insight
Commuter benefits
High gas prices pinch everyone’s wallet, especially employees driving to and from work each day. Those who use mass transit may not feel the pain as much, but they still have fares that add up over time. Employers can help alleviate some of their employees’ financial stress and attract and retain talent by sponsoring commuter benefits. Depending on location, compliance may also be at stake. Several cities have ordinances requiring businesses to provide commuter assistance programs.
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What are commuter benefits?
A workplace commuter benefits program helps employees reduce expenses associated with qualified parking, transit passes and rides in commuter highway vehicles. These benefits are tax-free up to a monthly limit imposed by the IRS. Employers may fund the plan entirely or require participating employees to contribute via payroll deductions.
How do commuter benefits work?
Employees enrolled in commuter assistance programs commonly elect to have pretax dollars withheld from their earned wages to cover their qualified transportation expenses. The total amount withheld cannot exceed the monthly limit in order to remain tax-free. If workplace commute expenses are greater than this limit, employees may contribute the portion in excess on a post-tax basis.
Why should employers offer commuter benefits?
Sponsoring a commuter assistance program can be advantageous for businesses and their employees in the following ways:
- Commuter benefits may incentivize candidates who are hesitant to accept a job offer because of transportation costs.
- Expanding an existing benefits package with commuter assistance can help boost workforce morale and retain employees.
- Workers can contribute to the commuter plan tax-free as long as they don’t exceed the monthly limit.
- Benefits are typically low-cost to administer or outsource and easy for employees to use.
- Programs work well in large cities with plenty of public transportation and in smaller areas where commutes can be extremely long.
Disadvantages of commuter assistance
Despite the advantages of commuter benefits, there are some drawbacks, including:
- In-house programs create additional administrative duties for payroll professionals.
- Third-party service providers have a monthly fee that can be overwhelming for some small businesses and those with low employee participation in the program.
- Employers must comply with tax regulations regarding statutory limits, plan design, eligibility to sponsor and participate, and more.
Commuter benefits examples
Pretax workplace commuter benefits cover the expense of qualified parking, transit and vanpool services. Here’s a closer look at each:
- Qualified parking expenses include the cost of parking at or near the place of work, and at or near the mass transit provider that employees use to commute to work.
- Transit expenses include buses, trains, subways, ferries and streetcars.
- Vanpooling is transportation between the employee’s residence and place of employment in a commuter highway vehicle that seats at least seven adults, including the driver.
How to create a commuter benefit program
- Conduct a survey asking employees how they get to work, how they would prefer to get to work and how much they typically spend on commuting.
- Determine which commuter benefits will be offered, how employees can access them and the amount each participant is eligible to receive each month.
- Promote the program to employees via a company-wide newsletter or intranet site.
- Hold open enrollment so employees can sign up for commuter benefits.
In-house administration vs. outsourcing
Employers can administer commuter benefits themselves, though it will increase workloads for their HR and payroll professionals. The alternative is to outsource the program to a third-party provider, who will handle employee enrollment and other administrative tasks on the employer’s behalf. Vendors usually charge a monthly fee per employee enrolled in the program.
Are businesses required to offer commuter benefits to employees?
The following states and cities have enacted ordinances requiring employers to offer pretax commuter benefits to their employees:
- New Jersey
- New York City
- Seattle
- Washington, DC
- San Francisco
- Berkeley and Richmond, CA
- Los Angeles
- Philadelphia
- Chicago
The specific requirements in each of these locations can vary significantly. For instance, some commuter ordinances apply only to businesses of a certain size. Collaboration with legal and tax professionals may be necessary for employers to understand their obligations and create compliant commuter benefit programs.
Frequently asked questions about employee commuter benefits
Can commuter benefit solutions be used for rideshare services?
Rideshare services may be covered under a commuter benefit plan if it’s considered vanpooling. In other words, the rideshare vehicle must sit at least seven people, including the driver, and be used to transport the customer to and from work.
Do commuter benefits rollover or expire?
Unused funds from a commuter benefits plan may be carried over to the next month and generally do not expire. However, employees who are terminated or resign from the company forfeit the remaining balances in their accounts after a run-out period.
Do commuter benefits cover gas?
Employer-sponsored transportation benefits cover commuter highway vehicles that seat six adults, plus the driver. However, the cost of gas is usually not included.
What are commuter benefits requirements for states and cities?
In some cities, including New York and Philadelphia, employers may be required to sponsor commuter benefits for their employees. These ordinances vary by city and may apply to businesses based on their size. Employers should consult legal counsel or city officials for specific information.
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This article is intended to be used as a starting point in analyzing commuter benefits and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
Thank you to ADP Marketplace partner BRI: an Inspira Financial Solution for expertise and input on this resource.
About BRI: an Inspira Financial Solution
Benefit Resource (BRI) is a part of Inspira Financial, a trusted provider of health, wealth, retirement, and benefits solutions. For more information, visit BRI: an Inspira Financial Solution on ADP Marketplace.
