Hawaii Payroll Compliance 2026: The Complete Employer Guide

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 a tip credit far smaller than the federal one, 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.

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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 and Status 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 for tax years 2025 and 2026 is:

Married filing jointly brackets are twice as wide (the 11% rate starts above $650,000). Hawaii's 11% top rate is among the highest state income tax rates in the nation. Payroll withholding uses its own tables: the 2026 withholding tables in Booklet A apply rates from 1.4% to 7.9% to wages after allowances, and the final tax is settled on the employee's return.

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 Returns and Withholding Payments

Every Hawaii employer files Form HW-14 quarterly, due by the 15th of the month after the quarter: April 15, July 15, October 15, and January 15. The form reports total wages paid and total Hawaii income tax withheld for the quarter. Payments are made separately with Form VP-1 (or electronically) on a schedule set by your annual Hawaii withholding: quarterly if it is $5,000 or less, monthly by the 15th of the following month if it is more than $5,000 but not more than $40,000.

Employers whose annual withholding is more than $40,000 pay semi-weekly, on the same Wednesday/Friday pattern as federal semi-weekly deposits. Growing businesses should track their own cumulative withholding so they see the change coming. Missing the payment frequency transition is a common compliance error for businesses adding staff.

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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: 2.4% in 2026 until an experience rating is established
• Experienced employer range: 0.0% to 5.6% under the 2026 rate schedule (Schedule C), assigned annually by DLIR based on reserve account history, plus a 0.01% Employment and Training assessment
• Taxable wage base: $64,500 per employee in 2026

Hawaii's $64,500 wage base is far above the $7,000 federal FUTA base, so even a modest SUI rate adds up. At the 2.4% new employer rate, the annual SUI cost for an employee who earns at least the wage base is $1,548.

DLIR Registration and UC-B6 Quarterly Reports

Before your first payroll, register for SUI with DLIR’s Unemployment Insurance Division (Form UC-1, Report to Determine Liability, or online registration) within 20 days after employment begins. 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 (a Saturday in 2026; file by Friday, October 30 to be safe)
• Q4 (October–December): due January 31 (Monday, February 1 in 2027)

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Hawaii Temporary Disability Insurance (TDI)

Hawaii's Temporary Disability Insurance (TDI) law requires Hawaii employers to provide TDI coverage for their employees. An employee qualifies for benefits after at least 14 weeks of Hawaii employment, in each of which they were paid for 20 or more hours, with at least $400 in wages in the 52 weeks before the disability. 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 share: up to half the cost, but no more than 0.5% of weekly wages
• Maximum weekly employee contribution: $7.50 per week in 2026 (0.5% of the $1,500.21 weekly wage base)
• The employer withholds the employee share from each paycheck and pays the full premium to its TDI carrier (or funds benefits directly if self-insured)

How Employers Provide TDI Coverage

Hawaii has no state-run TDI plan. Employers provide coverage in one of these ways:

1. Insured Plan: Buy a TDI policy from an authorized insurance carrier. The carrier handles benefit claims.
2. Self-Insured Plan: Pay benefits directly under a plan approved by DLIR’s Disability Compensation Division, with proof of financial solvency. Some employers instead provide equal or better sick-leave benefits through a collective bargaining agreement.

Most small employers buy an insured plan; self-insurance requires audited financial statements and is uncommon for small businesses. Whichever you choose, have coverage in place from your first hire, because a new employee with enough prior Hawaii work history may already qualify for benefits.

TDI Benefits

TDI benefits are approximately 58% of the employee's average weekly wages, up to a maximum benefit amount updated annually by DLIR ($871 per week in 2026). Benefits begin after a 7-day waiting period and can continue for up to 26 weeks per disability period. TDI covers non-work injuries; work injuries are covered by workers' compensation.

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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 and earns at least 86.67 times the minimum wage a month ($1,387 in 2026)
• The employee has been employed for four 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. Plans are reviewed by the PHC Advisory Council and approved by the DLIR Director; DLIR’s Disability Compensation Division administers the law 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 employer pays at least half of the premium. The employee's contribution is the lesser of half the premium or 1.5% of their gross wages. 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 at most $4 (half the premium) and the employer pays at least $4.

DLIR Enforcement

DLIR’s Disability Compensation Division enforces PHC compliance and can require employers to show coverage for all eligible employees. An employer that fails to provide required coverage owes a penalty of at least $25, or $1 per employee for every day of noncompliance, whichever is greater, and after 30 days the state can ask a court to stop the business until it complies (HRS §393-33).

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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

• Insurance: Buy workers' comp coverage from Hawaii Employers' Mutual Insurance Company (HEMIC) or any other insurer authorized to write workers' comp in Hawaii. Hawaii has no state-run workers' comp fund, so employers shop among authorized 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 generally covered as employees, but Hawaii law excludes an individual who owns at least 50% of the corporation, and an unpaid officer who owns at least 25% of a corporation with no employees (HRS §386-1).

Claims and Reporting

Workplace injuries must be reported to the employer's workers' comp carrier promptly. Hawaii law requires employers to furnish medical care for work injuries and 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.

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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.

Hawaii’s Limited Tip Credit

Hawaii allows only a small tip credit: an employer may pay a tipped employee up to $1.25 per hour less than the minimum wage (a $14.75 cash wage) only if the employee customarily receives more than $20 a month in tips and the employee’s wages plus tips total at least $7.00 above the minimum wage ($23.00 per hour). If either condition fails, the full $16.00 is owed. Employers from the mainland who assume they can pay the federal $2.13 tipped cash wage 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.

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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 have large part-time and variable-hour workforces, which makes PHC tracking especially important. 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.

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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 DLIR review — months or years of coverage have been missed, and penalties run for every day of noncompliance. 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 tipped cash wage or their home state's tipped minimum wage. Hawaii's tip credit is capped at $1.25 per hour, so the lowest cash wage is $14.75/hr, and only when the tip conditions are met. The wage liability from a misapplied tip credit can be substantial for a restaurant with 20 servers over three years.

3. Missing the Withholding Payment Frequency Trigger

A business that grows from 5 to 15 employees may go over the $40,000 annual withholding threshold and not realize their payment schedule has changed from monthly to semi-weekly. Late payments draw penalties plus interest at 2/3 of 1% per month.

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 $64,500 wage base (2026). 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 approval with your carrier or DLIR before enrollment.

6. Late New Hire Reporting

Hawaii requires employers to report each new hire to the Child Support Enforcement Agency within 20 days of hire. In the rush of onboarding, this step slips. The reports feed the state directory of new hires used for child support enforcement; failure to report can bring a $25 civil penalty ($500 if the employer and employee conspire not to report).

7. Forgetting the Year-End W-2 Filing with DoTax

Hawaii replaced the old HW-3 reconciliation with Form HW-30, a transmittal for paper W-2s. Copy A of each W-2 (or HW-2) is due to DoTax by January 31, either electronically or on paper with the HW-30; effective January 1, 2026, employers filing 10 or more must file electronically. Employers who are prompt with their quarterly HW-14 filings sometimes forget this year-end step. DoTax charges $25 per late or missing statement, up to $50 per employee.

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Hawaii Annual Payroll Filing Calendar

See our Hawaii payroll calendar for a complete, year-by-year view of all federal and state filing deadlines.

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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 and withholding payment 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 coverage discovered by DLIR.

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.

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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%. For 2025 and 2026, the 11% top rate applies to taxable income over $325,000 for single filers ($650,000 for joint filers). Employers withhold based on the employee's HW-4 form and the DoTax withholding tables, which run from 1.4% to 7.9% in 2026. If no HW-4 is provided, withhold as single with zero allowances.

What is Hawaii's SUI wage base in 2026?

Hawaii's SUI taxable wage base is $64,500 per employee in 2026. Employer SUI rates range from 0.0% to 5.6%, plus a 0.01% Employment and Training assessment. New employers pay 2.4%. SUI is employer-paid only; employees do not contribute.

What is Hawaii's TDI employee contribution rate?

Employers may withhold up to half the TDI cost from eligible employees, but no more than 0.5% of weekly wages, with a maximum of $7.50 per week in 2026. Hawaii has no state TDI plan; coverage comes from an authorized insurance carrier or an approved self-insured plan.

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 and earns at least $1,387 a month (86.67 times the minimum wage) must provide qualifying health insurance after four consecutive weeks of employment. The employee's share is the lesser of half the premium or 1.5% of their wages. 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's tip credit is limited to $1.25 per hour ($14.75 cash wage), and only for employees who customarily receive more than $20 a month in tips and whose wages plus tips total at least $23.00 per hour.

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 allows only $1.25 per hour, with conditions); missing the withholding payment frequency change when annual withholding goes over $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 authorized carrier such as HEMIC, or through approved self-insurance. Operating without workers' comp carries a penalty of at least $500, or $100 per employee per day, whichever is greater, and the state can ask a court to stop the business after 14 days (HRS §386-123).