Despite concerns over the state of the economy in recent years, Japan remains one of the top locations for international investment in Asia, especially in the finance and technology industries. Indeed, foreign direct investment (FDI) in the country has increased consistently since 2011 as the government has continued to make changes to the regulatory environment to make Japan a more attractive destination for foreign investors. For companies looking to get in on the action, a Professional Employer Organization (PEO) may prove the most suitable vehicle for labor dispatch. In this article, we review the PEO structure and explain three of the many benefits of using a PEO in Japan for business activity.
What is a PEO?
A PEO is a type of company that offers end-to-end employment solutions for businesses looking to hire in another country without a legal entity there. A PEO handles all aspects of employment from drafting contracts and onboarding employees to processing payroll and managing disputes, allowing the hiring company to focus on big picture business goals.
What are the benefits of using a PEO in Japan?
While Japan is undoubtedly a popular location for foreign investment, foreign investors do not always find the regulatory environment and business culture in Japan to be the most conducive to their business plans – at least at the outset.
Japan’s culture plays an important role in the laws and regulations that govern the operations of businesses in the country. This fact alone can make it difficult to settle into Japan as a foreign investor.
As one example, social norms and expectations feed into the legal framework in such a way as to protect reputations and honor far more than they do in other countries. In Japan, dismissing an employee is a notoriously complex task because the termination must not only meet a set of strict employment laws but it must also be considered ‘socially acceptable’.
In this regard, there are several major benefits of using a PEO in Japan:
PEOs have local consultants that can help a company to settle into their new country of operations.
At New Horizons, we find that one of the most important aspects of our service in the early stages is not necessarily just getting all the administrative and compliance matters in place; it is helping the executive team to understand the nuances of the new country in which they are going to operate. We help leaders to understand the expectations, cultures, languages, and societal norms that will play an important role in the success of their business going forward.
A PEO can offer this kind of benefit in ways that more siloed corporate services firms (e.g. accounting-only or payroll-only) cannot.
With in-house legal and accounting teams to support human resources departments, executives can be assured that the agreements they have are both compliant with applicable laws and socially acceptable for Japanese employees. In Japan, this is especially important because of the social expectations around public holidays. There are 16 public holidays celebrated in Japan every year and while the law does not require employees to be given the day off, it would be highly unusual (and socially unacceptable) for companies to require their employees to work those days.
Similarly, foreign investors need to make sure that leave entitlements are properly calculated. In Japan, upon completion of the first six months of employment, employers must grant annual paid leave of at least 10 days. Thereafter, the entitlement increases by one day per year for the following two years, and by a further two days per year thereafter, up to a maximum of twenty days per year. If annual leave is not used, the entitlement expires after two years.
By using a PEO in Japan, businesses can ensure compliance and be confident that their employees are happy with their leave entitlements, reducing issues like workplace stress, conflicts, and turnover.
Japan is world-renowned for having an excellent social security system, and of course one of the main ways that this system is funded is through the social security contributions made by employers and employees (with contributions split 50:50 between the two). Not only do the above-average social provisions mean that Japanese workers have access to an impressive range of benefits during their working life and retirement, but it means that employers are somewhat relieved of the burden of paying for additional perks like private health insurance and comprehensive pension plans.
A PEO can help a business to remain compliant with labor and tax laws as well as understand how best to compensate its employees to become competitive and attractive as an employer.
Want to learn more about using a PEO in Japan?
If you are considering expanding your business into Japan, the likelihood is that a PEO will prove the most suitable set up for your activities, at least in the beginning. With FDI on the rise, the time to establish and grow a presence in the Land of the Rising Sun is now. For more information on PEO services in Japan, please get in touch with our team of expert consultants who can offer you a no-obligation conversation about your expansion plans.