Hawaii Workers Compensation: Employer Rules
Hawaii requires workers compensation from the first employee. Who is excluded, where to buy coverage, posting duties, injury deadlines and penalties.
Hawaii Workers Compensation
Mandatory at the first employee, bought entirely in the private market because the state runs no fund, with a seven working day employer report
Hawaii puts three separate insurance duties on a small employer, and the founders I talk to usually discover the third one late. Workers compensation, temporary disability insurance and prepaid health care all sit inside the same division of the same department, they use similar forms, and they are still separate programs.
This page covers the first one only: who has to carry it, where the policy comes from, what to post, what to file when someone gets hurt, and what going without coverage costs. Coverage starts at your first employee, part-time counts, and the state sells nothing itself, so the policy comes from a carrier licensed to write workers compensation here.
Two details deserve attention from day one. The deadlines that matter after an injury are counted in working days, and the fine for going without coverage is calculated per employee per day.
Who Has to Carry Coverage
Every Hawaii employer with one or more employees must secure workers compensation coverage unless the work falls into a category the statute excludes. There is no employee-count threshold and no grace period for the first hire.
The Disability Compensation Division states the rule in one sentence on its workers compensation overview: any employer, other than those excluded, having one or more employees, full-time or part-time, permanent or temporary, is required to provide coverage.
Section 386-1 of the Hawaii Revised Statutes (HRS) backs that up by defining an employer as any person having one or more persons in that person's employment, and employment as any service under a contract of hire, express or implied, oral or written, whether lawfully or unlawfully entered into. In plain terms, a handshake hire counts as much as a signed offer letter.
Two structural rules catch employers who think of coverage as something they buy per location. Administrative rule 12-10-91 requires an employer to cover its entire liability to all of its employees under one insurance policy.
The second rule, 12-10-92, puts a duty on the carrier. It must file a notice of insurance with the director (the state official who administers the workers compensation law) within ten days of the policy effective date, certifying that all employees of the named employer will receive the benefits the law requires.
Employers based outside Hawaii have an extra step. HRS 386-10 requires an employer whose principal place of business is outside the State to register with the director before work begins here, giving the business name, the approximate total wages to be paid and the dates of activity in the State, and to file the same notice of insurance.
Who Is Excluded From Coverage
Hawaii writes its exclusions as services that are not employment, not as a list of small employers who are off the hook. The list in HRS 386-1 is shorter than in most states, and what is missing from it matters more than what is on it.
There is no casual labor exclusion, no agricultural or farm labor exclusion, and no family member exclusion. A relative on the payroll is an employee. Someone hired for three days during a busy week is an employee. Employers arriving from the mainland routinely get this wrong because their previous state carved out all three.
| Category | How Hawaii treats it |
|---|---|
| Sole proprietors | Service performed by a sole proprietor is not employment (HRS 386-1). Not required to cover themselves |
| Partners | Service performed by an individual partner of a partnership is excluded. A limited liability partnership partner is excluded only with a transferable interest of at least fifty percent |
| LLC members | Excluded where the member is an individual with a distributional interest of at least fifty percent. A member below that line is covered |
| Corporate owners | Service performed for a corporation by an individual who owns at least fifty percent of it is excluded. No employer may require an employee to incorporate as a condition of employment |
| Unpaid corporate officers | Excluded only where the service is performed without wages, for a corporation with no employees, and the officer holds at least twenty-five percent of the stock |
| Domestic and household service | Excluded only where the cash paid is under $225 for the current calendar quarter and for each completed quarter of the preceding twelve months. Above that, the household is an employer. Separate paragraphs also exclude certain medicaid and state-funded home and community based services |
| Real estate salespersons and brokers | Excluded where all the service for that person is paid solely by way of commission |
| Ministers, priests and rabbis | Excluded when duly ordained, commissioned or licensed and acting in the exercise of the ministry, along with members of religious orders in nonsecular duties |
| Nonprofit volunteers and aid recipients | Excluded where service for a religious, charitable, educational or nonprofit organization is voluntary or unpaid, or is given in return for aid received |
| Students | Excluded where a student enrolled and regularly attending classes serves a school, college, university, college club, fraternity or sorority in return for board, lodging or tuition |
| Casual labor, farm labor, family members | Not excluded. Hawaii has no carve-out for any of the three, so coverage is required |
| Independent contractors | Not automatically excluded. HRS 386-73.5 presumes coverage applies and requires both the control test and the relative nature of the work test to be met |
Excluded does not have to mean uncovered. HRS 386-4 lets an employer elect coverage for people in its employ who are not employees under the statute, and during the election those individuals are treated as employees in all respects.
The election binds you until January 1 of the next year and then for one-year terms after that. Dropping it takes notice to the director at least sixty days before the year ends, plus posted notices at the workplace.
Owners, Officers and Contractors
For corporations, limited liability companies (LLCs) and limited liability partnerships, owner status in Hawaii turns on a percentage, not on a job title. Below the statutory ownership line you are an employee of your own company for this purpose, and at or above it you are outside the system unless the business elects to bring you in. Sole proprietors and general partners are excluded outright.
The thresholds sit in HRS 386-1: fifty percent for a corporate shareholder, fifty percent of the distributional interest for an LLC member, fifty percent of the transferable interest for a limited liability partnership partner, and twenty-five percent for an unpaid officer of a corporation that has no employees. Two co-owners holding forty percent each and drawing wages are covered employees.
The statute also blocks the obvious workaround: no employer may require an employee to incorporate, form an LLC or become a partner as a condition of employment.
Contractors are where Hawaii is stricter than its reputation. HRS 386-73.5 gives the director original jurisdiction over disputes about employment and coverage, so those disputes start with the director rather than in court, and it sets a presumption in favor of coverage.
The party arguing for exclusion carries the burden. Outside the categories expressly excluded from employment, it has to establish under both the control test and the relative nature of the work test that coverage does not apply. Roughly, the first asks who directs how the work gets done, and the second asks how closely the work ties into your regular business.
The federal tests for the same question live in a different body of law and do not override Hawaii's. The safe habit here is to assume coverage applies until both state tests clearly point the other way.
Where Hawaii Employers Buy the Policy
Hawaii employers buy in the private market. The Disability Compensation Division answers this directly in its employer FAQ: Hawaii has no state fund from which employers can purchase workers compensation insurance, and the division does not sell it. For the list of carriers authorized to write workers compensation here, the division points employers to the Department of Commerce and Consumer Affairs.
HRS 386-121 sets out five ways to secure compensation. The first and most common is a policy from an insurer authorized to transact workers compensation business in the State, whether it is a stock, mutual, reciprocal or other type of insurer.
The second route is depositing security satisfactory to the director with the state director of finance. The third is direct self-insurance, and the fourth and fifth are membership in an approved workers compensation self-insurance group or in a group insured by a captive insurer (an insurer owned by the businesses it covers).
Self-insurance means furnishing satisfactory proof of solvency and financial ability to pay benefits, then paying employees directly as their entitlements arise. The application goes to the director on Form WC-21 with the most current audited annual financial statement.
A subsidiary without its own statement needs an approved indemnity agreement from its parent. Each self-insurance authorization runs only until June 30, cancellation takes at least thirty days' written notice, and the director can revoke the authorization for good cause.
Group self-insurance has its own bar. Under HRS 386-194 a group applies to the insurance commissioner with a $300 filing fee and needs a combined net worth across all members of at least $1,000,000.
The group also has to post security in the form the commissioner prescribes and show that every member has paid at least twenty-five percent of its first-year estimated annual net premium. For a small business, the practical answer is still a policy from a carrier.
There is a backstop if no carrier will sell you a policy. HRS 431:14-116.6 requires the insurance commissioner to run a residual market plan that apportions coverage to applicants who are entitled to insurance in good faith but cannot get it through ordinary methods. Anyone placed there has to be told in writing within ten days that the coverage is coming through the plan and not the private market.
Posting, Notices and Brochures
Hawaii requires one workers compensation posting, one disclosure at the start of the working relationship, and one brochure that is handed over only after an injury. There is no workers compensation pamphlet that has to go into a new hire packet.
The posting duty comes from HRS 386-99 and administrative rule 12-10-68. Every employer posts and maintains, in places readily accessible to employees, the printed Notice to Employees issued by the director. The department distributes it as part of the combined state labor law poster, where the disability compensation panel covers workers compensation, temporary disability insurance and prepaid health care together.
The disclosure duty is easy to miss because it is not a poster at all. Rule 12-10-92 requires every employer to make sure each employee knows whether the business is self-insured for workers compensation under chapter 386 or, if insured, the name of its carrier and general agent. Folding that line into your onboarding checklist next to the emergency contacts is the cleanest way to satisfy it.
The brochure is triggered by an injury. Rule 12-10-68 requires the employer to give the injured employee a copy of the brochure Highlights of the Hawaii Workers' Compensation Law within three working days of notice of the injury. Three working days is not long if the person is off work and the brochures live in a drawer, so keep copies where the injury paperwork already is.
Injury Reporting Deadlines
Hawaii counts the employer deadline in working days and the employee deadlines in years. The clock that produces fines is the seven working day report, and it starts when you learn about the injury, not when the claim paperwork reaches you.
| Step | Who acts | Deadline |
|---|---|---|
| Notice of injury to the employer | Injured employee | Written notice as soon as practicable after the injury (HRS 386-81). Failure does not bar the claim where the employer knew of the injury, furnished treatment, or the delay was for a satisfactory reason without prejudice |
| Record of the injury | Employer | Every employer keeps a record of all injuries, fatal or otherwise, received in the course of employment when known or brought to the employer’s attention (HRS 386-95) |
| Form WC-1, Employer’s Report of Industrial Injury | Employer | Within 7 working days of knowledge of an injury causing absence from work for one day or more or requiring treatment beyond ordinary first aid. A copy goes to the injured employee |
| Immediate death | Employer | Notice personally or by telephone to a department representative in the county where the injury occurred, within 48 hours (HRS 386-95) |
| Form WC-2, physician’s initial report | Treating physician, surgeon or hospital | Within 7 days after the date of first attendance, to the department and the employer. Final report within 7 days after treatment ends. Late reports carry a fine of up to $500 on the provider (HRS 386-96) |
| Temporary total disability payments | Employer or carrier | Within 10 days, excluding Saturdays, Sundays and holidays, after notice of the disability where the claim is not controverted, or 20 percent is added to the unpaid amount (HRS 386-92) |
| Form WC-5, employee’s written claim | Injured employee | Within 2 years after the effects of the injury became manifest and within 5 years after the accident (HRS 386-82) |
| Annual report on open claims | Employer | By January 31 each year for every injury on which compensation is still being paid, showing all amounts paid (HRS 386-95) |
| Final report | Employer | Within 30 days after final payment of compensation, showing total payments and the date temporary total disability ended (HRS 386-95) |
| Appeal of a decision | Either party | Notice of appeal filed with the department within 20 calendar days from the date stamped on the decision. A postmark is not enough |
Working days are counted the way rule 12-10-61 sets out: the day of the event does not count, and if the last day lands on a Saturday, Sunday or state holiday the period runs to the next working day. That is the only flexibility in the seven working day report, so treat the WC-1 as a same-week task rather than an end-of-month one.
What to Do When Someone Gets Hurt
The order matters, and the first two steps happen before anyone opens a form. Get the person treated, write down what happened, then start the paperwork the statute puts on you.
Keep the injury file where the rest of that employee's records live rather than in a separate folder nobody can find. Records in one place are the reason we built FirstHR.
An injury that is recordable under the Occupational Safety and Health Administration (OSHA) recordkeeping rules may also belong on the federal log that runs alongside a Hawaii claim, so keep that entry in the same file.
Penalties for Going Without Coverage
Hawaii prices a coverage gap per employee per day. HRS 386-123 sets the penalty at not less than $500, or $100 for each employee for every day during which the failure continues, whichever sum is greater, recovered in an action brought by the director in the name of the State and paid into the special compensation fund.
The Disability Compensation Division works the arithmetic in its employer FAQ so nobody has to guess: no coverage for two employees for five days is $1,000. Ten employees for a month puts you in a different order of magnitude. The director may remit, or forgive, part of the penalty above $500 for good cause, but only where the employer in default actually comes into compliance.
Then the business can be closed. If an employer stays in default for fourteen days, HRS 386-123 allows the circuit court to issue an injunction barring that employer from carrying on business anywhere in the State for as long as the default continues. The attorney general or a county attorney brings that action at the director's request.
Criminal exposure is a separate track from the coverage gap itself. Willfully misrepresenting a fact to obtain self-insured status is a misdemeanor under HRS 386-121. Fraud under HRS 386-98 is a class C felony where the money obtained or denied is $2,000 or more, a misdemeanor below that, and a petty misdemeanor where false information caused no loss.
Instead of those criminal penalties, fraud can draw administrative fines of up to $20,000 per violation. The same fraud section also bars an employer from willfully making false statements to escape its own adverse claims experience (a poor record of past claims) through a change of ownership, control or management.
Smaller violations have their own price. HRS 386-97.5 sets a catch-all fine of up to $500 for each offense against any provision of the chapter or its rules where no other penalty applies. The fine comes only after twenty-one days' written notice and an opportunity to be heard, and every fine collected goes into the special compensation fund.
A missing Notice to Employees poster or an undelivered brochure falls under this catch-all. You avoid most of the penalties on this page with three habits: keep a policy in force from your first hire, keep the notice on the wall, and treat every injury report as a same-week job.
Frequently Asked Questions
Does a Hawaii business with one employee need workers compensation insurance?
Yes. The Disability Compensation Division states that any employer, other than those excluded by statute, with one or more employees, full-time or part-time, permanent or temporary, must provide coverage. HRS 386-1 defines an employer as any person having one or more persons in employment. There is no threshold to cross and no grace period, and an employer based outside the State registers with the director before work starts here.
Who is excluded from Hawaii workers compensation coverage?
The exclusions in HRS 386-1 cover sole proprietors and partners, LLC members and limited liability partnership partners holding at least fifty percent, corporate owners holding at least fifty percent, unpaid officers holding at least twenty-five percent of a corporation with no employees, commission-only real estate licensees, ministers, nonprofit volunteers, students working for room or tuition, and household service under $225 a quarter. Casual labor, farm work and family members are not excluded.
Where do Hawaii employers buy workers compensation coverage?
In the private market. The division states that Hawaii has no state fund selling this insurance and refers employers to the Department of Commerce and Consumer Affairs for the carrier list. HRS 386-121 also allows a security deposit with the state director of finance, approved self-insurance, a self-insurance group, or a captive-insured group, and the insurance commissioner runs a residual market plan for employers who cannot buy in the ordinary market.
How fast must a Hawaii employer report a work injury?
Within seven working days of knowing about an injury that causes absence from work for a day or more or needs treatment beyond ordinary first aid, under HRS 386-95. The report is Form WC-1 and the injured employee gets a copy. A death that follows immediately requires notice by phone or in person to a department representative in that county within forty-eight hours. Willful failure to file can be fined up to $5,000.
What has to be posted or handed out under Hawaii workers compensation law?
Post the Notice to Employees issued by the director, which the department publishes inside its combined labor law poster, under HRS 386-99 and rule 12-10-68. Tell every employee whether you are self-insured or, if insured, the name of your carrier, under rule 12-10-92. Then give an injured employee the brochure Highlights of the Hawaii Workers' Compensation Law within three working days of notice of the injury.
What happens to a Hawaii employer with no workers compensation coverage?
The penalty is not less than $500, or $100 per employee for every day the failure continues, whichever is greater, and it goes into the special compensation fund. After fourteen days in default the employer can be enjoined from carrying on business anywhere in the State. The fund pays the injured worker in the meantime under HRS 386-56, and the employer is ordered to reimburse it.
Do independent contractors have to be covered in Hawaii?
Often yes. HRS 386-73.5 presumes coverage applies unless the service is expressly excluded from employment, and the party seeking exclusion has to satisfy both the control test and the relative nature of the work test. HRS 386-1 also deems an independent contractor the employer of everyone working under its contract, including subcontractor crews, with secondary liability running to the businesses above it.