Three things that trip you up when you put a family member on the payroll

In short: When you put a family member on the payroll, check three things. Do they live in the same household? Will you make them a director? Are you hoping to claim a subsidy? Each of the three is driven by a different scheme for a different reason, and all three have to be settled before the day the person joins.

Having a child or a spouse help out with the business is a natural thing to do in a family-held company. Seen from the procedural side, though, it opens up a number of forks in the road that do not arise when you hire an outsider — and most of those forks cannot be reversed once the person has joined.

Can a family member who lives in the same household be enrolled in employment insurance?

As a rule, no. But there are cases where they are. This is not a point where you can flatly say "they cannot be enrolled."

The Ministry of Health, Labour and Welfare's Administrative Handling Guidelines on Employment Insurance (Application) (雇用保険に関する業務取扱要領（適用関係）) provide, for a relative living in the same household as the proprietor of a sole proprietorship, that such a person is "as a rule not treated as an insured person." The same is said of a relative living in the same household as the representative of a company: where the entity is a company in form but is recognised as being in substance no different from the representative's own sole proprietorship — for example, where all or the greater part of the shares or capital contributions are held only by the representative and their relatives, and board meetings and shareholders' meetings are hardly ever held — such a relative is likewise, as a rule, not treated as an insured person.

On that basis, the Guidelines go on to say that a person who satisfies the following three conditions is treated as an insured person.

	Condition
(ｲ)	It is clear that the person follows the proprietor's directions and orders in carrying out the work
(ﾛ)	The actual working arrangement is the same as that of the other workers, and wages are paid accordingly. In particular, starting and finishing times, breaks, days off and leave, together with the method of determining, calculating and paying wages and the closing date and timing of payment, are managed in the same way as for the other workers, in accordance with what is laid down in the rules of employment or an equivalent document
(ﾊ)	The person does not hold a position that shares in the proprietor's profits (director or the like)

(ﾛ) is the crux in practice. Because "the rules of employment or an equivalent document" is required, even a company with fewer than 10 employees — which has no obligation to draw up rules of employment — will need an equivalent written document if it wants to enrol a family member in employment insurance. The rules on the headcount threshold are collected in How many employees before rules of employment become mandatory, and what is not mandatory.

When you file, you will be asked for a certificate from the proprietor setting out the matters in (ｲ) to (ﾊ) of the Guidelines, a certificate of registered matters, the attendance records of the other workers and the like. The work consists of showing on paper that this is in fact how things stand.

Note that social insurance (health insurance and employees' pension insurance) proceeds on a different logic. A person employed at a covered workplace becomes an insured person, so being a relative in the same household is not in itself a reason to fall outside it. It is a judgement separate from employment insurance.

What changes if you make them a director?

They fall outside employment insurance. The Administrative Handling Guidelines state that "a director of a kabushiki kaisha is, as a rule, not treated as an insured person" and that "a representative director does not become an insured person." The reasoning is that the Employment Insurance Act (雇用保険法, Act No. 116 of 1974) defines an insured person as "a worker employed by a covered business" (Article 4, paragraph 1 of that Act), so an officer who is not in the position of being employed falls outside the scope.

The exception is a director who concurrently serves as an employee (使用人兼務役員). Where a person is a director and at the same time holds employee status such as department manager, branch manager or plant manager, they become an insured person only where, judged from such matters as how remuneration is paid, their character as a worker is strong and an employment relationship is recognised. Even in that case, director's remuneration is not included in the wages that form the basis for calculating unemployment benefits.

Social insurance, by contrast, works in the opposite direction. Once a person becomes a director, they become an insured person as someone employed at a covered workplace, whether or not they are a worker. In summary:

Position	Employment insurance	Health insurance / employees' pension insurance
Employee (relative not living in the same household)	Covered	Covered
Employee (relative living in the same household)	As a rule not covered. Covered where (ｲ) to (ﾊ) above are satisfied	Covered
Director concurrently serving as an employee	Covered only where the character as a worker is strong and an employment relationship is recognised	Covered
Director	Not covered	Covered
Representative director	Not covered	Covered

(For social insurance, in each case where the coverage requirements such as prescribed working hours are met.)

Whether to make someone an officer is usually discussed as a question of how remuneration is set and where responsibility lies, but it feeds into both employment insurance and the subsidies discussed next. It is worth looking at from the procedural side as well.

Can you use a subsidy when a family member joins?

In most cases, no. There are two walls.

The first is the employment insurance wall we have just looked at. Employment-related subsidies presuppose that the employer runs a workplace covered by employment insurance, and the people they cover are insured persons under employment insurance. Since a relative in the same household is as a rule not an insured person, you never get into the ring.

The second is the exclusion clause in the subsidy itself. The payment guidelines for the Career Up Subsidy (キャリアアップ助成金) provide, as a requirement for eligible workers under the Regular Employee Conversion Course, that the worker must be "a person other than a relative within the third degree of kinship of the proprietor or a director of the covered workplace that carried out the conversion or the direct hiring (meaning those within the third degree of kinship among the blood relatives provided for in Article 725, item 1 of the Civil Code, the spouse provided for in item 2 of that Article, and the relatives by marriage provided for in item 3 of that Article)."

Even the period over which this is judged is fixed. The Ministry of Health, Labour and Welfare's Q&A states, for the Regular Employee Conversion Course, that it runs "from the day 6 months before the day preceding the date of conversion or direct hiring, up to the time of the application for payment." In other words, if the family relationship changes just before the person joins, it is still looked at 6 months back.

This exclusion is placed to the same effect not only in the Regular Employee Conversion Course but also in the courses for revision of wage rules, harmonisation of wage rules, bonuses and retirement allowances, and support for extending the working hours of part-time workers. Rather than "there are some courses a family member cannot use," it is closer to reality to understand that "the Career Up Subsidy as a whole excludes family members."

Note that this exclusion of relatives within the third degree of kinship is a requirement specific to the Career Up Subsidy. The guidelines common to employment-related subsidies contain no provision on relatives. For other subsidies you have to check each set of guidelines individually. For the range of subsidies we handle, see Support with subsidy applications.

By when do these things have to be decided?

Before the day the person joins. All three are either hard to change afterwards, or do not reach back even if you do change them.

What to decide	By when	What happens if you are late
Same household or not (the household on the residence record)	Before joining	A change of address not matched by the facts only makes the explanation harder
Whether to make them a director	Before joining	Removing them after they have taken office does not retroactively create insured status under employment insurance
Whether to go after a subsidy	By the day before the day the conversion is carried out (the deadline for submitting the Career Up Plan)	Without a plan on file, the subsidy is refused even where the requirements are met

The third calls for particular care. With the Career Up Subsidy, the plan has to be submitted before the conversion is carried out. Because the form of the contract at the entrance changes even the amount, read If you are going after a subsidy, it is decided by the form of the first contract first.

Frequently asked questions

Q. If I hire my son, who lives separately, is he the same as an ordinary employee?
A. For employment insurance, if he does not live in the same household he does not fall under the treatment of "a relative in the same household," and the ordinary judgement applies. However, the Career Up Subsidy's exclusion of relatives within the third degree of kinship applies whether or not they live in the same household. So you get the combination where the person can be enrolled in employment insurance but is not eligible for the subsidy.

Q. She lives in the same household, but her work is exactly the same as the other employees'. Can I enrol her in employment insurance?
A. If you can show that (ｲ) to (ﾊ) of the Administrative Handling Guidelines are satisfied, she is treated as an insured person. But saying "the work is the same" is not enough on its own: you need to show, with documents such as the rules of employment or an equivalent document, attendance records and the wage ledger, that she is managed in the same way as the other workers. The final judgement is made by Hello Work (the public employment security office), so we cannot guarantee that she "can be enrolled."

Q. My wife is a director, but in practice her work is closer to part-time office work. Can she really not be enrolled in employment insurance?
A. There is room for her to be recognised as a director concurrently serving as an employee, but the Guidelines limit this to "a person whose character as a worker is strong, judged from such matters as the payment of remuneration, and for whom an employment relationship is recognised." The judgement is made once the materials are assembled — the split between director's remuneration and salary, the actual working arrangement, and a comparison with the other employees. Note that even where it is recognised, director's remuneration is not included in the wages that form the basis for unemployment benefits.

Q. All three apply to us. What should we do?
A. The shape you choose depends on whether you prioritise the subsidy or the simplicity of the procedure. If you go after the subsidy, the shape is to enrol a relative who does not live in the same household in employment insurance and to look for a scheme other than the Career Up Subsidy — but whether the amount justifies going that far is a separate question. The quickest route is to talk it through with the actual figures and the actual effort side by side. For fees, see the fee schedule.

Sources for this article

• Employment Insurance Act (雇用保険法, Act No. 116 of 1974), Article 4, paragraph 1
• Ministry of Health, Labour and Welfare, "Administrative Handling Guidelines on Employment Insurance (Application)" (雇用保険に関する業務取扱要領（適用関係）), 20351 (1) イ (directors and employees, company auditors, etc.) and リ (relatives in the same household). The source is the Administrative Handling Guidelines, not a circular (通達). The Guidelines are revised frequently, so please check the latest version from the Ministry's own posting page
• Health Insurance Act (健康保険法, Act No. 70 of 1922), Article 3, paragraph 1; Employees' Pension Insurance Act (厚生年金保険法, Act No. 115 of 1954), Article 9
• Career Up Subsidy payment guidelines (キャリアアップ助成金支給要領) 1003ニ (dated 8 April 2026 (Reiwa 8)). The definition of relatives within the third degree of kinship is Article 725, items 1, 2 and 3 of the Civil Code (民法, Act No. 89 of 1896)
• Career Up Subsidy Q&A (29 July 2026 (Reiwa 8)), Q-8 (the period judged)
• Payment guidelines common to employment-related subsidies (dated 8 April 2026 (Reiwa 8)), 0301
• Subsidy payment guidelines and payment amounts are revised each fiscal year, and sometimes in the course of a fiscal year. When you apply, always check against the Ministry of Health, Labour and Welfare's latest payment guidelines
• All provisions are those in force as confirmed through e-Gov law search as of 13 August 2026

This article stops short of deciding who you should consult. Forming a view on whether a relative in the same household can be treated as an insured person, putting the necessary documents in order, and drawing up a subsidy plan are the work of a Shakai Hoken Roumushi (Certified Social Insurance and Labor Consultant). For how director's remuneration is set and how it is treated for tax, and for registering a change of officers, we will point you to a tax accountant and a judicial scrivener respectively, each of whom you engage directly under a separate contract. We do not receive referral fees. Fees for consulting 四葉社会保険労務士事務所 are set out in the fee schedule, and the questions we are asked most often are collected in frequently asked questions.

This article is general information. A judgement on your particular circumstances is made by a qualified professional after a meeting. Written by Joji Uramatsu (Shakai Hoken Roumushi (Certified Social Insurance and Labor Consultant), Gyoseishoshi (Certified Administrative Procedures Legal Specialist), Registered Real Estate Transaction Specialist).