Commuter Benefits: Paving the Way to Savings

Why now is the perfect time to navigate the RTO transition with commuter benefits

Commuter benefits can put your organization on the fast track to workplace well-being. Regardless of whether you provide this benefit as a state or regional requirement, or if a commuter spending account is offered as an additional benefit, it’s a two-way street that ends up being good for employees and for you.

The cost of commuting

In a recent study by Owl Labs, the costs of an average commute amount to an average of $14 per day for the commute itself, and $8 for parking. So, if we calculate the cost of commuting based on an employee who makes $60,000 per year for instance, that’s less than 10% of that person’s salary.

As of 2022, nearly 85% of Americans commute to work at least on a hybrid schedule according to AP, and that number is only expected to increase as RTO and businesses continue to operate at pre-pandemic levels.

All aboard the commuter benefits train

When employers offer commuter spending accounts, employees can deduct chosen amounts from their paychecks on a pre-tax basis. With card technology like tap-to-pay. commuter benefits have never been easier to manage. Especially administrators that offer “all-in-one” cards that allow employees to use all their spending accounts (HSA, FSA, Commuter FSA) with one card, where they can pay for transportation passes on their transit app or at the station, and only have just one card to keep track of.

Transit funds can be set aside in commuter spending account like a transit or commuter flexible spending account for pre-tax spending on expenses like bus, subway, train, trolley, ferry and light rail passes, as well as verified carpooling programs, such as a metro vanpool, and ridesharing programs like UberPool. Parking funds may be used to pay for work-related parking expenses, such as parking garages/lots, meters and parking expenses incurred near a transit station. The IRS has set the 2024 monthly contribution limits for qualified transportation and parking benefits to $315 per month, an increase of $15 from the limit for 2023.

Based on a $300/month transit account contribution, the estimated savings for an employee that makes $60,000 annually with commuter benefits can be as much as $1,584 per year, just for setting aside that pre-tax money for transit expenses.

Not to mention, people’s individual carbon footprint is drastically reduced by taking public transit or rideshare. Potentially saving the globe in greenhouse gas emissions.

A list of all known commuter benefits-required locations

More and more area governments are requiring this benefit offering. But it gets tricky based on location. This isn’t legal advice, so you should check for updates with your legal team, but generally speaking, if you have workers that are employed in any of the following cities or regions, you must provide them with commuter benefits if they commute for work. More specifically, check out the list below for ordinances that may impact you:

Berkeley, CA

All employers in Berkeley with 10 or more employees (full-time, part-time, or temporary–anyone who works an average of 10 hours per week or more in Berkeley) must offer one or more of the following options:

• Pre-tax Transit/Vanpool: Employer provides a payroll deduction program under existing Federal Tax Law 132(f).
• Employer Paid Transit/Vanpool/Bicycle Benefits: Employer pays for employee’s transit, vanpool or bicycle commute expenses.
• Employer-Provided Transit: Employer offers workers free shuttle service on a company-funded vehicle between home and workplace.

Illinois

Starting 1/1/2024: employers are covered by the law in if they employ at least 50 workers within one mile of fixed-route transit in Cook County, Illinois or in one of the other 37 townships listed in the law. Covered employers must provide a commuter benefit to all full-time employees, beginning on with the first full pay period after 120 days of employment. “Full-time” means working at least thirty-five hours per week and receiving compensation on a full-time basis. 

Los Angeles, CA

Employers with 50 or more employees working in Los Angeles must offer commuter benefits.  

New Jersey 

The state of New Jersey, excluding tax-exempt organizations, requires all other employers with 20 or employees. Eligible employees must work an average of 10 hours or more per week. Employees do not have to be residents of New Jersey to qualify for the benefit, they only have to work in the state. 

New York City, NY

If you have 20 or more full-time employees working in NYC, located in any of the five boroughs (Manhattan, Brooklyn, the Bronx, Queens, and Staten Island), you’re required to offer commuter benefits. NYC employers DO NOT have to offer Parking Benefits. The law defines a full-time employee as someone who works on average 30 hours or more per week for an employer. If employees are commuting from the suburbs to an office in one of the five boroughs are eligible for the benefit.

Philadelphia, PA

If you have 50 or more employees working in the city of Philadelphia, you must offer commuter benefits. This rule defines an employee as someone employed for at least a year and works a minimum of 30 hours a week. This rule does not apply for government employees, unpaid interns, volunteers, or unpaid apprentices. Employers can set up a mass transit plan or give them a fare card that’s worth at least $300, tax-free. This also includes reimbursement of up to $20 a month for bicycle expenses, and/or up to $300 of their pre-tax wages to pay for SEPTA rides.

Richmond, CA

All registered businesses in Richmond that have ten (10) or more employees who work an average of at least ten (10) hours per week to offer one of the following: 

• Option 1: A Pre-Tax Election: A program, consistent with Internal Revenue Code 132(f), allowing employees to elect to exclude from taxable wages and compensation. 
• Option 2: Employer Paid Benefit: A program whereby the employer supplies a transit pass or reimbursement for equivalent vanpool charges at least equal in value to the purchase price of the adult monthly transit pass for the local transit agency system(s) requested by each employee to complete the trip to the workplace. 
• Option 3: Employer-Provided Transit: Transportation furnished by the employer at no cost to the employee in a vanpool, bus or similar multi-passenger vehicle operated by or for the employer. 

San Francisco Bay Area, CA

Bay Area Commuter Benefits Program requires employers (private, public or non-profit entity) with 50 or more full-time employees in one of the nine-county San Francisco Bay Area to offer commuter benefits to their employees. A “full-time employee” is defined as an employee who normally works at least 30 hours per week.

• Option 1: Pre-Tax Benefit: The employer allows employees to exclude their transit or vanpool costs from taxable income to the maximum extent permitted by federal.
• Option 2: Employer-provided Subsidy: The employer provides a transit or vanpool subsidy to cover or reduce the employee’s monthly transit or vanpool costs. The amount provided is to cover the total cost of the commute up to an inflation-adjusted maximum.
• Option 3: Employer-provided Transit: The employer provides a free or low-cost bus, shuttle, or vanpool service for employees.

Seattle, WA 

Employers with 20 or more employees working in the city of Seattle, you have to offer commuter benefits to those who work at least 10 hours per week, excluding tax-exempt organizations. Employees do not have to be residents of the city of Seattle to qualify for the benefit, they only must work within the city.

Washington, DC 

Employers with 20 or more employees working in Washington, DC must offer commuter benefits to those who work at least 20 hours per week. This includes nonprofit organizations. Employers have three options of how they can offer a Transit Benefit Program:

• Employee-paid pre-tax benefit: Allow employees to set aside income on a pre-tax basis to cover the cost of commuting by mass transit or vanpools, up to the IRS pre-tax maximum a month.
• Employer-paid direct benefit: Offer a tax-free subsidy for transit up to IRS pre-tax maximum per month and for bicycling up to $20 per month.
• Employer-provided transportation: Provide shuttle or vanpool service at no cost to employees.