The following legal procedures regarding Japan's Labor Law and Social Insurance Systems are required when a foreign company establishes its branch(es) in Japan.
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Time |
Summaries of procedures |
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At the time of company formation |
When the company has resident directors, the company must take out Health Insurance (HI) and Welfare Pension Insurance (WPI). |
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At the time of hiring employees |
1. The company and the employees must enter into Employment Contracts (EC). 2. The company, as the employer, must take out Workers Accident Compensation Insurance (WACI) and Employment Insurance EI). 3. The company must estimate annual premiums of WACI and EI, report such premiums to Labour Standards Inspection Office (LSIO) , and pay them. 4. The company must file a report that the employees will be the beneficiary of EI. 5. The company must file a report that the employees will be the beneficiary of HI and WPI. 6. The company must report to LSIO that it has hired the employees. 7. When the company requires the employees to work overtime, the parties must enter into the Labour Management Agreement (LMA) and file LMA with LSIO. |
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When the company has 10 or more employees: |
The company must prepare Rules of Employment (ROE), hear opinions of employees' representative(s) on ROE and file ROE with LSIO. |
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When the company sends its employee(s) to other companies: |
The company must report such arrangement to the Ministry of Health, Labour and Welfare (MHLW). |
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When the company loans its employee(s) to other companies: |
A three-party Personnel Loan Agreements must be entered into between the loaning company, the receiving company and the employee(s) concerned. |
Details of the legal procedures required are as follows.
1. When the company is established and registered:
(1) The directors of the company must take out the HI and the WPI. However, if such directors are non-resident or are not compensated by the company, they are not required to take out such insurances. In other words, the requirements regarding the insurances apply only to the directors who are resident and are compensated by the company.
2. When the company hires employees:
(1) The company must inform in writing its employees certain working conditions as stipulated by the labor law.
(2) The company must report to the "LSIO", which administers the WACI and the EI, that it has hired employees.
(3) In addition to the reporting as described in the above（2）, the company must estimate annual premiums of the WACI and the EI and make pre-payment thereof.
(4) If an employee works 20 or more hours a week, such employee must be covered under the EI. Therefore, the company must take procedures to make such employee a beneficiary thereof.
(5) If an employee works 30 or more hours a week, such employee must be covered under the HI and the EI. Therefore, the company must take procedures to make such employee a beneficiary thereof.
(6) If the company hires employees, the Japanese labor law will be applied to the company. Therefore, the company must report to the "LSIO" that it has hired employees.
(7) In Japan, it is prohibited to have employees work more than 8 hours a day, 40 hours a week. If there is a need to have employees work over the above-described limit, rules related to overtime work are applied. For such overtime work, a labor-management agreement called "Agreement 36"(A-36) must be prepared beforehand and filed with the LSIO. If the company works its employees overtime without filing the A-36 with the LSIO, the company will be found in violation of the Labor Standard Act. The same principle applies when the company works its employees on legal holidays.
(8) Furthermore, to take out the above-described WACI, EI, HI, and WPI is a legal requirement, and therefore, the company and its employees can not decide whether or not they take out such insurances.
3. When the company hires 10 or more employees:
(1) The company must prepare the Rules of Employment (ROE).
(2) The company must file the ROE with the LSIO, and such ROE must be filed along with the "opinion brief" to certify that opinions of the employees' representative(s) have been duly heard.
4. Social Insurance Premiums
(1) The WACI premium is fully paid by the company but the premiums of the EI, HI and WPI are shared between labor and management. For details of the premiums, please refer to the attached premium schedule.
(2) The employees' share of the EI premium will be withheld from their monthly salaries paid by the company.
(3) "The annual premium of WACI fully covered by the company" and "the annual premium of EI shared by the labor and management" are paid once in July every year to the national government. This procedure is called "annual renewal".
(4) The employees' shares of the HI and WPI premiums are withheld from their monthly salaries paid by the company. Since the employees pay their shares corresponding to certain percentages of their respective salaries, the company must report the employees' payroll to the national government once every year. This procedure is called "reporting of calculation basis".
5. Taxes
(1) The company must pay taxes including corporate tax and corporate enterprise tax.
6. Salaries paid to the employees
(1) Agreements to set the payment date and the amounts of the employees' salaries must be made according to the stipulations of the LSA, and the payment thereof should be made at the same time every month.
(2) The employees must pay income taxes on their salaries paid by the company, but such taxes must be withheld from their salaries by the company and paid to the national government on the employees' behalf.