Using an employer of record in Japan

Hiring and managing employees in Japan can be complex, especially for companies unfamiliar with the country’s labor laws, payroll systems, and cultural norms. 

Establishing a legal entity requires time and resources, and navigating compliance requirements without local expertise can pose significant challenges.

That is where working with an Employer of Record (EOR) in Japan can help. An EOR offers support with core employment tasks like onboarding, payroll, benefits, and ongoing HR administration, so companies can quickly onboard talent in Japan without setting up a local branch.

If you’re looking to expand into Japan or explore flexible hiring options, Payoneer Workforce Management offers comprehensive Employer of Record services in Japan. 

Read on to learn how an EOR can support your business growth in Japan.

How to hire employees in Japan

Businesses looking to expand into Japan generally have three options when it comes to hiring:

1. Set up a local legal entity: Opening a branch or subsidiary allows full control over hiring but involves time-consuming registration, legal filings, and capital investment.
2. Work with independent contractors: Contractors offer flexibility, but misclassification risks may arise if the role resembles an employee-employer relationship.
3. Working with an employer of record: A Japan EOR handles employment responsibilities on your behalf, allowing you to hire full-time staff compliantly and efficiently without establishing a local entity.

Partnering with an employer of record in Japan

An Employer of Record is a third-party service provider that legally employs workers on behalf of a client company. 

While you maintain day-to-day management and oversight of the employee’s work, the EOR helps handle administrative and legal employment functions.

Key responsibilities of an EOR in Japan include:

• Drafting compliant employment contracts
• Managing payroll, tax withholding, and social contributions
• Administering benefits such as health insurance and pension enrollment
• Ensuring adherence to local labor regulations
• Handling termination processes following the Japanese law

Partnering with an employer of record in Japan makes it easier for companies to hire and support remote or in-country employees, especially when expanding operations quickly or testing new markets.

For companies seeking comprehensive EOR services in Japan, providers like Payoneer Workforce Management offer tailored solutions that combine compliance expertise with streamlined HR processes.

How to onboard employees in Japan

Onboarding new employees in Japan requires steps to stay aligned with local employment practices. An effective onboarding process supports compliance and helps employees integrate smoothly.

Key tasks during onboarding include:

• Registering employees with Shakai Hoken, Japan’s mandatory social insurance program that covers health insurance, employee pension, unemployment insurance, and long-term care
• Issuing a My Number card, a 12-digit identification number used for tax reporting, social security tracking, and other government services
• Enrolling employees in payroll and statutory benefit plans
• Collecting signed employment contracts and tax forms as per Japanese labor law.
• Arranging mandatory health checks for new employees.
• Introducing employees to their team and company culture
• Providing necessary equipment, such as laptops and other devices, and setting up internal accounts and systems

An EOR in Japan helps handle onboarding requirements, so the employee is ready to start work with minimal delay.

Pay employees in Japan

Japan operates under a structured payroll system that requires careful attention to local laws, deadlines, and employee entitlements. 

Employers are responsible for calculating taxes and deductions accurately and ensuring payments are submitted on time.

The fiscal year in Japan runs from April 1st to March 31st. Most companies follow a monthly payroll cycle, with salaries typically paid on the 25th of each month. While not legally required, it is customary for companies to offer biannual bonuses in June and December, often referred to as the 13th- and 14th-month salaries.

Minimum wage varies by region and is reviewed annually. The national average is around JPY 1,113 per hour.

Employee pay is subject to several statutory deductions, including:

• Income tax, which follows a progressive rate between 5% and 45%
• Social security contributions, covering health insurance, pension, unemployment insurance, and long-term care

Payroll processing in Japan also includes regular year-end tax adjustments and employee payslip issuance. All records must be retained in line with government guidelines.

Managing payroll in Japan requires accurate calculations and timely submissions. Using an EOR in Japan allows companies to meet local requirements while focusing on growing the local team. 

Employment laws in Japan

Japan’s employment regulations are governed by the Labor Standards Act (Act No. 49 of 1947). Key provisions include:

Working hours

The legal maximum is 8 hours per day, excluding break periods, and 40 hours per week. Any work beyond this limit requires a written agreement between employer and employee, often referred to as a 36 Agreement.

Rest periods

Employees working more than 6 hours must be given at least a 45-minute break. Those working over 8 hours are entitled to a 1-hour break. Breaks must be provided during the workday and cannot be substituted with early finishes or longer shifts.

Days off

Employees are entitled to at least 1 day off per week. Most companies provide 2 days off per week, following the common 5-day workweek.

Overtime pay

Overtime is compensated at an additional 25% to 50% above the base wage. If an employee works over 60 hours of overtime in a month, pay for hours beyond that threshold must increase to at least 50% above the regular hourly wage. Late-night work between 10 pm and 5 am must also be compensated with an additional 25%.

Payroll frequency

Wages must be paid at least once per month on a fixed, pre-agreed date. The most common payday in Japan is the 25th of each month, though this may vary by employer.

Employers that work with an EOR in Japan can navigate these labor laws efficiently while focusing on building and managing their local teams.

Minimum wage in Japan

Japan’s minimum wage is set by region, and the national average is JPY 1,113 per hour.

Minimum wage rates are reviewed annually by local governments and may increase based on inflation and cost-of-living changes. Hiring with an employer of record in Japan helps keep your compensation packages compliant and competitive.

Employment contracts in Japan

In Japan, employment contracts can be written or oral, but written contracts are strongly recommended to ensure clarity and legal protection for both parties. 

Contracts must include specific details, as outlined in the Labor Standards Act.

Key information to include in a Japanese employment contract includes:

• Job duties and responsibilities
• Working hours and rest periods
• Salary and payment schedule
• Contract duration (if fixed term)
• Termination conditions and notice period
• Details of any bonuses or allowances
• Vacation and leave entitlements
• Social insurance and other benefits

There are several types of contracts in Japan, including indefinite-term, fixed-term, and part-time contracts. 

Leave policy in Japan

Understanding leave entitlements in Japan is essential for managing employee well-being and staying aligned with labor standards.

Key leave categories include:

• Public holidays: Japan has 19 national holidays. Employers are not legally required to provide these days off, but many do recognize them as paid holidays.
• Vacation leave: After 6 months of employment, employees are entitled to a minimum of 10 days.
• Maternity leave: Pregnant employees can start their maternity leave 6 weeks before giving birth, with a further 8 weeks off after childbirth. 
• Paternity and childcare leave: Non-birthing parents can take childcare leave to care for newborns. This is unpaid but may be partially compensated up to one year, covered by social insurance.
• Sick leave: This is not legally mandated, but many companies voluntarily offer either paid or unpaid sick leave.

Background check in Japan

Background checks may be allowed in Japan, and many employers choose to perform them as part of their pre-employment screening process. However, they must follow strict legal guidelines. Written consent from the employee is also required.

All background screening activities should be transparent, relevant to the role, and respectful of privacy rights. Common pre-employment checks include:

• Identity verification
• Education history and academic credentials
• Employment history and references
• Criminal record checks (only with explicit written consent)
• Professional licenses or certifications
• Health checks, if the role has specific medical requirements

Credit checks are rare and typically reserved for senior or finance-specific roles.

Legally, employers must follow Japan’s data protection and employment laws, including the Act on the Protection of Personal Information and anti-discrimination guidelines. These regulations limit what data can be collected and how it can be used during hiring.

Employment termination in Japan

Termination of employment in Japan requires careful planning and adherence to legal requirements. Employers must provide at least 30 days’ notice before termination or offer compensation instead of notice.

Dismissals must be based on valid and reasonable grounds and are subject to strict scrutiny under Japanese labor laws to prevent unfair treatment. While there is no statutory requirement for severance pay, some companies may offer it based on internal policies or agreements with employees.

Employees can also resign by submitting a written notice, which typically requires at least 30 days’ advance communication.

Company registration in Japan

To set up a legal entity in Japan, businesses must complete several key steps:

• Select a business structure: The most common types are Kabushiki Kaisha (KK), a joint-stock company suited for larger or international operations, and Godo Kaisha (GK), a limited liability company often favored by smaller businesses for its simpler setup and flexible governance.
• Register with the Legal Affairs Bureau: Once the structure is chosen, businesses must submit incorporation documents and company details to the Legal Affairs Bureau to establish legal presence.
• Obtain necessary licenses and tax IDs: Depending on the business activity, companies may need sector-specific permits. All entities must also register for corporate tax, consumption tax, and social insurance obligations.

PEO in Japan

A Professional Employer Organization (PEO) and an Employer of Record (EOR) both offer global employment solutions, but with distinct differences.

• A PEO shares employer responsibilities with your company and requires you to establish a local entity.
• An EOR acts as the legal employer, allowing you to hire without setting up a business locally.

For companies expanding globally, an EOR provides a faster, more flexible way to hire and support talent across borders.

Payoneer Workforce Management’s employer of record services in Japan

Payoneer Workforce Management offers streamlined EOR services in Japan, enabling businesses to onboard, pay, and support talent while navigating local employment laws with confidence. 

Our solutions are designed for companies that need fast, cost-efficient global hiring backed by robust HR support and transparent processes.

Whether you’re a startup testing new markets or a large enterprise scaling global teams, Payoneer Workforce Management can help.

Book a demo today to learn more.

FAQs 

1) Is an EOR legal in Japan?

Working with an Employer of Record in Japan can be considered legal. The EOR acts as the legal employer of your workforce with compliance support as per labor laws, tax filings, and payroll administration.

2) Do Japanese companies do background checks?

Background checks are legal with written consent. Common checks include employment history, education, and criminal records. Financial background checks are less common.