What is an Employer of Record

How to hire globally with an EOR

What is a Global PEO

An alternative to EOR

What is a PEO

Hire locally with a PEO

Our Methodology

Why you can trust our guides

Hire Globally

Find international talents

Outsource Recruitment

How to outsource recruitment

Work Visas

How to get a work visa

Digital Nomad Visas

Get a digital nomad visa

Best Employer of Record (EOR)

Hire globally with the best EOR companies

Best Contractor Management

Hire and pay contractors and freelancers

Best Global PEO

Discover the best international co-employers

Best PEO Companies

Save on payroll and HR costs

Best Background Check Companies

Screen employees before hire

Best Global Payroll Providers

Outsource international payroll

Best Relocation Services

Relocate employees internationally

International Company Registration

Get help to incorporate overseas

All Reviews

Compare all providers

1. Horizons

Best Global EOR

2. Remote

Best EOR for Compliance

3. Deel

Best EOR Platform

4. Papaya Global

Best EOR for Payments

All EOR Reviews

Compare all providers

Where do you need a service provider?

All Countries

Explore our detailed guides for professional advice on international growth, recruitment, compensations strategies, and a curated list of top service providers.

Japan Employer of Record (Japan EOR)

VERDICT: The best Japan Employer of Record (EOR) in 2024 is Horizons. It stands apart from the competition with its deep expertise in the Japan recruitment market and employment regulations. 

Key Takeaways

  • Unlike a PEO, a Japan Employer of Record (EOR) becomes the legal employer for all of your staff. They handle all employment-related responsibilities and compliance, allowing companies to operate in Japan without establishing a legal entity.
  • EORs have expert knowledge of Japan’s intricate labor laws, including contracts, national insurance, and paid leave. This ensures full legal compliance and reduces the risk of penalties for foreign businesses entering into the Japanese market.
  • By using an EOR, companies can rapidly begin working in Japan because HR processes like payroll, benefits administration, and tax filings are significantly simplified, which speeds up market entry and overall operations.
  • Choosing a Japan EOR minimizes the legal and financial risks usually associated with direct employment. It provides a buffer from local employment regulations and safeguards against potential compliance issues.

Japan is now the world’s fourth-largest economy, and it offers many opportunities for global businesses that want to tap into its advanced technological industries and highly skilled workforce. However, gaining a complete understanding of Japan’s regulatory environment can be challenging. Employer of Record (EOR) services in Japan have become vital for companies who want to bypass the intricacies of establishing a local entity and directly begin working with the local labor market. 

Japan’s labor laws are known to be strict, with specific requirements for contracts, termination, and worker benefits. While this helps protect the employees, it can complicate complying with all of these specific details for foreign enterprises. For instance, navigating the requirement for severance in unjustified dismissals or adhering to the maximum of 360 overtime hours per year shows some of the regulatory hurdles businesses need to consider.

An EOR simplifies these challenges by ensuring complete legal compliance, managing HR tasks, and allowing for an easier entry to market. Given that 99.7% of Japanese businesses are small to medium-sized enterprises, the potential for growth through proper strategic entry into this market is significant. Using an EOR service allows businesses to minimize any legal or logistical entry barriers while focusing on their core operations and growth strategies.

What is a Japan Employer of Record?

An Employer of Record in Japan is a specialized service used by companies to legally employ staff without the need to establish their own corporate entity in Japan. The EOR becomes the legal employer on paper, handling all employment-related legal obligations, payroll, taxes, and employee benefits. This arrangement allows foreign companies to quickly build a workforce in Japan while ensuring that they stay compliant with all local regulations.

The key difference between an EOR and a Professional Employer Organization (PEO) lies in the legal employment relationship. While both provide similar HR and payroll services, an EOR assumes all legal responsibilities as the official employer of record. This means they deal with all regulatory, tax, and compliance issues associated with employment. 

On the other hand, a PEO operates under a co-employment model where the client company retains more control over employees and shares employer responsibilities with the PEO. An EOR fully takes on the role of the employer for legal and compliance purposes, whereas a PEO provides support while the client company remains the primary employer.

How Does a Japan EOR Work?

A Japan Employer of Record works by simplifying the employment process for international companies who want to establish or expand their presence in Japan without the hassle of the legal complexities of setting up a local entity. Here’s how it works:

Step 1 – Partnership Establishment

An international company selects a Japan EOR service provider and enters into an agreement. This partnership outlines the EOR’s responsibilities, including compliance with Japanese employment laws, administering payroll, and managing benefits.

Step 2 – Employee Onboarding

The EOR then hires employees on behalf of the international company. Even though the employees will work for the international company, they are legally employed by the EOR. This includes drafting compliant employment contracts, strictly following all local labor laws, and setting up payroll.

Step 3 – Ongoing Management

The EOR manages all HR-related functions, such as payroll processing, tax deductions, social security contributions, and any other statutory requirements. They also handle employee benefits administration (from health insurance to pension plans), ensuring a competitive and compliant benefits package.

Step 4 – Legal Compliance

The EOR ensures that all employment practices comply with Japanese labor laws, including working hours, overtime compensation, and termination processes. This protects the international company from any potential legal issues and simplifies the management of Japanese employees.

Japan Labor Laws

Japan’s labor laws are designed to protect workers while ensuring fair employment practices. They can often be complex, making it difficult for foreign businesses to understand and navigate them on their own. Employers of Record help ensure that international companies comply with these laws. Some of the key labor laws to take note of include:

Contracts

While there is no specific format to follow, employment contracts in Japan should clearly outline all of the specific terms and conditions of employment. This includes compensation (stated in Japanese Yen), benefits, responsibilities, and termination rules. EORs ensure all contracts are fully compliant and incorporate all necessary details regarding the company’s work rules (shuugyou kisoku).

National Insurance

Employers are required to enroll employees in health insurance, pension insurance, workers’ compensation, and unemployment insurance. The premiums for these insurance plans are shared between the employer and the employee. EORs manage these enrollments and contributions, which ensures complete compliance with all social insurance obligations.

Employees are entitled to a minimum of 10 days of paid annual leave after six months of continuous service, and this number increases as their seniority increases. EORs track and manage this leave entitlement to ensure that it complies with statutory requirements.

Working Hours and Overtime

A standard work week in Japan is 40 hours. Employees usually work Monday through Friday, with specific rates for overtime. For example, overtime work is paid at 125% of the hourly wage, with higher rates applicable under certain conditions (e.g., late night or rest day work). EORs ensure adherence to these regulations, including the limits on allowable overtime hours, to avoid any legal issues.

What are the Benefits of a Japan EOR?

Using the services of an Employer of Record in Japan provides many advantages for international companies looking to enter the Japanese market. Here are the key benefits:

  • Ease of Market Entry – An EOR offers quick entry into the Japanese market without the need for companies to establish a local entity, navigate complex incorporation processes, or understand intricate local laws from the start.
  • Compliance with Local Laws – Japan’s labor and employment laws are detailed and strictly enforced. An EOR ensures full compliance with these laws, including contracts, national insurance contributions, working hours, and paid leave, reducing the risk of penalties.
  • Simplification of HR and Payroll Management – An EOR simplifies this process by handling all aspects of HR, payroll, and benefits administration, ensuring accurate and timely payments according to Japanese law and custom.
  • Focus on Core Business – By outsourcing employment responsibilities to an EOR, companies can concentrate on their core business activities and growth strategies, knowing that their HR obligations are properly managed.

What are the Downsides of a Japan EOR?

While employing a Japanese employer of Record has numerous benefits, there are also potential downsides to consider, such as:

  • Cost – Using an EOR service incurs fees. For some businesses the cost of an EOR might be higher compared to directly employing staff when considering long-term financial planning.
  • Control Over Employees – With an EOR, companies might feel they have less control over their workforce since the EOR is the official employer. This can affect aspects like company culture and direct management practices.
  • Type of Employment or Sectors – An EOR might not be suitable for all types of employment or sectors. Highly specialized industries or roles requiring close oversight might face limitations under an EOR model.
  • Dependence on EOR’s Expertise – Companies heavily rely on the EOR’s knowledge and efficiency in handling employment-related matters. Any shortcomings in the EOR’s service can directly impact the company’s operations and employee satisfaction.

How to Choose a Japan EOR

When looking for an Employer of Record in Japan, selecting one with a proven track record and plenty of experience is important. They must be completely familiar with Japan’s complex regulatory environment. 

Equally important is the EOR’s expertise in your specific industry. This will ensure they understand the nuances and challenges that are unique to your sector. Cost is another critical consideration. The pricing structure should be transparent and offer clear value for the comprehensive services provided, including payroll, benefits administration, legal compliance, and HR support. 

Finally, the reputation of the EOR is very important. Client testimonials and reviews are valuable resources for gauging the reliability and effectiveness of an EOR’s services.

Top 5 Japan EOR Companies in 2024

  1. Horizons: Horizons is a global EOR provider with a strong presence in Japan and throughout East Asia. With experts on the ground to support your Japan hiring and payroll, Horizons is the ideal Japan EOR partner
  2. Deel: Deel is a leading Japan EOR platform with its advanced technology that simplifies hiring, compliance and HR management. Many companies choose Deel based on the simplicity and efficiency of its offerings. 
  3. Skuad: Skuad specializes in supporting businesses to hire, pay, and manage remote teams. It’s popular with companies that are after a distributed team set-up in Japan.
  4. Velocity Global: With a wealth of experience in international EOR services, Velocity Global offers a premium hiring solution in Japan
  5. Remote: Remote provides a comprehensive EOR and hiring platform in Japan. Its strength lies in its deep understanding of Japanese labor and tax compliance. 

FAQs

An Employer of Record in Japan acts as the legal employer, handling all compliance and HR tasks. A Professional Employer Organization (PEO) shares these responsibilities under a co-employment model. The key distinction is that an EOR assumes full legal responsibility for employees.

Yes, outsourcing an EOR service in Japan is possible and allows companies to hire and manage staff legally without setting up a local entity, simplifying market entry and operations while ensuring compliance with local laws.

Search

Search