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Japan requires written contracts, social insurance from day one, and no entity
Before you hire your first Japan employee, here's what matters most. First, setting up a local entity takes 3โ6 months and requires registration with the Legal Affairs Bureau, tax registration, and ongoing compliance overhead. An EOR removes all of that. Second, Japan's Labor Standards Act requires written notification of key employment conditions before or at the start of employment; verbal agreements are not sufficient. Third, using an employer of record is confirmed legal under Japanese law, structured under the Labor Contract Act, and entirely distinct from "worker dispatch" (haken), which requires a separate license.
These three facts shape every hiring decision you'll make in Japan. Get them right from the start, and the rest of the process becomes manageable.
Japan at a glance for employers
Japan's employer cost structure surprises most first-time hirers. The social insurance split is employer-heavy, and the total cost above gross salaryโroughly 14โ16%โneeds to be built into your offer math before you send anything to a candidate. Oyster's platform surfaces these figures during contract setup so you never miscalculate your Japan offer.
Japan payroll is monthly, yen-denominated, and legally mandated
Japanese payroll must be processed monthly, paid in yen, and transferred directly to the employee's bank account. That's not a preference, but itโs the law. The minimum wage varies by prefecture: the national average sits at ยฅ1,113/hour (2024), while Tokyo reaches ยฅ1,163/hour. If you're hiring in multiple cities, you need to track the applicable rate for each location.
Mandatory social insurance enrollment begins on day one of employment. Shakai hoken (social insurance) covers health insurance and pension; rousai hoken covers workers' compensation. Employer contributions break down approximately as follows: health insurance ~5%, pension,ย ~9.15%, unemployment insurance ~0.95%, and workers' compensation ~0.3%. These aren't optional add-onsโthey're statutory obligations that apply regardless of the employee's hours or contract type.
Standard working hours are 40 hours per week, 8 hours per day. Overtime is governed by the 36-agreement (sanroku kyotei), which must be filed with the relevant labor standards inspection office before any overtime can be required.
Annual paid leave scales from 10 days at 6 months of service to 20 days at 6.5+ years.
What hiring in Japan actually looks like
Japan hiring often involves longer notice periods from candidates' existing employersโone to three months is commonโso factor this into your timeline. Oyster's 48-hour onboarding target means your Japan hire can sign a compliant contract and start before your competitor finishes their entity paperwork.
A scenario for hiring your first Japan employee
You've found a senior engineer in Tokyo. Your company has no entity in Japan. Here's what happens next without an EOR, and with one.
Without an EOR, you register a legal entity with the Legal Affairs Bureau, complete tax registration, set up a local payroll system, and enroll in social insurance schemes. You must also draft a compliant employment agreement in Japanese before your candidate's current notice period expires. That process takes 3โ6 months and costs significant legal and administrative overhead. Your candidate, meanwhile, is fielding other offers.
With an EOR, Oyster becomes the legal employer on the ground. Your candidate receives a Japan-compliant employment agreement within 48 hours of agreeing on terms. Social insurance enrollment begins immediately. Payroll runs on the monthly cycle. You maintain full operational control of the work while Oyster holds the compliance risk. Your engineer starts on schedule.
What an employer of record does in Japan
An EOR acts as the statutory employer, handling social insurance, tax withholding, and employment agreements under Japanese lawn so you can hire without a subsidiary. Oyster holds the risk so your team can focus on the work, not the paperwork.
Is an employer of record legal in Japan
Yes, using an employer of record is legal in Japan. The EOR becomes the statutory employer, handles social insurance and tax withholding under Japanese law, and no specific license is required to operate as an EOR under the Labor Contract Act. This is an important distinction: EOR arrangements are structured under the Labor Contract Act and related labor law, not under the Act for Securing the Proper Operation of Worker Dispatching Undertakings. Worker dispatch (haken) is a separate arrangement that requires licensing. An EOR relationship, where the EOR is the actual employer rather than a staffing intermediary, does not fall under that licensing requirement.
If you've been paying a Japan-based contractor for several months and the relationship looks increasingly like employmentโregular hours, integrated into your team, no other clientsโan EOR gives you a compliant path to convert that relationship before misclassification risk catches up with you.
EOR vs setting up your own entity in Japan
A foreign company can operate in Japan, but establishing a legal entity typically takes 3โ6 months and significant capital. Entity setup requires registration with the Legal Affairs Bureau, tax registration, and ongoing compliance overhead including local accounting, corporate governance, and payroll administration. An EOR requires none of this.
Entity setup makes sense when you have 15+ employees in Japan and the overhead becomes cost-effective. For most companies entering Japan for the first time, an EOR is the faster, lower-risk path.
Japan employment laws you need to follow
The Labor Standards Act (Rลdล Kijunhล) and the Labor Contract Act together govern the core employment relationship in Japan. Your EOR must comply with both. Oyster's in-house legal team reviews every Japan employment agreement, so you get human expertise, not just templated documents.
Employment contracts and required written terms in Japan
Japan's Labor Standards Act requires employers to provide written notification of key employment conditions before or at the start of employment. Required terms include working hours, wage, rest periods, leave entitlements, and termination rules.
Japanese is the standard language for these documents. Bilingual contracts are permitted.
Fixed-term contracts are limited to 3 years. Employees whose fixed-term contracts have been renewed for more than 5 cumulative years can request conversion to an indefinite-term contract. This is the mukiraka rule. This conversion right is a statutory entitlement that your EOR must track and manage.
Statutory benefits Japan employees are entitled to
Four mandatory insurance programs apply to all employees from day one: health insurance (kenpo), pension (kosei nenkin), unemployment insurance (koyo hoken), and workers' compensation (rousai hoken). Enrollment is mandatory regardless of hours worked for most employeesโthere is no minimum hours threshold that exempts a standard employee from coverage.ย
Annual paid leave accrues as follows: 10 days after 6 months of continuous service, scaling to 20 days at 6.5+ years. Under the 2019 Work Style Reform Amendment, employees must take a minimum of 5 days of paid leave per year.
Unused leave does not accrue during unpaid leave periods.
Japan payroll rules and social insurance contributions
Japanese payroll must be processed monthly, paid in yen, and transferred directly to the employee's bank account. Employers withhold income tax through gensen choshu (withholding at source) and conduct a year-end tax adjustment (nenmatsu chosei) on behalf of employees.
Pay stubs must be provided with each payment.
Total employer burden above gross salary runs approximately 14โ16%, covering health insurance, pension, unemployment insurance, and workers' compensation contributions. The split between employer and employee contributions is set by statute. It is not negotiable. Payroll is typically processed by the 25th of each month.
Paid leave entitlements and notice periods in Japan
Annual paid leave accrues from 10 days at 6 months to 20 days at 6.5+ years of service. Employees must take at least 5 days per year under the Work Style Reform Amendmentโemployers who fail to ensure this face penalties. Notice period for employer-initiated termination is a minimum of 30 days, or 30 days' average wages in lieu of notice. Employee notice is typically governed by the employment contract.
Overtime rules are strict. Before any overtime can be required, employers must file a 36-agreement (sanroku kyotei) with the relevant labor standards inspection office.
Overtime premiums are 25% for regular overtime, 35% for late-night work (10pmโ5am) and holiday work, and 50% for hours exceeding 60 per month.
These are statutory minimums. Your EOR must apply them correctly from the first payroll run.
Termination rules and severance pay in Japan
Japan's Labor Contract Act Article 16 renders terminations void if they abuse the right to dismiss (kenri rannyo). There must be objectively reasonable grounds for any dismissal.
Involuntary redundancy is difficult and requires documented procedural steps.
Here's something most EOR providers don't tell you clearly: Japan does not mandate statutory severance pay by law. Unlike many countries, there is no government-mandated severance calculation.
However, a voluntary retirement allowance (taishoku kin) is common in large employers. It may be contractually required depending on the employment agreement.
An EOR helps you navigate terminations compliantly and avoids wrongful dismissal risk. In Japan, that risk can mean reinstatement orders, not just financial penalties.
Recent Japan labor law changes affecting your hire
The Work Style Reform Act continues to reshape employment obligations. Mandatory paid leave use, overtime caps, and 36-agreement filing before overtime begins are all active requirements.
The government is actively promoting a four-day workweek, though it is not yet mandatory. Fixed-term contract conversion rights after 5 years (the mukiraka rule) remain a live compliance issue for any employer using rolling fixed-term contracts.
Japan's labor law is actively modernizing. Your EOR must track these changes on your behalf, not just apply the rules from when you first hired.
Japan's workforce and what to expect
Japan has one of the world's most skilled engineering and manufacturing talent pools. Competition for bilingual tech professionals is high, and Tokyo and Osaka are the main tech hubs. Oyster's platform surfaces Japan-specific compensation benchmarks during offer creation so your package is competitive before you send it.
Tech talent, salary benchmarks, and hiring norms in Japan
Yes, it is entirely possible to work for a US-based company while living in Japan, as an employee or contractor. Japan's talent market is strong in software engineering, automotive, and semiconductor engineering; demand for bilingual (Japanese/English) professionals is particularly high and commands a premium. Tokyo and Osaka are the primary tech hubs, with a growing remote-work culture expanding the talent pool beyond these cities.
One cultural norm worth knowing: in Japan, '9 to 5' typically means 9amโ6pm with a one-hour lunch break, and punctuality is a professional expectation, not a preference. Candidate notice periods of one to three months are standard.
Plan your hiring timeline accordingly. A long notice period does not signal a lack of interest.
How to choose your Japan EOR partner
Japan's labor law complexity and the difficulty of termination make compliance depth the most critical criterion for your Japan EOR. Four criteria matter most: compliance depth, pricing transparency, onboarding speed, and human support. Oyster meets all four.
Four criteria for evaluating Japan EOR providers
When evaluating Japan EOR providers, apply these four lenses before you commit.
- Compliance: Does the provider employ in-house Japan legal specialists, or do they outsource compliance to third-party vendors? Japan's 36-agreement filing requirements and mukiraka conversion rules require specialists, not generalists.
- Pricing: Is the fee flat and predictable, or does it include setup fees, offboarding fees, currency conversion margins, and local payroll surcharges? Hidden costs compound quickly across a growing headcount.
- Speed: What is the actual time to first payrollโnot the marketing claim? A 48-hour contract target means nothing if social insurance enrollment takes three weeks.
- Support: Do you get a dedicated contact, or a shared queue? Japan compliance questions don't wait for business hours in another timezone.
Compliance your Japan EOR must cover
Japan's mandatory social insurance enrollment and 36-agreement filing are administrative obligations that an under-resourced EOR can easily miss. Oyster employs in-house specialistsโnot outsourced legal vendorsโand backs every Japan contract with $5M EPLI coverage.
What Japan compliance your EOR handles for you
A compliant Japan EOR handles social insurance enrollment from day one, covering both shakai hoken and rousai hoken. It also files the 36-agreement before any overtime begins, a requirement every Japan employer must meet.
Additional obligations include year-end tax adjustment (nenmatsu chosei) and legally reviewed employment agreements in Japanese. Your EOR must also track the mukiraka trigger and manage fixed-term contract conversions after 5 years of renewals.
Oyster's in-house legal review means your Japan employment agreement is not a template pulled from a database. It is reviewed by specialists who understand the Labor Standards Act and the Labor Contract Act.
Oyster also supports right-to-work checks, though visa sponsorship is not currently offered. If your candidate requires a work visa, Oyster can direct you to appropriate resources.
One compliance item that surprises many employers: the 36-agreement must be filed with the labor standards inspection office before overtime begins, not after. If your EOR doesn't flag this proactively, you may be running overtime illegally from your first busy sprint.
Japan EOR pricing that fits your budget
Oyster's flat pricing means no surprise invoices when your Japan headcount grows. No termination fees. No hidden charges.
Setup fees, offboarding charges, and FX margins inflate your Japan EOR bill
EOR service fees in Japan vary significantly across providers, depending on service level and what's included. Some providers outsource compliance, offer shared support queues, and charge separately for offboarding, currency conversion, and local payroll processing.
Watch for these hidden costs when evaluating providers: setup fees charged before your first hire, offboarding fees when an employee leaves, currency conversion margins applied to yen-denominated payroll, and local payroll surcharges billed separately from the headline fee. Oyster's model is flat and predictable.ย
Book a Free Demo to get a Japan-specific cost breakdown for your headcount.
Start hiring in Japan faster than you think
Japan bank account setup for salary transfer can add one to two weeks to a new hire's first payroll if not anticipated early. Plan for this in your onboarding timeline, because it's a practical detail that catches teams off guard.
How the Japan EOR onboarding process runs
The onboarding process follows five steps:
- Agree on compensation and role details with your candidate
- Oyster generates a Japan-compliant employment agreement
- Employee signs digitally (steps 1โ3 target 48 hours)
- Social insurance enrollment begins immediately
- First payroll processes on the monthly cycle, typically by the 25th
One nuance to plan for: Japan payroll is monthly, and payment lands on a fixed date. If your hire starts mid-cycle, the timing of their first paycheck depends on where you are in the payroll calendar.
Oyster will walk you through this during setup so there are no surprises on either side.
Oyster vs other Japan EOR providers
Japan's stringent labor protections mean the quality of your EOR's in-house legal team directly affects your termination risk exposure. Oyster is the only B Corp-certified EORโproof that fair employment practices extend to every Japan hire, not just legal minimums.
How Oyster compares to Deel and Rippling in Japan
If you're choosing between Oyster and Deel for your Japan hire, the key difference is how each provider handles compliance risk. Oyster employs in-house Japan legal specialists who review every employment agreement and track obligations like 36-agreement filing and mukiraka conversion rights. That's the difference between a platform that processes payroll and a partner that keeps you compliant when Japanese labor law gets complicated. And it will.
Hire your first Japan employee today
Hiring in Japanย moves faster with an EOR. Every week without one is a week your talent considers other offers.
Book a demo and move your Japan hire forward
You've found the person. Now hire them compliantly in Japan without a local entity, hidden fees, or compliance gaps. After you book, you'll have a brief conversation, a Japan-specific compliance walkthrough, and a proposalโso you can move forward with confidence.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the worldโwith reliable, compliant payroll, and great local benefits and perks.
