How to Do Payroll in Hawaii: Step-by-Step for Small Business Owners

Setting up payroll in Hawaii for the first time can feel overwhelming. And for good reason. Hawaii has more employer obligations than nearly any other state in the country. Between federal requirements, Hawaii-specific taxes, mandatory insurance programs, and strict compliance deadlines, there's a lot to get right before you cut your first paycheck.

This guide walks through all 10 steps in plain English. First-time employer? It starts at square one. Already running payroll and want to make sure you haven't missed anything? It covers that too.

Get Your Federal Employer Identification Number (EIN)

Before you can hire anyone, you need an EIN (your business's federal tax ID number). It's how the IRS and state agencies track your payroll tax obligations. If you have a sole proprietorship with no employees, you might use your Social Security number, but the moment you hire your first employee, you need an EIN.

• Apply online at irs.gov. It's free and takes about 15 minutes
• You'll receive your EIN immediately upon completing the online application
• You'll need this number for every payroll tax registration that follows

Register with the Hawaii Department of Taxation

Hawaii requires employers to register for state withholding before running their first payroll. You'll do this through the Hawaii Department of Taxation (DOTAX).

• Register online through Hawaii Tax Online (HTO) at hitax.hawaii.gov
• You'll receive a Hawaii Withholding Tax ID number
• This registration is separate from your GET (General Excise Tax) license. Make sure you register for both if applicable

Once registered, you'll deposit the Hawaii income tax you withhold with Form VP-1 (quarterly, monthly, or semiweekly depending on your annual withholding) and file Form HW-14, the withholding tax return, every quarter. See our Hawaii Payroll Taxes guide for full details.

Register for Unemployment Insurance (UI)

Hawaii's UI program is administered by the Department of Labor and Industrial Relations (DLIR). Any employer with one or more employees in Hawaii must register — there is no minimum payroll amount — and the DLIR asks for your status report within 20 days of hiring. Remember: paying Hawaii minimum wage of $16/hour adds up quickly.

• Register online at uiclaims.hawaii.gov (paper Form UC-1 is no longer accepted)
• You'll receive a UI account number and your initial tax rate
• New employers start at 2.40% on the first $64,500 of each employee's wages (2026)
• File Form UC-B6 quarterly to report wages and pay UI taxes

Set Up Temporary Disability Insurance (TDI)

Hawaii is one of only a handful of states requiring employers to provide TDI coverage. This insurance pays a portion of wages to employees who can't work due to a non-work-related illness or injury (including pregnancy disability).

• Coverage is required for your employees; an employee qualifies for benefits after 14 weeks with 20+ hours of paid work each and $400+ in wages in the 52 weeks before the disability
• Obtain coverage through an approved private insurance carrier (most common) or apply for self-insurance status with the DLIR
• You may deduct up to half the premium cost, but no more than 0.5% of weekly wages ($7.50 per week maximum for 2026), from employees
• Benefits: 58% of average weekly wage, after a 7-day waiting period, for up to 26 weeks

For full details, see our Hawaii Payroll Taxes guide, which covers TDI in depth.

Comply with the Prepaid Health Care Act (PHCA)

This is Hawaii's most distinctive employer requirement, and the one that surprises mainland business owners most. Hawaii law requires employers to provide health insurance coverage to employees who work 20+ hours per week for 4 consecutive weeks. This predates the ACA and is more expansive in some ways. See our Hawaii health insurance requirements guide for complete details.

• Get a health insurance plan that meets Hawaii DLIR's minimum coverage standards
• You may charge employees no more than half the premium and no more than 1.5% of their monthly wages
• If the premium exceeds that amount, you pay the rest
• many employers offer coverage to all employees regardless of hours worked

Get Workers' Compensation Insurance

Hawaii requires workers' comp for every employee: full-time, part-time, and temporary. Operating without it carries a penalty of at least $500 or $100 per employee per day, whichever is greater (HRS §386-123), and can expose you to unlimited personal liability for work injuries.

• Purchase from a licensed private carrier (most common)
• Or apply to HEMIC (Hawaii Employer's Mutual Insurance Company) if you're in a high-risk industry
• Premiums are based on your payroll and job classifications
• Get coverage in place before your first employee's first day of work

See our dedicated Workers' Compensation guide for full details.

Collect New Employee Paperwork

Before processing an employee's first paycheck, you need a complete set of documents:

Federal Forms

• Form I-9 (Employment Eligibility Verification): verify identity and work authorization; complete within 3 days of hire
• Federal Form W-4: federal withholding allowances

Hawaii State Forms

• Form HW-4: Hawaii withholding allowances (separate from the federal W-4; Hawaii still uses the traditional allowance system)

Report the New Hire

Within 20 days of hire, report the employee to the Hawaii Child Support Enforcement Agency (CSEA) for new hire reporting. See our New Hire Reporting guide.

Other Tips Worth Knowing

• Provide a written offer letter or employment agreement
• Conduct a formal I-9 document inspection (do not accept photocopies)
• Give employees the mandatory workplace posters overview
• Enroll them in workers' comp, TDI, and health insurance as applicable

Choose Your Pay Schedule

Hawaii law requires employees to be paid at least semi-monthly (twice a month). You can pay more frequently (biweekly or weekly), but you cannot pay less than twice per month.

• Weekly: 52 paydays per year. Most common for hourly/labor-intensive businesses
• Biweekly: 26 paydays per year. Popular balance of frequency and administrative work
• Semi-monthly: 24 paydays per year. Common for salaried employees
• Monthly: Not allowed under Hawaii law

Once you set your pay schedule, communicate it to employees in writing. Hawaii law requires employers to notify employees of their pay schedule and payday.

Run Payroll & Make Tax Deposits

For each pay period, you need to:

1. Calculate gross pay: hours x rate for hourly; full salary for exempt; add any bonuses, commissions, or other compensation
2. Calculate and withhold federal income tax: using W-4 elections and IRS tax tables
3. Calculate and withhold FICA: 6.2% Social Security + 1.45% Medicare (matched by employer)
4. Calculate overtime pay: 1.5x regular rate for hours over 40/week
5. Calculate and withhold Hawaii state income tax: using HW-4 elections and Hawaii withholding tables
6. Withhold TDI employee contribution: if applicable (up to 0.5% of wages)
7. Withhold PHCA employee contribution: if applicable (up to half the premium, capped at 1.5% of wages)
8. Calculate employer-side taxes: FICA match, FUTA, Hawaii UI, employer TDI share, employer PHCA share
9. Issue pay: direct deposit is the most efficient; provide a pay stub showing all deductions
10. Deposit federal taxes: most small employers deposit monthly; large employers deposit more frequently
11. Deposit Hawaii state withholding: quarterly, monthly (by the 15th), or semiweekly depending on annual withholding; file Form HW-14 quarterly

File Year-End Returns & Distribute W-2s

At the end of each year, you have several year-end obligations:

Federal Year-End

• W-2s to employees: Distribute by January 31
• W-2s to SSA (Copy A): File with the Social Security Administration by January 31, whether you file on paper or electronically (February 1, 2027 for 2026 forms, because January 31 falls on a Sunday)
• Form 940: Annual FUTA reconciliation, due January 31
• Form 941 Q4: Final quarterly payroll tax return, due January 31

Hawaii Year-End

• W-2 / HW-2 copies to Hawaii Department of Taxation: Due January 31 (e-file through Hawaii Tax Online; paper filers include transmittal Form HW-30). Starting in 2026, employers filing 10 or more W-2s/HW-2s must file electronically.
• Form HW-14 for the fourth quarter: Due January 15. Form HW-3 has not been required since tax year 2020.
• UI annual wage report: Part of your Q4 UC-B6 filing

Missing year-end filing deadlines results in late-filing penalties from both the IRS and Hawaii Department of Taxation. Mark these dates on your calendar, or better yet, have a payroll service handle them automatically.

Should You Do Payroll Yourself or Use a Service?

After reading through all 10 steps, you can see why Hawaii payroll is complex. The average small business owner in Hawaii is managing federal payroll, Hawaii state withholding, UI, TDI, PHCA, workers' comp, and multiple quarterly and annual filings, all with their own forms, deadlines, and rates.

A professional Hawaii payroll service provider that specializes in Hawaii can take all of this off your plate for a fraction of what your time is worth. Consider the cost of a penalty for a missed filing versus the annual cost of a payroll service. In our experience, the math usually favors outsourcing.

Frequently Asked Questions

What accounts and registrations do I need before running payroll in Hawaii?

Before your first payroll run you need: (1) a federal EIN from the IRS, (2) a Hawaii Withholding Tax account from the Hawaii Department of Taxation, (3) a Hawaii Unemployment Insurance account from the Department of Labor, (4) workers' compensation insurance in place, (5) TDI coverage established, and (6) PHCA-compliant health insurance for eligible employees. Missing any of these creates compliance exposure from day one.

What is the difference between a federal W-4 and a Hawaii HW-4?

The HW-4 is Hawaii's state equivalent of the federal W-4. Employees must complete both forms — the W-4 for federal withholding and the HW-4 for Hawaii state income tax withholding. They use different allowance calculations. An employee who is exempt on the federal W-4 is not automatically exempt from Hawaii withholding. Both forms must be retained in the employee's file.

How often does Hawaii law require employers to pay employees?

Hawaii law (HRS §388-2) requires wages to be paid at least twice per month. Pay must be made within seven days after the close of each pay period. Many Hawaii employers use a semi-monthly (1st and 15th) or bi-weekly schedule. Daily or weekly pay is also permitted but pay cannot be less frequent than twice per month.

What payroll records are Hawaii employers required to keep?

Hawaii employers must keep a copy of each pay statement for at least six years (HRS §388-7) and should keep their other payroll records at least as long, including: employee names and addresses, Social Security numbers, dates of employment, hours worked per day and week, wages paid per pay period, and all deductions taken. Hawaii DLIR may inspect these records and violations of record-keeping requirements are subject to fines.