Employers in New York City have undergone a lot of mandatory changes to employment laws already this year. The most recent one, which NYC employers will need to implement by July 1, 2016, is the New York City Commuter Benefits Law. Under this new law, NYC employers with 20 or more full-time, non-union employees must offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits.
Like with many laws coming down the pipe now – whether in NYC or elsewhere in the country – this new commuter benefits law could be indicative of a trend that you may eventually see in the city where you operate.
What the NYC commuter benefits law includes
Qualified transportation fringe benefits include:
- ferry services
- rail services, such as Metro-North trains, the Long Island Railroad and the NYC subway system
- transportation sharing options such as Access-A-Ride and vanpooling
This law excludes parking costs and private carpooling. Services such as Uber and Lyft are also not included.
What the law means for NYC employers right now
The Commuter Benefits Law took effect on January 1, 2016 and is enforced by the New York City Department of Consumer Affairs (DCA). Employers have a six-month grace period - until July 1, 2016 - before DCA is authorized to seek penalties. After July 1, 2016, employers will have 90 days to correct any violations of the law before potential penalties are imposed.
Employers must give their full-time employees a written offer of the opportunity, stating that they can use pre-tax income to purchase qualified transportation fringe benefits. Employers must also maintain a record of the written offer and employees’ responses in regard to the law.
The advantages of a commuter benefits program
A commuter benefits program can provide savings for both employers and employees:
- Employers can save by reducing their payroll taxes. The more employees who sign up for transportation benefits, the more the employer can save. Employers can also attract and retain employees by offering transportation benefits.
- Employees can lower their monthly expenses by using pre-tax income to pay for their commute.
It is estimated that approximately 450,000 more New York City-based employees will have access to the commuter tax break, which is in addition to the 700,000 who already get the break.
How the commuter benefits program is good for employers and employees
Currently, under federal tax law, an employee may exclude their transit commuting costs from their taxable wages up to the $255 monthly limit (there’s a separate $255 monthly limit for parking).
For instance, if you’re in the 40 percent combined federal and state tax bracket and you put away the full $255 a month pre-tax salary to use for transit, you save over $1,200 per year. The employer also saves money because the employer doesn’t pay payroll taxes of 7.65% on every dollar set aside by employees pre-tax.
Penalties for employer non-compliance with the commuter benefits law
Employers can be fined up to $250 for the first violation of the law if they do not correct the violation within 90 days. If the violation is not corrected after the first fine is imposed, an additional fine of $250 may be issued after every additional 30-day period of non-compliance.
Proactively preparing for the law
If you have questions on how mandatory transit benefit law compliance will impact your business or want to learn how hiring a professional employer organization to handle your HR administrative functions can help your business succeed, please contact me at steve.edney@trinet.com or 203.388.0932 to evaluate your options.
This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance
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