How to Hire Employees in Japan
Learn how to hire employees in Japan compliantly. Understand hiring options, employment laws, payroll, taxes, contracts, and how EORs simplify hiring.
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- The guide compares three hiring models for foreign companies in Japan: local entity setup, Employer of Record, and independent contractor engagement, with costs and timelines for each.
- Japan's abuse of dismissal right doctrine and Article 18 five-year fixed-term conversion rule are identified as high-priority compliance risks requiring proactive tracking.
- Statutory employer costs include social insurance contributions averaging 15–20% of standard monthly compensation, covering health, pension, employment, and workers' compensation insurance.
- The guide covers employment contracts, payroll structure, work permits, onboarding obligations, termination rules, and sector-specific hiring conditions across Japan's major cities.
Foreign companies hiring in Japan must provide written employment contracts, register employees for social insurance, and comply with the Labor Standards Act from day one. Japan's 'abuse of dismissal right' doctrine gives regular employees unusually strong protection against termination, even for performance reasons.
The core hiring decision is whether to establish a local entity or use an Employer of Record. Entity setup takes 3 to 6 months and costs between $3,050 ($0.03 (¥5)00,000) and $9,150 ($0.01 (¥1),500,000). An EOR enables compliant employment in days without a local entity.
This guide covers hiring models, payroll structure, statutory benefits, termination rules, and compliance obligations for foreign companies employing workers in Japan. Gloroots operates as a Global Employer of Record in Japan, managing contracts, payroll, social insurance filings, and ongoing compliance.
Job Market and Hiring Trends in Japan
Japan's workforce is shrinking by more than 500,000 people annually due to population aging, pushing demand for skilled workers to record levels across technology, healthcare, and manufacturing as of 2025.
Shortages are most acute in IT, semiconductor manufacturing, nursing care, and logistics, where domestic supply cannot keep pace with demand.
Japan's unemployment rate stood at approximately 2.5% in early 2025, indicating near-full employment conditions across most sectors (Statistics Bureau of Japan).
The 2024 shunto spring wage negotiations produced average wage increases of 5.1%, the highest in 33 years, according to Rengo, Japan's Trade Union Confederation.
Japan's IT talent gap is projected to reach 790,000 workers by 2030, driven by the government's digital transformation agenda (Ministry of Economy, Trade and Industry).
The nursing care sector faces a projected shortfall of 690,000 workers by 2040 (Ministry of Health, Labour and Welfare), a gap that has increased government focus on the Medical Services Visa and Nursing Care Visa programs.
Foreign worker registrations in Japan reached a record 2.04 million in 2023 (Ministry of Health, Labour and Welfare), reflecting growing reliance on international talent to fill domestic gaps.
For foreign employers, Japan offers a highly educated workforce with deep expertise in engineering, software, manufacturing, and design. Stable legal and financial infrastructure supports long-term workforce investment.
Your Options for Hiring in Japan: Entity vs. EOR vs. Contractor
Foreign companies hiring in Japan choose between three paths: a local entity, an Employer of Record (EOR), or contractor engagement. Each carries distinct compliance obligations, cost structures, and timelines.
Entity setup requires registration with the Legal Affairs Bureau, minimum capital ($0.01 (¥1) for a GK, typically $0.03 (¥5)–10 million for KK credibility), and 3–6 months before you can employ anyone.
Contractor engagement suits genuinely independent, project-based work. It is not appropriate for directing daily tasks, setting schedules, or maintaining exclusive working relationships.
Path | Setup Time | Cost | Compliance Burden | Best For |
|---|---|---|---|---|
Local Entity | 3–6 months | $3,050 ($0.03 (¥5)00,000)–$9,150 ($0.01 (¥1),500,000) + ongoing admin | Full burden on you | Long-term, large-scale operations |
Employer of Record | Days | No setup cost | Shifted to EOR provider | Fast, compliant market entry |
Independent Contractor | Immediate | No setup cost | Classification risk on you | Short-term, genuinely independent work |
An EOR is the fastest path to compliant employment in Japan. The EOR becomes the legal employer, handles payroll, social insurance, and statutory filings, and lets you direct the employee's day-to-day work. To understand how does EOR work in practice, and to compare providers before committing, see our guide to the best employer of record options available today.
Employees vs. Contractors in Japan
Misclassifying an employee as a contractor in Japan triggers retroactive reclassification from day one, with back payment of all social insurance contributions and employee entitlements owed from the start of the relationship.
Japan's classification test centers on subordination. Courts and labor inspectors examine whether the employer controls work methods, timing, and location. The label on the contract does not determine the outcome. The reality of the working relationship does. A contractor who follows a fixed schedule, uses company equipment, and works exclusively for one client will likely be reclassified as an employee regardless of what the agreement says.
The IT sector faces particularly close scrutiny. Labor Standards Inspection Offices treat software development engagements as high-risk for misclassification and audit them at elevated frequency.
Classification Factor | Employee | Contractor |
|---|---|---|
Control | Employer directs methods, timing, and location | Worker controls how and when work is done |
Benefits / Social Security | Mandatory enrollment in health, pension, and employment insurance | Not enrolled; worker self-manages |
Taxation | Employer withholds income tax and resident tax | Contractor self-files and pays taxes |
Contractual Agreement | Employment contract under the Labor Standards Act | Service or business commission agreement |
Exclusivity | Typically works exclusively for one employer | Serves multiple clients independently |
Cost to Hire an Employee in Japan
Total employment cost in Japan is gross salary plus mandatory social insurance contributions, which average 15–20% of standard monthly compensation.
Employer contributions cover health insurance, pension, employment insurance, workers' compensation, childcare, and asbestos levy. Rates are calculated against standard monthly compensation brackets, not actual salary figures. Understanding the full employer of record cost helps companies budget accurately before committing to a hiring model.
Contribution | Employer Rate | Employee Rate | Notes |
|---|---|---|---|
Health insurance | ~5.00% | ~5.00% | Rates vary by prefecture and health insurance association |
Pension insurance | 9.15% | 9.15% | Fixed national rate applied to standard monthly compensation brackets |
Employment insurance | 0.95–1.15% | 0.60% | Employer rate varies by industry risk classification |
Workers' compensation (employer liability/admin fee) | 0.25–8.80% + ~0.60% | 0% | Employer-only; base rate set by industry hazard category plus administrative fee |
Long-term care insurance (age 40+) | ~0.90% | ~0.90% | Applies only to employees aged 40–64; collected alongside health insurance |
Childcare contribution | ~0.36% | 0% | Employer-only contribution |
Asbestos levy | ~0.002% | 0% | Employer-only contribution |
Employers must also budget approximately $285 (JPY 45,000) (roughly $300) per employee per year for the mandatory annual health examination required under the Industrial Safety and Health Act.
Compliance Risks While Hiring in Japan
Non-compliance in Japan is not theoretical. Labor Standards Inspection Offices conduct regular audits, and employees can file complaints directly with those offices at any time.
Three additional risk areas require specific attention beyond the standard compliance checklist.
Arbitration clauses are unenforceable. Japanese law prohibits arbitration for employment disputes, including wrongful dismissal claims. All such disputes must proceed through the Labor Tribunal or civil courts. Inserting an arbitration clause into an employment contract does not eliminate this exposure.
APPI data privacy violations. The Personal Information Protection Act requires informed consent before collecting employee personal data. Using that data for purposes not disclosed at the time of collection triggers regulatory action. Foreign employers operating without a documented data handling policy are at direct risk.
Article 18 five-year rule tracking failures. Under the Labor Contract Act, employees on fixed-term contracts who accumulate more than five years of continuous service gain the right to convert to indefinite employment. Employers who fail to track cumulative contract duration can trigger an unintended conversion without any formal action by the employee.
Misclassification, payroll errors, and termination without documented grounds remain the highest-frequency violations. The risks above compound those exposures when employers lack structured employment governance in Japan.
Key Labor Laws in Japan
Employment contracts
Written contracts are legally required under the Labor Standards Act. Indefinite-term contracts are the default form of employment. Fixed-term contracts are capped at three years for most roles and five years for specialists.
Employees working under fixed-term contracts for more than five cumulative years gain the right to convert to indefinite employment under Article 18 of the Labor Contract Act. Employers must track cumulative fixed-term duration across all renewals, flag employees approaching the five-year threshold, and manage conversion requests proactively. Converted contracts carry the same working conditions as the preceding fixed-term contract unless otherwise agreed in writing.
Under the Part-Time and Fixed-Term Employment Act, employers must provide equal treatment on pay, bonuses, and retirement allowances relative to comparable full-time employees. Discriminatory treatment without objective justification is prohibited.
Working hours and overtime
Standard working hours are 40 per week and eight per day. Overtime requires a written Article 36 Agreement (36 kyotei), negotiated with a union or a majority employee representative. Total annual overtime is capped at 360 hours under the Labor Standards Act.
Overtime premium rates are as follows: standard overtime 25%, hours exceeding 60 per month 50%, work on a statutory day off 35%, late-night work between 10 pm and 5 am 25%, late-night plus standard overtime 50%, late-night plus hours exceeding 60 per month 75%, and late-night plus statutory day-off work 60%.
Minimum wage
Japan sets minimum wages at the prefectural level across all 47 prefectures. The national average hourly minimum wage is $6 ($0.01 (¥1),054), with prefectural rates ranging from $6 ($0.01 (¥1),023) to $7 ($0.01 (¥1),226) per hour. Tokyo's rate is $7 ($0.01 (¥1),113) per hour. Employers must meet the applicable prefectural rate for each work location.
Leave entitlements
Employees receive a minimum of 10 days of paid annual leave after six months of service, increasing to 20 days after 6.5 years. Caregiver leave (介護休業) provides up to 93 days of total leave, which may be split into up to three separate periods. Payments during caregiver leave are made through employment insurance.
What to Include in an Employment Contract or Offer Letter in Japan
Written employment contracts are legally required in Japan and must be provided before or on the employee's first day of work. Missing or ambiguous documentation is interpreted in favor of the employee, and courts presume regular employment status when contract records are deficient.
The contract must be in Japanese or accompanied by a certified translation. Bilingual versions are recommended for foreign national employees. Every contract must cover the following:
Employer and employee names and addresses
Work location and any potential transfer requirements
Job title, duties, and reporting structure
Start date and contract type, whether indefinite or fixed-term with stated duration
Working hours, rest periods, overtime policy, and reference to the Article 36 Agreement
Gross monthly salary, payment date, and deduction breakdown
Default weekly rest day: Sunday is the statutory default effective July 1, 2024, unless the employer designates another day; the designated day must be specified in the contract or work rules
Remote work conditions if applicable, covering working hours, record-keeping, expense reimbursement, and communication protocols per MHLW guidelines
My Number collection obligation, which must be completed during onboarding for payroll and social insurance filings
Termination conditions and notice periods
Social insurance enrollment confirmation
Payroll and Taxes in Japan
Japan runs payroll monthly, paid in Japanese yen. Most companies process payroll on a fixed date between the 25th and the last day of each month.
Foreign employers without a registered entity in Japan cannot run payroll directly. They must engage a licensed payroll agent or an Employer of Record to process wages, withhold taxes, and file contributions with Japanese authorities.
Employers withhold national income tax at source under the year-end adjustment (nenmatsu chosei) system. Resident tax, assessed by the municipality, is withheld monthly from the second year of employment onward. Both obligations fall on the legal employer of record.
Payroll Item | Detail |
|---|---|
Pay cycle | Monthly, fixed date |
Currency | Japanese yen (JPY) |
Income tax withholding | Employer withholds via nenmatsu chosei year-end adjustment |
Resident tax | Withheld monthly from year two; assessed by municipality |
Social insurance filing | Monthly; employer submits to Japan Pension Service and health insurer |
Weekly paid holiday | Sunday is the statutory default effective July 1, 2024; employer may designate a different day by agreement |
The July 1, 2024 amendment to the Labor Standards Act confirmed Sunday as the default weekly paid holiday. Employers who designate a different day must document that designation in the work rules or employment contract.
Managing payroll in Japan without a local entity requires a compliant structure from day one. Gloroots handles payroll processing, tax withholding, and statutory filings under its Global Employer of Record service. See pricing for country-specific costs.
Employment Benefits in Japan
Japan mandates a defined set of statutory benefits for all employees. Employers must fund and administer these from the first day of employment.
Annual health examinations are required under the Industrial Safety and Health Act. Employers bear the full cost, which runs approximately $285 (JPY 45,000) (around $300) per employee per year. Skipping or delaying these examinations is a Labor Standards Act violation subject to penalties.
Part-time and fixed-term workers are protected under the Part-Time and Fixed-Term Employment Act. That law requires equal treatment on pay, bonuses, and retirement allowances relative to comparable full-time employees. The label on the contract does not override this obligation.
Benefit or Leave | Statutory Entitlement | Notes |
|---|---|---|
Annual paid leave | 10 days after 6 months; up to 20 days after 6.5 years | Employer must ensure at least 5 days are taken per year |
Maternity leave (pre-birth) | 6 weeks before expected birth | Employee may waive pre-birth leave voluntarily |
Maternity leave (post-birth) | 8 weeks after birth | First 6 weeks cannot be waived |
Childcare leave | Until child reaches age 2 in qualifying cases | Paid via employment insurance at up to 67% of salary for first 180 days |
Caregiver leave (介護休業) | Up to 93 days total, split into up to 3 separate periods | Paid via employment insurance; covers care of a family member with a qualifying condition |
Annual health examination | Once per year, employer-funded | Approximately $285 (JPY 45,000) (~$300) per employee; required under Industrial Safety and Health Act |
Caregiver leave (介護休業) is a statutory entitlement, not a discretionary benefit. Employees may take up to 93 days in total, divided across up to three separate periods, to care for a qualifying family member. Employment insurance covers a portion of wages during this leave.
Part-time workers covered by the Part-Time and Fixed-Term Employment Act must receive equal treatment on core compensation elements. Employers who apply different bonus or retirement allowance structures to part-time staff without objective justification face legal exposure under that Act.
Work Permits and Visas in Japan
Foreign nationals working in Japan require a valid residence status tied to their role. All categories require a Certificate of Eligibility (COE), which typically takes one to three months to process before a visa is issued.
Visa / Status | Target Role | Key Eligibility Notes |
|---|---|---|
Engineer / Specialist in Humanities / International Services | IT, engineering, finance, marketing, translation | Degree or 10 years' relevant experience required; most common category for corporate hires |
Highly Skilled Professional (HSP) | Senior technical, research, or management roles | Points-based system; 70+ points grants preferential processing and extended stay |
Specified Skilled Worker (SSW) Type 1 | 14 designated industries including manufacturing and hospitality | Industry-specific skills test and Japanese language test required |
Specified Skilled Worker (SSW) Type 2 | Advanced roles in construction and shipbuilding | Higher proficiency standard; permits family sponsorship |
Medical Services | Foreign nationals in licensed medical roles | Requires Japanese medical license or recognized foreign equivalent; COE mandatory |
Nursing Care | Foreign nationals in nursing care roles | Introduced to address Japan's projected 690,000-worker nursing care shortfall by 2040; Japanese language proficiency required |
Onboarding New Hires in Japan
Onboarding in Japan involves legal, data, and equipment obligations that must be addressed before the employee's first day. Completing each step in sequence reduces compliance exposure from the start.
Before Day One
Collect employee personal data with informed consent and a stated purpose under Japan's Personal Information Protection Act (APPI). Document the data categories collected and the retention period.
If the role is remote, provide written remote work conditions per Ministry of Health, Labour and Welfare (MHLW) guidelines. This document should specify working hours, communication expectations, and expense arrangements.
Provision devices and confirm IT access. Under MHLW remote work guidelines, employers are expected to bear the cost of equipment required for work. Expense reimbursement norms for home office setup should be stated in writing before the employee starts.
Day One
Confirm the signed employment contract is on file. Provide the remote work policy document if applicable.
Register the employee with the relevant social insurance schemes: health insurance, pension, employment insurance, and workers' compensation.
First Week
Complete any role-specific system access and confirm device functionality for remote employees.
Brief the employee on internal data handling procedures consistent with APPI obligations.
Gloroots manages employment contract execution, social insurance registration, and APPI-aligned data collection as part of its Employment Lifecycle Management service, so companies can run Japan onboarding without building local administrative infrastructure.
NDAs, Confidentiality and IP Protection in Japan
Confidentiality agreements and IP assignment clauses are enforceable in Japan under established civil and statutory law.
Employers should include explicit confidentiality obligations and IP assignment provisions in every employment contract. The Unfair Competition Prevention Act protects trade secrets from misappropriation. The Patent Act requires employers to pay reasonable compensation to employees who create inventions in the course of their duties, even when IP ownership is assigned to the employer by contract.
Confidentiality obligations also extend to employee personal data. Japan's Act on the Protection of Personal Information (APPI) requires employers to implement appropriate data security measures. Employees have the right to access, correct, and request deletion of their personal data held by the employer. Contracts and internal policies should reflect these obligations explicitly.
Termination and Offboarding in Japan
Termination procedures in Japan are among the most stringent in the world, shaped by strong statutory protections and a workforce culture built around long-term employment.
Japan's average employment tenure is 12.4 years, the longest globally. This context explains why courts apply the abuse of dismissal right doctrine strictly and why employers often prefer jishoku kankoku, a managed resignation process, as the preferred exit path for underperforming employees.
Under Civil Code Article 627, employees who resign must give a minimum of two weeks' notice. In practice, one month is the standard notice period and is commonly specified in employment contracts. Employers should align contract terms with this practical norm from the start.
Arbitration clauses are not enforceable for employment disputes in Japan, including wrongful dismissal claims. Disputes must be resolved through the Labor Tribunal system or civil courts. Employers should not include arbitration provisions in Japanese employment contracts, as they will not be upheld.
Business Culture in Japan
Japan's workplace culture is formal, hierarchical, and relationship-driven. Understanding these norms reduces friction when managing Japanese employees or working with local partners.
Communication style: Indirect communication is standard. Disagreement is rarely expressed openly. Silence or vague affirmations often signal discomfort rather than agreement.
Hierarchy: Seniority shapes decision-making authority and meeting dynamics. Address senior colleagues formally and defer to rank in group settings.
Decision-making (nemawashi and ringi): Decisions move through consensus-building (nemawashi) and formal approval documentation (ringi). Expect longer timelines than in Western markets.
Punctuality: Arriving on time is a baseline professional expectation. Late arrivals to meetings are treated as a serious lapse.
Negotiation norms: Relationships precede transactions. Initial meetings focus on trust-building, not deal terms. Pressure tactics are counterproductive.
Management norms: Managers are expected to support team cohesion and avoid singling out individuals publicly, whether for praise or criticism.
Remote work: MHLW guidelines have formalized remote work as a recognized employment arrangement. Employers retain health and safety obligations for remote workers, including those working from home.
Top Sectors to Hire From in Japan
Japan's tightest talent markets are concentrated in technology, healthcare, manufacturing, and logistics. Each sector offers deep specialist expertise alongside well-documented supply shortages.
Technology and software: Japan's IT talent gap is projected to reach 790,000 workers by 2030 (Ministry of Economy, Trade and Industry). Demand is strongest in software development, cloud infrastructure, and semiconductor design.
Healthcare and nursing care: The nursing care sector faces a projected shortfall of 690,000 workers by 2040 (Ministry of Health, Labour and Welfare). Foreign nationals working in this sector may qualify under the Medical Services Visa or the Nursing Care Visa, both of which are relevant hiring tools for employers sourcing international candidates.
Manufacturing and engineering: Japan's Kaizen-trained manufacturing workforce produces measurable quality output. Demand for process engineers and quality specialists remains high across automotive and electronics supply chains.
Logistics and supply chain: E-commerce growth and an aging domestic workforce are driving sustained demand for logistics coordinators and warehouse operations staff.
Fintech and financial services: Japan's expanding fintech sector is generating demand for compliance, product, and engineering roles, particularly in Tokyo.
For companies building APAC hiring strategies across multiple markets, see our guide to hire employees in China for a comparable regional context.
Top Cities to Hire From in Japan
Japan's talent is concentrated in a handful of cities, each with distinct specializations that shape hiring strategy and compensation expectations.
Tokyo is the primary hub for software engineering, fintech, corporate services, and management roles. It carries the highest prefectural minimum wage in Japan, approximately $7 ($0.01 (¥1),113) per hour as of 2026, and salary benchmarks across all roles are highest here.
Osaka supports strong manufacturing, logistics, and pharmaceutical talent pools. It is the commercial center of the Kansai region and offers a lower cost base than Tokyo for equivalent roles.
Nagoya is the center of Japan's automotive and precision manufacturing industries. Toyota's headquarters anchors a dense network of engineering and supply chain professionals in the region.
Fukuoka has grown into a recognized technology and startup hub, supported by government incentives for foreign companies. It offers competitive engineering talent at compensation levels below Tokyo.
Sapporo is an emerging IT services and software development center, with lower operating costs and a growing pool of mid-level engineering professionals. For companies also evaluating APAC talent markets, see our guide to hire employees in Singapore.
Hire Compliantly in Japan with Gloroots
Gloroots operates as a Global Employer of Record in Japan. Under this model, Gloroots can act as the local employer of record, managing employment contracts, payroll processing, applicable social insurance administration, and statutory employment requirements while the client retains day-to-day management of the employee.
Gloroots can manage key Japan employment obligations, including applicable health insurance, employees' pension insurance, employment insurance, workers' compensation procedures, paid leave administration, and required employee health examinations. Japanese employers have statutory obligations relating to health examinations at hiring and at regular intervals, generally once a year for applicable employees.
The EOR model allows companies to employ workers in Japan without establishing and capitalizing their own Japanese entity. It can be a practical option for companies building an initial Japanese team, testing the market, or hiring specialized talent before deciding whether a permanent local presence is warranted. Employment start dates depend on the completion of the required employment, payroll, and immigration processes where applicable.
Gloroots provides country-specific pricing for Japan, with the applicable service fees and employer costs presented as part of the engagement. Before signing, compare Gloroots' pricing, employing-entity structure, and Japan-specific support coverage against your hiring plans and expected timeline.
For companies building headcount across multiple markets, Gloroots also supports employment in countries including India. See the guide to hire employees in India for a comparable compliance overview. To review the broader scope of employment support, see EOR services.
Frequently Asked Questions About Hiring in Japan
Can a foreign company hire employees in Japan without a local entity?
Yes. A foreign company can hire employees in Japan through an Employer of Record. No local entity is required.
The EOR becomes the legal employer on record and manages all compliance obligations, including employment contracts, payroll, and social insurance filings. The client company directs the employee's day-to-day work.
What are the background check rules for hiring in Japan?
Employers may conduct criminal record checks, professional history verification, work authorization checks, and reference checks. Written consent from the candidate is required before any check is performed.
Medical records, political views, and fingerprinting without consent are restricted or prohibited. Japan's privacy-first legal stance discourages mandatory screening programs, and employers should document consent carefully for every check conducted.
What are Japan's remote work obligations for employers?
Ministry of Health, Labour and Welfare ministerial guidelines apply to remote work arrangements. Employers must address working hours, record-keeping, expense reimbursement, and communication protocols in writing.
Health and safety obligations under the Industrial Safety and Health Act extend to home-based workers. Employers are responsible for ensuring the work environment meets statutory standards even when employees work from home.
Is arbitration available for employment disputes in Japan?
No. Arbitration clauses are not enforceable for employment disputes in Japan, including wrongful dismissal claims.
Disputes must go through the Labor Tribunal or civil courts. Employers should plan for formal tribunal proceedings when employment relationships break down and maintain thorough documentation throughout the employment lifecycle.
What notice is required when an employee resigns in Japan?
Under Civil Code Article 627, an employee on an indefinite-term contract must give a minimum of two weeks' notice before resignation. Fixed-term contract rules differ and depend on contract terms.
Employers cannot prevent a resignation after the notice period expires. Contracts may specify longer notice periods, but courts will not enforce terms that unreasonably restrict an employee's right to leave.
What is the minimum wage in Japan?
Japan has no single national minimum wage. Prefectural minimums apply across all regions, ranging from approximately $6 ($0.01 (¥1),023) to $7 ($0.01 (¥1),226) per hour as of 2025, with Tokyo at the higher end of that range.
The national weighted average stands at approximately $6 ($0.01 (¥1),054) per hour. Employers must meet the applicable prefectural rate for each employee's work location. Overtime premiums of at least 25% apply to hours worked beyond the standard weekly threshold.
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