The Pros and Cons of Every Type of Employment in Japan, From Full-Time to Contract, Part-Time, and More!
When looking for work in Japan, surely you don’t just look at the industry and the salary. You choose the company you want to work for by also looking at the type of employment they offer, i.e. full-time, contract, temp, or part-time. These all differ not just in terms of salary, but also in social insurance, welfare benefits, and taxes. In this article, we’ll discuss the different forms of employment in Japan, and how to choose a form of work that’s best suited to you.
Types of Employment in Japan
A lot of people have heard the terms “full-time employee,” “contract employee,” and “part-time employee” (and so on), but not everyone can properly explain what they mean. In short, they represent different relationships between a business and an employee, i.e. types of employment. In this article, we’ll discuss seven types of employment in Japan, together with their respective pros, cons, typical hiring processes, differences in salary, and conditions for social insurance enrollment.
Everyone, Even Foreigners, Has to Enroll in Social Insurance!
Japan’s social insurance is made up of things like pension insurance, health insurance, labor insurance (including accident compensation insurance and employment insurance). All employees must be enrolled in pensions and health insurance, no matter their nationality (although citizens of countries with a social security agreement* with Japan may be exempt), as long as their workplace is an establishment with compulsory health insurance coverage.** This entitles foreign workers to collect a standard Japanese pension after turning 65, if they’ve received a salary for a qualifying period of time. That being said, some people who know they’ll be returning to their home countries in the future might not want to pay money towards Japanese pensions. They can request a lump-sum withdrawal as long as they apply for it within the required time. For more information, you can consult this article:
* An agreement between Japan and a foreign country to help avoid double insurance payments by easing the rules of the qualifying enrollment period necessary to receive a pension.
** Companies obligated by law to enroll their employees in pension and health insurance programs. Typically applies to any business that employs five or more full-time workers, as well as corporations and government institutions.
No More Full-Timer Favoritism! Equal Pay for Equal Work, Beginning April 2020
The Equal Pay for Equal Work Initiative was enacted to get rid of the unfair salary differences between regular full-time employees and irregular employees (fixed-term workers, part-time workers, and temp workers) at the same company or organization. This affects businesses in three ways:
1) Establishing rules doing away with unfair differences in treatment.
2) Stricter obligation to properly explain the compensation system to workers.
3) Establishing administrative counseling, guidance, and alternative dispute resolution (ADR) procedures.
To put it plainly, the rules mandate that regular and irregular employees receive the same pay/treatment for the same kind of work/responsibilities. They were a part of Japan’s labor reform law but so far only apply to large corporations (as of April 1, 2020). The rules will start to apply to small-to-medium-sized enterprises from April 1, 2021.
Now then, let’s talk about the similarities and differences between different types of employment.
Full-time employment describes a long-term working arrangement without a set expiration period, restricted by law to eight hours of work a day for a total of 40 a week. Every company conducts its hiring process differently, but usually it starts with a potential employee sending in their resume and work history and coming to the office for an interview, sometimes more than once. With full-time employment, all social insurance payments like income tax, resident tax, health insurance premium, and pension contributions are deducted from the employee’s salary.
Currently, the pros of full-time employment are the salary, welfare benefits, and paid leave. A lot of companies also offer extras like bonuses or retirement money, and because they operate on the seniority system, your salary grows the longer that you stay with the company. All in all, full-time employment in Japan offers relative stability and pay. Also consider that aside from the welfare benefits designated by law, there are also those designated by individual companies for their full-time employees, like a commuting allowance, housing allowance (rent subsidy), family allowance, medical check-up subsidies, and subsidies for qualification exams. Plus, being trusted with important, worthwhile work is a plus in itself.
On the other hand, this type of work also comes with a lot of responsibilities, and more often than not includes overtime. Even if it’s paid, it’s still a huge con for people who want to go home after their designated number of work hours. Full-time employees can also get reassigned.
However, with the Equal Pay for Equal Work Initiative, some companies may choose to lower their full-time employee benefits and allowances.
Fixed-Term Contract Employment
The main difference between a full-time and contract employee is that the latter only works for a fixed term. In other words, if a company does not renew a contract employee’s contract, then their employment will be terminated. Most contract employees work on the same days and the same number of hours as full-time employees, often for similar pay. They also similarly pay into social security and have their income and resident taxes deducted from their salaries.
The upside is that contract employment entails similar duties and pay to those of full-time employees but with less responsibility. Contract employees notably don’t work overtime, or if they do, it’s not a lot. Their place of work is also fixed, and in most cases, they cannot be transferred. Few companies forbid their contract employees from moonlighting, allowing those with flexible schedules to hold two jobs, which is definitely a plus. A lot of companies also have systems in place to promote contract workers to full-time employees. If there is an industry where you’d like to work full-time, you can first try it out as a contract employee.
The cons of contract employment are the lack of stability, as some contract employees will not have their contracts renewed. It’s hard to plan a long-term career for oneself this way. Please note, though, that it’s impossible for a company to terminate your contract early, outside of extreme, unforeseen circumstances.
Additionally, few companies have paid bonuses to contract employees, and even where they have, they have usually been less than those of full-time workers. However, once again because of the Equal Pay for Equal Work Initiative, contract employees can now expect the same pay and benefits as their full-time colleagues within the same company. Another pro is that long-term contract employees are also entitled to retirement money, even if the sum is slightly smaller than that paid to full-time employees.
The only type of indirect employment in Japan is temp employment. Unlike full-time, contract, or part-time employees who have a direct contract with an employer, temp workers have a contract with a temp agency and are dispatched to companies that best suit their skills or preferred types of work. The pay, kind of work, and other conditions all differ depending on the temp agency and their clients, so every posting, even if it’s at the same company or in the same field, will be different. Temp employees are enrolled in the temp agencies’ social security programs.
An upside of temp employment is higher pay than that of similarly hourly part-time workers. Skilled temp workers can also be hired at major corporations where full-time employment may be hard to come by. As for cons, a temp contract has to be renewed every three months, and there’s a rule that temp workers cannot work at the same company for more than three years. (This condition is determined by law and was intended to promote full-time employment.) Thus, this type of employment is not ideal for people who want to keep working at one place.
Temp workers should pay close attention to changes brought on by the Equal Pay for Equal Work Initiative. There exist two ways for temp companies to fulfill this equal-treatment condition, which can be translated as the “client-company fair-and-balanced system” and the “temp-agency labor-agreement system.” You should look into which one your temp agency uses.
The “client-company fair-and-balanced system” guarantees you the same kind of compensation as that of the client company’s full-time employees. But it also means that a temp worker’s salary changes with every new company posting. The “temp-agency labor-agreement system,” on the other hand, guarantees you pay for temp work that’s equal to or higher than the average for the industry in your area, based on information published every year by the Ministry of Health, Labour and Welfare. This means that your compensation does not change depending on the company posting, but it can also mean less pay than what the employees of a specific company are getting. A lot of major corporations use the “temp-agency labor-agreement system,” but please keep in mind that, in the end, it’s the temp agency that will decide your posting and therefore type of compensation.
Another big change brought on by the Equal Pay for Equal Work Initiative is that temp workers can now receive a commuting allowance, something that wasn’t offered to them before.
There are two ways of referring to part-time work in Japan, although legally they are the same. There is paato (“part”), which is thought of as something for housewives, and arubaito (from the German “Arbeit”), which is part-time work for students and young people, but it’s all just a matter of perception. Unlike the three types of employment we’ve discussed earlier, part-time employment is more supplementary. The period of employment differs depending on the job, so you can find postings for “long-term arubaito” and “short-term, 4-month arubaito” etc. Being able to choose how long you want to work is a big plus of part-time work.
On the other hand, cons of working part-time include different duties than those of regular employees. Many companies do this, so even if you work part-time for a long time, it’s difficult to learn valuable skills. In the service or sales industries, it’s possible to be promoted from part-time to full-time worker, but all those looking to work full-time in other industries should really choose another type of employment.
Part-time workers can be enrolled in social security under the following conditions:
• They work at least 3/4th of the hours of a regular employee in a week, or 3/4th of the days of a regular employee in a month.
• Even if a part-time worker works less than 3/4th of a regular employee’s hours/day, they can still be enrolled in social security if they meet all of the following conditions:
1) They work at least 20 hours a week.
2) They make at least 88,000 yen a month.
3) They plan to work at the same place for at least a year.
4) They aren’t a student.
5) They work for a company that enrolls at least 501 employees in social security.
The Equal Pay for Equal Work Initiative affects part-time work the same way it did all other kinds of irregular employment, but you only have to concern yourself with that if you are not working full-time.
Short-Time Full-Time Employment
A short-time full-time employment is very similar to regular full-time employment, as it involves an indefinite contract without a set period of employment, and its methods of calculating base pay and retirement money are the same as with full-time employees. A drawback is that your working hours are reduced to about six a day, which lowers your salary, but there are also a lot of pluses to short-time full-time employment like the same welfare benefits as a full-time employee. However, this system is disadvantageous for companies, as it increases their insurance and benefit contributions, so most companies offering short-time full-time employment only do so temporarily for working parents. If you are or hope to become a full-time employee, inquire if your company offers short-time full-time employment.
Short-time full-time employment offers the same kind of stability as full-time employment, so the Equal Pay for Equal Work Initiative barely affects it. However, if you’re doing the same amount of work as a full-time employee for less pay, you may request an explanation of the compensation system at your company.
As remote work is becoming common in Japan, more and more foreigners are being subcontracted by Japanese companies. However, if you’re subcontracted to many different companies, then the one that pays you to the most should be the one to apply for your work visa. Additionally, there are two kinds of subcontracting: through a mandate, and through a contract. With a mandate, a person isn’t subcontracted for a specific goal but to perform a range of tasks, while a contract specifies deliverables and goals. For example, office or reception work would be considered a mandate, while designing a website would be a contract.
The plus of subcontracting is being able to focus on one’s specialty without being tied down to a specific location. The minus is that you’re not a company employee so you have to file your own tax returns. If you earn a lot as a subcontractor, you may want to consult with a certified tax accountant, but if you want to save money, you can use an accounting software when filling out your tax return. There are many to choose from, so compare and find the one that’s best for you.
Subcontractors are not company employees, so the Equal Pay for Equal Work Initiative does not apply to them. Interestingly, now that temp workers have become more expensive to hire, more and more Japanese companies have started subcontracting their work.
Remote Work (Telework)
Remote work, which is done at home using a computer (or some other information and communication equipment), is technically a kind of contract subcontracting employment. It’s common among engineers, designers, translators, and other specialists hired for a specific task. The work doesn’t strictly have to be done at home. Some choose to work in cafes or coworking spaces. The benefit of this kind of employment is that, as long as you have access to a computer, you can continue it even after returning home, so it’s very popular among foreign workers in Japan.
However, while the freedom of remote work is a big plus, you should always look over the details of the contract as closely as possible. In most cases, a contract will tell you what kind of employment you’re signing up for, but with remote work, where you need a new contract for each new assignment, it will also help you tell if you’ve been paid all you are owed for your work. There have been many cases where remote workers were paid less than agreed on or couldn’t get in touch with their employers after handing in their work. If you’re worried about getting paid, you may want to use one of the many available sites that match freelancers with potential employers. The Equal Pay for Equal Work Initiative affects remote employment the same way it does subcontract work.
Things to Watch Out for When Accepting a Job
To apply for a Japanese work visa (resident status allowing you to work), you’ll need the right type of employment. Also, the company you want to work for has to be verifiably stable, sound, and profitable. For example, a contract with a period of employment shorter than one year will most likely not get you a work visa, which is why you should choose long-term employment, like contract work that will last for a year or more. Additionally, it’s easier for people to get work visas to work in industries that match their education and professional accomplishments. Finally, before signing a contract, make sure that you get all the details of the job, like the type of employment, salary, and job description, in writing.
Please note that under the Labor Standards Law and the Health Insurance Act, discriminatory treatment in regard to working conditions based on a person’s nationality is illegal. Even the Ministry of Health, Labour and Welfare has decreed that “Those who are seeking foreign labor must offer sufficient explanation if said foreign workers’ compensation differs from that of regular employees.” So if you have any questions about your compensation, please ask someone at your company.
How to Change One’s Type of Employment and Things to Be Mindful Of
Foreign workers should be careful when changing their type of employment, like by going full-time from part-time, or working remotely after being a contract employee. First of all, if your type of employment changes, you’ll need a new contract, even if it’s the same company. It doesn’t matter if it’s a place you know and trust—not signing a new contract can spell trouble for you in the future.
Also, if your type of employment changes, then so does your social security premium. For example, if you go from contract employment to working from home, then you won’t be able to use your health insurance one day after leaving the company. Your (now former) company will remove you from their social insurance, so don’t forget to get and fill out a Loss of Status of Insured Person form from your previous employer, and give them back your insurance card. One day after leaving your company, you’ll have to start paying for National Health Insurance, so head on over to your local city, village, or ward office and fill out the necessary forms.
We hope that this article has helped you understand the different types of employment in Japan. When looking for a job, it’s important to focus on things like the salary or job details, but if you want to advance your career, you also have to choose the type of employment that is right for you. To do that, you have to know all of their pros and cons, which will allow you to find your perfect job in Japan.
The information in this article is accurate at the time of publication.