New York City Employers Required to Offer Pre-Tax Commuter Benefits
Which Employers Will be Affected?
The Commuter Benefits Law applies to all for-profit and nonprofit employers with 20 or more full-time non-union employees in New York City, including temporary help firms. The law does not apply to government agencies at the federal, state, and local levels, as well as employers that are not required to pay federal, state, and city payroll taxes. In addition, the law does not apply to employers covered by a collective bargaining agreement (CBA), unless the employer has 20 or more full-time employees who are not covered by the CBA. In that instance, the employer must offer eligible employees who are not covered by the CBA transportation benefits under the new law.
The new law applies only to full-time employees of covered employers. Part-time employees, independent contractors, and full-time employees who are New York City residents but who commute to a job outside New York City will not be eligible for benefits under the new law.
Which Transportation Expenses Will be Covered?
Under the Commuter Benefits Law, employees may use pre-tax income to pay for a transit pass for transportation on public or privately owned mass transit or commuter vans with a seating capacity of six or more passengers. The new law specifically covers New York City regional mass transit services, including but not limited to Metropolitan Transportation Authority (MTA) subway and bus services, Long Island Railroad, Amtrak, New Jersey Transit, and Metro-North. In addition, certain ferry, water taxi, vanpool, and commuter bus expenses, as well as those related to Access-A-Ride and other local paratransit providers are covered under the new law. Parking and bicycling expenses are not covered.
What Steps Must Covered Employers Take?
Under the new law, covered employers must provide all eligible full-time employees with a written offer to use pre-tax income to purchase transportation benefits. Employers must offer this opportunity in writing on January 1, 2016 or four weeks after an employee begins full-time work, whichever is later. The government has provided a template form, which can be found at this link.
Employers may elect to either manage a commuter benefits program without a third-party provider or use a New York City-authorized third-party provider, such as WageWorks, Benefit Resource, Inc., Commuter Benefit Solutions, Qualified Transportation Benefits, or TotalBen, LLC. In either case, covered employers must provide their eligible employees with enrollment materials, including instructions as to how to sign up for the program. Employees should also be able to indicate the amount that they would like to deduct on a monthly basis. Under federal law, eligible employees may deduct up to $130 per month. There is no minimum deduction amount. If the cost of an employee’s commute is over $130 per month, certain third-party providers offer programs where the employee may make additional post-tax deductions.
- Recordkeeping. Under the new law, employers must retain the original, signed compliance forms detailed above or records that demonstrate that each eligible full-time employee was offered an opportunity to use pre-tax income to purchase transportation benefits under the new law. These records must show whether the employee accepted or declined the offer. Employers are required to retain these records for two years.
- Six-month grace period. The DCA will offer employers a six-month grace period from January 1, 2016 to July 1, 2016. During this time, employers will not be subject to penalties for violations of the Commuter Benefits Law.
- 90 days to cure. After July 1, 2016, employers will have the opportunity to cure any violation of the new law within 90 days before the DCA imposes penalties. If the violation is not cured, employers may be fined up to $250 for the first violation of the law. An additional fine of $250 may be imposed for each additional 30-day period of non-compliance.
- Financial hardship exception. In order to be exempt from compliance with the Commuter Benefits Law, an employer must present compelling evidence that complying with the law would significantly harm the employer’s business.
- Reduction in workforce. In the event that an employer’s workforce is reduced to fewer than 20 full-time employees, the employer must provide the full-time employees who had been previously eligible to purchase pre-tax transit benefits a continued opportunity to do so for the duration of their employment.
In light of the passage of the Commuter Benefits Law, eligible employers are advised to:
- Establish policies and procedures related to offering commuter benefits to all full-time employees; and
- Determine whether to utilize New York City-authorized third-party providers to set up and manage commuter benefits programs.
 Here, a full-time employee works an average of 30 hours or more per week for a minimum of four weeks, any portion of which is in New York City. In addition, if an employer has more than one location in New York City, the employer must count all full-time employees at all New York City locations to determine the total number of full-time employees.
- Related Practices