Key Facts on Japanese Social Insurance for Expats

When expanding into Japan, foreign businesses and individuals should be aware of a few key aspects of the country's social insurance system:

• High Contribution Rates: The financial burden of Japan’s social insurance can be significant—on par with corporate, income, and consumption taxes.
• Flexible Options for Part-Time Employees: Strategic use of part-time staff can offer businesses more control over social insurance costs.

1. Two Key Features of Japan's Social Insurance System

1-1 Social Insurance Is a Significant Cost Burden, Comparable to Taxes

Japan’s social security system is extensive. For example, medical costs are fully covered for young children, seniors pay only 20% of their expenses, and everyone else is responsible for just 30%. However, this robust coverage translates to a significant burden on companies and employees regarding social insurance premiums.

Employees contribute approximately 15% of their salary toward social insurance; companies must match this contribution with an additional 15%. In other words, when a company hires an employee, the actual cost includes the salary and an additional 15% of that amount to cover social insurance contributions.

Let’s compare this with tax rates:

• Income Tax: The average salaried employee pays an income tax rate of about 12% on gross salary[2].
• Corporate Tax: Companies face a corporate tax rate of approximately 33% on net income.
• Consumption Tax: Consumers pay a consumption tax rate of 10%.

By comparison, the social insurance rate paid by both individuals and companies is around 15%, making it a heavy burden similar to taxes. Foreign companies planning to enter the Japanese market should account for Japan’s tax obligations and the significant cost of social insurance.

Notes:

[2] The average annual salary for salaried employees is ¥5.23 million (based on the 2022 National Tax Agency Private Salary Survey). This estimate assumes only salary income deductions and basic deductions, with an income tax rate of 10% and a residential tax rate of 10%.

1-2. The Social Insurance Burden Differs for Full-Time Employees and Part-Time or Temporary Staff

As stated above, social insurance premiums are split roughly 15% each between companies and employees for full-time workers. However, those working part-time or temporarily are generally exempt from social insurance contributions. When planning recruitment strategies, it is essential to understand the distinctions in Japan’s social insurance system regarding classifications of full-time and part-time employment.

2. Overview of the Social Insurance System

Japan’s social insurance system is complex and multifaceted. However, companies must focus on three main types of social insurance: health and long-term care insurance, pension insurance, and labor insurance. The table below provides an overview of these three insurance systems.

Insurance Types and Contribution Responsibilities

Notes:

[1] As of March 2024, these are the insurance premiums for Tokyo. Premium rates may vary slightly by prefecture.

3. Health and Nursing Care Insurance

3-1 Overview

Health insurance provides benefits for medical and long-term care expenses.

3-2 Eligibility Requirements

As a general rule, all employees, including foreign nationals and company executives, must enroll in health and nursing care insurance. However, the requirements vary for part-time and temporary workers, depending on the company's size. In companies with fewer than 51 employees, part-time and temporary workers who works more than three-fourth of of full-time employees in terms of the number of hours worked per week and the number of days worked per month are required to enroll in health or nursing care insurance.

For example, if a company’s full-time employees work 40 hours per week and 20 days per month, part-time or temporary workers who work less than 30 hours per week or fewer than 15 days per month are not required to pay social insurance premiums, and the company is not required to contribute either.

The obligation to pay insurance premiums does not change month to month. Employees and employers pay premiums only in months where employees work more than 30 hours and 15 days. If employees work less, no premiums are required. While there are no explicit rules, if an employee consistently works over 30 hours and 15 days for two to three consecutive months, it is generally expected that the company will complete the enrollment process for social insurance and pay monthly premiums.

In companies with 51 or more employees, part-time workers who meet all of the following conditions are required to join the health and nursing care insurance plans:

• Work at least 20 hours a week
• Earn at least 88,000 yen a month
• Expect to be employed for more than two months
• Are not a student.

3-3 Calculation Method

Health insurance premiums are calculated using the formula: “Standard Monthly Remuneration × Health Insurance Premium Rate.” For employees under 40, the employee contribution is 4.99%, and the employer contribution is 4.99%. For employees aged 40 and over, employee and employer contributions are 5.79% (based on rates for Tokyo as of March 2024).

The standard monthly remuneration is the average salary over the months of April, May, and June, calculated once a year, every July. Since new employees have no actual earnings for April, May, and June, the estimated monthly salary is used as the standard monthly remuneration. If there is a significant change in salary due to a raise or other factors, the standard monthly remuneration may be adjusted before July.

3-4 Payment Method

Companies withhold the employee's portion from their monthly salary for insurance premium payments and combine it with the employer's portion to remit to the regulatory authorities each month. The employer's portion is recorded under accounts such as "Social Insurance Premiums" or "Statutory Welfare Expenses" on the income statement. Once withheld by the company but not yet remitted, the employee's portion is recorded as a liability on the balance sheet under "Deposits Received" for the one month before payment.

4. Pension Insurance

4-1 Overview

The pension insurance that covers company executives and employees is known as “Employees’ Pension Insurance.” Benefits are paid out when an individual reaches a certain age, passes away, or becomes disabled.

4-2 Eligibility Requirements

The eligibility requirements are the same as those for health and nursing care insurance.

4-3 Calculation Method

The calculation method is the same for health and long-term care insurance.

4-4 Payment Method

The payment method is the same for health and long-term care insurance.

4-5 Social Security Agreements

Foreign directors and employees may contribute to their home country’s social security system. If they are also required to contribute to Japan’s social security system, they would bear a dual burden. To alleviate this issue, some countries have established social security agreements with Japan.

As of September 2024, Japan has social security agreements with the following countries:

• Europe: Germany, United Kingdom, Belgium, France, Netherlands, Czech Republic, Spain, Ireland, Switzerland, Hungary, Luxembourg, Slovakia, Finland, Sweden, Italy
• Asia: South Korea, India, China, Philippines
• North America: United States, Canada
• South America: Brazil
• Oceania: Australia

These agreements generally exempt individuals who are temporarily assigned to Japan and are already enrolled in the social security systems of these countries from having to enroll in Japan’s pension system.

In some cases, only pension insurance is exempt, while in others, both pension and health insurance may be exempt. Therefore, it is essential to confirm the specific provisions of the social security agreement with each country.

4-6 Lump-Sum Withdrawal Payment for Insurance Premiums

Foreign nationals may not reside in Japan when they reach retirement age, which could make it difficult for them to receive their pension benefits. Therefore, if a foreign national has contributed to the pension system for more than six months and subsequently leaves Japan, they may be eligible to request a refund based on a specific calculation.

For a detailed explanation of the Lump-sum Withdrawal Payment, please click here.

5. Employment Insurance

5-1 Overview

Employment insurance provides benefits to workers when they become unemployed.

5-2 Eligibility Requirements

As a general rule, workers who meet both of the following conditions are eligible for coverage[1]:

1. They work at least 20 hours per week.
2. They are expected to be employed for more than 31 days.

Unlike health and nursing care insurance, company executives are generally not eligible for employment insurance.

However, company executives and employees—such as department managers, branch managers, or plant managers—may be eligible for employment insurance if they have a solid worker-like role based on their duties, salary, compensation, and other factors. In this case, eligibility depends on whether an employment relationship is recognized. In the case of foreign employees, those who are posted from overseas headquarters, etc. and are enrolled in a system equivalent to employment insurance overseas are exempt (foreigners residing in Japan for 20352 ho on or after October 1, 2024, the business handling procedure concerning employment insurance).

5-3 Calculation Method

The calculation for employment insurance is based on “actual wages × the employment insurance rate.” Unlike health insurance and nursing care insurance, it uses the actual monthly salary rather than an average amount.

5-4 Insurance Premium Reporting and Payment

Unlike health and nursing care insurance, employment insurance premiums are calculated and paid once a year as an annual estimated premium. The difference between the previous year’s actual premiums and the following year’s estimated premiums is adjusted and paid in the following fiscal year. This process is called “annual renewal.”

Notes: [1] Employees transferred from an overseas headquarters enrolled in a similar employment insurance system abroad may be exempt. To learn more, please refer to the JETRO website's page on Japan’s Social Security System.

6. Workers’ Compensation Insurance

6-1 Overview

Workers’ compensation insurance provides benefits to cover injuries, illnesses, disabilities, or death that occur due to work-related activities or during commuting.

6-2 Eligibility Requirements

This insurance applies to all workers as a general rule. However, it does not apply to corporate officers or their cohabiting family members.

6-3 Payment Method

The payment method is the same as for employment insurance.

6-4 Premiums

The insurance premium rate varies depending on the type of business. The highest rate is 8.8% (for industries such as metal, non-metal, and coal mining), while the lowest rate is 0.25% (for finance, insurance, telecommunications, and broadcasting). Premiums are solely paid by the employer, with no contribution required from the worker.

7. Salary Calculation Example

Let's look at an example of how monthly salary calculations are handled.

Assumption	Value
Monthly Gross Salary	¥520,000
Monthly Commuting Allowance	¥10,000
Monthly Overtime Pay	¥30,000
Total Monthly Salary	¥560,000
Age	Over 40
Standard Monthly Remuneration	¥530,000

  

The amount deducted from the employee's salary by the company is ¥82,542, and the company's share of social insurance premiums is ¥85,902 per month.

8. Summary

• There are three social insurance systems that companies participate in: health insurance, pension insurance, and labor insurance (Employment/ Workers' compensation)
• Companies bear a cost of approximately 15% of the employee's gross salary, which is paid monthly.
• Eligibility requirements differ depending on whether the employee is full-time or part-time. For health and nursing care insurance, eligibility is based on whether the employee works less than three-quarters of the hours of a full-time employee.