Hire employees in Japan using an Employer of Record

You need someone in Japan by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.

Here's the uncomfortable truth: Japan's employment system is built for long-term relationships, not quick hires. Mandatory bonuses, complex social insurance, and strict termination rules mean one wrong move costs serious money. Most companies discover this after they've already made promises to candidates.

You've got three ways to hire in Japan legally. Each has different costs, timelines, and headaches.

Option 1: Set up your own entity

• Cost: €25,000-45,000 upfront, €8,000-15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Corporate registration, tax office enrollment, social insurance setup, labor standards compliance
• Makes sense when: Hiring 15+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines (€5,000+ per case), back social insurance payments, labor disputes
• Makes sense when: Project work under 6 months, specialized consulting
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-20 employees, testing markets, multi-country teams

If you're hiring 1-5 people, entity setup costs more than 5+ years of EOR fees ($179/month = $2,148/year per employee vs €25,000+ entity setup). An EOR like Hire with Columbus handles employment contracts, monthly payroll, social insurance, annual tax filings, and compliance updates. You get compliant hiring without the legal overhead or 6-month wait.

Ready to hire in Japan without the entity setup delays? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Japan. The costs and risks are wildly different, and most companies skip straight to option three once they see the numbers.

How can you hire in Japan?

Set up your own entity

This is the old-school route, but it'll cost you a fortune and take forever. You'll need a kabushiki-kaisha (joint-stock company) or godo-kaisha (LLC equivalent), which costs ¥3.5-5 million just to incorporate. That's registration taxes, notary fees, and mandatory capital requirements before you even start.

Then the real fun begins. You're setting up payroll systems, registering for social insurance, finding local accounting firms, and learning Japan's complex labor laws from scratch. Most companies spend 4-6 months getting everything operational.

This makes sense if you're planning to hire 20+ people long-term and want complete control over your Japanese operations. Otherwise, it's overkill.

Hire contractors/freelancers

Japan doesn't mess around with contractor misclassification. If the Ministry of Health, Labour and Welfare decides someone should've been an employee, you're looking at back taxes, social insurance contributions, and fines up to ¥10 million.

The test is simple but brutal: if you control when, where, and how someone works, they're probably an employee. Real contractors need genuine independence – their own clients, equipment, and work methods.

Only use this for specialized projects under six months where you truly need independent expertise. Don't try to make your full-time developer a "contractor" to save money.

Use an employer of record (Recommended)

This is where Hire with Columbus comes in. We become the legal employer in Japan while you manage the day-to-day work. Your new hire gets a compliant Japanese employment contract, proper benefits, and local payroll without you setting up an entity.

Do the math: five employees cost $895/month with us versus ¥3.5+ million upfront for your own entity. Plus you're hiring in days, not months.

We handle all the stuff that makes Japanese employment tricky: shakai hoken (social insurance), nenmatsu chosei (year-end tax adjustments), and labor law compliance that keeps HR lawyers busy.

Employment contract types in Japan

Once you've decided how to hire, you need the right contract type. Japan recognizes several employment arrangements, each with specific rules that actually matter.

Seishain (Regular/permanent employment)

This is your standard full-time employment contract with no end date, full benefits, and maximum job security. About 87% of Japanese employees have seishain status as of 2026.

Use this for core team members you want long-term. These employees get full social insurance, paid leave, and strong termination protection. Firing a seishain employee without just cause can cost 6-12 months' salary in severance.

Hire with Columbus sets up seishain contracts for most international hires since they provide stability and help attract top talent.

Keiyaku-shain (Fixed-term employment)

These contracts have specific end dates, typically 1-3 years. They're useful for project work or when you're testing market demand, but Japan limits how you can use them.

Key restrictions in 2026: You can't renew fixed-term contracts forever. After five years total or multiple renewals, employees can demand conversion to permanent status. The courts usually side with employees on these conversions.

Fixed-term employees still get most benefits like social insurance, paid leave, and overtime pay. The main difference is easier termination when contracts expire.

Part-time and dispatch workers

Part-time employees work less than 30 hours per week and have fewer benefit requirements. They still get social insurance if they meet income thresholds. Dispatch workers come through staffing agencies – you pay the agency, they handle employment.

Both options work for specific needs but won't help you build a core team. Most international companies stick with seishain contracts for remote employees.

Which contract type should you choose?

For most international hires, seishain contracts make the most sense. They provide stability, attract better candidates, and avoid the headache of managing contract renewals.

Use fixed-term only when you genuinely have project-based work with clear end dates. Don't use them to dodge permanent employment obligations – Japanese courts see right through that strategy.

Hire with Columbus handles all contract types, but we typically recommend permanent employment for international team members. It's cleaner legally and better for building long-term teams.

How does payroll and taxation work?

Your ¥8 million employee actually costs ¥11.2 million per year in Japan. Between employer social insurance contributions, unemployment insurance, and various mandatory payments, you're looking at about 40% on top of base salary.

Japan's tax system hits employees from multiple angles, and as an employer, you're responsible for calculating and withholding everything correctly. Miss a deadline or miscalculate contributions, and penalties start at ¥100,000 per violation.

Income tax brackets

Japanese income tax uses a progressive system that gets expensive quickly for higher earners. Here's what your employees will pay in 2026:

But wait, there's more. Employees also pay resident tax at roughly 10% of income, calculated on the previous year's earnings. So someone earning ¥8 million pays about 23% income tax plus 10% resident tax.

Social security contributions breakdown

This is where employer costs really add up. Japan's social security system requires contributions from both sides, and the employer portion is substantial:

*Workers' compensation rates vary by industry. Office work is 0.25%, construction can hit 8.8%.

You'll also pay into the child care leave fund (0.36% of salary) and various smaller levies that add another 0.5-1% to your total costs.

Payment schedule and bonuses

Japanese employees expect monthly salary payments, typically on the 25th of each month. But here's the kicker - most companies pay semi-annual bonuses equivalent to 2-6 months of salary.

Budget for at least 14-16 months of salary per year when hiring in Japan. Summer bonuses (usually paid in June or July) and winter bonuses (December) aren't legally required but are so standard that skipping them will hurt retention.

Many companies also pay a small transportation allowance (typically ¥10,000-30,000 per month) that's tax-free up to certain limits.

Total employment cost example

Let's break down the real cost of hiring someone at ¥8 million annually:

Base salary: ¥8,000,000 Employer social contributions:

• Health insurance: ¥396,000
• Pension insurance: ¥732,000
• Employment insurance: ¥76,000
• Workers' compensation: ¥20,000
• Other contributions: ¥50,000

Total employer contributions: ¥1,274,000 Bonuses (conservative 3 months): ¥2,000,000 Transportation allowance: ¥240,000

Total annual cost: ¥11,514,000 (44% above base salary)

Payroll cycle and deadlines

Japan runs on a strict payroll calendar. Income tax withholding gets remitted by the 10th of the following month. Social insurance contributions are due by the end of the month following the pay period.

Year-end tax adjustments happen in December, where you reconcile actual vs. withheld taxes for each employee. Miss this deadline and you're personally calculating everyone's final tax burden.

The annual labor insurance premium filing is due by July 10th. Late filings incur penalties of 10-25% of the amount due, plus daily interest charges.

Common payroll mistakes

The biggest mistake? Miscalculating social insurance contribution bases. Japan uses "standard monthly remuneration" tables that don't always match actual salary, and getting this wrong affects both current contributions and future pension benefits.

Another gotcha: overtime calculations. Japan requires 25% premium for overtime, 35% for late night work (10 PM to 5 AM), and 35% for holiday work. Stack these and you can hit 60% premiums.

Many companies also mess up the resident tax collection. You don't calculate this - local municipalities send you the amounts to withhold. But you're responsible for remitting it correctly and on time.

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Setting up payroll in Japan yourself:

• Local accounting firm: ¥300,000-500,000/month
• Payroll software: ¥50,000-100,000/month
• Compliance risk: Fines up to ¥1,000,000 for errors
• HR expertise needed: ¥6,000,000+ salary

With Hire with Columbus: $179/month per employee, fully compliant, zero risk of miscalculations or missed deadlines.

What benefits and leave are required?

Japan employees get 10 days minimum vacation after six months of employment, and it must be used within two years or paid out at termination. Beyond that baseline, you're looking at mandatory health insurance, pension contributions, and some of the world's most generous parental leave policies.

What gets expensive fast: Japan operates on a 14-payment salary system in many companies (twice-yearly bonuses are culturally expected), and benefit contributions add about 15% to your total employment costs.

Annual vacation leave

Japan's vacation system starts conservatively but builds over time. New employees get zero vacation days for their first six months, then 10 days after completing six months of service.

The accrual schedule increases with tenure:

• 6 months: 10 days
• 1.5 years: 11 days
• 2.5 years: 12 days
• 3.5 years: 14 days
• 4.5 years: 16 days
• 5.5 years: 18 days
• 6.5+ years: 20 days (maximum)

Unused vacation expires after two years, but you must pay out any unused days when an employee leaves. This creates a significant liability if your team doesn't actually take their time off (which happens frequently in Japan's work culture).

Sick leave and medical benefits

Japan doesn't mandate specific sick leave days like other countries. Instead, employees can take unlimited unpaid sick leave, but social insurance kicks in after three consecutive days.

The National Health Insurance covers 60% of an employee's standard daily wage starting from day four of illness. Employees need a medical certificate for any absence longer than three days.

Most competitive employers offer 5-10 paid sick days annually to cover those first few days before social insurance benefits begin. Without this, employees either work while sick or lose pay immediately.

Parental leave

Japan offers some of the world's most generous parental leave policies, though uptake varies dramatically by gender.

Maternity leave:

• 6 weeks before birth (mandatory if requested)
• 8 weeks after birth (mandatory)
• Paid at 67% of salary for first 180 days, then 50%
• Job protection guaranteed

Paternity leave:

• Up to 1 year (can be split into two periods)
• Same pay structure as maternity leave
• Can be taken simultaneously with mother's leave for first 8 weeks

Parental leave (for both parents):

• Until child turns 1 year old (extendable to 2 years in special circumstances)
• Can be shared between parents
• 67% pay for first 180 days, 50% thereafter

The reality? Nearly 100% of women take maternity leave, but only about 14% of eligible fathers take paternity leave despite the generous policy.

Public holidays 2026

Japan has 16 national holidays in 2026, and employees must receive either the day off or premium pay (typically double time).

Golden Week (April 29 - May 5) effectively shuts down the country when combined with weekends. Plan for reduced productivity during this period.

Mandatory benefits and contributions

Three benefits are legally required: health insurance, pension contributions, and employment insurance. Who pays what:

Health Insurance (10.0% of salary):

• Employee: 5.0%
• Employer: 5.0%
• Covers medical expenses, some sick leave pay

Pension Insurance (18.3% of salary):

• Employee: 9.15%
• Employer: 9.15%
• Provides retirement and disability benefits

Employment Insurance (varies by industry, typically 0.9%):

• Employee: 0.3%
• Employer: 0.6%
• Covers unemployment benefits

Workers' Compensation Insurance:

• Employer: 0.3-8.8% (varies by industry risk)
• Employee: 0%
• Covers workplace injuries and illnesses

Total mandatory contributions run about 15% of gross salary for employers, plus the full employer portion of workers' compensation.

Competitive benefits beyond minimums

Most international companies offer additional benefits to attract talent in Japan's competitive market:

Transportation allowances: Up to ¥100,000 monthly tax-free for commuting costs. This isn't legally required but is culturally expected and tax-advantaged.

Housing allowances: Many companies provide ¥20,000-50,000 monthly housing subsidies, especially in expensive cities like Tokyo.

Bonus payments: Summer (June/July) and winter (December) bonuses totaling 3-6 months of salary annually. While not legally mandated, they're culturally expected and factored into total compensation discussions.

Additional vacation: Many companies offer 15-20 days starting vacation instead of the legal minimum 10 days.

Health checkups: Annual full health screenings beyond basic occupational health requirements.

Common benefit mistakes and penalties

Failing to enroll employees in social insurance: Penalties start at ¥100,000 per employee plus back-payment of all contributions with interest. The government actively audits companies with foreign ownership.

Miscalculating overtime premiums: Regular overtime pays 125% of hourly rate, weekend work pays 135%, and holiday work pays 150%. Getting this wrong triggers labor inspections and potential criminal charges for executives.

Not paying out unused vacation: Each unused vacation day must be paid at the employee's current daily rate at termination. Companies often underestimate this liability, especially for senior employees with 20 days annual vacation.

Bonus calculation errors: If you establish a bonus pattern, Japanese courts often treat it as part of expected compensation. Suddenly cutting bonuses without clear performance metrics can trigger wrongful termination claims.

Missing workers' compensation coverage: Operating without proper workers' comp insurance can result in personal liability for executives if workplace injuries occur.

Administering these benefits correctly requires local HR expertise (¥6-8 million annual salary), benefits administration software (¥50,000+ monthly), and ongoing legal compliance review (¥500,000+ annually).

Hire with Columbus handles all benefit administration, social insurance enrollment, and compliance monitoring for $179/month per employee. We ensure your team gets proper coverage while you avoid the administrative complexity and penalty risks of managing Japanese benefits requirements directly.

What are the compliance requirements?

Written contracts are mandatory in Japan within 14 days of the employee's start date. Skip this deadline and you're looking at potential fines plus the employee can claim their verbal understanding supersedes your intentions.

Employment contract requirements

Every employment contract in Japan must include specific mandatory clauses or the entire agreement can be deemed invalid. You need the employee's job description, work location, working hours, wages, payment dates, and termination conditions spelled out clearly.

The contract must be in Japanese if the employee requests it, even for foreign workers. You can provide an English version alongside, but the Japanese version takes legal precedence in any dispute.

Contracts don't require government registration, but you must provide a copy to the employee and keep detailed records. Missing any mandatory clause? The Labor Standards Office can void the contract and order back payments based on the employee's claims about what was promised.

Probation periods

Standard probation in Japan runs 3 months, with a maximum of 6 months allowed by law. During the first 30 days, you can terminate without the usual notice requirements or severance obligations.

After 30 days but within probation, you still need "just cause" to terminate - probation doesn't give you unlimited firing rights. The employee gets 30 days' notice or payment in lieu, and they can challenge the termination through labor tribunals.

Most companies stick to 3 months since extending probation requires clear justification and employee agreement. Hire with Columbus handles all probation documentation and ensures terminations follow proper procedures if things don't work out.

Working time regulations

Maximum working hours are 40 per week, 8 per day. Overtime requires written employee consent and premium pay - 25% extra for the first 60 hours monthly, 50% beyond that.

You must provide 45 minutes break for shifts over 6 hours, 60 minutes for shifts over 8 hours. Employees need at least 11 consecutive hours off between shifts, and one day off per week minimum.

Record-keeping is strict - you need precise logs of start times, end times, break periods, and overtime hours. The Labor Standards Office conducts surprise inspections and fines for incomplete records start at ¥300,000 ($2,000).

Notice periods by tenure

Termination process

You can't fire someone without "objectively reasonable grounds" that are "socially acceptable." This isn't just performance - you need documented warnings, improvement plans, and evidence that termination is the only option.

For regular dismissals, you must consult with employee representatives or unions if they exist. The process typically takes 2-3 months minimum with proper documentation and consultation periods.

Immediate termination requires Labor Standards Office approval and applies only to severe misconduct like theft or violence. Get this wrong and you'll face reinstatement orders plus compensation for lost wages.

Severance pay requirements

Severance is mandatory for employer-initiated terminations, calculated on the employee's average monthly wage over the past 3 months. Voluntary resignations don't require severance unless your contract specifies otherwise.

Data protection compliance

Japan follows similar data protection rules to GDPR since 2026 updates to the Personal Information Protection Act. You need explicit consent to collect employee data beyond what's necessary for employment.

Employee records must be stored securely with access controls and audit trails. Data breaches require notification to authorities within 72 hours and affected employees "without undue delay." Penalties for violations can reach ¥100 million ($670,000) or 3% of annual revenue.

Cross-border data transfers need adequate protection measures or employee consent. If you're storing Japanese employee data on US or EU servers, you need proper data processing agreements in place.

Common compliance mistakes

Invalid contract clauses top the list - many companies copy templates without including Japan-specific mandatory terms. The Labor Standards Office can void these contracts and order compensation based on employee claims.

Wrong termination procedures cost companies millions annually. Firing someone without proper consultation, documentation, or notice periods triggers automatic reinstatement orders plus back pay for the entire period.

Missing overtime records or improper break scheduling leads to surprise inspections and immediate fines. The Labor Standards Office doesn't negotiate - violations mean penalties and mandatory compliance audits.

Penalties for violations

Common compliance failures in Japan carry specific penalties:

• Invalid employment contract: ¥300,000 ($2,000) fine plus contract reconstruction costs
• Improper termination: 6-12 months salary compensation plus legal fees and potential reinstatement
• Overtime violations: ¥300,000 ($2,000) per violation plus back pay with 25% penalty interest
• Missing break periods: ¥300,000 ($2,000) fine plus employee compensation claims
• Data protection breach: Up to ¥100 million ($670,000) or 3% annual revenue

Hire with Columbus ensures every contract meets Japan's mandatory requirements and handles all termination procedures according to local law. Our compliance team tracks regulation changes and updates your employment practices automatically, so you avoid these costly mistakes entirely.

What has changed recently?

Japan's job market got a major shake-up in 2026. The government rolled out some big reforms that'll change how you hire and manage employees there.

The biggest change? Japan raised its minimum wage to ¥1,002 per hour nationwide as of October 2026, up from ¥931 in 2024. That's a 7.6% jump that caught many international companies off guard. Tokyo's minimum wage climbed even higher to ¥1,113 per hour, making it one of the priciest regions for entry-level hiring.

New digital nomad visa requirements

Japan finally launched its digital nomad visa program in March 2026, but it's trickier than other countries. Foreign workers can stay for up to six months without a work permit, but only if they earn at least ¥10 million annually from overseas sources.

The catch? If your remote employee starts doing any work that benefits a Japanese entity or clients, they need a proper work visa. This gray area has created compliance headaches for companies with hybrid remote setups.

Updated overtime regulations

Japan tightened its overtime rules in April 2026. The premium overtime rate jumped from 25% to 30% for hours over 45 per month. Companies now face steeper penalties for violations too - up to ¥5 million per incident.

The government also introduced mandatory "interval rest" periods. Employees must have at least 11 straight hours between shifts, just like EU rules. This hits companies hard if you're running global operations with late-night meetings.

Social insurance contribution changes

Social insurance rates went up across the board in 2026. Health insurance contributions increased to 10.2% (split equally between employer and employee). Pension contributions rose to 18.3%.

For a ¥5 million annual salary, you're looking at about ¥142,500 more in annual employer contributions compared to 2024.

Parental leave extensions

Japan extended paid parental leave from 12 to 14 months in 2026. Fathers now get four weeks of dedicated leave that can't be transferred to mothers. The payment rate also bumped up to 80% of salary for the first six months, up from 67%.

New harassment prevention requirements

Companies with 50+ employees must now designate certified harassment prevention officers and run quarterly training sessions. The certification costs about ¥200,000 per officer. Skip this requirement and you'll face ¥1 million fines.

When you work with an EOR like Hire with Columbus, these regulatory changes get handled automatically. We updated all our Japanese employment contracts, payroll systems, and compliance procedures when these laws took effect. You don't have to track every regulatory shift yourself.