Employee benefits are worth investing in at any point in your business growth. Offering employee benefits is a great way to attract and retain top talent, particularly for Millennials and younger workers.
When you invest in your employees’ physical and financial health and wellness, you build improved team morale and save on the costs — both in time and money — of employee turnover. According to Qualtrics, Millennials say they’ve had an average of 2.29 jobs over the past five years. That works out to a job switch every 26 months.
Learn which perks and benefits employees want the most.
Having a robust employee benefits package is a great step toward making sure those employees choose you. But don’t stop at health insurance and 401(k). There are many other benefits you can offer that go a long way for your team. Commuter benefits are a great example.
It’s important to know the difference between a perk and a benefit. Want to learn more about both? Download our free guide here.
What Are Commuter Benefits?
Commuter benefits are a feature that only employers can offer that allows an employee to opt to have pre-tax money withheld from their paychecks to cover the cost of commuting. For 2020, the federal government allows $270 per month to be withheld for commuting, and then an additional $270 a month for parking.
In previous years, employers were able to deduct the expenses for providing tax-free qualified commuter benefits. But with H.R. 1 (also called the Tax Cuts and Jobs Act) signed into law in December of 2017, this changed. Employers may still provide tax-free qualified transportation fringe benefits to employees for parking, transit, and commuter highway vehicles. However, you can only deduct the expenses of providing these benefits if you treat the transportation fringe benefits as taxable W-2 wages. Either your employees receive a tax break, or your company does.
We say, put the money in your employees’ pockets. Each perk and benefit you offer your team adds up to a package that can lead to better employee satisfaction.
So how much could you be saving your employees? Let’s say you have an employee in New York City who buys a $121 MetroCard every month. At the end of the year, that would cost them $1,452 just to commute to work. But if an employer offered commuter benefits, that same person could save approximately $36 a month, or $436 a year (assuming a 30% tax rate).
Commuter Benefits Laws and Requirements
As local governments realize how much money employees and employers can save using this sort of a program, they’re beginning to mandate that it be offered.
New York City has a law mandating that if an employer in the city has 20 or more full-time employees, it has to offer employees the opportunity to purchase pre-tax commuter benefits. This law went into effect on January 1, 2016.
Even before this, other cities were putting similar laws in to place. In October 2014, employers in nine different Bay Area counties were all mandated to offer transit benefits if they had 50 or more employees. In addition, businesses (including non-profits) with 20 or more employees based in the District of Columbia are also required to offer commuter benefits.
Many other localities have implemented mandates, and it’s likely that more will follow suit, too. Beyond the legalities, it’s simply a helpful benefit that almost any employee can take advantage of and appreciate.
How To Get Commuter Benefits For Your Team
You can choose to manage commuter benefits in-house or outsource it to a third party. If you decide to do it in-house, someone on your team will need to be responsible for contacting the relevant transit agencies and coordinating each team members’ commuter benefits. In the interest of saving teams time, we recommend outsourcing commuter benefit management to a third-party provider.
With a third party, your employees can generally log into a platform and order their transit cards. The third party is then responsible for fulfilling the order and shipping it to your team members. These services are also relatively cheap, and are often charged on a per month, per employee basis. If you're a Justworks customer, we'll help you secure access to commuter benefits and allow your team to sign up through our platform.
All in all, we'd highly recommend looking into commuter benefits regardless of your company’s size or location. This kind of employee benefit is an easy win that helps your employees — and helps you keep your team happy.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.