Hawaii Unemployment Insurance Tax: What New Employers Need to Know

If you are hiring your first employees in Hawaii, Unemployment Insurance (UI) tax is one of the payroll obligations you will encounter immediately — and the one that can quietly cost you the most money over the long run if you do not understand how it works. Unlike most payroll taxes, your UI rate is not fixed. It changes based on your company’s history, and the decisions you make about hiring, firing, and documentation today will directly affect the rate you pay for years to come.

This guide covers everything a new Hawaii employer needs to know about UI tax: what it is, what you will pay, how to register, and — most notably — how the experience rating system works and why it matters far more than most business owners realize.

1. What Is Unemployment Insurance Tax?

Hawaii’s Unemployment Insurance (UI) tax is a state payroll tax paid entirely by the employer. Employees do not contribute anything toward UI. The tax funds the state’s unemployment insurance system, which provides temporary income to workers who lose their jobs through no fault of their own — layoffs, business closures, reductions in force, and similar situations.

The program is administered by the Hawaii Department of Labor and Industrial Relations (DLIR), in particular the Unemployment Insurance Division. Every employer with qualifying employees in Hawaii must register, pay UI taxes, and file quarterly reports.

2. The New Employer Rate

When you first register as an employer in Hawaii, you are assigned the standard new employer rate of 2.4%. This rate applies to the first $64,500 of each employee’s wages per calendar year (the 2026 taxable wage base).

Here is what that looks like in practice:

The taxable wage base is set annually at 100% of the statewide average annual wage. It has increased steadily over the past several years: $56,700 in 2023, $59,100 in 2024, $62,000 in 2025, and $64,500 in 2026. Verify the current year’s figure at labor.hawaii.gov/ui.

The 2.4% new employer rate is not permanent. Once your account has been chargeable with benefits for a full 12 months before the December 31 computation date, your rate will be recalculated based on the experience rating system — and that is where things get interesting.

3. The Experience Rating System

After your first full year as a Hawaii employer, the DLIR recalculates your UI tax rate based on your experience rating — in practice, your history of unemployment claims. The concept is simple: employers whose former employees file more unemployment claims pay a higher UI rate. Employers with fewer claims pay a lower rate.

The rate range under the current schedule is 0% to 5.6%. That is an enormous spread. On a single employee earning $64,500, the difference between a 0% rate and a 5.6% rate is $3,612 per year. Multiply that across your entire workforce and you can see why this matters.

How Experience Rating Is Calculated

The DLIR keeps a reserve balance for your account: the contributions you have paid, minus the UI benefits charged to your account (from former employees who filed and received unemployment benefits). Your reserve ratio is that balance at December 31 divided by your average annual taxable payroll for the past three years. The lower your reserve ratio, the higher your rate. The higher the ratio, the lower your rate.

Your rate is recalculated annually for the calendar year starting January 1. The DLIR mails your Contribution Rate Notice in March.

Why This Matters More Than You Think

Most new employers focus on the 2.4% rate and do not give UI much thought. But your UI rate is one of the few payroll costs you have direct control over through how you manage your workforce. Consider:

• How you handle terminations directly affects your rate. If you fire an employee without documentation, and that employee files for unemployment and wins, the benefits are charged to your account. Your rate goes up — and stays higher for years.
• Contested claims that you lose increase your rate. When a former employee files for unemployment, you have the right to contest the claim if you believe they were terminated for cause. But if you contest and lose because you lack proper documentation, those benefits still get charged to your account.
• High turnover equals a high UI rate. If you cycle through employees frequently, each separation is a potential claim. Restaurants, retail shops, and seasonal businesses are particularly vulnerable.
• A well-managed workforce with proper documentation equals a lower rate over time. Progressive discipline policies, written warnings, clear termination documentation, and genuine efforts to retain employees all contribute to fewer successful claims and a lower rate.

Real-World Example

Consider two Hawaii employers, each with 15 employees earning an average of $50,000 per year:

That is a difference of $40,500 per year — for the same number of employees at the same wage level. And Employer B’s high rate does not reset overnight. It takes years of improved claims experience to bring a high rate back down. The decisions you make now about hiring, documentation, and termination practices will follow your business for a long time.

Protesting Claims

When a former employee files for unemployment, the DLIR will send you a notice. You have the right to respond and provide your side of the story. If the employee was terminated for documented misconduct or voluntarily quit, you may be able to prevent the claim from being charged to your account.

The key word is documented. If you terminated someone for attendance problems but have no written warnings, no attendance records, and no termination letter, you will almost certainly lose the protest. Build the habit of documenting performance issues and disciplinary actions from day one.

4. How to Register for UI Tax

Outside of agriculture, Hawaii has no minimum payroll or 20-week test for state UI. Any employer with one or more employees for some part of a day in the calendar year is covered. An employer who hires even one employee in covered employment must register with the DLIR within 20 days after hiring. (The $1,500-per-quarter and 20-week tests apply to the federal FUTA tax, not to Hawaii UI.)

A few kinds of work are excluded, such as certain family employment and commission-only insurance and real estate agents. Check the DLIR's Employer Handbook before treating anyone as excluded.

How to Register

Register online through the DLIR’s Employer Web Application at uiclaims.hawaii.gov. The DLIR no longer accepts the paper Form UC-1, and it will not issue an account number before your first hire date.

Once registered, you will receive:

• A UI account number
• Your initial tax rate (2.4% for new employers)
• Instructions for quarterly filing

5. Quarterly Filing: Form UC-B6

Every quarter, you must file Form UC-B6 (Quarterly Wage, Contribution and Employment and Training Assessment Report) with the DLIR. This form reports the wages you paid to each employee during the quarter and calculates the UI tax owed.

Filing Deadlines

The form is due by the last day of the month following the end of each quarter. File online through the DLIR’s electronic filing system for faster processing. Payment of UI tax owed is due at the same time as the filing.

6. The FUTA Credit Connection

In addition to Hawaii UI tax, you also pay the Federal Unemployment Tax Act (FUTA) tax. The nominal FUTA rate is 6.0% on the first $7,000 of each employee’s wages per year. However, employers who pay state UI taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to just 0.6% ($42 per employee per year).

This is important because two things can cause you to lose part of your FUTA credit:

• Late or missing state UI payments. If you do not pay your Hawaii UI tax on time, you may not qualify for the full 5.4% FUTA credit, dramatically increasing your federal unemployment tax.
• Credit reduction states. If a state borrows from the federal government to pay unemployment benefits and does not repay the loan within a specified period, employers in that state lose part of their FUTA credit. Hawaii has not been a credit reduction state at any point since 2010 and is not on the U.S. Department of Labor’s list of potential 2026 credit reduction states.

7. Common Mistakes Employers Make

After decades of managing Hawaii payroll, these are the UI-related mistakes we see employers make most often:

• Not registering until the DLIR sends a notice. By then, you may owe back taxes, penalties, and interest. Worse, you have missed the opportunity to start building a positive experience rating from day one.
• Not understanding how terminations affect experience rating. This is the single most expensive mistake. Employers fire employees casually, without documentation, and then wonder why their UI rate keeps climbing year after year.
• Missing quarterly filings. Even one missed UC-B6 filing can trigger penalties and potentially affect your FUTA credit. Many employers do not realize that zero-wage quarters still require a filing.
• Not protesting improper claims. When a former employee files for unemployment after quitting voluntarily or being terminated for documented misconduct, you have the right to protest. Many employers simply ignore the DLIR notice, allowing the claim to be charged to their account by default.
• Not reviewing the annual rate notice. Your UI rate changes every year based on your experience rating. Review the notice when it arrives. If it seems wrong, request a review and redetermination in writing within 15 days of the date the notice was mailed.
• Confusing UI with TDI. UI (Unemployment Insurance) and TDI (Temporary Disability Insurance) are separate programs with separate registrations, rates, and filing requirements. UI covers job loss; TDI covers temporary disability. They are not interchangeable.

8. How PDS Helps

Pacific Data Services (PDS) files your quarterly UI reports (Form UC-B6) as part of our standard payroll service. We have been doing this for Hawaii employers since 1969 — and we understand the details that national payroll software like Gusto or Paychex simply does not address.

Here is what we do:

• Quarterly UC-B6 filing. We prepare and file your quarterly wage reports and calculate UI tax owed — on time, every quarter.
• Tax deposit management. We ensure your UI tax payments are made by the deadline, protecting your FUTA credit.
• Experience rating awareness. Our local team understands how the experience rating system works. We can help you understand your rate and what drives it.
• Annual rate review. When your new rate notice arrives from the DLIR each year, we incorporate the updated rate into your payroll immediately.
• W-2 and year-end reporting. UI wage data flows into your W-2s and annual reconciliation — we handle all of it.

Most notably, PDS is a local Hawaii team. We understand the experience rating system, the DLIR’s processes, and the compliance picture that mainland-based software providers and call centers simply cannot match.

Filing the quarterly UC-B6, tracking each employee’s wages against the taxable wage base, and monitoring your experience rating are all part of what a good Hawaii payroll company handles as a standard service.