Compliance check: Japan: Freelance Act

The Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operators (commonly referred to as the Freelance Act) introduces mandatory requirements aimed at protecting freelancers and improving transparency in freelance engagements. This edition of Compliance Check examines the compliance obligations on businesses that engage individuals as independent contractors in Japan.

Scope

The Freelance Act applies to business transactions where:

• the transaction is between a “specified entrusted business operator” (a freelancer) and a “specified entrusting business operator” (an outsourcer) and
• the transaction qualifies as business entrustment (outsourcing).

Under the Freelance Act, a "specified entrusted business operator" is defined as an individual who does not engage employees or a corporation with only one representative, no other officers, and no employees.

For the purposes of the Freelance Act, an employee is an individual who is expected to work at least 20 hours per week for a period exceeding 31 days.

Key compliance requirements

While the Freelance Act does not re‑characterise freelancers as employees, it imposes a number of key obligations on businesses engaging freelancers, similar to those under Japan's Subcontract Act.

At a high level, businesses who engage freelancers are required to:

• provide key terms of engagement in writing or electronically immediately after commissioning a freelancer, including the scope of work, the date and place for delivery of the services and deliverables, remuneration, the payment due date, and the timing of inspection or acceptance of the services or deliverables (where applicable);
• ensure timely payment of compensation, including setting payment due dates that are as short as practicable and, in any case, no later than 60 days after receipt or acceptance of the services or deliverables;
• upon request, make reasonable accommodations to enable freelancers to balance work with pregnancy, childbirth, child‑rearing or caregiving responsibilities if they are engaged under an outsourcing arrangement for six or more months;
• establish appropriate measures to prevent and address harassment, including providing a system for handling complaints and consultations; and
• provide at least 30 days' advance notice of termination or non-renewal to freelancers who are engaged under an outsourcing arrangement for six or more months.

Key compliance requirements

To mitigate risk under the Freelance Act, businesses should consider:

• reviewing existing freelance and independent contractor arrangements to confirm whether they fall within the scope of the Freelance Act;
• updating engagement documentation and onboarding processes to ensure required information is clearly provided at the start of each engagement; and
• aligning internal policies and practices governing payment, project scope and engagement management with the Freelance Act's requirements.

Proactive review and documentation is particularly important for multinational businesses engaging freelancers in Japan alongside employees or agency workers, where inconsistent treatment may increase compliance risk.