An Employer of Record (EOR) acts as the legal employer for workers, handling HR responsibilities like payroll, taxes, and compliance, while the company directs the employees’ day-to-day tasks. This setup allows businesses to hire globally without establishing a local entity.
Hiring workers from Japan offers benefits due to their high level of education, technical skills, and innovative spirit. Japan is recognized for its strong engineering, technology, and manufacturing talent. The country’s workforce is known for its dedication, precision, and problem-solving skills, making it an attractive market for foreign companies.
According to recent data from the Japanese government, Japan boasts the third-largest economy in the world and an enormous labor force of approximately 69 million people. This presents significant opportunities for businesses looking to expand into the Japanese market or tap into its skilled workforce.
To use an EOR in Japan, there are 6 basic steps to follow to ensure proper setup:
- Find talent to hire in Japan
- Compare using an EOR to setting up a legal entity in Japan
- Get the information needed from your talent
- Choose an EOR provider with expertise in Japan
- Communicate your hiring needs to the EOR
- Have the EOR set up the contracts and hiring procedure
An EOR manages payroll, taxes, and benefits administration, ensuring compliance with local laws and regulations, thus simplifying the employment process for companies.
Different labor laws in Japan, such as those governing work hours, termination processes, and mandatory employee benefits, must be considered when hiring remotely. The hiring process in Japan involves identifying talent, ensuring compliance with local employment laws, and executing contracts, typically facilitated by an EOR for companies without a local presence.
1. Find talent to hire in Japan
Businesses should explore a variety of channels to find talent to hire in Japan, emphasizing both local and global platforms. While specific job boards aren’t mentioned in the document, it’s common to use platforms like LinkedIn, which has a strong presence in Japan, especially for professional and managerial roles.
Japan’s strong technology ecosystem has produced many talented developers, designers, and marketers. When searching for talent, consider Japan’s strong sectors, such as technology, manufacturing, and innovation. Many Japanese professionals are highly skilled and adaptable, which can benefit international businesses.
Partnering with career centers at top Japanese universities can benefit entry-level positions or internships. Additionally, considering local professional associations and industry-specific job boards can be advantageous, especially for roles in sectors like technology and engineering.
2. Compare using an EOR to setting up a legal entity in Japan
When hiring employees in Japan, you need to weigh the options of using an Employer of Record against setting up your legal entity. An Employer of Record offers a quicker, less complex route to hiring local staff, bypassing the need for a formal company presence. This approach suits companies looking to test the Japanese market or expand quickly without significant upfront investment.
An EOR manages all local employment laws, tax, and compliance issues, assuming responsibility for hired employees. This setup allows companies to start operations in weeks, compared to the months required to establish a legal entity.
On the other hand, setting up a legal entity in Japan is described as complex and costly. It involves navigating intricate local labor laws and regulations, which can be challenging for foreign companies.
In comparison, using an EOR is generally less expensive. It involves less risk, making it a suitable option for small to medium-sized businesses or those in the initial stages of market exploration. It eliminates the need for a local expert or dedicated legal and tax teams, as the EOR handles these aspects.
Comparison Table: EOR vs. Setting Up a Legal Entity in Japan
| Factor | Employer of Record (EOR) in Japan | Setting Up Legal Entity in Japan |
|---|---|---|
| Setup Time | 1-3 weeks | 6-12 weeks |
| Initial Cost | Low (mainly employee costs) | High (JPY 5-20 million+) |
| Ongoing Cost | Moderate (EOR fees + employee costs) | High (operational costs, compliance, social insurance) |
| Complexity | Low (EOR handles most tasks) | Very High (requires deep understanding of Japanese business culture and laws) |
| Control over Operations | Limited (company directs work, EOR handles employment) | Full (complete control, but must adhere to strict local regulations) |
| Compliance Management | Handled by EOR (including unique Japanese requirements) | Company Responsibility (requires extensive local expertise) |
| Scalability | Flexible (easy to adjust workforce) | Less Flexible (changes may require complex legal procedures) |
| Local Expertise Required | Minimal (EOR provides guidance on Japanese practices) | Extensive (need for local legal, tax, and cultural advisors) |
| Suitable for | Market entry, testing Japanese market, hiring < 5 employees | Long-term presence, hiring > 5 employees, full operations |
| Risk | Lower (EOR assumes most employer liabilities) | Higher (company bears all legal and financial risks in a complex regulatory environment) |
| Customization of Employment Terms | Limited (must adhere to EOR’s policies and Japanese labor laws) | Extensive (can create company-specific policies within Japanese legal framework) |
| Handling of Work Rules | Managed by EOR | Minimal (EOR guides Japanese practices) |
| Termination Process | Managed by EOR (still complex due to Japanese labor laws) | Very complex (extremely strict regulations on dismissals in Japan) |
| Intellectual Property Protection | May require additional agreements tailored to Japanese IP laws | The company has direct control over IP protection but must navigate complex Japanese IP regulations |
| Hanko (Company Seal) Management | Handled by EOR | Company must register and manage its own hanko, crucial for official documents |
| Social Insurance Enrollment | Managed by EOR | The company must create and file Work Rules if 10+ employees, a critical document in Japanese labor law |
3. Get the information needed from your talent
To hire employees in Japan, you’ll need their personal information, employment contract details, and tax-related information. Remember, it’s important to collect this data before the employee starts working.
Typically, you’ll need the following essential information:
- Employee’s full name
- Address
- Date of birth
- Tax-related information (specific details not provided in the document)
- Bank account details for salary payments
- Educational qualifications and work history
Additionally, you’ll need to provide a comprehensive job description, including title, duties, and place of work. Providing written employment terms and conditions for all work arrangements is mandatory in Japan. This can be fulfilled by giving employees a written employment contract and/or a copy of the company’s work rules (shuugyou kisoku).
4. Choose an EOR provider with expertise in Japan
When choosing an EOR provider to work with in Japan, selecting one with deep expertise in the Japanese market and a strong understanding of local labor laws is crucial to ensure compliance and smooth business operations. Consider the following factors:
- Experience managing employee onboarding, payroll, and legal compliance in Japan
- Proven track record of working successfully with companies similar to yours
- Range of services offered, including visa and work permit support, benefits management, and payroll processing
- Technology platform and data security measures
- Pricing structure and transparency
- Commitment to staying up-to-date with Japanese employment laws
Choose an EOR provider demonstrating a solid understanding of Japanese employment practices, including working hours regulations, overtime rules, and termination procedures. Ensure they can provide comprehensive support for all aspects of employment in Japan.
What are the best EOR providers to use in Japan?
| EOR Provider | Why It’s a Good Fit for Japan |
|---|---|
| Multiplier | – Offers Japan-specific employment solutions – Provides support for navigating Japan’s complex labor laws and regulations – Handles local payroll, tax filings, and social insurance contributions |
| Deel | – Extensive global coverage including Japan – Offers localized contracts compliant with Japanese labor laws – Provides support for Japan’s complex payroll and social insurance systems |
| Remote | – Strong focus on employee experience, important in Japan’s relationship-oriented business culture – Offers comprehensive benefits management tailored to Japanese market expectations – Provides guidance on Japan’s unique work regulations and cultural norms |
5. Communicate your hiring needs to the EOR
Communicating your hiring needs to the EOR to ensure the process aligns with company goals and legal requirements is important. Providing a detailed job description, including title, responsibilities, required qualifications, and skills, is vital.
Specify the job’s expected start date, location, and whether it’s remote or onsite. Outline the proposed salary, bonuses or commissions, and other compensation benefits. Clarify the contract type (full-time, part-time, or fixed-term), and detail the working hours, including any flexibility or shift requirements.
Discuss the company culture, growth plans, and how the position fits into future expansion. By accurately representing these aspects, the EOR can find the right talent and ensure legal and administrative compliance.
6. Have the EOR set up the contracts and hiring procedure
Once you have chosen which provider to work with and communicated your hiring needs, the EOR will set up the contracts and hiring procedure, ensuring compliance with local labor laws and employment practices.
The EOR drafts employment contracts that comply with Japanese labor laws, including specific terms regarding job details, working hours, and termination procedures. They’ll also manage the necessary documentation for tax, social security, and payroll setup, adhering to mandatory withholdings and reporting requirements.
In Japan, employers must provide employees with written terms and conditions of employment. The EOR will ensure this requirement is met through a formal employment contract or by providing a copy of the company’s work rules (shuugyou kisoku).
The EOR will also register employment with relevant Japanese authorities, assist in obtaining necessary work visas for foreign employees, and manage the onboarding process in accordance with Japanese employment laws.
What help does an EOR provide in Japanese payroll, taxes, and benefits administration?
An EOR in Japan provides comprehensive support in managing payroll, taxes, and benefits administration, ensuring compliance with complex local laws. This includes:
- Calculating and processing employee salaries
- Withholding and paying income tax
- Managing Social Security contributions
- Handling payroll tax obligations
- Administering leave entitlements
- Ensuring compliance with overtime regulations
- Providing pay slips and annual payment summaries
The document mentions that in Japan, employees are paid monthly instead of weekly or fortnightly. The EOR will manage this monthly payroll cycle, ensuring timely and accurate payments.
Regarding benefits, the EOR will handle mandatory benefits such as paid annual leave, which starts at 10 days after six months of employment and increases with tenure. They will also manage any additional benefits you offer, which can be important in Japan, where employers often rely on benefits to attract employees due to relatively low starting wages.
What labor laws do you need to consider when hiring in Japan?
When hiring in Japan, several key labor laws must be considered. Here’s a table:
| Law | Key Points |
|---|---|
| Labour Standards Act 1947 | Establishes basic standards for working conditions, including working hours, overtime, paid leave, and dismissal procedures |
| Labour Contract Act 2007 | Regulates employment contracts, including rules on contract termination and conversion of fixed-term contracts to permanent status |
| Industrial Safety and Health Act 1972 | Mandates employers to secure safety and health of workers, appoint safety and health personnel |
| Act on the Protection of Personal Information (APPI) | Regulates the collection, use, and protection of personal data of Japanese citizens |
| Equal Opportunity Act 1972 | Prohibits discrimination based on gender in employment |
| Child Care and Nursing Care Act 1991 | Provides for childcare and family care leave rights |
| Part-Time/Fixed-Term Employment Act 1993 | Aims to improve working conditions for part-time and fixed-term workers |
| Work Style Reform Act 2018 | Introduces caps on overtime hours, mandates use of paid leave, and promotes “equal work, equal pay” principle |
Employment Contracts
While Japanese laws do not specify an exact format for employment contracts, employers should provide written terms and conditions for all work arrangements. This can be fulfilled by giving employees a written employment contract and/or a copy of the company’s work rules (shuugyou kisoku).
Working Hours
The standard work week in Japan is 40 hours, typically spread over five days from Monday to Friday. Each day is generally eight hours long. There are strict regulations regarding overtime, as outlined in the Labor Standards Act:
- Overtime rates start at 125% of the regular hourly rate
- Work between 10 PM and 5 AM incurs a 25% night work premium
- Work on statutory holidays is paid at 135% of the regular rate
- Overtime exceeding 60 hours per month is paid at 150% of the regular rate
Minimum Wage
The minimum wage in Japan varies by prefecture and industry. According to recent data from the Ministry of Health, Labour and Welfare, the average hourly wage in Japan is around JPY 961.
Paid Time Off
Under the Labor Standards Act, employees are entitled to paid annual leave after six months. The initial entitlement is 10 days, increasing by one day per year for the following two years, then by two days per year until a maximum of 20 days is reached. o years, and then by two days per year until a maximum of 20 days is reached.
Termination
Japan has strict regulations protecting employees from dismissal. Employers must justify termination and provide at least 30 days’ notice. It’s common practice to place underperforming employees on a probationary period of 3-6 months before considering termination.
Maternity and Childcare Leave
Female employees are entitled to maternity leave six weeks before and eight weeks after childbirth. Childcare leave is available until the child reaches one year, which can be extended in certain circumstances.
Social Insurance
Employees in Japan are covered by four main types of insurance: health insurance, pension insurance, unemployment insurance, and workers’ accident compensation insurance. Both employers and employees contribute to these schemes.
Understanding and complying with these laws is crucial for any company hiring in Japan. The complexity of these regulations can make compliance challenging for foreign companies. This is where an Employer of Record (EOR) can provide significant value, offering expertise in navigating these laws and ensuring full compliance with Japanese employment regulations.
How does the hiring process work in Japan?
The hiring process in Japan typically involves the following steps:
- Job Posting and Recruitment: Companies advertise positions through various channels, including online job boards, social media, and recruitment agencies.
- Application Review: HR teams or recruiters review applications and resumes to shortlist candidates.
- Initial Screening: Often involves a phone or video interview to assess basic qualifications and cultural fit.
- In-depth Interviews: Qualified candidates are invited for more comprehensive interviews, which may include multiple rounds with different team members.
- Skills Assessment: Candidates might be asked to complete tests or practical assignments depending on the role.
- Reference Checks: Employers often contact previous employers or provide references.
- Job Offer: A formal job offer is extended, usually in writing.
- Contract Negotiation: The terms of employment are discussed and finalized.
- Contract Signing: Both parties sign the employment contract.
- Registration and Onboarding: The new employee is registered with the relevant authorities and begins onboarding.
When hiring through an EOR in Japan, many of these steps are managed or facilitated by the EOR provider, ensuring compliance with local regulations throughout the process.
Is Japan a relatively easy country to hire employees remotely through an EOR?
Japan is considered a moderately complex country for hiring employees remotely through an Employer of Record. While it’s not the most challenging market, several factors contribute to its complexity:
While not the easiest country for remote hiring, with the right EOR partner, companies can successfully navigate the complexities of employing workers in Japan. The key is working with an EOR with deep local expertise and a strong track record of compliance with Japanese labor laws.
In conclusion, using an Employer of Record service in Japan can significantly simplify hiring and managing employees in this dynamic market. By handling complex compliance issues, payroll, and benefits administration, an EOR allows you to focus on growing your business while minimizing risks associated with international expansion. With the right partner and a clear understanding of the local landscape, companies can effectively tap into Japan’s talented workforce and expand their global footprint.
