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.
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 it
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
If employees work over 40 hours a week, company is expected to pay overtime to employees unless they work in Management position. Companies that intend to use overtime on a regular basis should put in place a written agreement between employees and management commonly called “article 36″ and submit it to Labor Standards Inspection Office. This agreement is often called “Article 36″ because it refers to Article 36 of the Japanese Labor Law. This report should be renewed every year.
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