Running payroll in Hawaii requires 10 setup steps before you can legally pay your first employee: get a federal EIN, register with Hawaii for state withholding and UI tax, set up TDI and health insurance, get workers' comp, collect employee paperwork, choose a pay schedule, run payroll with correct tax withholdings, and file year-end returns. Miss any step and you're exposed to penalties. This guide walks through all 10.
Prefer to skip the 10 steps? Pacific Data Services sets up and runs payroll for Hawaii employers from day one: registrations, filings, deposits, and year-end reports included.
Talk to a Hawaii Payroll Expert →Hawaii payroll is more complex than almost any other state. You're not just dealing with federal taxes and a state income tax. You're dealing with five layers of employer obligations, Hawaii-only mandates like Temporary Disability Insurance and the Prepaid Health Care Act, and deadlines that don't line up with what mainland payroll guides tell you.
This guide covers everything you need to do, in order, from the moment you decide to hire your first employee in Hawaii to the day you file your year-end returns. For each step, we've included a "What Can Go Wrong" callout so you know exactly where employers trip up.
In This Guide
- Get Your Federal EIN
- Register with Hawaii Dept of Taxation
- Register for Unemployment Insurance
- Set Up Temporary Disability Insurance (TDI)
- Comply with the Prepaid Health Care Act
- Get Workers' Compensation Insurance
- Collect Employee Paperwork
- Choose Your Pay Schedule
- Run Payroll & Make Tax Deposits
- File Year-End Returns & W-2s
Let's walk through each step.
1. Get Your Federal EIN
Before you can do anything payroll-related, you need a federal Employer Identification Number (EIN). This is the IRS's way of identifying your business for tax purposes. Think of it as a Social Security number for your company.
How to get it
- Apply online at irs.gov. The online application is available Monday through Friday, 6 a.m. to 1 a.m. (next day), Saturday 6 a.m. to 9 p.m., and Sunday 6 p.m. to midnight, Eastern Time
- Cost: Free. It's always free. If a website is charging you for an EIN, you're on the wrong site.
- Time: About 15 minutes. You'll receive your EIN immediately at the end of the online application.
- You can also apply by mail (Form SS-4) or fax, but the online method is fastest
Your EIN is required on virtually every payroll form you'll file: federal and state. You'll need it to open a business bank account, set up payroll tax accounts, and register with Hawaii state agencies.
Waiting until after your first hire. If you delay getting your EIN, you can't register with Hawaii for withholding tax or UI, and you can't set up your tax deposit accounts. Every downstream step depends on having this number. Apply for your EIN before you post your first job listing.
2. Register with Hawaii Department of Taxation
Once you have your federal EIN, you need to register with the Hawaii Department of Taxation to withhold Hawaii state income tax from your employees' wages.
How to register
- Register online at hitax.hawaii.gov (Hawaii Tax Online)
- You're registering for a Hawaii Withholding Tax account. This gives you a Hawaii Withholding Tax ID number
- This is the account you'll use to deposit withheld state income tax and file Form HW-14 (Withholding Tax Return)
Hawaii has 12 income tax brackets with rates ranging from 1.40% to 11.00%. You'll use the Hawaii withholding tables (or the formula method from the Hawaii Employer's Tax Guide, Booklet A) to calculate how much to withhold from each employee's paycheck based on their HW-4 filing status and allowances.
Deposit schedule
How often you deposit depends on your total withholding liability:
- Semi-weekly depositors: If your total withholding exceeds $40,000 per year (or you deposit federal taxes semi-weekly), deposits are due on the Wednesday or Friday after payday under the Booklet A schedule
- Monthly depositors: If your withholding is more than $5,000 but not more than $40,000 per year, deposits are due by the 15th of the following month
- Quarterly depositors: If your withholding is $5,000 or less per year, deposits are due by the 15th of the month after each quarter
Missing your first deposit deadline. New employers often don't realize deposits are due before the quarterly return. If you hire someone on January 5 and pay them on January 15, your withholding deposit may be due as early as the following Wednesday (semi-weekly) or February 15 (monthly). The HW-14 quarterly return isn't due until April 15, but the deposit itself is due much sooner. If tax is not paid within 60 days of its due date, the Department of Taxation can add up to 20% of the underpayment, plus interest.
3. Register for Unemployment Insurance (UI)
Every Hawaii employer with one or more employees must register for Unemployment Insurance with the Hawaii Department of Labor and Industrial Relations (DLIR).
How to register
- Register online through the Hawaii Unemployment Insurance employer system. The DLIR no longer accepts the paper Form UC-1
- File your status report within 20 days after hiring your first employee
- You'll receive a Hawaii UI employer account number and your assigned tax rate
What it costs
- New employer rate: Approximately 2.4% for 2026 (new employers without experience history receive a standard new-employer rate)
- Taxable wage base: $64,500 per employee for 2026 (this is the annual wage limit per employee; once an employee's year-to-date wages exceed this amount, you stop paying UI tax on their additional earnings)
- Experienced employers: After you build enough history, your rate is experience-rated based on your claims history. For 2026 (Schedule C) rates range from 0.0% to 5.6%, plus a 0.01% Employment and Training assessment
- UI tax is 100% employer-paid in Hawaii: you do not withhold UI from employees' wages
Filing schedule
You'll file quarterly wage reports (Form UC-B6) and pay your UI contributions quarterly. Due dates are the last day of the month following the end of each quarter: April 30, July 31, October 31, and January 31.
Back-reporting stress. If you've been operating without a UI account, you'll need to retroactively report wages for all prior quarters. This means reconstructing payroll records, filing multiple quarterly reports at once, and paying the accumulated tax plus penalties. It's a headache that's entirely avoidable by registering before your first employee starts.
4. Set Up Temporary Disability Insurance (TDI)
Hawaii is one of a handful of states that require employers to provide Temporary Disability Insurance. TDI provides partial wage replacement to employees who can't work due to a non-work-related illness or injury (work-related injuries are covered by workers' comp, not TDI).
Who must be covered
- You must provide TDI coverage for your employees from the start of employment, full-time and part-time (a few groups are excluded by law)
- To collect benefits, an employee needs at least 14 weeks of Hawaii employment in the 52 weeks before the disability, each with 20 or more hours and $400 or more in wages
- Most full-time and many part-time employees qualify
How to get TDI coverage
- Option 1: Private insurance carrier. Purchase a TDI policy from an approved Hawaii TDI carrier (most common approach for small to mid-size employers)
- Option 2: Self-insure. Larger employers can apply to the DLIR Disability Compensation Division to self-insure their TDI obligations (requires proof of financial solvency, securities or a surety bond, and DLIR approval of the plan on Form TDI-15)
- Option 3: Collective bargaining agreement with sick leave benefits at least as favorable as the TDI law requires
Cost sharing
TDI premiums can be shared between employer and employee. The employee's share is capped at half the cost and no more than 0.5% of their weekly wages, which is a maximum of $7.50 per week in 2026. Employers typically deduct the employee's TDI contribution from each paycheck.
Not getting TDI coverage before your first employee starts. You're required to have TDI coverage in place when employees begin working, not after you get around to it. If an employee becomes disabled and you don't have coverage, the state pays the claim from its disability trust fund and recovers those benefits from you. On top of that, the penalty for no coverage is the greater of $500 or $100 per employee for every day without it.
5. Comply with the Prepaid Health Care Act
Hawaii's Prepaid Health Care Act (PHCA), enacted in 1974, requires employers to provide health insurance to eligible employees. Hawaii is the only state with this mandate, and it predates the federal ACA by nearly 40 years.
Who must be covered
- Employees who work 20 or more hours per week and earn at least 86.67 times the Hawaii minimum wage per month ($1,387 a month in 2026) become eligible after 4 consecutive weeks of employment
- Coverage must start on the health plan's earliest enrollment date after the employee becomes eligible
- The plan must be approved by the DLIR Disability Compensation Division (Prepaid Health Care branch)
The 1.5% employee contribution cap
Under the PHCA, the employer pays at least half the premium, and the employee's share can never exceed 1.5% of the employee's gross monthly wages. If 1.5% is less than half the premium, the employer pays the rest. This is a key difference from mainland health plans where employees might pay 20% to 40% of premiums.
How to set it up
- Select a health insurance plan that is approved by the DLIR for Prepaid Health Care
- Work with an insurance broker who understands Hawaii PHCA requirements
- File the required documentation with the DLIR Disability Compensation Division
Using a non-compliant plan. Not every health insurance plan meets PHCA standards. The plan must be approved by the DLIR. If your plan doesn't meet the minimum benefit requirements, you're technically in violation even though you're providing coverage. The penalty for failing to provide required coverage is the greater of $25 or $1 per employee for every day of the failure. Work with a broker who in particular handles Hawaii PHCA-compliant plans.
6. Get Workers' Compensation Insurance
Hawaii law requires workers' compensation insurance for all employees: no exceptions for small employers, no minimum employee count. If you have one employee, you need workers' comp.
How to get coverage
- Private insurance carrier: Purchase a workers' comp policy from any carrier licensed in Hawaii
- HEMIC: The Hawaii Employers' Mutual Insurance Company is a mutual insurer in particular created for Hawaii employers, often a good option for businesses that have difficulty finding coverage in the private market
- Self-insurance: Available to larger employers who meet financial requirements (requires DLIR approval)
What it covers
Workers' comp pays for medical treatment, rehabilitation, and partial wage replacement for employees who are injured or become ill due to their work. It also provides death benefits to dependents of workers killed on the job. The cost varies sharply by industry: construction and manual labor carry higher premiums than office work.
Cost
Workers' comp premiums are 100% employer-paid in Hawaii. You cannot deduct any portion from employees' wages. Rates are based on classification codes for the type of work performed, your claims history, and your payroll size.
Personal liability for injuries. If an employee is injured while you're uninsured, you're personally liable for all medical costs, lost wages, and disability benefits, with no insurance company to share the burden. A single serious workplace injury can result in six-figure costs. This is one of the most financially dangerous gaps a Hawaii employer can have.
7. Collect Employee Paperwork
Before an employee starts working (or within the first few days), you need to collect several critical forms. Getting this paperwork right from day one prevents problems later.
Required forms
Form I-9 (Employment Eligibility Verification)
- Section 1 must be completed by the employee on or before their first day of work
- Section 2 must be completed by you (the employer) within 3 business days of the employee's start date
- You must examine original identity and work authorization documents: photocopies are not acceptable for verification
- Retain the I-9 for 3 years after the hire date or 1 year after termination, whichever is later
Form W-4 (Federal Withholding)
- The employee fills out the federal W-4 so you can calculate federal income tax withholding
- The current W-4 uses a step-based system (no longer uses allowances at the federal level)
- If an employee doesn't submit a W-4, you must withhold at the Single filer rate with no adjustments
Form HW-4 (Hawaii State Withholding)
- This is the Hawaii-specific withholding form; it is separate from the federal W-4
- Hawaii's HW-4 still uses the allowance system, unlike the federal W-4 which switched away from allowances in 2020
- Employees need to complete both a W-4 and an HW-4
- If an employee only gives you a W-4 but not an HW-4, you cannot simply use the W-4 for state withholding: the systems are different
New Hire Reporting
Hawaii employers must report every new hire and rehire to the Hawaii New Hire Reporting Program within 20 days of the hire date. Reports go to the Hawaii Child Support Enforcement Agency (CSEA) and are used to locate parents who owe child support. It is a legal requirement, not optional.
- Mail or fax a completed W-4 (with your employer information) to CSEA New Hire Reporting, or send an electronic file by SFTP. CSEA does not take reports over the internet. Details are on the CSEA employer information page
- You can use Form W-4 (federal) or any equivalent document containing: employee name, address, Social Security number, and first day of work, plus your EIN
- Required fields: employee name, address, SSN, first day of work, plus your business name, address, and EIN
- Most payroll software handles this automatically
- PDS files new hire reports as part of standard payroll setup; it’s included, not an add-on
Using the W-4 for state withholding instead of the HW-4. This is one of the most common mistakes Hawaii employers make, especially those using mainland payroll software. The federal W-4 and the Hawaii HW-4 produce different withholding amounts because they use different systems. If you calculate Hawaii withholding based on W-4 information, your employees will have the wrong amount of state tax withheld, leading to either underwithholding (employees owe at tax time) or overwithholding (employees are unhappy). Always collect both forms.
8. Choose Your Pay Schedule
Hawaii law dictates how often you must pay employees, and the rules are stricter than most states.
Hawaii requirements
- Hawaii requires employers to pay employees at least twice a month on regular paydays set in advance
- Monthly payroll is allowed only if a majority of employees elect it by secret ballot or the DLIR director approves it. Employers relocating from states where monthly pay is routine often miss this
- Common pay frequencies: weekly, biweekly (every two weeks), or semi-monthly (twice per month)
- Wages must be paid within 7 days after the end of each pay period
Common choices
| Schedule | Frequency | Pay Periods/Year | Common For |
|---|---|---|---|
| Weekly | Every week | 52 | Hourly workers, restaurants, construction |
| Biweekly | Every 2 weeks | 26 | Most common overall, good balance |
| Semi-monthly | Twice per month | 24 | Salaried employees, professional services |
Most Hawaii employers choose biweekly: it's the most common schedule and works well for both hourly and salaried employees. Semi-monthly works well for salaried workers but can complicate overtime calculations for hourly employees because pay periods don't match neatly with workweeks.
Inconsistent pay dates. Once you set your pay schedule, you need to stick to it. Employees must know when to expect their paychecks, and the Hawaii Department of Labor expects consistency. Inconsistent pay dates can trigger employee complaints and potential DLIR investigations. Post your pay schedule at your place of business and follow it every period.
9. Run Payroll & Make Tax Deposits
This is the step where everything comes together, and where the complexity of Hawaii payroll really shows. Every pay period, you need to calculate gross pay, apply the right withholdings, pay your employer taxes, issue paychecks, and deposit taxes on time.
The payroll calculation process
- Calculate gross pay: Hours worked x hourly rate (for hourly employees), or salary divided by pay periods. Don't forget overtime at 1.5x for hours over 40 in a workweek.
- Withhold federal income tax: Based on the employee's W-4 and the IRS withholding tables (Publication 15-T)
- Withhold Hawaii state income tax: Based on the employee's HW-4 and the Booklet A withholding tables (2026 withholding rates run from 1.40% to 7.90%)
- Withhold employee FICA (Social Security + Medicare): 6.2% Social Security on wages up to $184,500 (2026 cap) + 1.45% Medicare on all wages (+ 0.9% Additional Medicare on wages over $200,000)
- Withhold employee TDI contribution: Up to 0.5% of weekly wages, maximum $7.50 per week in 2026 (per your TDI plan terms)
- Withhold employee health insurance premium: Up to 1.5% of gross monthly wages under PHCA
- Calculate employer FICA match: You match the employee's 6.2% Social Security and 1.45% Medicare dollar for dollar
- Calculate employer FUTA: 6.0% on first $7,000 per employee, reduced to 0.6% after the Hawaii UI credit
- Calculate employer UI tax: Your assigned rate on wages up to the $64,500 taxable wage base
- Issue net pay: Gross pay minus all employee withholdings = the employee's take-home pay, delivered via direct deposit or check
- Deposit taxes on time: Federal deposits follow IRS deposit schedules (semi-weekly or monthly); Hawaii withholding follows its own schedule; UI is quarterly
Tax deposit deadlines (2026)
| Tax | Deposit Schedule | Key Form |
|---|---|---|
| Federal income tax + FICA | Semi-weekly or monthly (based on IRS lookback rules) | Form 941 (quarterly) |
| Hawaii state income tax | Semi-weekly, monthly, or quarterly (based on annual liability) | HW-14 (quarterly) |
| Federal FUTA | Quarterly (if liability exceeds $500) | Form 940 (annual) |
| Hawaii UI | Quarterly | UC-B6 (quarterly) |
Missing deposit deadlines. The IRS Federal Tax Deposit (FTD) penalty starts at 2% for deposits 1-5 days late, jumps to 5% for 6-15 days late, 10% for 16+ days late, and hits 15% if the tax remains unpaid 10 days after an IRS notice. Hawaii adds its own late-payment penalties and interest. One missed deposit can easily cost more than a full month of payroll service fees.
Not matching FICA. Employers must match the employee's Social Security and Medicare withholdings dollar for dollar. If you withhold 6.2% + 1.45% from the employee, you owe the same 6.2% + 1.45% as the employer. Failure to deposit the taxes you withheld from employees is a trust fund tax violation, and the IRS can pursue responsible individuals personally for unpaid trust fund taxes under the Trust Fund Recovery Penalty (IRC Section 6672).
Step 10: File Year-End Returns & W-2s
At the end of each year, you have a series of filing deadlines that close out the year's payroll obligations. Missing these deadlines triggers per-form penalties that add up quickly.
Year-end filing deadlines
| Form | What It Is | Deadline |
|---|---|---|
| W-2 | Wage and Tax Statement, issued to each employee and filed with the SSA | January 31 |
| W-3 | Transmittal of W-2s to the Social Security Administration | January 31 |
| Form 941 (Q4) | 4th quarter Employer's Quarterly Federal Tax Return | January 31 |
| Form 940 | Annual Federal Unemployment (FUTA) Tax Return | January 31 |
| HW-30 | Transmittal of paper W-2/HW-2 copies to the Hawaii Department of Taxation (not needed if you upload W-2s electronically) | January 31 |
| UC-B6 (Q4) | 4th quarter Hawaii UI wage report | January 31 |
W-2 specifics
Each W-2 must accurately report:
- Total federal wages, tips, and compensation (Box 1)
- Federal income tax withheld (Box 2)
- Social Security wages and withholding (Boxes 3 and 4)
- Medicare wages and withholding (Boxes 5 and 6)
- Hawaii state wages (Box 16) and Hawaii income tax withheld (Box 17)
- Your Hawaii Withholding Tax ID (Box 15)
The total Hawaii withholding reported on all W-2s must match the total you reported on your HW-14 returns throughout the year.
Wrong Hawaii withholding reconciliation. If the total Hawaii withholding on your W-2s doesn't match the total from your four HW-14 quarterly filings, the Department of Taxation will flag the discrepancy. You'll need to file amended returns, which delays processing and can trigger an audit. Common causes: transposing numbers, miscounting employees who left mid-year, or failing to include supplemental wage withholdings (bonuses, commissions). Running a year-end reconciliation before you file catches most errors.
Or Skip All This and Let PDS Handle It
You just read through 10 steps, dozens of forms, five different tax obligations, multiple deposit schedules, and 10 "What Can Go Wrong" scenarios. And that's the simplified version.
The reality is that running payroll in Hawaii correctly (every pay period, every quarter, every year) takes real expertise and real time. You're not just calculating paychecks. You're managing federal and state withholding tables, matching FICA, making timely deposits to the IRS and Hawaii Department of Taxation, filing quarterly UI reports with DLIR, tracking TDI and PHCA eligibility, issuing W-2s, reconciling them to your HW-14 returns, and keeping up with rate changes.
One mistake (one late deposit, one missed filing, one wrong withholding calculation) can cost more in penalties than an entire year of professional payroll service.
That's exactly what Hawaii payroll company (Pacific Data Services) handles.
- Payroll processing and direct deposit: every pay period, on time
- Federal tax deposits and Form 941 quarterly returns
- Hawaii state withholding deposits and HW-14 filings
- UI quarterly reports (UC-B6)
- W-2/W-3 preparation and filing
- Hawaii W-2 filing with the Department of Taxation
- ACA 1095-C filing for employers with 50+ full-time equivalent employees
PDS has been doing this for Hawaii businesses since 1969. Local team in Honolulu. No contracts. No hidden fees. You focus on running your business; we handle the payroll.
Let PDS Handle Your Hawaii Payroll
All 10 steps. All 5 layers of tax. Every form, every deposit, every deadline. Pacific Data Services has managed it for Hawaii employers since 1969, so you don't have to.
Get a Free Consultation →Or contact Pacific Data Services directly: (808) 521-1813
Sources & References
- IRS: Apply for an EIN Online
- Hawaii Tax Online (DOTAX)
- Hawaii Department of Taxation: Withholding Tax Forms
- Hawaii DLIR: Unemployment Insurance Division
- Hawaii DLIR: Disability Compensation Division (TDI)
- Hawaii DLIR: Prepaid Health Care
- Hawaii DLIR: Workers' Compensation
- USCIS: Form I-9 Resources
- IRS Publication 15 (Circular E): Employer's Tax Guide
- Hawaii CSEA: Employer Information (New Hire Reporting)
- HRS 388-2: Payment of Wages (twice-a-month requirement)