(a) There is no specific legislation that specifically provides when contingent workers should be treated as employees (this point is covered in past court cases).
(b) For Japanese income tax purposes, as a rule, the employee's position will depend on their labor law status. Normally, compensation paid to contingent workers is subject to Japanese withholding tax at the same level as (or higher than) regular employees. Thus, it is quite rare in practice for the Japanese tax authorities to re-characterize a contingent worker as an employee solely from a tax perspective. In Japan, the social insurance program has a close connection with the labor laws (as opposed to tax laws), and thus it also depends on the labor law status of the person.
(c) A pension program is also closely connected to the labor laws, and thus it depends on the person's labor law status.
N/A. As mentioned above, for Japanese income tax (and social insurance) purposes, the employee's status depends on their labor law status.
Nothing specific, but with the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight on these developments, along with other employment law updates, click here.
It is unlikely. But if a shortfall of withholding occurs, possible penalties are (1) a penalty tax at 10% rate (or 5% in the case of a voluntary late payment) and (2) for 2023, interest tax at 2.4% per annum rate (or 8.7% per annum after two months from the due date). Please note that the interest tax rate may change every year based on the disclosed interest rate by the MOF on November 30 each year (with a certain adjustment).
For Japanese income tax purposes, the worker's status depends on their labor law status. Thus, the potential tax compliance risk, if any, would be ancillary to the labor law compliance risk. Accordingly, unless the contingent worker arrangement is set up for tax evasion purposes (such an arrangement motivated by tax is rare), the possibility that the company, directors and in-charge person are punished under the tax law should be low.
It is uncommon for the penalties above to be imposed on a company without a prior corrective recommendation being provided by the Labour Standards Inspection Office. If the company fails to correct the problem in response to such corrective recommendation, it may face criminal penalties.For Japanese tax purposes, certain tax evasion behaviors that are considered extreme are prosecuted and subject to criminal sanctions. As mentioned above, the tax compliance risk, if any, would be ancillary to the labor law compliance risk. The matter would unlikely be prosecuted only from a tax perspective.
A misclassification issue may arise (i.e., the workers may be classified as employees and therefore protected by labor laws).