PEO services in Japan and exploring alternatives

If you’re looking to streamline HR when managing your team in Japan, a Professional Employer Organization (PEO) can help.

PEOs handle routine but time-consuming tasks such as payroll and benefits management, so it can free you up to concentrate on your core business operations.

However, to benefit from PEO services, you need a local entity. This is where exploring alternatives like an Employer of Record (EOR) is helpful.

In this guide, we’ll delve into PEO services in Japan and explore the distinctions between a Professional Employer Organization and an Employer of Record to help you make an informed decision.

What is a PEO (Professional Employer Organization)?

A PEO is a professional service that can provide comprehensive HR services to your company. Since a PEO enters into a co-employment relationship with you, they become partly responsible for compliance with Japanese laws. Here are some other tasks they can support you with:

• Payroll processing
• Benefits administration
• Tax filings
• Employee benefits
• Workers’ compensation

Benefits of using a PEO in Japan

PEOs offer a comprehensive suite of services designed to streamline your company’s HR functions. Here are the main benefits.

Simplified HR

PEOs take over your payroll, benefits administration, onboarding, and compliance, freeing you from repetitive paperwork and administrative hassles. 

Streamlined compliance

A PEO maintains necessary employee records and all HR documentation required by Japanese law and ensure you comply with all applicable labor regulations.

Employee onboarding

A PEO can help onboard new employees, facilitate new hire orientation, and introduce new hires to your workplace culture, policies, and procedures.

Benefits

PEOs pool multiple clients together to negotiate health insurance, retirement plans, and other employee benefits.

Challenges and limitations of PEOs in Japan

While a PEO can provide your standard HR functions, it’s wise for you to consider several challenges and limitations before engaging one.

Compliance and legal complexities

While PEOs help manage compliance, your company has some liability for employment-related issues.

Ambiguities and potential legal complications can create misunderstandings about shared legal responsibilities.

For instance, if a PEO fails to comply with specific labor laws or regulations or does not remit the proper taxes, your company could be held liable. This could result in financial and legal penalties.

Management and control issues

Your company collaborates with the PEO by sharing operational decisions that impact human resources matters. However, this partnership can lead to slower decision-making processes and actions, as the involvement of the PEO introduces additional layers of bureaucracy that can complicate issues.

Cost considerations

PEOs may charge significant fees for their services, either as a percentage of your total employee payroll or a flat fee per employee. Some PEOs may also have hidden costs, such as extra charges for benefits plan management or for handling claims.

Alternatives to PEO: Introduction to Employer of Record (EOR)

While a PEO might suit some businesses, many companies prefer partnering with an Employer of Record (EOR) when expanding their operations or workforce in Japan. Here we look at how the service works.

What is an EOR?

An Employer of Record (EOR) is a service that acts as the official employer for your workforce in a foreign country. The EOR handles all legal, administrative, and compliance responsibilities on your behalf, including payroll processing, tax withholding, benefits administration, and adherence to local labor laws.

The EOR takes on the legal liabilities and responsibilities of employment in Japan, allowing your company to maintain control over your employees’ daily activities and strategic direction.

Why consider an EOR in Japan

You can use an EOR without setting up a local entity in Japan. Here are some of the other major benefits of the solution.

Full compliance responsibility

An EOR is the legal employer for your employees, handling all aspects of tax and compliance. This includes managing local labor and tax laws, obtaining work permits, and ensuring that all regulatory requirements are met in the countries where your employees are located.

Clear management structure

Your company retains authority over employees’ daily management and supervision, including defining job roles, assigning tasks, and conducting performance evaluations. The EOR controls the legal and administrative aspects of their employment, streamlining the process. This clear structure avoids legal complications.

Transparent cost structure

EORs usually charge a straightforward monthly fee per employee for payroll processing, benefits administration, compliance management, and related services. This clear pricing structure ensures there are no hidden fees, making budgeting and financial planning more stable and predictable.

Discover how Mindvalley, an edtech company, used Multiplier to hire workers in six countries, scaling without unexpected costs. 

Deciding between PEO and EOR

Deciding whether a PEO or an EOR is right for your business depends on what your company needs and what you need to accomplish.

These are some things you should consider:

When to Choose a PEO

Consider choosing a PEO when you:

• Want to keep substantial control over your HR function operations. You’ll be partially responsible for compliance, benefits, and more.
• Need extensive, local HR support. PEOs manage your increased workload and ensure compliance with employment laws as your business expands.
• Already have a local entity. 

When to choose an EOR

An EOR may be a better choice for your business if you want to expand and hire internationally without setting up a local entity.

You should also consider an EOR if you:

• Need swift market entry. An EOR can facilitate quick entry into new markets by handling all legal and administrative tasks, allowing your company to operate without establishing local legal entities in new jurisdictions.
• Want operational control with outsourced administration. An EOR allows you to control your core business operations while outsourcing tasks like payroll, benefits, and HR compliance.
• Face complex labor laws. Operating in countries with complex labor laws can be challenging. EORs specialize in navigating local employment laws, ensuring compliance, and minimizing the risk of penalties and legal disputes.
• Need predictable costs. EORs offer transparent and predictable pricing models.
• Require flexible workforce management. If you anticipate fluctuating workforce needs or plan to expand into multiple countries simultaneously, an EOR provides the flexibility to scale operations up or down quickly in response to market demands.
• Want to mitigate risks. EORs assume legal responsibility for employment-related risks, offering robust protection against potential liabilities and safeguarding business continuity and reputation.

How Multiplier can help

Multiplier offers an efficient EOR solution designed to simplify and facilitate the global employment process for companies seeking international expansion in Japan and more than 150 other countries.

In an all-in-one platform, we streamline employment-related tasks, including payroll, tax obligations, benefits, expenses, and compliance with local labor and tax regulations.

PEO vs EOR in Japan

A PEO might be the ideal choice if you desire a co-employment relationship that allows you to retain substantial control over your HR function. However, if you want to expand your business internationally without establishing a legal entity in Japan, an EOR is a better solution.

With Multiplier’s scalable and compliant EOR solution, businesses expanding their presence in Japan can confidently extend their global reach, managing the complexities of international employment and supporting a diverse global workforce.

Book a demo with our experts to learn more.