How Tax Duties Are Divided When Using a PEO in Hawaii

For any Hawaii small business, tax compliance isn’t just paperwork—it’s essential to staying in good standing. If you’re working with a PEO in Hawaii (Professional Employer Organization), you might assume they handle all taxes for your business. But one area often misunderstood is the Hawaii General Excise Tax (GET). Even with a registered PEO, your business retains important tax responsibilities. In this post, we’ll clarify which tax duties fall to the PEO, which remain yours, and why reliable accounting services in Hawaii are still critical for compliance in Hawaii.

What a Registered PEO in Hawaii Can Handle

Under Section 373L of the Hawaii Revised Statutes, any PEO operating in the state must first register with the Hawaii Department of Labor and Industrial Relations (DLIR). Once registered, the PEO is legally recognized as a co-employer for your workers.

A properly registered PEO can handle:

• Withholding and remitting federal and Hawaii state income taxes

• Calculating and paying Social Security and Medicare (FICA) taxes

• Filing federal and state unemployment taxes (FUTA and SUTA)

• Managing benefits such as workers’ compensation, health coverage, and temporary disability insurance (TDI)

This setup helps reduce administrative work for Hawaii small businesses, particularly with payroll and employee benefits.

What a PEO in Hawaii Does Not Handle

Even if a PEO is fully compliant and registered, it doesn’t replace your responsibility for broader tax and business obligations. Specifically, a PEO does not:

• File or pay the Hawaii General Excise Tax (GET) for your business

• File corporate income taxes for your business

• Manage business license renewals or general state filings

• Handle your company’s overall financial or tax compliance

These remain the responsibility of your business, even when payroll duties are outsourced.

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Understanding Hawaii’s General Excise Tax (GET)

The GET is Hawaii’s version of a gross receipts tax. Unlike a traditional sales tax, which is passed on to customers, GET is imposed directly on businesses for the privilege of doing business in Hawaii. It applies to gross income, meaning all revenue before any expenses are deducted.

Here’s what that means when you work with a PEO:

• A registered PEO may claim a limited GET exemption only on the amounts it disburses to employees—such as wages, payroll taxes, insurance premiums, and benefits.

• However, the PEO must still pay GET on its own service fees.

• Your business is still required to file and pay GET on your own gross revenue, regardless of the PEO relationship.

• If the PEO loses its registered status or fails to meet exemption rules, the exemption can be revoked—making all amounts received from you potentially subject to GET.

In short, GET liability always remains with the business, and working with a PEO doesn’t change that.

Your Ongoing Tax Responsibilities as a Hawaii Business

Using a PEO may simplify payroll, but it doesn’t shift your core tax obligations. As a business owner, you’re still responsible for:

• Filing and paying GET on gross receipts

• Filing corporate income tax returns in Hawaii

• Renewing business licenses and maintaining your registration status

• Ensuring compliance with all state and local business tax laws

These responsibilities are independent of any PEO arrangement.

Why You Still Need Accounting Services

Because PEOs in Hawaii are not allowed to handle GET or corporate taxes, experienced accounting services become essential. A qualified accountant can help your business:

• Accurately calculate and file GET based on your total business revenue

• Identify which PEO-related costs qualify for GET exemptions

• Prepare and file your Hawaii corporate income taxes

• Maintain clean records and stay audit-ready

• Navigate local business licensing and renewal requirements

• Avoid penalties and interest from underpayment or late filings

While a PEO focuses on employee matters, accounting professionals ensure your business’s tax life is fully compliant and financially sound.

Summary

A PEO in Hawaii can take on many payroll and HR responsibilities, but it doesn’t take over your full tax obligations. Your business is still responsible for paying General Excise Tax, filing corporate tax returns, and staying compliant with Hawaii’s business regulations. For any Hawaii small business, the best approach is to pair PEO services with expert accounting services that fill the gaps a PEO can’t cover. This balance helps keep your business efficient—and on the right side of the law.

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Our dedicated tax team takes care of your sales tax obligations completely. From initial registration to ongoing filing, we handle everything. Get expert support and peace of mind knowing your compliance is managed professionally. Ready to simplify your tax compliance? Chat with us now, email [email protected], or use our contact form.

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