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  • Writer's pictureJOS Team

5 HR & Payroll Best Practices For Japan

Human resource (HR) and payroll management are critical functions for any business operating in Japan. With a unique set of laws, regulations, and cultural norms, it can be challenging for companies to navigate the complexities of HR and payroll in Japan. We are often asked by our international clients about best practices for Japan and have outlined 5 best practices to ensure compliance and efficiency while also fostering a positive working environment for employees.


1. Tracking working hours


One of the most important best practices for HR and payroll management in Japan is compliance with labor laws. Japan has strict laws regarding working hours, overtime, and leave entitlements, which must be adhered to by employers. For example, the maximum number of working hours per week is 40, and overtime must be compensated at a higher rate than regular working hours. Additionally, employers must provide a minimum of 10 days of annual leave to full-time employees, and 16 days for those who have been employed for more than five years.


To ensure compliance with these laws, companies should have clear and detailed policies in place outlining working hours, overtime, and leave entitlements. They should also have a system for tracking and reporting employee working hours and leave, and for calculating and paying overtime and leave entitlements. This can be done through automated HR and payroll software, which can streamline the process and reduce the risk of errors.


2. A transparent compensation structure


Another important best practice for HR and payroll management in Japan is to have a clear and transparent compensation structure. Japanese companies traditionally use a seniority-based pay system, where employees are rewarded for longevity with the company. This can be challenging for foreign companies operating in Japan, as it can be difficult to understand the complexities of the system and to ensure that employees are being paid fairly.


To address this, companies should have a clear and transparent compensation structure in place, outlining how pay is determined and how employees can progress through the system. Although companies are not required to register work rules with the labor office until they have 10 employees or more, we recommend having work rules or at least a document clearly outlining all rules pertaining to compensation.


They should also have a system for tracking and reporting employee pay and for calculating and paying bonuses and other benefits. This can be done through automated HR and payroll software, which can streamline the process and reduce the risk of errors.

Timesheets example (via MoneyForward Cloud Software)

3. Data Management


It is imperative to have a good data management system in place. This is particularly important for foreign companies operating in Japan, as they may not have the same level of expertise and knowledge about the local laws and regulations.


A data management system can help companies ensure compliance with labor laws, manage employee data and payroll, and track employee performance and attendance. This can be done through automated HR and payroll software, which can streamline the process and reduce the risk of errors.


There are a number of Software systems on the market that cover every need for HR and Payroll in Japan. We recommend MoneyForward Cloud, it offers an end-to-end solution for all HR and payroll needs. JOS is a certified platinum partner in Japan.


4. Work culture in Japan


In addition to compliance and compensation, companies operating in Japan must also be aware of the cultural norms and expectations surrounding HR and payroll management. Japanese companies typically have a strong emphasis on loyalty and long-term employment, and employees are often expected to work long hours and be dedicated to their company.

Foreign company's work styles, particularly those with a good work-life balance are appealing to the Japanese but need to be integrated with a Japanese approach to management and team building.


To foster a positive working environment and promote employee engagement, companies should have a strong emphasis on employee development and training. This can include providing opportunities for employees to learn new skills and advance their careers, as well as promoting a culture of open communication and collaboration.


One way to achieve this is by implementing an employee self-service portal, which allows employees to access their HR and payroll information, request time off, and manage their own personal information. This can empower employees and give them a sense of ownership and control over their HR and payroll information, which can lead to increased engagement and satisfaction.



Image Courtesy of Manthan Wellness Japan


5. Promoting Wellness


Japan has long been behind when it came to issues of wellness and mental health in the workplace and had one of the worst records for harassment in the world. Thankfully this is beginning to change, partially by new legislation around working hours and also partially as a byproduct of the Covid-19 period, with the introduction of flextime, work from home, and other initiatives. Start with the basics, ensuring staff are taking their time off, making sure to check in regularly with team members, and implementing work styles that foster collaboration and efficiency. Other more advanced practices can include wellness retreats or even mindfulness programs that offer full mind+body+soul support to keep your team happy, healthy, and ultimately- productive.

HR and payroll management in Japan do require a unique set of best practices to ensure compliance with labor laws, provide fair and transparent compensation, foster a positive working environment, and manage employee data effectively. Companies should have clear and detailed policies in place, as well as good systems to facilitate this.


If you would like help with your Payroll and HR management or establishment in Japan, JOS offers a full end-to-end solution to fully support your company in Japan. Talk to us today to learn more.



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