Processing payroll in Hawaii requires you to register for an Employee Identification Number (EIN) with the IRS. In addition, you’ll need to register with both the Hawaii Department of Taxation and Department of Labor & Industrial Relations for withholding and unemployment accounts. Though Hawaii has the nation’s highest income tax rate for those who make over $200,000 per year, most payroll and HR regulations are in line with federal labor laws and don’t require a ton of extra attention.
If you want to avoid making mistakes and being charged penalties, consider using a payroll software like Gusto. It calculates, files, and pays your payroll taxes, and if you incur an error due to a mistake Gusto makes, it’ll cover your fees. You can also use the software to pay your employees via direct deposit and offer benefits. Try it free for 30 days.
Step-by-Step Instructions to Running Payroll in Hawaii
Step 1: Set up your business as an employer. At the federal level, you need to apply for a federal employer identification number (EIN) and register for an account in the Electronic Federal Tax Payment System (EFTPS).
Step 2: Register your business in Hawaii. You can register for an income tax withholding account through the Hawaii Department of Taxation. You will receive your withholding ID immediately upon completing the registration online. Employers also have the option to register via mail (with a three-week processing period) or in person at a local Hawaii Department of Taxation office. Hawaii withholding IDs will be in the format of: WH-000-000-0000-01/02.
You’ll also need to register for an unemployment tax account through the Hawaii Department of Labor & Industrial Relations (DLIR). Employers are required to register with the DLIR within 20 days of hiring their first employee. You should receive your account number and contribution rate via email immediately after completing the online registration.
Step 3: Set up your payroll. Whether you’re going to do payroll yourself or use a payroll software, you’ll need to determine a payroll process that works best for your business and is compliant with the rules and regulations in Hawaii. This includes deciding when and how you’ll pay employees, how you’ll collect and submit payroll forms when necessary, how and when to verify employee time worked, etc.
Step 4: Collect employee payroll forms. It’s best to collect employment forms from new hires during the onboarding process. Federal payroll forms include the W-4, I-9, and a direct deposit authorization form, if applicable. Hawaii also requires employees to fill out an additional document for state withholding called the HW-4.
Step 5: Collect, review, and approve time sheets. Hawaii law states that regular paydays need to be established and provided to all employees in writing upon hire. To be sure your team is always paid on time to remain in compliance, make sure to collect and approve timecards a couple of days before payday. Use one of our free time sheet templates to help if you don’t yet have an established time and attendance system.
Step 6: Calculate payroll and pay employees. There are many ways to calculate payroll, and it’s up to you to decide which is best for your business. You can use payroll software, a calculator (use our free timecard calculator to do some basic time calculations), or even Excel (we have a free template).
Step 7: File payroll taxes with the federal government. Federal tax payments must be made via EFTPS. Generally, you have to deposit federal income tax withheld and both employer and employee Social Security and Medicare taxes based on the schedule assigned (either monthly or semiweekly) to your business by the IRS.
- Monthly depositors are required to deposit employment taxes on payments made during a month by the 15th day of the following month.
- Semiweekly depositors are required to deposit employment taxes for payments made Wednesday, Thursday, and/or Friday by the following Wednesday. Taxes on payments made Saturday, Sunday, Monday, and/or Tuesday are due by the following Friday.
It’s important to note that schedules for depositing and reporting taxes are not the same. Employers who deposit both monthly and semiweekly should only report their taxes quarterly or annually by filing Form 941 or Form 944.
Step 8: File payroll taxes with the state of Hawaii. Hawaiian employers need to file and pay taxes withheld from employee wages. It’s important to know that filing and payment due dates are different. Return filings are on a quarterly basis and are due on the 15th of the following month as follows. Payments are due on either a semiweekly, monthly, or quarterly basis depending on how much withholding tax liability an employer has for the prior year.
Step 9: Document and store your payroll records. It’s important to keep records for all of your employees, even those terminated, for at least three to four years. Learn more in our article on retaining payroll records.
Step 10: Complete year-end payroll reports. You will need to complete W-2s for all employees, and 1099s for all independent contractors. Both employees and contractors must have received these documents by Jan. 31 of the following year.
For a more general overview of what you should know when doing payroll according to federal standards, check out our guide on how to do payroll.
Hawaii Payroll Law, Taxes & Regulations
Processing payroll in Hawaii is generally an easy process. There are no local taxes to worry about; however, Hawaiian residents are required to pay state income tax on their earnings.
In order to remain in compliance, you’ll need to withhold and remit those taxes accurately and timely, but no need to worry as it’s a pretty simple process and all online. There are a few other things regarding payroll that stand out as well (like Hawaii’s temporary disability insurance). Below, we break down all the payroll taxes and regulations that will be important to know.
Hawaii Payroll Taxes
Employers in Hawaii are responsible for paying payroll taxes, in addition to Social Security, Medicare, and federal unemployment taxes (FUTA). Social Security and Medicare (FICA) are both employee and employer taxes, meaning that the employee portion will be withheld from paychecks and the employer portion will be your responsibility.
As an employer, you will be responsible for the following rates for each of these federal tax amounts:
- Social Security – 6.2% of each employee’s pay
- Medicare – 1.45% of each employee’s pay
- FUTA – 6% of the first $7,000 of each employee’s pay
In addition to federal tax liabilities, you’ll also need to be sure that you are in compliance with withholding and remitting state taxes.
State Income Tax
Hawaii has progressive income tax rates, meaning that residents pay more in tax as they earn more money. Taxpayers living in Hawaii pay tax rates from 1.4% to 16% depending on their income. You’ll need to use Hawaii’s Withholding Tax Guide and related tables to determine how much you should withhold from each employee’s paycheck (have their W-4 forms handy when calculating totals). The progressive tax rates, based on income for those who classify as unmarried heads of household, are as follows:
first $2,400 of taxable income
between $2,401 and $4,800
between $4,801 and $9,600
between $9,601 and $14,400
between $14,401 and $19,200
between $19,201 and $24,000
between $24,001 and $36,000
between $36,001 and $48,000
between $48,001 and $150,000
between $150,001 and $175,000
between $175,001 and $200,000
$200,001 and above
In the News:
The Hawaii Senate passed legislation in March 2021 that increases the income tax paid by Hawaii’s top wage earners from 11% to 16%, which would give Hawaii the highest state income tax rate in the nation. This is in effect through 2027, after which, the income percentage for individuals earning over $200,001 will return to 11%.
Employers are required to withhold the appropriate amount of income tax based on an employee’s earnings and remit it to the state in a timely manner. Filings are due for all employers on a quarterly basis, with the schedule as follows:
- Quarter 1 – Due by April 15
- Quarter 2 – Due by July 15
- Quarter 3 – Due by Oct. 15
- Quarter 4 – Due by Jan. 15
Payments are due based on the amount of withholding, as follows:
Withholding Tax Liability
Greater than $40,000
Wednesday: If taxes are withheld for wages paid the preceding Wednesday, Thursday, or Friday
Friday: If taxes are withheld for wages paid the preceding Saturday, Sunday, Monday, or Tuesday
$5,000 - $40,000
On the 15th day of the month following the close of the preceding monthly period
Less than $5,000
On the 15th day of the month following the close of the preceding quarter (04/15, 07/15, 10/15, 01/15)
Unemployment Insurance Tax
Hawaii has a statewide unemployment insurance (UI) fund that provides benefits to workers who are experiencing periods of unemployment. Contributions collected from employers are used exclusively to pay benefits to unemployed workers.
Employers are charged for the first $47,400 of wages for each employee. Contribution rates are determined on an annual basis with a maximum tax rate of 5.80%. New employers registering with the state of Hawaii always start at a standard “new employer rate” of 3.00%.
In addition to the standard unemployment rate, employers also need to pay an employment and training assessment (E&T) rate. The Employment and Training program is a statewide work program that helps able-bodied adults become a part of the workforce. It serves the participants with assistance finding employment, gaining work experience, and with training.
If you plan to use a payroll software, like Gusto, here are a few things you’ll want to pay special attention to as a Hawaiian employer:
- Your UI rate determination will include an E&T rate (0.01%) and an experience rate. When entering your rate into your payroll software, pay special attention to whether or not the E&T rate is already built into its system, or if you’ll need to provide that information.
- You’ll need to add your payroll provider as your TPA (Third-Party Administrator) with the DLIR. You can do this online via your Hawaii DLIR online profile. Failure to do this will cause issues when the payroll provider attempts to file returns on your behalf and can cause late filings and penalties.
Workers’ Compensation Insurance
The Hawaii workers’ compensation (WC) law provides wage loss compensation and medical care to employees who suffer from a work-related injury. All employers that have one or more employees (whether full-time or part-time, permanent or temporary) are required to have workers’ compensation coverage through a private carrier of their choice. Coverage is 100% employer funded and employers are explicitly prohibited from requiring employees to contribute toward WC insurance premiums.
Benefits for injured employees include:
- Medical benefits: All medical treatment, including surgical and hospital services and supplies related to the injury
- Temporary total disability benefits: Wage loss benefits paid as long as certified disabled from work by a treating physician
- Permanent partial disability benefits: Payments due an employee when an injury results in a percentage loss of use of specified portions or functions of the body
- Permanent total disability benefits: Payments due an employee if the injured employee cannot return to work because of the injury
- Disfigurement payments: Due to an employee for scars as a result of laceration or surgery, can include deformity and discoloration
- Death payments: Due to a surviving spouse and dependent children in work-related death cases
- Vocational rehabilitation: If unable to return to usual occupation, an injured employee may receive career counseling, testing, training, and job placement
While there are no explicit industries or workplaces that are exempt from this statewide requirement, there is a detailed definition provided in the HRS Chapter 386 of what the state of Hawaii considers “employment.” Check it out for a full list of situations in which work is not considered employment and therefore would not require an employer to be covered.
Temporary Disability Insurance
In addition to UI, you are also required to provide temporary disability insurance (TDI) for eligible employees to help cover non-work-related injuries and illnesses. If an employee is unable to work due to an off-the-job injury or sickness, they will be paid disability or sick leave benefits to partially replace the wages lost.
It’s important to note that unlike unemployment insurance, TDI does not cover medical care. You can choose to cover the entire cost or share the cost equally with your employees. However, the employee’s contribution cannot exceed 0.5% of the employee’s weekly wages.
There are some employees who are excluded from this law, including:
- Employees of the federal government
- Domestic workers
- Insurance agents and real estate salespersons paid on a commission basis
- Individuals under 18 that deliver/distribute newspapers
- Family employees
- Student nurses or hospital interns
Minimum Wage Laws in Hawaii
As of January 2018, Hawaii’s statewide minimum wage is $10.10 per hour.
Tipped employees may be paid up to $0.75 less per hour if their wages and tips per hour add up to $7 more than the hourly minimum wage rate.
You must have the Hawaii Wage and Hour Law Notice to Employees posted in a place that is accessible to all of your employees.
Hawaii Overtime Regulations
Hawaii’s overtime regulations are pretty general compared to some other states in the US. The State of Hawaii’s Wage Standards Division requires that an overtime rate of 1.5x an employee’s normal rate (time and a half) be paid for hours worked over 40 in a workweek.
There are four employment classifications that are exempt from overtime pay and therefore those employees are not protected by Hawaii overtime regulations. These include:
- Executive employees: Includes management of two or more employees (as an employee’s full responsibility)
- Administrative employees: Includes business operations, management policies, administrative training
- Professional employees: Includes artists, certified teachers, skilled computer professionals
- Outside sales employees: Making sales or taking orders outside of the employer’s main workplace
For help calculating overtime, use our free overtime guide and calculator.
Different Ways to Pay Employees in Hawaii
While there are many different ways to pay employees, the Hawaii Office of Wages and Child Labor specifies that an employer must pay wages by either:
Pay cards can be a great option for employees who don’t have traditional bank accounts. If you’re interested in providing pay cards as an option to your employees, check out our guide to the best pay card providers for more information.
Hawaii Pay Stub Laws
You are required to provide your employees with pay stubs each pay period. These pay stubs can be either printed or handwritten as long as they are legible.
Pay stubs can also be provided electronically to be accessed by employees as long as all employees provide written consent.
Hawaii law mandates that all pay stubs include the following:
- Employer’s name, address, and telephone number
- Employee’s name
- Payment date and pay period covered
- Salary rate or hourly rate
- Total hours worked (regular hours, overtime hours, etc.)
- Total gross pay
- Amount and purpose of all deductions
- Total net pay
If your current pay statements don’t meet this criteria, or you’re not providing pay stubs at all, check out our free pay stub templates article. We offer a ton of different customizable options that you can use for your employees.
Minimum Pay Frequency
Hawaiian employers are required to process payroll for their employees at least twice a month. Paydays need to be designated in advance, and all employees need to be notified of the frequency of payments upon hire.
While monthly payroll is out of the option for Hawaiian employers, you can still choose between semimonthly, biweekly, and weekly payments. Need help choosing which is best for your business? Check out our guide to pay periods for everything you’ll need to know.
Paycheck Deduction Rules
An employer can only make deductions from an employee’s paycheck when authorized by federal or state laws, such as taxes and garnishments. The only exception to this that allows employers to make other deductions is if an employee gives written consent.
Hawaiian pay law explicitly states that employers cannot deduct the following items from an employee’s paycheck, even with written consent from the employee:
- Fines or fees (including for breakages in the workplace)
- Cash shortages from common money (cash box or register)
- Losses due to accepting a bad check if the employee is given discretion to accept or reject checks
- Losses due to faulty workmanship, lost or stolen property, damage to property, default of customer credit, and nonpayment for goods or services
- Medical or physical examination or medical report expenses of an employee or prospective employee required by the employer or by law
Pro Tip: It’s important that you know whether a deduction needs to be taken before or after taxes, by law. For help, check out our guide to Pre-Tax vs Post-Tax Deductions.
Severance Pay in Hawaii
Employers in Hawaii are not required to provide their employees with severance pay.
However, if you do choose to provide severance pay to terminated employees, it needs to be explicitly written in their employment documentation.
Final Paycheck Laws in Hawaii
You must pay terminated employees all wages owed to them in full at the time of their termination. If you’re unable to pay all wages owed at the time of termination, they must be paid no later than the workday following the discharge.
It’s important to note that if you have a policy that requires your employees to give advance notice of their intent to quit, you are not allowed to terminate that employee (unless there is cause), during the notice period to avoid paying them for their final work days.
Accrued Paid Time Off Payouts
Employers in Hawaii are not required to pay accrued vacation to any employee upon termination.
It’s important to note that if an employee’s policy or contract explicitly states that they will be paid out for all unused paid time off at their time of termination, you will be required to follow through. For this reason, it’s important that you pay close attention to what’s included in your policy to avoid any unnecessary costs to your business.
Hawaii HR Laws That Affect Payroll
HR is an important part of the payroll process, and many states have specific regulations regarding employees that need special attention. Hawaii, however, does not have many HR laws that don’t align with federal labor laws.
Below, we’re going to cover Hawaii’s requirement for new hire reporting and some of the specifics of their child labor laws. These are two of the most important requirements that can result in expensive fines if not followed properly.
Hawaii New Hire Reporting
All Hawaiian employers are required to report all newly hired employees to the State of Hawaii Department of the Attorney General Child Support Enforcement Agency within 20 days of the employee’s first day of work. Hawaii defines a “new hire” as an employee who has not previously been employed by the employer or was previously employed by but has been separated from the employer for at least 60 days.
Reporting can be completed using SFTP electronic reporting using the new hire template provided by the Department of the Attorney General.
If you’d prefer to file via mail, employers have the option to fill in the employer section of an employee’s completed IRS Form W-4 and send it to the following address:
Child Support Enforcement Agency
New Hire Reporting
601 Kamokila Blvd., Suite 251
Kapolei, HI 96707
These completed W-4 forms can also be faxed to: (808) 692-7001.
At this time, internet submissions are not available.
The required following information that needs to be provided is as follows:
- Employee’s name
- Employee’s address
- Employee’s Social Security number (SSN)
- Date of hire
- Employer’s name
- Employer’s address
- Employer’s federal EIN
There is a $25 fee for late filing and a $500 fee for failure to file as a result of conspiracy between the employer and employee to not report the accurate information.
In Hawaii, there is no law that requires employers to provide any rest or meal breaks for their employees. The one exception to this rule is:
- An employer must provide minors (14 or 15) with a 30 minute rest/meal break after five consecutive hours of work.
Like many of their other regulations, if an employer in Hawaii chooses to provide breaks to their staff, there will be certain regulations that they’ll need to follow in order to stay compliant. The regulations to pay attention to are as follows:
- Meal breaks (30 minutes or more): Unpaid as long as the employee is completely relieved of their duties
- Rest breaks (20 minutes or less): Counted as hours worked and need to be paid
Paid Sick Leave and Paid Time Off
There is no Hawaii law that requires private employers to grant their employees paid or unpaid sick leave. There are also no laws that require employers to pay employees while serving on a jury.
It’s important to remember that even though Hawaii does not have any specific rules or regulations regarding time off or leave, employers still need to adhere to all federal regulations. For more information check out our article on federal labor laws.
Child Labor Laws
The Hawaii Child Labor Law has information regarding child labor that depends on the age of the child seeking employment. These regulations cover both paperwork needed to obtain work and restrictions on hours worked.
When a 14- or 15-year-old minor is hired, the employer needs to obtain a certificate of employment before they are allowed to begin working.
The required form, Certificate of Employment (CL-1), can be downloaded online and must be signed by the employer and either a parent or guardian of the minor. The completed form can be returned either in person or via mail.
There is no charge for the certificate, which will generally be issued if the minor is not legally required to be in school and their employment is not defined as hazardous.
Minors between the ages of 14 and 15 may work:
- Not more than three hours per day on a school day, eight hours per day on a non-school day
- During a school week, not more than 18 hours per week
- During a non-school week, not more than 40 hours per week
- On school days and the day before a school day, between 7 a.m. and 7 p.m.
- On non-school days and the day before a non-school day, between 6 a.m. and 9 p.m.
- Not more than six consecutive days; not more than five consecutive hours without at least a 30-minute rest or meal period
This form, Certificate of Age Work Permit (eCL-3), can be applied for online only. This form is only valid when accompanied by an approved proof of age document (birth certificate, driver’s license or driver’s permit, state of Hawaii ID, military ID, immigration record, hospital record, school record (NOT school ID), court record, baptismal certificate).
There are no restrictions on hours except when the minor is required to be in school. When the minor is hired, the employer is required to:
- Verify name and birth date on the Certificate of Age with proof of age document
- Record the Certificate of Age number
- Return the Certificate of Age and proof of age document to the minor.
Hawaii has its own form for state income tax withholding that all employees are required to complete in order to determine their withholding amount. In addition, there are a number of other withholding forms and unemployment forms that are required in Hawaii.
Hawaii State Forms
- HW-4: State of Hawaii Employee Withholding Allowance Certificate
- HW-2: Statement of Hawaii Income Tax Withheld and Wages Paid
- HW-14: Quarterly Withholding Tax Return
- VP-1: Tax Payment Voucher
- UC-1: Report to Determine Liability Under the Hawaii Employment Security Law
- UC-B6: Quarterly Wage, Contribution and Employment and Training Assessment Report
- UC-25: Notification of Changes
- UC-86: Waiver of Employer’s Experience Record
- UC-347: Notification of Acquisitions or Transfers
NOTE: Employer Unemployment forms are not available online for download. You can fill out and return these forms online via the UI Claims portal, once you’ve logged in to your account.
Federal Payroll Forms
- Form W-4: To help employers calculate taxes to withhold from employee paychecks
- Form W-2: To report total annual wages earned (one per employee)
- Form W-3: To report total wages and taxes for employees to the IRS (summary of W-2s)
- Form 940: To report and calculate unemployment taxes due to the IRS
- Form 941: To file quarterly income and FICA taxes withheld from paychecks
- Form 944: To report annual income and FICA taxes withheld from paychecks
- Form 1099-MISC: To provide non-employee pay information that helps the IRS collect taxes on contract work
For a more detailed discussion of federal forms, check out our guide to federal payroll forms you may need.
Hawaii Payroll Resources & Sources
- Department of Labor and Industrial Relations: Hawaii Employers can find all things UI here. From filing for a new UI account number to managing rate changes and employee claims. Information and all necessary documentation for temporary disability insurance and workers comp can also be found here.
- Wage Standards Division: Information on unpaid wages, family leave policies, laws regarding unlawful termination, minors work permits, and more.
- Department of Taxation: Employers can log in to the Hawaii Dept. of Taxation online website to file returns and make payments. New employers can register their business here, as well as gather information about compliance and search for business licenses.
Also, check with your payroll software or service for resources and state-specific features.
Overall, processing payroll in Hawaii is very similar to many other states. You’ll need to take note of the higher minimum wage and specific tax rates when calculating payroll. Most of the regulations align with federal standards, though, so you don’t have to worry about conflicting rules. Since not all of the required processes are available online, it’s important to be diligent and make sure that you are thinking about registrations and filings well before they are due.
For help processing payroll in Hawaii, consider using a payroll software like Gusto. It’s an all-in-one payroll platform that helps you manage your team and will make your payroll process a breeze. Gusto even guarantees you won’t face any IRS penalties if someone on its team makes a mistake, giving you peace of mind. Sign up today to start a 30-day free trial.