Payroll in Hawaii: Everything Employers Need to Know

Hawaii has no state income tax, but employers must withhold federal taxes. This article includes a summary of Hawaii’s payroll laws and how they apply to employers based in the U.S.

In order to process payroll in Hawaii, you must first get an Employee Identification Number (EIN) from the Internal Revenue Service. You’ll also need to register for withholding and unemployment accounts with the Hawaii Department of Taxation and the Hawaii Department of Labor & Industrial Relations. Despite the fact that Hawaii has the highest income tax rate in the US for individuals earning more than $200,000 per year, most payroll and HR requirements are in line with federal labor laws and don’t need a lot of additional effort.

How to Run Payroll in Hawaii: Step-by-Step Instructions

Step 1: Register your company as an employer. You must apply for a federal employer identification number (EIN) and create an account in the Electronic Federal Tax Payment System on the federal level (EFTPS).

Step 2: Get your company registered in Hawaii. The Hawaii Department of Taxation can help you set up an income tax withholding account. After completing the online registration, you will get your withholding ID right away. Employers may also register in person at a local Hawaii Department of Taxation office or by mail (with a three-week processing time). WH-000-000-0000-01/02 will be the format for Hawaii withholding IDs.

You’ll also need to register with the Hawaii Department of Labor & Industrial Relations for an unemployment tax account (DLIR). Within 20 days of employing their first employee, employers must register with the DLIR. After completing the online registration, you should get an email with your account number and contribution rate.

Step 3: Create a payroll system. Whether you handle your own payroll or utilize payroll software, you’ll need to figure out a payroll procedure that works for your company and complies with Hawaii’s laws and regulations. This involves determining when and how you will pay workers, how you will collect and submit payroll forms as needed, and how and when you will verify employee hours worked, among other things.

Step 4: Collect employee payroll paperwork. During the onboarding process, it’s essential to gather employment paperwork from new employees. The W-4, I-9, and, if appropriate, a direct deposit authorization form are all federal payroll forms. Employees in Hawaii must additionally complete an extra form called the HW-4 for state withholding.

Step 5: Collect, evaluate, and approve time sheets. Regular paydays must be created and given to all workers in writing upon employment, according to Hawaii law. Collect and approve timecards a few days before payday to ensure your staff is always paid on time and in compliance. If you don’t currently have a time and attendance system in place, use one of our free time sheet templates to get started.

Step 6: Work out your payroll and pay your workers. There are many methods for calculating payroll, and you must choose the one that is ideal for your company.

Step 7: Submit your payroll taxes to the government. EFTPS is required for federal tax payments. In general, you must deposit federal income tax withheld, as well as employer and employee Social Security and Medicare taxes, according to the IRS’s schedule (either monthly or semiweekly).

Monthly depositors must deposit employment taxes on payments made during the previous month by the 15th of the following month.
Semiweekly depositors must deposit employment taxes by the following Wednesday for payments paid on Wednesday, Thursday, and/or Friday. Taxes are payable by the following Friday for payments made on Saturday, Sunday, Monday, and/or Tuesday.

It’s essential to remember that the deposit and reporting of taxes follow different schedules. Employers that deposit both monthly and semiweekly should only file Form 941 or Form 944 quarterly or yearly to report their taxes.

Step 8: File Hawaii payroll taxes with the state. Employers in Hawaii are required to file and pay taxes deducted from their employees’ earnings. It’s crucial to understand that the filing and payment deadlines are separate. Returns are filed quarterly and are due on the 15th of the following month, as shown below. Depending on how much withholding tax obligation an employer has for the previous year, payments are due semiweekly, monthly, or quarterly.

Step 9: Keep track of your payroll data by documenting and archiving them. It’s critical to maintain records for all of your workers for at least three to four years, even if they’ve been fired.

Step 10: Finish your payroll reports for the year. W-2s must be completed for all employees, and 1099s must be completed for all independent contractors. By January 31 of the following year, both employees and contractors must have received these papers.

Payroll Laws, Taxes, and Regulations in Hawaii

Payroll processing in Hawaii is usually straightforward. There are no municipal taxes to be concerned about, but Hawaiian citizens must pay state income tax on their earnings.

To stay in compliance, you’ll need to properly withhold and return those taxes on time, but don’t worry, it’s a very easy procedure that can be completed entirely online. A few other aspects of payroll stand out as well (for example, Hawaii’s temporary disability insurance). We’ve broken down all of the payroll taxes and regulations that you’ll need to know below.

Payroll Taxes in Hawaii

Employers in Hawaii must pay payroll taxes, as well as Social Security, Medicare, and federal unemployment insurance (FUTA). Because Social Security and Medicare (FICA) are both employee and employer taxes, the employee part will be deducted from your paychecks while the employer portion will be your obligation.

You will be liable for the following rates as an employer for each of these federal tax amounts:

6.2 percent of each employee’s salary goes to Social Security.
1.45% of each employee’s salary goes to Medicare.
FUTA – 6% of the first $7,000 in salary for each employee

You must also ensure that you are in compliance with withholding and remitting state taxes, in addition to federal tax obligations.

Income Taxes in the State

Hawaii has progressive income tax rates, which means that when people earn more money, they pay more in taxes. Hawaii residents pay tax rates ranging from 1.4 percent to 16 percent, depending on their income. To figure out how much to withhold from each employee’s paycheck, see Hawaii’s Withholding Tax Guide and associated tables (have their W-4 forms handy when calculating totals). The following are the progressive tax rates for unmarried heads of family, depending on their income:

Recently in the news:

In March 2021, the Hawaii Senate approved legislation increasing the income tax paid by Hawaii’s top wage earners from 11 percent to 16 percent, making Hawaii the state with the highest state income tax rate in the US. This will last until 2027, after which the income proportion for those earning more than $200,001 will revert to 11%.

Employers must deduct and pay the appropriate amount of income tax based on an employee’s wages to the state on a timely basis. Filings are required on a quarterly basis for all employers, with the following schedule:

The first quarter’s work is due on April 15th.
Quarter 2 – By July 15th, you must submit your work.
Quarter 3 is due on October 15th.
Quarter 4 is due on January 15th.

Unemployment Insurance Contribution

Hawaii has a statewide unemployment insurance (UI) fund that pays benefits to employees who are out of work for an extended length of time. Employer contributions are only used to provide unemployment benefits to jobless employees.

Employers are responsible for the first $47,400 of each employee’s salary. Annual contribution rates are calculated, with a maximum tax rate of 5.80 percent. The normal “new employer rate” for new employers registering with the state of Hawaii is 3.00 percent.

Employers must pay an employment and training assessment (E&T) rate in addition to the normal unemployment rate. The Employment and Training program is a statewide job training program that assists able-bodied people in gaining employment. It assists the participants in obtaining jobs, getting work experience, and receiving training.

As a Hawaiian employer, there are a few things you’ll want to pay particular attention to if you intend to utilize payroll software like Gusto:

An E&T rate (0.01 percent) and an experience rate will be used to calculate your UI rate. Pay particular attention when putting your rate into your payroll software to see whether the E&T rate is already integrated into the system or if you’ll need to supply that information.
With the DLIR, you’ll need to enroll your payroll provider as a TPA (Third-Party Administrator). This may be done via your Hawaii DLIR online profile. Failure to do so will result in problems when the payroll provider tries to submit returns on your behalf, as well as fines and late submissions.

Insurance for Workers’ Compensation

Employees who incur a work-related accident in Hawaii are entitled to wage loss compensation and medical treatment under the state’s workers’ compensation legislation. Workers’ compensation coverage is needed for all businesses with one or more employees (whether full-time or part-time, permanent or temporary). Employers are banned from asking workers to pay WC insurance premiums since coverage is entirely paid by the employer.

Employees who are wounded are entitled to the following benefits:

Medical benefits: All medical services and supplies connected to the injury, including surgical and hospital treatments and supplies.
Temporary complete disability benefits: Wage loss compensation is given as long as a treating physician certifies you are unable to work.
Permanent partial disability benefits are payments made to an employee when an accident causes a percentage loss of use of certain body parts or activities.
Payments owed to an employee if he or she is permanently disabled and unable to return to work as a result of the injury.
Payments for scars as a consequence of laceration or surgery, which may include deformity and discoloration, are given to employees.
In work-related death situations, death benefits are given to a surviving spouse and dependent children.
If an injured worker is unable to return to his or her previous employment, he or she may get career counseling, testing, training, and job placement.

While no specific sectors or workplaces are excluded from this statewide requirement, the HRS Chapter 386 provides a comprehensive description of what the state of Hawaii deems “employment.” Check it out for a complete list of instances when labor isn’t deemed employment and therefore isn’t covered by an employer.

Disability Insurance

In addition to UI, you must offer qualified workers with temporary disability insurance (TDI) to assist cover non-work-related injuries and illnesses. Employees who are unable to work due to an off-the-job accident or illness will be given disability or sick leave payments to help make up for missed earnings.

It’s worth noting that, unlike unemployment benefits, TDI does not cover medical expenses. You have the option of covering the full cost or splitting it evenly among your workers. The employee’s contribution, however, cannot exceed 0.5 percent of his or her weekly earnings.

There are certain workers that are exempt from the legislation, such as:

Those who work for the federal government
Workers at the home
Agents and salespeople in the insurance and real estate industries are paid on a commission basis.
Individuals under the age of eighteen who deliver or distribute newspapers
Employees from the same family
Nursing students or hospital interns

Hawaii’s Minimum Wage Laws

Hawaii’s statewide minimum wage is $10.10 per hour as of January 2018.

If an employee’s salary plus tips per hour total $7 more than the hourly minimum wage rate, they may be paid $0.75 less per hour.

The Hawaii Wage and Hour Law Notice to Employees must be placed somewhere that all of your employees may see it.

Overtime Rules

In comparison to other states in the US, Hawaii’s overtime laws are quite broad. The Wage Standards Division of the State of Hawaii mandates that employees be paid 1.5 times their regular rate (time and a half) for hours worked beyond 40 in a workweek.

There are four job categories that are exempt from overtime compensation, and as a result, those workers are not covered by Hawaii’s overtime laws. These are some of them:

Management of two or more workers (as a complete duty of an employee) is included in the definition of executive employees.
Business operations, management rules, and administrative training are all covered by administrative personnel.
Artists, qualified instructors, and experienced computer experts are among the professional workers.
Employees who operate outside of the employer’s main office and make sales or take orders.

Employees in Hawaii

While there are a variety of methods to pay workers, the Hawaii Office of Wages and Child Labor requires that wages be paid in one of two ways:

Employees who do not have conventional bank accounts may find that pay cards are a good alternative. Check out our guide to the top pay card providers for additional information if you’re interested in offering pay cards to your workers.

Pay Stub Laws

Each pay month, you must give your workers pay stubs. As long as the pay stubs are legible, they may be printed or handwritten.

Workers may also view pay stubs online if all employees sign a permission form.

All pay stubs in Hawaii must contain the following information:

Name, location, and phone number of the employer
Name of the employee
Dates of payment and pay periods are covered.
Hourly rate or salary rate
The total number of hours worked (regular hours, overtime hours, etc.)
Gross salary in total
All deductions, their amount, and their purpose
Net pay in total

Minimum Pay Period

Employers in Hawaii are obliged to handle payroll at least twice a month for their workers. Paydays must be set in advance, and all workers must be informed of the frequency of payments at the time of employment.

While Hawaiian companies do not have the choice of paying their employees on a monthly basis, they do have the option of semimonthly, bimonthly, or weekly wages.

Payroll Deduction Regulations

Employers can only deduct money from an employee’s paycheck if federal or state laws allow it, such as taxes and wage garnishments. Only if an employee provides written permission does an employer have the ability to make additional deductions.

Even with the employee’s written permission, Hawaiian pay law expressly prohibits employers from deducting the following things from an employee’s paycheck:

Fees or fines (including for breakages in the workplace)
Cash shortages resulting from the use of common money (cash box or register)
Expenses incurred as a result of accepting a faulty check if the employee has the authority to accept or reject checks.
Losses resulting from poor craftsmanship, misplaced or stolen items, property damage, customer credit default, and nonpayment for products or services
Expenses for an employee or potential employee’s medical or physical examination or medical report mandated by the employer or by law

Pro Tip: It’s critical to understand if a deduction is required by law to be made before or after taxes.

Severance pay system

In Hawaii, employers are not obliged to give severance compensation to their workers.

If you do decide to provide severance compensation to dismissed workers, it must be stated clearly in their employment documents.

Final Paycheck Laws

At the moment of termination, you must pay dismissed workers any salaries due to them in full. If you are unable to pay all due wages at the moment of termination, you must pay them no later than the next working day.

It’s worth noting that if your company has a policy requiring workers to provide prior notice of their plan to leave, you can’t fire them (unless there’s a good reason) during the notice period to avoid paying them for their last days on the job.

Paid Time Off Payouts

Employers in Hawaii are not obligated to pay any accumulated vacation to employees who are terminated.

It’s essential to remember that if an employee’s policy or contract expressly says that they will be compensated for any unused paid time off at the time of termination, you must comply. As a result, it’s critical that you pay careful attention to what your insurance covers in order to prevent incurring needless expenses for your company.

Human Resources Laws in Hawaii That Affect Payroll

Human resource is an essential component of the payroll process, and many states have particular rules for workers that need extra care. Hawaii, on the other hand, does not have many HR regulations that differ from federal labor standards.

Below, we’ll go through Hawaii’s new hire reporting requirements as well as some of the state’s child labor regulations in detail. These are two of the most essential criteria that, if not performed correctly, may result in costly penalties.

Reporting on New Hires in Hawaii

Within 20 days of the employee’s first day of work, all Hawaiian employers must report all newly employed workers to the State of Hawaii Department of the Attorney General Child Support Enforcement Agency. A “new hire” in Hawaii is defined as an employee who has never worked for the company before or who has worked for the company before but has been away from it for at least 60 days.

The new hire template supplied by the Department of the Attorney General may be used to complete SFTP electronic reporting.

Employers may fill out the employer portion of an employee’s completed IRS Form W-4 and submit it to the following address if they want to file by mail:

Kakuhihewa Building 601 Kamokila Blvd., Suite 251 Kapolei, HI 96707 Child Support Enforcement Agency New Hire Reporting

You may also send these completed W-4 forms to (808) 692-7001.

Internet contributions are not accessible at this time.

The following is a list of the information that must be provided:

Name of the employee
Address of the employee
Social Security number of the employee (SSN)
Date of employment
Name of the employer
Address of the Employer
Employer’s federal tax liability EIN

There is a $25 late filing charge and a $500 fee for failing to file as a consequence of an employer-employee conspiracy to withhold correct information.

Breaks for Meals

There is no legislation in Hawaii that compels businesses to give workers rest or food breaks. The following is an exception to this rule:

After five continuous hours of labor, an employer must provide minors (14 or 15) a 30-minute rest/meal break.

If a company in Hawaii decides to offer breaks to its employees, they must follow specific rules in order to be legal, just as they must follow many of their other regulations. The following are the rules to be aware of:

Meal breaks (30 minutes or more) are unpaid as long as the employee is freed of all responsibilities.
Rest periods (no more than 20 minutes): Counted as hours worked and must be compensated.

Paid Sick Leave and Paid Time Off

There is no legislation in Hawaii that compels private employers to provide paid or unpaid sick leave to their workers. There are also no regulations requiring businesses to compensate workers who serve on juries.

It’s essential to note that, although Hawaii has no particular laws or regulations governing time off or leave, businesses must nevertheless follow all federal requirements.

Laws Concerning Child Labor

The Hawaii Child Labor Law contains information on kid labor that is based on the age of the child seeking work. These rules apply to both the documentation required to acquire employment and the number of hours that may be worked.

the ages of 14 and 15
the ages of 16 and 17

Before a 14- or 15-year-old minor may start working, the employer must acquire a certificate of employment from the Department of Labor.

The necessary document, Certificate of Employment (CL-1), is available online and must be signed by both the employer and the minor’s parent or guardian. You may return the completed form in person or by mail.

The certificate is free and will be given if the youngster is not legally obliged to attend school and their job is not classified as dangerous.

Minors between the ages of 14 and 15 may work in the following capacities:

On school days, no more than three hours per day; on non-school days, no more than eight hours each day
Not more than 18 hours per week throughout the school week
Not more than 40 hours per week during non-school weeks
Between 7 a.m. and 7 p.m. on school days and the day before a school day.
Between 6 a.m. and 9 p.m. on non-school days and the day before a non-school day.
Not more than six days in a row; not more than five hours in a row without at least a 30-minute break or lunch

Only online applications for the Certificate of Age Work Permit (eCL-3) are accepted. This form is only acceptable if it is accompanied by a valid proof of age document (birth certificate, driver’s license or permit, state of Hawaii ID, military ID, immigration record, hospital record, school record (NOT school ID), court record, or baptismal certificate).

Except when the minor is obliged to attend school, there are no time limitations. When a minor is employed, the employer must do the following:

With a proof of age document, double-check the name and birth date on the Certificate of Age.
Keep track of the number on your Certificate of Age.
Return the minor’s Certificate of Age and proof of age papers.

Forms for Payroll

Hawaii has its own state income tax withholding form, which all workers must fill out to calculate their withholding amount. In Hawaii, there are also a variety of additional withholding and unemployment forms that must be completed.

Forms for Withholding:

Certificate of Withholding Allowance for State of Hawaii Employees (HW-4)
HW-2: Hawaii Income Tax Withheld and Wages Paid Statement
Quarterly Withholding Tax Return (HW-14)
VP-1: Voucher for Tax Payment

Forms for Unemployment:

Report to Determine Liability Under Hawaii’s Employment Security Law (UC-1)
UC-B6: Wage, Contribution, Employment, and Training Assessment Report (Quarterly)
Notification of Changes (UC-25)
Waiver of Employer’s Experience Record (UC-86)
UC-347: Acquisitions and Transfers Notification

Employer Unemployment applications are not accessible for download on the internet. Once you’ve signed in to your account, you may fill out and submit these forms online via the UI Claims site.

Forms for Federal Payroll

Form W-4: Used by businesses to figure out how much tax to withhold from employees’ paychecks.
Form W-2: This form is used to record total yearly earnings (one per employee)
Employees’ total earnings and taxes are reported to the IRS on Form W-3 (summary of W-2s)
Form 940 is used to submit and compute unpaid unemployment taxes to the Internal Revenue Service (IRS).
To submit quarterly income and FICA taxes deducted from paychecks, use Form 941.
To report yearly income and FICA taxes taken from paychecks, use Form 944.
Form 1099-MISC is used to report non-employee compensation and assist the IRS in collecting taxes on contract employment.

Payroll Resources & Sources in Hawaii

Hawaii’s Department of Labor and Industrial Relations Employers will discover all they need to know about user interfaces here. From requesting a new UI account number to handling rate adjustments and employee claims, we’ve got you covered. Temporary disability insurance and workers’ compensation information and paperwork may also be obtained here.
Wage Standards Division: Unpaid wages, family leave rules, regulations addressing wrongful termination, minors’ work permits, and more are all covered by the Wage Standards Division.
Employers may submit returns and make payments by logging in to the Hawaii Department of Taxation’s online website. New employers may use this site to register their company, as well as collect compliance information and look for business permits.

Also, check with your payroll software or provider for state-specific features and resources.

Conclusion

In general, Hawaii’s payroll procedure is fairly comparable to that of many other states. When calculating payroll, keep in mind the increased minimum wage and particular tax rates. However, since most of the restrictions are aligned with federal requirements, you won’t have to worry about rules clashing. Because not all of the necessary procedures are accessible online, it’s critical to plan ahead and think about registrations and files long before they’re due.