Operational Gaze:
How to Run Payroll in Hawaii?

April 11th 2024

Handling payroll in Hawaii involves the process of compensating your workers. This process includes calculating how much they’ve earned, making deductions, and following Hawaii’s specific rules about taxes related to payroll. It’s important to understand these unique state laws to manage payroll efficiently.

In this article, we offer a step-by-step guide designed to help Hawaii businesses navigate each pay period accurately. Managing payroll isn’t just about giving employees their paychecks; it’s about taking care of your employees and following complex rules, which can be especially challenging for new businesses.

Our guide aims to provide direction in handling payroll processes. You’ll find helpful insights and instructions that are specific to Hawaii. This ensures that your payroll runs smoothly and follows all the necessary rules, no matter how much experience you have in managing it.

This Article Covers

Laws That Affect Payroll Procedures in Hawaii
Worker Classifications in Hawaii
Payroll Forms and Relevant Bodies in Hawaii
Applicable Taxes in Hawaii
Key Pay Elements That Impact Payroll in Hawaii
Step-by-Step Guide to Payroll in Hawaii

Laws That Affect Payroll Procedures in Hawaii

Hawaii Laws

There are several state legislations that will impact your payroll processing, including:

  • Hawaii Labor Code: Hawaii labor laws govern various employment aspects, including wage payments, sick leave, and workers’ compensation.
  • Overtime: Overtime pay in Hawaii is determined by daily and weekly hours worked, as well as the total days worked.
  • Paid Breaks or Lunch Period: Hawaii labor laws do not explicitly require employers to provide breaks or meal periods, aside from minors who must have a 30-minute break for every 5 hours worked. However, it is customary for employers to offer short rest breaks, typically lasting 20 minutes or less. It’s mandated that these brief breaks be compensated, as per Hawaii labor regulations.
  • Unemployment, Disability, and Workers’ Compensation: Employers in Hawaii are legally obligated to participate in the state’s unemployment fund, and both disability and unemployment insurance are mandated by state laws.
  • Minimum Wage: Employers in Hawaii must pay employees at least the state’s minimum wage rate, which stands at $14.00 per hour. Hawaii’s minimum wage rate is subject to change, so it’s important to stay updated with the latest state labor regulations.
  • Paid Time Off and Leaves: Hawaii labor laws follow federal guidelines regarding leave pay. Employers are generally not required to provide compensation for various forms of leave, including sick leave, holiday leave, jury duty leave, voting leave, or bereavement leave.
  • Payment Records: Employers in Hawaii must furnish pay stubs at regular intervals, which include essential information like the employer’s details, deductions, and other mandatory information.
  • Final Paycheck: When an employee’s employment is terminated in Hawaii, they are entitled to receive their final wages, including any accrued vacation pay, in a timely manner, in accordance with state labor laws.

Federal Laws

There are three significant pieces of federal legislation that will have an impact on your payroll processing procedures:

  • Fair Labor Standards Act (FLSA): FLSA sets rules for minimum wage, overtime, recordkeeping, exemption classification, and child labor regulations. It applies to various sectors, including businesses and government entities at all levels.
  • Federal Insurance Contributions Act (FICA): FICA requires both employers and employees to contribute to Social Security and Medicare. Employers must deduct 6.2% for Social Security and 1.45% for Medicare from employees’ earnings. Employers must also match these deductions, resulting in a total FICA payroll tax of 15.3% for each employee.
  • Federal Unemployment Tax Act (FUTA): FUTA mandates that employers contribute to unemployment taxes to provide benefits to eligible employees who lose their jobs. While not a direct payroll deduction for employees, FUTA contributions must be recorded in each payroll cycle. Generally, a 6% tax applies to the first $7,000 paid to an employee annually, with some industry-specific exceptions.

HR Laws

  • New Hire Reporting in Hawaii: Employers in Hawaii are legally obligated to report the hiring, recall, or rehiring of any new employee to the relevant department within a twenty-day period. This report must include comprehensive information such as the full name, address, social security number, and date of employment for each newly hired, recalled, or rehired individual. Additionally, the employer must provide their own name, and address, as well as state and federal identification numbers.
  • Posting Requirements in Hawaii: The state of Hawaii mandates that all businesses operating within its jurisdiction and employing workers must prominently display a set of labor law posters in the workplace. These posters cover essential topics, including minimum wage regulations, health and safety guidelines, and various other pertinent labor laws.

Worker Classifications in Hawaii

Employees and Independent Contractors

Misclassification is when an employer labels a worker as an “independent contractor” rather than an employee. A misclassification in the workplace can happen by accident or, in some cases, as an attempt to avoid legal responsibilities. Understanding and correctly applying employee classifications is essential for both employers and workers in Hawaii. This classification significantly affects how payroll is handled and impacts the rights, benefits, and legal protections provided to employees.

In Hawaii, when someone is classified as an employee, their earnings are subject to state unemployment taxes, making them potentially eligible for unemployment benefits. On the other hand, if they are classified as an independent contractor, the employer is not required to pay state unemployment taxes on their income.

The ABC Test

Hawaii applies the ABC test to determine worker classification. To determine if a worker can be categorized as an independent contractor under Hawaii’s ABC test, all three of these criteria must be satisfied:

  • The individual operates without control or direction.
  • The tasks performed fall outside the usual scope of the employer’s business.
  • The individual typically conducts an independently established profession or business that aligns with the nature of the work carried out.

To learn more about the rights of salaried and hourly employees, you can read our guides on your rights as a salaried employee in Hawaii, and your rights as an hourly employee in Hawaii.

Payroll Forms and Relevant Bodies in Hawaii

Effectively handling payroll in Hawaii means following several state and federal rules, which often include filling out necessary payroll forms. In this section, we’ll look at the important forms and the relevant authorities in Hawaii that employers should know to stay compliant and manage payroll responsibilities well.

Hawaii Payroll Forms

  • Form HW-14: This is the Hawaii employer’s quarterly return of income tax withholding form. It allows employers to use this form to report state income tax withholding on a quarterly basis.
  • HW-4 Form: This assists employers in figuring out how much tax to withhold from employees’ paychecks.
  • Form W-2: This form is for employers to provide this form to their employees by January 31 each year. It reports an employee’s annual wages and the state income tax withheld.
  • Form HW-6: This form helps employers reconcile the total state income tax withheld from employee wages over a year.
  • Form HW-3: This form summarizes the total Hawaii income tax withheld by an employer during the year.

Federal Payroll Forms

  • W-4 Form: Allows employers to determine the correct tax withholding for their employees.
  • W-2 Form: Displays the total yearly earnings of each employee.
  • W-3 Form: This form summarizes the combined pay and taxes for all employees.
  • Form 940: This form is used for reporting and paying federal unemployment tax.
  • Form 941: Reports income and FICA taxes withheld from paychecks quarterly.
  • Form 944: Reports annual income and FICA taxes withheld from paychecks.
  • 1099 Forms: Provide contractors with the necessary information to calculate the taxes they owe the IRS based on their earnings.
  • Form I-9: Utilized to verify the identity and work eligibility of individuals employed in the United States.

Federal and Hawaii Payroll/ Tax Bodies

  • Internal Revenue Service (IRS): The IRS establishes federal tax rules concerning income tax withholding, Social Security, and Medicare taxes. Employers must follow these federal regulations when managing payroll on a national scale.
  • Department of Labor (DOL): The DOL enforces federal labor laws, including those governing minimum wage, overtime, and workplace standards. It establishes the guidelines for the Fair Labor Standards Act (FLSA) and other labor-related issues.
  • Social Security Administration (SSA): The SSA administers national Social Security and Medicare programs, which include the collection and management of payroll taxes associated with these programs.
  • U.S. Department of the Treasury: The U.S. Department of the Treasury is responsible for handling federal revenue collection, including payroll tax deposits.
  • Hawaii Department of Labor and Industrial Relations (DLIR): The DLIR oversees labor laws and regulations in Hawaii, covering matters like minimum wage, overtime, and workplace standards. It guides state labor standards and workers’ rights.
  • Hawaii Department of Taxation: This department manages and enforces Hawaii’s state tax laws, including income tax withholding, general excise tax, and other state taxes that employers may be required to collect and remit.
  • Hawaii Department of Labor and Industrial Relations – Unemployment Insurance Division: This division is responsible for unemployment insurance in Hawaii. Employers are mandated to make unemployment tax contributions to fund benefits for eligible employees.
  • Hawaii Employee Retirement System (ERS): Public employees in Hawaii are covered by the Employee Retirement System, which administers retirement and pension benefits. Employers in the public sector need to coordinate with ERS regarding contributions and retirement planning.

Applicable Taxes in Hawaii

Employer Contributions

Federal Unemployment Tax Act (FUTA): Hawaii complies with the Federal Unemployment Tax Act (FUTA) which currently sets a standard federal rate, currently 6.0% on the first $7,000 of each employee’s wages.

Withheld from Employee’s Wages

  • Hawaii Income Taxes: In Hawaii, income tax ranges from 1.40 percent to 11.00 percent. Additionally, some Hawaii municipalities may impose local income taxes on both residents and non-residents, with the tax rates varying by city.
  • Workers’ Compensation in Hawaii: Employers in Hawaii must provide workers’ compensation insurance, regardless of the number of hours worked by their employees.
  • Social Security (FICA) Withholding: Social Security withholding follows federal guidelines. It constitutes a 6.2% deduction on income up to a maximum taxable limit, which stands at $137,700 in the provided information. Medicare withholding, specifically for the Hospital Insurance portion, amounts to an additional 1.45% on all income.

Additional Relevant Subtractions to Withhold on Behalf of Employees

The federal Fair Labor Standards Act (FLSA) permits employers to deduct money from employees’ paychecks only in situations allowed by law or with the employees’ consent. Legal deductions include absences for personal reasons, sickness or disability with proper compensation plans, jury and witness fees, penalties for safety violations, disciplinary suspensions, and deductions related to the Family and Medical Leave Act for job-protected leave due to specific family and medical reasons.

Key Pay Elements That Impact Payroll in Hawaii

Minimum Wage

Employers must comply with the minimum wage regulations in Hawaii. Hawaii’s minimum wage was set at $14.00 per hour. However, it’s important to keep in mind that minimum wage rates can change over time, so staying informed about the current rates is crucial.

Overtime

Hawaii adheres to federal overtime laws, necessitating employers to compensate eligible employees at a rate of 1.5 times their standard wage for hours worked beyond 40 in a workweek.

Workers’ Compensation Insurance

Hawaii labor laws mandate that employers must provide workers’ compensation insurance for employees who experience job-related injuries or illnesses. The cost of this insurance is typically factored into an employer’s overall payroll expenses.

Pay Stub Laws

Hawaii has established laws regarding pay stubs, obliging employers to provide detailed itemized statements to employees for each pay period. These statements include comprehensive information about earnings, deductions, and other relevant details.

Paycheck Deduction

Employers in Hawaii are permitted to make authorized paycheck deductions for various purposes, including taxes, wage garnishments, and other allowable deductions. Deductions for items like uniforms or equipment require written consent from employees and must not reduce wages below the minimum wage.

Final Paycheck

In Hawaii, there are no set rules regarding when a final paycheck should be provided. Therefore, according to the Fair Labor and Standards Act (FLSA), employers must give the final payment on the next scheduled payday, whether an employee quits or is let go. This last paycheck should encompass the employee’s regular earnings from the most recent pay period, in addition to any other forms of compensation like commissions, bonuses, and accrued sick and vacation pay that are eligible for payout.

Step-by-Step Guide to Payroll in Hawaii

The state of Hawaii has a specific set of laws that employers need to abide by. In this section, we’ll break down the payroll process into clear, actionable steps.

  1. Identify Payroll Rules: Before you begin your payroll procedures in Hawaii, it’s essential to understand the payroll regulations that apply to your company. These rules can differ based on factors such as your industry, workforce size, and how you pay your employees (hourly or salaried). Familiarize yourself with Hawaii’s labor laws and federal payroll regulations, among other factors affecting payroll operations.
  2. Secure an Employer Identification Number (EIN): An Employer Identification Number (EIN), issued by the IRS, is a unique identifier for tax-related purposes. To meet your employment tax and other tax obligations in Hawaii, obtaining an EIN is necessary. The application process is straightforward and can be completed online via the IRS website. This distinctive number is essential for tax reporting and identification.
  3. Register with the Hawaii Department of Labor and Industrial Relations: Hawaii employers are required to register with the Hawaii Department of Labor and Industrial Relations for unemployment insurance purposes. This registration is essential for the accurate reporting and remittance of unemployment taxes to the state. Typically, the registration process can be conveniently executed online through the department’s website.
  4. Employee Classification: In Hawaii, correctly classifying your workforce as either employees or independent contractors is crucial, as it has significant implications for tax and wage reporting. Incorrect classification can result in legal consequences.
  5. Collect Employee Payroll Documentation: Make sure you collect essential payroll documents from your employees in Hawaii, including W-4 Forms for federal income tax withholding and I-9 Forms for employment eligibility verification.
  6. Track Time and Attendance: Accurate record-keeping of employee work hours, breaks, overtime, and leave is a fundamental element of precise payroll management. Compliance with Hawaii’s specific regulations on overtime pay and minimum wage rates necessitates meticulous record-keeping. You may find it beneficial to use tools like timesheet applications and leave trackers.
  7. Establish a Consistent Payroll Schedule: Hawaii mandates the establishment of a regular payroll cycle to comply with state labor regulations. The frequency of payroll disbursements may vary, but it should be consistent and transparently communicated to employees to keep them informed about their pay schedule.
  8. Compute Gross Earnings: Accurate calculation of gross earnings is paramount in Hawaii, where distinct wage and overtime regulations apply. These calculations should encompass various components, such as commissions, bonuses, overtime pay, and expense reimbursements, in accordance with state laws.
  9. Federal Payroll Tax Compliance in Hawaii: Adhere to IRS guidelines for depositing employment taxes as per the prescribed schedule, a practice that is applicable not only in Hawaii but also in other states.
  10. Maintenance of Payroll Records: In Hawaii, maintaining precise employee payroll records, including work hours, pay statements, tax forms, and other pertinent paperwork, is indispensable. State and federal laws necessitate the retention of these records for a minimum of three years to comply with audit regulations and address potential inquiries from tax authorities.
  11. Annual Payroll Reporting: Ensure the completion of essential annual government reports, such as W-2 and 1099 forms, which should be furnished to employees by the designated deadline.

Final Thoughts

Managing payroll in Hawaii can be a complex task. Employees need to ensure that they comply with the state’s minimum wage regulations, tax obligations, and labor laws. To make managing payroll smoother, take a look at our selection of the top 6 applications tailored to streamline payroll duties in the United States. If you’ve already got a system in place, we have outlined ten tips to enhance your payroll procedures within the United States.

Important Cautionary Note

This content is provided for informational purposes only. While we make every effort to ensure the accuracy of the information presented, we cannot guarantee that it is free of errors or omissions. Users are advised to independently verify any critical information and should not solely rely on the content provided.