Eddy’s HR Mavericks Encyclopedia
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Commuter Benefits
We all recognize how much benefits impact our efforts to recruit, hire and retain top talent. Here's one benefit you may not have considered: helping employees with commuting costs.
What Are Commuter Benefits?
Commuter benefits allow employees to deduct money for commuting and parking needs from their paycheck before taxes and place funds in a specified account. Eligible expenses include public transportation such as ferries, trains, subways and buses, and parking meters, lots and garages. Contribution rules allow them to lower their taxable income by electing funds to be set aside for this purpose, paying less tax on salary.
Should Companies Offer Commuter Benefits?
A company should consider their workforce before offering this type of benefit. Employees located in the middle of metropolitan areas with many train and bus stops would benefit from this more than suburban or rural employees. Here are some basics pros and cons.
Pros of Offering Commuter Benefits
- Employees can save up to 30% on eligible expenses. Saving your employees money on each paycheck is a strong way to recruit and retain talent. If you have employees who consistently pay for transit fares, these savings can help them arrive to work with less financial stress.
- Employers can contribute to these accounts for employees. Like other saving account plans such as HSAs or 401(k)s, employers can contribute to this account. Contribution options include a percent match of what the employee sets aside or a monthly allocation deposited automatically. If funds are not used, they are returned back to the employer.
- Promoting use of public transit can benefit a company’s sustainability plan. The Department of Transit reported that private autos use 0.96 pounds of CO2 per passenger mile while bus transit uses 0.64 pounds and commuter rail uses 0.22 pounds. Forbes stated, “Sustainability is no longer a nice-to-have option when running a business. Rather, it’s becoming an essential corporate responsibility and smart business in its own right.” When employers offer this type of benefit, commuting employees lower their carbon footprint and aid sustainability efforts.
Cons of Offering Commuter Benefits
- Most commuting employees like the convenience of their private auto, which is a non-eligible expense. Some employees may calculate the extra time needed to use transit to get to work on time and conclude it takes too long. When learning about the commuter benefit plan, many employees will ask, “Does this cover gas?” The short answer is no.
- Use it or lose it: monthly limits. Unlike other pre-tax saving accounts, commuter benefits do not roll over year to year. Per IRS regulations, any unused funds left over at the end of the plan year are returned to the employer. If employees do not properly contribute or use their funds, they could become frustrated or even angry if they are unable to use the funds they set aside. Additionally, the monthly limit for contributions is $280.
- Commuting options may not be available to all employees. If an employer decides to contribute funds to employee accounts, those who are unable to use transit may view it negatively. This could arise especially during salary negotiations at the start or throughout employment. For example, if Employee A is getting $100 per month for commuting from the company, Employee B may view it as $1,200 they are not getting and want that amount added to their compensation.
Types of Commuter Benefits
There are several options for employees to access commuter accounts.
- Transit buses.Think of your typical public bus and bus stops that require a one-way, round trip, or day pass.
- Commuter rail, trains and subways. Any type of transportation that operates on rail. Often this is used for longer commutes or in densely populated areas.
- Qualified ride sharing. Careful attention should be given to the requirements of ride sharing as outlined by the IRS. Eligible vehicles are any highway vehicle that seats at least six adults (not including the driver).
- Parking expenses. This includes using on-street meters like those found in downtown city settings. If a company is close to a parking garage or lot, this is also eligible.
Tips for Companies Offering Commuter Benefits
If you are considering offering this benefit, follow these tips.
Tip 1: Try It Out and Promote the Plan
An employer can either work through their current broker or find a new TPA (third-party administrator) to implement commuter benefits. It never hurts to sign up for one year to see the response of your employees. Don’t just create the plan and let it idly operate throughout the year; make it a part of your onboarding presentation and tell your current employees how it can help them.
Tip 2: Remember That Employers Save Money Too
When employees elect to set aside money before taxes are paid, employers also save money. When an employee lowers taxable income, employers pay a lower amount of tax too. For example, having to pay 7.65% on a paycheck of $800 is less than on a paycheck of $1,000. Savings across many employees could be substantial.
Tip 3: Consider All the Benefits
Benefits to offering this plan are not strictly monetary. Having employees use public transport lowers the company’s carbon footprint and adds to sustainability efforts. While some employees are not open to driving 45 minutes from their house to work, they may be more open to riding a train for a similar amount of time, leading to attracting and retaining more talent.
Topics
Austin Morgan
Austin became the HR Manager at Nursa in 2022 where he is building a HR department in the company's second year of operation. Before that he worked as an HR Director at Discovery Connections and an Account Manager for a Section 125 benefits and COBRA administrator. He graduated from Brigham Young University with a Bachelor of Science (BS) in Exercise Science in 2019 and from Southern Utah University with a Masters of Business Administration (MBA) with an emphasis in Organizational Leadership in 2021. At the end of 2021, he became certified with SHRM-CP. Originally from Oklahoma, Austin enjoys trying new foods in new places he travels to, watching college football, and snowboarding at the local resorts in Utah. He has been married to his wife since 2019 and owns a cockapoo named Hershey.
Frequently asked questions
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Eddy’s HR Mavericks Encyclopedia
Commuter Benefits
We all recognize how much benefits impact our efforts to recruit, hire and retain top talent. Here's one benefit you may not have considered: helping employees with commuting costs.
What Are Commuter Benefits?
Commuter benefits allow employees to deduct money for commuting and parking needs from their paycheck before taxes and place funds in a specified account. Eligible expenses include public transportation such as ferries, trains, subways and buses, and parking meters, lots and garages. Contribution rules allow them to lower their taxable income by electing funds to be set aside for this purpose, paying less tax on salary.
Should Companies Offer Commuter Benefits?
A company should consider their workforce before offering this type of benefit. Employees located in the middle of metropolitan areas with many train and bus stops would benefit from this more than suburban or rural employees. Here are some basics pros and cons.
Pros of Offering Commuter Benefits
- Employees can save up to 30% on eligible expenses. Saving your employees money on each paycheck is a strong way to recruit and retain talent. If you have employees who consistently pay for transit fares, these savings can help them arrive to work with less financial stress.
- Employers can contribute to these accounts for employees. Like other saving account plans such as HSAs or 401(k)s, employers can contribute to this account. Contribution options include a percent match of what the employee sets aside or a monthly allocation deposited automatically. If funds are not used, they are returned back to the employer.
- Promoting use of public transit can benefit a company’s sustainability plan. The Department of Transit reported that private autos use 0.96 pounds of CO2 per passenger mile while bus transit uses 0.64 pounds and commuter rail uses 0.22 pounds. Forbes stated, “Sustainability is no longer a nice-to-have option when running a business. Rather, it’s becoming an essential corporate responsibility and smart business in its own right.” When employers offer this type of benefit, commuting employees lower their carbon footprint and aid sustainability efforts.
Cons of Offering Commuter Benefits
- Most commuting employees like the convenience of their private auto, which is a non-eligible expense. Some employees may calculate the extra time needed to use transit to get to work on time and conclude it takes too long. When learning about the commuter benefit plan, many employees will ask, “Does this cover gas?” The short answer is no.
- Use it or lose it: monthly limits. Unlike other pre-tax saving accounts, commuter benefits do not roll over year to year. Per IRS regulations, any unused funds left over at the end of the plan year are returned to the employer. If employees do not properly contribute or use their funds, they could become frustrated or even angry if they are unable to use the funds they set aside. Additionally, the monthly limit for contributions is $280.
- Commuting options may not be available to all employees. If an employer decides to contribute funds to employee accounts, those who are unable to use transit may view it negatively. This could arise especially during salary negotiations at the start or throughout employment. For example, if Employee A is getting $100 per month for commuting from the company, Employee B may view it as $1,200 they are not getting and want that amount added to their compensation.
Types of Commuter Benefits
There are several options for employees to access commuter accounts.
- Transit buses.Think of your typical public bus and bus stops that require a one-way, round trip, or day pass.
- Commuter rail, trains and subways. Any type of transportation that operates on rail. Often this is used for longer commutes or in densely populated areas.
- Qualified ride sharing. Careful attention should be given to the requirements of ride sharing as outlined by the IRS. Eligible vehicles are any highway vehicle that seats at least six adults (not including the driver).
- Parking expenses. This includes using on-street meters like those found in downtown city settings. If a company is close to a parking garage or lot, this is also eligible.
Tips for Companies Offering Commuter Benefits
If you are considering offering this benefit, follow these tips.
Tip 1: Try It Out and Promote the Plan
An employer can either work through their current broker or find a new TPA (third-party administrator) to implement commuter benefits. It never hurts to sign up for one year to see the response of your employees. Don’t just create the plan and let it idly operate throughout the year; make it a part of your onboarding presentation and tell your current employees how it can help them.
Tip 2: Remember That Employers Save Money Too
When employees elect to set aside money before taxes are paid, employers also save money. When an employee lowers taxable income, employers pay a lower amount of tax too. For example, having to pay 7.65% on a paycheck of $800 is less than on a paycheck of $1,000. Savings across many employees could be substantial.
Tip 3: Consider All the Benefits
Benefits to offering this plan are not strictly monetary. Having employees use public transport lowers the company’s carbon footprint and adds to sustainability efforts. While some employees are not open to driving 45 minutes from their house to work, they may be more open to riding a train for a similar amount of time, leading to attracting and retaining more talent.
Topics
Austin Morgan
Austin became the HR Manager at Nursa in 2022 where he is building a HR department in the company's second year of operation. Before that he worked as an HR Director at Discovery Connections and an Account Manager for a Section 125 benefits and COBRA administrator. He graduated from Brigham Young University with a Bachelor of Science (BS) in Exercise Science in 2019 and from Southern Utah University with a Masters of Business Administration (MBA) with an emphasis in Organizational Leadership in 2021. At the end of 2021, he became certified with SHRM-CP. Originally from Oklahoma, Austin enjoys trying new foods in new places he travels to, watching college football, and snowboarding at the local resorts in Utah. He has been married to his wife since 2019 and owns a cockapoo named Hershey.
Frequently asked questions
Other Related Terms
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