Payroll Hawaii: Employer Tax and Software Guide

Hawaii asks more of a small employer than almost any state in the country, and the reasons are not the ones a mainland owner expects. I build HR software for small businesses and the people who run their HR, and this is the payroll guide I would hand another founder before a first Hawaii hire.

The income tax has twelve brackets, more than any other state, and the state runs its own withholding form because it kept the allowance method that the federal W-4 abandoned in 2020. Temporary disability insurance (TDI) is mandatory and bought from a private carrier, and Hawaii is one of only five states that require it.

A 1974 law that predates the Affordable Care Act (ACA) by thirty-six years also obliges employers to provide health coverage to anyone working twenty hours a week for four consecutive weeks. Twenty hours is about two and a half eight-hour days a week, and the trigger is worth watching yourself rather than leaving to payroll software.

None of this is hidden. All of it is easy to miss when the payroll setup was built for a mainland business and simply extended to a Hawaii hire. This guide covers what the state requires, what changed for 2026, and how 10 payroll providers price the work.

The five layers of Hawaii payroll

A Hawaii employer carries five payroll layers: federal taxes (income tax withholding, FICA for Social Security and Medicare, and FUTA for federal unemployment), state income tax withholding, unemployment insurance, temporary disability insurance, and prepaid health care.

Most state payroll guides cover withholding and unemployment and stop. In Hawaii that covers less than half of what an employer owes, so it is worth laying out the whole stack before going into any one piece.

The bottom two rows are where Hawaii separates from the mainland. Neither is a tax in the ordinary sense: both are insurance bought from private carriers, and both carry eligibility rules you should not count on a payroll system to enforce. The health coverage line can also be larger than every other line on this table combined.

State income tax, HW-4, and unemployment

Twelve brackets and Act 46

Hawaii has twelve individual income tax brackets running from 1.4 percent to 11 percent, more brackets than any other state by the Tax Foundation's count.

Act 46 of 2024, signed on June 3, 2024, is phasing in wider brackets and higher standard deductions in alternating years through 2031. The tables therefore change more often than in most states, and a platform running stale tables produces quietly wrong withholding rather than an obvious error.

Form HW-4 and the two-form problem

Form HW-4 is the Hawaii Employee's Withholding Allowance and Status Certificate. Every new hire in Hawaii completes it in addition to the federal W-4, and the reason is the allowance method: the federal form dropped withholding allowances in its 2020 redesign, while the Hawaii form still uses them.

One detail differs sharply from the federal form: Hawaii law does not allow exempt status for withholding. An employee who is exempt from federal withholding must still file an HW-4 claiming at least zero allowances, and without one the employer withholds as if the employee were single with no allowances.

Unemployment insurance

Two figures matter most, the taxable wage base and your contribution rate, and only the wage base moved for 2026.

According to the Unemployment Insurance Division, the wage base rose by $2,500 while the rates held, so an employer with staff earning above the base sees a modest increase without any rate change.

The Employment and Training assessment applies to employers with a contribution rate above zero and below the maximum for the schedule. It cannot be credited against federal unemployment tax and does not go to the employer's reserve account, the balance your rate is based on, so it is a small pure cost rather than a prepayment. Returns are quarterly on Form UC-B6.

TDI and the Prepaid Health Care Act

TDI and prepaid health care are what genuinely distinguish Hawaii, and both are insurance purchased from private carriers rather than taxes remitted to the state.

Temporary disability insurance

TDI covers employees who cannot work because of a non-work-related illness or injury, including pregnancy. Hawaii is one of only five states that mandate it, under chapter 392 of the Hawaii Revised Statutes (HRS). The Disability Compensation Division runs no state fund, so coverage comes from an authorized insurance carrier or an approved self-insured plan.

The most an employer may withhold is the lowest of three amounts: half the premium cost, 0.5 percent of weekly wages, or the $7.50 weekly ceiling, per the Disability Compensation Division 2026 figures. Anything above that falls to the employer, and some employers simply absorb the whole premium as a benefit.

One rule is easy to breach without noticing: an employer may not deduct any premium from an employee who does not meet the eligibility requirements of HRS 392-25. In practice, a new hire who has not yet built up the required employment history should have no TDI withheld at all.

The Prepaid Health Care Act

The Prepaid Health Care Act is, in practical terms, the single most consequential compliance item for a small Hawaii employer. Originally enacted in 1974, it was the first law in the nation to set minimum standards of health care benefits for workers, according to the Disability Compensation Division, and it predates the Affordable Care Act by thirty-six years.

Eligibility requires both conditions: twenty or more hours per week for four consecutive weeks with the same employer, and a monthly wage of at least 86.67 times the current minimum hourly wage, which the Disability Compensation Division puts at $1,387 for 2026.

For an eligible employee, coverage starts after four consecutive weeks of employment, or at the earliest date after that when the plan can provide it. There is no additional waiting period to apply on top.

The cost-sharing rule that catches employers

The employer must pay at least half the premium for single coverage, and the employee's share cannot exceed 1.5 percent of their monthly wages. Both limits apply at the same time, so the employee's share can be no more than the lower of the two.

The usual mistake is an employer applying a clean fifty-fifty split without checking it against the wage cap. At Hawaii premium levels the 1.5 percent cap is the lower limit for most hourly employees, so in practice the employer absorbs far more than half. Budget for that rather than for the split.

Pay frequency, final pay, and the wage floor

Twice a month, minimum

Under HRS 388-2, employees must be paid at least twice per month on regular paydays designated in advance, with wages paid within seven days after the end of each pay period, as the Wage Standards Division sets out.

Monthly pay is allowed only with a majority vote of employees in a secret ballot the state labor director approves, or with an exception granted by the director, as the US Department of Labor state payday table also notes. A mainland business extending its existing payroll calendar to a Hawaii hire runs into this immediately if that calendar was monthly.

Final pay at the time of discharge

The deadline turns on how the employment ended, and a discharge is the tightest case: payment at the time of discharge, or the next working day if immediate payment is not possible.

Under HRS 388-10, an employer that fails to pay wages as the chapter requires, without equitable justification (in plain terms, a legitimate reason), owes the employee the unpaid wages plus the same amount again and interest at 6 percent a year. The same section adds a penalty of not less than $500, or $100 for each violation if that is greater.

Minimum wage and the tip credit

The minimum wage in Hawaii reaches $18.00 per hour on January 1, 2028 ($16.00 until then), according to the Wage Standards Division.

The final scheduled step of the increases enacted in 2022 is that 2028 rise, and no automatic indexing (a built-in yearly adjustment for inflation) applies after it. The rate is statewide, and no county sets its own.

The tip credit, the part of the minimum wage an employer may cover with tips, is narrow in Hawaii. From January 1, 2028, an employer may pay a tipped employee $16.50 per hour, a $1.50 credit ($14.75 and a $1.25 credit until then).

The credit is allowed only where the employee customarily and regularly receives more than $20 a month in tips. Combined wages and tips must also exceed the minimum wage by at least $7.00 an hour, which means $25.00 from 2028 ($23.00 until then), per the Wage Standards Division tip credit notice.

10 payroll providers for Hawaii employers compared

Every provider below files Hawaii state withholding and unemployment insurance. The differences here are narrower than the state's reputation suggests: Hawaii has no local (city or county) tax layer to resolve, so what matters is whether the platform calculates the TDI employee share against the weekly cap correctly, and whether anything in your stack watches the health coverage trigger.

OnPay

OnPay sells one Payroll Essentials plan at $49 per month plus $6 per employee, with HR tools and time tracking sold as add-ons rather than tiers. Tax filing covers all 50 states with no multi-state surcharge, and year-end W-2 and 1099 filing sits in the base price.

The OnPay help center keeps a Hawaii payroll tax and registration guide listing the Hawaii returns it files, including the HW-14 withholding return and the UC-B6 quarterly report. That is a reasonable proxy for whether a vendor keeps state tables current in a state where Act 46 moves the brackets on an alternating schedule.

Gusto

Gusto says it serves more than 500,000 businesses, with automatic tax filing, published pricing, and onboarding built into the same account. Simple runs $49 per month plus $6 per employee after a 2025 base increase. Gusto's help center documents the Prepaid Health Care rules, and Gusto withholds the TDI employee deduction, while the premium itself goes straight to your private carrier.

The constraint is the single-state limit on Simple. Any hire outside Hawaii moves you to Plus at $80 plus $12 per employee.

Patriot Software

Patriot has the lowest monthly total in the cost table below at every headcount. Full Service is $37 per month plus $5 per employee and includes federal and state tax filing. Patriot calculates and deducts the Hawaii TDI employee share but does not remit it, since the coverage comes from a private carrier. You file new hire reports yourself.

Basic is $17 a month plus $4 per employee if you file taxes yourself, which in Hawaii means handling the quarterly UC-B6 and the withholding returns by hand.

Square Payroll

Square Payroll runs $35 per month plus $6 per person paid, the second-lowest full-service base fee here after SurePayroll. It handles the Hawaii withholding return, the UC-B6 quarterly report, and the state new hire report.

For a Hawaii restaurant or retail operation already running Square point of sale, timecard data flows straight into payroll with no integration work, and in a tourism-heavy economy with variable hours that connection is worth more than in most states.

SurePayroll

SurePayroll is owned by Paychex and built for very small employers and household employers. Its Small Business plan is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee rather than a per-state charge.

For a Hawaii household employer paying a caregiver, the Nanny and Household plan starts at $39 a month including one employee, a price the larger platforms do not reach.

QuickBooks Workforce Payroll

QuickBooks Workforce (formerly QuickBooks Payroll) starts with Workforce Payroll, the old Core plan, at $50 per month plus $7 per employee after a per-employee increase on July 1, 2026. The argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger without an export.

ADP RUN

ADP says every RUN package calculates, files, deposits, and reconciles payroll taxes, and that ADP pays any fines or penalties that result from its own tax filing errors. In Hawaii, ask how RUN applies the TDI deduction against the $7.50 weekly cap and how quickly Act 46 bracket changes reach its tables.

The cost is opacity. ADP publishes no RUN prices, so every package from Essential through HR Pro is quoted. ADP does say you don't have to sign a contract and can end service at any time. Its current offer of three free months covers new clients in the continental US only, which leaves out a Hawaii business.

Paychex Flex

Paychex competes on service rather than software: its Complete package includes a payroll specialist and advisors, support that is an add-on on the other three packages. Pricing is quote-only for every package.

The case for Paychex in Hawaii is specific: if you want someone to call when a Prepaid Health Care question arrives or a TDI carrier invoice does not reconcile, that access has value in a state where the rules have no mainland equivalent.

ProService Hawaii

ProService Hawaii is a local professional employer organization (PEO) rather than a payroll platform, and the distinction matters. Under a PEO arrangement the provider becomes a co-employer, carrying payroll, benefits placement, workers compensation, and compliance responsibility together.

In a state where health coverage is mandatory, TDI must be sourced from a carrier, and the rules have no mainland analogue, offloading the whole stack to a local firm is a legitimate strategy rather than a cop-out. ProService says more than 3,000 Hawaii employers use it, and its multi-state service pays mainland employees in all 50 states for employers based in Hawaii.

The trade-offs are real. ProService quotes each account, and its own guide puts typical PEO fees at 2 to 6 percent of payroll or $150 to $250 per employee per month, well above standalone payroll software. The co-employment relationship involves a contract rather than a monthly subscription, and leaving is a project.

Rippling

Rippling unifies payroll, HR, and IT provisioning (device and account setup) on one employee record. Its pricing page is a custom-quote form, but Rippling's small-business page starts payroll plans at $8 per user per month plus a $40 monthly base fee. Its blog prices the core platform and the payroll module at $8 per employee each, payroll rising to $10 on monthly billing, so configured quotes can run higher.

Rippling's blog also estimates roughly $15 to $25 per employee per month for a 100-employee company on HR, payroll, benefits, and time tracking.

What each provider actually costs a Hawaii employer

The table below models published rates at three headcounts. Read it with one caveat firmly in mind: in Hawaii the payroll subscription is not the large number.

Patriot is the cheapest published option at every headcount, with Square next, though Patriot charges $12 per month for each additional state while Square includes multi-state payroll. Gusto Simple is competitive until a mainland hire forces the Plus tier, taking a 25-person payroll from $199 to $380 per month.

Choosing a payroll provider for Hawaii

Once the coverage cost is modeled, choose the provider on how it handles the rules that are specific to Hawaii. These five questions test that in a demo, before you sign anything.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider. Running payroll, filing payroll taxes, and placing health coverage come from the providers above, so if one of those is the problem in front of you, one of them is the answer. For a Hawaii employer with no HR staff at all, a local PEO is a reasonable route precisely because the health and disability requirements have no mainland equivalent.

What we handle is the document layer that feeds payroll. Onboarding workflows put the I-9, the federal W-4, and Form HW-4 on each new hire's first-day task list with due dates, and the completed forms are kept in the employee file.

E-signature covers offer letters and acknowledgments. All of it, with employee records and document management, comes at a flat $98 a month for up to 10 people or $198 for 11 to 50.

Several of the Hawaii requirements above are document and record problems rather than payroll problems, namely getting both withholding forms completed before day one and finishing I-9 verification within three business days.

The new hire report belongs on the same list, due to the state within twenty days of the employee's first day of work.

Frequently Asked Questions

What payroll taxes do Hawaii employers have to handle?

Four state obligations plus federal: income tax withholding on twelve brackets from 1.4 to 11 percent driven by Form HW-4; unemployment insurance on the first $64,500 of wages at 2.40 percent for new employers; mandatory temporary disability insurance with the employee share capped at 0.5 percent of weekly wages and $7.50 per week; and health coverage under the Prepaid Health Care Act.

What is Form HW-4 and why do Hawaii employees fill out two withholding forms?

HW-4 is the Hawaii Employee's Withholding Allowance and Status Certificate. The federal W-4 dropped allowances in its 2020 redesign and Hawaii kept them, so both forms are needed. Allowances cover the employee, a spouse who claims none of their own, each dependent, and an extra at age 65 or over. Hawaii permits no blanket exempt status, so an employee exempt federally still files an HW-4 with at least zero allowances.

What is Hawaii TDI and how much can an employer deduct?

Temporary disability insurance covers non-work-related illness or injury, including pregnancy. It is mandatory under HRS 392, and because there is no state fund, coverage comes from an approved private carrier. The employer may withhold half the premium but no more than 0.5 percent of weekly wages and no more than $7.50 per week in 2026, and may not deduct at all from an employee who does not meet the eligibility requirements in HRS 392-25.

What triggers coverage under the Hawaii Prepaid Health Care Act?

Twenty or more hours per week for four consecutive weeks with the same employer, plus a monthly wage of at least 86.67 times the minimum hourly wage, or $1,387 in 2026. Both conditions must be met. Coverage then starts after the fourth consecutive week, or as soon as the plan allows, with no further waiting period. That is stricter than the ACA mandate, which uses thirty hours and allows up to ninety days.

Dependent coverage is not required, though a 7(b) plan, a plan type whose benefits can be leaner than those of the standard plan, makes the employer pay half the cost of covering dependents.

How much can an employer charge an employee for health coverage in Hawaii?

The employer pays at least half the premium for single coverage, the employee pays no more than 1.5 percent of monthly wages, and whichever limit is lower caps the employee's share. On a $600 monthly premium for someone earning $2,800 a month, half is $300 but 1.5 percent is $42, so the employee pays $42. Splitting the premium evenly without first checking the wage cap is where employers usually go wrong.

What is the Hawaii unemployment insurance wage base?

$64,500 per employee in 2026, a rise from $62,000 in 2025, under Contribution Rate Schedule C. New employers pay 2.40 percent and the maximum experienced rate is 5.60 percent, plus a 0.01 percent Employment and Training assessment that cannot be credited against federal unemployment tax. Returns are quarterly on Form UC-B6.

How often must Hawaii employers pay employees?

At least twice per month on paydays designated in advance, with wages paid within seven days after the pay period ends, under HRS 388-2. Monthly pay needs a secret-ballot vote of employees that the labor director approves, or an exception from the director. The twice-a-month rule catches out mainland businesses that extend an existing payroll calendar to a Hawaii hire. Pay statements must show gross and net pay, each deduction and its purpose, the pay date, and the pay period covered.

When is a final paycheck due in Hawaii?

At the time of discharge for a terminated employee, or the next working day if immediate payment is genuinely impracticable, under HRS 388-3. Resignation with a full pay period of notice means payment at the time of quitting; less notice means the next regular payday. Under HRS 388-10, paying late without equitable justification can cost the unpaid wages plus the same amount again as damages, 6 percent interest, and a penalty of at least $500.

How long do Hawaii employers have to report a new hire?

Within twenty days of the first day of work, filed with the Child Support Enforcement Agency rather than the labor department, which surprises employers used to other states. Returning employees count as new hires again after a separation of at least sixty consecutive days, as the new hire reporting guide from the agency explains.