Payroll in Japan

Pay frequency and payday

Japanese wage rules require payment directly to the employee, in full, at least once a month on a fixed date. Only permitted deductions may be taken out. Monthly payroll is therefore the usual cycle, and the fixed date is a legal requirement rather than a preference. Bank transfer is allowed only with the employee's consent, so record that consent before you set up transfers.

Keep salary, payroll cut-off, payday, allowances and overtime as separate records. The cut-off date and the payday are different dates, and overtime is normally paid for work already done, so decide in the work rules which period each item belongs to.

Payslips and payroll records

Give the employee an understandable breakdown of pay each cycle. Employer charges and employee deductions should sit on separate lines. Pension, health insurance, employment insurance, workers' accident insurance and the child-related contributions are all separate items, and workers' accident insurance is an employer-side levy. Do not use an OECD tax wedge or an old combined percentage as a current payroll rate.

Bonuses and extra payments

Japan does not impose one universal thirteenth-month salary. Bonuses, retirement allowances and extra benefits depend on the contract, the work rules and any established arrangement. Practice is customary rather than statutory, so state in writing whether a bonus is guaranteed or conditional, how it is calculated and when it is paid. Pension and child-related contributions are also calculated on standard bonuses, so a bonus is not free of contribution cost.

Tax and contributions

Income tax is applied to taxable income after deductions, not directly to gross salary. Local inhabitant tax is separate. The municipality assesses it from the previous calendar year's income, and payroll collects it according to the municipality's notice. A new arrival's first payslips may therefore differ from later ones.

The 2026 reforms raise the basic deduction and the minimum employment-income deduction. They generally take effect on 1 December 2026 for 2026 income and affect December year-end adjustment. Withholding through November 2026 is unchanged.

The dossier does not give remittance deadlines or filing forms for withholding tax or social insurance. Confirm the current calendar with the tax authority and the relevant insurance offices before the first pay run, and keep those dates apart from the employee's payday.

Working time that affects pay

The ordinary limits are eight hours a day and forty hours a week. Overtime and statutory-rest-day work normally require an Article 36 agreement and filing. Record actual working time, including remote work. A managerial title alone does not establish an exemption.

A day longer than six hours and up to eight needs a break of at least forty-five minutes. A day over eight hours needs at least one hour. Employees need at least one day off each week, or four days over four weeks under the permitted arrangement. Identify the statutory rest day in the schedule, because a Saturday, Sunday or public holiday is not automatically that day.

The ordinary overtime ceiling is forty-five hours a month and 360 hours a year. A permitted special agreement can allow more, within the limits the law sets, so check the agreement your employer has filed.

Japan has no flat income tax rate for employees. National income tax is progressive, and employers withhold it from each payment. Local inhabitant tax and social insurance contributions come on top, and each follows its own rules.

National income tax bands

The ordinary national individual income tax schedule has seven marginal rates: 5%, 10%, 20%, 23%, 33%, 40% and 45%. They apply to taxable income after deductions, not to the full gross salary. The 2026 year-end adjustment table shows six bands from 5% to 40% and is capped at 18,050,000 yen. For incomes above that cap, check the tax authority's current schedule rather than extending the table. This guide does not quote band thresholds, so take them from the tax authority's published tables.

For 2026, a reconstruction surtax of 2.1% is charged on the calculated national income tax. It is not added to taxable income.

How withholding and year-end adjustment work

Payroll withholds national income tax each pay period, based on the employee's declarations and deductions. The final amount is settled in the year-end adjustment. Employee residence status, deductions and dependants all affect the result, so assess each employee individually.

The 2026 reforms raise the basic deduction and the minimum employment-income deduction, and change the dependent-income conditions. They generally take effect on 1 December 2026 for 2026 income. The tax authority says withholding work through November 2026 is unchanged. Use the revised forms for the December year-end adjustment and later withholding. An early 2026 English booklet based on September 2025 law does not include these changes.

Local inhabitant tax

Local inhabitant tax is separate from national income tax. The municipality generally assesses it using the previous calendar year's income and the person's residence on 1 January. It has income-based and fixed components, with exemptions. Payroll collection follows the municipality's notice. A new arrival's first payslip may therefore differ from later ones, so check the actual local assessment before explaining take-home pay.

Employee social insurance deductions

Social insurance contributions are deducted from pay alongside tax. They are calculated on statutory standard monthly remuneration and standard bonuses, with caps, not necessarily on every yen of raw gross salary.

• Pension: the Employees' Pension Insurance contribution is 18.3% in total, split into 9.15% for the employer and 9.15% for the employee.
• Health insurance: for the Japan Health Insurance Association's Tokyo branch, the combined premium is 9.85% from March 2026 remuneration, shared equally. Rates differ by prefecture, and other health-insurance societies can use different rates.
• Long-term care: employees aged forty to sixty-four also pay a combined 1.62%, shared equally.
• Employment insurance: for general businesses from 1 April 2026 through 31 March 2027, the employee pays 0.5% and the employer 0.85%. Agriculture, sake production and construction have different rates.
• Child and childcare support: from April 2026 remuneration, a new premium of 0.23% in total is shared between employer and employee under the health scheme. A separate 0.36% employer-only child-benefit contribution continues.

Do not use an OECD tax wedge or an old combined percentage as a current payroll rate. OECD figures such as 14.7% for employee contributions are useful for comparison, but payroll should use the scheme, prefecture, age and remuneration band. Keep employer charges and employee deductions on separate lines. Wages are paid in full and directly to the employee, so deductions must be ones the rules permit.

Business taxes are a separate matter

The corporate tax rate is 29.74% and the VAT rate is 10%. These are business and transaction taxes, not amounts taken out of an employee's salary.

Japanese employer contributions are not one flat percentage. They are several separate charges, and the amount depends on the insurance scheme, prefecture, age, remuneration band and industry. Ask for employer charges and employee deductions on separate lines.

Employer and employee rates

The table shows the ordinary rates for a general business. Health insurance uses the Tokyo branch of the Japan Health Insurance Association.

The new child support premium does not replace the older employer-only child contribution. Include both where applicable.

Bases, ceilings and thresholds

Pension and health contributions are not charged on every yen of raw gross salary. They use statutory standard monthly remuneration and standard bonuses, with caps and remuneration bands. This guide gives no cap amounts, so apply the official bands for the scheme and period.

Coverage depends on the worker. Employment insurance generally requires prescribed work of at least twenty hours a week and expected employment of at least thirty-one days. Health and pension coverage extends to qualifying part-time workers. The short-hours route includes at least twenty weekly hours at employers with at least fifty-one pension-insured workers. The ministry plans to remove the JPY 88,000 monthly earnings test in October 2026, with defined exceptions.

What is included and what is not

The charges above cover pension, health, long-term care, employment insurance and the child-related contributions. Workers' accident insurance is a separate employer levy. Benefits, overtime, bonuses and any provider fee also sit outside the table. Japan has no universal thirteenth-month salary, so state whether a bonus is guaranteed or conditional and budget it on its own line.

Worked cost example

This is an illustrative employee under forty in the Tokyo Association health scheme. Standard monthly remuneration and employment-insurance wages are both assumed to be JPY 300,000.

This is a partial illustration. It is not a universal employer rate or a net-pay calculation. Add the actual workers' accident levy, benefits, overtime, bonuses and any employer-of-record fee.

Annual leave

An employee on the ordinary full schedule earns 10 days of paid annual leave after six months of continuous service with at least 80% attendance. The annual grant rises with service, to 20 days after six and a half years. Reduced schedules can have proportional grants.

For workers granted at least 10 days, the employer must arrange for five days to be taken each year. Unused statutory leave generally expires two years after grant. Track grant dates per employee, because the two-year expiry runs from each grant.

Public holidays

The Cabinet Office lists 16 named national holidays for 2026, plus the substitute holiday on 6 May and the holiday between two national holidays on 22 September. These 18 calendar dates are separate from statutory annual leave.

Private employers are not universally required to treat every national holiday as a paid day off. Agree the work calendar with the employee and apply the statutory rest and premium rules. A Saturday, Sunday or public holiday is not automatically the statutory weekly rest day, and the premium depends on which day the schedule names as the statutory rest day. Work on that day attracts at least a 35% premium.

Sick pay

There is no universal additional employer-paid leave allowance for an ordinary non-work illness. Eligible insured employees who cannot work may receive sickness allowance after three consecutive waiting days, ordinarily at two-thirds of the relevant average standard daily remuneration. Salary offsets and other conditions apply.

The 18-month benefit period does not create an 18-month protected company leave entitlement. Check the contract and work rules for any company top-up.

Maternity leave

Maternity leave normally covers six weeks before childbirth, or 14 for a multiple pregnancy, and eight weeks after birth. Health-insured employees who stop work and receive insufficient salary can qualify for maternity allowance, ordinarily two-thirds of the relevant average standard daily remuneration. This is not a universal obligation for the employer to continue full salary. Dismissal during pregnancy or within one year after childbirth is invalid unless the employer proves it is unrelated to the protected reasons.

Paternity, birth-period and parental leave

Eligible employees who are not taking postnatal maternity leave can take birth-period parental leave within the first eight weeks after birth. It can be split into two periods and is separate from ordinary childcare leave. The dossier gives a limit for this leave in days, but the figure is not repeated here, so confirm the current maximum and the request procedure before approving it. Qualifying birth-period leave can receive an extra 13% benefit, bringing the combined benefit rate to 80%. It has parent and spouse conditions and is not available for every leave day.

Eligible parents can normally take childcare leave until the child turns one, in up to two periods. Qualifying circumstances can extend it to 18 months and then two years. Employment-insurance childcare benefits are generally 67% of the relevant pre-leave wage for the first 180 days and 50% afterwards, within the statutory limits. These are insurance benefits, not an employer-funded full-salary promise.

Other family leave

• Child nursing leave is five days a year for one eligible child and 10 for two or more. Statutory leave does not automatically mean full employer pay.
• Family-care leave is available per qualifying family member and can be split into up to three periods. Confirm the maximum length, the family relationship and the request procedure before approving it. Separate short family-care leave is five days a year for one family member or 10 for two or more.
• For a child under two, eligible workers on reduced hours can receive a benefit of ordinarily 10% of wages paid during the shorter-hours arrangement. It does not replace all lost salary.

Japanese payroll compliance rests on a handful of documents and rules: written terms at hiring, work rules, the working-time agreement, payroll records, and a careful approach to dismissal. Japan has no single probation or severance formula, so most risk comes from contract drafting and from treating a termination as simpler than it is.

Written terms and work rules

Provide the required employment conditions when the contract is concluded. They cover the term, work location and duties and their possible changes, working hours, breaks, holidays, pay calculation and payday, and exit conditions. Electronic delivery is possible when the worker requests it. For fixed-term contracts, state the renewal criteria and any renewal limit.

A workplace that regularly employs ten or more workers must draw up work rules and submit them to the Labour Standards Inspection Office after obtaining the required employee-representative opinion. Make the rules accessible to employees and check that contracts, payroll practices and policies agree with them. Disadvantageous changes made through work rules need reasonableness and proper notification, so do not assume a new policy overrides the contract.

Fixed-term contracts and probation

An individual fixed-term contract generally cannot exceed three years, subject to exceptions. If successive fixed-term contracts with the same employer exceed five years in total, the employee can generally request conversion to an indefinite contract. Track employment history before every renewal.

Japan does not prescribe one universal probation period. Set a reasonable assessment period in the written terms. Refusing continued employment during or after probation is treated as dismissal and needs objectively reasonable grounds.

Working time agreements and records

The ordinary statutory limits are eight hours a day and forty hours a week. Overtime and statutory-rest-day work normally require an Article 36 agreement and filing. Record actual working time, including remote work. A managerial job title alone does not establish an exemption.

Wages must be paid directly to the employee, in full, at least once a month on a fixed date. Bank transfer requires employee consent. Record salary, payroll cut-off, payday, allowances and overtime separately, and give the employee an understandable payroll breakdown.

For employer charges, ask for employer contributions and employee deductions on separate lines. Rates depend on scheme, prefecture, age, remuneration band and industry, so do not use an OECD tax wedge as a payroll rate. Employment insurance, for example, is 0.85% for the employer and 0.5% for the employee for general businesses from 1 April 2026 through 31 March 2027.

Notice and termination

An employer ordinarily gives at least thirty days' dismissal notice or the corresponding average-wage payment. Notice and pay can be combined to make up the period. Paying notice does not make an otherwise invalid dismissal lawful. A dismissal without objectively reasonable grounds that is not socially acceptable is invalid under the Labour Contract Act.

Dismissal during pregnancy or within one year after childbirth is invalid unless the employer proves it is unrelated to the protected reasons. Separate restrictions apply during maternity absence and covered occupational-injury absence, and for thirty days after each.

An employee on ordinary indefinite employment can generally resign on two weeks' notice. Japan has no universal statutory severance formula, but contractual retirement allowances and accrued wages may be due. Do not pressure an employee to label a dismissal as voluntary resignation.