1. Outline of Social Security System in Japan
The social security system in Japan is composed of (A) Social Insurance (in a limited sense) and (B) Labor Insurance administered by the Ministry of Health, Labor and Welfare. The system encompasses four major schemes as outlined below.
(1) Health Insurance
entitles employees (Insured persons) and their family members to receive medical treatment at 30% of the actual costs in principle. There are also other cash benefits for events such as childbirth, death, etc. Employees aged 40 – 64 years covered by health insurance are required to contribute to Nursing Care Insurance, which is one of governmental welfare plans. Persons aged 75 and above have been covered by a different medical insurance plan for aged person implemented since April 1, 2008.
(2) Welfare Pension Insurance
provides pension benefits when employees reached 65 years of age or become disabled. Lump-sum benefits and pension benefits for survivors are also provided in principle. An employer who is qualified for the scheme is obliged to contribute to the Children’s Welfare Fund. When employees reach age 70, they lose their qualification for welfare pension insurance.
(3) Employment Insurance
provides cash benefits when employees become unemployed, for the purposes of supporting their life and promotion for new employment.
(4) Worker’s Accident Compensation Insurance
compensated for sickness, injury or death while working or commuting to/from a working place.
Almost all companies registered in Japan must become "covered offices" by law, and are required to register with district pension service offices at the time of their establishment. All employees employed at "covered offices" are qualified as "insured persons" under the scheme and must register with their respective offices as well. This regulation covers foreign nationals regardless of their nationality, visa status, or length of stay in Japan.
2. Timing of registration
(1) Social insurance
As mentioned above, a company is required to register with the local social insurance office within 5 days of its establishment. In practice, the social insurance office may accept an application from a newly established company after due date. However, considering any disadvantages that may be caused to employees by the late registration, it is preferable to prepare for the completion of the registration within 1 month of its establishment.
(2) Labor insurance
A company is required to register for labor insurance scheme within 10 days from the following date when the company is established and its first employee is hired. As the social insurance scheme, the local labor insurance office will accept an application submitted after due date in practice, however the registration will be retroactively effective from its establishment as well.
After the registration has been accepted, the estimated insurance premium for the period from the date of registration to the following March 31 must be paid within 50 days of the registration date.
3. Determination and payment of insurance premiums
(1) Social insurance
By every July 10, the employer is required to report to the social insurance office the amount of remuneration paid to each employee during the three-month period from April to June. The office determines the appropriate level of social insurance premiums, which applied from the period of September to August of the following year, based upon the information from employers, and informs it to employers.
The monthly premium determined will be applied through the year in principle. However, if a significant change occurs in an individual’s remuneration, the monthly premium will be adjusted prior to the following annual review in July.
The employee’s portion of the social insurance premiums is withheld from salary and paid, along with the employer’s portion, to the social insurance office in the following month.
(2) Labor insurance
The year for labor insurance purposes starts on April 1, and ends on March 31 of the following year. An employer is required to pay the estimated annual premium by July 10 every year. Once the actual premium has been determined on March 31, the balance to be paid is adjusted with the payment of the following year's premium. The employee's portion is then withheld from salary on a monthly basis.
In addition, from April 2007, an employer is required contribution to the governmental aid plan for asbestos-caused health damage. The contribution amount is the 0.005% of the total salary paid from March to April, and is paid together with labor insurance premiums by July 10 every year. The estimated contribution is not required.
4. Coverage of foreign nationals
(1) Social insurance
The treatment of expatriates is the same as for Japanese employees. However, there is a case that an expatriate, who is not paid by a Japanese branch but by an overseas headquarters, and has no payroll relationship in Japan, will not be covered. You should consult with the social insurance office in each case. Since health insurance and welfare pension insurance are combined, it is not possible for an expatriate to participate only in health insurance if employees under age 70 in principle except the employees who are exempt from Insurance scheme under the international social security agreement described in the clause (4) below.. Foreign nationals hired locally are treated in the same manner as the Japanese.
Lump-sum withdrawal benefits for expatriates
Lump-sum withdrawal benefits will be provided to foreign nationals who leave Japan and have been insured under the social insurance schemes for a certain period. Benefits are paid to those who satisfy some criteria. The benefit amount is determined by the length of the insured period and the average standard remuneration (monthly standard remuneration + standard bonus).
(2) Employment insurance
In principle, the coverage is extended to foreign nationals when they are hired locally.
(3) Worker’s accident compensation insurance
Expatriates are covered by this insurance as long as they work at an insured company in Japan, and under the direction of the company in Japan. However, coverage is not extended to those who work under the direction of the headquarters outside Japan, even if their work place is within Japan.
(4) International social security agreement with foreign countries
An expatriate who participates in the social security system in Germany, U.K., US, South Korea, Belgium, France, Canada, Australia, Netherlands, Czech Republic, Spain, Ireland, Brazil and Switzerland can be exempted from paying a premium in Japan, to avoid paying a double premium.
5. Treatment of a representative of a branch office
(1) Social insurance
Social insurance legislation treats an employer as an employee who works at an insured business office. Therefore, the treatment of a representative of a branch office is the same as that for employees.
(2) Labor insurance
In principle, labor insurance does not cover an employer. A representative for a Japanese branch office is not treated as a board member only for that position under the Corporate law, but he/she is regarded as an employer for labor insurance purposes. Therefore he/she is not covered by workman’s compensation and unemployment insurance. The local authorities (labor standards inspection office and public employment security office) will determine his/her eligibility on a case-by-case basis depending on the individual situation.
6. The future prospect of social insurance premiums
The outlines of the prospect of social insurance premiums are as follows. For details to be amended, please inquire at professional firms.
- Welfare Pension Insurance
The premiums started to increase by degrees beginning October 2004 and will be 18.3% (employer-and-employees halving) by 2017. - National Pension Insurance
The actual premium would be calculated by multiplying price index to the base premium, which is determined by adding ¥ 280 per year on the base year's (fiscal year of 2004) premium of ¥ 13,300. In 2017, the premium will be reached to the amount of ¥ 16,900 times price index. The actual premium as of April 2012 is ¥ 14,980 as adjusted from ¥15,540 by multiplying the rate reflecting growth of wage and price (0.964).x. - The social security agreement with foreign countries
Agreement has been signed with Italy, and under negotiation with Hungary, Luxemburg, India, Sweden and China. In addition, Slovakia, Austria, Philippines and Turkey are in preliminary discussion.