BLOG |
Compliance
Published:
January 12, 2026
Last updated:
January 12, 2026
Japan represents the world's third-largest economy with advanced technology sectors, sophisticated consumer markets, and highly educated workforce. However, employment regulations are among the most protective of employee rights in APAC, with strong cultural and legal emphasis on lifetime employment, procedural fairness, and consensus-based decision making.
Unlike more employer-flexible markets (Singapore, Hong Kong), Japan's employment system strongly protects employees through difficult dismissal standards, mandatory labor-management consultation, comprehensive social insurance requirements, and cultural expectations around long-term employment relationships that extend beyond legal minimums.
This guide provides mid-market perspective on Japan's employment laws and how organizations without dedicated in-country HR and legal teams can maintain compliance while scaling operations.
Japan's employment system is governed by multiple interconnected laws:
Labor Standards Act (LSA) (1947): Establishes fundamental labor rights including working hours, rest periods, paid leave, wages, and termination procedures.
Labor Contract Act (2007): Governs formation, modification, and termination of employment contracts. Addresses abusive dismissals and working condition changes.
Employment Security Act (1947): Regulates recruitment, employment security, and foreign worker obligations.
Equal Employment Opportunity Law (1985, amended): Prohibits gender-based discrimination and addresses workplace harassment.
Industrial Safety and Health Act (1972): Establishes workplace safety standards and employer health protection duties.
Ministry of Health, Labour and Welfare (MHLW): National authority establishing employment policy and coordinating enforcement.
Labor Standards Inspection Offices (LSIO): Conduct workplace inspections, investigate complaints, mediate disputes, and prosecute violations.
Hello Work: Government employment offices managing job placement, unemployment benefits, and foreign worker notifications.
Criminal penalties including imprisonment (up to 6 months-1 year) and fines (up to ¥300,000-¥500,000), administrative orders, civil liability, and significant reputational damage in reputation-conscious Japanese business culture.
Mandatory written documentation: Japan requires written employment contracts and working conditions notices for all employment relationships including indefinite-term, fixed-term, and part-time workers.
Required provisions: Contract term, work location and duties, working hours (start/end times, breaks, overtime), wages (base salary, allowances, calculation methods, payment timing), rest days and leave entitlements, termination notice requirements.
Indefinite-Term (Regular) Employment (正社員): Standard relationship without specified end date. Provides strongest employee protections including difficult dismissal standards and expectation of long-term employment.
Fixed-Term Employment (契約社員): Contracts with specified end dates (maximum 3 years for most positions, 5 years for specialized roles). After five years of consecutive renewals, employees gain right to convert to indefinite-term employment.
Part-Time and Dispatched Workers: Part-time employees have proportional rights to benefits and pay. Dispatched workers have specific protections under Worker Dispatching Act.
Employee consent required: Changes to core employment terms (wages, working hours, work location, job duties) require individual employee consent. Unilateral changes may be deemed invalid.
For organizations hiring in Japan, using contract templates reviewed by local labor counsel and understanding fixed-term conversion rules prevents compliance issues.
Legal limits: Maximum 8 hours per day, 40 hours per week under Labor Standards Act.
Break periods: Minimum 45 minutes for 6-8 hours working time; 1 hour for over 8 hours.
36 Agreement (サブロク協定): Mandatory labor-management agreement filed with Labor Standards Inspection Office before employees can work overtime. Without valid 36 Agreement, overtime is illegal.
Overtime limits: Normal 36 Agreement caps overtime at 45 hours/month, 360 hours/year. Special provisions allow temporary increases (up to 100 hours/month, 720 hours/year) with restrictions.
Example: Employee earning ¥300,000/month (¥1,724/hour) works 10 hours weekday overtime, 8 hours rest day, 5 hours late night:
Employees working 6 months with 80%+ attendance receive 10 days annual paid leave, increasing with tenure to 20 days maximum after 6.5 years.
Mandatory grant: Employers must ensure employees take minimum 5 days annual leave annually. Failure violates Labor Standards Act with criminal penalties.
For organizations managing Japan operations, ensuring valid 36 Agreements, accurately calculating premium rates, and ensuring mandatory leave usage becomes operationally critical.
Labor Standards Act establishes four principles:
Prefectural minimum wages vary by region:
Minimum wages adjust annually (typically October).
Pay statements: Must show base salary, allowances, overtime hours/payments, deductions (income tax, social insurance), net salary, and payment date.
Record retention: Wage ledgers, time records, payroll documentation must be retained minimum 3 years (practical recommendation: 5 years).
Violations: Unpaid wages or illegal deductions constitute criminal offenses punishable by imprisonment up to 6 months and/or fines up to ¥300,000.
Explore payroll compliance across APAC markets.
Japan's social insurance system includes four mandatory schemes.
Health Insurance (健康保険):
Welfare Pension Insurance (厚生年金保険):
Employment Insurance (雇用保険):
Workers' Accident Compensation Insurance (労災保険):
Combined employer contributions: Approximately 15-20% of employee's monthly salary.
Example - Tokyo office worker earning ¥400,000/month:
Progressive national tax (5-45%) plus prefectural/municipal residence taxes (~10%). Employers withhold monthly and perform year-end adjustment (年末調整) reconciling annual tax liability.
Foreign nationals require valid residence status (visa) permitting employment before commencing work.
Residence status verification: Verify foreign national holds valid status permitting intended work activities.
Hello Work notification: Must notify local Hello Work within 14 days of hiring or separating foreign workers.
Equal treatment: Foreign workers must receive wages and benefits equal to or better than Japanese employees in comparable positions.
Illegal employment: Imprisonment up to 3 years and/or fines up to ¥3,000,000 for employers; deportation and entry bans for foreign workers.
For organizations establishing Japan operations with expatriate staff, budgeting adequate time (2-4 months) for residence status processing and filing Hello Work notifications prevents compliance exposure.
Japan's termination framework provides among the strongest employee protections in APAC.
Labor Contract Act Article 16: Dismissals lacking "objectively reasonable grounds" and not considered "socially acceptable" are deemed abusive dismissals and are invalid.
This requires employers to demonstrate:
Minimum notice: 30 days advance notice or payment of 30 days' average wages in lieu for dismissals.
Probationary period: Trial periods (typically 3 months) don't exempt employers from dismissal standards. Dismissals still require reasonable grounds and fair procedures.
Four-factor test: Courts evaluate using strict criteria:
Severance payments: No statutory severance requirement. However, employers typically offer voluntary retirement packages (退職金) when conducting redundancies to secure agreement and avoid disputes.
If dismissal deemed abusive: reinstatement orders, back pay from dismissal through reinstatement (potentially years), and additional damages. Most employers negotiate settlements offering severance in exchange for voluntary resignation.
For organizations managing terminations in Japan, understanding dismissals are operationally difficult, documenting performance issues thoroughly, exploring alternatives, and often negotiating voluntary resignation with severance prevents costly litigation.
Learn more about employee termination challenges across APAC.
Labor Standards Inspection Office (LSIO): Investigates Labor Standards Act violations, issues corrective orders, may refer for criminal prosecution.
Labor Bureaus: Provide free consultation and mediation services for employment disputes.
Labor Tribunal (労働審判): Specialized tribunal providing expedited resolution (typically 3 hearings over 2-3 months).
Civil Court Litigation: Full judicial proceedings addressing wrongful dismissal, unpaid wages, discrimination, harassment.
Record retention: Time records (3 years), wage ledgers (3 years), employment contracts (duration + 3 years after separation).
By partnering with AYP's EOR services, your organization enters Japan confidently while we manage local compliance complexity and navigate cultural expectations.
Explore AYP's EOR services across APAC markets, or learn about compliance challenges when hiring across Asia.
No. Probation doesn't exempt employers from dismissal standards. Terminations still require reasonable grounds and fair procedures.
Must have valid 36 Agreement filed with Labor Standards Inspection Office. Without it, overtime is illegal regardless of employee consent.
Document issues thoroughly, provide warnings and improvement opportunities, consider reassignment, and often negotiate voluntary resignation offering severance rather than unilateral dismissal. Consult local counsel.
No statutory requirement. However, voluntary retirement packages common when terminating employees, especially for redundancies.
Labor tribunal typically 2-3 months. Civil court litigation can extend 1-3+ years. Settlement negotiations often most efficient.
