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VERDICT: The best Japan PEO in 2024 is Horizons, for its deep experience in supporting international companies in Japan and throughout Asia.
A Professional Employer Organization (PEO) in Japan acts like a co-employer to your workforce. They handle numerous different administrative and HR tasks. This partnership allows companies, especially those from overseas, to operate more smoothly within Japan.
A PEO manages responsibilities like payroll, compliance, hiring, onboarding, employee benefits, and compensation, allowing businesses to focus on core activities and growth without worrying about the nuances often involved with following business regulations in Japan.
Distinguishing a PEO from an Employer of Record (EOR) is very important.
While both provide services that help businesses manage their workforce in Japan, there’s a fundamental difference in their operating models. An EOR becomes the legal employer of your staff. This means that they take full responsibility for employment, compliance, and HR tasks. Your employees become completely employed by the EOR on paper, even though they are performing work for you.
On the other hand, a PEO operates under a co-employment style model. This means that your company holds more control over your employees and their work. The PEO shares certain employer responsibilities with you but does not become the legal employer. This distinction is crucial for businesses looking to maintain a direct relationship with their staff while also taking advantage of local expertise to navigate Japan’s complex employment landscape.
Making a choice between a PEO and an EOR in Japan depends on your business needs, including the level of control you want over your employees and the extent of local legal and HR support that you will require.
A Professional Employer Organization (PEO) in Japan works by partnering with organizations in order to manage their HR and administrative tasks. They essentially become a co-employer to their workforce. This arrangement gives companies from overseas the ability to work within the complex Japanese labor market more efficiently.
The process begins when a business reaches out to a PEO with the intention of needing to hire employees in Japan.
The PEO then steps in to organize this, where they will handle the legal and procedural aspects of employment. This usually includes all aspects of payroll management, ensures full compliance with local labor laws, handles onboarding activities, and deals with the administration of employee benefits. This partnership is set up through a co-employment contract, where the PEO and the business share responsibilities related to the workforce.
There are many different reasons that a business may choose to use a PEO. These include being able to enter into the Japanese market without having to establish a separate legal entity and without having to gain HR expertise in order to ensure compliance with Japan’s specific employment regulations.
Once a partnership is formed, the PEO takes on the complete burden of HR tasks. This allows the company the ability to completely focus on its core business activities.
Using a PEO’s services usually involves a detailed discussion about the company’s needs, followed by a tailored proposal from the PEO. After agreeing on terms, the partnership is formalized through a contract, which marks the beginning of the PEO managing the company’s HR functions in Japan. This process is streamlined and simplifies the complexities of managing employees abroad.
It can be a very attractive option for businesses that are interested in expanding into the Japanese market.
Japan’s labor laws are specifically designed to give workers a very high level of protection while also promoting fair employment practices. Understanding these laws is extremely important for businesses to ensure compliance and smooth operations within the Japanese market. Here are some of the most important aspects of Japanese labor laws to be aware of:
Employment contracts in Japan are mandatory and must clearly outline all of the specific terms of employment. This includes detailed job duties, working hours, salary, and termination conditions. These contracts ensure complete transparency and protect both the employer and the employee’s rights.
Employers in Japan are required to enroll their employees in numerous different social insurance programs. These include health insurance, pension insurance, and employment insurance. The contributions to these programs are shared between the employer and the employee, which provides a safety net for workers.
Employees in Japan are entitled to receive a paid annual leave after six months of continuous employment. The number of leave days starts at 10 days per year and increases with the length of their service. Plus, there are several national holidays in Japan for which employees are entitled to paid time off.
Using a Professional Employer Organization in Japan offers numerous different advantages to businesses that are looking to establish or expand their operations in the Japanese market. These benefits include:
PEOs simplify the process of entering the Japanese market by handling the detailed legal and regulatory requirements for hiring employees. This allows companies to focus on their core business activities without the need for a legal entity in Japan.
Understanding Japan’s labor laws can be challenging. PEOs ensure that businesses remain compliant with all local regulations, including employment contracts, national insurance contributions, and worker rights. This compliance is essential for avoiding legal issues and penalties.
Managing payroll and human resources in a foreign country can be very challenging. PEOs take care of these functions, including processing payroll, managing taxes, and administering benefits. This service reduces the administrative burden on businesses and ensures that employees are paid accurately and on time.
By partnering with a PEO, companies can achieve substantial cost savings. Establishing an in-house HR department or managing compliance and payroll on your own can be significantly more expensive, especially when considering the costs associated with legal advice and potential non-compliance penalties. PEOs offer a more cost-effective solution by spreading these costs across multiple client companies.
The administrative tasks associated with HR, payroll, and compliance are time-consuming. A PEO takes over these responsibilities, freeing up company leadership to focus on strategic growth and core business operations. This time savings is invaluable for startups and SMEs where resources are limited and need to be allocated strategically.
PEOs in Japan have in-depth knowledge of local employment laws, regulations, and market practices. This expertise ensures that businesses can handle all of the complexities of the Japanese market, making informed decisions that align with local standards and expectations.
Handling employment law and compliance in-house, especially in a foreign market, can expose companies to potential risks and liabilities. PEOs help minimize these risks by ensuring that employment practices are completely compliant with local laws. This reduces the likelihood of legal issues and financial penalties.
Through a PEO, companies can offer their employees a wider range of benefits than they might be able to provide on their own. PEOs can negotiate better rates for health insurance, retirement plans, and other benefits due to their larger scale and collective bargaining power. This can make the company more attractive to top talent.
As businesses grow, their HR needs change. PEOs offer flexibility and scalability, adjusting their services as the company’s needs evolve over time. This adaptability is especially beneficial for businesses that are experiencing rapid growth or those in industries with fluctuating demand.
While partnering with a Professional Employer Organization in Japan offers many benefits, there are also potential challenges and limitations that need to be considered:
While a PEO can often lead to overall savings, the upfront costs or ongoing fees may be a concern for very small businesses or startups with tight budget considerations. It’s very important to weigh the cost against the benefits and savings in HR management and compliance.
Using a PEO means sharing employer responsibilities, which might lead to perceptions of reduced control over your workforce. Some companies value direct relationships with their employees, and the co-employment model of a PEO could feel like a step away from that closeness.
Certain industries or employment types may not be fully compatible with the PEO model. For example, highly specialized sectors might require specific HR practices or benefits that a PEO cannot fully accommodate, limiting the flexibility to tailor employment packages to specific needs.
Your company’s employment reputation can become closely tied to that of the PEO. Any issues or negative perceptions associated with the PEO could potentially impact your brand.
Selecting the right PEO for your business in Japan is very important to ensure success. Here are some of the key considerations to take into account when making your choice:
Japan PEOs offer a compelling solution for businesses looking to penetrate the Japanese market without the complexities and costs of establishing a legal entity. However, businesses must carefully consider the pros and cons and choose a PEO that aligns with their goals and values.
Our picks for the best Japan PEOs in 2024 are Horizons, Deel, Skuad, Velocity Global, and Remote.
Yes, a PEO can hire both permanent and temporary staff, full-time or part-time, on your behalf in Japan.
While using a PEO is one of the most convenient ways, it's not the only way. You can also use business process outsourcing (BPO), set up a representative office, or enter into a joint venture. However, these methods may come with their own sets of challenges and complications.
An Employer of Record (EOR) in Japan acts as the legal employer of your staff, handling all legal and HR responsibilities. A Professional Employer Organization (PEO), while also managing HR tasks, acts as a co-employer, sharing responsibilities with your company. The main difference is in the level of control and legal responsibility over employees that each one holds.
