system

As of June 2016


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