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Payroll information for Japan - HTM Tokyo

New Payroll Regulations

Employee Tax Rebate 2024

Employees will receive a rebate in 2024 of 30,000 yen from national tax and 10,000 yen from local tax. Employers must include the rebate in salary, bonus, and Year-End Tax Adjustment calculations and reports between June and December 2024. Local tax offices will calculate the reduced local tax and notify employers in May 2024 of the amounts to withhold monthly from payroll between June 2024 and May 2025. The rebate amounts are as follows:

    National Tax
    Reduce tax by 30,000 yen per employee who is
    • A resident of Japan
    • Koh (submitted their Dependent Form to declare the employer as their primary employer)
    • Expected to earn in 2024 a total adjusted income of 18.05 million yen or less (this condition is used only for the Year-End Tax Adjustment, not for payroll)

    Further reduce tax for that employee by 30,000 yen per spouse and relative who is
    • A resident of Japan
    • Estimated to earn .48 million yen or less in 2024
    • Not the tax dependent of another person
    • Dependent relatives under 16 are included in the calculation
    The conditions are determined based on the employee's information as of June 1st 2024 for salary and bonus payments, and by the employee's information as of December 31st for the Year-End Tax Adjustment.

    Local Tax
    Reduce local tax by 10,000 yen per employee and further reduce by 10,000 yen for that employee per spouse and relative. The conditions used to determine eligible employees, spouses, and relatives are the same as for national tax, but are based on the employee's information as of the January 31 2024 Local Tax Report.
The tax rebates are capped at the tax amounts owed by the employee in 2024.

March 2024 Insurance rate update

The Japan Health Insurance Association (Kyoukai Kenpo) published new rates effective March 2024. The rates will change by less than 0.2%. Health insurance rates will increase for 24 prefectures, remain unchanged for one prefecture (Kanagawa), and decrease for 22 prefectures including Tokyo, where the rate will decrease from 10% to 9.98% of standard monthly salary. Nursing care insurance rates will decrease across Japan from 1.82% to 1.60%. As health and pension insurance payments are withheld from salary the month before they are paid, the first payroll the new rate will apply from will be April 2024. For bonus calculation, the new rate will apply from March 2024.

April 2023 SMEs overtime rate increase

As of April 1, 2023, the minimum overtime rate SMEs are required to pay increased from 125% to 150% of employees' hourly rate, for overtime hours exceeding 60 hours per month. Large companies have been required to pay this minimum overtime rate since April 2022, whereas SMEs were given a one-year grace period before the increase. Now, all companies must follow this overtime requirement. Read more on overtime requirements below. If agreed with the employees, employers may provide paid leave instead of compensation.

Japan Payroll Requirements

Payroll in Japan is made up of 40 components in 6 categories - base salary, worktime, allowances, tax, pension, health, and labor insurance, and deductions. Each one is explained below.

Base salary

Base salary is the basic amount of compensation an employee receives in exchange for work. It can be expressed as an hourly rate, or as a monthly or annual salary. Using annual salaries to calculate monthly payroll causes rounding errors. Monthly salary or hourly rate should be used.

Payroll period. Salaries in Japan must be paid at least once a month, and can be paid monthly, fortnightly, weekly or daily. The pay date is set by the employer in the work rules and can be any day of the month, but is commonly paid monthly on the 25th or last day of the month. If the pay date is a holiday, salary is paid on the day before.

Proration. If an employee doesn’t work their full hours, their base salary is reduced in proportion to what was actually worked. Proration is required when an employee:

Retroactive Adjustments. When making an adjustment for a change that occurred in a previous month, such as a base salary change increase, it is required to record the difference between what was paid, and what should have been paid in each affected month. This is to ensure the employee's standard salary is calculated correctly. If this is not done, it might incorrectly cause an increase or decrease in the employee's health and pension insurance contributions.



Employment Type. The employment class of a worker will affect how their payroll is calculated. There are 4 classes:

Overtime is time worked that exceeds statutory working hours or time worked on statutory days off. Employees must have one statutory day off a week. Most companies assign Saturday and Sunday as statutory days off. The minimum pay for overtime is between 125% to 175% of the employee's hourly rate. The percentage depends on the day and time worked. The employer can pay higher percentages but has to pay at least the minimum. There are eight types of overtime defined by law:

Fixed Overtime. Employees' salaries can include a fixed amount of overtime hours. This is legal if a written agreement between employee and employer states the base salary and the amount for the included overtime hours. The amount for overtime must be at least the amount that would be paid if the employee actually worked those overtime hours. They will receive the full amount of Fixed Overtime even if they don't meet the included hours of overtime. Overtime that exceeds the included hours has to be paid according to government regulations.

Leave and time off. Employers must provide vacation days to employees providing they have at least 80% attendance. They increase in accordance with their years working at the company, from 10 days after 6 months to 20 days after 6 and a half years. They are also required to provide:

It is not required to pay this leave, but employers can if they choose. It is not common to do so. Any unpaid leave will require proration.

Employees taking sick leave, maternity leave, or childcare leave may be entitled to payments of around two-thirds of their regular salary from health and labor insurance offices during this leave. These payments will be reduced if the employer also pays while the employee is absent.

In the case of a leave of absence due to reasons attributable to the employer, the employer must pay the worker 60% or more of the average wage during the leave period. This would include absence due to a lack of the tools or personnel to work or malfunctioning facilities.



Allowances vs. Benefits in Kind. Allowances are additional payments made on top of base salary. Compensation must be paid in cash, however, if employees agree and it is stated in their work contract or the company work rules that they may receive benefits-in-kind, such as meals or discounted sales of goods. This includes:

There are 5 parameters to allowances:

Commuting. Employers commonly pay an employee’s commuting costs. It's not mandatory. The cost can be paid in part, or in full. A portion of the commuting cost is non-taxable. The non-taxable portion depends on the mode of transport used:

Amounts exceeding the non-taxable portion limit are taxable. The route must be the shortest, or most economical route e.g. a regular shinkansen or train seat is economical, a green car seat isn’t. The green car fee would be taxable.

Housing Allowance. Employees can receive an allowance to assist with rent. If employees directly rent the housing, the allowance is taxable. If the company rents the apartment and provides it to the employee, they can use the legal rent system and a portion is non-taxable. See the detail of how legal rent is calculated on our Company Housing Calculator

Other non taxable allowances. There are 12 other allowances and benefits in kind which are either non-taxable, or partially taxable:


Withholding Tax

Who pays tax? Residents pay tax on income they earn. Non-residents pay tax on income they earn whilst physically in Japan. The employee is considered a resident if they meet any of the following conditions:

Tax types. There are two types of tax - local tax (inhabitant's tax), and national tax.

Taxable income. Income subject to tax is called taxable income. It is equal to gross income, minus tax deductions, non-taxable allowances, private pension plans, and health, pension, and labor insurance insurance deductions. Gross income is the sum of base salary, allowances and benefits in kind, pension received, capital gains and prize money, and dividends. Tax deductions depend on an employee's income, and their personal and dependents' status during each month. There are 8 kinds of tax deductions - 1 standard exemption, 1 basic deduction, and 6 deductions for dependents, spouse, disability status, working student status, widow status, and single parent status.

Year End Tax Adjustment (YETA). National tax is withheld from an employee each month based on their income & personal circumstances in that month. The tax is recalculated at year end in December using the employees total income, personal circumstances, extra deductions and a tax credit which are only available at year end. The year end tax is compared to the amount withheld. If too much was withheld, the employee is refunded in the next payroll. If not enough was withheld, the shortfall is withheld from the next payroll. This process is called the Year End Tax Adjustment (YETA).

Otsu and Kou Status. Employees who have tax withheld each month are split into 2 categories. The percentage of tax to be withheld depends on the employee's category:

March 15 Tax Return. Employees who meet any of the below conditions must declare their income on a tax return and pay the tax due by March 15, even if their employer withholds tax:


Social Insurance Contributions

Social Insurance contributions are deducted from employees' monthly salary, and contain three parts - pension insurance, health insurance, and labor insurance (unemployment and accident compensation). For a detailed explanation of social insurance, read Social Insurance Practices.



Employee Stock Purchase Plan (ESPP). It is common for companies to offer their employees company stock or shares at a discounted price, commonly between 10% to 15% less than market price. Employees must contribute money via payroll deductions to a purchase pot until the purchase date, the date which the shares can actually be purchased. The discount price and purchase date are set by the company in a written agreement between employees who participate. Discounts are not available to directors.

On the purchase date, the employee can choose to purchase the discounted shares using the pot of money they’ve been contributing to each month. If the employee chooses not to purchase the discounted shares, the pot of money is returned to the employee. If the employee purchases discounted shares, the discount benefit is treated as taxable income. Purchase date market value - purchase price * qty = taxable income

Private Pension Plans. There are four pension plans that companies commonly contribute to monthly, in addition to pension insurance:


For a detailed breakdown of how payroll in Japan is calculated, use our Payroll Calculator.

To learn about our outsourced bilingual payroll services, see Payroll Services.


These descriptions are not intended nor are they a substitute for professional advice. Payroll regulations are complex and qualified professional payroll advice should be obtained prior to taking any action.

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