How to Hire Employees in Japan

Japan offers foreign companies a compelling entry point into Asia's most developed economy. Highly skilled workforce, advanced technology infrastructure, world-class manufacturing expertise, and stable business environment.

But economic sophistication doesn't mean regulatory simplicity.

Japan enforces comprehensive employment regulations with strict compliance expectations across the Labor Standards Act, social insurance requirements, and deeply embedded cultural employment practices. Early missteps in contract structure, insurance enrollment, or employee classification trigger costly disputes, regulatory penalties, and expansion delays that compound with every hire.

Hiring employees in Japan requires:

• Clarity on hiring models (entity vs. Employer of Record vs. contractor)
• Mandatory employer obligations under the Labor Standards Act
• Payroll tax structures and social insurance contributions
• Termination protections and notice requirements
• Legal distinctions separating compliant employment from misclassification risk

This guide walks you through each step: choosing the right hiring model, onboarding your first employee, managing payroll, navigating termination rules, and avoiding compliance traps that catch unprepared employers off guard.

Core truth: Hiring employees in Japan requires the right hiring model and strict adherence to local labor laws. One hire done wrong costs more than doing ten right.

What Are Your Employment Options When Hiring in Japan?

Before posting a job or signing an offer letter, decide how you'll employ talent. Foreign companies typically choose between three models: establishing a local entity, partnering with an Employer of Record (EOR), or engaging contractors. Each has distinct implications for compliance risk, cost structure, and operational control.

Entity setup → means full legal presence. Register a Japanese company (KK or GK), handle all employer obligations directly, and bear complete liability.

EOR hiring → outsources employment compliance to a third-party legal employer while you retain operational control.

Contractor engagement → treats individuals as independent service providers, not employees. But only when the relationship genuinely reflects independence.

The stakes are higher than they appear. Misclassifying an employee as a contractor triggers back taxes, social insurance penalties, and reclassification claims. Setting up a local entity in Japan for hiring costs ¥500,000–¥1,500,000 total, including registration fees, notary services, legal counsel, accounting setup, and regulatory filings with the Legal Affairs Bureau and tax authorities.

Choosing the wrong model doesn't just slow hiring. It creates legal exposure that compounds with every additional hire.

1. Hiring Through a Local Entity

Establishing a Japanese entity gives you direct control over employment, payroll, and benefits administration. You become the legal employer. Full responsibility for Labor Standards Act compliance, tax withholding, social insurance contributions, and statutory filings.

This model makes sense when:

• You're committing to long-term operations in Japan
• Hiring at scale (typically 10+ employees)
• You need to own intellectual property and operational infrastructure locally

The trade-off: entity formation takes 3-6 months, requires minimum capital requirements (¥1 for GK, typically ¥5-10 million for KK credibility), ongoing legal and accounting support, and locks you into administrative obligations even if hiring slows.

2. Hiring Through an Employer of Record (EOR)

An EOR becomes the legal employer in Japan while you direct the employee's day-to-day work. The EOR handles employment contracts, payroll processing, tax compliance, social insurance administration, and statutory filings.

You maintain operational control. They absorb legal liability.

EOR hiring suits:

• Companies testing the Japanese market
• Scaling quickly (hires live in days, not months)
• Expanding into multiple countries without establishing entities everywhere

It's not a workaround. It's a legitimate employment model under Japanese law, ideal when speed, compliance assurance, and low upfront cost matter more than direct entity ownership.

3. Hiring Independent Contractors

Contractors are appropriate for project-based work, specialized services, or genuinely independent engagements. Japanese law distinguishes employees from contractors based on subordination, exclusivity, time-based compensation, and the reality of the working relationship. Not what the contract says.

Misclassification happens when companies treat contractors like employees:

• Setting their hours and work schedules
• Providing equipment and workspace
• Directing how work is done
• Maintaining exclusive relationships

Local Entity Vs EOR Vs Independent Contractor: Side-by-Side Comparison

What Are The Legal Requirements for Hiring in Japan?

Japanese employment law is governed by the Labor Standards Act, Labor Contract Act, and various social insurance laws. Japan's regulatory framework emphasizes lifetime employment traditions, although this is evolving, with strong protections for regular employees and detailed procedural requirements.

Key employer obligations:

• Provide written employment contracts specifying essential terms
• Register employees with the Japan Pension Service for pension insurance
• Register with the Japan Health Insurance Association for health insurance
• Register with HWIS for employment insurance
• Make monthly contributions to social insurance (health, pension, employment, workers' compensation)
• Withhold income tax and resident tax
• Maintain accurate payroll records and employment documentation
• Comply with working hours limits (40 hours per week standard, 8 hours per day)
• Provide mandatory paid leave entitlements (minimum 10 days annually after 6 months)
• Conduct annual health examinations for all employees

Employment relationships are presumed indefinite for regular employees unless a fixed-term contract meets specific criteria. Probationary periods typically range from 3-6 months and must be explicitly stated.

Japan's enforcement environment is not theoretical. Labor Standards Inspection Offices conduct regular audits. Employees can file complaints and claims. Non-compliance with payroll or contract standards results in financial penalties, back-payment orders, and reputational damage.

The presumption favors employee protection, not employer flexibility.

What Are the Employment Contract Rules in Japan?

Written, locally compliant employment contracts are not optional. They're legally required.

While oral agreements are technically valid, written documentation is mandatory under the Labor Standards Act for essential employment terms. The contract must be in Japanese (or with certified translation) and provided before or upon the employee's first day of work.

Types of Employment Contracts

• Indefinite-term contracts (regular employment) are the default and most common form for permanent positions. They continue until lawfully terminated by either party with proper notice and include full entitlements under Japanese law.
• Fixed-term contracts are permitted for specific circumstances such as temporary project work, seasonal employment, or specialized expertise. Japanese law limits fixed-term contracts to maximum 3 years for most positions (5 years for specialized professionals). Employees working under fixed-term contracts for more than 5 years gain the right to convert to indefinite employment.
• Part-time and contract workers specify reduced working hours or limited responsibilities with pro-rata entitlements. Recent reforms require equal treatment principles between regular and non-regular employees performing similar work.

Full-time employment typically follows a 40-hour workweek (8 hours per day, 5 days per week), though many companies operate on longer actual hours with overtime compensation.

Probationary periods allow employers to assess new hires during the first 3-6 months, with slightly simplified termination procedures during this window, though protections still apply.

What to Include in an Offer Letter?

Employment offers must specify the job title, duties, reporting structure, and work location.

Essential contract elements:

• Employer and employee names and addresses
• Work location and potential transfer requirements
• Job description and duties
• Start date and contract type (indefinite or fixed-term with duration)
• Working hours, rest periods, and overtime policies
• Gross monthly or annual salary and payment method
• Bonus system (if applicable)
• Paid leave entitlement (minimum 10 days after 6 months, increasing with tenure)
• Retirement age and retirement benefits (if applicable)
• Termination and notice requirements
• Social insurance enrollment details
• Probation period (if applicable, typically 3-6 months)

Clarity matters. Ambiguous job descriptions or vague compensation terms create disputes during performance reviews or terminations. Japanese courts interpret contract ambiguities in favor of employees.

NDAs and Confidentiality Agreements

Confidentiality clauses are enforceable under Japanese law, particularly when protecting trade secrets, client information, or proprietary processes. Intellectual property (IP) created during employment typically belongs to the employer for work-related inventions, with reasonable compensation required for employee inventors under the Patent Act.

Post-employment non-compete clauses are enforceable but must meet strict requirements: reasonable duration (typically 6 months to 2 years), limited geographic scope, adequate compensation during the restriction period, and protection of legitimate business interests. Courts scrutinize non-competes closely and often narrow overly broad provisions.

Overly broad non-competes risk being struck down as unenforceable.

How Payroll Costs and Taxes Work in Japan?

Japan's labor costs are competitive within developed Asia. But only if you understand the full employer burden.

As of 2025, Japan's national average monthly salary is approximately ¥420,000 (with 2-3% projected growth in 2026), varying significantly by prefecture, industry, and company size. Annual negotiations (shunto) influence wage adjustments. Typical total employer costs for mid-level hires range from ¥400,000 to ¥700,000 per month, including gross salary and mandatory contributions.

1. Payroll and Salary Structure in Japan

Salaries are quoted and paid in Japanese yen (¥). Compensation typically includes base salary, biannual bonuses (typically 2-4 months' salary paid in summer and winter), commuting allowance, and housing allowance (common but not mandatory).

Japan has no statutory national minimum wage. Instead, prefectural minimum wages apply, ranging from approximately ¥900-¥1,100 per hour (2026) depending on location, with Tokyo having the highest at around ¥1,113.

2. Employer Payroll Obligations

Employers face mandatory social insurance contributions averaging 15-20% of standard monthly salary:

• Health insurance: ~5% of standard monthly compensation (employer share)
• Pension insurance: ~9.15% of standard monthly compensation (employer share)
• Employment insurance: 0.95-1.15% of gross salary (employer share, varies by industry)
• Workers' compensation insurance: 0.25-8.8% depending on industry risk classification

Social insurance premiums are rising 0.2-0.5% in FY2026 due to demographic pressures.

Total employer burden for social insurance typically ranges 15-20% above standard monthly compensation.

These contributions sit on top of the employee's gross salary. Not embedded within it.

3. Employee Tax Contributions

Employees face significant deductions withheld at source:

• Health insurance: ~5% of standard monthly compensation (employee share)
• Pension insurance: ~9.15% of standard monthly compensation (employee share)
• Employment insurance: 0.6% of gross salary (employee share)
• Income tax: Progressive national rates (5-45%)
• Resident tax: Approximately 10% flat rate (paid following year)

Income tax brackets (2026):

• ¥0 – ¥1,950,000: 5%
• ¥1,950,001 – ¥3,300,000: 10%
• ¥3,300,001 – ¥6,950,000: 20%
• ¥6,950,001 – ¥9,000,000: 23%
• ¥9,000,001 – ¥18,000,000: 33%
• ¥18,000,001 – ¥40,000,000: 40%
• Above ¥40,000,000: 45%

Various deductions apply (basic deduction, spouse deduction, dependent deduction, social insurance premium deduction).

Total employee deductions range from 25-40% of gross salary depending on income level and family situation.

4. Social Security Contributions

Both employer and employee contribute to Japan's social insurance system, funding healthcare, pensions, unemployment benefits, and workers' compensation. Contribution rates are based on "standard monthly compensation" rather than actual monthly salary, using bracketed tables.

5. Minimum Wage and Statutory Pay Requirements

Prefectural minimum wages vary across Japan, with Tokyo at approximately ¥1,113 per hour (2026). Employers must meet the applicable prefectural minimum.

Employers must also pay:

• Overtime premiums (minimum 25% for hours beyond 8 per day or 40 per week, 35% beyond 60 hours monthly, 35% for late night 10 PM-5 AM, 35% for rest days)
• Commuting allowances (customary but not legally mandated, typically tax-exempt up to limits)
• Biannual bonuses (customary in many industries, typically 2-4 months salary annually)
• Legally mandated paid leave (minimum 10 days after 6 months, increasing to 20 days after 6.5 years)

In practical terms, employers should budget 15-25% above gross salary for statutory obligations. For professional roles, this puts the true monthly cost of hiring in Japan between ¥400,000 and ¥700,000, depending on seniority, role, and company practices.

How Employers Pay Employees in Japan?

1. Payment Methods

Salaries are paid via bank transfer to the employee's Japanese bank account. Bank payment is standard practice and legally required for amounts above certain thresholds.Cash payments are uncommon and create compliance risks.

Payslips must contain:

• Pay period
• Gross salary and all components (base, overtime, allowances)
• All deductions (social insurance, income tax, resident tax)
• Net salary
• Year-to-date totals

Payslips must be provided monthly, typically electronically or in print.

2. Salary Payment Frequency

Payroll runs monthly, with salaries typically paid on a fixed date (commonly 25th or end of the month) for work performed in that month or the prior month, depending on company policy.

Payment delays beyond the agreed date breach labor law and give employees grounds for lodging complaints with Labor Standards Inspection Offices.

How To Onboard Employees in Japan?

1. New Hire Onboarding Checklist

Register the employee with the social insurance authorities before their first working day. Provide signed employment contracts, company policies, role-specific training materials, and access to payroll/benefits systems.

Onboarding essentials:

• Register with the Japan Pension Service for pension insurance
• Register with the health insurance association 
• Register with HWIS for employment insurance
• Register with the workers' compensation insurance carrier
• Sign and provide an employment contract specifying essential terms
• Conduct a mandatory health examination
• Provide workplace safety orientation
• Set up the payroll system and bank transfer details
• Assign a direct manager and clarify expectations
• Provide the company handbook and rules of employment

Schedule orientation sessions covering workplace health and safety (mandatory under the Industrial Safety and Health Act), company culture, and reporting structures. Ensure the employee understands leave policies, overtime procedures, and performance review timelines.

2. Required Employee Documentation

Japanese employment and tax regulations require employers to collect specific employee documents at the time of onboarding. These records support payroll processing, social insurance registration, and statutory compliance.

Documents you need from new hires:

• Residence card or Japanese passport
• My Number (Individual Number) card or notification
• Pension book or pension insurance number
• Previous employment certificate (for continuous employment history)
• Educational certificates relevant to the role
• Bank account details for salary transfer
• Commuting route documentation (for commuting allowance calculation)
• Dependent information (for tax and social insurance purposes)
• Work permit and residence status (for foreign nationals)

Maintain signed copies of the employment contract, acknowledgment of company rules, and personal information consent forms in the employee's personnel file. These documents become critical during audits or disputes.

What Are The Best Practices Of Interviewing and Hiring in Japan?

Japanese employment law prohibits discrimination based on nationality, creed, or social status. Recent amendments extend protections against discrimination based on gender, age, and disability. Interview questions must focus on job-related qualifications and competencies.

• Avoid questions about family registration (koseki), family background, birthplace, or other personal matters unrelated to job performance unless directly relevant and legally justified.
• Data privacy matters. Under the Act on the Protection of Personal Information (APPI), candidate information must be collected with consent, stored securely, and used only for recruitment purposes. Candidates have rights to access and correct their information.
• Document retention and processing justifications carefully.
• Japanese candidates value company stability, career development opportunities, and work-life balance improvements.
• Communicate hiring timelines, provide prompt feedback, and set realistic expectations about compensation and role responsibilities.

A sluggish or opaque hiring process signals organizational dysfunction.

Work Permits and Right to Work in Japan

1. Japanese nationals have unrestricted work rights in Japan and require no permits.

2. Foreign nationals require a valid residence status with work authorization issued by the Immigration Services Agency before starting employment. 

Common work authorization categories include:

• Engineer/Specialist in Humanities/International Services: For professional roles requiring specialized knowledge (most common for business professionals)
• Intra-company Transferee: For transfers within multinational companies
• Highly Skilled Professional: Points-based system for highly qualified professionals with preferential treatment
• Specified Skilled Worker: For workers in designated shortage industries (introduced 2019)
• Permanent Resident: Unrestricted work rights for long-term residents
• Spouse/Child of Japanese National or Permanent Resident: Unrestricted work rights

Key considerations for foreign national hires:

• Processing times: expect 1 to 3 months, depending on visa category and application completeness
• The Certificate of Eligibility (COE) system streamlines pre-arrival visa processing
• Employers typically sponsor visa applications and provide supporting documentation
• Work authorization tied to specific job categories and employers (except permanent residents and spouses)
• Highly Skilled Professional visa offers a points-based fast-track and preferential treatment
• Residence status changes require immigration approval before job changes

Hiring foreign nationals without valid work authorization exposes employers to fines up to ¥3,000,000 and potential criminal prosecution, with both employer and employee liable.

How Does Employment Termination Work in Japan?

1. Lawful Grounds for Termination

• Employers can terminate for cause (serious misconduct justifying immediate dismissal) or for ordinary dismissal (performance issues, redundancy, business needs).
• Termination requires objective, reasonable grounds and must be socially acceptable under the "abuse of dismissal right" doctrine. Courts scrutinize dismissals closely, particularly for regular employees. Employers must demonstrate efforts at improvement (warnings, training, reassignment) before terminating for performance.
• Employees enjoy extremely strong protections against unfair dismissal. Japanese courts frequently invalidate dismissals lacking sufficient justification or proper procedure, ordering reinstatement and back pay.

2. Notice Periods

Notice requirements are strictly mandated:

Employer-initiated termination:

• Minimum 30 days' advance notice, or
• Payment of 30 days' average salary in lieu of notice

Employee-initiated resignation:

• Civil Code allows 2 weeks' notice for indefinite contracts
• Employment contracts commonly specify 1-3 months' notice

During probation (first 14 days), simplified termination without notice is possible. After 14 days, probation period terminations require 30 days' notice.

Both parties must provide written notice. Verbal notice has no legal effect.

3. Severance Requirements

Japanese law does not mandate statutory severance for ordinary terminations. However, severance is an extremely common practice and often expected:

Customary severance practices:

• Retirement allowance systems (typically based on tenure and final salary)
• Voluntary resignation: 0-1 month salary per year of service (company discretion)
• Company-initiated termination: 1-3 months' salary per year of service (negotiated)
• Redundancy/restructuring: Higher severance to demonstrate social acceptability (often 3-6+ months' salary depending on tenure)

Typical severance calculations:

• Less than 5 years: 0.5-1 month per year
• 5-10 years: 1-2 months per year
• 10+ years: 2-3 months per year

Termination for serious misconduct may eliminate severance but requires overwhelming evidence (theft, fraud, violence). Courts rarely uphold zero-severance terminations without exceptional documentation.

Inadequate severance often renders terminations "socially unacceptable" even with valid business reasons, leading to invalidation.

Employee vs Contractor Classification in Japan

Japanese authorities assess classification based on subordination, time-based compensation, work location control, exclusivity, and provision of tools. Labor authorities and courts presume employment relationships when individuals work under direction with limited business autonomy. Contracts labeled "independent contractor" mean nothing if the working relationship resembles employment.

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Misclassification consequences include:

• Retroactive reclassification as an employee from day one
• Back payment of all social insurance premiums (employer and employee shares, ~30-35% total)
• Income tax and resident tax adjustments
• All employee benefits retroactively (paid leave, overtime pay, bonuses)
• Workers' compensation coverage obligations
• Potential fines and back-payment penalties
• Automatic regular employment status from start date

The "one contractor won't attract attention" myth dies fast when tax audits or employee claims begin. Japanese authorities increasingly scrutinize contractor relationships in professional services and IT sectors.

What Compliance Risks Should Employers Know When Hiring in Japan?

• Payroll non-compliance (incorrect social insurance contributions, missed tax withholding, failure to register employees properly with pension/health insurance authorities) results in financial penalties, back-payments with interest, and potential criminal liability for serious violations. Japan Pension Service and tax authorities conduct regular audits.
• Contract violations (missing written contracts for essential terms, unclear employment conditions, improper use of fixed-term contracts beyond legal limits) create unenforceable terms and favor employees in disputes. Courts presume regular employment status when documentation is deficient.
• Termination disputes arise when employers bypass consultation procedures, fail to demonstrate objective reasonable grounds, miscalculate notice or severance, or terminate without attempting remedial measures. Japanese courts strongly tilt toward employee protection. Inadequate justification guarantees invalidation with reinstatement orders and back pay, potentially multiple years' worth.

Labor force shrinkage to approximately 67 million (2026 estimate), driven by population aging, reducing the workforce by 500,000+ annually, creates acute shortages in IT, healthcare, manufacturing, and specialized services.

Compliance failures don't just cost money. They damage the employer brand in a market where reputation and long-term stability are paramount hiring factors.

How an Employer of Record (EOR) Helps You Hire in Japan?

An EOR eliminates entity formation delays, absorbs compliance risk, and handles payroll, tax, social insurance, and benefits administration.

What you gain with an EOR:

• Speed: Hires go live in days instead of months
• Certainty: Labor Standards Act adherence, social insurance compliance, and accurate tax remittance
• Control: Employee reports to you, performs work under your direction
• Risk mitigation: EOR handles complex insurance enrollments, termination procedures, and changing regulations

EORs don't replace strategic workforce planning. They enable it.

• Testing the Japanese market without committing to entity setup costs? An Employer of Record (EOR) model makes sense.
• Scaling from 2 to 20 employees within six months? An EOR enables rapid, compliant growth.
• Hiring across multiple Asia-Pacific countries without setting up local subsidiaries? An EOR keeps expansion flexible and manageable.

The model works because it's legally recognized: the EOR is the statutory employer, you're the operational employer, and the employee receives full Japanese labor law protections.

How Gloroots Simplifies Hiring in Japan?

When hiring in Japan through Gloroots, the entire process is managed for you end-to-end. You do not need to coordinate vendors, navigate local regulations, or manage administrative steps.

Gloroots runs the complete hiring workflow:

• Candidate sourcing, shortlisting, and background verification
• Initial screening to assess skills, experience, and role fit
• Interview coordination for final selection
• Offer issuance and compliant employment setup
• Statutory registrations (pension, health insurance, employment insurance), payroll setup, and benefits administration
• Employee onboarding aligned with Japanese labor regulations

This model removes operational overhead entirely, allowing you to focus on building and managing your team while Gloroots handles hiring execution, compliance, and onboarding from start to finish.

Gloroots provides end-to-end EOR services in Japan, handling employment contracts, payroll processing, tax compliance, social insurance administration, and statutory filings. Local compliance expertise ensures your hiring aligns with Labor Standards Act requirements, from contract drafting to termination procedures.

The platform combines self-service functionality (contract management, onboarding workflows, payroll visibility) with dedicated customer success support.

With Gloroots, you get:

• Audit-ready reporting
• Transparent cost breakdowns
• Finance-team-friendly invoicing with country-level detail
• GL mapping

Gloroots scales with you: whether hiring your first Japanese employee or expanding a distributed team across 140+ countries, the infrastructure supports growth without the complexity of multi-entity management.

It's not a vendor relationship. It's workforce infrastructure that adapts to your expansion strategy.

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FAQs 

1. Can a foreign company hire employees in Japan without setting up a local entity?

Yes. Foreign companies can hire through an Employer of Record (EOR) without establishing a Japanese entity. The EOR becomes the legal employer, handling compliance, payroll, tax, and social insurance obligations while you direct the employee's work.

2. What are the legal requirements for hiring employees in Japan?

Employers must provide written contracts specifying essential terms, register with Japan Pension Service, health insurance associations, and Hello Work, make monthly social insurance contributions (15-20% of salary), withhold income and resident taxes, maintain employment records, and comply with Labor Standards Act provisions on hours, leave, and termination.

3. What taxes and social security contributions do employers pay in Japan?

Employers contribute 15-20% of standard monthly compensation toward social insurance (health ~5%, pension ~9.15%, employment insurance 0.95-1.15%, workers' compensation 0.25-8.8%). Employees pay ~15% social insurance plus progressive income tax (5-45%) and 10% resident tax. For professional roles earning ¥400,000-700,000 monthly, total employer cost, including contributions, ranges ¥460,000-840,000.

4. How long does it take to hire and onboard an employee in Japan?

Through an EOR, hiring and onboarding can occur within 5 to 10 business days. Establishing a local entity first adds 3 to 6 months for registration and regulatory approvals.

5. What is the easiest way to hire employees in Japan compliantly?

Partnering with an EOR is the fastest, lowest-risk path. The EOR handles contracts, payroll, tax, social insurance compliance, and benefits while you maintain operational control, eliminating entity formation costs and enabling hiring within days.

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