Foreign companies planning to place staff in Japan frequently reach for secondment (出向) first, because it is the model most familiar from other markets and from their own group's existing HR playbook. The trouble is that secondment carries an assumption most first-time entrants do not meet: an existing Japan-side entity in the corporate group. Employer of Record (EOR) exists precisely because that assumption often does not hold. This post lays out what each structure actually is, where the boundary between them sits, and how to decide which one fits a given situation.
Secondment (出向): What It Actually Requires
Secondment (出向) is a well-established feature of Japanese labor practice. In its typical form, an employee remains formally employed by the sending entity, or is transferred onto the payroll of an affiliated Japan group entity, while working day to day under the direction of a different entity within the same corporate family. The arrangement is built around the idea that both the sending side and the receiving side already exist as legal entities in Japan, or that the receiving entity is a Japan subsidiary or affiliate of the sending group.
That is the structural gap that trips up companies new to Japan: secondment presumes a Japan corporate presence is already there to send the employee into or to hold the employment relationship. If a foreign company has no Japan entity at all, no subsidiary, no branch, no group affiliate, there is no lawful receiving structure for a secondment to attach to. The employee cannot simply be "seconded" into a vacuum. Questions of who runs payroll, who withholds income tax, who enrolls the worker in social insurance, and who bears employer obligations under the Labor Standards Act (労働基準法) and the Labor Contract Act (労働契約法) all need an answer, and secondment's usual answer is the existing group entity in Japan. Without that entity, the model has nothing to stand on.
Secondment also intersects with the Worker Dispatching Act (労働者派遣法) and the Employment Security Act (職業安定法) in ways that matter for how the direction-of-work relationship is documented; getting the line between legitimate intra-group secondment and unlicensed worker dispatch wrong is a real compliance exposure, not a paperwork nuance. That line-drawing is a separate, fact-specific question and is not addressed here in generalized form; it depends on the specific reporting relationship and cost allocation between the sending and receiving entities.
Employer of Record (EOR): The Structure Built for No Japan Entity
Employer of Record is a different structure with a different starting assumption. Under EOR, a Japan-resident employer of record hires the worker locally as its own employee, runs payroll, handles social insurance enrollment, and manages income tax withholding under Japanese employer obligations. The foreign company does not need a Japan entity at all. Day-to-day direction of the worker's tasks stays with the foreign company, coordinated through a separate services arrangement between the foreign company and the EOR provider, while the formal employment relationship, and the compliance burden that comes with it, sits with the Japan-resident employer of record.
This is the structural answer to the exact gap secondment cannot fill: a foreign company with no existing Japan subsidiary, no branch, and no plan to incorporate immediately, but a genuine need to have someone working in Japan under its direction, right now, on Japanese payroll and within Japanese labor and social insurance rules.
A Japan-resident entity is the legal employer of record. It hires the worker under its own employment contract, administers payroll and statutory withholding, and enrolls the worker in Japan's social insurance and labor insurance systems. The foreign company directs the worker's substantive work under a separate commercial services agreement with the EOR provider. No Japan entity is required on the foreign company's side.
Where the Two Get Confused, and Why It Is Costly
The confusion is rarely about the concepts in the abstract; it is about which one a company defaults to before checking its own corporate facts. A management team that already runs a Japan subsidiary, and simply wants to move an existing employee there temporarily under continued group direction, is describing a secondment fact pattern. A management team with no Japan entity, trying to get one person legally on the ground and on payroll in Japan without a multi-week or multi-month incorporation process first, is describing an EOR fact pattern, even if the term "secondment" is the one that comes up in the internal planning email.
Treating these as interchangeable options creates two kinds of problems. First, a company without a Japan entity that tries to structure a secondment anyway ends up either improvising an ad hoc employment relationship with no clear employer of record, or rushing an entity incorporation purely to create a receiving structure it does not otherwise need yet. Second, a company that already has a Japan subsidiary but defaults straight to an external EOR provider may be paying for, and adding a third party into, an employment structure its own group entity could handle directly as a secondment.
Decision Framework
The question that actually decides the structure is not which model is more familiar but the following:
(a) Does the foreign company, or an affiliate in its corporate group, already have a Japan entity, whether a subsidiary, branch, or representative structure with employment capacity? If yes, secondment through that existing entity is generally the more direct route, and the analysis turns on the direction-of-work and cost-allocation questions above rather than on entity formation.
(b) If there is no Japan entity and none is planned in the near term, EOR is the structure designed for that situation. It lets the foreign company have staff working under its direction in Japan without incorporation, while a Japan-resident employer of record carries the statutory employer obligations.
(c) If there is no Japan entity today but the company anticipates a durable, ongoing Japan operation with multiple hires, Japan-sourced revenue, or a long-term local team, EOR is still the correct near-term bridge, but the company should treat entity incorporation as the medium-term plan rather than an indefinite EOR arrangement, since the cost and structural profile of EOR is generally suited to bridging a gap, not to permanent large-scale headcount.
(d) If the worker in question is an existing group employee being moved temporarily and the receiving side already has its own reporting line and cost allocation within the group, that is a secondment question first, and should not be re-routed into an EOR conversation simply because the paperwork feels unfamiliar.
The practical shorthand: secondment moves an employee between entities that already exist; EOR creates the Japan-side employer function where no entity exists yet. Confirm which fact pattern actually applies before choosing a structure, rather than choosing the structure and forcing the facts to fit it.
Conclusion
Secondment (出向) and EOR solve different problems and start from different premises about corporate presence in Japan. Secondment assumes a Japan entity already exists somewhere in the corporate group and moves an employee within that structure. EOR assumes no Japan entity exists and substitutes a Japan-resident employer of record to carry the statutory employment functions, payroll, social insurance, and withholding, while the foreign company retains day-to-day direction of the work. Getting this distinction right before structuring the placement avoids both an improvised secondment with no lawful receiving entity and an unnecessary EOR engagement layered on top of a company that already has the Japan entity it needs.
This article is informational only and does not constitute legal, tax, or regulatory advice. Consult a qualified advisor before acting on the content. Last updated: July 2026.