Pacific Ohana Hostel Corp., which operates two Oahu hostels, has agreed to pay $125,000 in back wages and damages to 86 employees following an investigation by the Wage and Hour Division of the U.S. Department of Labor.

Investigators found that the company, which operates Pacific Ohana Hostel on Lemon Road in Waikiki, Island Hostel near Ala Moana Center and Adventures on 2 Wheels, predominantly compensated workers with free lodging in exchange for labor. While Hawaii employers may take a credit for providing lodging, they may not profit from taking that credit and must maintain records showing how they calculated the costs. Investigators determined the value of the lodging was insufficient to equate to the minimum wage rate of $7.25 per hour.

"An employer must clearly document the actual cost incurred to the business for providing lodging in lieu of cash wages to its workers," said Terence Trotter, Hawaii district director. "The lodging must also be compliant with federal and state housing occupancy standards."

Investigators determined that employees were owed back wages from Jan. 1, 2011, to Sept. 30, 2012, that ranged from $37.70 to $4,816.70. With interest and damages, total individual compensation ranged from $75.43 to $9,637.25.

The company, which is owned by Kim Voight, agreed to deliver a first installment of $31,262.46 to the state by Friday. It will make 11 more monthly payments of $8,526.14. It also agreed that if it employs workers and pays them less than the minimum wage because of a lodging credit, it would post statements showing how it calculated the lodging credits on Jan. 1, March 1, June 1 and Oct. 1.

Voight did not return calls to the Honolulu Star-Advertiser concerning the investigator’s findings at the Pacific Ohana Hostel.

The hostel has inexpensive single and shared dormitory-style rooms.

Kathryn Xian, executive director of the Pacific Alliance to Stop Slavery, commended investigators for bringing justice to hostel employees and said that she hopes the city prosecutor’s office will use the groundwork that they laid to bring criminal charges against the company.

"The whole issue with bartering and trade is highly suspect. You can’t have a standard to ensure fair economic justice," said Xian, who is a candidate for Congress.

"In a case like this, workers are trapped. It’s either work there or become homeless, so they take what’s handed to them. Most don’t have any access to justice."

The prosecutor’s office was not available to comment.

No plaintiffs could be reached in the case.

The hostels drew neighborhood ire in 2006 when a group of Waikiki businesses and residents appealed to the Honolulu mayor and City Council to block the proliferation of hostels on Lemon Road. Members of the Waikiki Area Residents Association complained about added noise, public intoxication and urination.

Waikiki Neighborhood Board Member Louis Erteschik said complaints have died down.

"But I can’t say from that that I have evidence or reason to think that it’s improved as much as that the people who were complaining have just moved away. I don’t doubt that it might be an issue. I’ve got no reason to think that things have necessarily gotten any better," Erteschik said. "If this is what they are doing, it might tend to show the kind of shoddy operation that these guys run. … It’s pretty weird."

While hostels should be regulated, they have a vital role to play in Hawaii’s visitor industry because they provide lower-price community-oriented options for visitors, said Joe Toy, president and chief executive officer of Hospitality Advisors LLC.

"Hostels are great for young travelers who go from destination to destination on a budget. I’ve even stayed in vacation rentals-by-owner units myself," Toy said. "However, travelers need to use due diligence because there often are fewer quality controls. The Internet and word of mouth are great screening tools."