News Details
2025.06.30
What is 'Disguised Contracting'?
- Hidden Risks in Employment Contracts -
1. Introduction
In recent years, the term 'disguised contracting' has increasingly appeared in labor-related news and administrative guidance. In 2025, the Ministry of Health, Labour and Welfare of Japan has strengthened its oversight of companies, aiming to correct cases where work arrangements formally appear to be outsourcing contracts but are effectively similar to worker dispatching.
This issue often arises when companies outsource work to external firms for cost-cutting or labor shortage reasons. Even if the contract appears legal, if the actual work environment doesn't align, significant legal risks may occur. This article explains the basics and key points of disguised contracting in simple terms for those unfamiliar with the topic.
2. What is Disguised Contracting?
Disguised contracting refers to situations where companies appear to outsource tasks but in reality direct and supervise the external workers as if they were their own employees. Proper outsourcing contracts are based on delivering results, and how the work is done should be up to the contractor.
However, in practice, if the client company gives daily instructions such as 'do it this way' or 'finish by this time' to the subcontracted staff, it may be considered de facto worker dispatching. This discrepancy between the contract and actual working conditions creates a legal problem.
3. Why is Disguised Contracting a Problem?
There are two main issues with disguised contracting:
First, from the perspective of worker protection. Worker dispatching is governed by strict rules to ensure safety and fair working conditions. In disguised contracting, these protections may not apply, potentially leading to exploitative environments.
Second, legal risks for companies. If discovered, companies may face corrective orders from the Ministry of Health, Labour and Welfare, or be forced to suspend contracts. Some contracts may even be ruled invalid.
4. Risks Related to Consumption Tax and Transactions
Outsourcing contracts are generally subject to consumption tax. However, if the actual work is considered dispatching, incorrect tax treatment may lead to penalties or additional tax payments. It is critical to ensure that contract terms match the actual work to avoid issues in both labor and tax compliance.
5. Conclusion
This explanation was created to provide a strategic overview and does not constitute professional advice. Please do not make decisions or take actions based solely on this information without consulting a qualified professional. If you have any questions, feel free to contact us through the URL below.
References
Tokyo Labour Bureau – About Disguised Contracting
(Accessed June 16, 2025)
National Tax Agency – Overview of Consumption Tax
(Accessed June 16, 2025)
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