This article is written by a Japanese local.
The biggest “source of distrust” HR departments encounter when foreign employees begin working in Japan and receive their first payslip is a complaint regarding their take-home pay. They often express frustration: “My take-home pay is far less than the salary stated in my contract,” or “Why is the company deducting insurance premiums from my salary without my permission?”
In many countries, salaries are paid in gross amounts, and employees pay their own taxes and insurance. Consequently, Japan’s “withholding at source” system often looks like unjustified exploitation to them. If this dissatisfaction is left unaddressed, it directly leads to distrust toward the company. HR managers must objectively and logically explain the “deductions” and show how the company is actually shouldering a massive financial burden on the employee’s behalf.
1. The Structural Gap Between “Gross” and “Net Income”
[Summary] Net income is the amount remaining after “Taxes” and “Social Insurance Premiums” are deducted from the Gross (Total Paid). These deductions are public funds secured to protect the employee’s future.
For foreign employees, explaining payslips visually is the most effective approach. Divide the payslip into three parts:
- Total Payment (Gross): The total amount paid by the company, including base salary, overtime, and allowances. This is the figure stated in the contract.
- Total Deductions: The sum of public expenses such as Social Insurance, Income Tax, and Resident Tax, which are automatically deducted from the salary.
- Net Income (Take-home Pay): The actual amount deposited into their bank account after subtracting deductions from the total payment.
When explaining why these deductions exist, clearly state that this is “a legal obligation for the company, not a discretionary deduction.” Explain that this system serves to sustain their livelihood and that the company has no legal right to refuse these collections.
2. Visualizing the “50/50 Employer Split”
[Summary] Salary deductions cover only “half” of the insurance premiums; the company pays the other half out of its own pocket. Conveying this “employer-employee split” is key to building trust.
The single most important point in resolving the frustration of foreign employees is explaining the “50/50 Employer-Employee Split (Roushi-Seppan).”
If an employee were a freelancer or unemployed and joined National Health Insurance and National Pension, they would pay 100% of the exorbitant monthly premiums out of their own pocket. However, in the case of corporate “Social Insurance,” the company pays half (50%) of the monthly premium on the employee’s behalf.
When they see tens of thousands of yen deducted from their salary, they feel like it’s a loss. But in reality, the company is adding an equal amount from its own budget and paying it to the government for the employee’s insurance. Logically explaining this fact allows them to recognize that the salary deduction is not exploitation, but “massive financial support from the company.”
3. Year-end Adjustment: Recovering Overpaid Taxes
[Summary] Monthly withholding is an estimation. Explain the “Year-end Adjustment (Nenmatsu Chosei)” process, where overpaid Income Tax is refunded to the employee at the end of the year.
The “Income Tax” deducted from monthly salaries is calculated based on an estimation. However, actual tax amounts change if the employee marries, has dependents, or joins life insurance plans. Japan conducts a “Year-end Adjustment” to correct these discrepancies and refund overpaid tax in the final salary payment (or January).
Foreign employees often think, “I pay taxes every month, and that’s the end of it.” Inform them that this adjustment process exists to ensure they pay the “appropriate tax amount,” and instruct them not to neglect this procedure.
4. Practical Q&A (Troubleshooting HR Should Guide)
[Summary] Answers common practical questions such as the necessity of multilingual payslips and how to handle salary complaints.
Q. Is it necessary to prepare English payslips?
A. While not legally required, it is strongly recommended to prevent trouble. For employees whose home countries lack the concept of “deductions,” Japanese technical terms are unintelligible. Providing payslip formats with English translations for at least the three key items—”Employees’ Pension,” “Health Insurance,” and “Employment Insurance”—will drastically reduce inquiries.
Q. If an employee keeps complaining about the large gap between Gross and Net, how should I respond?
A. There may be overlapping factors, such as bank fees or the start of Resident Tax. Sit down with them, go through the payslip item by item, and clarify “why this amount is deducted.” Avoid leaving the cause of their anxiety vague; show them that you are using the payslip as a “transparency tool to build trust.” This effort also contributes significantly to employee retention.
Conclusion: Make Payslips a Platform for HR Accountability
The Japanese custom of “salary withholding” is a major culture shock for foreign employees. HR managers should not simply dismiss their frustration by saying “it’s the law.” Instead, break down the difference between Gross and Net logically, visualize the costs shouldered by the company, and provide them with the peace of mind that “this company is protecting me.”