Taking a New Route
After California recently enacted a law mandating that larger employers in San Francisco offer commuter benefits, legal experts say other metro areas may not be far behind.
By Kecia Bal
The Commuter Benefits Program, which was recently signed into law by California Governor Jerry Brown, requires employers with 50 or more full-time employees within the jurisdiction of the Bay Area Air Quality Management District in San Francisco to choose among four commuter-benefit options.
But while these employers must have their options in place by Sept. 30, the program does not require employees to take advantage of the benefits, says Tom Flannigan, the district's public information officer.
"The program has been designed to provide flexibility for employers and to minimize administrative and reporting requirements," says Flannigan. "The program simply requires employers to make commuter benefits available. Employers are not required to achieve any performance standard or target, nor are any employees required to change commute mode."
The program, to be offered to employees who work at least 20 hours per week and implemented by the district and the Metropolitan Transportation Commission, gives employers the following options:
· Pre-tax benefit: Employer allows employees to exclude their transit or vanpool costs from taxable income, to the maximum extent permitted by federal law.
· Employer-provided subsidy: Employer provides a transit or vanpool subsidy to cover or reduce an employee’s monthly transit or vanpool costs, to a maximum of $75 per month.
· Employer-provided transit: Employer provides a free or low-cost bus, shuttle or vanpool service.
· Alternative commuter benefit: Employer provides an alternative commuter benefit that is as effective as the other options in reducing single-occupant vehicle trips -- and/or vehicle emissions.
Flannigan says HR professionals also need to designate a commuter-benefits coordinator; submit an online registration form to the Air District/commission and update company registration information annually; notify employees of the commuter-benefit option and maintain records to document. Employers also may be asked to provide information requested for program evaluations, he says.
Of the options, the most complex may be the fourth, says Gina Roccanova, senior employment and labor attorney with San Francisco-based Coblentz Patch Duffy & Bass.
"I think the thorniest issue for HR leaders is going to be in the area of alternative-benefit plans," she says.
"You must show that your alternative will result in the same reduction in single-occupant vehicle trips as the first three, and you do have to go through a preapproval process, she says. "Because employers have six months to comply, if they are considering something other than those first three options, they should already be gathering the data they are going to need to support that option’s approval."
Options that already have been tested -- such as those used under existing commuter-benefit programs -- are safest, she says.
Other metro areas may follow suit, says Roccanova, especially in light of changes to federal law -- which took effect in January and reduced the amount of pretax benefits for parking or transit from $245 to $130 monthly.
"I think that the chances are pretty good, in part because many municipalities are in favor of increasing transit options and bettering air quality, especially [in] larger areas," she says. "Unfortunately, the federal government is going the opposite direction. [The pretax option decrease] might incentivize people to drive instead of take a bus. Since that time, there has been some discussion at the local level. It’s the local level that bears the brunt of this -- not just air quality but congestion, parking, all of these other things."
Many employers will likely choose the pretax option, says Cheryl Orr, a partner at the San Francisco office of Drinker Biddle & Reath.
For employers that do not already have commuter programs in place, there are a few considerations to account for when implementing these policies, she says.
"First, qualifying employers must decide which of these plans best suits their specific workplace," she says. "HR leaders may use the various benefits to attract new talent and please employees. Most employers prefer the pretax option because this program decreases the taxable earnings of employees and reduces the payroll taxes owed by employers.
"Alternatively, the employer-provided subsidy option estimates that employers would incur costs of $9,600 per year for every ten employees who receive a $75 monthly subsidy," she says. "However, employers do not pay payroll taxes on this subsidy. Though the subsidy is more costly to implement than the pretax option, some employers and HR leaders may prefer the subsidy because it provides a tax-efficient way to improve an employee’s compensation package."
Some Bay Area tech employers embrace the employer-provided transportation option and tout it as a tool to recruit top talent. This option can be very expensive, but employers can defray costs using the business expenses deduction for tax purposes, says Orr. Collaborating with other businesses can cut costs, and employees do not have to pay taxes on the value of employer-provided transportation, nor does the employer have to pay payroll taxes on the value of the benefit.
The employer-provided transportation option, though, presents at least one large legal concern for HR leaders, says Orr: When an employer furnishes employee transportation to and from work, injuries sustained by the employee during travel may be compensable due to worker's compensation laws.
"California authorities have held that employers who make a substantial payment for travel expenses to induce an employee to accept work at an extensive distance from his or her home has impliedly agreed that the employment 'relationship shall continue during the period of going and coming,' " says Orr.
Employers across the country already are considering commuter programs without legislative prompting, she says. Some Bay Area employers will not have to make any significant changes to comply.
"Many employers start commuter policies because they are environmentally friendly and provide tax benefits for both employers and employees," says Orr. "For metropolitan areas with traffic congestion and air pollution problems, such an ordinance would be a positive step toward alleviating these concerns.
"Furthermore," she says, "under pre-tax IRC Section 132(f) programs, employees reduce their taxable incomes through the contribution of pretax dollars. In turn, this election reduces the FICA tax assessments for both employees and employers. Thus, the business benefits of such a plan are clear."