When you wish to grow your company, you may hire globally to support your goals. Independent contractor relationships can support various project needs, but you must understand the laws in order to properly hire this type of worker.
Hiring independent contractors in Japan
While you may be ready to hire an independent contractor in Japan, you should first know the laws surrounding contractors.
Employees vs. independent contractors
While there is no clear definition of an independent contractor, the law in Japan defines it as any entity or person that provides services free of supervision and control from the company. In order to be considered an independent contractor, these individuals or entities should:
- Have the freedom to reject or accept projects.
- Determine how and when a project is completed.
- Acquire any funds necessary to complete a project.
- Assume responsibility for damages caused by performance.
- Report earnings as business income, not salary.
Employees, on the other hand, generally have permanent relationships with employers and provide ongoing labor that’s required to run the business. These individuals also have to abide by the employer’s workplace conditions, including performance requirements, working hours, and allocation of responsibilities.
Penalties for misclassification
If you hire an individual as an independent contractor but treat them like an employee, your company can face legal liability, including:
- Hefty fines
- Criminal penalties
- Taxation implications
- Reputational damage
How to hire independent contractors in Japan
The contractor hiring process should involve 3 key steps.
1. Carefully conduct interviews.
Advertising your need for an independent contractor will look generally the same as an employee search. You should include your request in the service description, so contractors know what they’re applying for.
The interview process will differ from the process for employees. Rather than asking questions about character traits, you should focus your interview entirely on skills and experience. You do not need to know how a contractor will integrate with your company’s culture. You only need assurance they can complete your project.
2. Create a service agreement.
While there is no obligation to provide benefits to independent contractors, creating a contract of service will clarify any terms and reduce legal risks. Your contractor agreement should include:
- Termination conditions
- Payment rate, schedule, and method
- A description of the project and what signifies its completion
3. Introduce necessities.
An important step in engaging the services of independent contractors is understanding how to work with them. Independent contractors should not receive the level of control or supervision that employees do, as they are generally free to perform the work according to their own schedule and methods.
Training programs are not recommended for contractors because it may imply that you are telling your contractors how to do their job. A brief introduction is a better way to help them adjust to your company without overstepping. Introduce your contractor to key people, workflows, and tools within your organization.
How to pay independent contractors in Japan
Contractors often receive pay on a project basis, but they may agree to weekly or monthly payment schedules. Independent contractors will charge consumption tax from you in addition to the service fee. If a contractor is a legal entity, you are not responsible for withholding income tax.
Terminating independent contractors
Termination for independent contractors should be detailed in your contract for service, which may be regulated by the Civil and Commercial Codes. Failure to do so may allow independent contractor to challenge a termination of the service agreement.
Turn to G-P when hiring independent contractors in Japan.
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Contact us to learn more.