Beginning on January 1, 2016, the DC Commuter Benefits Ordinance will require Washington, DC employers with 20 or more employees working in DC to provide commuter transit benefits pursuant to the Sustainable DC Omnibus Amendment Act of 2014. While providing commuter transit pre-tax benefits to employees has been an available option for employers nationwide, DC is going one step further to make this benefit mandatory for most employers. DC will be joining other major metropolitan areas, including the San Francisco Bay Area and New York City, with mandatory commuter benefit ordinances. The goal of the DC Ordinance is to provide incentives for employees to reduce their monthly commuting expenses. The DC Department of Transportation estimates that implementing the Ordinance will provide a payroll tax savings for employers of up to 9% for each participating employee and a reduction in taxable income for employees of up to 40% of transportation expenses. Once implemented, the Ordinance will be enforced by the DC Department of Employment Services.
Covered employers will be required to provide one of three commuter benefit options: (1) employee-paid pre-tax benefit; (2) employer-paid direct benefit; or (3) employer-provided transportation.
1. Employee-Paid Pre-Tax Benefit
Under this option, employees may set aside up to $130 per month in pre-tax funds through payroll deductions for their transit or vanpool expenses, or $250 per month for parking expenses. These funds are paid directly to a Metro SmarTrip Card, vanpool service, or parking vendor. Employers may supplement this minimum requirement by subsidizing transit costs or providing reimbursements for bicycle commuters.
Pre-tax benefits are governed by Section 125 of the Internal Revenue Code, the same section that governs Flexible Spending Accounts (“FSAs”). However, transit benefits differ from FSAs in that they do not have extensive plan documentation requirements, employees can change elections each month, and there is no “use it or lose it” limitation.
2. Employer-Paid Direct Benefit
Alternatively, employers may pay subsidies directly to employees of up to $130 per month for transit or vanpool costs, or $20 per month for bicycling benefits. As with the pre-tax employee-paid benefit, employees and employers do not pay federal income or payroll taxes on the benefit amounts to the extent the benefit is a qualified transportation fringe under Section 132(f) of the Internal Revenue Code. Transit or vanpool subsidies may be combined with pre-tax transit or parking benefits, though employees may not combine bicycle reimbursements with transit and parking benefits. To implement this benefit, the employer can directly purchase and distribute passes or vouchers to employees, fund a debit or credit card, fund a Metro SmarTrip Card, or reimburse expenses submitted by employees.
3. Employer-Provided Transportation
Finally, employers may provide transportation in a vanpool or shuttle from major transit hubs for employees to use at no cost.
These options may be administered directly by the employer or through a third party vendor. The DC Department of Transportation has highlighted Edenred Commuter Benefits Solutions as an industry leader in providing pre-tax commuter benefits solutions. Providing services in-house may be the best option for small businesses with fewer than 50 employees, but will require a higher amount of staff administration time. Employers who want to minimize administration time may opt to use an outside vendor, though this option is more costly. Edenred Commuter Benefits Solutions states that the payroll tax savings to employers will generally offset the cost of their services. They report being able to set an employer up with services in 24-36 hours.
The DC Department of Transportation provides free consultation services to employers through the goDCgo program. These services include conducting an employee transportation survey and providing a report to employers, providing customized marketing materials, and supporting employers with implementation. Additionally, Commuter Connections provides free ride matching services to employers, and administers the Guaranteed Ride Home program, which provides a free ride home to employees using public transportation up to four times per year.
The best combination of options will depend on an employer’s size and capacity to administer a transit benefit plan. Small businesses may benefit from using the employer-paid direct benefit option, and reimbursing for transit costs that are submitted by employees. This will ensure that the employer pays only for transit costs actually used, and places the administrative burden on employees to submit transit reimbursements. Employers with a focus on sustainability may view providing tax-free transit subsidies as a way to further their company’s mission. Providing transit subsidies also may engender goodwill among employees and encourage a more sustainable workforce. Regardless of the plan and administrative options chosen, compliance with the DC Commuter Benefits Ordinance provides a tax savings to employers, as well as an additional way for employers to ensure a satisfied workforce.
