Hawaii Business Insurance: What You Actually Need (and What the Law Requires)

Hawaii has some of the strictest employer insurance requirements in the country. If you have employees—even one part-time worker—you are likely required by state law to carry multiple types of insurance that employers in most other states do not need. And two of those requirements—Temporary Disability Insurance (TDI) and the Prepaid Health Care Act (PHCA)—exist only in Hawaii.

This guide separates what the law requires from what is simply smart to have. We cover every type of insurance a Hawaii business owner should understand: the three legally mandated coverages, the most commonly recommended policies, and Hawaii-specific details that mainland insurance brokers and payroll systems frequently miss.

Insurance Required by Hawaii Law: Overview

If you have employees in Hawaii, state law requires you to carry three types of insurance. There is no getting around these. They are not optional, they are not “nice to have,” and there is no small business exemption that lets you skip them.

Let’s break down each one in detail.

Workers’ Compensation Insurance

Workers’ compensation insurance covers employees who are injured or become ill as a result of their work. It pays for medical treatment, rehabilitation, and a portion of lost wages while the employee recovers. In the event of a fatality, it provides death benefits to the employee’s dependents.

What Workers’ Comp Covers

• Medical expenses for work-related injuries and illnesses
• Temporary total disability benefits (partial wage replacement while the employee cannot work)
• Permanent partial or total disability benefits for lasting impairment
• Vocational rehabilitation if the employee cannot return to their previous job
• Death benefits to dependents in the case of a work-related fatality

How to Get Workers’ Comp in Hawaii

• Private insurance carriers: Most businesses purchase workers’ comp from a standard commercial insurance carrier licensed in Hawaii.
• HEMIC (Hawaii Employers’ Mutual Insurance Company): HEMIC is a mutual insurance company created specifically for Hawaii employers. It is often the carrier of choice for businesses that have difficulty finding coverage in the private market—such as construction firms, restaurants, or businesses with prior claims history.
• Self-insurance: Large employers may apply to the DLIR to self-insure, but this requires significant financial reserves and is not practical for small businesses.

What Happens If You Don’t Carry It

Operating without workers’ compensation insurance in Hawaii violates HRS §386-121. Penalties include:

• A penalty of at least $500 or $100 per employee for every day without coverage, whichever is greater (HRS §386-123), and a possible court injunction after 14 days
• Personal liability for all medical costs and lost wages if an employee is injured
• The DLIR Disability Compensation Division actively investigates uninsured employers

For a deeper dive, read our complete Hawaii workers’ compensation guide.

Temporary Disability Insurance (TDI)

Temporary Disability Insurance provides partial wage replacement to employees who cannot work due to a non-work-related illness or injury. Think of it as the complement to workers’ comp: workers’ comp covers injuries that happen on the job, while TDI covers conditions that happen off the job—a broken leg from a weekend hike, surgery for a medical condition, recovery from illness, or pregnancy-related disability.

Who Must Be Covered

Employers must provide TDI coverage for their employees. An employee qualifies for benefits if, in the 52 weeks before the disability, they had both:

• At least 14 weeks in which they were paid for 20 or more hours
• At least $400 in wages

The 14 weeks need not be consecutive and can include work for a prior Hawaii employer.

What TDI Covers

• Partial wage replacement for non-work-related illness or injury
• Pregnancy-related disability (the period of physical disability before and after childbirth)
• Maximum benefit duration: Up to 26 weeks of benefits in a benefit year
• Weekly benefit amount: 58% of the employee’s average weekly wages, up to a maximum set by the state ($871 per week for 2026)

Cost Sharing

One important feature of Hawaii TDI is that the cost can be shared between employer and employee:

• The employer may deduct up to 50% of the TDI premium cost from the employee’s wages
• The employee’s share cannot exceed 0.5% of their weekly wages (whichever is less—50% of the premium or 0.5% of wages), a maximum of $7.50 per week for 2026
• The employer is responsible for the remainder of the premium

How to Get TDI Coverage

• Purchase a TDI plan from an insurance carrier authorized to write TDI in Hawaii. Premiums go to the carrier; the State does not collect a disability tax.
• Alternatively, apply to the DLIR for approval of a self-insured TDI plan on Form TDI-15 (typically only practical for larger employers).
• Keep the policy in force and give employees Form TDI-45, Claim for TDI Benefits, when they need to file a claim.

Prepaid Health Care Act (PHCA)

The Prepaid Health Care Act is arguably the most distinctive employment law in Hawaii. Enacted in 1974, it makes Hawaii the only state in the country that requires employers to provide health insurance to eligible employees. The PHCA predates the federal Affordable Care Act (ACA) by nearly four decades.

Who Must Be Covered

An employee must be offered health insurance under the PHCA if they:

• Work 20 or more hours per week
• Have worked for the employer for 4 consecutive weeks

That’s it. There is no minimum company size. A business with a single employee who works 20 hours a week must provide PHCA-compliant health insurance after that employee’s fourth week.

What the Employer Must Provide

• A health insurance plan that meets the minimum coverage standards set by the PHCA (the DLIR Disability Compensation Division’s Prepaid Health Care branch specifies these standards)
• The employer must pay at least 50% of the premium cost
• The employee’s share of the premium cannot exceed 1.5% of their gross monthly wages
• The plan must cover hospital, surgical, medical, and maternity benefits at minimum

PHCA vs. ACA: They Are Not the Same

This is a critical point that catches many employers off guard:

How to Comply with the PHCA

1. Choose a PHCA-approved health plan. Work with an insurance broker who understands the PHCA, or contact the DLIR Disability Compensation Division for a list of approved plans and carriers.
2. Enroll eligible employees so coverage starts once they complete four consecutive weeks of qualifying employment (20+ hours a week and monthly wages of at least 86.67 times the minimum wage, $1,387 for 2026).
3. Collect Form HC-5 (Employee Notification to Employer) from any employee who claims an exemption or waiver, or who works for two or more employers, and keep it on file for two years.
4. Maintain records of enrollment, coverage, and premium payments.

Strongly Recommended Insurance

Beyond the three legally required coverages, there are several types of insurance that—while not mandated by Hawaii law—are strongly recommended for virtually every business. These protect you from the lawsuits, accidents, and unexpected losses that can shut down a small business overnight.

General Liability Insurance

General liability insurance (often called “GL” or “CGL” for Commercial General Liability) is the most fundamental business insurance policy after workers’ comp. It protects your business against claims from third parties—customers, vendors, visitors, or anyone who interacts with your business.

What General Liability Covers

• Bodily injury: A customer slips on a wet floor in your store and breaks their wrist. GL covers their medical bills and any lawsuit.
• Property damage: Your employee accidentally damages a client’s property while performing a service. GL covers the repair or replacement cost.
• Advertising injury: A competitor claims your marketing materials copied their trade dress or defamed their business. GL covers the legal defense and settlement.
• Legal defense costs: Even if a claim is baseless, GL pays for your attorney to defend you in court.

Who Needs General Liability

Essentially every business that interacts with the public, has customers on-site, or performs work at client locations. This includes:

• Retail stores and restaurants
• Contractors and tradespeople
• Professional service firms with client-facing offices
• Event planners and venue operators
• Any business with a physical location open to visitors

Business Property Insurance

Business property insurance (sometimes called commercial property insurance or “BPP” for Business Personal Property) covers the physical assets your business owns or uses—equipment, inventory, furniture, fixtures, computers, and supplies.

What Business Property Insurance Covers

• Equipment and machinery: Computers, printers, kitchen equipment, power tools, point-of-sale systems
• Inventory and stock: Products you sell, raw materials, supplies
• Furniture and fixtures: Desks, chairs, shelving, display cases
• Business interruption: Many policies include coverage for lost income if a covered event (fire, storm, theft) forces you to close temporarily

Who Needs Business Property Insurance

Any business with physical assets worth protecting. This is particularly important for:

• Retail stores with inventory
• Restaurants with kitchen equipment
• Offices with computers and furniture
• Contractors with tools and equipment
• Warehouses with stored goods

Professional Liability (Errors & Omissions) Insurance

Professional liability insurance—also known as Errors & Omissions (E&O) insurance—protects businesses that provide professional services or advice against claims of negligence, errors, or failure to perform.

What Professional Liability Covers

• Errors in professional work: An accountant makes a mistake on a client’s tax return that results in an IRS penalty. E&O covers the resulting claim.
• Failure to deliver services: A consultant fails to deliver a project on time, and the client claims financial damages. E&O covers the defense and potential settlement.
• Negligent advice: An IT consultant recommends a system that fails, causing data loss. E&O covers the claim.
• Legal defense costs: Even frivolous claims cost money to defend. E&O pays for legal representation.

Who Needs Professional Liability

Any business that provides advice, expertise, or professional services for a fee:

• Accountants and CPAs
• Attorneys
• Consultants (management, marketing, financial, etc.)
• IT service providers and software developers
• Architects and engineers
• Real estate agents and brokers
• Insurance agents
• Healthcare providers

Commercial Auto Insurance

If your business owns vehicles, or if employees use their personal vehicles for business purposes, you need commercial auto insurance. Personal auto policies typically exclude business use. If an employee gets into an accident while driving for work and your only coverage is their personal auto policy, you may find that the insurer denies the claim.

When Commercial Auto Is Required

• Business-owned vehicles: If the vehicle is titled to the business, it must be insured under a commercial auto policy. Personal auto policies do not cover business-owned vehicles.
• Employees driving for work: Delivery drivers, salespeople making client visits, contractors driving to job sites—all need commercial auto coverage.
• Hired and non-owned auto: If employees occasionally use their own cars for business errands, a “hired and non-owned auto” endorsement on your business policy fills the gap between their personal coverage and your business liability.

Who Needs Commercial Auto

• Delivery services and food delivery businesses
• Contractors who drive to job sites
• Sales teams that visit clients
• Any business that owns or leases vehicles
• Businesses that reimburse employees for mileage

Hawaii-Specific Notes: What Mainland Brokers Miss

If you have moved to Hawaii from the mainland, or if you are working with a national insurance broker or payroll company, pay close attention to these Hawaii-specific issues. They are the items most frequently overlooked or misunderstood by people who are not deeply familiar with Hawaii employment law.

1. PHCA Predates the ACA—and Has Different Rules

The Prepaid Health Care Act was enacted in 1974. The Affordable Care Act was enacted in 2010. They are separate laws with separate requirements. Complying with the ACA does not automatically mean you comply with the PHCA. The eligibility thresholds are different (20 hours/week vs. 30 hours/week), the premium caps are different, and the plan approval process is different. You must ensure your health plan is specifically approved by the DLIR for PHCA compliance.

2. Workers’ Comp Covers ALL Employees—No Exceptions

Many states allow small business exemptions for workers’ comp. Some states exempt sole proprietors, family members, or businesses with fewer than a certain number of employees. Hawaii does not. If you have one part-time employee working five hours a week, you need workers’ comp. The only people not covered are independent contractors (who are genuinely independent contractors—see our contractor classification guide).

3. TDI Has Unique Eligibility and Cost-Sharing Rules

Hawaii’s TDI law allows employers to split the premium cost with employees, but the employee’s share is capped. You must use a DLIR-approved TDI carrier or an approved self-insured plan—you cannot just buy any short-term disability policy off the shelf and call it TDI. The plan must meet the specific requirements of HRS Chapter 392.

4. National Payroll Systems Often Miss TDI and PHCA

If you use a national payroll service (ADP, Paychex, Gusto, etc.), they may not automatically flag your TDI or PHCA obligations. Some may handle TDI deductions correctly; most will not handle PHCA at all. It is your responsibility as the employer to ensure you have the correct coverages in place—your payroll provider is not a substitute for an insurance broker who understands Hawaii law.

How to Find Insurance Carriers in Hawaii

Here is a practical guide to finding the right carrier for each type of coverage:

Workers’ Compensation

• Standard commercial carriers: Contact any licensed property & casualty insurance broker in Hawaii for quotes.
• HEMIC: If you have difficulty placing coverage in the standard market (common for construction, restaurants, and businesses with claims history), contact the Hawaii Employers’ Mutual Insurance Company (HEMIC) directly. HEMIC was created specifically to provide workers’ comp coverage to Hawaii employers.

Temporary Disability Insurance (TDI)

• The DLIR maintains a list of approved TDI carriers. Contact the DLIR Disability Compensation Division for the current list.
• Many of the same carriers that write workers’ comp in Hawaii also offer TDI plans.

Health Insurance (PHCA Compliance)

• Work with a local Hawaii insurance broker who specializes in employer group health plans.
• Major carriers offering PHCA-compliant plans in Hawaii include HMSA (Hawaii Medical Service Association) and Kaiser Permanente Hawaii, among others.
• Confirm with the DLIR Disability Compensation Division that your selected plan meets PHCA minimum standards.

General Liability, Property, Professional Liability, Commercial Auto

• Any licensed commercial insurance broker in Hawaii can help you with these standard coverages.
• For small businesses, ask about a Business Owner’s Policy (BOP) that bundles GL and property coverage.
• For professional liability (E&O), some industries have specialty carriers—ask your broker about options specific to your profession.

A Note About PDS and Insurance

We want to be transparent about what Pacific Data Services (PDS) does and does not do when it comes to insurance:

• PDS does NOT administer TDI insurance or health plans. We are a payroll and bookkeeping company, not an insurance carrier or broker. We cannot sell you TDI coverage or a PHCA-compliant health plan.
• PDS DOES handle payroll deductions correctly once you have your insurance in place. If your TDI plan requires employee payroll deductions, PDS will set up and process those deductions accurately on each paycheck. If your PHCA health plan has an employee premium contribution, PDS handles that deduction too.
• PDS can help you identify what you need. Our team understands Hawaii’s insurance requirements and can point you in the right direction—but you will need to work with a licensed insurance broker to actually obtain your TDI, PHCA, and workers’ comp policies.