Before You Hire Your First Employee in Japan — The Basics of Social Insurance, Employment Contracts, and Dismissal Rules

When you start hiring in Japan, a whole set of Japan-specific labor matters lands at once — enrolling in social insurance, setting out the employment contract and working conditions, work rules, and the rules on dismissal. Where foreign companies most often stumble is the difference in mindset around dismissal: unlike countries with “at-will employment,” where you can let someone go without giving a reason, in Japan you cannot easily part with an employee without just cause. In this article, we lay out — from a foreign company’s perspective — what to grasp before hiring your first employee: social insurance, the employment contract, work rules, the procedures for employing foreign nationals, and above all the basics of Japan’s rules on dismissal (the handling of individual procedures is carried out by our partner labor and social security attorneys).

Note: The information in this article is general and current as of July 2026. The rules on social and labor insurance and on status of residence include items still being phased in, and requirements, amounts, and effective dates may change. For the latest treatment, please refer to official sources such as the Japan Pension Service, the Ministry of Health, Labour and Welfare, and the Immigration Services Agency, or consult a professional such as a labor and social security attorney or an administrative scrivener.

1. The Insurance That Comes Into Play Once You Set Up a Company — Start With Enrollment and Notifications

Once you set up a company (a legal entity) in Japan and begin hiring, two broad types of insurance come into play. One is health insurance and employees’ pension insurance (what is generally called social insurance); the other is workers’ accident compensation insurance and employment insurance (labor insurance). Neither is something you can choose to opt into or out of: if you meet the requirements, enrollment is mandatory, and notifications are due within short deadlines right after incorporation and hiring. Here is the overall picture at a glance.

Health Insurance and Employees’ Pension — Mandatory Regardless of Company Size

What a foreign company especially needs to know is that health insurance and employees’ pension insurance must be joined regardless of company size. Even with no employees yet, if remuneration is paid to the representative, the corporation enrolls as an “establishment subject to mandatory coverage.” Premiums are split between the company and the individual, and the company’s share is a fixed cost. In other words, the company’s share of social insurance premiums arises even before the business turns a profit.

Social Insurance for Part-Time Workers — Changes From October 2026

Full-time directors and regular employees are, as a rule, covered; meanwhile the scope of social insurance enrollment for short-time workers such as part-timers is currently being expanded in stages. As of July 2026, the requirement of 20 or more weekly working hours remains, while the wage requirement (the so-called “1.06-million-yen wall” = JPY 88,000 a month) is set to be abolished under the pension reform act enacted in 2025, with enforcement expected in October 2026 (the law provides for enforcement within three years of promulgation). In addition, the company-size requirement — currently “51 or more employees” — is to be lowered in stages from October 2027, and by October 2035 coverage is expected to apply regardless of company size (the details of the phased schedule include parts to be fixed by government and ministerial ordinance). This area is mid-rollout and the timing and requirements may change, so please confirm the latest treatment with official sources from the Japan Pension Service and the Ministry of Health, Labour and Welfare, or with a labor attorney.

Note, too, that employment insurance is also set to expand: one of its enrollment requirements — weekly scheduled working hours — is expected to drop from “20 or more” to “10 or more” from October 2028 (under the amended Employment Insurance Act enacted in 2024). If you employ many short-time part-timers, keep this coming expansion in view alongside social insurance.

2. Setting Out the Employment Contract and Working Conditions — Preventing “I Said So / I Never Heard That”

When you hire, you are obliged to set out the working conditions — wages, working hours, and so on — at the time of hiring (in principle by a written notice of working conditions, or by email or similar). In Japan, hiring on a verbal promise alone tends to breed trouble, and putting the terms in writing prevents later disputes of “I said so / I never heard that.”

From April 2024, the items you must set out were expanded. The main ones are as follows.

• The “scope of change” of workplace and duties: In addition to the workplace and duties right after hiring, you set out the range they may change to through future reassignment and the like.
• Whether there is a “renewal cap” for fixed-term contracts, and its content: If you set a cap on the aggregate contract period or the number of renewals, you set out its content.
• Matters concerning conversion to an indefinite term: Because a fixed-term contract renewed beyond an aggregate of five years can be converted to an indefinite-term one on application, you set out that opportunity to apply and the working conditions after conversion.

Furthermore, when hiring foreign employees, it is advisable to set out and explain the working conditions in a language they understand (their native language, English, and so on). Handing over a document in Japanese alone can leave gaps in understanding over wages, working hours, holidays, and the like, leading to later trouble. Preparing the employment contract and the notice of working conditions in multiple languages and having the person confirm the content is a practical key point when hiring foreign nationals.

3. Work Rules and Working Hours — Once You Pass 10 People; If You Want Overtime

Work Rules — Required When You Regularly Employ 10 or More

As your headcount grows, you also need to grasp the rules on work rules and working hours. An establishment that regularly employs 10 or more workers is obliged to draw up work rules and file them with the Labor Standards Inspection Office (part-timers count toward the total). Even with fewer than 10, having work rules in place clarifies working conditions and rules and helps prevent trouble.

Working-Hour Limits and the 36 Agreement — A Prerequisite for Overtime

Working hours are capped by statutory working hours (as a rule, 8 hours a day and 40 hours a week). To have someone work overtime (beyond statutory hours) or on a holiday beyond that, you must first conclude a labor-management agreement known as the “36 (san-roku) Agreement” and file it with the Labor Standards Inspection Office. Working someone beyond statutory hours without a 36 Agreement is, as a rule, not permitted.

Overtime is also subject to caps backed by penalties. The rule is up to 45 hours a month and 360 hours a year; even under a “special clause” concluded for temporary, special circumstances, you cannot exceed caps such as 720 hours a year (even when the special clause applies, there are caps such as under 100 hours in a single month, an average of 80 hours or less over several months, and being able to exceed 45 hours in a month no more than six times a year). Run operations with the impression that “overtime is a given in Japan,” without minding the caps, and you can end up in breach of the law.

4. Procedures for Hiring Foreign Nationals — Don’t Neglect Checking the Status of Residence

When you hire a foreign national as an employee (and when they leave), you are obliged, each time, to file the “notification of employment status of foreign nationals” with Hello Work. This is a procedure specific to employing foreign nationals, one that does not exist when hiring Japanese nationals (special permanent residents are excluded). Neglecting the notification, or filing a false one, is subject to a fine of up to JPY 300,000.

When hiring, first be sure to check — via the Residence Card and the like — the person’s status of residence and period of stay, and whether work is permitted (whether they may work). Some statuses of residence do not permit work (for example, “Student” and “Dependent” in principle do not permit work, and part-time work and the like are possible only within the scope of a permit to engage in activity outside status), and some do not permit work beyond the permitted scope.

Neglect this check and have a foreign national without work eligibility, or work outside the permitted scope, and the employer can be charged with the “crime of facilitating illegal work” (Immigration Control Act). The penalty is currently imprisonment of up to 3 years or a fine of up to JPY 3 million; but under the amended Immigration Control Act enacted in 2024 (creating the Employment for Skill Development system, among others), it will be strengthened to imprisonment of up to 5 years or a fine of up to JPY 5 million (both may be imposed together). The effective date is April 1, 2027 (Cabinet Order No. 340 of Reiwa 7), and as of July 2026 it is not yet in force. “I thought they could work” or “I didn’t know” alone does not exempt you. Negligence such as failing to check the Residence Card can make you a target for punishment, so checking at the time of hiring is essential.

5. [Key Focus] Rules on Dismissal — In Japan You “Cannot Easily Dismiss”

What foreign companies most often misunderstand is the rules on dismissal. “In Japan you can dismiss freely” is mistaken. While there are countries — like the United States with its “at-will employment” — where you can, as a rule, dismiss at any time without reason, in Japan dismissal is strongly restricted by statute and case law. Here are the main rules.

The Doctrine of Abuse of the Right to Dismiss — Reasonable Grounds and Social Acceptability (Article 16, Labor Contracts Act)

The starting point is Article 16 of the Labor Contracts Act. Where a dismissal lacks objectively reasonable grounds and is not accepted as socially acceptable, it is invalid as an “abuse of the right to dismiss” (the doctrine of abuse of the right to dismiss). In other words, to dismiss you need reasonable grounds that anyone would accept, and acceptability commensurate with their weight; you cannot unilaterally let someone go on the company’s convenience or the manager’s gut feeling alone.

Notice of Dismissal and the Dismissal Notice Allowance — The 30-Day Rule

Moreover, even when dismissing, you must as a rule give at least 30 days’ notice, or pay 30 days’ or more of average wages (the dismissal notice allowance) (Labor Standards Act). Even during a probationary period, once you have employed the person for more than 14 days, this notice rule applies. Note that it is not the case that “during a probationary period you can let someone go freely” (there is also an exception where notice is not required when, in unavoidable circumstances such as a natural disaster, or where there is a grave cause attributable to the worker, you obtain the approval of the head of the Labor Standards Inspection Office).

The Four Elements of Redundancy Dismissal — Scrutinized Even for Business Reasons

In particular, “redundancy dismissal” — cutting staff for business reasons such as poor performance — is, in case law, judged carefully against four elements: ① the need to cut staff, ② efforts to avoid dismissal (reassignment, soliciting voluntary retirement, and so on), ③ reasonableness of the selection, and ④ propriety of the procedure (explanation and consultation). A redundancy dismissal lacking these risks being judged invalid.

Points to Note on Non-Renewal and Solicitation to Resign

Note, too, that the “non-renewal” of a fixed-term contract (declining to renew) is also subject to certain limits where it has been renewed repeatedly, among other cases. And “solicitation to resign” — urging the person to resign — is distinct from dismissal, but pressing persistently in a way that amounts to coercion can become a problem. Since either can, if handled poorly, later be judged invalid or unlawful, we recommend proceeding on specific matters while consulting a labor attorney or other specialist.

6. Labor Matters Are Handled by Our Partner Labor Attorneys — a Single Point of Contact, So Setup and Visa Don’t Fall Apart

As we have seen, Japanese labor matters span a wide range — enrolling in insurance, setting out working conditions, work rules, the procedures for employing foreign nationals, and dismissal — and are tightly bound up with company setup, the status of residence (the visa), and tax. “Whom to hire as a full-time staff member,” for instance, also bears on the “at least one full-time staff member” requirement of the Business Manager status of residence (the Business Manager visa) (this full-time staff member is, as a rule, someone holding a status-based residence status such as a Japanese national or permanent resident, and does not include foreign nationals working on a work visa such as “Engineer / Specialist in Humanities / International Services.” For details, see the “Business Manager visa” article). Consider labor matters in isolation, and these lateral connections are easy to miss.

Touch Administrative Scrivener Corporation, as an administrative scrivener firm specializing in international work, organizes the practicalities of entering Japan as a whole and supports you through a single point of contact, coordinating with our partner labor and social security attorneys, certified tax accountants, judicial scriveners, and others. The labor and social insurance procedures themselves are handled by our partner labor and social security attorneys; tax by a certified tax accountant; registration by a judicial scrivener; and the status of residence and licensing by an administrative scrivener. Touch watches across the whole, sorting out the order and the roles and managing the process so that company setup and the status of residence do not become detached from labor and tax. We also handle multilingual communication with your overseas head office.