Employer of Record (EOR) in Japan: Your Gateway to Success

The allure of Japan’s thriving economy and burgeoning innovation draws international companies across the globe. Yet, foreign companies venturing into this complex market might experience legal intricacies, differing cultural nuances, and administrative roadblocks. Employer of Record (EOR) services is a solution that guides you towards a smooth and compliant entry.

Before Hiring in Japan – Things to Note

Successfully hiring employees in Japan requires a nuanced understanding of the local labor market, cultural intricacies, and legal frameworks: 

Japanese Employment Laws 

In Japan, there are numerous complex employment regulations which can be challenging to navigate. Some key employment laws to note include: 

• Labor Standards Act defines the appropriate working conditions for employees 
• Labor Contract Act establishes the relationship and responsibilities of employer and employee 
• Labour Union Act regulates collective labour relations
• Employment Security Act protects employees from discrimination based on race, nationality, creed, sex, social status, family origin, previous profession, membership of a labor union

Work Culture and Overtime Hours 

Even though Japan has a standard working week of 40 hours like many countries, employees working overtime is no surprise given Japan’s culture of overworking. However, an overtime cap has been introduced to restrict the amount of overtime hours of an employee, which are as follows: 

• Basic Limit Rule under normal circumstances, limits an employees’ overtime hours to 45 hours per month and 360 hours per year. 
• Extended Limit Rule under special circumstances, allows a maximum of 760 overtime hours per year with the basic limit of 45 hours per week not to be exceeded more than 6 times annually. Additionally, the monthly total overtime work hours should not exceed 100 hours and average 80 hours over a 2-6 months period. 

Failure of employers to adhere to these rules can result in severe penalties. 

Minimum Wage & Overtime Pay 

In Japan, the minimum hourly wages varies by location, ranging from ¥714 ($6.46) to ¥932 ($8.43), depending on local living costs. Unless employees occupy a managerial role, employees are eligible for overtime compensation of an additional 25% of their hourly pay and 35% on holidays. 

Probation and Termination 

Employee probation usually runs 2-6 months. Given Japan’s strict laws on termination of employment, it is extremely important for employers to take extreme care in dismissing its employees. The law in Japan mandates that termination must be considered objectively and reasonably, with valid termination grounds including injury, disability, poor performance, fraud, breach of work responsibilities, and loss of job responsibility. These grounds must be outlined in work rules or employment contracts. Dismissal of employees due to economic reasons is strictly not allowed. 

Payrolls & Taxes 

Japanese payroll systems adhere to strict guidelines, encompassing income tax, social insurance, and statutory benefits. Foreign employers are required to register with tax authorities, implement proper payroll processes, and comply with contribution requirements for social insurance programs. The national local corporate tax is 10.3% of the corporate tax liability. Non-resident taxpayers’ employment income in Japan, on the other hand, is taxed at a flat rate of 20.42% with no deductions. 

Managing payrolls and taxes in Japan can be complex and daunting, but this can all be easily taken care of with an Employer of Record (EOR) provider like GLOBAL ANGLE to handle all the nitty-gritty employment tasks for you. 

What is Employer Of Record (EOR)? 

If you’re looking to expand your team quickly into new markets, consider using an EOR. Employer Of Record (EOR) is a service that offers businesses the solution to employ legal, full-time workers in a different country, without having to establish an entity, saving time and resources. Partnering with an EOR helps streamline and take care of legal and administrative complexities of international hiring, providing you a peace of mind and the ability to recruit top talent abroad. 

How is EOR different from Professional Employer Organisation (PEO)?

Before EOR, the Professional Employer Organisation (PEO) was the traditional solution for international hiring. While both EORs and PEOs are responsible for managing HR functions such as payroll, benefits, tax and deductions, the difference is that PEOs require a pre-existing local entity set up in the country, creating a co-employment relationship between the company, employees and PEOs. With PEOs, the onus of compliance with local labor laws is placed on businesses. 

In contrast, EORs act as the legal employer on behalf of foreign companies, allowing businesses to skip the long and tedious process of setting up a legal entity. With EORs, businesses can easily hire employees, while leaving the legal complexities to the EORs. 

5 Reasons to consider EOR Japan

1. Expedited Entry and Streamlined Operations

Forget the months-long duration of entity establishment and legal hurdles. EOR providers navigate the intricate maze of Japanese labor laws, payroll, and taxes. They would handle the red tape while you focus on crafting your brand and forging connections with local customers. Your time is better spent strategizing, not deciphering compliance manuals.

2. Testing the Market

Forget the “all-or-nothing” gamble of traditional market entry. EOR empowers you to strategically dip your toes into the vibrant waters of the Japanese market with a lean team. Test your offerings, gather market intelligence, and refine your strategy on the fly. EOR is your trial run – a springboard for agile exploration to assess market viability before committing to a full-scale operation. EOR thus serves as a dynamic gateway for businesses to enter and navigate the complex Japanese market efficiently with reduced risks.

3. Cost Optimization and Resource Allocation

Say goodbye to hefty upfront investments and resource drains associated with setting up a local entity. EOR offers a cost-effective and scalable solution, allowing you to hire globally without having to set up a local entity, freeing up your valuable resources for business expansion. Leave the payroll, benefits, tax compliance and other employment complexities up to the EOR experts for a seamless process that will optimize your resources and minimize overhead costs. 

4. Access to Japan’s Top Talent Pool

Stepping into the Japanese market means navigating a unique cultural landscape, where communication styles, consumer preferences, and even design aesthetics differ subtly yet significantly. To truly thrive, you need a team that not only possesses exceptional technical skills but also understands the nuances of the Japanese market and can connect with its customers on a deeper level. EOR services serve as your bridge to Japan’s hidden talent pool, where the country has a workforce population of approximately 69 million people. They unlock the doors to a workforce that will not only execute your vision but also adapt it to the unique needs and preferences of the Japanese market, propelling your venture to new heights of success. EOR’s extensive networks and expert knowledge grant you access to this elite pool of professionals, propelling your venture forward with the best minds Japan has to offer.

5. Avoid Legal and Administrative Complexities

Navigate the complex legal landscape of Japanese employment with complete peace of mind. EOR providers assume all HR and administrative responsibilities, ensuring comprehensive compliance with local labour laws and regulations. Payroll processing, tax remittance, and employee benefits management become their expertise, mitigating risks and safeguarding your business from potential liabilities.

Choosing the Best EOR for Japan

Conducting business in Japan can be stressful and challenging due to the country’s unique cultural practices and complicated employment laws. More than just a tool for market expansion, EOR services are a strategic asset that will bridge the cultural divide, streamline operations, unlock top talent, and guarantee compliance. With the right EOR partner, you can easily navigate these challenges and recruit the best talents in a short span of time. For this, you will need an experienced EOR partner. 

One of the primary roles of an EOR is to ensure compliance with local labor laws and regulations. Working with an inexperienced EOR provider might lead to legal challenges and compliance problems, which is the last thing you want. Look for an EOR that has a strong understanding of the legal landscape of Japan to help you navigate complex employment laws, reducing the risk of legal issues and ensuring a smooth operation in Japan. 

Thinking of expanding your business into Japan’s vibrant market? Here at GLOBAL ANGLE, we possess strong expertise and extensive research capabilities in the Japan market to offer you the best Japan EOR solutions tailored to your needs. Find out more about GLOBAL ANGLE’s EOR solutions today to unlock the full potential of your global expansion! 

For more information on Japan expansion support, see our case study on Japan Business Expansion Support for a Coffee Roaster Manufacturer.

While we stand by the accuracy and reliability of our insights, we recommend approaching this content as educational guidance rather than unquestionable fact. A deeper understanding of this service should be done through consultation for personalized advice.