The brutal guide to hiring and firing in Japan

This is a pretty awesome article, so I had to summarize it. It’s a long summary for a long article – there is after all a lot to understand here.  You’ll learn about the the state of hiring, and firing, in Japan. Although aimed at people outside Japan needing to understand what it is going to be like to resource their company here in Japan, I think it will be equally of interest to people who are hiring and firing almost anywhere.

This is a summary of a LinkedIn Publishing post here – and you can find, follow and/or connect with the author Jeremy Sanderson there. It is very well written indeed, so I highly recommend you check it out.


Introduction

Jeremy Sanderson, currently the CEO of Icon Partners KK, has 18 years experience in the recruitment business in Japan. In the article he delivers a guide to what to take into account when it comes to hiring and firing staff in Japan. This guide is built on his own experience in the market, sourcing staff for both large and small companies looking to hire bilingual staff, and from his own experience hiring.

The talent pool and your hiring leverage: a wake-up call!

Japan’s situation is the opposite to America, Europe or Australia say; there are a lot of job opportunities for bilingual and experienced professionals, but the talent pool is very small. Because of this, talented people and recruiters’ fees are both expensive.

Overseas companies are used to paying up to 20% OTE (On Target Earnings) to recruitment agencies in their domestic market, while the average fee in Japan is 30% to 35%. Japan is a ‘candidate short market’, and it is important to understand that and be ready to pay competitive rates, to hire the right talented professionals.

Japan has known slower times the past but especially now, the employment market is thriving with an aging population, high influx in tourism and the upcoming Rugby World Cup 2019, the Olympics and Paralympics 2020. The market is growing but the workforce is not keeping pace. There are around 14.5 million workers in large corporations, 24.5 million in mid-small companies, 3.5 million public sector employees and only half a million are working in foreign companies. Additionally, a 2010 survey on new graduates capacity to speak English revealed that only 2% speak at a business level and 18% at a daily conversation level. That means take care not to equate the population of Japan, with the true size of the candidate pool.

Japanese candidates & what makes them tick

With the current situation, mid-career bilingual Japanese job-seekers understand that they have choices in the market. Therefore the promise of a large salary and highlighting the opportunities there are working for your for your start-up, SME or in the multinational you work for, might not be enough. The Japanese risk-averse culture tends to lead Japanese away from risky businesses like start-ups, smaller unknown companies and even multinationals, when compared to working for a Japanese Company. They are searching for safety, reliability, dependability, some level of work-life balance (perhaps) and a good corporate brand name. Of course salary is important also but it is often not the number one priority.

So you might be thinking it is starting to sound near impossible to be able to staff your company with the limited picky, candidates available but actually, between 2008 and 2012, around 80 to 90 foreign corporations each year entered the Japan market – and that means despite the challenges; it is possible. 

Employer of choice, or employer of last resort

Something to be aware of to avoid if possible, is whether your company is proactively positioning itself as an ’employer of choice’, or jumping in with a host of assumptions and ending up an ’employer of last resort’. To prevent from becoming an employer of last resort you can do the following:

  • Study market norms regarding recruitment fees, salaries, social security benefit obligations, and availability of talent to get an idea of the real costs.
  • Set criteria for the employee you are looking for and do not try to hire one person for two positions, it can make the task of finding the right person near impossible for recruiters.
  • Make sure that everybody involved especially the decision makers will be available during the process. Otherwise you may lose the best candidates to your competitors and worse, lose recruiters willingness to work with you by being slow and not showing enough interest or that you take the hire seriously.
  • Work on a convincing presentation pitch of your company to gain candidates trust. If you do not have a well known name in the country they will need to be convinced by your offering and your growth plan in Japan.
  • Set up a K.K. (Kabushiki Kaisha) instead of a branch to offer potential employees more stability, more perceived commitment, and avoid using foreign currencies for salaries (it brings exchange risks, taxation difficulties and generally reduces the candidate pool even further).
  • Manage your Japanese team. Culturally they are used to teamwork and collaborative decision making so leaving a Japanese local manager to rule the office without proactive and involved management from you/HQ often does not work well.
  • Be aware and understand cultural differences. When interviewing a candidate take into account objective criteria instead of culturally influenced ones like assertiveness.
  • Do not eliminate candidates for poor English skills, your idioms or accent might be too difficult especially if you are not from North America; it is common for candidates to be used to American English. Especially interviews by phone without seeing your non-verbal communication, it makes it difficult for the candidate to understand you.

There are other things that you should do to hire good employees. A lot of companies cut hiring and salary costs, take short cuts with infrastructure and compliance and try to cover multiple jobs with one person. If they manage to do actually get people to join the firm under such conditions, they may end up hiring an employee that has no other choices and are available… for a reason. Here is a list of what you should do:

  • Avoid hiring “generalists” where possible, and if you do want one, make sure they have a good reason for leaving their previous company and joining yours, and indeed for any job changes.
  • Hire people with start-up or small company experience instead of a former big company employees who are used to having everything delegated, or having a limited role in a large group doing the work
  • Identify is Sales People are “route sales” or “new business development sales”; find out if they will be able to develop sales or not. If they say they can ask them about their process; for example their sales methodology, KPIs, connections, targets they have had and their results-vs-targets.
  • Choose business skills rather than Japanese language skills. Bilingual foreigners with experience can be a good choice too. 
  • Pay the right price when it comes to salary and benefits; bilingual skills are still rare, and come with a price. Paying below market can not only mean you miss-out, but worse; people can join only to quit for the next better offer.
    • Don’t overestimate the number of hires you will be able to make in your first year. If you want to hire a lot of people in a short amount of time, be prepared to seek out and take local advice. Be prepared to pay for it and plan well ahead – Japan can be a difficult market.
    • If you want to cut costs, cut on the office, by starting with a small and flexible co working space or short term government/JETRO recommended space.

Note: do check out the full article, if only for this extra tips section. It is Gold, and very well written.

“Strong Japanese language ability is a secondary business skill, not a primary one.”

Contract types and their pros and cons

In Japan there are three typical contract types: Permanent Employee (Sei-sha-in), Contract Employee (Keiyaku sha-in) and Outsourced (temp) Employee (Haken sha-in).

Permanent Employees: This is the contract that most employees are seeking, attracting people with an interest in a permanent position. Another advantage is that you do not have to pay overtime, however be aware labor laws here can favor the employee and is definitely more complicated to dismiss a permanent employee.

“Contract” Employees: Contracts are usually short and for a specified term. Companies use this type of contract as lower risk hiring because engagements are easily exited simply by not renewing them. In recent years however, employers have some additional or new obligations to contract employees such as paid leave (even for those on rolling short contracts).

These type of contracts can also be used as a sort of probation, being renewed or not after 3 or 6 months. In the past companies would hire contract employees and continue to renew their short term contracts, so that they could terminate them whenever it suited them. Now however, long term contract employees benefit from the same protection as permanent employees. One benefit for the employee is overtime must be paid if worked, which isn’t a requirement for permanent employees. Companies should keep in mind they will always need strong justification to terminate any employee in Japan, even a contract employee, but contracting employees is a good way to test them before hiring them as permanent employee.

Outsourced Employees (Temps): Also known as “Haken” contract, this is similar to a temp contract in other countries. A ‘haken’ employee is not your employee; you pay an agency that does employ them, for the hours worked and in case they do not suit, you are able to simply ask for a replacement.

A temp employee will however cost just as much as a permanent employee, because you are paying for the employees hourly rate, plus the the agency percentage fee. This percentage fee also includes what the temp agency has to pay the temp employee other costs (social security, travel expenses…). Keep in mind the choice of candidates is also further restricted because employees in specialist areas, or with in demand skills, generally do not even consider working in temp employment.

Hiring temp employees does allow you to have a small back-office and be flexible with the size of your company. It can also be a good way to try out an employee before hiring them if the employee and temp agency are open to the idea, giving you a sort of “temp-to-perm” service.

Employee benefits

Paid leave: After six months of work both permanent and contract employees have the right to a minimum of 10 days paid leave per year. Those days can be prorated for a work period  inferior to one year.

Other allowances: It is not obligatory but some companies also provide housing allowance (rent-aid), meal allowance, commuting expenses, company pension schemes and others like sports or social club memberships. Generally the bigger the company the more benefits are given to the employee with a low base wage. On the other hand small companies will have higher base wage without other allowances.

Social Security: Mainly there are two types of social security:

  1. “Kokumin kenko hoken” or “Citizens’ health insurance”. It concerns self employed people, long-term temporary and part-time workers who will register at their local government office and pay a monthly insurance fee. It covers 70% of any health treatment fee and is cheaper than the second option but only covers health insurance.
  2. “Shakai Hoken” or “Social Security”.  Here 50% of the monthly fee is deducted from the salary and the rest is paid by the employer. This one covers health insurance, industrial injuries insurance, unemployment insurance and pension benefit. With this coverage the cost for the employee is often doubled or more.

As an employer of permanent or contract workers (over 6 months) there is always a time when you will have to provide them the Shakai Hoken.

Performance management and what to do when it all goes horribly pear-shaped

Even though it is more difficult to dismiss employees in Japan than UK it does not live up to its reputation. If you follow the process that consists in two written warnings for failing to correct wrong attitude and giving the employee enough time to improve, you can dismiss him with a one month’s notice or a payment in lieu of notice.

If you keep proofs, it is pretty easy to get away with little pain as it is rare to see litigations for wrong dismissal in Japan.

If it happens, 90% of those cases will be solved by a mediation resulting in a mutual agreement. But you should make sure that you have clear applied policies in your company and that your employees know about it as some employees might try to take advantage of it. Japanese system is fair and equitable, if you are honest everything will go right.

Sourcing and selecting staff to build your team

When it comes to sourcing and selecting staff, it depends if you want to go big from the start or grow progressively. You can also operate from abroad with distribution agreement but here we consider that you establish an office in Japan.

Establishing a beach-head: First you need to choose between setting up a branch office or a K.K. (favourably seen by partners, clients…). In the case of a branch office you only need a sales manager and a bilingual secretary while a K.K. needs you to hire a CEO (resident in Japan).

Your first key-hire: Since 2015, you are not required anymore to have a japanese resident as director if you create a new company. On the contrary if you establish a new office of an existing foreign company you need a director residing in Japan.

The people  who are good at being entrepreneurial and building a business are mostly not good at putting in place processes in a stable business. That is why you should hire a non-executive nominee Representative Director (CEO) instead of a full-time director first.

If it does not work out, it will be easier to do the transition if he is not legally nominated as the Representative Director. This will save you the cost for getting your shareholders registration changed as you might need to have a few different directors before finding the right one.

Sourcing staff: Sourcing staff is mostly the same in Japan as everywhere except for some cultural or demographic specificities that you can find here:  

Word of mouth referral: It is the cheapest solution, generally free, and it offers a pre-evaluation from the introducer. However, be careful on how well the introducer actually knows the candidate to make sure it is not a mere acquaintance who will turn out incompetent.

Paid Introductions from recruiters: This solution is the most expensive one but it prevents from a lot of costs like advertising as well as time cost of the research.

If you work with a good recruiter you will benefit from a preselection of candidates, advice and a refund option in case of bad hire. Using a recruitment agency for recruiting overseas can be really helpful, but you have to be aware that in Europe and America it is usual to pay the fee upfront (retained research) while japanese are used to contingency agencies that you pay after a success.

Contingency agencies offer the same quality with lower risks but when it comes to rare skills or replacing a high positioned executive, retained research companies have their advantages.

D.I.Y Recruitment: In general it is the cheapest option. You can use the online social network, LinkedIn, where you can find a wide variety of profiles but a lot are not reliables. It is a good source of candidates but you will have to do a rigorous selection during the interviews.

Advertising: In advertising you can either choose print or internet advertising. The problem with print advertising is that it is not a targeted media so you will receive a lot of irrelevant applications. Even print advertising in specialized newspapers are getting poor results.

Another choice is internet advertising, there are three job boards that are particularly efficient to find bilingual talents:

Career Engine: https://japan.careerengine.org/accj/employer/index/index/lang/en

Career Cross: https://www.careercross.com/en/employer.php

Daijob: https://www.daijob.com/en/company

They were created to help foreign companies in Japan. Those are not the biggest job boards in Japan and overseas but they are the easiest to use for non-japanese speakers seeking bilingual talents in Japan. There are two methods to source potential staff on job boards: push or pull.

Selecting candidates in the board’s database to send them scout mails is the push method while the pull method consists in publishing a job ad and waiting for applications. When you send scouting mails you have to remember to make it personal because an interesting candidate is also interesting for others. In the pull method what is important is to be concise and precise in your ad to target the best candidates.

Pull and push methods represent each around 50% of candidate responses so it is important to seriously use both methods.

The three biggest job boards in Japan are Rikunabi, En-Japan and Doda. Those boards are more directed to non-bilingual domestic japanese candidates and you need to speak and read japanese to use it so it is not really appropriate in this case. However out of the three En-Japan has the best selection of bilingual japanese but mastering the japanese language is still necessary.

A lot of options exist to find the perfect candidate but the choice will depend on your budget, your time and how well you know Japan and its language.

In conclusion

Japan is really different from the western environment, regulations are observed but not highly restrictive, relationships and trust are valued over logic and people are risk-averse, honest, kind but also conservatives. Overall it is a complicated market but if you are patient, tolerant,  hardworking and listen to advice from locals you will find that it is a profitable and stable market.

If you want to find out more, you can read the full article here or bookmark it for later. You can also connect with Jeremy Sanderson if you are interested in this topic.


This Summary was written by Jason Ball, a “Fixer” and people Connector, in Tokyo