How PEOs Handle Payroll Taxes for Small Businesses in Hawaii

Managing payroll taxes in Hawaii involves navigating both federal requirements and unique state rules like Temporary Disability Insurance (TDI) and the Prepaid Health Care Act (PHCA). Many Hawaii small businesses explore options to stay compliant and avoid penalties. While Professional Employer Organizations (PEOs) are one route, they come with specific legal arrangements that not every business wants or needs.

In this blog, we’ll break down how PEOs handle payroll taxes—and why many businesses instead turn to payroll services in Hawaii for flexible, direct support.

What Is a PEO and How Does It Handle Payroll?

A Professional Employer Organization (PEO) enters into a co-employment agreement with your business. In this setup:

• The PEO becomes the employer of record for tax purposes.

• It uses its own federal employer identification number (FEIN) to file payroll taxes.

• It manages withholding, remitting, and filing for both federal and state payroll taxes on your behalf.

This co-employment structure allows businesses to shift payroll tax filing and compliance to the PEO, while retaining day-to-day control of employees.

What Payroll Taxes Do PEOs Manage?

A properly registered PEO typically handles:

Federal Payroll Taxes

• Federal income tax withholding

• Social Security and Medicare (FICA)

• Federal Unemployment Tax (FUTA)

Payroll Taxes in Hawaii

• State income tax withholding

• State Unemployment Insurance (SUTA)

• Temporary Disability Insurance (TDI)

• Prepaid Health Care Act (PHCA) compliance

They also report to relevant agencies like the Hawaii Department of Taxation and the Department of Labor and Industrial Relations (DLIR).

Limitations of Relying on a PEO

While PEOs manage payroll tax filings, there are important limitations:

• You must enter a co-employment agreement, giving the PEO partial legal responsibility for your employees

• You still provide all timekeeping and wage data

• PEOs do not file General Excise Tax (GET) or handle corporate tax

• Your business still oversees day-to-day operations and employee management

• Exiting a PEO relationship may be difficult or disruptive

This model doesn’t suit every business—especially those that want to retain full employer control without added administrative layers.

✅ Why juggle payroll and accounting? Get both services under one roof with real-time sync. Explore our solution here.

Why Accounting Services Offer a Simpler Alternative

Unlike a PEO, accounting services provide payroll support without requiring co-employment. This makes it easier for Hawaii small businesses to stay in control while still getting expert help with compliance and reporting.

Accounting professionals can assist with:

• Accurate calculation and remittance of payroll taxes in Hawaii

• Filing required federal and state payroll forms

• Coordinating payroll with GET filings, bookkeeping, and corporate taxes

• Staying up to date on TDI, PHCA, and other Hawaii-specific laws

This integrated approach ensures you meet all tax requirements—without outsourcing your workforce.

Summary

While PEOs can take on payroll tax responsibilities through a co-employment model, they aren’t the only—or best—option for every business. Many Hawaii small businesses prefer to work with experienced accounting services that offer full payroll compliance without complicating employee relationships. With the right support, you can stay on top of payroll taxes in Hawaii, meet all your filing deadlines, and keep full control of your operations.

Expert Payroll Services, Zero Hassle

Running payroll shouldn’t keep you up at night. Our in-house payroll team handles all the complexities—from withholding calculations to tax deposits. We ensure compliance, manage deadlines, and keep your books updated automatically.

Get comprehensive payroll support without the need for multiple providers. Your dedicated Customer Success Manager is just a message away for any questions.

Ready to get started? Chat with us now, email [email protected], or use our contact form.

Here are some articles you might find helpful:

Payroll Taxes for Entrepreneurs

Types of Investors for Small Businesses

Avoiding Accounting Mistakes for Startups