Employer of record in Japan: costs, rules and how to hire

Seven checks stand between a Japanese offer and a lawful, correctly priced hire, and the first two are about the legal model rather than the money. Agree who will turn a new government rule into the required document or payroll change, and keep a record of the provider's legal assessment, employee terms and payroll assumptions.

Seven checks before making an offer

Each one names the thing to confirm before a date or a number is promised.

• Named candidate: have the provider assess the selection process under the proposed legal model.
• Daily direction: do not describe client-managed work as independent outsourcing without checking the actual arrangement.
• Minimum wage: apply the relevant region and industry rate, including announced commencement dates.
• Payroll: use current insurance rates and distinguish the two child-related contributions.
• Working time: confirm the Article 36 agreement, time records and overtime caps.
• Family rights: apply the updated childcare and flexible-working rules.
• Exit: review the grounds and protected circumstances before giving notice.

Required employment conditions have to be provided when the contract is concluded, and a workplace regularly employing ten or more workers must draw up work rules and file them with the Labour Standards Inspection Office. Japan runs on documents in a way many foreign employers underestimate. What decides whether yours hold up is that the contract, the work rules, payroll practice and policy all say the same thing.

Put employment conditions in writing

The required conditions include the term, work location and duties and their possible changes, working hours, breaks, holidays, pay calculation and payday, and exit conditions, with electronic delivery possible when the worker requests it. For fixed terms, state renewal criteria and any renewal limit, and supply the required information when the right to request indefinite employment arises.

Work rules address hours, wages and exit conditions, with additional required topics where relevant systems exist, and must be filed after obtaining the required employee-representative opinion and made accessible to employees. Make the documents understandable to the employee, record the legal employer, duties, work location, salary, schedule, leave, probation and exit conditions, and identify where the work rules can be read: the client service agreement and the employment contract serve different purposes.

Fixed terms, renewals and probation

An individual fixed-term contract generally cannot exceed three years, subject to defined exceptions, and where successive fixed-term contracts with the same employer exceed five years in total the employee can generally request conversion to an indefinite contract starting after the current term, subject to statutory exceptions and counting rules. Track the employment history before renewing, because three years is not a universal total-service limit.

Japan prescribes no universal ninety-day probation, so set a reasonable assessment period in the employment terms. Refusing continued employment during or after probation is treated as dismissal and needs valid, objectively reasonable grounds, and the statutory notice exception for trial employment ends once continuous employment exceeds fourteen days without removing the requirement for a lawful dismissal.

Changing terms and comparing treatment

Pay and other conditions can be changed by agreement, while disadvantageous changes through work rules require the applicable reasonableness and notification conditions: a provider cannot assume a new policy overrides the contract. When official guidance changes, identify the affected employees, effective date, documents and payroll settings before implementing.

Unreasonable differences in conditions between regular and part-time or fixed-term workers are restricted, and dispatch has its own equal-treatment or qualifying labour-management agreement rules. Changes to part-time and fixed-term rules take effect on 1 October 2026, including employment-condition disclosures and equal-pay guidance, so review the legal employer's terms and policies before that date and compare employees using actual duties and responsibilities. An agency agreement is not an automatic exemption from worker protections.

From April 2026 the covered employer threshold for gender pay-gap disclosure falls to 101 or more regularly employed workers, with the proportion of women in management also disclosed at that threshold. That is an organisation-level duty of the legal employer, separate from the pay calculation for an individual EOR employee.

Contractors, confidentiality and work product

In an outsourced service the contractor must organise its employees and work independently of the client, and the client cannot treat those workers as directly managed employees while relying on a contracting label: if the actual arrangement is worker dispatch, the dispatch rules apply. For an individual contractor, assess independence, control and the work performed before choosing the contract.

Identify the intellectual-property rights your company needs in the employment and service agreements, including software, documents and inventions, and confirm any assignment or licence from the actual rights holder, reviewing employee-invention rules separately. Directing an EOR employee's work does not transfer every right to the client, and any post-employment restriction needs a reasonable, role-specific assessment of scope, duration and compensation. Agree the rights and confidentiality terms before access to your systems begins.

Misclassification risk, and the dispatch question behind it

In Japan the classification question usually arrives as a different question: not whether the person is an employee, but whose employee they are and under which regime. Our approved Japanese guidance puts it directly: in an outsourced service the contractor must organise its employees and the work independently of the client, and the client cannot treat those workers as directly managed employees while relying on a contracting label. If the actual arrangement is worker dispatch, the dispatch rules apply. Source: the approved Japanese contractor guidance, jetro.go.jp, checked 18 September 2026.

For an individual contractor the assessment is the familiar one, made on the facts: independence, control and the work actually performed decide the contract rather than its title. The practical risk for a hirer is that directing the work day to day, which is what most clients do, is the behaviour that turns an outsourced service into something else.

So decide the regime deliberately and then behave consistently with it. If you need to direct the work, take the route that lets you do so lawfully and price it, rather than buying a service agreement and managing the person as a member of your team. I have not found a Japanese government source in our registry setting out the penalties that follow a finding of misclassification, so I am not quoting a figure; the regime question above is the one our sources support.

Employees' pension is 18.3% in total, split evenly at 9.15% each, and the Tokyo health premium is 9.85% from March 2026 remuneration, also shared equally. Those splits are the thing to get right, because quoting the combined rate as an employer cost overstates a Japanese budget by roughly half. What decides the rest is the insurance scheme, prefecture, age, remuneration band and industry.

Employer charges and employee deductions

Pension, health insurance, employment insurance, workers' accident insurance and child-related contributions are separate items, so ask for employer charges and employee deductions on separate lines, using the applicable remuneration and bonus bases. Do not use an OECD tax wedge or an old combined percentage as a current payroll rate.

Pension is calculated on statutory standard monthly remuneration and standard bonuses with applicable caps and special-fund rules, so it is neither 18.3% charged to the employer alone nor necessarily 9.15% of every yen of raw gross salary. Covered employees aged forty to sixty-four also pay long-term care insurance at a combined 1.62%, shared equally, and rates differ by prefecture, with other health-insurance societies using different rates again.

Two child-related contributions run in parallel and are easy to conflate. From April 2026 remuneration the new child and childcare support premium is 0.23% in total under the covered employee health scheme, shared between employer and employee, and that is separate from the existing 0.36% employer-only child-benefit contribution calculated on the pension remuneration and bonus bases. Include both where applicable.

For general businesses from 1 April 2026 through 31 March 2027, employment insurance is 0.85% for the employer and 0.5% for the employee, with different rates for agriculture, sake production and construction, and eligibility generally covering prescribed work of at least twenty hours a week and expected employment of at least thirty-one days. Ask for a sample payroll calculation identifying the bases, caps and bonus treatment.

Part-time workers need a coverage check

Health and pension coverage extends to qualifying part-time workers. Alongside the ordinary three-quarter working-time test, the short-hours route covers at least twenty weekly hours at employers with at least fifty-one pension-insured workers, subject to the applicable earnings and employment-duration conditions and student exclusions. The ministry plans to remove the ¥88,000 monthly earnings test in October 2026, with defined exceptions, and employer-size coverage expands in later stages rather than becoming universal for every twenty-hour job.

National income tax in 2026

Seven marginal rates apply to taxable income after the relevant deductions, never to the full gross salary.

The tax authority's table uses taxable income rounded down to the nearest ¥1,000, and the marginal rates work with quick-calculation deductions. For 2026 the reconstruction surtax is 2.1% of the calculated national income tax, not of wages. Residence status, deductions and local inhabitant tax need separate assessment.

Year-end changes and local tax

The 2026 reforms raise the basic deduction and minimum employment-income deduction and change dependent-income conditions, generally taking effect on 1 December 2026 for 2026 income and affecting the December year-end adjustment and later withholding. The tax authority says withholding work through November 2026 is unchanged, and an early 2026 English booklet based on September 2025 law does not include these later changes.

Local inhabitant tax is separate from national income tax: the municipality generally assesses it on the previous calendar year's income and residence on 1 January, with income-based and fixed components and applicable exemptions, collected through payroll on the municipality's notice. A new arrival's first payslip may therefore differ from later years, so ask payroll to explain how residence status, dependants, contributions, deductions and the municipal notice affect net pay.

Japan sets minimum wages by region and by specified industry, and you apply whichever is higher: Tokyo's regional minimum is ¥1,226 an hour as of 14 September 2026, rising to ¥1,280 on 1 October 2026. There is no single national monthly minimum. What decides your floor is the employee's work location, industry, working time and pay components, checked against the local final notice rather than a national headline.

Set salary for the role and location

The ministry's September national release describes proposed 2026 prefectural rates and a weighted average, not one minimum already applying nationwide, so check each local final notice and commencement date before updating payroll, including the hourly equivalent of salaried pay and fixed overtime components.

For market context, the ministry's 2025 Basic Survey on Wage Structure reports mean scheduled gross monthly pay of ¥340,600 for general workers, excluding short-time workers, in surveyed private establishments with ten or more regular workers. It measures June 2025 pay, was released on 24 March 2026, and excludes overtime and bonuses, so keep that reference period visible and assess occupation, experience and location for the actual offer.

Payday, allowances and bonuses

Wages must be paid directly to the employee, in full, at least once a month on a fixed date, subject to the permitted deductions and payment arrangements, and bank transfer requires the employee's consent. Record salary, payroll cut-off, payday, allowances and overtime separately, and give the employee a payroll breakdown they can understand.

Japan imposes no universal thirteenth-month salary: bonuses, retirement allowances and extra benefits depend on the applicable contract, work rules and established arrangement, so state whether a bonus is guaranteed or conditional, how it is calculated and when it is paid. A fixed overtime allowance should identify the covered hours and amount, with payroll assessing any additional amount due, because a salary label does not remove working-time or minimum-pay requirements.

Working hours and rest

Statutory working time is eight hours a day and forty a week, with exceptions for defined small workplaces and specific working-time systems, and overtime or statutory-rest-day work normally requires an Article 36 agreement and filing. Record actual working time including remote work, because a managerial job title alone does not establish an exemption.

The ordinary overtime ceiling is 45 hours a month and 360 a year. A permitted special agreement can allow up to 720 overtime hours a year, but overtime plus statutory-rest-day work must stay below 100 hours in a month and average no more than 80 over any two-to-six-month period, with more than 45 overtime hours permitted in no more than six months a year. Sector-specific rules need separate assessment.

A working day over six hours and up to eight requires at least a 45-minute break, and more than eight hours at least an hour, with at least one day off each week or four days over four weeks under the permitted arrangement. Identify the statutory rest day in the schedule so payroll applies the correct premium.

The night premium applies on top where it overlaps overtime or statutory-rest-day work, and a Saturday, Sunday or public holiday is not automatically the employee's statutory rest day. Covered professional or managerial exceptions require a specific assessment, and night-work rules can still apply.

Paid annual leave starts at ten days after six months of continuous service with at least 80% attendance, rising with service to twenty days after six and a half years, and the employer must arrange for five of those days to be taken each year. National holidays are separate: the Cabinet Office lists sixteen for 2026 plus a substitute holiday on 6 May and the holiday between two national holidays on 22 September, and private employers are not universally required to treat any of them as paid days off. Agree the work calendar rather than assuming it.

Annual leave and the holiday calendar

Reduced schedules can carry proportional grants, and unused statutory leave generally expires two years after grant.

The table assumes the ordinary full schedule and the required attendance. In 2026, 6 May and 22 September are additional holiday dates, and 23 December is no longer the Emperor's Birthday holiday.

Sickness and maternity

There is no universal employer-paid leave allowance for ordinary non-work illness. Eligible insured employees unable to work may receive sickness allowance after three consecutive waiting days, ordinarily at two-thirds of the relevant average standard daily remuneration, with salary offsets and other conditions, running for a cumulative eighteen months from the payment start. That benefit period does not create an eighteen-month protected company leave entitlement.

Maternity leave normally covers six weeks before childbirth, or fourteen for a multiple pregnancy, and eight weeks after, with health-insured employees who stop work and receive insufficient salary able to qualify for maternity allowance at ordinarily two-thirds of the relevant average standard daily remuneration, subject to offsets and eligibility. This is not an obligation on the employer to continue full salary. Explain how absence is reported and which medical evidence is needed, and note that occupational injury follows a separate workers' accident insurance process.

Birth and childcare leave

Japan's childcare regime is more generous than most foreign employers expect and is funded largely through employment insurance rather than payroll.

Eligible employees not taking postnatal maternity leave can take up to twenty-eight days of birth-period parental leave within the first eight weeks after birth, splittable into two periods under the required procedure and separate from ordinary childcare leave. Ordinary childcare leave normally runs until the child turns one in up to two periods, with qualifying circumstances such as inability to obtain childcare extending it to eighteen months and then two years; leave until age three is not a universal entitlement.

Employment-insurance childcare benefits are generally 67% of the relevant pre-leave wage for the first 180 days and 50% afterwards, within statutory limits and eligibility rules, and since April 2025 qualifying birth-period leave can receive an extra 13% for up to twenty-eight days, bringing the combined rate to 80%. The additional benefit carries parent and spouse conditions and exceptions rather than applying to every leave day.

Child nursing, family care and working arrangements

Child nursing and related leave covers children through completion of the third grade of primary school, at five days a year for one eligible child and ten for two or more, available by day or hour, for illness, injury, health checks, vaccination, qualifying school closures and specified entrance or graduation events. Statutory leave does not automatically mean full employer pay, so check the employment policy and permitted exclusions.

Eligible employees can take up to ninety-three days of family-care leave per qualifying family member, split into up to three periods, with separate short family-care leave of five days a year for one eligible family member or ten for two or more, including hourly use. Confirm the family relationship, care need, request procedure and any insurance benefit or company pay separately.

For eligible workers with a child under three the employer generally needs a reduced-hours system including a six-hour day, subject to statutory exceptions and alternatives, and since October 2025 workers with children aged three until school entry must be offered a choice from at least two employer-selected options in the statutory five-option framework: altered start times, remote work, childcare support, additional support leave and reduced hours. The employer must provide the required individual information and confirm intentions.

Since April 2025 eligible employment-insured workers caring for a child under two can receive a reduced-hours childcare benefit, ordinarily 10% of the wages paid during the shorter-hours arrangement, subject to adjustment, earnings limits and eligibility. It does not replace all salary lost through reduced hours, so confirm the calculation before promising a take-home amount. Leave rights, employment-insurance payments and employer-paid benefits are different parts of the package and worth explaining separately in the employee's language.