Hiring Your First Employee in Japan: What Founders Get Wrong
Quick answer: Japan's Labor Standards Act applies equally to all workers regardless of nationality, and it strongly favors employees — dismissal without objectively reasonable grounds is illegal, and courts side with employees in most contested terminations. Founders coming from at-will employment markets consistently underestimate this: hire deliberately, document everything in writing per Article 15, and register for social insurance before day one, not after.
Fixed-term vs indefinite-term contracts
Quick answer: A fixed-term contract runs for a defined period and is easier to end at expiry without meeting the dismissal standard, but staff on successive fixed-term contracts gain the right to request conversion to an indefinite-term position after five cumulative years. An indefinite-term contract has no end date and is protected by Japan's full dismissal standard from day one.
Many founders start a first hire on a fixed-term contract while building confidence in the relationship — this is common practice and legally sound, but it isn't a permanent workaround. Our Japan Business Manager Visa founder's checklist covers this same five-year conversion rule in the context of overall hiring sequencing; the short version is that fixed-term status buys flexibility for a defined runway, not indefinitely.
| Dimension | Fixed-term contract | Indefinite-term contract |
|---|---|---|
| End date | Defined at signing (commonly 1 year, renewable) | None |
| Ease of non-renewal at term end | Easier than dismissal — but repeated non-renewal without cause can itself be challenged | Not applicable — no natural end point |
| Dismissal standard during the term | Same "objectively reasonable grounds" standard applies mid-term | Full dismissal standard applies from day one |
| Conversion risk | Employee can request indefinite-term status after 5 cumulative years (Article 18, Labor Contract Act) | N/A — already indefinite |
| Best fit | First hire while building trust; roles with genuine time-bound scope | Established roles once you're confident in long-term headcount need |
Why termination is so difficult
Quick answer: Japan's Labor Contract Act requires that dismissal have "objectively reasonable grounds" and be "appropriate in light of socially accepted ideas" — a standard courts apply strictly, and one that underperformance against US-style OKRs does not satisfy on its own. This is the single most consequential difference from at-will employment markets, and it should shape how you write contracts and manage performance from the start, not just how you handle an eventual termination.
For economic dismissals (redundancy specifically), case law has established a four-part test: the necessity to reduce headcount, exhaustion of alternatives such as relocation or salary cuts, fair selection criteria, and adequate consultation with employees. In practice, this means Japan employment contracts must be drafted by a Japan-licensed attorney or labor law specialist — not adapted from a US offer letter template — and that founders should budget for negotiated severance in amicable separations, since packages vary widely and a Japanese labor attorney (bengoshi) is worth retaining to manage that risk properly.
What your employment contract legally must include
Quick answer: Under Article 15 of the Labor Standards Act, employers must provide written notice covering contract term (fixed or indefinite), working location, job description, working hours and overtime policy, wages including payment date and method, grounds for dismissal, and leave entitlements — a US-style offer letter stating only salary and start date is legally insufficient in Japan.
Starting an employment relationship without these written conditions in place is an immediate compliance violation, not a paperwork detail you can clean up later. This is one of the more common first-hire mistakes among founders moving quickly to get someone on the ground: the contract structure needs to be right from the first signature, because retrofitting it after the relationship has started is both harder and riskier than doing it correctly up front.
Required registrations before day one
Quick answer: Before your first employee starts, you must register with the Japan Pension Service and Hello Work (employment insurance) — enrollment is mandatory for employees working 20+ hours per week, and skipping or delaying this registration can affect visa renewal outcomes, not just create a compliance gap.
As of 2026, Japan's Immigration Services Agency is increasingly cross-referencing social insurance (pension and health insurance) enrollment records during visa renewal processing — see our Business Manager visa renewal post for how this fits into the renewal review specifically. If your company hasn't properly enrolled employees in shakai hoken (社会保険), an employee's own visa renewal may be denied, and it affects your company's standing with immigration authorities more broadly. The employer's total social insurance burden runs approximately 15% of gross salary across health insurance (~5.0%), employee pension (9.15%), employment insurance (~0.95% for general industry), and workers' accident insurance (0.25%–8.8% depending on industry) — plan for this as a real cost of headcount, not an afterthought line item.
One narrow exception: expatriates from countries with Totalization Agreements — including the US and Australia — deployed to Japan for under 5 years may be exempt from Japanese pension and health insurance under the Detached Worker rule. This exemption applies to expatriates, not local Japanese hires, who must be enrolled regardless.
How your first hire can satisfy the visa's language requirement
Quick answer: The Business Manager visa's October 2025 reform added a Japanese-language requirement — JLPT N2 or CEFR B2 — but it can be satisfied by either the applicant personally or a full-time qualifying employee, meaning a non-Japanese-speaking founder can meet this requirement entirely through the right hire rather than personally reaching that language level.
This makes your first hire a structural piece of your visa strategy, not just an operational decision — hiring a local full-time employee who meets the N2/B2 threshold satisfies the requirement on the founder's behalf. Our subsidiary guide's visa section and our post on Business Manager visa mistakes that cause delays both cover this same rule; the practical takeaway here is to factor language qualification into how you screen candidates for this first role, since it's doing double duty for both your operations and your own visa eligibility.
FAQ
Can I terminate an employee during their probation period more easily? Probation periods (commonly 3–6 months) give some additional latitude, but termination during probation is still subject to a reasonableness standard, just a somewhat less strict one than post-probation dismissal. It is not equivalent to at-will termination.
Does a fixed-term contract protect me from the dismissal standard entirely? No — the same "objectively reasonable grounds" standard applies to dismissal during the term of a fixed-term contract. What a fixed-term structure changes is what happens at the contract's natural end date, not your ability to end it early without cause.
Do I need a Japan-licensed attorney to draft a single employment contract, or can I adapt a template? For your first hire specifically, use a Japan-licensed attorney or labor law specialist. Article 15 requirements and the dismissal standard make US-style templates legally insufficient, and the cost of getting the first contract wrong — both in compliance exposure and in setting precedent for later hires — outweighs the cost of doing it properly once.
Does the five-year fixed-term conversion rule apply per-contract or across renewals? It's cumulative across successive fixed-term contracts with the same employer — once total cumulative service reaches five years, the employee gains the right to request conversion to indefinite-term status, regardless of how many separate fixed-term renewals it took to get there.
We coordinate first-hire contract structuring, social insurance registration, and language-requirement screening as part of our hiring support. Recruiting itself is regulated in Japan — placing candidates for a fee requires a government-issued license — and Smart Contents holds a fee-charging employment placement license (有料職業紹介事業許可, 13-ユ-312993), so candidate sourcing for your first hire happens under our own license rather than through an outside recruiter. See published pricing or get in touch if you're planning your first Japan hire.
This article reflects publicly available guidance under Japan's Labor Standards Act and Labor Contract Act, and current Immigration Services Agency practice, as of July 2026. It is not legal advice. For your specific employment contract, consult a Japan-licensed attorney or labor law specialist.