Japan’s freelance population comprises over 3 million people (24% of its entire workforce), and this figure has experienced a sharp growth trend since the pandemic.
However, employment remains the predominant working model in Japan.
There is currently no recognized definition for independent contractors in Japan
Japanese law refers to three types of employee: permanent employees or seisha-in (正社員), contract employees or keiyakusha-in (契約社員), and temporary or ‘contracted employees’ hakensha-in (派遣社員).
Despite the growing trend towards freelancing, there is still no clear definition for “independent contractors” or those who work outside one of the above employment types.
Why you need to ensure your Japanese contractors set up a sole proprietorship
Unlike many other countries, Japan has only one independent contractor category in terms of business models, which is as a sole proprietor of a business (kojin jigyo or 個人事業). These workers are referred to informally as freelancers.
To set up a sole proprietorship, individuals need to submit a “Notification of Opening or Closing of a Sole Proprietorship” (kojinjigyou no kaigyou, haigyou nado todokede sho or「個人事業の開業・廃業等届出書」) to their National Tax Agency (NTA).
If these individuals wish to run their own company (for example, as a Limited Liability Company), they must draw a salary from this company, and are therefore considered to be an employee of that company. This makes the risk of independent contractor misclassification in Japan very low in comparison to other countries.
But as you can see, understanding the differences between employees and independent contractors is critical to compliantly engaging freelance workers in Japan.
If the real substance of your company-contractor relationship proves to effectively be an employment relationship, your company may suffer legal and financial penalties in Japan—including payroll taxes.
For this reason, it is important you have a good engagement framework that accurately classifies independent contractors for you, and lets you know when freelance talent must be engaged as an independent contractor or employed directly.
Partnering with Worksuite gives you an easy, automated way to stay on the right side of Japanese legislation.
How Worksuite makes it simple to compliantly hire contractors in Japan
Worksuite’s Global Shield takes into account Japan’s unique approach to classifying workers as independent contractors.
Part of our value is in helping your talent align with the necessary independent contractor classification criteria, such as setting up a sole proprietorship in Japan.
We also partner with the best legal teams in Japan to create contract templates that are compliant with local laws, and are specifically tailored to your business.
Helping you navigate the language barrier, and ensuring you set out on the right path legally, protects you and your contractors from fines and penalties, and gives you peace of mind when you’re growing your talent pool in this country.