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How to Hire in Japan

With a GDP of almost $4.2 trillion, Japan is the fourth-largest economy in the world. The nation presents a dynamic and attractive market for businesses looking to expand their operations. With a diverse and skilled workforce, Japan offers significant opportunities across various sectors. And for any business looking to expand, hiring in Japan presents unique opportunities.

Motor vehicles, electronic equipment, and steel are among the nation’s largest exports. The service sector accounts for the highest percentage of the nation’s GDP and employment. Japan ranks 6th in best for countries open for business and 29th for ease of doing business. Hiring in Japan can be challenging, but a successful start can help your company grow and expand.

How can businesses hire in Japan?

With a robust and resilient economy, Japan is becoming an increasingly popular destination for foreign direct investment (FDI). The country’s robust economic framework and commitment to quality make it an appealing destination for international expansion. Japan is also a hub for innovation, technology, and the third-largest automobile manufacturing country.

Business surveys and economic indicators confirm Japan’s dominance as a business location. To grow in Japan, businesses should know the market, rules, and economy to make strategic decisions to set them up for success. As a result, businesses can capitalize this opportunity by integrating into the international market.

The three options for employers planning to hire employees in Japan are:

Leverage independent contractors
Hire direct employees with your own entity
Partner with a global Professional Employer Organization (PEO)

We’ll break down each option to help you make the best decisions for your business growth.

Independent Contractors

Hiring independent contractors in Japan is a flexible way to expand. However, not following Japan’s employment law can lead to misclassification and result in fines and legal issues. Each country is different, but as a general guide, contractors should adhere to the following criteria:

Contractors can work for several companies together and cannot be limited to working entirely for your business.
Contractors are liable for their working status and schedule—the business cannot determine specific hours of operation.
Contractors must be project-based, or they must work for shorter periods. If a contractor extends their time with a company, they run the risk of being classified as an employee.

The government considers it a misclassification if an employee does not meet the above standards. And if that happens, the contractor can sue the company for benefits, overtime, and holiday pay, since they were technically functioning as an employee

If an employment contract is not followed or clear, the government will often support the contractor claims. The business may also face fines and penalties for the breach.

U.S. companies hiring in Japan need international contractors to fill out the IRS Form W-8BEN. This certifies their foreign worker status in the U.S. government’s eyes. Although this step will resolve tax compliance for the employer in the U.S., the business will still need to abide by Japanese labor law.

Hiring an independent contractor in Japan can be a great solution for one-time projects or to help stabilize a team in the short term.

Direct Employees

If you plan to hire part-time or full-time employees in Japan, you will need a legal entity. Establishing a legal entity is expensive and time-consuming and can take two to four months.

Legal entities are the foundation of all business operations within a country. They can influence every aspect of a business, including IT, accounting, finance, and other supply chain functions. If your business chooses this option, it is recommended to work with an incorporation expert to help you through the process. This ensures that the structure isn’t ineffective or costly to retain.

Outsource to a Global PEO/EOR Provider

If your company wants to grow in Japan without creating a legal entity, outsourcing employment is the top choice. A global Professional Employer Organization provider (PEO) is also known as an Employer of Record (EOR).

A global PEO will hire employees in Japan on your behalf using its own network of established entities. Because the employees are technically hired under their entity, the PEO shoulders much of the administrative burden related to the HR function of a business. This reduces the potential risks and liabilities for the client company. A PEO helps companies manage their employees’ daily tasks, allowing them to focus on other important activities.

Employers can use a PEO to manage hiring, benefits, payroll, and compliance through a network of legal entities. Here are some of the administrative services a PEO offers:

Fast international hiring
Payroll management
In-country compliance
Reduced risks with international contractors
Global talent acquisition
Best-in-class HR technology for the international workforce
Japanese employment contracts

Related: Japan employer of record

Understanding Japan’s Workplace Culture

Key Aspects of Japanese Workplace Culture

Seniority and Hierarchy: Respect for seniority and hierarchical structures are deeply ingrained in Japanese workplaces. Understanding and respecting this can facilitate smoother interactions.
Collectivism: Japanese culture emphasizes group harmony and collective decision-making. Team cohesion and consensus are often prioritized over individual achievements.
Dedication and Hard Work: Japanese employees are known for their dedication, often working long hours. However, there is a growing awareness of work-life balance and mental health.

General Etiquette in Japanese Business Settings

Business Cards (Meishi): Exchange business cards with both hands and a slight bow. Treat the received card with respect, as it reflects the person you are interacting with.
Bowing: Bowing is a common form of greeting and shows respect. The depth of the bow varies depending on the situation and the person you are greeting.
Punctuality: Being punctual is crucial in Japan and arriving late to meetings or appointments can be seen as disrespectful.
Politeness and Formality: Politeness is key in Japanese business etiquette. Use formal language and titles. Avoid overly casual behavior in professional settings.
Silence and Listening: Silence can be a part of the conversation and should not be rushed. Listening attentively without interrupting is a sign of respect.

Key Hiring Sectors in Japan

Several sectors in Japan are experiencing substantial growth and demand for top-tier talent. These include:

Technology and IT: With advancements in artificial intelligence, robotics, and software development, the tech industry is booming.
Healthcare: An aging population is driving the demand for healthcare professionals and innovations in medical technology.
Finance and Banking: As a global financial center, Tokyo remains a critical hub for banking, investment, and financial services.
Manufacturing and Engineering: Known for high-quality manufacturing, Japan continues to seek skilled engineers and production experts.
Education: The emphasis on quality education and international exchange programs creates opportunities for educators and administrative staff.

Employment Law in Japan

Japan’s Employment Contracts

Both employers and employees, under the Labor Contract Act, are required to enter an employment agreement in writing. Usually, the written employment contract reflects the employer’s work rules for detailed terms of the employment relationship.

The different types of employment relationships are:

Permanent Employment – Per Japan’s Labor Contracts Law, employment contracts concluded indefinitely are considered permanent.
Fixed-Term Contracts – In Japan, fixed-term contracts cannot last more than three years. Some employees may be exempt if they have specialized knowledge, advanced skills, or experience, or are 60 years old or older. The contract may be valid for up to 5 years in such cases.
Temporary Employment – The Worker Dispatching Act governs temporary employment in Japan. Temporary employment contracts with the same employer in the same job can be valid for a maximum of 36 months. Employers can hire temporary workers through temporary staffing agencies, which set their wages.

Some of the details typically mentioned in the employment contract include:

Employment rules
Other working conditions
and more

Working Hours

Pet Japan’s Labor Standards Act, the regular workweek is 40 hours and the standard workday is eight hours. There may be some exceptions relating to flexible work schedules. Any hours worked beyond these limits are considered overtime.

Probation Period

The probation period in Japan can last up to one year, but more often, it lasts between three and six months.

Minimum Wage

In different areas, the minimum hourly wage increased to 1002 JPY in 2023.

Bonuses

Although not required by law, Japanese companies commonly give a winter and a summer bonus.

Holiday Entitlement

Employees in Japan receive at least ten days of paid annual leave if employed for at least six months. Employees further receive an additional day of vacation for each of the following two years of employment. Also, an additional two days of vacation for each of the subsequent four years of employment. The maximum amount of paid vacation is 20 days.

In addition to the annual leave, the paid public holidays set by the government are:

New Year’s Day
Second Monday in January: Coming of Age Day
National Foundation Day
Emperor’s Birthday
Vernal Equinox (date in March varies)
Showa Day
Constitution Memorial Day
Greenery Day
Children’s Day
Third Monday in July: Marine Day
Mountain Day
Third Monday in September: Respect for the Aged Day
Autumnal Equinox (date in September varies)
Second Monday in October: Health and Sports Day
Culture Day
Labor Thanksgiving Day
Emperor’s Birthday

Japanese employees also receive:

Maternity leave
Paternity leave
Sick leave
Childcare leave
Sick child leave
Family care leave
Menstruation leave
Bereavement leave
Leave for marriage
Civil rights and public duty leave

Work with Global PEO Services

Global PEO Services, a Safeguard Global company, can help reduce the risks and challenges of international expansion to ensure you are successful in any market. We also help you stay in control of your daily operations, without the added administrative burden.

Staying updated on the laws and regulations in Japan can be difficult. This can make hiring employees in Japan a time-consuming and challenging process due to the need to comply with legal and tax requirements.

We manage all the legal requirements and payroll, while you manage the international team on their daily tasks. For companies hoping to hire and pay in Japan, GPS can help you grow and remain compliant.

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