Setting up a pre-tax commuter benefits program


What does my employer will need to do to allow me to use my pre-tax dollars to cover my transit or vanpool fare?

From the Best Workplaces for Commuters’ Brief on Commuter Benefits 2012:

8 Steps to Setting out a Commuter Benefit Program as a Pre-tax Payroll Reduction

There are many benefits to employer commuter benefit programs, including providing tax savings to the employer and employee, supporting corporate sustainability efforts, reducing on-site traffic congestion managing parking demand, and improving employee recruitment and retention efforts. In addition, if an employer is in the process of relocating, it can decrease employee turnover. In some areas, there are local requirements to have a program in place.

The following are steps employers can require to start a commuter benefit program that consists of pre-tax payroll deductions:

1. Find out if the commuter benefit program will be staffed completely in-house or contracted to a commuter benefit provider or third-party benefit administrator.

a. In-house staffing may make the most sense for small employers, employers with a single location, employers serviced by one transit provider, and/or when very low employee cooperation in the program is expected. Reach out to the local transit agency for assistance on acquiring the transit passes. If you are administering the program in-house, determine how to handle a wide range of tasks, from how to enroll employees to how to acquire fare media to how these passes/ tokens/vouchers will be distributed.

b. A benefit provider is likely to provide more options and economies of scale. There are two general types of benefit providers: (1) commuter benefit provider that provides these benefits only and (2) third-party benefits administrators that provide flexible spending accounts and other benefits as well as commuter benefits.

There are benefit provider companies that offer bulk purchasing of debit cards or vouchers, or there are companies that offer online ordering platforms where employees manage their own accounts and employers receive a monthly payroll file of their activity. Some providers require an agreement, while others do not. Most vendors with an online ordering platform require that employers set up an Automated Clearinghouse (ACH) transfer for payment, while bulk providers allow for check payment. Online programs generally offer options including debit cards (personalized and anonymous) fare media such as monthly passes, vouchers, smart card-loading, and direct payment to vanpools. Employer savings in payroll taxes may offset the benefit providers’ costs.

2. Determine appropriate managers and key departments to be involved. Usually this includes human resources/benefits; commute, tax/legal, and payroll/accounting alternatives program representation.

Hold a group meeting with them to discuss the program and work out program logistics. Request that the transit agency (if staffing effort internally) or the benefit provider give a presentation on the process.

3. Decide on what commuter benefits will be granted by the employer and to whom.
a. An employer may:
— Subsidize parking costs
— Subsidize transit fares
— Subsidize commuter highway vehicle (e.g., vanpool) fares
— Reimburse eligible bicycle commuting expenses
b. With employer approval, an employee may choose to:
— Use his or her pre-tax income for parking costs
— Use his or her pre-tax income for transit fares
— Use his or her pre-tax income for vanpool fares
c. The employer and employee may choose to combine the transit, parking, and commuter highway vehicle benefits up to the tax free limit.
d. The commuter benefit as provided by an employer subsidy can apply to employees in a single location or at several locations and at varying amounts based on location.
— Same dollar level for all locations (e.g., $125 for transit in New York and $125 for transit in Atlanta).
— Different dollar levels for each location (e.g., $125 for transit in New York but $50 for transit in Tampa).
— Same percentage (e.g., 50% of monthly transit pass) for all locations.
— The commuter benefit may apply to all employees or subsets of employees (e.g., only employees who work in specific locations or only employees with specific job functions (e.g., hard to recruit positions).

4. Establish a deduction code for the benefit; consult with your accounting department and/or payroll services if employees are using pre-tax income. , if a program with an online ordering platform is used, the service will also likely generate a payroll file. Ask the transit benefit provider representative for a sample to give the payroll department an idea of what to expect.

5. If a bulk purchasing option is used:
a. Create and distribute a program information and survey form that explains the program, gives the employee the instructions to sign up, allows them to choose how much they want to deduct from their salary, and indicates which option your bulk benefit provider offers (usually debit vouchers or cards).
b. Distribute the benefit to the employees.

An assigned staff person can distribute the debit cards or vouchers or the fare media can be attached to employees’ paychecks. It is best not to distribute them because vouchers and debit cards are like cash through open in-house mailboxes.

6. Send out an email instructing employees how to set up an account and place their order if a company that offers an online ordering platform is selected. If they want to make changes to their participation, most programs have an option to make orders recurring so employees have to visit the site again only.

7. Update the company personnel policy handbook to include a description of the program and the company’s participation in it. Be sure to include information related to how to participate and enroll and any other guidelines particular to your company.

8. Market the commuter benefit program to employees through new employee orientations, intranet, benefits fairs, special events such as BWC’s Race to Excellence, periodic communications via newsletters/emails, and mailings to employee homes.

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