How to Use An Employer of Record in
Japan

Japan's Labour Standards Act (LSA) mandates that employers deliver a written statement of working conditions (労働条件通知書) at the point of hire, listing 14 specific items, and simultaneously enrol employees in four separate social insurance schemes within five days of their start date. An Employer of Record in Japan becomes the legal employer of your staff under Japanese law, ensuring full compliance with the LSA, social insurance enrolment deadlines, and payroll tax withholding while you retain complete operational control and avoid the cost and delay of incorporating a Gōdō Kaisha or Kabushiki Kaisha. The EOR removes the administrative burden of monthly remittances to the Japan Pension Service, annual labour insurance premium adjustments, and the procedural complexity of terminations under Japan's strict just-cause dismissal regime.

What Is an Employer of Record in Japan?

An Employer of Record in Japan is a third-party organisation that becomes the legal employer of your staff under Japanese law, handling all statutory obligations, payroll, and compliance while you retain full operational control. The EOR holds the employment contract in its name, submits all filings to the Japan Pension Service and the tax office, and assumes liability for labour law adherence. You direct the employee's daily work, set deliverables, and manage performance exactly as if they were hired through your own entity.

Under Japan's Labour Standards Act (LSA) and the Industrial Safety and Health Act, every employment relationship in Japan triggers mandatory obligations: the written notification of working conditions, enrolment in Employees' Pension Insurance and Health Insurance within five days, submission of withholding tax forms to the local tax office, and adherence to working-time limits of 40 hours per week with statutory overtime premiums. Many industries are also governed by collective agreements or sector-specific ordinances that set minimum pay scales, annual increment structures, and consultation requirements. The EOR ensures your employment practices comply with the LSA, satisfy social insurance deadlines, and reflect any applicable collective agreement terms without you needing in-house Japan HR expertise.

You retain the substance of the employment relationship: you define the role, assign projects, conduct performance reviews, approve leave, and decide on contract continuation or termination. The EOR owns the legal and administrative layer: issuing the compliant employment contract, running monthly payroll in Japanese yen, withholding and remitting income tax and social insurance contributions, filing annual labour insurance premium reconciliations, and executing termination procedures in accordance with LSA Article 20 notice requirements and any severance obligations under the employment contract or applicable collective agreement.

How Does an Employer of Record Work in Japan?

When you hire through an Employer of Record in Japan, the EOR becomes the Employer of Record under Japanese law and takes responsibility for every statutory filing, payroll cycle, and compliance deadline. You continue to manage the employee's work and performance. The process moves through seven distinct steps, each governed by specific provisions of the Labour Standards Act and regulations issued by the Ministry of Health, Labour and Welfare.

Step 1: Define Role and Terms

You provide the EOR with the job description, proposed salary, work location, and any benefits you wish to offer. The EOR reviews whether the salary meets the prefecture-specific minimum wage and whether the role is covered by an industry-wide collective agreement or wage order. If the employee will work in Tokyo, for example, the minimum wage as of 2026 is ¥1,163 per hour, and any full-time monthly salary must clear this floor. The EOR also confirms whether the role qualifies for any exemptions from overtime pay under LSA Article 41 or requires standard working-time tracking and premium overtime rates of 125 percent for hours beyond eight per day or 40 per week.

Step 2: EOR Compliance Check

The EOR verifies that the proposed terms comply with the Labour Standards Act, the Minimum Wage Act, and the Industrial Safety and Health Act. Japan's minimum wage is set annually by the Central Minimum Wages Council and varies by prefecture, with Tokyo at ¥1,163 per hour in 2026. The EOR checks that your proposed monthly salary, when divided by standard monthly working hours, does not fall below the applicable rate. The EOR also confirms that the standard working week does not exceed 40 hours and that any overtime arrangement includes the statutory 125 percent premium for the first 60 hours of monthly overtime and 150 percent thereafter.

Step 3: Employment Contract

The EOR drafts a written employment agreement in Japanese, as required by LSA Article 15 and the Ordinance on Standards for Labour Conditions. The contract must state the period of contract, place of work, job description, working hours and rest periods, wages and pay date, rules for changing working conditions, and procedures for termination. If the contract is fixed-term, it cannot exceed three years for standard roles or five years for specialised or older workers, per LSA Article 14. Japan law permits a probationary period, typically three months, but the maximum is not statutorily capped and is usually set by company policy or collective agreement. The EOR issues the contract in its name as the legal employer and the employee signs it before their start date.

Step 4: Government Registrations

Within five days of the employee's start date, the EOR must submit enrolment forms to the Japan Pension Service for Employees' Pension Insurance and Health Insurance and to the Labour Standards Inspection Office for Employment Insurance and Workers' Accident Compensation Insurance. The Japan Pension Service oversees Kenkō Hoken (health insurance) and Kōsei Nenkin Hoken (employees' pension insurance), while the prefectural Labour Bureau administers Koyō Hoken (employment insurance) and Rōsai Hoken (workers' compensation). Failure to register within the five-day statutory deadline exposes the employer to administrative penalties and retroactive contribution demands. The EOR also registers as a withholding agent with the local tax office to remit monthly income tax withholding under the Income Tax Act.

Step 5: Payroll in Local Currency

Payroll in Japan runs monthly, with payment typically made on the 25th of the month or the last business day. The EOR calculates gross pay, deducts the employee's share of social insurance contributions, withholds income tax according to the National Tax Agency's withholding tables, and remits net pay in Japanese yen to the employee's domestic bank account. The EOR submits employer and employee contributions to the Japan Pension Service by the end of the following month and remits withheld income tax to the tax office by the 10th of the following month. Residence tax is remitted monthly to the employee's municipal tax office beginning in June each year based on the prior year's income.

Step 6: Ongoing Compliance

The EOR files a year-end adjustment return (nenmatsu chōsei) to the tax office by January 31, reconciling annual income tax withholding. The EOR submits the annual labour insurance premium reconciliation (rōdō hoken ryō nendō kōshin shinkoku) to the Labour Standards Inspection Office by July 10 each year, adjusting for actual payroll against the estimated premium paid in April. The EOR maintains an up-to-date employee ledger and working-time records as mandated by the LSA and the Industrial Safety and Health Act. The EOR monitors amendments to the Labour Standards Act, minimum wage revisions published each October, and updates to social insurance contribution rates published annually by the Ministry of Health, Labour and Welfare. Any change to the employment contract terms must be notified in writing to the employee, and certain changes require the employee's consent.

Step 7: Termination

Termination in Japan is governed by LSA Article 20 and the doctrine of abusive dismissal under the Civil Code and Labour Contract Act Article 16. An employer may only dismiss an employee for objectively reasonable grounds and where dismissal is considered appropriate under social norms. Notice of termination must be given at least 30 days in advance, or the employer must pay 30 days of average wages in lieu of notice. If the employee has been employed for more than one year, many employment contracts and collective agreements require severance pay calculated as a multiple of final monthly salary times years of service, commonly one month's pay per year. The EOR conducts the termination meeting, issues the required written notice, calculates and pays any owed severance and accrued leave, and completes the exit notifications to the Japan Pension Service, Labour Bureau, and tax office to cease social insurance coverage and finalise tax withholding.

Employment Laws and Compliance an Employer of Record Handles in Japan

When you hire through an Employer of Record in Japan, they take on full responsibility for compliance with the Labour Standards Act, social insurance regulations, tax law, and all filings to the Ministry of Health, Labour and Welfare, the Japan Pension Service, and the National Tax Agency. You do not need to build an in-country HR function or retain local employment counsel to stay compliant.

• Employment Contracts: The EOR drafts and issues a written employment agreement in Japanese that complies with LSA Article 15 and the Ordinance on Standards for Labour Conditions, listing the 14 mandatory items including period of contract, place of work, job description, working hours, wages, and termination procedures. Failure to provide this written notification can result in fines of up to ¥300,000 per violation under LSA Article 120.
• Payroll Tax and Income Tax Withholding: The EOR withholds income tax from monthly salary according to the National Tax Agency's withholding tables and remits it by the 10th of the following month. The EOR also withholds monthly residence tax (jūminzei) from June each year based on the prior year's income and remits it to the employee's municipal tax office. Non-compliance results in penalties, interest on late payments, and potential criminal liability for the withholding agent under the Income Tax Act.
• Social Security and Pension: The EOR enrols every employee in Employees' Pension Insurance and Health Insurance administered by the Japan Pension Service within five days of hire. As of 2026, the combined employer and employee contribution rate for Employees' Pension Insurance is approximately 18.3 percent of standard monthly remuneration, and Health Insurance ranges from 9.84 percent to 10 percent depending on the insurer. The EOR also enrols the employee in Employment Insurance at a combined rate of approximately 1.35 percent and Workers' Accident Compensation Insurance paid entirely by the employer at rates ranging from 0.25 percent to 8.8 percent depending on industry. Late enrolment triggers retroactive contribution demands and administrative fines.
• Statutory Leave: Under LSA Article 39, employees earn 10 days of paid annual leave after six months of continuous employment and 80 percent attendance, increasing by one day per year to a maximum of 20 days. Employers must ensure employees take at least five days of annual leave per year, a requirement introduced in the 2019 LSA amendments with penalties of up to ¥300,000 per employee for non-compliance. The EOR tracks accrual, usage, and the statutory five-day minimum automatically.
• Termination and Severance: The EOR ensures termination complies with LSA Article 20, providing at least 30 days' notice or 30 days of average wages in lieu. The EOR applies the abusive dismissal doctrine codified in Labour Contract Act Article 16, ensuring dismissal is objectively reasonable and socially acceptable. Severance pay is not mandated by statute but is required by most employment contracts and collective agreements, typically calculated as one month's salary per year of service for employees with more than one year's tenure. Wrongful dismissal can result in reinstatement orders and back-pay liability.
• Working Time: The LSA caps standard working hours at eight hours per day and 40 hours per week. Overtime requires a written agreement under LSA Article 36, known as a 36 agreement, filed with the Labour Standards Inspection Office. Overtime is compensated at 125 percent of the regular hourly rate for the first 60 hours per month and 150 percent beyond that. The EOR tracks working hours, ensures 36 agreements are in place, calculates overtime correctly, and monitors compliance with monthly overtime caps introduced in the 2019 working-style reform.
• Health and Safety: The Industrial Safety and Health Act requires employers to appoint an industrial physician if they employ 50 or more workers at a single location, conduct annual health examinations for all employees, and maintain working-time records to monitor for overwork. Employers must also report workplace accidents to the Labour Standards Inspection Office within strict deadlines. The EOR administers health check compliance, arranges examinations, and submits accident reports as required.
• Data Protection and Employee Privacy: The Act on the Protection of Personal Information (APPI) governs how employers collect, store, and use employee data. Employers must notify employees of the purpose of data collection, obtain consent for secondary use, and implement security measures to prevent data breaches. The Personal Information Protection Commission enforces the APPI and can issue improvement orders and fines for non-compliance. The EOR ensures all employee data handling meets APPI standards.
• Collective Agreements: Certain industries in Japan are covered by industry-wide collective agreements or wage orders issued by the Ministry of Health, Labour and Welfare that set minimum pay scales, annual increments, and consultation obligations. The EOR identifies whether the employee's role falls under any such agreement, applies the required terms, and ensures compliance with any consultation or notification procedures mandated by the agreement.
• Maternity and Parental Leave: The Labour Standards Act grants six weeks of prenatal leave and eight weeks of postnatal leave, with employment protection during and after maternity leave. The Child Care and Family Care Leave Act entitles parents to up to one year of parental leave, extendable to two years, with partial income replacement paid by Employment Insurance. The EOR administers leave applications, coordinates with the Japan Pension Service for benefit payments, and ensures compliance with employment protection provisions that prohibit dismissal or adverse treatment due to pregnancy or parental leave.

How Much Does It Cost to Use an Employer of Record in Japan?

The total cost of hiring through an Employer of Record in Japan comprises two components: the EOR service fee and the statutory employer on-costs mandated by Japanese law. Statutory on-costs are fixed by the Ministry of Health, Labour and Welfare, the Japan Pension Service, and prefectural Labour Bureaus and are non-negotiable. Playroll's EOR service fee starts from $399 per employee per month and is billed separately from payroll, giving you transparent pricing with no hidden costs or percentage-based markups on salary.

Let's look at an example that includes a base salary and the EOR service fee.

The EOR service fee covers contract drafting and issuance in Japanese, monthly payroll processing in yen, withholding and remittance of income tax and residence tax, enrolment and ongoing administration of all four social insurance schemes, filing of year-end tax adjustments and annual labour insurance reconciliations, maintenance of compliant employee records and working-time logs, and full termination administration including notice, severance calculation, and exit filings to the Japan Pension Service and tax office.

Employer of Record vs Setting Up an Entity in Japan

The choice between using an Employer of Record and incorporating your own entity in Japan depends on your hiring scale, timeline, and long-term commitment to the market. Most foreign companies entering Japan establish a Gōdō Kaisha, a limited liability company structure similar to an LLC, or a Kabushiki Kaisha, a stock corporation used for larger operations. Incorporating a Gōdō Kaisha requires engaging a judicial scrivener or law firm, registering with the Legal Affairs Bureau, opening a corporate bank account, and appointing a representative director resident in Japan or represented by power of attorney, a process that typically takes 8 to 12 weeks and costs between $5,000 and $15,000 in legal and registration fees before you can hire a single employee.

For companies hiring fewer than 15 employees in Japan, an Employer of Record is almost always the faster and more cost-effective route.

Playroll also supports your long-term growth through its Global Entity Setup product, which handles entity incorporation and local payroll in 120+ countries, so you can transition from EOR to your own compliant entity in Japan when the time is right, without switching providers or rebuilding your HR processes.

How Long Does It Take to Hire Someone in Japan Through an Employer of Record?

You can hire an employee in Japan through an Employer of Record in 10 to 15 business days from the moment you confirm the candidate and provide their details to the EOR.

• Stage 1: Contract preparation and signing (2 to 3 business days): The EOR drafts the employment agreement in Japanese, incorporating the 14 mandatory items under LSA Article 15 and any additional terms you specify such as benefits, remote work arrangements, or probationary period. The EOR sends the contract to the employee for signature. Timing depends on how quickly you approve the draft and the employee returns the signed copy.
• Stage 2: Government registrations (3 to 5 business days): The EOR submits enrolment forms to the Japan Pension Service for Health Insurance and Employees' Pension Insurance, to the Labour Standards Inspection Office for Employment Insurance and Workers' Accident Compensation Insurance, and registers as a withholding agent with the local tax office. Japanese law requires social insurance registration within five business days of the employee's start date. Late registration exposes the EOR to administrative penalties and retroactive premium demands, so the EOR typically completes this step before or immediately upon the employee's start date.
• Stage 3: Payroll configuration and first cycle (2 to 4 business days): The EOR configures the employee's payroll record, verifies their Japanese bank account details, calculates the correct withholding and contribution rates, and schedules the first pay cycle. Payroll in Japan runs monthly, and the first payslip is generated on the standard pay date, typically the 25th of the month or the last business day, provided the employee starts before the payroll cut-off, usually around the 15th of the month.
• Stage 4: Japan-specific requirements (1 to 3 business days): If the employee requires a work visa, the EOR provides documentation to support the Certificate of Eligibility application submitted by you or your immigration adviser to the Immigration Services Agency. Visa processing itself takes 4 to 12 weeks but can run in parallel with contract preparation. If the employee is a Japanese national or already holds valid work authorisation, this stage adds no additional time.

The timeline can extend if the employee requests contract amendments, if you need to align the start date with a specific payroll cut-off, or if government offices experience processing delays during peak periods such as April, the start of the Japanese fiscal year. Visa applications for non-Japanese nationals add several weeks but do not delay contract preparation or registration steps that depend only on the employment agreement.

By comparison, incorporating a Gōdō Kaisha in Japan and setting up compliant payroll takes 8 to 12 weeks, meaning the EOR route delivers a ready-to-work employee in a fraction of the time required to establish your own entity.

How Playroll's Employer of Record Process Works in Japan

Hiring through Playroll in Japan follows a structured four-step process designed to get your employee compliant, onboarded, and paid within 10 to 15 business days.

You Define the Role and Terms

You tell Playroll who you want to hire, the job title, the monthly salary in Japanese yen, the work location, and any benefits such as commuting allowance or housing support. Playroll's team verifies that the salary meets the applicable minimum wage for the employee's prefecture and checks whether the role is covered by any industry collective agreement.

Playroll Prepares a Compliant Employment Contract

Playroll drafts a written employment agreement in Japanese that complies with LSA Article 15, including all 14 mandatory items such as the period of contract, place of work, job description, working hours and rest periods, wages and calculation method, pay date, and procedures for termination. The contract states Playroll as the legal employer and is governed by Japanese law. You review and approve the contract, and Playroll sends it to the employee for signature.

Employee Onboarded and Payroll Goes Live

Once the contract is signed, Playroll registers the employee with the Japan Pension Service for Health Insurance and Employees' Pension Insurance, the Labour Standards Inspection Office for Employment Insurance and Workers' Accident Compensation Insurance, and the local tax office as a withholding agent for income tax. Playroll completes this onboarding within 10 to 15 business days. The employee receives their first payslip on the standard monthly pay date, and all statutory filings run automatically from month one.

Playroll Manages Ongoing Compliance and Growth

Playroll runs monthly payroll in yen, withholds and remits income tax and residence tax, submits employer and employee social insurance contributions to the Japan Pension Service by the end of each month, and files year-end tax adjustments and annual labour insurance premium reconciliations. Playroll monitors changes to the Labour Standards Act, minimum wage updates, and social insurance rate revisions and implements them automatically. If your hiring in Japan grows to the point where establishing your own Gōdō Kaisha or Kabushiki Kaisha makes commercial sense, Playroll can handle that too through its global entity setup service, allowing you to transition from EOR to your own local payroll without switching platforms or rebuilding your HR infrastructure.