For years I paid a small fortune for payroll software like QuickBooks, thinking there was no way around it. Later, I tried Wave because it was cheaper—but it turned into a nightmare, including unauthorized withdrawals from my account.
Eventually, I realized something important: if you’re a small business in Hawaiʻi, you don’t have to rely on expensive payroll providers. You can run payroll and pay your taxes yourself with very little ongoing cost. For me, this shift was about more than just saving money. I wanted to regain control over the process, see exactly where my money was going, and strip away the unnecessary complexity that software companies make you believe you need. After years of outsourcing and paying monthly fees, I asked myself: what if I just learned to do it myself?
It turned out to be not only possible, but surprisingly straightforward. Once I set up the accounts and understood the flow, I discovered that payroll wasn’t some mysterious black box—it was just a repeatable series of steps. And each month I do it, I save money, gain confidence, and confirm that I really didn’t need all the bells and whistles those providers sell.
Now that I’ve been doing it on my own for a few months, I can say: it’s much easier than it looks. Here’s exactly how it works.
Step 1: Set Up Your State and Federal Payroll Tax Accounts
To run payroll legally in Hawaiʻi, you’ll need accounts with both state and federal systems:
- EFTPS (Electronic Federal Tax Payment System): Where you pay federal payroll taxes (withholding and employer match).
- Hawaiʻi Tax Online: For Hawaiʻi General Excise Tax (if applicable) and Hawaiʻi state income tax withholding.
- Hawaiʻi Unemployment Insurance (UI) Account: Required for all employers, even if you’re the only employee. You’ll use this to pay unemployment insurance contributions.
- Business bank account: Set up for ACH transfers into each system.
Once established, these portals are free to use and take just minutes each month.
Step 2: Decide on Your Payroll Schedule
Whether you’re an S-Corp, LLC, or even a sole proprietorship that has elected payroll, keeping things simple is the goal.
I recommend a monthly payroll schedule. It reduces the number of filings and keeps you compliant with both IRS and state requirements.
- Pick a salary amount that makes sense (and meets the IRS “reasonable compensation” rule).
- Be consistent—don’t randomly transfer money. Treat it like a real paycheck.
Step 3: Calculate Withholdings
This is the part most people worry about, but it’s not hard.
- Federal income tax: Use IRS withholding tables or free paycheck calculators.
- Social Security & Medicare (FICA): 7.65% withheld from your pay, plus 7.65% matched by the company.
- Hawaiʻi income tax: Based on your income bracket and the state withholding tables.
- Free Tools: Many online paycheck calculators (search “free paycheck calculator Hawaiʻi”) will do the math for you.
I personally use ChatGPT to run my numbers, but once you’ve figured it out once, you can reuse the same calculations each month.
Step 4: Make the Payments
After you “pay” yourself each month:
- Transfer the net paycheck to your personal account.
- Submit federal withholdings and employer FICA match via EFTPS.
- Pay Hawaiʻi withholding via Hawaiʻi Tax Online.
- Pay unemployment contributions through the Hawaiʻi UI portal.
Once you’ve logged in a couple of times, this whole process takes less than 10 minutes.
Step 5: File the Required Federal Forms
Here’s the one part you can’t do directly through IRS portals:
- Form 941 (quarterly payroll tax return)
- Form 940 (annual federal unemployment return)
I use Taxbandits online filing service that charges just $5.95 per form—a huge savings compared to QuickBooks or ADP. Many payroll companies pull out the taxes from your business account the moment you cut a paycheck. But here’s the catch—they don’t actually pay the IRS or the State of Hawaiʻi until the due date, which could be weeks or even months later. In the meantime, they’re earning free interest on your money. Doing it yourself means you keep control of those funds until the actual payment date.
Other Filing Requirements
- Paystubs: Even if you’re paying yourself, you should generate paystubs. Free templates are available online.
- W-2s: At the end of the year, you must issue yourself a W-2. Again, free templates exist, and the cost is basically zero if you do it yourself.
Lessons Learned
- The first month takes the longest. Once you’ve set it up and run through the process once, everything after that feels like rinse and repeat.
- Regaining control was worth it. For years, I let payroll companies handle things behind the curtain. Doing it myself gave me full visibility into how my taxes are calculated and where the money is going.
- I stopped giving payroll companies free interest. Most big providers withdraw taxes as soon as you run payroll but don’t pay them until the deadline. That means they sit on your money and earn interest while you lose access to it. By handling payments myself, I hold onto my funds until the true due date.
- Unauthorized withdrawals taught me a lesson. My Wave experience proved that “cheap” isn’t the same as “trustworthy.” By taking back the process, I eliminated surprises and regained peace of mind.
- The savings add up fast. Instead of paying hundreds of dollars a year for payroll software, I now spend just a few dollars a quarter on required filings. That’s money back in my pocket.
- Simplicity beats complexity. Payroll providers often make things look harder than they really are. Once you understand the steps, it’s just a repeatable monthly routine that takes me about 10 minutes.
Tools & Links
Here are the resources I use and recommend:
| What it’s for | Link |
|---|---|
| Federal tax payments (withholding & employer FICA) | EFTPS – Federal Payment Portal |
| Hawaiʻi state tax withholding & GET | Hawaiʻi Tax Online |
| Hawaiʻi unemployment contributions | Hawaiʻi Unemployment Insurance Portal |
| Estimate federal income tax withholding | IRS Tax Withholding Estimator |
| 941/940 Filing | Taxbandits.com |
| Hawaiʻi withholding tables & forms | Hawaiʻi DOTAX Forms |
| Free paystub generator template | Vertex42 Pay Stub Template |
| Year-end W-2 form | IRS Form W-2 |
Final Thoughts
Running payroll yourself in Hawaiʻi isn’t just possible—it’s practical. If you’re a small company with one owner-employee, you don’t need expensive software or big payroll providers. All you need are the state and federal portals, a simple calculation method, and a low-cost filing service for 941s and 940s.
Once you set it up, you’ll save hundreds of dollars each year and gain full control over your business finances.
Disclaimer: This post is based on my personal experience as a small business owner in Hawaiʻi. I am not a tax advisor or accountant. Rules can change, and every business situation is unique. Please consult with a qualified professional or the IRS/Hawaiʻi Department of Taxation for official guidance before making payroll or tax decisions.
