Japanese salary system is quite different compared to the salary systems in other countries, and as foreigners, it is difficult for us to understand the system properly. The amount of salary in your contract is your monthly gross income, and the amount of salary transferred to your account is your monthly net income, and it is usually much lower than the amount stated in the contract, so you might be surprised when you find out the amount of your net salary when checking your bank account. Today we will explain in details about the salary system in Japan, and also method to calculate your monthly net income.
The Japanese salary system
The amount of monthly salary stated in your contract is your gross monthly salary, which is called as gakumen (額面) in Japanese. The amount of money that is actually transferred to your bank account is called as net monthly salary, after-tax income, or take home pay (tedori, 手取り). This is the total salary paid by the company after several deductions (menjogaku, 免除額), including social insurance premiums and taxes.
Your gross monthly salary (face value), or gakumen, includes the things below:
- Basic salary (kihonkyu, 基本給), which is the basic amount of your salary.
- Overtime allowance (minashi zangyodai, みなし残業代), is your paid overtime, which is an allowance that exceeds the business hours determined by each company, and you will not get any extra overtime allowance unless you exceed the hours determined by your employer.
- Late overtime allowance (shinya zangyodai, 深夜残業代), is the allowance paid when working overtime after 22:00 (over 25% from the hourly wage), or when working on holidays (over 35% from the hourly wage).
- Commuting allowance (tsukin koutsuhi, 通勤交通費), is the allowance for transportation expenses for those who commute using public transportation. This allowance is not taxable.
Deduction, or menjogaku, is the total amount deducted from salary, and includes the things below:
- Health insurance (kenko hokenryo, 健康保険料), is a national medical insurance policy that allows you to visit a medical institution when you’re sick or injured. The premium rate will vary depending on your salary amount and the health insurance association you are registered to. Your employer will pay half of the premium.
- Employment insurance (koyo hokenryo, 雇用保険料), will give you unemployment benefits in the event of unemployment, and the premium rate will vary depending on the company’s business.
- Nursing insurance (kaigo hokenryo, 介護保険料), will provide you welfare services at 10-20% when you need nursing care. You have to be over 40 years old to be eligible for this insurance.
- Employee’s pension (kosei nenkin, 厚生年金), this is a premium you need to pay to receive pension payments in the future. Your employer will pay half of the premium.
- Income tax (shotokuzei, 所得税), is the amount of tax income you need to pay on monthly basis. The tax rate varies depending on your monthly income.
- Resident tax (juminzei, 住民税), is the tax paid to the prefecture or municipality where the worker resides. The amount is determined by the annual income of the previous year.
So, how many percent will be deducted from the salary’s face value?
The amount of your net salary is usually around 75% to 85% of the face value, so basically you will get around 15% to 25% deduction every month. However, the percentage of deduction varies depending on your salary amount and your marriage status. If you have dependents, you can receive a “dependence deduction”, that is preferentially paid by income tax or resident tax. If your salary exceeds 600,000 yen a month, the percentage of deduction can go up to 25% every month.
How to calculate your net income accurately
You can easily calculate your net income if you know the salary’s face value and the breakdown of deductions.
The calculation formula is: [basic salary + fixed allowance + variable allowance (other than bonuses)] - [social insurance premiums (health insurance, employment insurance, nursing insurance if you’re applicable, and employee’s pension)]-[taxes (income tax and resident tax)]
Keep in mind that the salary in the job offers is not the net income
Most annual salaries listed in job listings and job sites are face value, so the annual net income you will receive as a salary will be less than the amount listed there. If you want to work with a better salary than the previous job, you can compare the face value or multiply the salary listed in the job offer by 0.8 to calculate the approximate net income.