An Employer of Record (EOR) in Japan takes on the legal employer role, which means it, not the foreign company directing the work, is bound by the Labor Standards Act (労働基準法) and the Labor Contract Act (労働契約法): mandatory social insurance enrollment, a written 36 Agreement before any overtime, and a dismissal standard that courts apply strictly against the employer. A foreign company that treats the EOR relationship as staffing rather than employment risks the arrangement being reclassified as worker dispatch (派遣), which triggers separate registration duties under the Worker Dispatch Act (労働者派遣法). Our EOR guide for pharma, biotech, and life sciences hiring and our EOR permanent establishment tax risk guide cover the sector- and tax-specific extensions of the same framework.
What Japan Labor Laws Apply to an EOR Arrangement?#
Seven statutes govern the relationship, and an EOR must be compliant with all of them from the first day of employment, not phased in over time.
Japan has some of the strongest employee protections in the developed world. There is no at-will employment. Termination is extremely difficult. Social insurance is mandatory. Understanding these rules is critical whether you hire through an EOR or your own entity.
| Key Legislation | Covers |
|---|---|
| Labor Standards Act (労働基準法, 1947) | Working hours, overtime, leave, wages, dismissal |
| Labor Contract Act (労働契約法, 2007) | Contract formation, modification, termination |
| Equal Employment Opportunity Act (1985) | Gender discrimination, harassment |
| Part-Time/Fixed-Term Employment Act (1993/2014) | Equal treatment for non-regular workers |
| Worker Dispatch Act (労働者派遣法, 1985) | Regulation of dispatched workers |
| Industrial Safety & Health Act | Workplace safety, annual health checks |
| Minimum Wage Act | Regional minimum wages |
Employment Contract Essentials#
What Must Be in Writing
| Required Term | Detail |
|---|---|
| Contract period | Indefinite (正社員) or fixed-term (up to 3 years, 5 for specialized) |
| Workplace | Specific location(s) |
| Job description | Scope of duties |
| Working hours | Start/end times, break periods |
| Overtime rules | When overtime applies, premium rates |
| Wages | Base salary, allowances, payment date, calculation method |
| Termination | Conditions and procedures |
| Retirement | Age, retirement benefit system |
⚠️ In Japanese: While bilingual contracts are common for foreign employees, the Japanese version controls in case of discrepancy. Ensure accurate translation.
Working Hours & Overtime#
Standard Working Hours
| Item | Rule |
|---|---|
| Daily maximum | 8 hours |
| Weekly maximum | 40 hours |
| Break | ≥45 min (for 6–8 hr days) · ≥60 min (for 8+ hr days) |
| Rest days | Min. 1 per week or 4 per 4-week period |
Overtime Premium Rates
| Type | Premium Rate |
|---|---|
| Standard overtime (>8 hrs/day or >40 hrs/week) | +25% |
| Late night work (10 PM – 5 AM) | +25% |
| Work on rest days | +35% |
| Overtime + late night | +50% |
| Rest day + late night | +60% |
| Overtime exceeding 60 hrs/month | +50% (large companies) |
36 Agreement (三六協定)
To require any overtime at all, the employer must execute a 36 Agreement (Article 36 labor-management agreement) with employee representatives and file it with the Labour Standards Inspection Office.
| 36 Agreement Limit | Cap |
|---|---|
| Standard overtime | 45 hrs/month · 360 hrs/year |
| Special clause (temporary peak) | 100 hrs/month · 720 hrs/year (max 6 months) |
| Absolute cap (including rest-day work) | Never exceed 100 hrs/month |
Leave Entitlements#
Paid Annual Leave (有給休暇)
| Years of Service | Days |
|---|---|
| 6 months | 10 |
| 1.5 years | 11 |
| 2.5 years | 12 |
| 3.5 years | 14 |
| 4.5 years | 16 |
| 5.5 years | 18 |
| 6.5+ years | 20 (maximum) |
Employers must ensure employees take at least 5 paid leave days per year (mandatory since April 2019).
Other Leave
| Leave Type | Duration | Paid? |
|---|---|---|
| Maternity | 6 weeks before + 8 weeks after birth | Social insurance pays ~67% |
| Paternity | Special childcare leave (up to 4 weeks within 8 weeks of birth) | Social insurance pays ~67% |
| Childcare | Until child turns 1 (extendable to 2) | Social insurance pays ~67% then ~50% |
| Nursing care | Up to 93 days per family member | Social insurance pays ~67% |
| Sick leave | Not statutory; depends on work rules | Employer's discretion |
Social Insurance - Mandatory Enrollment#
Employer + Employee Contributions
| Insurance | Employer Share | Employee Share | Total |
|---|---|---|---|
| Health Insurance (健康保険) | ~5% | ~5% | ~10% |
| Employees' Pension (厚生年金) | ~9.15% | ~9.15% | ~18.3% |
| Employment Insurance (雇用保険) | ~0.95% | ~0.6% | ~1.55% |
| Workers' Comp (労災保険) | 0.25–8.8% (industry) | 0% | Varies |
| Long-Term Care (介護保険, age 40+) | ~0.8% | ~0.8% | ~1.6% |
| Approximate total | ~16–19% | ~15–16% | ~31–35% |
💰 Budget Rule of Thumb: Total employer cost = gross salary × 1.15–1.20 (salary + employer-share social insurance + miscellaneous).
Termination - Japan's Hardest Employment Topic#
The Golden Rule
Japanese courts apply the doctrine of abuse of dismissal rights (解雇権濫用法理, Labor Contract Act Art. 16): a dismissal is void if it lacks objectively reasonable grounds or is not considered appropriate in light of generally accepted social norms.
Four-Factor Test for Economic Dismissal (整理解雇)
| Factor | Question |
|---|---|
| 1️⃣ Business necessity | Is workforce reduction genuinely necessary? |
| 2️⃣ Efforts to avoid dismissal | Were alternatives exhausted? (transfers, salary cuts, voluntary retirement) |
| 3️⃣ Fair selection | Were dismissed employees selected by reasonable, objective criteria? |
| 4️⃣ Adequate procedures | Was the process transparent? Were employees consulted? |
All four factors must be satisfied. Failure on any one can invalidate the dismissal.
Notice Requirements
| Situation | Requirement |
|---|---|
| Standard dismissal | 30 days' advance notice or 30 days' pay in lieu |
| Probation (<14 days) | No notice required |
| Fixed-term contract (mid-term) | Cannot terminate without unavoidable cause (やむを得ない事由) |
| Fixed-term → non-renewal | Must notify 30 days before expiry (if contract was 3+ renewals or 1+ year) |
The "5-Year Rule" - Fixed-Term Conversion#
Under Art. 18 of the Labor Contract Act, an employee on consecutive fixed-term contracts who has worked for the same employer for 5+ cumulative years may request conversion to an indefinite-term contract. The employer cannot refuse.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
┌──────┐ ┌──────┐ ┌──────┐ ┌──────┐ ┌──────┐ ┌──────┐
│1-year│→│1-year│→│1-year│→│1-year│→│1-year│→│ NOW │
│fixed │ │fixed │ │fixed │ │fixed │ │fixed │ │MUST │
│term │ │term │ │term │ │term │ │term │ │OFFER │
└──────┘ └──────┘ └──────┘ └──────┘ └──────┘ │INDEF.│
└──────┘
EOR-Specific Compliance Points#
| Issue | EOR Responsibility | Your Responsibility |
|---|---|---|
| Employment contract | ✅ EOR drafts & executes | Review terms alignment with your needs |
| Payroll & tax withholding | ✅ EOR processes | Approve salary levels |
| Social insurance enrollment | ✅ EOR enrolls | Budget for employer contributions |
| Work rules (就業規則) | ✅ EOR files (if 10+ employees) | Ensure rules align with your policies |
| 36 Agreement | ✅ EOR executes with employees | Manage actual overtime expectations |
| Annual health check | ✅ EOR arranges | Ensure employee participation |
| Visa sponsorship | ✅ EOR sponsors (as legal employer) | Provide job description for visa category |
| Termination | ⚠️ EOR must follow dismissal rules | Cannot direct EOR to fire without cause |
| Year-end tax adjustment | ✅ EOR processes | Provide any needed employee tax documents |
⚠️ Worker Dispatch Risk: If your day-to-day management of EOR employees looks too much like direct employment (issuing direct orders, controlling schedules), the arrangement may be reclassified as worker dispatch (派遣) under the Worker Dispatch Act, triggering additional compliance requirements.
An EOR arrangement can also create permanent establishment tax exposure for the foreign company if the day-to-day management crosses from oversight into direction, which is the same fact pattern that triggers worker dispatch reclassification under labor law. Aplash's EOR service structures the employment relationship, the 36 Agreement, and the management boundary together so the two risks are addressed as one design problem rather than two separate reviews.
✅ EOR Compliance Checklist#
- Confirm EOR has a valid legal entity (KK or GK) in Japan
- Review employment contract terms (language, termination, working hours)
- Verify social insurance enrollment for each employee
- Confirm 36 Agreement is filed (if any overtime expected)
- Check work rules are filed (if 10+ employees under EOR)
- Ensure annual health checks are scheduled
- Review visa sponsorship process for foreign hires
- Establish clear management boundaries (avoid dispatch reclassification)
- Budget employer cost at 115–120% of gross salary
Frequently Asked Questions#
Can a foreign company hire in Japan through an EOR without setting up its own entity?
Yes, that is the core function of an EOR: it is the legal employer of record in Japan, so the foreign company can direct the work without incorporating first. The tradeoff is that the EOR, not the foreign company, must stay compliant with the Labor Standards Act, the Labor Contract Act, and mandatory social insurance enrollment on every hire.
How is EOR different from worker dispatch (派遣) in Japan?
An EOR is the legal employer and bears full employment-law responsibility for the worker; dispatch is a separate licensed arrangement where a dispatch company assigns its own employees to work under a client's direction. If a foreign company using an EOR issues day-to-day direct orders and controls schedules the way a dispatch client would, the arrangement risks being reclassified as dispatch, which carries its own registration requirements under the Worker Dispatch Act.
Can an EOR terminate an underperforming employee at the foreign company's request?
Not on request alone. Japanese courts apply the doctrine of abuse of dismissal rights under the Labor Contract Act, so a dismissal needs objectively reasonable grounds and a process that meets accepted social norms; an EOR that fires an employee simply because the client asked, without documented cause and process, exposes both the EOR and the client to a wrongful dismissal claim.
Official References#
| Source | Link |
|---|---|
| Labor Standards Act (EN) | japaneselawtranslation.go.jp |
| Labor Contract Act (EN) | japaneselawtranslation.go.jp |
| Worker Dispatch Act (EN) | japaneselawtranslation.go.jp |
| MHLW - Labor Standards Guide | mhlw.go.jp |
| Japan Pension Service | nenkin.go.jp |
This article is informational only and does not constitute legal, tax, or regulatory advice. Consult a licensed labor and social insurance attorney (社会保険労務士) or employment attorney (弁護士) for compliance matters. Last updated: August 2026.