Commuter Benefits Explained: A Guide for SMB Employers

Quick look: An estimated 90% of employers with office space have resumed on-site work, making it the perfect time to consider the impact commuter benefits can have on your employees. These perks help workers and businesses save money, make your organization more appealing to top talent, and boost employee engagement and retention rates. Here’s what to know about the different types of commuter benefits and why sourcing plans through a professional employer organization (PEO) makes the most sense for many small companies.

It’s an ideal time for employers to add commuter benefits to their total rewards packages. Most businesses have returned to the office at least part-time, and reducing transportation expenses can help them attract and retain top talent in a competitive market.

However, there are many factors to consider when adding these perks to your organization’s benefits package. Below, explore the different types of commuter benefits, the business impact the plans can make, which states and regions require them, and how to offer them to your workforce.

What are commuter benefits?

Commuter benefits are employer-provided programs that help employees save money on commuting to work. These benefits can cover various transportation-related expenses, such as transit passes, parking fees, and ride-sharing costs, using pre-tax dollars. This not only reduces the taxable income for employees but also lowers payroll taxes for employers. In some regions, offering commuter benefits is mandatory for businesses of a certain size. Overall, these benefits are designed to ease the financial burden of commuting and encourage the use of public transportation.

How do commuter benefits work?

Commuter benefits can take many forms. Typically, employers include these plans in their benefits package, but some local governments also offer commuter plans to businesses. These benefits can be pre-tax, taxable, or non-monetary.

Pre-tax commuter benefits

Participating in a pre-tax commuter benefit plan allows both employers and employees to reduce their tax liabilities. By setting aside pre-tax dollars for eligible commuting expenses, employees can potentially achieve significant savings each year.

According to the IRS, pre-tax commuter benefit funds can pay for:

• Commuter highway vehicle rides: Trips must be between the employee’s residence and workplace, and the vehicle must seat at least six adults (not including the driver). The IRS also specifies that at least 80% of the vehicle’s mileage must be from transporting workers between their homes and workplaces, with over half the vehicle’s seats (not including the driver’s) occupied by employees.
• Transit passes: Defined as any pass, token, fare card, voucher, or similar item that enables someone to ride a bus, train, subway, ferry, or in a vanpool free of charge or at a reduced rate.
• Qualified parking: Includes parking expenses workers incur at or near your business’s office or a location from which they commute to work (e.g., park-and-ride lots).

Each year, the IRS designates a limit on the amount of pre-tax dollars an individual can put toward commuter benefits. For the tax year 2024, the monthly exclusion for qualified parking is $315, and the limit for transit passes and commuter highway vehicle transportation is $315.

Pre-tax commuter benefit plans generally distribute funds in various forms, including reloadable smartcards, monthly transit passes, commuter debit cards, or direct payments to parking providers. These programs also usually allow participants to change their contribution amounts and transit pass options throughout the year.

Note: Business leaders should refer to their accountants and/or tax experts to determine the taxability of their commuter benefits program.

Taxable commuter benefits

Employers looking to supplement or provide different perks than a pre-tax program may also consider other taxable commuter benefits, including:

• Carpooling perks
• Use of a company vehicle
• Allowances for ride-share services (i.e., Uber or Lyft)
• Toll reimbursement
• Vehicle/bicycle maintenance allowances
• Fuel cards or gas reimbursement

Companies may also reimburse staff for the mileage they drive between two places of work or other business functions. Many organizations choose to follow the IRS’s standard mileage rate to reimburse employees, which is 67 cents per mile for tax year 2024. For charities, the rate is 14 cents per mile, and for medical usage or military moves, it is 21 cents per mile.

Non-monetary commuter benefits

Organizations may also grant non-monetary assistance, such as flexible hybrid scheduling. Reducing the amount employees are required to work from your company’s office helps them save on fares, gas, tolls, and vehicle wear and tear. It also has been proven to help the environment and can contribute to your business’s corporate social responsibility (CSR) efforts.

Are employers required to provide commuter benefits?

While there are no federal obligations to provide benefits to commuters, some state and local laws require employers to offer these plans to their workers, including but not limited to:

• New York City: The NYC Commuter Benefits Law requires non-profit and for-profit employers with at least 20 non-union, full-time employees to offer pre-tax transit benefits.
• New Jersey: According to S.1567, employers in the state must offer pre-tax commuter benefits if they have more than 20 full-time employees who are not subject to a collective bargaining agreement.
• Philadelphia: Title 9 of The Philadelphia Code states that employers with 50 or more employees must offer a mass transit program to covered workers. Covered employees include those who worked an average of 30 or more hours per week within Philadelphia County for the same employer within the past 12 months. Full-time telework employees and government entities are exempt).

Note: Business leaders should refer to their state’s mandates and guidelines or consult their legal counsel for detailed and specific information.

Do commuter benefits roll over?

Most of the time, employers or their third-party benefits administrators decide whether commuter funds expire yearly or can roll over to the following year. Some commuter benefit plans allow funds to be rolled over year-to-year unless an employee resigns, in which case any unused money in the account would be forfeited.

The power of commuter benefits

Alleviating the financial strain associated with traveling to the office can profoundly impact employers’ ability to attract and retain top talent.

According to a recent Newsweek poll, 58% of workers think their employers should help cover their commuting expenses. Younger workers, who are becoming the largest portion of the workforce, hold this belief most strongly, with 74% of those ages 25-34 and 73% of those ages 35-44 agreeing.

Additionally, with 90% of companies with office space having returned by 2024, commuter benefits can help the increased number of on-site workers reduce stress and make the most of their wages.

How to provide commuter benefits to your employees

There are three steps involved with developing a commuter benefits program: choosing which benefits to offer, where to get them from, and communicating the perks to your workforce.

Choosing the right benefits

The first step to establishing a commuter benefits program is determining which benefits make the most sense for your company. Some questions to ask include:

• Does your business operate in an area that requires certain employer-sponsored commuter benefits?
• Is your office located in a large metropolitan area with ample public transportation? If so, commuter benefits are likely a valuable addition to your benefits package.
• If your organization is in a more rural setting with less public transit usage, could a parking benefit still be helpful to staff?

Sourcing the benefits

Depending on your business’s location, industry, budget, worker demographics, and other preferences, you can obtain a commuter benefits plan via the local government, a third-party pre-tax commuter benefits administrator, or by providing employees with a transportation stipend.

Many small- and medium-sized businesses (SMBs) partner with professional employer organizations (PEOs) that offer various employee benefits, human resources (HR), and tax and payroll services to simplify the benefits administration and management process. These PEOs may provide plans from third-party commuter benefit companies like Health Equity, making it easier for small businesses to provide employees with valuable pre-tax savings on commuting expenses.

Communicating the plan

Sharing benefit information clearly and concisely is critical. Employers should update their employee handbook and benefits materials with details of their new commuter plan. Then, business leaders should announce and distribute the program’s features and benefits to all staff via email, the company intranet, and/or informational sessions.

ExtensisHR: Your trusted partner for transportation benefits and more

A national PEO dedicated to helping small organizations succeed, ExtensisHR provides a wide range of Fortune 500-level benefits and benefits administration and management services. Their expert teams help time-strapped business leaders simplify HR workflows and ensure compliance with local commuter benefit laws and IRS tax regulations.

Additionally, ExtensisHR fosters small businesses’ growth by providing:

• Comprehensive HR support
• Payroll and tax administration
• Complimentary recruiting (included with their PEO offering)
• Risk and compliance management
• And more

Could commuter benefits help pave your business’s path to success? Contact ExtensisHR today to learn more or explore our benefits services.