How to run payroll in Japan

Payroll in Japan runs on a monthly cycle. Payment is usually due by the 25th of each month.

Most Japanese companies pay employees once per month, typically on the 25th or the last working day of the month. The Labor Standards Act requires employers to pay wages at least once per month on a fixed date, giving companies flexibility in choosing their specific pay date.

Payment timing requirements

Japanese law mandates that wages must be paid in full, directly to the employee, in Japanese yen. Payments must occur at least monthly and on a predetermined date that employees know in advance.

If the regular pay date falls on a weekend or national holiday, most companies pay on the preceding business day, though some pay on the following business day. This practice should be clearly stated in employment contracts.

Are bonus payments required?

Japan doesn't legally require bonus payments, but they're deeply embedded in corporate culture. Most full-time employees receive biannual bonuses equivalent to 2-6 months' salary.

Summer and winter bonuses

The standard bonus schedule includes:

• Summer bonus (natsu no bonasu): Paid in June or July
• Winter bonus (fuyu no bonasu): Paid in December

Bonuses typically equal 2-3 months of base salary each, though amounts vary significantly by company size and performance. These payments are subject to the same tax and social insurance deductions as regular wages.

Bonus calculation and taxes

Bonuses are calculated based on base salary, performance ratings, and company profitability. They're taxed separately from regular wages using a flat 20.42% rate for amounts up to ¥3 million, with higher rates for larger bonuses.

How does vacation pay work?

Vacation pay in Japan equals the employee's regular daily wage multiplied by the number of vacation days taken. There's no "vacation premium" – employees receive their standard pay rate.

Annual leave entitlement

Japanese employees earn paid annual leave based on their length of service:

• 6 months: 10 days
• 1.5 years: 11 days
• 2.5 years: 12 days
• Increasing annually: Up to 20 days after 6.5 years

Vacation payout timing

Vacation pay is included in the regular monthly payroll when employees take time off. Unused vacation days don't automatically carry over beyond two years, and companies aren't required to pay out unused vacation upon termination unless specified in the employment contract.

What payment methods are required?

Japanese law requires wage payments directly into employees' bank accounts. Cash payments are generally prohibited except in specific circumstances with labor office approval.

Bank transfer requirements

Employees must provide a Japanese bank account for payroll deposits. International companies often help foreign employees open accounts, as this can be challenging without established credit history.

The account must be in the employee's name and capable of receiving JPY transfers. Most companies use the Japanese banking system's standardized transfer format to ensure timely processing.

Currency considerations

All wages must be paid in Japanese yen, regardless of the employee's nationality or the company's home country. Companies cannot pay in foreign currencies, even with employee consent.

What must payslips include?

Japanese payslips must show detailed breakdowns of gross pay, all deductions, and net pay. The information must be provided in Japanese, though bilingual payslips are common at international companies.

Required payslip elements

Every payslip must include:

• Employee name and ID number
• Pay period dates
• Base salary and overtime pay
• All allowances (transportation, housing, etc.)
• Social insurance deductions
• Income tax withholding
• Inhabitant tax deductions
• Net pay amount

Delivery methods

Companies can provide payslips electronically if employees consent, but many still use paper copies. Electronic payslips must be accessible for at least three years and downloadable in a standard format.

The payslip should clearly distinguish between taxable and non-taxable income, as this affects the employee's annual tax filing requirements.

Tax withholding reports in Japan are due by the 10th of each month. Late filing means penalties starting at 10% of the tax owed, plus daily interest charges.

Japan's income tax system combines national income tax with local inhabitant taxes. You'll withhold both from employee paychecks, but the timing differs significantly.

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Income tax brackets

Japan's national income tax rates for 2026 remain progressive, with seven brackets:

Annual Income (¥)	Tax Rate
¥0 - ¥1,950,000	5%
¥1,950,001 - ¥3,300,000	10%
¥3,300,001 - ¥6,950,000	20%
¥6,950,001 - ¥9,000,000	23%
¥9,000,001 - ¥18,000,000	33%
¥18,000,001 - ¥40,000,000	40%
¥40,000,001+	45%

The basic deduction for 2026 is ¥480,000, meaning the first ¥480,000 of income isn't taxed. Employment income gets an additional deduction starting at ¥550,000 for lower earners.

Local inhabitant tax adds roughly 10% (varies slightly by municipality). This creates an effective combined rate of 15% to 55% depending on income level.

Withholding requirements

You must register for gensen chōshū (源泉徴収) before your first payroll. This covers income tax withholding obligations.

Monthly withholding uses tax tables based on the employee's dependents and estimated annual income. You'll file Form 1 by the 10th of each month, paying withheld taxes to the tax office.

The annual adjustment happens in December. You'll reconcile actual vs. withheld amounts using the nenmatsu chōsei (年末調整) process. Employees submit dependency and insurance premium documentation by early December.

Tax registration

New employers need three key registrations:

Gensen chōshū registration - Required before first payroll. Submit to your local tax office with company registration documents. Processing takes 2-3 weeks.

Salary payment office notification - File within one month of starting operations. This designates your payroll processing location.

Special collection application - Optional but recommended for companies with fewer than 10 employees. Lets you pay withheld taxes twice yearly instead of monthly.

Special tax considerations

Non-resident employees face different withholding rates. Residents of treaty countries typically get 20.42% flat withholding on employment income. Non-treaty residents face higher rates.

Expatriate tax equalization gets complex with Japan's two-tier system. Many companies gross-up for both national and local taxes to maintain net pay targets.

Stock options and equity compensation trigger withholding at exercise, not grant. The timing often catches international companies off-guard during equity events.

Common tax mistakes

Incorrect dependent calculations lead to over or under-withholding. Japanese dependency rules differ from many countries - married couples can't file jointly, and dependency thresholds are income-based.

Missing the December deadline for annual adjustments creates compliance headaches. Late submissions mean employees must file individual returns, and you'll face penalties starting at ¥50,000.

Forgetting inhabitant tax registration for new employees. You must notify municipalities when employees move or start work. Missing notifications delay proper tax setup and create collection issues.

Equity compensation timing errors happen when companies withhold at grant instead of exercise. Japan taxes stock options as employment income when exercised, not when granted.

Think your home country has high employer taxes? Japan's contributions total 15.05% of gross salary.

Every employee in Japan triggers mandatory social insurance contributions that you'll split with them. The system covers health insurance, pension, unemployment, and workers' compensation.

Contribution breakdown

Contribution Type	Employer Rate	Employee Rate	Monthly Cap
Health Insurance	5.00%	5.00%	¥65,000
Employees' Pension	9.15%	9.15%	¥65,000
Unemployment Insurance	0.85%	0.50%	¥22,950
Workers' Compensation	0.05%	0%	-
Total	15.05%	14.65%

Health insurance rates vary slightly by prefecture, but 5% is the national average for 2026. Workers' compensation rates depend on your industry - construction pays more than office work.

Total employer cost example

For a ¥60,000 monthly salary:

• Base salary: ¥60,000
• Health insurance: ¥3,000
• Pension: ¥5,490
• Unemployment: ¥510
• Workers' compensation: ¥30
• Total employer cost: ¥69,030
• Cost multiplier: 1.15 (you pay 15% more than base salary)

Contribution caps and ceilings

Both health insurance and pension contributions cap at ¥65,000 monthly (¥780,000 annually). This means high earners hit a ceiling where their absolute contribution stops growing.

For employees earning over ¥650,000 monthly, your contribution burden actually decreases as a percentage. A ¥1,000,000 salary still only costs ¥65,000 in health and pension contributions combined.

Unemployment insurance caps at ¥22,950 monthly, reached at salaries of ¥2,700,000 annually.

Registration requirements

You'll register with three separate agencies within 5 days of hiring your first employee:

Bring your business registration certificate, employee contracts, and salary details. Each office issues separate registration numbers you'll need for monthly filings.

Payment deadlines

All contributions are due by the last day of the following month. January salaries mean February 28th payment deadlines.

The pension service offers direct debit, but unemployment and workers' comp require manual bank transfers with specific reference codes.

Sick leave in Japan is paid at 60% for the first 3 days by the employer. After that, employees can claim sickness benefits from health insurance, but your payroll calculations change significantly.

Annual leave

New employees get 10 days of paid annual leave after working for 6 months. This increases to 11 days after 1.5 years, then by one day each year up to a maximum of 20 days after 6.5 years.

You'll calculate vacation pay at the employee's regular daily wage. If their salary varies, use the average daily wage from the previous 3 months.

Employees can carry over unused days for up to 2 years, but you're not required to pay out unused vacation when they leave. Most companies do offer payouts as a retention tool, but it's not mandatory.

Vacation pay calculation

For salaried employees, divide their monthly salary by the average working days in that month. For hourly workers, multiply their regular hourly rate by their standard daily hours.

Sick leave

Employers must pay sick leave at 60% of the regular wage for the first 3 days. From day 4 onwards, employees can claim sickness benefits from health insurance at 67% of their standard daily wage.

The health insurance fund pays these benefits directly to the employee, so they won't appear on your payroll after day 3. You'll need a medical certificate for absences longer than 3 days.

Parental leave

Maternity leave

Female employees get 6 weeks before birth and 8 weeks after birth. You don't pay wages during this period - employment insurance covers 67% of their average wage for the first 180 days, then 50% until the child turns 1.

The employee applies directly to Hello Work (employment office) for these payments. Your payroll system should show zero wages during maternity leave.

Paternity leave

Male employees can take up to 1 year of childcare leave, also paid by employment insurance at the same rates (67% for 180 days, then 50%).

Both parents can take leave simultaneously for up to 8 weeks after birth, extending the total family leave period to 14 months.

Public holidays 2026

Japan has 16 public holidays in 2026. When a holiday falls on Sunday, the following Monday becomes a substitute holiday.

Date	Holiday	Notes
January 1	New Year's Day
January 13	Coming of Age Day	2nd Monday in January
February 11	National Foundation Day
February 23	Emperor's Birthday
March 20	Vernal Equinox Day
April 29	Showa Day
May 3	Constitution Memorial Day
May 4	Greenery Day
May 5	Children's Day
May 6	Substitute Holiday	Golden Week extension
July 20	Marine Day	3rd Monday in July
August 11	Mountain Day
September 21	Respect for the Aged Day	3rd Monday in September
September 23	Autumnal Equinox Day
October 12	Sports Day	2nd Monday in October
November 3	Culture Day
November 23	Labor Thanksgiving Day

Mandatory benefits affecting payroll

Transportation allowance

Most companies provide monthly commuting allowances up to ¥150,000 per month tax-free. This appears as a separate line item on payslips and affects your social insurance calculations.

Overtime meal allowance

When employees work more than 2 hours overtime, companies typically provide meal allowances of ¥300-500. These are tax-free up to reasonable amounts but must be tracked for payroll purposes.

Year-end bonus

While not legally required, bonuses (usually 2-6 months of salary) are standard practice. Summer bonuses are paid in June/July, year-end bonuses in December. These are subject to regular income tax and social insurance contributions.

The bonus tax rate is 20.42% (income tax plus reconstruction tax) regardless of the employee's regular tax bracket, making payroll calculations simpler during bonus months.

Miss the 10th monthly filing deadline in Japan and penalties start at ¥10,000 per day. Japan's tax authorities don't negotiate on deadlines, and their digital filing systems make compliance tracking straightforward once you know the requirements.

Monthly filing requirements

You'll submit withholding tax returns (源泉徴収税額表) by the 10th of each month through the National Tax Agency's e-Tax system. These reports cover income tax and reconstruction tax withheld from employee salaries in the previous month.

The monthly social insurance contribution report goes to the Japan Pension Service by the end of each month. This covers health insurance, pension contributions, and employment insurance premiums.

Submission methods:

• e-Tax portal for income tax filings (mandatory for companies with 100+ employees)
• Japan Pension Service online system for social insurance
• Paper filing allowed for smaller employers but processing takes longer

Late filing penalties compound daily. The ¥10,000 base penalty applies regardless of company size, plus 14.6% annual interest on any unpaid withholding amounts.

Annual reporting

Year-end tax adjustment (年末調整) runs from November through January 31st. You'll reconcile all employee withholdings and issue final tax statements by January 31st, 2027 for the 2026 tax year.

Every employee receives their withholding tax statement (源泉徴収票) by January 31st. These statements must include total annual income, tax withheld, social insurance premiums, and any applicable deductions.

Annual labor standards report goes to the local Labor Standards Office by March 31st, covering working hours, overtime payments, and safety compliance for the previous year.

The National Tax Agency audits approximately 3% of employers annually, focusing on withholding accuracy and proper documentation.

Employee documentation

Employment contracts must be in Japanese and include specific mandatory elements: job duties, work location, hours, wages, pay dates, and termination conditions. Contracts missing these elements aren't legally enforceable.

Monthly payslips require 15 mandatory items including basic salary, overtime rates, each deduction itemized separately, and net pay. You can deliver payslips electronically if employees consent in writing.

Keep all payroll records for 7 years minimum. This includes timesheets, contracts, payslips, tax filings, and social insurance documentation. Labor authorities can request these during inspections.

Penalties and violations

Violation	Penalty	Additional consequences
Late monthly tax filing	¥10,000 per day	14.6% annual interest on unpaid amounts
Missing payslip elements	¥300,000 per occurrence	Potential criminal charges for repeat violations
Incorrect withholding	35% of underpayment	Plus original tax amount and interest
Missing employment contract elements	¥300,000 fine	Contract becomes unenforceable
Late social insurance filing	5% of contributions owed	Compounds monthly until paid

Criminal penalties apply for intentional tax evasion or falsifying records. These carry prison sentences up to 10 years plus fines up to ¥10 million.

Regulatory oversight

National Tax Agency handles all income tax and consumption tax matters. Their e-Tax portal (www.e-tax.nta.go.jp) processes monthly filings and provides compliance guidance in Japanese and English.

Japan Pension Service manages health insurance and pension contributions through their online system at www.nenkin.go.jp. Regional offices handle employer registration and compliance issues.

Ministry of Health, Labour and Welfare oversees employment law compliance through local Labor Standards Offices. Find your regional office at www.mhlw.go.jp/english.

Each agency maintains separate online portals with different login credentials. Most require digital certificates for secure filing, which you can obtain through authorized certificate providers.

Effective April 1, 2026, all employers in Japan must implement the new digital payroll statement requirements under the revised Labor Standards Act.

Digital Payroll Statements - Effective April 1, 2026

• Employers can now provide payroll statements electronically by default (previously required written consent)
• Employees can opt out and request paper statements within 30 days
• Digital statements must include enhanced data security and accessibility features

Minimum Wage Increases - Effective October 1, 2026

• National minimum wage increased 3.1% from ¥901 to ¥929 per hour
• Tokyo leads regional rates at ¥1,056 per hour (up from ¥1,013)
• Osaka follows at ¥1,001 per hour, while rural prefectures range from ¥854-¥892

Health Insurance Contribution Changes - Effective March 2026

• Employee health insurance rate decreased slightly from 5.0% to 4.95%
• Employer rate remains at 4.95%
• Long-term care insurance for employees 40+ stays at 0.695%

Employment Insurance Rate Adjustment - Effective April 1, 2026

• General businesses: employee rate reduced from 0.6% to 0.5%
• Employer rate decreased from 0.95% to 0.85%
• Construction and agriculture sectors maintain higher rates at 0.7% (employee) and 1.05% (employer)

Upcoming Changes The Ministry of Health, Labour and Welfare announced that starting January 2027, employers must provide monthly pension contribution statements to all employees electronically. You'll need to update your payroll systems to generate these automated reports.