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VERDICT: The best Japan Employer of Record (EOR) in 2024 is Horizons. It stands apart from the competition with its deep expertise in the Japan recruitment market and employment regulations.
Japan is now the world’s fourth-largest economy, and it offers many opportunities for global businesses that want to tap into its advanced technological industries and highly skilled workforce. However, gaining a complete understanding of Japan’s regulatory environment can be challenging. Employer of Record (EOR) services in Japan have become vital for companies who want to bypass the intricacies of establishing a local entity and directly begin working with the local labor market.
Japan’s labor laws are known to be strict, with specific requirements for contracts, termination, and worker benefits. While this helps protect the employees, it can complicate complying with all of these specific details for foreign enterprises. For instance, navigating the requirement for severance in unjustified dismissals or adhering to the maximum of 360 overtime hours per year shows some of the regulatory hurdles businesses need to consider.
An EOR simplifies these challenges by ensuring complete legal compliance, managing HR tasks, and allowing for an easier entry to market. Given that 99.7% of Japanese businesses are small to medium-sized enterprises, the potential for growth through proper strategic entry into this market is significant. Using an EOR service allows businesses to minimize any legal or logistical entry barriers while focusing on their core operations and growth strategies.
An Employer of Record in Japan is a specialized service used by companies to legally employ staff without the need to establish their own corporate entity in Japan. The EOR becomes the legal employer on paper, handling all employment-related legal obligations, payroll, taxes, and employee benefits. This arrangement allows foreign companies to quickly build a workforce in Japan while ensuring that they stay compliant with all local regulations.
The key difference between an EOR and a Professional Employer Organization (PEO) lies in the legal employment relationship. While both provide similar HR and payroll services, an EOR assumes all legal responsibilities as the official employer of record. This means they deal with all regulatory, tax, and compliance issues associated with employment.
On the other hand, a PEO operates under a co-employment model where the client company retains more control over employees and shares employer responsibilities with the PEO. An EOR fully takes on the role of the employer for legal and compliance purposes, whereas a PEO provides support while the client company remains the primary employer.
A Japan Employer of Record works by simplifying the employment process for international companies who want to establish or expand their presence in Japan without the hassle of the legal complexities of setting up a local entity. Here’s how it works:
An international company selects a Japan EOR service provider and enters into an agreement. This partnership outlines the EOR’s responsibilities, including compliance with Japanese employment laws, administering payroll, and managing benefits.
The EOR then hires employees on behalf of the international company. Even though the employees will work for the international company, they are legally employed by the EOR. This includes drafting compliant employment contracts, strictly following all local labor laws, and setting up payroll.
The EOR manages all HR-related functions, such as payroll processing, tax deductions, social security contributions, and any other statutory requirements. They also handle employee benefits administration (from health insurance to pension plans), ensuring a competitive and compliant benefits package.
The EOR ensures that all employment practices comply with Japanese labor laws, including working hours, overtime compensation, and termination processes. This protects the international company from any potential legal issues and simplifies the management of Japanese employees.
Japan’s labor laws are designed to protect workers while ensuring fair employment practices. They can often be complex, making it difficult for foreign businesses to understand and navigate them on their own. Employers of Record help ensure that international companies comply with these laws. Some of the key labor laws to take note of include:
While there is no specific format to follow, employment contracts in Japan should clearly outline all of the specific terms and conditions of employment. This includes compensation (stated in Japanese Yen), benefits, responsibilities, and termination rules. EORs ensure all contracts are fully compliant and incorporate all necessary details regarding the company’s work rules (shuugyou kisoku).
Employers are required to enroll employees in health insurance, pension insurance, workers’ compensation, and unemployment insurance. The premiums for these insurance plans are shared between the employer and the employee. EORs manage these enrollments and contributions, which ensures complete compliance with all social insurance obligations.
Employees are entitled to a minimum of 10 days of paid annual leave after six months of continuous service, and this number increases as their seniority increases. EORs track and manage this leave entitlement to ensure that it complies with statutory requirements.
A standard work week in Japan is 40 hours. Employees usually work Monday through Friday, with specific rates for overtime. For example, overtime work is paid at 125% of the hourly wage, with higher rates applicable under certain conditions (e.g., late night or rest day work). EORs ensure adherence to these regulations, including the limits on allowable overtime hours, to avoid any legal issues.
Using the services of an Employer of Record in Japan provides many advantages for international companies looking to enter the Japanese market. Here are the key benefits:
While employing a Japanese employer of Record has numerous benefits, there are also potential downsides to consider, such as:
When looking for an Employer of Record in Japan, selecting one with a proven track record and plenty of experience is important. They must be completely familiar with Japan’s complex regulatory environment.
Equally important is the EOR’s expertise in your specific industry. This will ensure they understand the nuances and challenges that are unique to your sector. Cost is another critical consideration. The pricing structure should be transparent and offer clear value for the comprehensive services provided, including payroll, benefits administration, legal compliance, and HR support.
Finally, the reputation of the EOR is very important. Client testimonials and reviews are valuable resources for gauging the reliability and effectiveness of an EOR’s services.
An Employer of Record in Japan acts as the legal employer, handling all compliance and HR tasks. A Professional Employer Organization (PEO) shares these responsibilities under a co-employment model. The key distinction is that an EOR assumes full legal responsibility for employees.
Yes, outsourcing an EOR service in Japan is possible and allows companies to hire and manage staff legally without setting up a local entity, simplifying market entry and operations while ensuring compliance with local laws.
