PEO in Japan – Growth Simplified for Your Needs | INS Global

PEO in Japan

Hire Globally, Pay Locally, Expand Effortlessly

INS Global is your local partner for global Human Resources services. Our PEO services are designed to help you set up, recruit, and expand in 80+ countries.  

What is a PEO (Professional Employer Organization)? Sometimes called an EOR (Employer of Record), a PEO is a local partner for companies wishing to outsource their employees and various HR services to avoid costly local bureaucratic hurdles associated with establishing a separate legal identity in a new country.  

A PEO in Japan legally hires and manages your staff’s HR services on your behalf. They provide critical services like payroll outsourcing, tax and benefit management, and legal compliance assurance that allows you to focus on the job at hand

PEO vs. Company Incorporation: Which is Right for You?

Establishing a new legal identity in a new country is a complex task at the best of times. It requires a physically established presence in the target market that can take months to create, at a time when you should be focused on more critical tasks. Forming a partnership with a PEO can allow a company to begin operations in a new market faster and in a more cost-saving way than competitors.  

Doing business in Japan is stressful, not only because you have to understand a unique working culture, but because the administrative and regulatory requirements that govern your operations are incredibly complicated. 

A PEO:  

  • Makes the most of local resources and support 
  • Reduces setup time 
  • Reduces setup cost 
  • Ensures you are compliant with local regulations 

 

PEO in Japan - Summary

What Can a PEO Do for You?

Ensure Legal Conformity

Understanding local regulations can be burdensome, and a PEO uses local expertise to make sure you are following every law and legal requirement.

Save Time, Save Money

When opening a business in a new country, making a mistake can be costly. Partnering with a PEO gives you the knowledge you need to avoid pitfalls and problems that might damage your market entry.

Outsource Unnecessary Tasks

By providing payroll outsourcing, recruitment, headhunting, and contractor management services, a PEO takes care of the HR processes required for your entry into a new market while you can concentrate on successful growth  

Organizing payroll, recruitment, tax compliance, and benefits is a hassle at the best times. Why not allow your employees to focus on succeeding in a new market and outsource these HR services to a professional partner?

Improved Market Entry Speed

Estimated time for Company Incorporation in a new market: 4-12 months  

Estimated time to establish a PEO relationship: 5 days  

*Global estimate  

Save months of work going through unfamiliar processes and focus on what matters to your company’s success 

Every HR Service in One Combined Platform

A PEO covers every aspect of HR services and streamlines these into one point of contact.   

Your PEO partner can allow you to streamline an entire department into one handy point of contact. Minimize your company structure, and maximize your potential.

What are the Steps to Making a PEO work for You in Japan?

INS Global’s PEO takes charge of your employee recruitment or assignment needs in Japan with four simple steps:  

  1. Meet with an INS Global representative to understand your requirements 
  2. We provide a legal entity through which you can bring in staff to begin operations in Japan. 
  3. INS handles all administrative and legal aspects of organizing your employees’ employment in Japan. 
  4. Your staff continues day-to-day operations as usual in Japan, and we take care of the rest. 
testimonial from Manuel Ramos

Testimonial

Manuel Ramos

TERAO ASIA

Managing Director

We think INS Global is a good solution about starting in a market like China. Understanding the market doesn’t mean you need to set up a company immediately. 

5/5

PEO vs. EOR: How Do They Differ?

Depending on your target market, PEOs and EORs may differ in the scope of their available services.  

Typically, A PEO provides HR services to employees of other companies. At the same time, an EOR legally hires employees for the original company and takes on all required liabilities and tasks.  

Fortunately, in Japan, there is very little between the two. In effect, a PEO may act as the Employer of Record for an employee in a legally compliant way, covering as many HR services as the original employer requires.

Labor Law in Japan

Employment Contracts in Japan

The working culture in Japan is notorious for its long hours and a strong sense of hierarchy. However, the aging population of Japan and the recent call for reforms have led to a move towards changes meant to improve working conditions and plans to limit overtime. 

The primary laws that apply to employer-employee relations in Japan are the Labor Standards Act (LSA), the Labor Union Act (LUA), and the Labor Contract Law (LCL). These are under review at the moment and have been subject to change in recent years. It’s important to have HR personnel who understand how they affect your company and employees.  

Japanese law regards anyone employed by a company and who receives regular wages as protected by their labor laws, regardless of the type of work. This means the same rules do not protect self-employed or independent contractors.  

While a labor contract does not have to be in writing specifically, employers must provide a written document that outlines the basic terms of the job. 

Hiring foreigners in Japan is difficult as the visa requirements exclude many from working legally. Attempts to simplify the visa process for foreigners have led to some criticism.  

Working Hours in Japan

Japan has a standard working week of 40 hours like many countries. Still, many recognize that overtime is largely expected and has been the cause of concern in recent years. 

Overtime rates can vary between 125% to 175% standard salary, depending on the circumstances, with management-level employees and smaller companies being sometimes exempt from higher overtime pay rates. 

In 2019, the “Basic Limit Rule” was put in place, which limits overtime to 45 hours per week. Breaking this rule can result in severe penalties for the employer.  

Workers in Japan are entitled to a 45-60 minutes break depending on the number of working hours in that day.  

Holidays and Annual Leave in Japan

Japan observes 16 days of national public holidays per year. If a holiday falls on a Sunday, the following Monday is typically also included as a holiday. While companies are not legally obligated to allow workers time off for these holidays, they are expected to do so.  

The amount of annual leave that an employee is entitled to in Japan ranges from 10-20 days depending on seniority and time served in a company (2 days per year). Employees must first be at a company for more than 6 months to be entitled to this leave.  

Due to the recent Work-Style Reform Law, employers are now obligated to ensure that workers use at least 5 paid days of leave per year. This is part of the push to improve the Japanese work-life balance.

Sick Leave in Japan

Without explicitly mentioning it in a contract, employees in Japan are not automatically entitled to any paid sick leave per year. Instead, employees are expected to use annual leave if they need to be absent from work.  

The Japanese government does provide financial support during periods of sickness or injury of up to  ~60% of salary.  

Japanese labor law requires employers to provide annual physical checkups for all employees. 

Maternity/Paternity Leave in Japan

As part of the campaign to modernize Japan’s working conditions, childcare has been at the heart of several recent changes to labor law, and the current situation can appear complicated. 

Japanese law allows for up to 6 weeks of paid maternity before birth and 8 weeks of paid leave after childbirth for mothers. Women are not allowed to go back to work for at least 6 weeks after delivery unless given approval by a medical professional. 

New fathers in Japan now have access to some of the world’s most generous childcare leave (which may be utilized by men and women after the end of maternity leave).  

Despite only roughly 7% of men in Japan taking any kind of parental leave, as of 2020, both men and women are entitled to take childcare leave for up to a full year after the birth of a child. 

Two-thirds of an employee’s standard salary is covered by social insurance during maternity and childcare leave. This amount reduces should the company decide to cover some part of the employee’s salary during this period.   

Tax and Social Security Law in Japan

Japan has two standard taxes. Individual income tax is known as National Tax. This is levied progressively depending on income level between 5-45%, with non-residents typically paying less. The other standard tax is called Inhabitant Tax, which is paid to local governments and is on average around 10%. This tax is for anyone who has lived in Japan for over a year.  

Employees in Japan are legally obliged to be covered by Japan’s social security system. In general, contributions are split evenly between employer and employee. These social security payments will be around 14% of an employee’s gross salary on average.  

Corporate tax in Japan is currently around 30%. 

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FAQs

No, it is necessary to use a local entity abroad to comply with each country labor law.

Foreign companies can either set up a local entity in each country or use the services a local PEO (Professional Employment Organization) to hire the staff on-site directly.

The employer of record is the legal entity liable for the staff employed in a specific country. In practice, a foreign company can either open a subsidiary to become the employer of record of its abroad employees or use a PEO to act as the employer of record.

Liabilities may vary from country to country and include all the staff management responsibilities: labor contract issues, payroll management, and tax compliance, social security management, expenses claim declaration, hiring and termination
procedures, etc.

In general, 1-month is necessary to have an employee based out abroad using an existing PEO as the employe of record. When incorporating a new subsidiary to be the employer of record, the delay varies from 4-12 months.