What is the biggest risk when hiring employees in Japan?

The biggest risk is the legal difficulty of dismissing employees. Japanese labor law strongly protects workers, making it crucial to choose the right contract type and follow strict legal procedures to avoid disputes.

Should I use a fixed-term or indefinite contract in Japan?

Start with fixed-term contracts to manage risk. However, be aware of the "Indefinite Conversion Rule," where an employee can demand permanent status after five years of renewals, which an employer cannot refuse.

What are the key labor laws to know when hiring in Japan?

Key laws include the Labor Standards Act (governing wages, hours), the Equal Opportunity Act, and new regulations like the Freelance Protection Act. Misunderstanding them can lead to serious legal issues.

How do I handle remote work legally in Japan?

For remote work, you must establish clear rules for data security, time tracking, and health management. Unclear goals or rules can lead to low productivity and legal risks related to working hours.

Home > Blog > Hiring Employees in Japan: Legal Requirements, Risks, and Best Practices

Hiring Employees in Japan: Legal Requirements, Risks, and Best Practices

Oct 02, 2025

Blog

In Japan, hiring employees comes with many legal restrictions. Practical issues also matter. Dismissal rules and wage disputes bring serious risk. Saying “I didn’t know” is no excuse. These risks may block company growth.

This article explains hiring in Japan. We cover contracts, recruitment, and labor law. It also reviews remote work issues. By applying these steps, you can avoid risk. Strong hiring helps secure the right people.

① Contract Type｜Direct Employment as Last Choice

The first question is simple. Do you really need an employment contract? In Japan, firing staff is very hard. To reduce risk, consider options in this order:

Executive service contract
Outsourcing (work contract or mandate)
Temporary staffing
Employment contract (final option)

Indefinite Conversion Rule

Fixed-term contracts require care. If renewed for more than five years, staff can demand indefinite status. This is the “Indefinite Conversion Rule.” Employers cannot refuse. (Reference: 無期転換の概要契約社員、アルバイトなどの方 | 有期契約労働者の無期転換サイト ”)

Balancing Risk and Attraction

Japan’s aging society makes hiring difficult. Thus, stable jobs attract candidates. Employers must balance risk and appeal.

② Defining Job and Pay

Before hiring, define duties clearly. Show how the role links to profit. Profit funds employee wages.

Pay Basics

Pay must meet the 【Minimum Wage Act】.
Too low wages mean no applicants.
“8 hours at market pay” is not attractive.

Example: Sales Hiring

For example, check sales pay levels. If wages are high, split the role. Create “Web Marketing” or “Inside Sales.” Match pay to each specialty.

Incentives

Staff compare effort with pay. Thus, incentives must be clear. For new hires, fairness is vital. Without it, discontent spreads fast.

③ Testing Candidates

After defining duties and pay, test skills. Check if candidates can meet results. Confirm their fit for the role.

Soft Skills

Skills alone are not enough. Employers must check personality. Can the person work well with others? Teamwork is key.

Avoiding Risks

Stress interviews are dangerous. They may be seen as harassment. Even if testing resilience, avoid them.

④ Outsourcing Risks

Outsourcing offers flexibility. But if control exists, it may count as employment. Labor law will then apply.

Japan’s 【Freelance Protection Act】 adds duties. For trusted partners, formal employment may be safer.

⑤ Remote Work Issues

Remote work is popular. But it brings risks. Data leaks, poor time tracking, and weak communication are common.

Key Rules

Protect confidential data
Track hours and health
Set clear rules for equipment
Handle resignations with care

For example, unclear goals lower productivity. Employers must set targets and fair evaluation rules.

⑥ Labor Laws

Employers must follow labor law. Examples include the 【Labor Standards Act】 and the 【Equal Opportunity Act】. Below are common mistakes.

Frequent Errors

Title-only managers – No authority means overtime pay is due.
Flex-time misuse – Long hours damage health. Employers must act.
Discretionary work misuse – Conditions are strict. Filing is needed.
Improper firing – Needs real reasons and fairness.
Probation misuse – Trial periods still need legal care.

Lawyer’s Advice

[Example: Wrongful dismissal often triggers disputes. Always ask a lawyer and follow proper steps.]

⑦ Onboarding

No hire delivers full value on day one. Onboarding helps staff adapt and grow faster.

Best Practice

For example, explain company culture. Show workflows step by step. Also, explain teamwork rules. Share benefits fairly with all staff.

⑧ Finding Candidates

Define the target persona first. Then pick the right channel.

Headhunting
Agencies
Referrals
Direct platforms

If the channel is wrong, good talent will not apply. Hiring then becomes slow and costly.

⑨ Time Management

Hiring consumes time. Too many interviews weaken judgment. Standards may slip.

Thus, set rules early. Choose channels in advance. Write clear criteria. Simple rules improve hiring success.

By knowing laws and risks, companies can hire safely and effectively in Japan.

Author Information

Akasaka International Law & Accounting Office
Attorney at Law: Shinji Sumida

You are welcome to contact us via the Contact Form to discuss and for more information.