Complete Guide to HR and Labor Outsourcing for Foreign-Affiliated Companies in Japan: Scope, Provider Selection, and Implementation Process

Foreign-affiliated companies operating in Japan often face HR and labor management challenges such as having no in-house HR professional with sufficient knowledge of Japanese labor laws and social insurance, relying on an overseas headquarters HR team to manage HR operations for the Japanese entity, or concentrating payroll and employee onboarding/offboarding responsibilities in the hands of a single employee.

Especially in the early stages of establishing operations in Japan, headcount may still be limited, making it impractical to appoint a dedicated HR Manager or multiple HR and labor specialists locally.

One option in such cases is HR and labor outsourcing.

However, for foreign-affiliated companies, outsourcing HR and labor operations involves more than simply assigning payroll calculations and social insurance procedures to an external provider. Companies must also consider how to align their Global HR Policies with Japanese labor laws, regulations, and local HR practices.

This article explains the main HR and labor functions that foreign-affiliated companies operating in Japan can outsource, the benefits of outsourcing, key points to consider when selecting a provider, and the typical implementation process.

What Is HR and Labor Outsourcing?

HR and labor outsourcing refers to the practice of delegating some or all of a company’s HR and labor administration functions to an external specialist provider.

A company may outsource payroll alone, or it may outsource multiple functions collectively, including time and attendance management, social and labor insurance procedures, onboarding and offboarding, employee data management, and employee inquiries.

For foreign-affiliated companies in particular, HR information often flows among three parties:

Overseas Headquarters → Japanese Subsidiary → Outsourcing Provider

As a result, accurate processing is only one requirement. English-language communication with overseas headquarters and data integration between the company’s Global HR System and Japanese HR and payroll systems are also important.

How Is It Different from Payroll Outsourcing?

Payroll outsourcing is one component of broader HR and labor outsourcing.

In addition to payroll processing, HR and labor outsourcing may cover areas such as the following:

Depending on the company’s needs, it is possible to outsource only selected functions or to delegate multiple areas under an integrated outsourcing arrangement.

Why Is HR and Labor Outsourcing Particularly Useful for Foreign-Affiliated Companies?

Companies Often Need Professionals Who Understand Both Japanese HR Practices and English Communication

HR professionals at the Japanese subsidiaries of foreign companies may be expected not only to understand Japanese labor law, social insurance, and payroll, but also to communicate effectively in English with overseas headquarters.

For example, headquarters may ask questions such as:

• “Why is this employee receiving overtime pay?”
• “Can we apply our headquarters Leave Policy in Japan in the same way?”
• “Why have Japanese social insurance contributions changed?”

Responding to such questions requires more than knowledge of Japan-specific systems. It also requires the ability to explain those systems and their background clearly to overseas stakeholders.

If it is difficult to recruit in-house personnel who can handle both Japanese HR and labor matters and English-language communication, engaging external specialists or an outsourcing provider can be an effective option.

Global HR Policies Cannot Necessarily Be Applied in Japan Without Modification

Employment Agreements, Employee Handbooks, Leave Policies, and other documents developed by overseas headquarters cannot always be used in Japan exactly as they are.

In Japan, employers are required to inform employees of certain working conditions, including wages and working hours, when entering into an employment contract. In addition, rules regarding the disclosure of working conditions changed in April 2024, including requirements to indicate the potential future scope of changes to the place of work and job duties.

Accordingly, when introducing overseas headquarters policies or documents into a Japanese entity, it is important to compare Global Policies with Japanese legal and practical requirements and adjust them so that they can be appropriately implemented in Japan.

Main HR and Labor Functions That Foreign-Affiliated Companies Can Outsource

Employee Onboarding and Offboarding

When an employee joins or leaves a company, multiple processes are triggered, including updates to the Employee Master as well as payroll, social insurance, and employment insurance procedures.

Where overseas headquarters centrally manages HR information, companies may need to establish data flows such as:

Global HR System → Japanese Payroll System → Japanese Social and Labor Insurance Procedures

When employing a foreign national in Japan, it is also necessary to confirm whether the employee’s status of residence permits them to perform the intended work.

Employers of foreign nationals are also expected to comply with labor and social insurance laws and to verify information such as employees’ status of residence.

In addition, except in certain cases, employers are required to notify Hello Work of specific information—including the employee’s name, status of residence, and period of stay—when hiring or terminating foreign employees, regardless of whether the individual is covered by employment insurance. This is known as the notification of employment status of foreign nationals.

Because this procedure is specific to Japan and may not ordinarily be anticipated by overseas headquarters, particular care is required when hiring foreign employees.

Payroll and Bonus Processing

Monthly payroll and bonus calculations are among the most common functions outsourced as part of HR and labor outsourcing.

Payroll, however, involves much more than calculating base salary.

Companies must accurately reflect a wide range of information, including attendance, overtime, allowances, absences, social insurance contributions, income tax, and resident tax.

If overseas headquarters requires payroll-related data, the outsourcing scope may also include the preparation of English-language Payroll Reports and personnel cost data in addition to payroll processing in Japan.

Time and Attendance and Working Hours Management

As a general rule in Japan, statutory working hours are eight hours per day and 40 hours per week.

Except in certain cases, when employees are required to work beyond these statutory limits, an employer must conclude a labor-management agreement on overtime and holiday work—commonly known as an Article 36 Agreement—and file it with the relevant Labor Standards Inspection Office.

As a general rule, overtime work is also subject to limits of 45 hours per month and 360 hours per year.

Overseas headquarters may not be familiar with Japan’s Article 36 Agreement system.

Accordingly, it is important not only to record working hours in a time and attendance system, but also to establish a framework for managing working hours based on Japanese labor law requirements.

In practice, particular attention is required when project deadlines set by overseas headquarters, financial closing work, or other business demands are expected to result in overtime exceeding the general limits of 45 hours per month or 360 hours per year.

In such cases, subject to certain requirements, it may be necessary to conclude and file an Article 36 Agreement containing a special clause.

Even where a special clause applies, limits remain in place, including a maximum of 720 hours of overtime per year, an average of less than 80 hours per month over multiple months including work on statutory holidays, and less than 100 hours in any single month including work on statutory holidays.

If overseas headquarters does not sufficiently understand Japanese working-hours regulations, operations may drift toward an assumption that employees can simply work overtime whenever business needs require it, creating a risk of exceeding statutory limits.

For this reason, it is important to identify busy periods and major project schedules in advance and, where necessary, consider beforehand whether a special clause may be applicable.

Social and Labor Insurance Procedures

When a Japanese entity employs staff, it must, depending on applicable requirements, arrange enrollment and complete procedures for health insurance, Employees’ Pension Insurance, employment insurance, workers’ compensation insurance, and other schemes.

These procedures do not arise only when employees join or leave. Various filings and procedures may also be required throughout the year when compensation changes, dependent information changes, employees take childcare leave, and in other circumstances.

Under Japan’s Certified Social Insurance and Labor Consultant Act, restrictions apply to carrying out, as a business and for remuneration, services such as preparing and submitting applications and acting as an administrative agent under labor and social insurance legislation.

Accordingly, when selecting an outsourcing provider, it is important to confirm that the provider has an appropriate structure under which qualified professionals, such as Certified Social Insurance and Labor Consultants, can properly handle any regulated services that may be required.

Work Rules and Other Labor Management Matters

In Japan, workplaces that regularly employ 10 or more workers are required to prepare work rules and submit them to the head of the competent Labor Standards Inspection Office. The same applies when the work rules are amended.

Foreign-affiliated companies sometimes begin operations in Japan using only an Employee Handbook prepared by overseas headquarters, without clearly addressing how that handbook relates to work rules required under Japanese law.

An Employee Handbook and Japanese work rules do not necessarily serve the same function.

For this reason, before the Japanese organization grows significantly, it is important to clarify the respective roles and relationships among employment agreements, Japanese work rules, and internal policies adopted by headquarters or the Japanese entity.

Japan-Specific HR and Labor Rules Foreign-Affiliated Companies Should Pay Particular Attention To

Statutory Annual Paid Leave Should Not Be Managed Solely Under a Company’s Own Leave Policy

Annual paid leave in Japan is a statutory entitlement under the Labor Standards Act.

Employees who satisfy specified requirements are entitled to annual paid leave under the law.

In addition, for employees who are granted at least 10 days of statutory annual paid leave in a year, employers are required to ensure that each employee takes at least five days annually.

Accordingly, even where an overseas headquarters has its own Vacation Policy or Leave Policy, it is not appropriate to manage leave for the Japanese entity solely on that basis.

The company must review both the headquarters leave policy and statutory annual paid leave requirements under Japanese law, and manage leave appropriately for the Japanese entity.

A “Manager” Job Title Alone Does Not Determine Working-Hours or Overtime Treatment

Overseas headquarters may classify all employees at Manager level or above as exempt from working-hours controls or overtime pay.

In Japan, however, whether an employee is exempt from working-hours restrictions or premium overtime pay is not determined solely by an English-language Job Title.

Whether a person qualifies as a “manager or supervisor” under the Japanese Labor Standards Act is assessed comprehensively based on the employee’s actual duties, authority, working arrangements, compensation, and other factors—not merely on title.

Relevant considerations may include, for example:

• Whether the employee has significant duties and authority closely connected with management;
• Whether the employee has substantial discretion over working hours without strict restrictions on starting and finishing times; and
• Whether the employee receives salary, allowances, and other treatment appropriate to such a position.

Therefore, even employees with titles such as “Country Manager,” “Head of [Function],” or “Manager” may not qualify as a manager or supervisor under Japanese law if their actual working conditions do not support that classification.

A well-known example is the McDonald’s Japan case decided by the Tokyo District Court on January 28, 2008, in which a store manager was found not to qualify as a manager or supervisor for purposes of the Labor Standards Act.

The case is widely cited as illustrating that managerial status in Japan cannot be determined by job title alone.

When implementing headquarters Job Grades or Job Titles in a Japanese subsidiary, companies should therefore verify that the treatment is consistent with Japanese labor law.

Additional Compliance Requirements Arise as Headcount Increases

A Japanese operation may begin with only a few employees, but as hiring increases, additional HR and labor requirements may arise in areas such as work rules, occupational health and safety, and working-hours management.

Certain statutory procedures also become mandatory once employee headcount exceeds specified thresholds.

For this reason, when designing an HR outsourcing arrangement, it is advisable to consider not only the company’s current headcount but also its hiring plans and expected organizational growth over the next one to two years.

Benefits of HR and Labor Outsourcing

Building a Japanese HR Framework Before Hiring a Full-Time HR Professional

Companies that have only recently entered the Japanese market may have too few employees to justify hiring a full-time HR professional immediately.

By outsourcing some or all HR and labor administration functions, a company can establish an appropriate HR operating framework even before hiring dedicated internal HR personnel.

Reducing Dependence on Individual Employees

If payroll and social insurance processes are concentrated with a single employee, the business may be disrupted if that person resigns or takes extended leave.

Implementing outsourcing generally requires the company to clarify workflows, deadlines, required data, and responsible parties, making it easier to standardize HR operations and reduce key-person dependency.

Allowing HR Managers to Focus on Strategic Work

If an HR Manager spends a substantial amount of time each month reviewing attendance records, preparing payroll data, and processing onboarding or offboarding documents, they may have insufficient capacity for recruitment, learning and development, performance management, organizational development, and other strategic HR initiatives.

By outsourcing routine HR and labor operations, in-house HR teams can focus more effectively on strategic people issues and activities that are closer to management decision-making.

Not All HR Functions Should Be Outsourced

In HR and labor outsourcing, it is important to clearly distinguish between activities that can be delegated externally and responsibilities that should remain in-house.

For example:

As a general principle, it is useful to think in terms of “outsourcing routine operations while retaining internally those matters that require company-level judgment and decision-making.”

Seven Points Foreign-Affiliated Companies Should Consider When Selecting an HR Outsourcing Provider

1. Does the Provider Have Experience Supporting Japanese Subsidiaries of Foreign Companies?

Foreign-affiliated companies often face requirements that differ from those of purely domestic Japanese companies, including HR data coordination with overseas headquarters and alignment with Global HR Policies.

It is therefore important to confirm not only whether a provider has experience processing payroll in Japan, but also whether it understands the workflows specific to foreign-affiliated Japanese entities and how to coordinate effectively with overseas headquarters.

2. Can the Provider Communicate Effectively in English on Practical HR Matters?

It is not enough for a provider simply to state that “English support is available.”

The provider should be able to explain Japan-specific matters—such as payroll, social insurance, leave, and overtime—to headquarters or Regional HR accurately in English.

When evaluating a provider, companies should consider whether it can explain not only what a Japanese system is, but also why certain actions are required and how Japanese requirements differ from Global Policies.

3. Can the Provider Coordinate Payroll and Social Insurance Procedures?

Payroll and social insurance are closely interconnected.

If they are outsourced to separate providers, the transfer of information and allocation of responsibilities may become complex.

Companies should therefore confirm whether the provider can support not only payroll but also necessary social and labor insurance procedures through an appropriate structure, including coordination with qualified professionals such as Certified Social Insurance and Labor Consultants.

4. Can the Provider Support Japanese Labor and Employment Consultations?

In day-to-day HR operations, companies encounter questions that go beyond payroll processing, such as:

• “Can we implement the headquarters leave policy in Japan?”
• “We want to change an employee’s employment terms.”
• “We want to revise our working-hours system.”

Accordingly, another important consideration is whether the provider can connect the company with appropriate specialist labor and employment advice when necessary, rather than supporting only routine monthly operations.

5. Can the Provider Work with the Company’s Existing HR Systems?

Foreign-affiliated companies often use Global HR Systems such as Workday or other systems designated by overseas headquarters.

If the Japanese entity introduces an entirely separate system, it may become necessary to enter the same HR information in multiple systems.

When selecting an outsourcing provider, companies should therefore clarify how their existing HR System will interface with Japanese payroll, attendance, and other local systems.

6. Can the Provider Manage Personal Information Appropriately?

HR and labor processes involve highly sensitive personal information, including salary, home addresses, family information, and bank account details.

Companies should therefore review the provider’s information security framework, including access controls, data transfer methods, storage practices, and management of access rights when personnel change.

Where personal data is shared between overseas headquarters and the Japanese entity, the relevant data flows should also be clearly mapped and managed.

7. Can the Provider Deliver the Service as a Team Rather Than Relying on One Individual?

Outsourcing does not fully solve key-person dependency if only one individual at the provider understands the company’s operations.

Companies should therefore check whether the provider maintains proper operational manuals, has review personnel in place, and provides backup coverage when the main account representative is unavailable.

Typical HR and Labor Outsourcing Implementation Process

A typical implementation process includes the following steps:

1. Review Current HR and Labor Operations

Create an inventory of existing tasks, including payroll, time and attendance, social and labor insurance, onboarding and offboarding, and employee inquiries.

2. Define the Outsourcing Scope

Clarify which responsibilities will remain with the Japanese entity, which will be handled by overseas headquarters, and which will be outsourced.

3. Prepare an Annual HR Operations Calendar

Include not only monthly payroll but also year-end tax adjustments, annual resident tax updates, and annual social insurance procedures.

4. Design Workflows and Data Interfaces

Decide who provides which information, by when, and through what channel. Clearly allocating responsibilities among overseas headquarters, the Japanese entity, and the outsourcing provider is essential.

5. Transfer Historical Data and Relevant Policies

Organize and hand over information required for operations, including Employee Master data, prior payroll records, work rules, employment agreements, and internal policies.

6. Conduct Testing and Parallel Runs

For critical processes such as payroll, testing should be completed before going live. Where appropriate, the new process should run in parallel with the existing process so that calculation results and data interfaces can be validated.

7. Review the Arrangement Regularly After Go-Live

The outsourcing scope and workflow should be reviewed periodically as headcount, organizational structure, Global Policies, and HR Systems change.

Common Mistakes in HR and Labor Outsourcing

Applying Headquarters Policies Directly in Japan

The existence of a Global Policy does not eliminate the need to review Japanese legal and regulatory requirements.

When introducing headquarters policies into Japan, companies must first assess relevant Japanese laws and practices and then adapt the policies into rules that can be properly implemented by the Japanese entity.

Outsourcing Payroll in Isolation

Payroll is closely connected with attendance, onboarding and offboarding, HR data, social insurance, and many other functions.

If payroll is outsourced without properly organizing these data flows, the company may still need to perform substantial internal checks and data processing after implementation, and the expected reduction in workload may not materialize.

It is therefore important to review the entire end-to-end process surrounding payroll rather than viewing payroll processing as an isolated task.

Failing to Define Who Is Responsible for Providing Information

Even when employee salaries change or employees join or leave the company, the outsourcing provider cannot process the change unless it receives the relevant information at the appropriate time.

Companies should therefore clearly define who is responsible for providing information and by what deadline among the Japanese entity, overseas headquarters, and the outsourcing provider.

Selecting a Provider Based on Price Alone

HR and labor outsourcing cannot be meaningfully compared solely by transaction volumes or monthly fees.

The capabilities required of a provider vary significantly depending on the services needed, including English-language support, employee inquiries, coordination with overseas headquarters, labor consultations, and access to appropriate specialists for social and labor insurance procedures.

Companies should therefore first define how much of their HR operation they ultimately want the provider to manage and then compare potential providers on that basis rather than price alone.

Frequently Asked Questions About HR and Labor Outsourcing for Foreign-Affiliated Companies

Can a Japanese Entity with Only a Small Number of Employees Use HR Outsourcing?

Yes.

Especially in the early stages of entering the Japanese market, when HR workload is not yet sufficient to justify hiring a dedicated HR professional, outsourcing can be an effective option.

Later, as the organization grows and in-house HR staff are hired, the company can bring selected functions back in-house and adjust the scope of outsourced services.

Can All HR and Labor Functions Be Outsourced?

A wide range of functions can be outsourced, including payroll, attendance data review, administrative onboarding and offboarding, and HR data management.

On the other hand, functions involving company-level or management judgment—such as performance evaluations, final hiring decisions, promotions, and organization design—are generally retained in-house.

Accordingly, rather than “outsourcing everything,” companies should separately design the operational functions to be outsourced and the decision-making functions that should remain within the company.

Can English-Language Communication with Overseas Headquarters Also Be Outsourced?

The scope of support varies by provider.

For foreign-affiliated companies, it is important to confirm not only whether the provider can write emails in English but also whether it can explain Japanese systems relating to payroll, social insurance, working hours, and leave to the company’s overseas HR team.

Companies should also clarify in advance whether the provider can respond to headquarters inquiries, submit Payroll Reports, and coordinate information relating to Global HR Systems.

When Should a Company Consider HR and Labor Outsourcing?

Typical timing includes entry into the Japanese market, periods of rapid headcount growth, the departure of an HR team member, or situations in which payroll and social insurance responsibilities are concentrated with a single employee.

If the company plans to hire rapidly in the future, it may also be beneficial to establish an appropriate operating framework before headcount increases and HR administration becomes more complex.

Conclusion: Foreign-Affiliated Companies Need an HR Framework That Connects “Global” and “Japan”

When foreign-affiliated companies use HR and labor outsourcing in Japan, the decision should not be based solely on whether payroll or social insurance procedures can be delegated externally.

It is important to establish an operating framework that understands the overseas headquarters’ Global HR Policies and HR Systems while adapting them appropriately to Japanese labor law, social insurance requirements, time and attendance management, payroll practices, and other local HR operations.

Particularly during the initial market-entry phase or periods of organizational expansion, companies should avoid concentrating HR and labor responsibilities with a single individual. By clarifying the roles and responsibilities of the Japanese entity, overseas headquarters, and external specialists, companies can build a more sustainable and stable HR operating structure.

RSM Shiodome Partners provides HR support to the Japanese subsidiaries of foreign-affiliated companies, including payroll processing, social and labor insurance procedures, HR and labor outsourcing, and labor and employment advisory services.

We also provide one-stop support for back-office functions required to operate a Japanese entity, including accounting and tax services, visas, and licensing and permit procedures.

For companies considering questions such as “Should we appoint a dedicated HR professional in Japan?”, “It is difficult for overseas headquarters alone to manage Japanese labor matters,” or “We want to review our HR operations, including payroll and social insurance, as an integrated process,” the first step is to assess the current scope of work and allocation of responsibilities and determine the outsourcing model that best fits the organization.

Contact us

Complete this form and an RSM Shiodome Partners representative will be in touch.