Employer of Record in Japan

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Japan if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Japan below, to avoid any compliance issues.

Employment Contract Requirements

While it is not mandatory for employment agreements to be documented to be legally binding in Japan, it is advisable to create a written employment contract that outlines key terms of the employment relationship. This includes:

• Identification of both the employer and the employee
• Commencement date and expected duration of employment
• Specification of the basic salary, additional compensation or benefits, and payment details
• Comprehensive job description, outlining duties and responsibilities

Onboarding Process

We can help you get a new employee started in Japan quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Probation Period in Japan

Probation is not mandatory in Japan. However, they are commonly practiced and are limited to a duration of three to six months, with an upper limit of one year.

The standard working hours in Japan are 8 hours per day and 40 hours per week. Limits on overtime are set at a maximum of 45 hours per month, and 360 hours per year – in special circumstances, this can be extended to 720 hours annually. Overtime pay is legally mandated to start at 125% of the base wage, with higher premiums for extended overtime and night or holiday work. Managers and supervisors, as defined by the Labour Standards Act, are exempt, but late-night work allowance still applies.

Overtime payment rates are additional percentages of the normal hourly wage, with different rates as follows:

• Overtime (typically over 8 hours a day): 125% of the normal hourly wage.
• Nights (22:00 - 05:00): An additional 25% night work allowance on top of overtime pay.
• Weekends and Holidays: At least 135% of the normal rate.

Employers must provide rest breaks, meal intervals, and weekly rest days, while also ensuring special protections for vulnerable workers such as minors and pregnant women.

Non-compliance with these rules can lead to significant penalties, making it crucial for employers to maintain accurate records and monitor working hours closely.

Employment laws in Japan can be intricate, and even unintentional mistakes in contracts, benefits, or termination processes can carry legal and reputational consequences. With an Employer of Record, you gain a local partner that ensures every hire is compliant. The EOR takes care of drafting compliant contracts, processing accurate payroll, managing contributions to statutory benefits, and handling lawful terminations if needed, all according to local employment standards.

This level of protection is especially valuable when expanding into new or unfamiliar regions. Instead of using time and resources to build in-house legal knowledge, you gain immediate access to local expertise. The EOR keeps you ahead of regulatory updates and shields your company from potential compliance gaps, so you can confidently hire and manage employees while minimizing risk. For hiring managers and founders, it's the difference between hiring with uncertainty and building your team on a legally sound foundation.

In Japan, employers must navigate a complex payroll system that includes progressive income tax rates, mandatory social security contributions, and local inhabitant taxes. Employers are responsible for withholding the correct amounts from employee salaries and remitting them to the relevant authorities.

To ensure compliance, it's crucial for businesses to adhere to tax deadlines and accurately calculate deductions. Non-compliance can lead to penalties and strained employee relations. Utilizing payroll management software can significantly streamline the process, helping employers consolidate payroll data, stay on top of due dates, and maintain compliance with Japan's tax regulations.

When you’re scaling quickly, setting up local payroll systems in each new country slows you down. In Japan, the administrative load can include government registration, benefits management, and accurate, on-time payment delivery. An EOR gives you a plug-and-play solution that handles all of this while your internal team stays focused on growth, not red tape.

Key Ways an EOR Supports Payroll in Japan:

• Rapid Payroll Setup: Onboards employees quickly with ready-to-go infrastructure.
• End Administration: Handles salary, tax, and benefits with no extra internal resources.
• Vendor Simplicity: Consolidates payroll across countries for centralized oversight.
• No Entity Required: Operates legally, saving your business the time and resources needed for local incorporation.

In Japan, hiring foreign employees involves a meticulous process that begins with securing a Certificate of Eligibility (COE) through the regional immigration authority. This certificate verifies the prospective employee's qualifications and the legitimacy of the job offer.

Subsequently, the employee applies for a work visa at a Japanese embassy or consulate, with common categories including the Engineer/Specialist in Humanities/International Services visa, Skilled Labor visa, Highly Skilled Professional visa, and Specified Skilled Worker visa.

Employers must ensure adherence to Japanese immigration laws and labor regulations throughout this process, including timely renewals of work permits. Additionally, Japan now offers a specific digital nomad visa introduced in 2024, allowing remote workers to stay in the country for up to six months while working for foreign employers.

Mandatory Leave Entitlement in Japan

The annual leave entitlement in Japan is 10 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Japan

Japan observes 16 public holidays. While technically employers aren't legally obligated to pay employees on national holidays, in practice, the majority of employers do provide payment for these days.

Paid Time Off in Japan

The allocation of paid leave is specified in employment contracts and is based on the length of employment and unused days expire after two years. The entitlements are as follows:

• Up to six months of service: 10 days of paid leave
• Up to one and a half years of service: 11 days of paid leave
• Up to two and a half years of service: 12 days of paid leave
• Up to three and a half years of service: 14 days of paid leave
• Up to four and a half years of service: 16 days of paid leave
• Up to five and a half years of service: 18 days of paid leave
• Up to six and a half years of service: 20 days of paid leave

Maternity Leave In Japan

Female employees are entitled to 14 weeks of paid maternity leave. A mandatory 6-week period must be taken before the child's birth. During maternity leave, the employee will receive approximately 2/3 of their salary, and Social Security is responsible for providing this payment.

Paternity Leave In Japan

Although not mandatory, most companies offer fathers four weeks of paternity leave, known as Childcare at Birth Leave. They can take it all at once or in two parts within eight weeks of the birth. Social security pays 67% of their salary during this time.

Sick Leave In Japan

Sick leave is not mandatory by law. While some companies may implement their own sick leave policies, it is not a universal requirement. Employees usually resort to using their vacation days to cover sick leave or make claims through social insurance systems.

Parental Leave In Japan

Parental leave, known as childcare leave, is available to both mothers and fathers in Japan. It begins the day after the conclusion of maternity leave for a maximum of one year. Labour insurance provides coverage, allowing employees to take this leave until their child reaches one year of age. Companies with 1,000 or more employees are obligated to disclose annually the rate at which their staff takes childcare leave

Bereavement Leave

Employees are entitled to paid leave of five days for the death of a 1st-degree relative, three days for 2nd-degree relatives, and two days for 3rd-degree relatives.

Menstruation Leave

Female employees have the right to unpaid time off during their menstrual period for health reasons. This is a statutory leave mandated by government legislation.

In Japan, employers must provide mandatory benefits such as health insurance, pension insurance, unemployment insurance, workers' accident compensation, minimum wage adherence, paid annual leave, and maternity and childcare leave. These benefits ensure employee well-being and financial security. In addition to these legal requirements, many companies offer supplemental benefits like housing allowances, transportation subsidies, performance bonuses, and flexible working hours to enhance job satisfaction and retention.

Employers must also comply with labor laws such as the Labor Standards Act and Employment Insurance Act to avoid legal penalties and ensure fair treatment of employees.

For startups and small teams, managing global employee benefits isn’t just complex, it’s a full-time job. In Japan, understanding what benefits are required, how to deliver them, and how to stay compliant can be overwhelming, especially without local HR expertise. An Employer of Record removes that pressure by taking complete ownership of benefits administration, so you don't have to become an expert in local employment law.

Whether it’s healthcare contributions, pension enrollment, or statutory leave, the EOR ensures everything is delivered accurately and on time. They navigate any country-specific nuances, keep up with legal changes, and ensure each benefit is properly tracked and documented. For founders, that means fewer distractions and more time to focus on growth. Your employees get the security and support they expect from a local employer, and you get to scale your team in Japan without building complex infrastructure or worrying about compliance missteps.

Termination Process in Japan

Termination depends on factors such as the employment agreement, collective agreement, contract type, job role, region, and the reason for termination. Given the complexity of termination procedures, they usually occur through mutual agreement and often involve additional compensation.

Notice Period in Japan

The standard notice period for termination is typically 30 days. If notice is not given, the employer can compensate with a payment in lieu of notice. However, this rule doesn't apply to employees serving a probationary period of 14 days or less.

Severance in Japan

There are no legal obligations for employers to provide severance payments. However, due to the strict regulations on terminating employees, many employers choose to offer severance payments as a way to secure a waiver and encourage voluntary resignation from the employee.