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What you need to know when you hire a first employee

Posted on October 6, 2018 By user
Setting up organization
Employee or Contractor

You have a choice of hiring this person as an employee or a contractor. Hiring as an employee is usually more expensive because you will have to pay social insurance of 15% and about 1% of unemployment insurance.
Firing is very restricted by the Japanese legal system. You will usually have to pay roughly 3 months equivalent of salary to let him go (even if you find him incapable. You will have to have very very strong reason to dismiss if you don’t want to pay anything.). If he/she works under your direct supervision, he will probably be regarded as an employee. People usually want to be hired as an employee because there is more protection.

Tax handling on salary

You need to withhold income tax from his salary. There will also be a requirement of paying withholding tax twice a year (July and January). Before paying the January payment of the tax, you will have to re-calculate his income based on his declaration of a mortgage, life insurance, social insurance, number of dependents and so on.

Social Insurance

As I mentioned, you will have to pay about 15-18% of his salary as social insurance contribution (health insurance and pension). You will need to withhold the same amount from employee’s salary. So, the total burden is 30% and it is burdened 50%:50% by employee and employer.
There’s also the unemployment/labor insurance of roughly 1%. This is cheap but it is very beneficial for your employee. The system will pay roughly 70% of his monthly salary for 3 months to 11 months while he remains unemployed.
This is just an overview. If you have further questions, please let me know.

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