Contract Employees VS Permanent Employees – how to mitigate risk?

We see a lot of companies come to Japan and struggle with the concept of Permanent Employment as the “gold standard” of hiring – and from a pure hiring perspective coming from Europe or America it makes sense that companies would be averse to this.

Why? Because it is so difficult to fire a permanent employee. This is without a doubt the biggest challenge facing foreign companies in Japan when hiring. Not all employees adapt to the international business environment or perform as expected which can lead to a lot of money lost.

Unfortunately, while there were a lot of attractive reasons to use contract workers in the past, laws and regulations have changed over the past few years that may change your mind.

Perhaps most significantly, in the past, contract workers would not have required paid leave or being enrolled in health insurance, the laws concerning this have become significantly more strict. Now requiring enrollment in NHS and Pension if passing the 20hr mark.

Another key aspect to take into account is that most employees in Japan prefer, and will even push for permanent employment, going as far as to reject higher paying contractual offers.

If you take into account that the majority of major companies in Japan already are following this standard – most skilled professionals will have their pick of permanent options. So the time and costs required to hire a professional on a contract basis may well outweigh the costs of taking the time to build a solid interview process and screen strong permanent talent..

Not only that, but in Japan if an employee has been on a renewable contract for over a certain number of years, they must be switched to a permanent employee if requested. 

Considering these changes, there is less benefit to hiring contract employees in Japan now than in the past.  To help with risk mitigation when hiring, we find that a clearly designed interview process, with a diverse interview panel that represents each key part of the company results in better onboarding and retention. 

Titan GreenTech is able to support companies to assess and redesign interview processes specifically for Japan, or for specific key positions.