Key Takeaways

  1. Hiring through an EOR allows companies to legally employ workers in Japan quickly and in compliance with Japanese labor laws.
  2. EOR providers manage employer responsibilities, easing the administrative burden for foreign employers.
  3. Japan’s employment regulations and tax systems make working with a knowledgeable local EOR a valuable strategy for minimizing legal and financial risks.
  4. EOR solutions are especially beneficial for companies seeking a cost-effective, low-risk way to test the Japanese market or run short-term projects without long-term commitments.

Japan ranks as the fifth-largest economy in the world, making it an attractive destination for international business expansion. According to the World Economics, Japan is expected to have a GDP of approximately $6.4 trillion in 2025, creating immense opportunities for companies seeking to enter its market. The World Bank’s Doing Business Report ranks Japan 29th globally for ease of doing business.

The country offers political stability, excellent infrastructure, and a highly skilled workforce, with an adult literacy rate of 99%. Japanese consumers are known for their quality consciousness and brand loyalty, factors that contribute to the country’s reputation as a profitable market for businesses that understand local preferences.

How to Hire Employees in Japan

The Japanese labor market features one of the most educated workforces in the world. According to OECD data, 62% of Japanese men and 69% of women aged 25-34 have completed tertiary education, significantly above the OECD average. Japanese workers are renowned for their strong work ethic, loyalty, and dedication to their employers.

The country maintains a relatively low unemployment rate, which stood at 2.5% as of 2023. This tight labor market creates competition for skilled workers, especially in sectors like technology, healthcare, and engineering. Companies planning to hire employees in Japan can choose from several approaches.

Incorporating an Entity

Companies committed to long-term operations in Japan often establish a local legal entity. This process typically begins with registering a kabushiki kaisha (KK) or a godo kaisha (GK), the two most common business structures for foreign companies. The KK structure resembles a corporation and offers limited liability protection, but requires a minimum capital investment of 1 yen and at least one director who may need to reside in Japan. The GK structure functions similarly to a limited liability company in the United States and provides more flexibility in management structure.

The incorporation process in Japan takes approximately two to three months and involves multiple steps. Companies must register with the Legal Affairs Bureau, obtain company seals (inkan), open corporate bank accounts, and register with tax authorities and the social insurance agencies. Most foreign companies hire local legal and accounting professionals to navigate this process due to documentation requirements in Japanese and complex regulatory procedures.

Working with an Employer of Record (EOR)

Employer of Record (EOR) firms offer companies a compliant way to hire employees in Japan without establishing a legal entity. An EOR legally employs workers on behalf of client companies, handling all employment-related compliance, payroll processing, and human resources administration. This arrangement allows companies to focus on day-to-day management of employees while the EOR manages legal employment responsibilities.

EOR services provide faster market entry compared to entity incorporation, with most arrangements enabling companies to hire employees within days rather than months. Companies maintain operational control over employees’ work while avoiding the complex compliance requirements associated with direct employment in Japan. The EOR arrangement offers particular value for companies testing the market, hiring a small number of employees, or running projects with defined timelines. 

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Hiring Independent Contractors

Many companies test the Japanese market by engaging independent contractors before committing to a permanent presence. Japanese law distinguishes between contractors (gyōmu-itaku) and employees based on several factors, including work location control, schedule flexibility, and integration into the company’s operations. Contractors typically issue invoices for services, handle their tax payments, and do not receive employee benefits.

The Japanese government has increased scrutiny of contractor relationships in recent years. There are risks of misclassification when contractors work exclusively for one company, follow fixed schedules, or receive regular monthly payments resembling salaries. Penalties for misclassification include back payment of social insurance contributions, taxes, and potential fines.

In the following sections, we will explore how EOR services operate in Japan, their specific responsibilities, and the benefits they provide to companies expanding into the Japanese market.

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Japan Employer of Record vs Legal Entity in Japan

Companies often enter the Japanese market by setting up a legal entity. Setting up a legal entity in Japan often involves several steps. First, you need to determine the appropriate business structure for your entity, whether a joint-stock corporation (Kabushiki Kaisha) or a limited liability company (Godo Kaisha). Next, you’ll need to file the Articles of Incorporation (AOI) certified by a Notary Public Office. The AOI typically includes key details, like the company’s name, objectives, location, and details of directors and corporate officers. You must then register with the Legal Affairs Bureau, obtain a company seal, register for social insurance and taxes, and open a Japanese bank account.

The process of setting up a legal entity in Japan is typically straightforward and fast. However, there may be language barriers and delays in providing necessary documentation, and these can drag the process for up to months. Setting up a legal entity offers a company operational control, but it typically comes with substantial initial costs and compliance responsibilities.

Working with a Japanese EOR presents an alternative to setting up a legal entity in Japan. The Japan EOR provider assumes the role of the legal employer on your behalf, managing everything from hiring and payroll to tax compliance and benefits administration, following Japan’s labor laws. This can significantly reduce your administrative burden and allow you to focus on business operations rather than legal requirements. However, while this option offers convenience and reduces risk, it also means relinquishing some control over local operations, as the EOR will manage the relationship with your employees.

Using an Employer of Record in Japan

An EOR in Japan serves as the legal employer for workers who perform services for client companies. The EOR handles legal employment requirements, and the client company directs the actual work. Japanese EOR providers maintain deep expertise in local employment regulations, tax requirements, and cultural practices, providing valuable guidance to foreign companies navigating Japan’s complex labor environment.

EOR services in Japan typically operate through established local entities that meet all legal requirements for employing workers in the country. These providers maintain relationships with government agencies, social insurance offices, and tax authorities to ensure seamless compliance for their clients. This comprehensive approach allows companies to build teams in Japan quickly while minimizing legal and operational risks.

The following are some of the functions a Japanese EOR manages:

  • Payroll management: Japanese EOR providers calculate and process employee compensation, including base salary, overtime payments, and allowances. They issue detailed pay slips that comply with Japanese documentation requirements and manage year-end tax adjustments required under Japanese law. The EOR also handles all mandatory deductions for social insurance, income tax, and other contributions based on current rates and compliance requirements.
  • Tax compliance: EOR services in Japan manage income tax withholding and filing obligations, ensuring employees’ tax documents meet the requirements of the National Tax Agency. They monitor changes to tax regulations and adjust withholding calculations accordingly. The EOR also issues the necessary year-end tax documents to employees and submits required reports to tax authorities.
  • Benefits administration: Japanese EOR providers enroll employees in mandatory social insurance programs, including health insurance, pension insurance, employment insurance, and workers’ accident compensation insurance. 
  • Employment contracts: EOR services prepare and execute legally compliant employment contracts that meet Japanese labor law requirements. The EOR ensures contracts include all mandatory provisions required under the Labor Standards Act and other relevant regulations.
  • Termination: Japanese EOR providers handle the complex process of employee terminations, ensuring compliance with Japan’s strict dismissal regulations. They process required documentation, calculate severance payments when applicable, and advise on notice periods and procedural requirements.

How Much Does Employer of Record Cost in Japan?

The cost of working with an Employer of Record in Japan depends on several factors, including the services your company requires, the number of employees to be hired and managed, the size of your company, and how long you will need the EOR’s services for.

Typically, EORs in Japan either charge a flat rate per month (between $500 and $2000) or charge a percentage of each employee’s salary per month (ranging between 10% and 20%). It is important to note that EORs also typically charge onboarding fees. You can request a quote from your EOR’s website, as many providers often have that feature.

Employment and Labor Laws in Japan

The Labor Standards Act serves as the foundation of employment regulation in Japan, establishing minimum standards for working conditions, wages, and hours. The Labor Contract Act governs the formation and termination of employment relationships, while the Industrial Safety and Health Act mandates workplace safety measures. Additional legislation addresses specific aspects of employment, including the Act on Equal Employment Opportunity Between Men and Women, the Child Care and Family Care Leave Act, and the Act on the Welfare of Workers Who Take Care of Children or Other Family Members.

EOR providers in Japan take responsibility for ensuring compliance with these regulations. They monitor legislative changes, implement required adjustments to employment practices, and maintain appropriate documentation to demonstrate compliance.

Employment Contracts

In Japan, employment agreements can be either in writing or verbal, though written contracts are highly recommended because of their increased safety and reliability.

Contracts can be permanent (indefinite) or fixed-term (definite). Fixed-term contracts can last up to three years for most professions. However, some professions, or workers over age 60, can have fixed-term contracts that last up to five years.

Contracts must include the following details: job description, location of work, salary, bonuses, benefits, hours, rest periods, overtime, holidays, leave, and conditions for termination. Trial or probation periods, if used, must also be mentioned.

Working Hours and Paid Holidays

Employees in Japan work eight regular hours a day and five days a week, for a regular workweek of 40 hours. This can extend to 44 hours in some industries, like retail. Employees must be provided with paid breaks for rest during their workdays. If they work six hours, they must receive a 45-minute break, and if they work over eight hours, they must receive a one-hour break. Employees cannot work more than six days per week, guaranteeing a weekly period for them to rest and manage their personal lives.

Japan has 16 national holidays annually, including:

  • New Year’s Day (January 1)
  • Coming of Age Day (second Monday in January)
  • National Foundation Day (February 11)
  • Emperor’s Birthday (February 23)
  • Vernal Equinox Day (around March 20)
  • Showa Day (April 29)
  • Constitution Memorial Day (May 3)
  • Greenery Day (May 4)
  • Children’s Day (May 5)
  • Marine Day (third Monday in July)
  • Mountain Day (August 11)
  • Respect for the Aged Day (third Monday in September)
  • Autumnal Equinox Day (around September 23)
  • Sports Day (second Monday in October)
  • Culture Day (November 3)
  • Labor Thanksgiving Day (November 23).

When national holidays fall on Sundays, the following Monday typically becomes a compensatory holiday.

Social Security Contributions

The social security system in Japan is extensive and is composed of several components. Employers and employees are required to contribute to a range of social schemes that provide old-age, survivors, invalidity, sickness, and unemployment benefits.

The contributions from both the employer and the employee are as follows:

  • Health insurance: employees pay 4.955% of their earnings; employers pay 4.955%
  • Welfare pension and child allowance: employees pay 9.15% of their earnings; employers pay 9.15%
  • Unemployment: employees pay 0.55% of their earnings; employers pay 0.90%

Total contributions for employees equal 14.655%, while employers contribute 15.005%.

Employees can access their old-age benefits if they have made ten years of contributions and they have reached the age of 65. Alternatively, they can access these benefits after the age of 60, but will receive lower monthly payments for their entire pensions.

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Overtime

Overtime in Japan is considered very normal, though it technically cannot be imposed on workers if their work can be successfully accomplished during regular working hours, and by the employer organizing workloads effectively. In any case, Japanese workers often work a lot of overtime hours, and these hours are strictly limited by law. Employees can normally work up to 45 overtime hours a month and 360 hours a year. However, specific agreements with labor unions can extend this to as many as 100 hours per month and 720 hours per year.

Probation Periods

Probation periods are not mandatory in Japan, but they are legal and are commonly used by employers to assess their new employees. There is no legal maximum duration for probation periods in Japan, though the norm is to use periods from three to six months. The details of the length of any probation period, and whether it can be extended, must be included in an employee’s contract. In general, probation periods need to be agreed on by employees, and this helps to limit their duration, so that periods over six months are rarely used for anyone except top managers and executives.

Normally, when employers or employees wish to terminate their contracts, they must give at least 30 days’ notice to the other party. However, during the initial part of a probation period, no notice is required. The employer also does not need to provide justification when dismissing the employee. After 14 days, however, the employee becomes entitled to 30 days’ notice or payment in lieu of notice, and the employer also has to justify the termination.

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Payroll and Employment Taxes in Japan

Payroll Compliance

Pay periods in Japan can be daily, weekly, or bi-weekly, but most employees are paid monthly. They must pay their employees within seven days of the end of each pay period. As an important part of managing payroll, employers are required to calculate and deduct social security contributions and taxes from their employees’ salaries.

The fiscal year for the Japanese government runs from 1 April to 31 March, and most companies also adopt this as their fiscal year. However, the tax year follows the calendar year, and this requires individuals to file their personal income tax returns by 15 March.

Minimum Wage

Japan recently updated its minimum wage levels in September 2025. Rather than a national minimum wage, Japan’s system allows different prefectures to set their own levels. As of 2026, the minimum wage across the country ranges from 1,023 JPY (around 6.95 USD) per hour to 1,226 JPY (around 8.30 USD) per hour.

These minimum wage levels protect all workers, regardless of their industry or position. Probationary workers also may not be paid below the minimum wage ascribed to their prefecture.

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Income Tax

Japanese individuals are required to pay personal income tax on a pay-as-you-earn (PAYE) basis. Tax rates are progressive, and individuals pay between 10% and 45% tax on earnings over 1,950,000 JPY (roughly USD) per year. 

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Bonus Payments

Japan does not require that employers pay 13th-month bonuses to employees. However, paying a semi-annual bonus of half a salary in June and half again in December is a common benefit offered by employers at their discretion. Social security and tax payments are applied to these bonuses just as they are with other earnings.

Work Permits and Visas in Japan

Despite the country’s large population and highly skilled labor force, many employers in Japan still choose to fill some roles with expatriate employees. They may have skills, knowledge, experience, and insights that differ from those found domestically, creating competitive advantages for the employers.

If you wish to hire a foreign national to work for you in Japan, you’ll first need to apply for a Certificate of Eligibility (COE) through the Immigration Services Agency of Japan (ISA). This is done by applying to your regional immigration office and showing that the foreigner’s activities in Japan will be in alignment with the country’s immigration laws and procedures.

With the COE issued, the employee can easily apply for an entry visa from their nearest Japanese Consulate, then relocate to the country. Different types of work visas can be issued and may last from three months to five years. 

Remote People can help you with your COE application, which will greatly speed up the process of bringing international employees to Japan.

Hiring Contractors in Japan

Many employers in Japan choose to hire independent contractors, rather than full-time or part-time employees, to help them access specific skills and knowledge. Doing so can help them save money by only contracting services for short periods, and it can also reduce their administrative burden, as they don’t need to manage tax and social security payments for contractors. Instead, contractors pay their own taxes and are required to pay their own social security contributions. 

Workers' Compensation in Japan

In Japan, employers must pay for workers’ compensation insurance that provides benefits to workers in case of injury, disability, or sickness, or to survivors in the case of employee death. Workers’ compensation is part of social security, and employers pay premiums of between 0.25% and 8.8% of each worker’s salary, depending on the industry they operate in.

Time Off and Leave in Japan

Several different types of leaves are mandated in Japan to help employees balance their personal and family lives with their careers. These include:

Mandatory Leave Entitlement

Once Japanese employees have completed six consecutive months of service to their employers, they become eligible for annual leave. In their first year, they must receive ten working days of annual leave, and this allowance increases for every year of service, to a total of 20 days after six years of service. This leave is fully paid and can be carried over for a maximum of two years.

Paternity Leave

New fathers in Japan are entitled to take up to four weeks of Childcare Leave at Birth during the first eight weeks after the birth of their children. This leave is paid at 67% of their normal wages through the social security system.

Maternity Leave

Expectant mothers in Japan who have paid into the social security system for at least 12 months are entitled to paid maternity leave. This leave normally lasts 14 weeks, with six weeks before and eight weeks after the birth.

Other Leave

There is no entitlement to sick leave in Japan. When workers are sick and miss work, the days they miss can be taken from their annual paid leave entitlement. However, when workers are absent due to sickness for periods of four days or more, they are paid 2/3 of their normal wages by social security and are protected from termination. Employees can also take parental leave in the first 12 months of their child’s life. The first 180 days are paid at 67% of their normal wages by social security, and 50% after that.

Terminations and Severance in Japan

Termination Requirements

If employees are guilty of gross misconduct, they can be summarily dismissed without any notice or compensation by their employers in Japan. If the employer wishes to dismiss a worker for other reasons, however, they must ordinarily provide 30 days’ advanced notice. These reasons for regular dismissals must be “rational and acceptable by social custom”.

The employer can also provide a month’s wages in lieu of giving 30 days’ notice.

Severance Pay

For regular and summary dismissals, employees are not entitled to severance pay unless this compensation has been specifically added to their contracts.

Why Hire in Japan with an EOR?

  • Fast Market Entry: Companies can establish a presence in Japan within days rather than months using EOR services. This speed enables businesses to respond quickly to market opportunities without waiting for entity establishment and registration processes.
  • Cost Efficiency: EOR services eliminate the significant upfront costs associated with entity establishment, including legal fees, registration costs, and minimum capital requirements. Companies pay predictable monthly fees rather than investing in legal and administrative infrastructure before generating revenue. This cost structure reduces financial risk while allowing companies to allocate resources to core business activities.
  • Compliance Assurance: EOR providers maintain specialized expertise in Japanese labor law, tax regulations, and reporting requirements, minimizing compliance risks that could otherwise lead to penalties or reputational damage. This expertise proves particularly valuable given Japan’s frequent regulatory updates and unique employment practices.

How to Choose an EOR in Japan

Assess Regulatory Expertise

Companies should evaluate potential EOR partners based on their specific expertise in Japanese employment law and tax regulations. Companies should request examples of how the EOR handles compliance and maintains regulatory updates.

Consider Technology Capabilities

Modern EOR services provide technology platforms that offer transparency into employee management, payroll processing, and compliance activities. Companies should evaluate these systems for user-friendliness, reporting capabilities, and integration potential with existing HR technologies.

Evaluate Service Scope

Companies should clearly define their requirements and ensure potential EOR partners offer comprehensive services that address these needs. Important considerations include payroll frequency options, benefits administration capabilities, and multilingual support availability. The EOR should demonstrate flexibility in adapting services to specific company requirements while maintaining compliance with Japanese regulations.

Verify Local Presence

Effective EOR services in Japan require a strong local presence, including Japanese-speaking staff and established relationships with government agencies. Companies should confirm that potential partners have physical offices in Japan and employ professionals with direct experience in Japanese employment administration.

Hire Employees With the Best Japan EOR

Remote People

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At Remote People, we offer full-service EOR support in Japan, combining built-in recruitment with rapid onboarding that includes compliant contract creation and payroll integration. Our platform handles all statutory requirements—like health insurance, pension, and employment-related coverage—and we also support optional benefits such as private insurance and equity plans. Your employees can access everything through our self-service portal, and when you’re ready to establish a local entity, we provide incorporation services to ensure a smooth transition from EOR to direct employment.

RemoFirst

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RemoFirst is a user-friendly EOR provider well-suited for startups and remote teams entering the Japanese market. Built for simplicity and speed, its platform enables compliant onboarding within a week and supports contractor management alongside full-time employment. RemoFirst handles employment contracts, payroll, tax filings, and all mandatory benefits—including health insurance and pension contributions—ensuring full compliance with Japan’s labor laws. With no minimum commitments and a flexible approach, it’s a strong fit for distributed teams scaling across Japan.

Read our in-depth review: RemoFirst Review

Teamed

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Teamed offers fast, tailored EOR services in Japan, often completing onboarding within 24 hours to support rapid market entry. Designed for hybrid and multigenerational teams, it manages all statutory employment requirements while also providing local HR consulting and benefits administration. Teamed stands out with features like custom workforce reporting, cryptocurrency payment support, and dedicated account managers—making it a solid choice for businesses seeking personalized, compliance-focused support in Japan.

Read our in-depth review: Teamed Review

Expand into Japan Easily with Remote People’s Employer of Record in Japan

Remote People offers specialized Employer of Record (EOR) services to support your business expansion into Japan. Our team assesses your company’s needs, industry focus, and long-term goals to deliver tailored EOR solutions that combine local expertise, compliance assurance, and cost-efficiency. Contact us today to learn how we can simplify hiring and operations in Japan.