Hawaii's payroll compliance requirements are unlike any other state. Between the Prepaid Health Care Act, Temporary Disability Insurance, a high-wage-base SUI, graduated income tax withholding, and no tip credit for tipped employees, Hawaii employers face a compliance stack that can catch even experienced HR teams off guard — especially those used to operating on the mainland.
This guide covers the full picture: every state-level payroll tax, the Hawaii-specific benefit mandates, workers' compensation requirements, county considerations, and the common mistakes we see at PDS Payroll after processing Hawaii paychecks since 1969.
Hawaii State Income Tax (SIT) Withholding
Hawaii uses a graduated state income tax, administered by the Hawaii Department of Taxation (DoTax). Employers withhold state income tax from each employee's paycheck based on the employee's completed Form HW-4 (Employee's Withholding Allowance Certificate) and the official DoTax withholding tables.
Hawaii Income Tax Rates (2026)
Hawaii's income tax has more brackets than most states. For single filers, the rate structure is:
| Taxable Income (Single) | Rate |
|---|---|
| $0 – $2,400 | 1.4% |
| $2,401 – $4,800 | 3.2% |
| $4,801 – $9,600 | 5.5% |
| $9,601 – $14,400 | 6.4% |
| $14,401 – $19,200 | 6.8% |
| $19,201 – $24,000 | 7.2% |
| $24,001 – $36,000 | 7.6% |
| $36,001 – $48,000 | 7.9% |
| $48,001 – $150,000 | 8.25% |
| $150,001 – $175,000 | 9.0% |
| $175,001 – $200,000 | 10.0% |
| Over $200,000 | 11.0% |
Married filing jointly brackets are wider, resulting in lower withholding at equivalent income levels. Hawaii's 11% top rate is the highest state income tax rate in the nation (tied with California's 13.3% for extremely high earners, but Hawaii's 11% applies at much lower income levels).
Form HW-4 and Withholding Defaults
Every new employee must complete a Form HW-4 before the first paycheck. The HW-4 uses an allowance system (similar to the old federal W-4 before 2020). Employees claim allowances for themselves, a spouse, and dependents. Each allowance reduces the amount of wages subject to withholding.
If an employee does not submit an HW-4, withhold at the single, zero-allowances rate — the maximum withholding position. This usually results in more withholding than the employee expects. Encourage employees to submit the form at hire. It's available at the DoTax website (tax.hawaii.gov) and in any employer onboarding packet.
HW-14: Monthly Withholding Returns
Most Hawaii employers file Form HW-14 monthly, due by the 20th of the following month. January withholding is due February 20; December withholding is due January 20. The form reports total wages paid and total Hawaii income tax withheld for the month.
Employers whose annual withholding reaches $40,000 or more move to a semi-weekly deposit schedule. Hawaii DoTax notifies employers when they cross this threshold, but growing businesses should track their own cumulative withholding to anticipate the change before receiving notice. Missing the deposit frequency transition is a common compliance error for businesses adding staff.
Hawaii State Unemployment Insurance (SUI)
Hawaii's SUI program is administered by the Hawaii Department of Labor and Industrial Relations (DLIR), Unemployment Insurance Division. SUI is employer-paid; Hawaiian employees do not contribute to the state unemployment fund.
Hawaii SUI Rates and Wage Base for 2026
- New employer rate: 3.0% for most industries until an experience rating is established
- Experienced employer range: 0% to 5.6%, assigned annually by DLIR based on reserve account history
- Taxable wage base: $56,700 per employee per calendar year
Hawaii's SUI wage base of $56,700 is the highest in the United States in both absolute terms and as a proportion of average state wages. For context, most states have SUI wage bases between $7,000 and $15,000. California's SUI wage base is $7,000. New Jersey's (the second-highest) is $42,300. Hawaii's $56,700 base means even the minimum SUI cost per employee is substantial — and at the new employer rate of 3.0%, the annual SUI cost per employee is $1,701.
A new Hawaii employer with 5 employees will pay approximately $8,505 in SUI for the year at the 3.0% new employer rate ($1,701 per employee). Factor this into your first-year labor cost projections. SUI costs drop as you build a positive reserve account, but the first few years can be a significant line item.
DLIR Registration and UC-B6 Quarterly Reports
Before your first payroll, register for SUI with DLIR by filing Form UC-1 (Employer's Registration Form) online through Hawaii's UI Express portal. Upon registration, you receive your employer account number and initial SUI rate.
SUI is reported quarterly on Form UC-B6, which requires per-employee detail: each worker's name, Social Security number, and gross wages for the quarter. Corporate officers must be included. Due dates:
- Q1 (January–March): due April 30
- Q2 (April–June): due July 31
- Q3 (July–September): due October 31
- Q4 (October–December): due January 31
Hawaii Temporary Disability Insurance (TDI)
Hawaii's Temporary Disability Insurance (TDI) law requires all Hawaii employers to provide TDI coverage to employees working 20 or more hours per week. TDI pays partial wage replacement when an employee cannot work due to a non-work-related illness, injury, or pregnancy.
Employee TDI Contribution (2026)
- Employee rate: 0.5% of gross weekly wages
- Maximum weekly employee contribution: $6.14 per week
- The employer withholds this amount from each paycheck and remits it accordingly
State Plan vs. Private Plan
Hawaii employers satisfy TDI in one of two ways:
- State Plan: Enroll through DLIR. Employee contributions are deducted and reported on the quarterly UC-B6 or via the state TDI remittance process. Benefits are paid by the state.
- Approved Private Plan: Purchase TDI coverage from a DLIR-approved Hawaii insurance carrier. The private plan must provide benefits at least equivalent to the state plan. Employee contribution amounts and maximum weekly caps may differ slightly depending on the plan. The private plan insurer handles benefit claims.
Many mid-size and larger Hawaii employers use an approved private plan for more flexibility in benefit design. Smaller employers often find the state plan administratively simpler. Whichever you choose, coverage must be in place before employees become eligible — which occurs after a waiting period under both the state and private plans.
TDI Benefits
TDI benefits are approximately 58% of the employee's average weekly wages, up to a maximum benefit amount updated annually by DLIR. The benefit begins after a 7-day waiting period (except for hospital confinement, which may qualify immediately) and can continue for up to 26 weeks per disability episode. TDI covers non-work injuries; work injuries are covered by workers' compensation.
The Hawaii Prepaid Health Care Act (PHC)
This is the requirement that surprises almost every out-of-state employer expanding to Hawaii. The Hawaii Prepaid Health Care Act (PHC), enacted in 1974, requires Hawaii employers to provide qualifying health insurance coverage to their employees. Hawaii is the only state in the country with this mandate.
The PHC Trigger
The PHC applies when an employee meets both of the following conditions:
- The employee works 20 or more hours per week
- For four or more consecutive weeks
Once both conditions are met, the employer must offer qualifying health insurance coverage. This is not a size-based threshold — there is no small-employer exemption. A sole proprietor with a single part-time employee who crosses 20 hours/week for four consecutive weeks triggers the PHC obligation for that employee.
What "Qualifying" Coverage Means
Not just any health insurance plan qualifies under the PHC. Coverage must meet minimum benefit standards set by the Hawaii Prepaid Health Care Act, which include specific requirements for hospitalization, physician care, diagnostic testing, and other services. The DLIR Health Care Assurance Program (HCAP) maintains a list of plans that qualify and reviews employer compliance.
Many Hawaii employers use health plans from HMSA (Hawaii Medical Service Association) or Kaiser Permanente Hawaii, both of which offer PHC-qualifying plans. If you are sourcing coverage from a mainland insurer or a national employer platform, verify that the plan is specifically approved as a PHC-qualifying plan in Hawaii before enrolling employees.
Employee Premium Contribution Cap
Under the PHC, the employee's contribution toward the health insurance premium is capped at 1.5% of their gross wages, not to exceed the actual premium cost of the plan. The employer pays the rest.
Worked example: An employee earns $700/week. Their maximum contribution is $10.50/week (1.5% of $700). If the plan costs $22/week per employee, the employer pays $11.50 and the employee pays $10.50. If the plan costs $8/week per employee, the employee pays $8 (not to exceed actual cost).
The most common PHC violation we see is employers who track hours loosely and miss the 20-hour/4-week trigger for employees who started part-time. By the time the oversight is discovered, months of coverage have been missed. Build a system to flag when part-time employees approach 20 hours/week — once they cross the four-consecutive-week threshold, the obligation is retroactive from the point it was triggered.
DLIR HCAP Compliance
The DLIR Health Care Assurance Program enforces PHC compliance. Employers are subject to annual audits and can be required to demonstrate coverage for all eligible employees. Penalties for non-compliance include back-payment of premiums the employer should have paid, plus interest and administrative fees. DLIR can require an employer to purchase coverage retroactively to the date of eligibility.
Hawaii Workers' Compensation Requirements
Hawaii requires all employers to carry workers' compensation insurance for every employee, including part-time, temporary, and seasonal workers. Workers' compensation covers medical expenses and partial wage replacement for employees injured on the job or who develop occupational diseases related to their work.
Coverage Options
- State Fund: Purchase workers' comp coverage through the Hawaii Employers' Mutual Insurance Company (HEMIC) or other approved Hawaii carriers. Hawaii does not operate a state-monopoly workers' comp fund, so employers may shop among approved private carriers.
- Self-Insurance: Very large employers may apply to the DLIR Disability Compensation Division for self-insurance status, which requires demonstrating financial capacity to pay claims directly. This is uncommon for small and mid-size employers.
Workers' compensation premiums are calculated as a percentage of payroll in each job classification code. Construction, healthcare, hospitality, and certain agricultural workers have higher classification rates reflecting the elevated injury risk in those industries.
Exemptions
Sole proprietors and partners with no employees are exempt from the workers' comp mandate. However, sole proprietors who employ even one person must obtain coverage. Corporate officers are considered employees for workers' comp purposes and must be covered (or must affirmatively elect to exclude themselves if the insurer permits it).
Claims and Reporting
Workplace injuries must be reported to the employer's workers' comp carrier promptly. Hawaii law requires injured employees to receive immediate medical attention for work injuries and requires employers to file a Form WC-1 (Employer's Report of Industrial Injury) with DLIR within seven working days of learning of an injury that results in lost work time or medical treatment beyond first aid.
Hawaii Minimum Wage 2026
Hawaii's minimum wage is $16.00 per hour as of January 1, 2026, under the schedule established by Act 114 (2022). The next scheduled increase is to $18.00 per hour on January 1, 2028.
No Tip Credit in Hawaii
Hawaii is one of a small number of states with no tip credit. Tipped employees — servers, bartenders, valet attendants, housekeeping staff — must receive the full Hawaii minimum wage of $16.00/hr in direct wages, regardless of what tips they earn. Tips are on top of the minimum wage, not a substitute for it. Employers from the mainland who assume they can apply the federal $2.13 tip credit in Hawaii are wrong, and can face significant back-pay liability when the error is discovered.
County Minimum Wages
Hawaii's four counties (Honolulu, Maui, Hawaii County, Kauai) currently do not have separate minimum wage ordinances exceeding the state rate. The state minimum applies statewide. Monitor county legislative activity — county minimum wage discussions have occurred in the past, particularly in Honolulu, which has a large hospitality and service workforce.
Local Compliance: Honolulu, Maui, and County-Level Considerations
Hawaii is governed by state law in most payroll respects — there are no county income taxes in Hawaii (unlike states like Ohio or Michigan where cities levy separate income taxes). Employers operating across multiple islands manage one set of state payroll tax accounts, regardless of whether their employees are on Oahu, Maui, the Big Island, or Kauai.
General Excise Tax (GET) and Payroll
Hawaii's General Excise Tax (GET) is not a payroll tax, but it affects payroll indirectly for businesses with GET exposure. Employers should ensure their GET registration (Form BB-1) is current if they have any taxable business activity in Hawaii. The GET is separate from income tax withholding and SUI.
Honolulu Employer-Specific Notes
Honolulu employers in the hospitality industry face particularly close PHC scrutiny given the high volume of hotel, restaurant, and tourism workers in the city. DLIR HCAP audits more frequently in the hospitality sector. Union collective bargaining agreements in hospitality may impose additional benefit requirements beyond PHC minimums — review any applicable CBAs carefully.
Maui, Big Island, and Kauai Operations
Agriculture, tourism, and construction dominate employment on the neighbor islands. Agricultural workers have specific exemptions and modified rules under some federal and state laws. If you have agricultural employees, confirm with a Hawaii employment attorney which PHC, TDI, and workers' comp provisions apply — some agricultural categories have different coverage triggers. Construction employers on any island should be aware that workers' comp classification rates and premium calculations for construction are among the highest in Hawaii.
Common Mistakes Hawaii Employers Make
After more than five decades of processing Hawaii payroll, these are the errors we see most consistently:
1. Missing the PHC Trigger for Part-Time Employees
Employers track hours loosely and don't notice when a part-time employee crosses 20 hours/week for four consecutive weeks. By the time the oversight surfaces — sometimes during a HCAP audit — months or years of premium contributions have been missed. DLIR can require retroactive coverage. Build an automated hour-tracking alert at 18 hours/week to give yourself lead time.
2. Applying Mainland Tip Credit Rules
Restaurant, hotel, and bar operators from the mainland frequently try to apply the federal $2.13 tip credit or their home state's tipped minimum wage. Hawaii has no tip credit. Every tipped employee gets $16.00/hr in direct wages. The wage liability from a misapplied tip credit can be substantial for a restaurant with 20 servers over three years.
3. Missing the HW-14 Deposit Frequency Trigger
A business that grows from 5 to 15 employees may cross the $40,000 annual withholding threshold mid-year and not realize their deposit schedule has changed from monthly to semi-weekly. Hawaii DoTax sends notice, but if mail goes to a P.O. box and isn't checked promptly, the business misses the change. Late deposits generate 5% penalties plus interest.
4. Omitting Corporate Officers from UC-B6
Corporate officers are employees for Hawaii SUI purposes. Their wages must be included in the quarterly UC-B6 wage report up to the $56,700 wage base. Some bookkeepers exclude them by mistake, either because the officer is also an owner or because their W-2 isn't processed through the same payroll run. DLIR catches this in audits.
5. Using a Non-Qualifying Health Plan for PHC
Not every health insurance plan qualifies under the Hawaii Prepaid Health Care Act. Some national employer platforms sell plans that meet ACA requirements but don't specifically qualify under Hawaii's PHC benefit standards. An employer can be fully insured and still be in PHC violation if the plan doesn't meet Hawaii's minimum benefit requirements. Verify PHC qualification with HCAP before enrollment.
6. Late New Hire Reporting
Hawaii requires new hire reporting within 20 days of the first day of work. In the rush of onboarding, this step slips. The system is used to cross-reference child support enforcement orders; failure to report timely can result in civil penalties.
7. Forgetting Annual HW-3 Reconciliation
The HW-3 (Annual Return and Reconciliation of Income Tax Withheld) is due January 31, along with W-2s. Employers who are prompt with their monthly HW-14 filings sometimes forget the year-end HW-3 reconciliation. DoTax assesses a penalty for late filing that compounds if W-2s are also late.
Hawaii Annual Payroll Filing Calendar
| Deadline | Filing / Action |
|---|---|
| January 20 | HW-14 monthly return (December withholding) |
| January 31 | W-2 distribution to employees; HW-3 annual reconciliation; UC-B6 Q4 |
| February 28 | W-2 electronic filing with DoTax (if 10+ W-2s) |
| April 20 | HW-14 monthly return (March withholding) |
| April 30 | UC-B6 Q1 quarterly SUI wage report |
| July 20 | HW-14 monthly return (June withholding) |
| July 31 | UC-B6 Q2 quarterly SUI wage report |
| October 20 | HW-14 monthly return (September withholding) |
| October 31 | UC-B6 Q3 quarterly SUI wage report |
| Year-round | New hire reporting within 20 days of hire |
See our Hawaii payroll calendar for a complete, year-by-year view of all federal and state filing deadlines.
Handling This Yourself vs. Working with a Local Payroll Service
The breadth of Hawaii's payroll compliance requirements — SIT withholding, SUI, TDI, PHC, workers' comp, new hire reporting, and the HW-14 monthly filing schedule — is manageable, but it requires staying current on annual rate changes, wage base updates, and benefit triggers that shift year to year.
Employers with one or two employees can often manage the filings manually with careful organization and a good payroll calendar. The risk grows with headcount: more employees mean more UC-B6 detail, higher SUI exposure, more PHC tracking, and more room for the small errors that generate penalties.
Most Hawaii business owners we work with find that after 4–5 employees, the compliance management time and error risk outweigh the cost of a local payroll service. The most expensive payroll mistake is rarely the service fee — it's a year of missed PHC contributions discovered in a DLIR audit.
If you want to understand what Hawaii payroll compliance actually costs to manage properly — or what it would cost to hand it off — contact us directly. PDS has been handling Hawaii payroll since 1969 and most clients get a quote the same day.
Frequently Asked Questions
What is Hawaii's state income tax withholding rate?
Hawaii uses a graduated income tax with rates from 1.4% to 11%. The 11% top rate applies to income over $200,000 for single filers (the threshold varies by filing status). Employers withhold based on the employee's HW-4 form and the DoTax withholding tables. If no HW-4 is provided, withhold at single, zero allowances.
What is Hawaii's SUI wage base in 2026?
Hawaii's SUI taxable wage base is $56,700 per employee in 2026 — the highest in the United States. Employer SUI rates range from 0% to 5.6%. New employers pay 3.0%. SUI is employer-paid only; employees do not contribute.
What is Hawaii's TDI employee contribution rate?
The Hawaii TDI employee contribution rate is 0.5% of gross weekly wages, with a maximum of $6.14 per week in 2026. This is withheld by the employer and remitted to the state plan or an approved private plan insurer.
Does the Hawaii Prepaid Health Care Act apply to small businesses?
Yes. The PHC has no small-employer exemption. Any employer with even one employee who works 20 or more hours per week for four or more consecutive weeks must provide qualifying health insurance. Employee contributions are capped at 1.5% of their wages, not to exceed the actual premium cost. This is the most common compliance surprise for new Hawaii employers.
What is Hawaii's minimum wage in 2026?
Hawaii's minimum wage is $16.00 per hour as of January 1, 2026. The next increase is to $18.00 per hour on January 1, 2028. Hawaii has no tip credit — tipped employees must receive the full minimum wage in direct wages, regardless of tips.
What are the most common Hawaii payroll compliance mistakes?
The most common Hawaii payroll mistakes are: missing the PHC trigger for part-time employees who cross 20 hours/week for 4 consecutive weeks; applying mainland tip credit rules (Hawaii has none); missing the HW-14 deposit frequency change when annual withholding crosses $40,000; omitting corporate officers from the UC-B6 quarterly report; and failing to verify PHC plan qualification before enrollment.
Does Hawaii require workers' compensation insurance?
Yes. Hawaii requires workers' compensation insurance for all employees — full-time, part-time, temporary, and seasonal. Sole proprietors without employees are exempt. Coverage must be obtained from an approved carrier or HEMIC. Penalties for operating without workers' comp include fines, stop-work orders, and personal liability for the employer.