Searches for a PEO in Japan usually come from US companies that know the co-employment model at home and want the same thing for a hire in Tokyo. Japan does not have that product. US-style co-employment has no legal home in Japanese labor law, and the two real options are an employer of record that legally employs the worker through a local entity, or your own Japanese entity with a payroll provider behind it. Vendors sell both under the PEO label anyway, so the useful work is understanding which structure is actually on offer, what Japanese employer obligations cost, and where the Worker Dispatch Act draws lines around supplying people to other companies.
Why US-style PEO does not map to Japan
A US PEO co-employs staff who remain employees of the client's own legal entity; it is an administrative overlay on an employment relationship that already exists. In Japan there is no co-employment doctrine to overlay: a worker has one legal employer, and arrangements where one company supplies workers to work under another company's direction are regulated territory. Japan's Worker Dispatch Act, first enacted in 1986 and revised repeatedly since, governs the triangular model in which a licensed agency employs the worker while a client directs the work, and licenses are issued and policed by the Ministry of Health, Labour and Welfare. Anything sold as PEO Japan is therefore really one of two things: an employer of record structure, where the provider's Japanese entity is the sole legal employer, or payroll and HR outsourcing sitting under your own entity. The label does not change the legal shape, and the legal shape decides who carries the employer obligations.
What a Japanese employer must fund
JETRO, the Japanese government's investment agency, sets out four mandatory insurance systems an employer enrolls employees in. Workers' accident compensation insurance is fully employer-funded, at 0.25% to 8.8% of payroll depending on industry. Employment insurance costs the employer 0.95% and the employee 0.6%. Health insurance with nursing care runs at roughly 5% each for employer and employee, rising to 5.91% each for workers aged 40 and over. Employees' pension insurance is 18.3% of covered pay split evenly at 9.15% each. JETRO's combined figures put the employer's share at approximately 15.76% of payroll, or 16.67% for employees aged 40 plus, with the employee contributing slightly less through withholding. Any quote for employing in Japan that shows only salary and a management fee is leaving this stack out, and it is not optional.
The dispatch licensing line, and why it matters to buyers
The distinction between lawful worker dispatch and prohibited labor supply is the compliance spine of the Japanese staffing market. Dispatch businesses need an MHLW license with real financial substance behind it: published guidance for license applicants describes a net-asset floor of JPY 20,000,000 and cash of JPY 15,000,000 per office, a qualified dispatch manager with several years of relevant HR or staffing experience, and license terms that start at three years before moving to five-year renewals. Certain sectors, including port transport, construction, security and most medical roles, are closed to dispatch entirely. For a buyer this cuts two ways. If the provider's model has your worker under your day-to-day direction while employed by the provider, ask directly how that is structured against the dispatch rules and which license or exemption applies. A provider that cannot answer is asking you to hold regulatory risk it has not priced.
Choosing between EOR and your own entity
For one to a handful of hires, an employer of record is usually the pragmatic answer: the provider's Japanese entity issues a compliant employment contract, runs monthly payroll with the four insurance enrollments, and carries the legal employer duties, while you pay salary plus the fee. The calculation shifts as headcount grows, because Japanese employment is sticky by design; dismissal is hard to effect lawfully, so every hire through any structure should be treated as long-term. An owned entity brings the insurance registrations, a required work rules document once staff numbers grow, and ongoing filings, in exchange for eliminating per-employee fees and holding the employment relationship directly. Contracts and statutory documents control in every case; nothing here is legal advice, and the JETRO material linked below is the right primary reference for current rates.
Questions people ask about peo japan
Can a US PEO co-employ my worker in Japan?
No. Co-employment is not a recognized structure in Japanese labor law. Providers marketing PEO Japan are actually selling employer of record services through a Japanese entity, or payroll outsourcing under an entity you own.
What does employment in Japan cost beyond salary?
Four mandatory insurances. Per JETRO's published rates the employer side totals approximately 15.76% of payroll, rising to 16.67% for employees aged 40 and over, covering accident, employment, health with nursing care, and pension insurance.
Is an employer of record legal in Japan?
Yes, when the provider's Japanese entity is genuinely the legal employer and the arrangement respects the Worker Dispatch Act's boundaries. The dispatch model, where a licensed agency employs workers who take direction from a client, requires an MHLW license.
How hard is it to terminate an employee in Japan?
Materially harder than in the US. Dismissals need objectively reasonable grounds to hold up, so hires in Japan should be made as if permanent, whichever employment structure sits underneath them.