Employer of Record in Japan

Employer of Record can save your business up to 85% of incorporation costs, and yet, not everyone’s aware of it. So, what exactly is the Employer of Record? Let’s break it down.

Employer of Record (EoR), or 代替雇用 (daitai koyō), is an organization that helps foreign companies legally recruit professionals in Japan without having to open an entity here. It acts as an employer that handles all the necessary legal and HR obligations: from payroll and taxes to employee benefits and compliance. This lets you focus on growing your business while the EoR ensures you operate smoothly within Japanese regulations.

Why your business needs EoR

If you want to enter the Japanese market, it’s very important to understand and comply with its stringent labor laws. However, their complexity can often be a major obstacle for foreign entrepreneurs who aren’t familiar with local regulations, especially for those lacking experience in the Japanese business culture and language. 

This is where the Employer of Record services come in. With their on-the-ground expertise in Japanese labor laws and business culture, EoRs can act as your trusted partner in navigating the complexities of entering a new market and helping your business expand globally. By hiring an EoR vendor, you can take advantage of having Japanese experts on your team and begin your work in Japan right away without opening a business here. 

What EoR Can and Can’t Do 

There’s no doubt that the Employer of Record providers will help you manage your remote workforce in Japan. While their job is to assist you in the best possible ways to facilitate your expansion here, it’s important to differentiate between the services EoRs can and cannot offer. 

Services offered

• Onboarding and termination guidance 
• Candidate background check * 
• Labor contract drafts (English and Japanese languages) 
• Various contract types *
• Payroll (including leave entitlements, commissions, bonuses)
• Tax filing
• Pensions 
• Mandatory benefits 
• Health insurance *
• International payments 
• Estimated employee cost calculation
• HR support
• Hiring local nationals to work in Japan
• Hiring foreign nationals to work in Japan *
• Visa support * 

* Although most EoRs generally offer these services, these can be limited for certain providers.

Services not offered

• Equipment provisioning *
• Setting up a Japanese bank account (not required)
• Managing employees’ daily tasks 
• Workspaces *
• Company’s equity investments 

* These services are not usually included in the Employer of Record’s responsibilities. However, some EoRs can offer them for an extra fee. 

Note: before choosing your EoR specialist, have a clear understanding of what is and what isn’t included in their services. This will save you time, money, and extra work in the future. 

The EoR process in Japan

How exactly do Employer of Record services in Japan work? Let’s break it down:

1. Client Onboarding

The agreement outlining the service fees, responsibilities, and compliance measures between you, the client company, and the EoR is signed. You’ll then gain access to a centralized online platform where you can view the documentation, manage your future employees, and keep track of their performance.

2. Recruitment and Selection

You manage the recruitment process and candidate selection, while the EoR can assist you with consultant services, advertising, or compliance checks. 

3. Employee Onboarding 

The EoR vendor will prepare the contracts, where you’ll only have to review and approve the employment agreement. The EoR then becomes the legal employer and handles tasks like:

• Payroll processing and benefits
• Tax and insurance filing 
• Compliance with Japanese laws
• Work visa / permits arrangements (if needed)

4. Ongoing Management

You manage the employee’s daily schedule, duties, and workload. The EoR remains responsible for legal and administrative aspects.

5. Offboarding

The EoR handles the legal aspects of termination and resignation. You’ll have to sign the necessary documentation through the centralized platform provided by your EoR.

Intellectual Property (IP) Ownership with EoR

With the Employer of Record, any intellectual property the employee creates belongs to you, the client company. Although the employee technically works for the EoR, the work performed contributes to your company’s projects. However, it’s important to have a clear contract with the EoR that explicitly states IP ownership–this ensures no confusion and protects your rights. The Employer of Record service you choose to use should have data protection certifications like GDPR or SOC 2 that guarantee you data protection in their custody. 

Practical considerations and costs

While the Employer of Record services offer a convenient way to hire talent in Japan, there are practical considerations and costs to consider.

Practical considerations

Level of EoR involvement

• The extent of EoR involvement in recruitment varies depending on the service provider. Some might just advertise and screen candidates, while others might offer more assistance, such as interviewing.
• EoRs typically handle onboarding paperwork, but you might need to provide additional company-specific information.
• You’ll manage the employee’s day-to-day work, but the EoR might offer support with things like performance management tools or compliance training. Make sure to discuss these details with your EoR vendor beforehand.

Communication and cultural differences

• Ensure clear communication channels exist between you, the EoR, and the employee. That way, you’ll avoid any misunderstandings and increase productivity at your workplace.
• Take time to learn about Japanese business culture. This will help you navigate cultural differences and make the most of your experience as an international employer. 
• Choose the EoR services that treat your employees well and support them throughout their time with you. Employees experience can affect their performance and, therefore, your company’s profit generation.

Employee benefits

• EoRs offer basic benefits packages, but depending on your company culture and employee needs, you may need to provide additional benefits.
• In today’s dynamic hiring landscape, attracting highly skilled professionals means offering a comprehensive and modern benefits package. Consult your EoR agent to determine which competitive salaries are effective and within your budget.

Costs

One of the reasons why EoR services are gaining a lot of popularity is their transparent pricing and reduced overhead costs. Compared to opening a legal entity in Japan, which requires time, significant upfront and ongoing operational costs, and local expertise, EoR can offer you faster and more cost-effective business growth. However, the fees for EoR services can add up over time, depending on the provider and your business goals. Some EoRs can charge more than JP¥250,000 per employee monthly, which can become very costly if you want to expand in Japan.

Despite more complex set-up procedures and high initial investments, opening a legal entity can actually provide greater long-term control and potentially lower costs compared to ongoing EoR fees. If you want to learn more about the costs of setting up your company in Japan, our detailed guide will break it down for you. Ultimately, the best choice will depend on your specific needs and goals. 

5 EoR services in Japan

There are many EoR services available in Japan that are reputable and affordable. Some of these include:

1. Globalization Partners – offers global EoR solutions with a strong presence in Japan | Contact Form
2. Horizon – a compliant service with affordable prices | Contact Form
3. Velocity Global – international EoR that offers services in 185+ countries | Contact Form
4. Deel – provides a user-friendly platform for international payroll and EoR services | Contact Form
5. BGC – specializes in information technology, as well as healthcare and life sciences | Contact Form

Make sure to do your research to find out more about the services each of these EoRs offer and their fees. Don’t hesitate to get in touch with the companies’ representatives if you have any questions.

Final Thoughts

Employer of Record services offer a compelling solution for companies seeking to expand their team with Japan’s talented workforce without the complexities of establishing a local entity. While EoR simplifies hiring and ensures compliance, it’s important to compare ongoing costs with potential long-term savings when setting up your own subsidiary in Japan. That way, you can make informed decisions and choose the best approach to achieving success in the dynamic Japanese market that is both cost-effective and time-efficient.

If, after careful consideration, you are still considering establishing your own entity in Japan, it’s essential to get familiar with the local regulations as soon as possible. Our guide will equip you with the knowledge to navigate this process as seamlessly as possible. This way, you can begin your Japanese expansion with confidence and clarity.