Starting a business in Hawaii: twenty hours a week
Offer someone twenty hours a week in Hawaii and, four consecutive weeks later, you are legally required to be paying at least half of their health insurance premium. No other state in the country does this to an employer, and none has been able to copy it — the Prepaid Health Care Act was passed in 1974, four decades ahead of the Affordable Care Act, and still goes further than it does. It is triggered by hours rather than headcount, so one part-timer brings you inside it. Before anything to do with tax, this is the fact that should shape how you hire here.
Every other state leaves the decision to you. The federal rules that come closest exempt small employers outright. Hawaii decided the question in 1974 and has been enforcing it ever since, under a federal exemption granted before the door closed — which is why this is the only law of its kind in the United States rather than the first of several.
The trigger is hours, not headcount. One person working twenty hours a week for four consecutive weeks brings you inside the Act whether you employ one person or fifty. There is no threshold to stay under and no size at which it stops applying.
- Sales tax
- General Excise Tax 4% — Hawaii has no sales tax state + 0.5% county surcharge, now in force in all four counties local · typically 4.5%, or up to 4.712% if you show it separately on the invoice
- Local income tax
- None
- State business licence
- Not required statewide
- Workers' comp from
- 1 employee — full-time or part-time, permanent or temporary
- Formation approved in
- Filed with the Business Registration Division through Hawaii Business Express. Hawaii publishes no guaranteed standard turnaround for online filings.
- First 90 days, all in
- $200–$1,200 · $50 of it to the state
Official portals: Hawaii Business Registration Division (DCCA) · Hawaii Department of Taxation — e-Services (Hawaii Tax Online) · Hawaii Department of Taxation — Licensing (GET licence, $20). Figures checked September 2026; the portal always wins.
So the sentence founders arrive saying — “I'll take somebody on half-time and see how it goes” — describes a different decision here than it does anywhere else, because half-time is the threshold. Nineteen hours and twenty hours are not the same offer in Hawaii. Building a rota around that line is a real thing employers do; just be honest with yourself about whether you are structuring the work or avoiding the law.
The rule costs most where the wages are lowest
The Act does not simply require you to offer a plan. It sets who pays what, and it caps the employee's side twice over — which produces an outcome most people guess backwards.
The employer pays at least half the premium
A floor, not a target. You may pay more; you may not pay less.
The employee's share is capped at the lesser of two figures
Half the premium, or 1.5% of their monthly gross pay — whichever is smaller. Two tests, and the smaller one wins.
So on low wages the 1.5% test binds first
1.5% of a modest monthly wage covers only a fraction of a premium, and the employer picks up everything above it. On a well-paid employee the split may genuinely land at 50/50; on a low-paid one the employer can be carrying far more than half.
Coverage begins after four consecutive weeks at twenty hours
Not on the first day, and not after a probation period of your choosing. The Act sets the clock, not your contract.
And two more mandates that arrive with it
Prepaid health care is one of three employer insurance obligations here, each administered separately and each with its own qualifying test. Getting one right does not get the others right.
- Workers' compensation — from the first employee
- Full-time or part-time, permanent or temporary, with no threshold at all. Cover comes from authorised private carriers or approved self-insurance; Hawaii is not monopolistic, so your insurer or payroll provider's carrier can usually write it.
- Temporary disability insurance — a service test
- Employees qualify with 14 weeks of Hawaii employment in the preceding 52 weeks, at least $400 earned and 20 or more hours a week. The employer may charge the employee no more than 0.5% of weekly wages, capped at a maximum weekly deduction the Division sets each year — or may simply pay the whole cost.
- Prepaid health care — the hours test
- 20 hours a week for four consecutive weeks, employer pays at least half, employee capped at the lesser of half the premium or 1.5% of monthly gross pay.
- Unemployment insurance
- Registered with the Department of Labor and Industrial Relations, alongside the TDI registration.
Notice that the three tests do not line up with each other. Twenty hours a week for health care. Twenty hours a week plus a 14-week service history for TDI. No test at all for workers' comp. The same employee can sit inside one mandate and outside another in the same month, which is why hiring in Hawaii is a payroll configuration job rather than a form to sign.
GET is not a sales tax, and the difference costs money
Hawaii has no sales tax. It has the general excise tax, and the Department of Taxation puts the distinction in exactly these words: GET is a tax on the business, not on the customer. A sales tax is money you collect on the state's behalf. GET is your own liability on your own gross income, and whether you recover any of it from a customer is a commercial decision rather than a legal duty.
The base is the other half of the difference. GET reaches gross income from almost everything — services, commissions, contracting, rent on real property — so the categories that escape sales tax in most states sit squarely inside it here, and a consultancy, a letting agent or a landlord is taxed on revenue from the first dollar.
| What | Rate | Note |
|---|---|---|
| State GET | 4% | On gross income, including services, commissions, contracting and rent. |
| County surcharge | 0.5% | Now in force in all four counties. The Honolulu, Kauai and Maui surcharges run to 31 December 2030. |
| What most businesses are taxed at | 4.5% | State plus surcharge. |
| Wholesaling | 0.5% | A separate, much lower rate — and the county surcharge does not attach to it. |
| The GET licence | $20 | One-off, from the Department of Taxation. There is no renewal fee. |
Because GET falls on gross income rather than profit, it behaves like Washington's B&O tax rather than like a sales tax: a loss-making year still produces a bill. The difference from Washington is that Hawaii lets you pass it on visibly, within limits — which is the next section.
Where 4.712% comes from, and why the customer has to agree
You will see 4.712% on Hawaiian invoices and wonder where the extra fifth of a percent came from. It is the maximum pass-on rate: the most the state permits you to add to a bill if you choose to show the GET separately.
The arithmetic is short. If you add 4.5% to an invoice, that addition is itself part of your gross income, and gross income is what GET is charged on — so 4.5% added does not cover 4.5% owed. Grossing up 4.5% gives 4.712%, which is the figure that leaves you whole.
Two conditions come with it, and they are the genuinely un-sales-tax-like part. First, you may charge no more than 4.712%; passing on a higher figure is not permitted. Second, the customer must have agreed to it. There is no automatic right to add GET to a price the way a shop adds sales tax at a till elsewhere — it is a term of your deal, which means it belongs in your quote and your contract rather than appearing for the first time on an invoice.
The practical consequence for pricing: quote a flat price, say nothing about GET, and you have absorbed 4.5% of your revenue. That is a margin decision dressed as an admin detail — take it deliberately, put it in writing, and either build it into the headline price or state the pass-on clearly before the work starts.
Four counties, no cities, nothing else to file
Here is the compensation for all of the above, and it is larger than it sounds. Hawaii has four counties and no incorporated municipalities below them at all. There is no city business licence anywhere in the state, no city business tax, and no municipal return — none of the layer that makes California, Oregon, Washington and Alaska complicated.
No county levies an income tax either. The counties take their share through the 0.5% surcharge bolted onto the GET, collected on the same state return you were already filing, so what looks like a local tax never becomes a local filing. One agency, one return, the same rules from island to island.
Nor is there a general state business licence. Because GET reaches services and rent, virtually every business ends up holding a GET licence instead — $20 once, never renewed — and that does the same job in practice. The recurring state cost is $12.50 a year for the annual report, due in the calendar quarter of your anniversary, and formation is $50 plus a $1 state archives fee, or about $100 of state charges across five years. Every state's formation fees and reports are on the hub page.
So the honest shape of Hawaii is a single sentence: employing people is by a wide margin the most demanding thing you will do here, and registering, filing and licensing are among the simplest in the country. If your business is you and a laptop, this is a light state. The moment it becomes you and a part-timer, it is the heaviest one there is.
Common questions
Does Hawaii really require employers to provide health insurance?
Yes — it is the only state in the country that does, and no other state has been able to copy it because the Prepaid Health Care Act of 1974 holds a federal exemption granted before the door closed. An employee working 20 hours a week is covered after four consecutive weeks, the employer must pay at least half the premium, and there is no small-employer exemption at any headcount.
How much of the premium does the employee pay in Hawaii?
The lesser of half the premium or 1.5% of their monthly gross pay — two caps, and the smaller one applies. Because the 1.5% test binds first for lower-paid workers, the employer's real share rises as wages fall, so the mandate costs most where staff are paid least. On a well-paid employee the split may genuinely be 50/50.
Is a 19-hour role really different from a 20-hour one here?
Yes. The Prepaid Health Care Act is triggered by hours rather than headcount, at 20 hours a week for four consecutive weeks, so half-time is precisely the threshold. And because the premium does not scale with hours, a 20-hour hire and a 40-hour hire can carry the same insurance cost — which changes the arithmetic of splitting one role into two.
What insurance do I need before hiring in Hawaii?
Three separate things, with three different tests that do not line up. Workers' compensation from the first employee with no threshold at all. Temporary disability insurance for employees with 14 weeks of Hawaii employment in the preceding 52 weeks, at least $400 earned and 20 or more hours a week. And prepaid health care for anyone working 20 hours a week once they complete four consecutive weeks. The same employee can be inside one and outside another in the same month.
Is the general excise tax the same as a sales tax?
No. The Department of Taxation describes GET as a tax on the business rather than on the customer. It falls on gross income from almost everything — services, commissions, contracting and rent on real property — so it is owed even in a year the business loses money, and you are not required to collect it from customers at all.
Why do Hawaii invoices show 4.712%?
That is the maximum pass-on rate. Because anything you add to an invoice becomes part of your gross income, and GET is charged on gross income, adding a flat 4.5% leaves you short. Grossing up 4.5% gives 4.712%. You may charge no more than that, and the customer must have agreed to the pass-on — it is a term of the deal rather than an automatic addition.
Are there city business licences in Hawaii?
No. Hawaii has four counties and no incorporated municipalities below them, so there is no city business licence, no city business tax and no municipal return anywhere in the state. The counties raise revenue through a 0.5% surcharge on the GET, collected on the same state return. There is no general state business licence either — the $20 GET licence does the job in practice.
Before you offer someone twenty hours a week.
Describe your business and Velofound lays out what Hawaii asks — the $20 GET licence, the anniversary-quarter report, and the three insurance mandates that arrive together with your first hire — beside a live website taking card payments. Free to start.
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