When you run a business in Japan, you would need to care about social security for your employees.
You are not able to register with the pension office and the tax office without having a presence in Japan, so if you are planning to hire an employee in Japan to run a business, setting up a company or a branch (Permanent Establishment included) is required.
Please be careful if you contract a Japanese freelancer to conduct your business in Japan. This can cause Permanent Establishment ("PE") issues.
1. About Social Security Insurance
In Japan, all residents are obligated to pay social security insurances under the national social security system. Apart from the national social security insurance, there are also pension plans and other programs that people can join voluntarily.
The applicable social insurance varies depending on whether you belong to a registered company or not, but in this article, we explain about the social security insurance that applies to those who belong to a registered company.
In the social security insurance, there are mainly three types of insurances as follows:
- Health Insurance
- Welfare Pension
- Long-term Care Insurance (*only employees over 40 years old is required to pay this)
- Labor Insurance
Please be noted that resident employers (directors) are also subject to the social security (not only employees) and are required to pay premiums.
2. Registration
Employers need to register with the pension office when you incorporate an entity in Japan.
The pension office will issue an unique employer ID after they process your application, and this ID is used for all social security affairs.
The employers will then need to submit applications each time you hire an employee.
3. How is the Insurance Premium Determined?
The insurance premiums are determined based on the amount of salaries/ bonuses/ remunerations paid to directors/employees.
There is an insurance table provided by the pension office but, in total, it is roughly 30% of the amount of salary. The insurance table is amended annually.
The below is the insurance table that is applied in 2021 (Tokyo).
Health Insurance, Welfare Pension and Long-term Care Insurance (applicable from March 2021)
Labor Insurance (applicable from April 2021)
Health Insurance, Welfare Pension and Long-term Care Insurance are to be shared 50/50 between the employer and the employee. Labor Insurance is to be share 66/33 between the employer and the employee.
4. How does it work?
Health Insurance, Welfare Pension and Long-term Care Insurance is calculated and paid monthly to the pension office.
These insurances are withheld from the monthly salaries/bonuses and usually paid in the following month together with the employer portion.
Labor insurance premiums are calculated based on the wages scheduled to be paid for the fiscal year (April 1 to March 31), and the scheduled amount is paid in advance between June 1 and July 10.
If you need any further information, please contact us.