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Commuter Benefits Drive Savings for Employers and Employees

Pretax transportation benefits can save commuters up to $1,000 annually and employers up to $230 per employee per year in payroll taxes. Such benefits rank fourth among benefits offered by companies.

December 2, 2011
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Related Topics: Top Stories - Frontpage, Benefit Design and Communication, Health and Wellness, HR & Business Administration, Benefits
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Each weekday morning Julieta Garcia leaves her home in the New York borough of Queens for her job at the Brooklyn Museum.

Garcia takes a bus to the subway, arrives in Brooklyn and makes a short walk to her job as the museum's benefits officer. She pays the bus and subway fares using a prepaid credit card she funds through pretax payroll deductions from her paycheck.

Garcia is like an estimated 2.7 million U.S. commuters who take advantage of an employer benefit that allows them to pay for their commute with pretax dollars.

More than 150 of the 515 museum employees take advantage of the benefit, which also includes prepaid cards to use for parking fees, Garcia says.

Because public-transportation offers a practical alternative to high gas prices and high urban-parking rates, organizations are finding that workers appreciate pretax transit cards and see them as a valuable benefit.

The cards can translate to potentially big savings for the organization and employee. Pre-tax transit benefits can save commuters up to $1,200 annually and offers employers savings of $230 per employee per year in payroll taxes, says TransitCenter, a New York-based nonprofit organization founded in the early 1980s dedicated to promoting public transportation,. TransitCenter's 2010 Commuter Benefit Impact Survey showed that commuter benefits rank fourth among major benefits offered by companies.

"We've offered commuter benefits for a few years now and started using the premium program through TransitCenter this past April," Garcia says. "Participants receive one card that is replenished monthly, which alleviates a lot of administrative work for us."

If participants lose their cards, they contact the program's administrator TransitCenter for a replacement, she says.

The proportion of companies offering a tax-free transit benefit increased by 3 percentage points nationwide in 2010 compared with 2009, TransitCenter's 2010 Commuter Benefit Impact Survey shows.

Qualified transportation fringe benefits—Section 132(f) of the Internal

Revenue Code commonly known as commuter benefits—allows employees to use up to $230 a month in pretax dollars for transit and vanpools and $230 more for parking benefits in 2011.

"Commuter benefits can be offered as a fringe benefit to reward desired behaviors. However, most companies offer it as a pretax benefit," says Dan Neuburger, president and CEO of TransitCenter.

Like most third-party administrators, including WageWorks and ADP, TransitCenter helps human resources professionals manage the program. Member companies upload eligibility files, employees enroll online, payroll deductions are taken and prepaid credit cards are issued directly to the employee.

"This program benefits everyone, because workers save on commuting costs, and the employer is able to offer a useful benefit to employees while saving on payroll taxes," Neuburger says. "Nationwide, these programs save $300 million in payroll taxes annually."

One TransitCenter client is a national law firm that offers the benefit as a compensation-package sweetener for workers in large cities with high commuting costs, Neuburger says. Another client recently used it to "soften the blow" of a corporate move to another location. And several others offer the benefit (in the form of a prepaid card to be used for transportation) as a contest reward to employees who met certain organizational goals—project completion or showing up for shift work on time.

"Issuing a transit card to reward an employee for not taking any unscheduled paid time off is a good example of how an employer might use this as a fringe benefit or a reward," Neuburger says.

He points out that retail and hospitality businesses that hire large numbers of low-wage earners on a seasonal basis can issue prepaid transit cards as an upfront incentive to get the new employees, who may not be paid for a week or more, to get to work in the first few days.

"Many of those employees don't have a lot of money, so initially transportation might be an issue for them, and this is a way to resolve that problem."

When commuter benefits emerged 30 years ago, the intent was to reduce the number of solo drivers on the road, the 2010 Commuter Benefit Impact Survey says. In the cities studied, companies that offer tax-free commuter benefits have more than twice as many nonsingle-occupancy-vehicle commuters as companies that do not offer the benefit—an indication that these benefits are achieving their objective.

The survey also reports that three-quarters of all companies believe they should support the use of public transportation in their communities. Easing employees' commute costs is cited as a key factor, although employers say it enhances their overall benefits packages.

The Brooklyn Museum's Garcia considers the program a vital employee benefit.

"The only real challenge is convincing some employees that this is a great benefit," she says. "You have one card that works for all mass transportation; you don't have to worry about buying one the next month and you save on taxes. Once employees try it, they love it."

To access more industry research and news on transit and commuter benefits, and to learn more about how tax-free commuter benefits help employers and employees, go to: transitcenter.com.

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