How to Setup Japanese Payroll, Taxes, and Insurances
August 2, 2019 17:13PM by Chris Bowd, 3532 views
Venture Japan incorporated your Japanese KK or GK company in record time (we sometimes manage less than 5 business days), we completed the new company’s notifications to the Bank of Japan, the National Tax Agency, and the local tax office, it has a bank account (or maybe uses Venture Japan’s proxy bank account and accounts payable service), so now it’s time to hire its first Japanese director or employee introduced by your chosen Tokyo recruitment agency.
A Japanese company must enroll each salaried director and employee who works more than 20 hours a week, regardless of nationality, in Japan’s mandatory employee social insurance schemes. Japan Pension Service, an agency of the Ministry of Health, Labour and Welfare, administrates the four social insurance schemes.
- Health Insurance. The Health Insurance Law governs this insurance, which pays 70% of the covered person’s health care bills. All Japanese employers must enroll each employee in the employee health insurance scheme within 5 days of the employee’s start date. About 4 weeks after enrollment, Japan Pension Service posts the employee’s and his or her dependents’ health insurance cards to the employer’s registered address to hand to the employee. Japanese employers must deduct a health insurance contribution from each employee’s wages each month and pay it to Japan Pension Service at the end of the month together with a matching employer’s contribution. As an aside, many foreign company executives ask why Japanese employees seem so concerned about being enrolled in the employee health insurance scheme; the answer is that the alternative national health insurance scheme (mandatory for self-employed people) premiums are higher because there are no matching employer’s contributions. This is one reason why older or married Japanese won’t consider freelance or self-employed job offers.
- Pension Insurance. The Pension Insurance Law governs this insurance, which provides state pensions for the covered person after he or she reaches compulsory retirement age. All Japanese employers must enroll each employee in the employee pension insurance scheme within 5 days of the employee’s start date. Japanese employers deduct a monthly pension insurance contribution from each employee’s wages and pay it to Japan Pension Service at the end of the month together with a matching employer’s contribution. Many Japanese employees rely solely on their employee pension for their retirement and another reason why older or married Japanese won’t consider freelance or self-employed offers is because the alternative national pension insurance scheme (again mandatory for self-employed people) pays a much lower pension because of the lower premiums resulting from the absence of employer’s contributions.
- Long-term Care Insurance. The Long-Term Nursing Care Law governs this insurance, which is intended to cover the long-term cost of caring for Japan’s ever-longer living elderly. All Japanese employers must enroll each employee aged 40 or older in the long-term care insurance scheme within 5 days of the employee’s start date. Japanese employers deduct a monthly long-term care insurance contribution from each employee’s wages and pay it to Japan Pension Service at the end of the month together with a matching employer’s contribution.
- Child Benefits Fund. The Child Benefits Law provides for a government fund intended to cover the cost of government-assisted child allowances. Child Benefits Fund contributions are solely the employer’s liability and calculated and added each month to the employer’s health, pension, and long-term care insurance contributions paid to Japan Pension Service.
Japanese employers must also enroll each non-representative director and employee who works more than 20 hours a week, regardless of nationality, in Japan’s mandatory labor insurance schemes (the relevant laws bar representative directors from benefiting from labor insurances). The Labour Standards Office, also an agency of the Ministry of Health, Labour and Welfare, administrates two of the labor insurance schemes:
- Workers’ Accident Compensation Insurance. The Workers’ Accident Compensation Insurance Law governs this insurance, which provides disability pension and income support for the covered employee if injured in the course of his or her employment, including while commuting from home to and from the workplace. All Japanese employers must enroll each employee in the worker’s accident compensation insurance scheme within 5 days of the employee’s start date. Workers’ accident compensation insurance contributions are solely the employer’s liability. When enrolling the first employee or non-representative director, Japanese employers must calculate and prepay to the Labour Standards Office, an estimated annual worker’s accident compensation contribution for the period ending the following March 31. In June each year, the employer must calculate the exact amount that should have been paid for the previous April 1 – March 31 period and the estimated amount due for the current April 1 – March 31 period. The employer then prepays the estimated amount with an adjustment for any overpayment or underpayment of the previous period. In the Japanese employer’s general ledger, the prepayment is entered in the accrued expenses account, then each month the exact amount calculated as part of the payroll calculation and reclassified from the accrued expenses account to the employer labour insurance expense account.
- Asbestos-related Health Damage Relief Fund. The Asbestos Health Damage Relief Law governs this insurance, which compensates victims of asbestos-related illnesses. Only certain employers in industries likely to have employees suffering asbestos-related diseases must make these contributions. As with workers’ accident compensation insurance and child benefits fund contributions, when enrolling the first employee or non-representative director, Japanese employers must calculate and prepay to the Labour Standards Office an estimated annual Asbestos-related Health Damage Relief Fund contribution for the period ending the following March 31. In June each year, the employer must calculate the exact amount of Asbestos-related Health Damage Relief Fund contribution that should have been paid for the previous April 1 – March 31 period and the estimated amount due for the current April 1 – March 31 period. The employer then prepays the estimated amount with an adjustment for any overpayment or underpayment of the previous period. In the Japanese employer’s general ledger, the prepayment is entered in the accrued expenses account, then each month the exact amount is calculated as part of the payroll calculation and reclassified from the accrued expenses account to the employment labor insurance expense account.
The third mandatory Japanese labour insurance is employment insurance. This is administrated by the Employment Security Office aka Hello Work:
- Employment Insurance. The Employment Insurance Law governs this insurance, which provides unemployment benefit and income support for the covered employee if he or she becomes unemployed. All Japanese employers must enroll each employee in the employment insurance scheme within 5 days of the employee’s start date. When enrolling the first employee or non-representative director, Japanese employers must calculate and prepay to the Employment Security Office an estimated annual employee and employer’s employment insurance contribution for the period ending the following March 31. In June each year, the employer must calculate the exact amount that should have been paid for the previous April 1 – March 31 period and the estimated amount due for the current April 1 – March 31 period. The employer then prepays the estimated amount with an adjustment for any overpayment or underpayment of the previous period. In the Japanese employer’s general ledger, the prepayment is entered in the accrued expenses account, then each month the exact amount calculated as part of the payroll calculation and reclassified from the accrued expenses account to the employer labur insurance expense account, while entering the amount calculated and deducted from the employee’s wages into the employee labour insurance expense account.
The last steps are to notify the National Tax Agency and local ward or city tax offices upon enrolling each employee.
If you need help, we can manage the entire application procedure for you.