“Employer of Record” is a commercial term. It does not appear anywhere in Japanese law. That gap causes more confusion than almost anything else in this market: companies assume EOR is its own regulatory lane, when in fact Japanese law only recognizes a small number of categories for how one company can lawfully employ a worker while another company benefits from their work. Whatever an arrangement is called in a sales deck, it has to fit into one of those categories based on what actually happens day to day, not the label on the contract.
Where EOR actually lands
The Worker Dispatch Act defines the core concept this way, in Article 2, item 1:
「自己の雇用する労働者を、当該雇用関係の下に、かつ、他人の指揮命令を受けて、当該他人のために労働に従事させることをいい、当該他人に対し当該労働者を当該他人に雇用させることを約してするものを含まないものとする。」
Causing a worker whom one employs, under that employment relationship, to work for another person under that other person’s direction and command, excluding arrangements where it is agreed that the other person will employ the worker themselves.
That single sentence is the test. If Company A is the legal employer on paper, but Company B directs the worker’s daily tasks, sets their targets, manages their performance, and approves their leave, the arrangement matches this definition regardless of what it’s called. Where that is done as a business, the law adds one more layer, in Article 2, item 3:
「労働者派遣を業として行うことをいう。」
Conducting worker dispatch as a business.
A license is then required under Article 5, paragraph 1:
「労働者派遣事業を行おうとする者は、厚生労働大臣の許可を受けなければならない。」
A person intending to conduct a worker dispatch business must obtain a license from the Minister of Health, Labour and Welfare.
Most EOR products, described honestly, are exactly this: a Japan-based entity is the employer of record so the worker gets a compliant payslip, pension enrollment, and tax withholding, while the actual client abroad directs the person’s work. That is the fact pattern the license requirement exists to cover.
The alternative categories don’t fit cleanly either. In-service secondment (在籍型出向) requires the receiving company to form a genuine second employment relationship and requires the arrangement to fall within one of four narrow purposes recognized by MHLW, none of which describe a repeatable, marketed, fee-based EOR product (we went through this in detail in a previous post, linked below).
Contracting (請負) requires the Japan-side company to genuinely direct and supervise the work itself and deliver a result, which is the opposite of what an EOR client is usually buying. That leaves the default, catch-all category, defined in Article 44 of the Employment Security Act:
「何人も、次条に規定する場合を除くほか、労働者供給事業を行い、又はその労働者供給事業を行う者から供給される労働者を自らの指揮命令の下に労働させてはならない。」
No person shall conduct a labor-supply business, or cause a worker supplied by a person conducting a labor-supply business to work under their own direction and command, except as provided in the following article.
So the honest legal map is narrower than the commercial category suggests: licensed dispatch, or an exposure to Article 44.
Why hasn’t this produced a wave of enforcement?
Given how squarely this fits an existing, decades-old licensing regime, the natural question is why there hasn’t been a visible crackdown. A few structural reasons seem to explain it, without needing to assume anyone is deliberately evading anything.
Japanese labor enforcement is largely complaint-driven, not audit-driven. Labor standards offices act on reports from workers, unions, or competitors. A worker who is paid correctly and treated well has no reason to file one, and most EOR placements are one or two people per foreign client, a very different shape from the large-scale dispatch abuses that have historically drawn regulatory attention.
The scale point matters on its own. A single misclassified placement is low-visibility almost by construction. There’s no factory floor, no group of affected workers, no obvious pattern for an outside party to notice.
MHLW’s own published indicator for “conducted as a business” includes advertising or publicizing that one supplies workers, as stated in its administrative guidance:
「①労働者の供給を行う旨宣伝、広告している場合、②事務所を構え労働者供給を行う旨看板を掲げている場合等については、原則として事業性ありと判断されるものであること。」
Where a party advertises or publicizes that it supplies workers, or maintains an office displaying that it does so, this is, as a general rule, treated as indicating business character.
EOR providers market themselves as “employer of record” or “global employment platforms,” not as labor suppliers, so the plain-language trigger regulators have historically looked for doesn’t superficially appear, even where the underlying function is functionally identical.
There’s also a genuine remedy gap. Where an unlicensed dispatch arrangement is identified, the normal consequence is that the receiving company is deemed to have made a direct employment offer to the worker. That mechanism assumes the receiving company is a real, Japan-registered employer capable of absorbing the worker. When the actual beneficiary is a foreign company with no Japan entity at all, which is the entire premise of using an EOR, that remedy doesn’t have anywhere to land cleanly.
And there’s a policy tension sitting underneath all of this. Japan has spent the last several years trying to make it easier for foreign companies to hire without setting up a local entity. A hard enforcement push against EOR cuts against that broader goal, at least while the government works out how it wants to treat a business model that didn’t really exist in its current form when the current framework was written.
In the absence of visible government action, some of this is starting to be handled by the market itself. It’s increasingly common to see buyer-side legal counsel advising foreign companies to verify an EOR provider’s dispatch license before signing, which is exactly the kind of scrutiny that fills the gap while formal enforcement catches up.
None of this is a judgment on any particular company or provider. The point is structural: what the law actually requires, and why the gap between that requirement and enforcement activity has persisted. Anyone evaluating a workforce structure in Japan should check the primary sources below directly, or send them to qualified Japanese employment counsel, rather than taking any provider’s word for it, including ours.
Related reading on this site: Understanding “Secondment (出向)”: What Does the Japanese Government Actually Say?, This. Is. Secondment in Japan.
Sources
Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers (労働者派遣法), Articles 2 and 5. Official text: https://laws.e-gov.go.jp/law/360AC0000000088
Employment Security Act (職業安定法), Article 44. Official text: https://laws.e-gov.go.jp/law/322AC0000000141. Official English translation: https://www.japaneselawtranslation.go.jp/en/laws/view/4013
Ministry of Health, Labour and Welfare, “Meaning of Labor Supply Business” (労働者供給事業の意義等), including the definition of “conducted as a business”: https://www.mhlw.go.jp/general/seido/anteikyoku/jukyu/kyoukyu/dl/01.pdf
Ministry of Health, Labour and Welfare, “Difference Between Worker Dispatch and In-Service Secondment” (労働者派遣と在籍型出向との差異), 2008 deliberation council reference document: https://www.mhlw.go.jp/shingi/2008/02/dl/s0229-5d.pdf