EOR Labor Compliance — Japan's Employment Rules for Foreign Companies
What Your Employer of Record Must Get Right — And What You Need to Know
Japan's Employment Framework at a Glance
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.
✅ 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)
This article is for informational purposes only. Consult a licensed labor and social insurance attorney (社会保険労務士) or employment attorney (弁護士) for compliance matters.
