Japanese health and pension contributions are not charged on each month's actual pay. Each employee is placed in a grade, and the grade's fixed amount, the standard monthly remuneration, is multiplied by the contribution rate. Health insurance uses 50 grades, from 58,000 yen to 1.39 million yen. Employees' pension uses 32 grades, from 88,000 yen to 650,000 yen, which is why the pension cap and the health cap differ.
The grade is set three ways. On hiring, it is based on expected monthly pay. Each year it is reset from average pay in April, May and June, applying from September; this is the santei kiso process. And when fixed pay changes and the three-month average moves the employee by two grades or more, the grade is revised from the fourth month, a step called an occasional revision.
Remuneration here is broader than taxable salary. It includes base pay, overtime, allowances, the commuting allowance (which is tax-free up to a limit but not exempt from social insurance) and benefits in kind such as company housing, valued at set rates. Bonuses are charged separately on a standard bonus amount, capped at 5.73 million yen a year for health insurance and 1.5 million yen per payment for pension.
What it means for a foreign employer
- The grade, not the payslip, drives cost. A pay rise that does not move an employee two grades changes nothing until the next annual reset, and a cut does not save anything straight away either.
- Allowances count. Moving pay from base into housing or commuting allowances does not reduce social insurance, even where it reduces tax.
- Senior pay sits above the caps. For anyone above 650,000 yen a month, pension cost is fixed; above 1.39 million yen, health cost is fixed too. Bonuses above the bonus caps carry no further health or pension cost.
- Benefits in kind need valuing. Company housing or meals provided to staff are converted into cash value and added to remuneration.
Sources
- Health Insurance Act, Articles 3, 40, 41, 42, 43 and 45; Employees' Pension Insurance Act, Articles 20 to 24-4.
- Japan Pension Service and Japan Health Insurance Association, standard monthly remuneration tables for fiscal 2026.