Hawaii employers must carry three mandatory insurance programs that no other state requires all at once: Workers' Compensation (all employers with 1+ employees), Temporary Disability Insurance — TDI (for employees with 14+ weeks of 20+ hours and $400+ in wages in the past year), and Prepaid Health Care — PHCA (health insurance for employees working 20+ hrs/week for 4+ consecutive weeks). Missing any one of them exposes you to daily penalties, a court order to stop doing business, and liability for benefits the state pays your employees.
Hawaii pushes employers harder on insurance than nearly any other state. Mainland employers know workers' compensation, but Hawaii layers on two more mandatory programs on top of that. If you're setting up payroll here for the first time, these are the rules that will catch you off guard.
This guide gives you the overview of all three mandates. For full details on each, follow the links to the dedicated guides below.
1. Why Hawaii Has Three Mandates
Most states require workers' compensation, but Hawaii goes further. When the Hawaii Prepaid Health Care Act passed in 1974, it became the first state law in the country requiring employers to provide health insurance, predating the Affordable Care Act by 36 years. TDI, enacted in 1969, made Hawaii one of five states with a long-standing temporary disability insurance law. Together, these three laws reflect Hawaii's long-standing philosophy that employer responsibility extends beyond just wages.
The practical result: hiring your first employee in Hawaii triggers not one but three separate insurance obligations. Workers' comp applies on day one, and the other two follow once employees meet their eligibility rules. Many new business owners, and especially mainland companies expanding to Hawaii, are caught off guard by this. The penalties for all three are serious.
2. Side-by-Side Comparison
| Workers' Comp | TDI | PHCA (Health Insurance) | |
|---|---|---|---|
| What triggers it? | Work injury or illness | Non-work illness, injury, or pregnancy | Employee eligibility for health coverage |
| Who must be covered? | All employers with 1+ employees | Employees with 14+ weeks in the past 52, each with 20+ hours paid and $400+ in wages | Employees working 20+ hrs/week for 4+ consecutive weeks and earning at least $1,387/month (2026) |
| Who pays? | Employer (100%) | Employer + employee (employee capped at half the premium and 0.5% of weekly wages, max $7.50/week in 2026) | Employer + employee (employee capped at half the premium or 1.5% of wages, whichever is less) |
| Benefit provided | Medical costs + 66⅔% wage replacement (2026 max $1,240/week) | 58% wage replacement (2026 max $871/week, up to 26 weeks) | Health insurance coverage |
| Waiting period | First 3 calendar days of wage loss not paid | 7 days (benefits start day 8) | 4 consecutive qualifying weeks |
| Key carrier in Hawaii | HEMIC | Licensed private carriers (see DCD carrier list) | HMSA, Kaiser Permanente Hawaii, UHA |
| Governing law | HRS Chapter 386 | HRS Chapter 392 | HRS Chapter 393 |
| Key penalty | Greater of $500 or $100 per employee per day; court can bar the business after 14 days | Greater of $500 or $100 per employee per day; repay benefits the state fund paid | Greater of $25 or $1 per employee per day; repay benefits the state fund paid |
3. Workers' Compensation
Workers' compensation covers employees who are injured on the job or develop a work-related illness. Every Hawaii employer with one or more employees must maintain coverage: no exceptions for small employers, no grace period after your first hire.
What it covers: All reasonable medical costs + 66⅔% of the employee's average weekly wage during recovery (temporary total disability), subject to a state-set maximum. The 2026 maximum is $1,240 per week. The first 3 calendar days of disability are not paid.
How to get it: Purchase from a licensed Hawaii carrier. HEMIC (Hawaii Employers Mutual Insurance Company) is the largest local carrier and a common choice for small-to-mid-size Hawaii employers.
The big risk: Operating without coverage costs a penalty of $500 or $100 per employee for every day without coverage, whichever is greater. After 14 days a circuit court can bar the business from operating anywhere in Hawaii. The state's Special Compensation Fund may pay injured workers and then make the uninsured employer reimburse it in full.
4. Temporary Disability Insurance (TDI)
TDI covers employees who cannot work due to a non-work-related illness, injury, or pregnancy. Hawaii is one of five states (plus Puerto Rico) with a long-standing TDI law. It's completely separate from workers' comp. If workers' comp covers on-the-job injuries, TDI covers everything else.
Who must be covered: Employees who have at least 14 weeks of Hawaii employment during each of which they were paid for 20 or more hours per week, and who earned $400+ in the 52 weeks preceding disability. The 14 weeks don't need to be consecutive or with the same employer.
What it pays: 58% of average weekly wages (2026 maximum $871 a week), starting on the 8th day of disability, for up to 26 weeks.
Cost sharing: The employer can deduct up to half the TDI premium from the employee's paycheck, but never more than 0.5% of weekly wages ($7.50 a week maximum in 2026). The employer pays the rest. No deduction is allowed until the employee meets the 14-week eligibility rule. Some employers absorb the full cost as a benefit.
How to get it: Purchase from a private authorized TDI carrier (see the DLIR's authorized carrier list), negotiate a collective bargaining agreement with equivalent benefits, or apply to the DLIR for approval to self-insure.
5. Prepaid Health Care Act (PHCA)
The PHCA requires employers to provide qualifying health insurance to employees who work 20 or more hours per week for four consecutive weeks and earn a monthly wage of at least 86.67 times the current Hawaii minimum hourly wage ($1,387 a month in 2026). This was the first employer health insurance mandate in U.S. history. It was enacted in 1974, 36 years before the ACA.
What it requires: A qualifying health care plan from an insurer licensed in Hawaii. HMSA (Hawaii Medical Service Association, Blue Cross Blue Shield of Hawaii), Kaiser Permanente Hawaii, and UHA (University Health Alliance) are the three primary carriers.
Employee cost cap: The employer must pay at least half the premium, and the employee's share cannot exceed 1.5% of their monthly wages. The employer pays the rest. This is a stricter requirement than the ACA's affordability standard.
Interaction with ACA: The PHCA predates the ACA and is generally more favorable to employees. Hawaii's federal Section 1332 waiver lets the PHCA stand in place of the ACA's small-business exchange (SHOP). It does not exempt employers from the ACA employer mandate. Employers with 50+ full-time equivalent employees must meet both laws and still have ACA reporting obligations (1094-C, 1095-C), which PDS handles.
6. Penalties for Non-Compliance
| Program | Violation | Penalty |
|---|---|---|
| Workers' Comp | Operating without coverage | Greater of $500 or $100 per employee per day; after 14 days a court can bar the business from operating (HRS 386-123) |
| Workers' Comp | Willful failure to file WC-1 injury report | Fine up to $5,000 (HRS 386-95) |
| TDI | No TDI coverage for eligible employees | Greater of $500 or $100 per employee per day (HRS 392-47), plus repayment of benefits the TDI Special Fund paid |
| TDI | Deducting more than the law allows for TDI | Refund or credit of the excess to the employee, plus a fine up to $500 per offense |
| PHCA | Failure to provide health insurance | Greater of $25 or $1 per employee per day (HRS 393-33), plus repayment of benefits the state fund paid |
| PHCA | Charging the employee more than the legal share | Greater of $25 or $1 per employee per day (HRS 393-33) |
7. How Payroll Connects to All Three
These three programs aren't just separate insurance obligations. They're deeply connected to your payroll operations:
- Workers' comp premiums are calculated as a percentage of total payroll by job classification. Your annual premium audit reviews actual payroll records. Inaccurate records = wrong premiums = surprise bills or gaps in coverage.
- TDI employee deductions are calculated as a percentage of each paycheck (up to 0.5% of wages). Your payroll system must calculate, withhold, and track these correctly every pay period.
- PHCA employee premium shares must be capped at half the premium or 1.5% of wages, whichever is less. Your payroll system needs to calculate the employee's contribution and ensure you never exceed the legal cap.
- Eligibility tracking for both TDI and PHCA depends on hours worked per week, which only your payroll or time-tracking system can confirm.
Getting payroll right is the foundation of getting all three insurance programs right. That's why Hawaii employers have trusted Hawaii payroll company (Pacific Data Services) with their payroll since 1969: accurate, compliant, local expertise that understands exactly how these programs work together.
Let PDS Handle the Payroll Side
PDS processes payroll for Hawaii employers and manages TDI deductions, PHCA contribution calculations, and payroll recordkeeping for workers' comp audits. We don't sell insurance, but we make sure your payroll is accurate enough that your insurance costs stay where they should be.
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