Japanese Social Insurance consists of:
Half of the Social Insurance tax is deducted from each employee’s salary and the other half is paid by the company they work for. The child upbringing tax is the one exception; it is paid only by the company. Social insurance taxes are paid the following month in which they are due. Because of this, new employees do not pay Social Insurance tax on their first month’s wages.
Health Insurance Benefits
Each employee will receive a Social Insurance card that allows them to receive care at any medical facility in Japan and pay only 30% of the cost.
Health Insurance tax calculation on salary
Health Insurance tax is calculated for each employee by multiplying their standard monthly salary by the Social Insurance tax rate which varies depending on the region in which you are located. For the Tokyo area, this rate is currently 10.00% (as of March 2023) but it may be lower depending on the area where you operate. This tax rate is updated every six months. Half of the Health Insurance tax is paid by the employee; the other half by the employer.
Health Insurance Tax = Standard Monthly Salary × Health Insurance rate for your region
An employee’s standard monthly salary is defined by calculating their average salary for the last 3 months and finding their average salary on a salary table. This calculation will be different for each employee. For example, an employee whose average salary for the last 3 months was 305,000 JPY will fall into the salary range of 290,000 JPY to 310,000 JPY and their standard monthly salary will be calculated as 300,000 JPY.
For employees with a higher salary, there is a cap on the amount of Health Insurance tax they will have to pay. This cap kicks in at 1,355,000 JPY. For average salaries of 1,355,000 JPY and above, the standard salary is 1,390,000 JPY.3
Nursing Insurance provides benefits like skilled care and nursing home stays for people aged 65 and older.
Employees over the age of 40 are required to pay an additional Nursing Insurance tax to provide for these expenses. As of March 2023, that rate is 1.82% and is a uniform rate throughout the country. Nursing Insurance tax is calculated in the same manner as health insurance.
Social Pension benefits
Social Pension provides an income to people aged 65 Years and over. This calculation is complex, so it is best to consult with an expert to ensure you are paying the correct amount.
Social Pension tax calculation
The calculation method of Social Pension tax is similar to Health Insurance.
Social Pension amount = Standard Monthly Salary × Pension rate
The current pension rate is 18.30% as of September 2017 and there is a cap to the amount paid that applies to salaries of 635,000 JPY and more.
The Japanese government provides a subsidy to families with children that are covered by a payroll tax paid by employers. This tax is not deducted from employee salaries, but as an employer, you are required to cover it.
Child Upbringing tax amount = Standard Monthly Salary × Child Upbringing rate
The current child upbringing tax rate is 0.36%.
The same cap that exists for pensions also applies to the child upbringing tax for salaries of 635,000 JPY and over.
You will be required to submit an Annual Social Insurance report to the Japan Pension Service every July.
The employee’s monthly standard remuneration is re-determined every September to match the actual compensation the employee received. The employer submits the social insurance report in which the monthly compensation between April and June is stated.
As such, the new monthly standard remuneration, determined by the average compensation between April and June, is then applied to September (from October payroll).
Generally, this new monthly standard remuneration will be fixed until the August of the following year.
As you can see, numerous calculations need to be made by employers to satisfy their obligations to the Japan Social Security system. If you want to ensure you comply with all the requirements of the Social Insurance program, it’s best to speak with an expert like the ones at JMC. Our team has been assisting foreign businesses who want to incorporate in Japan for decades, and during that time, we have become extremely well-versed in the Japan Social Security system and the various taxes that need to be taken from employee salaries to cover its provisions. If you want to ensure you are in the best position to find success with your new Japanese business venture, get in touch with us as soon as possible to schedule a consultation or to inquire about our ongoing payroll services for foreign companies operating in Japan.
Disclaimer: This information is provided for informational purposes only. Companies should consult with a licensed social insurance consultant before making any decisions based on the information presented here.