An employer of record in Japan legally employs your hire through a Japanese entity, issues a contract that satisfies the Labor Standards Act, runs payroll in yen and enrols the employee in Japan's four mandatory insurance systems. That last part is where Japan differs most from what foreign buyers expect: the statutory on-costs are substantial and itemised, and the protections against dismissal are among the strongest in any major market, which makes the exit rules something to understand before the first offer letter, not after. This page sets out what the EOR carries, drawn from JETRO's official guidance for foreign employers; contracts and Japanese law control, and nothing here is legal advice.
What the EOR takes on at hire
Japanese law requires the employer to notify the employee in writing of core conditions: the contract term or the fact there is none, the place and content of the work, and how wages are determined, calculated and paid, including the payroll closing day and pay day. Contract clauses that undercut the law are void; JETRO's guidance gives the examples of clauses saying the company may dismiss the worker at any time, that overtime will not be paid, or that the worker will bear all social insurance costs. Fixed-term contracts are generally capped at three years, and a fixed-term arrangement extended past five years in total converts to an indefinite contract at the employee's request. A competent EOR drafts inside these rails and can show you its bilingual template before you commit.
The social insurance stack is the real on-cost
Employers in Japan enrol staff in four systems. Workers' accident compensation insurance is borne entirely by the employer at rates from 0.25% to 8.8% of pay depending on industry, with enrolment due within days of the first hire. Employment insurance runs at 1.55% of pay, split 0.95% employer and 0.6% employee. Health insurance costs 9.91% of standard monthly remuneration in Tokyo, plus a long-term care premium of 1.59% for employees aged 40 to 64, split equally between employer and employee. Employees' pension insurance is 18.3% of standard remuneration and bonuses, also split equally. An EOR quote that shows only a salary and a fee is omitting an employer-side stack that adds a meaningful double-digit share on top of gross pay; insist on the itemised version.
Dismissal rules should shape the hiring plan
Ending employment in Japan is legally demanding. The employer must give at least 30 days' notice or pay 30 days' wages in lieu, and beyond the notice mechanics a dismissal is only valid with objectively reasonable grounds that are appropriate in light of socially accepted ideas, with the burden of proof on the employer. Redundancy is tested against four criteria developed by the courts: genuine business necessity, serious efforts to avoid dismissal through reassignment or voluntary programmes, fair selection standards, and proper consultation. Dismissal is barred during work-injury leave and for 30 days after it, during maternity leave and 30 days after, and for pregnant employees or within one year of childbirth. Probation exists but refusing to keep someone at its end is treated like a dismissal and needs valid grounds. Hire accordingly: the offer is much easier to make than to unmake.
Entity versus EOR in Japan
For one to three hires, the EOR wins on speed and on not having to operate four insurance enrolments, a Japanese payroll and Labor Standards Act compliance from abroad. The provider already runs the infrastructure and spreads its cost across clients. The calculation shifts with scale and with function: a sales subsidiary employing a growing team will eventually pay more in per-head EOR fees than a kabushiki kaisha or godo kaisha costs to run, and some activities are better housed in an entity from the start for licensing or credibility reasons. Whichever route you take, the statutory on-costs and the dismissal framework are identical; the EOR changes who administers Japanese employment law, never whether it applies.
Questions people ask about employer of record japan
What notice is required to dismiss an employee in Japan?
At least 30 days' notice, or payment of 30 days' wages in lieu. Notice alone is not enough: the dismissal must also rest on objectively reasonable grounds and be socially appropriate, and the employer carries the burden of proving both.
What are the employer's social insurance costs in Japan?
Four systems: workers' accident insurance paid fully by the employer at 0.25% to 8.8% by industry; employment insurance with a 0.95% employer share; health insurance at 9.91% in Tokyo split equally; and employees' pension at 18.3% split equally. The employer half of the stack is a substantial addition to gross salary.
Can an EOR use fixed-term contracts in Japan?
Yes, generally up to three years per contract, but repeated renewals past five years in total give the employee the right to convert to an indefinite contract, and probation endings are treated like dismissals. Fixed terms are not a way around Japan's dismissal protections.
Does hiring through an EOR avoid Japanese labour law?
No. The EOR's Japanese entity is the legal employer and is fully bound by the Labor Standards Act, the insurance enrolment duties and the dismissal framework. The arrangement moves the compliance burden to a specialist; it does not shrink it.