Commuter Benefits Programs Guide: How to Support Your Employees’ Journeys to Work
Commuter benefits are a great way to help ease the costs of traveling to work. Read up on how to offer them.
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The daily commute doesn’t have a great reputation. It’s monotonous, expensive, and prone to problems—few would consider it the favorite part of their day. But as companies change their focus to enhancing the employee experience, some now support their staff with the task of traveling to and from work.
Commuter benefits are about putting money back in employees’ pockets, steering them toward sustainable travel choices, and banishing the stress associated with the daily grind. This guide covers the basics of offering a commuter benefits program, and why it’s great for employers and employees.
Commuter benefits are an employer-provided program that helps employees save money on their journey to work. These benefits come in many forms, with a common thread of:
Commuter benefits will vary depending on the employer’s offerings, but they typically fall into two buckets—pre-tax and taxable benefits.
In its Publication 15-B (2023), Employer’s Tax Guide to Fringe Benefits, the Internal Revenue Service (IRS) provides a breakdown of how employees can use pre-tax benefits to save money on their commute by reducing their taxable income. Employers may offer the following:
A commuter highway vehicle must seat at least six adults plus the driver. At least 80% of the vehicle mileage must be used to transport employees between their homes and workplaces, with employees occupying at least 50% of the vehicle’s seats (not including the driver).
Up to $300 per month is available for this type of benefit, which you can combine with transit expenses.
A transit pass allows commuters to use buses, rail, or ferries either free of charge or with a discount. The benefit provides up to $300 per month tax-free and may be combined with commuter highway allowances. Reimbursement is only available if you provide evidence of receipts and is only tax-free if no voucher is available to distribute to your employees.
For those employees who must pay for parking at or near the workplace, employers can offer up to $300 per month in tax-free qualified parking benefits. This benefit applies to locations accessible by mass transit or carpools but doesn’t cover tax-free parking near employees’ homes.
Commuting by bike was previously tax-free, but the IRS has suspended the exclusion of qualified bicycle commuting reimbursements from employees’ income between 2017 and 2026.
All other commuting benefits fall into the taxable benefits category. Although not as financially advantageous as pre-tax deductions, these benefits are still important for employers and employees. Some options include:
The average price of a gallon of gas has increased from $2.19 in 2020 to $3.59 in 2023. Gas cards support employees with the surge in fuel prices by providing an allowance to use at gas stations. Alternatively, gas stipends are a fixed sum of money paid into an employee’s account, for example, each month or quarter, to supplement the increased cost of driving to work.
Thirty-eight states offer toll roads that provide alternative routes between high-traffic locations for an approximate charge of $5 per journey. Toll reimbursement can alleviate potential financial stress and save employees time on their commute by giving them access to faster routes.
Ride-hailing apps are the most convenient mode of transportation for employees who may not drive or would rather avoid public transit. Employers can offer discounted ride rates to their employees as a commuting benefit by purchasing credits in bulk from services such as Uber or Lyft.
Employers who want to incentivize their employees to reduce their carbon footprint and stay fit can offer bicycle-related perks as part of the plan. For example, an employer’s commuter benefits program can include free maintenance, company-sponsored cycling events, or even a bike-sharing membership.
Company cars are valuable benefits that employers use to incentivize or retain top talent. While employees who drive company vehicles must pay taxes on this benefit monthly, they often also use the vehicle for personal errands.
Employers can use the IRS standard mileage rate to calculate a specific amount for employees using their personal vehicles for business trips, job-related travel, or a company commute. Businesses can pay reimbursements in a lump sum at the end of each month or as a part of employees’ paychecks.
Carpooling is an eco-friendly travel option that reduces traffic congestion and carbon emissions while promoting team bonding among colleagues who live near each other. Employers can provide commuter benefits to those who carpool, such as preferred parking spots or monetary rewards for the money saved on gas and tolls.
Providing charging stations at the workplace can be a valuable benefit for organizations that prioritize sustainability and offer hybrid or electric cars as company vehicles. Employees with electric cars can charge their vehicles for free while they work, saving them time and money and reducing their carbon footprint.
The IRS has yet to define whether hybrid or electric at-home charging stations are eligible for pre-tax benefits. Ethan Severance, a Clean Transportation Expert and Attorney at Foley Hoag LLP, explains:
“Since there is no provision of the Internal Revenue Code that specifically excludes the value of at-home EV charging stations from an employee’s taxable income, the IRS is likely to view the employee as realizing taxable compensation equal to the value of the charger and the cost of installation.”
Commuter benefits are just one of the numerous ways you should support your employees. But here’s why it’s worth adding to your benefits mix:
Does it make sense for your employees to attend work to earn a salary, then spend a considerable portion of their money on traveling to and from the workplace? For some, the sums don’t add up, especially with the rising costs of public transportation, fuel, and vehicle maintenance. Clever Real Estate reveals that the average commuter spends $8,466 each year on their journey, the equivalent of 19% of their annual income. This includes $410 per year on vehicle maintenance due to their commute.
We know from the Census Bureau’s American Community Survey that the average American commuter spends 26.4 minutes on a single journey to work, and 7.7% of workers spend more than 60 minutes commuting.
If this sounds like a lot, employee benefits such as toll services and convenient parking locations may save employees valuable time that they would otherwise spend on commuting. These perks contribute to a better work-life balance and reduce the stress associated with long or unpredictable commutes.
Lengthy commutes can negatively impact employees’ physical and mental wellbeing. A report entitled “The Stress That Doesn’t Pay: The Commuting Paradox,“ explains:
“Commuting not only takes time but also generates out-of-pocket costs, causes stress, and intervenes in the relationship between work and family. In fact, it seems that commuting is the daily activity that generates the lowest level of positive affect, as well as a relatively high level of negative affect.”
Providing commuter benefits that minimize commute times or offer alternative transportation options, like biking or walking incentives, can contribute to a healthier and happier workforce.
COVID-19 lockdowns allowed the world to see how the environment might spring back if we humans changed our behaviors. At the pandemic’s peak in April 2020, scientists estimated that 57% of the planet was under some type of movement restriction, causing a 40% decrease in driving and 75% in air traffic. Noise pollution was reduced, wildlife started moving back into the cities, and water clarity improved.
While no one wants more lockdowns, we can learn lessons from the pandemic and change our commuter habits. Offering benefits that encourage the use of public transportation, carpooling, biking, or walking enables employees to contribute to environmental sustainability. This can be particularly appealing to environmentally conscious employees, aligning with corporate social responsibility values.
Amazon employee Lawrence Tam explains how he and his dog Ashe enjoy commuter benefits offered by his employer and shares the positive impact on the environment:
“Amazon offers two of the best employee benefits in Seattle: the Dogs at Work program and the Bike Commuter benefits. During the beautiful Seattle summers, Ashe and I take advantage of both. Not only are we doing our part to reduce emissions and avoid traffic, but Ashe also enjoys the wind in his face the whole ride home.”
In a competitive job market, offering commuter benefits sets an organization apart as an employer that prioritizes the wellbeing and convenience of its employees. In MetLife’s “Advantages of Employee Care” 2023 report, employers list commuter benefits as one of the top five ways to demonstrate they care about their staff. It can be a deciding factor for potential hires and contribute to higher employee retention rates.
While some challenges are involved in offering commuter benefits, companies can overcome them with careful planning and consideration.
Let’s face it: Companies can’t offer all the benefits, so we need to be picky about what we can afford. Implementing commuter benefits does require an investment for employers, particularly when subsidizing transportation options or providing additional perks. And it can be challenging for small or budget-constrained businesses to absorb these costs.
The workaround: Tackle this by consulting benchmarking data to understand what your competitors are offering. There’s no need to struggle to offer a type of commuter stipend that other employers aren’t providing either. Additionally, run employee surveys to learn which benefits are the top priority for your employees.
The 2023 Benepass Benefits Benchmarking Guide revealed that half of pre-tax clients provide transit accounts to their employees, and 46% provide parking benefits. Download the complete guide to explore more benefits trends.
Managing commuter programs, especially if they involve reimbursements, can add administrative complexity to your benefits administration teams. Employers must track expenses, handle reimbursements, and ensure compliance with relevant tax regulations.
The workaround: Taxable stipends are an alternative, allowing you to offer money upfront to your employees without the burden of requesting receipts and handling expense requests.
Each employee will take a different journey to work, and your remote workers may never travel to the office. Therefore, offering blanket benefits for commuters can lead to a perception of inequity, where some employees receive more of a “reward” than others.
The workaround: Explore equivalent and flexible benefits for remote workers, such as access to coworking spaces or work from home stipends that may cover office equipment. By offering choice, your employees can select relevant and inclusive benefits that suit their lifestyle.
No federal laws require employers to offer commuter benefits, but some states and cities have their own mandates. Here are three examples:
Berkeley has a Tax Relief Action to Cut Commuter Carbon (TRACC) plan, which requires companies with 10 or more employees to offer commuter benefits, enabling them to travel to work via public transportation, carpool, or bicycle. The plan offers the following options:
In New Jersey, Governor Phil Murphy signed a bill requiring employers of at least 20 employees to provide pre-tax commuter benefits, which include the cost of parking. If employees must pay for parking as part of their journey, employees can receive up to $280 per month as pre-tax dollars to cover their parking expenses.
New York City implemented its Commuter Benefits Law in 2016, which applies to companies with 20 or more full-time, non-union employees. Employers must allow employees to put pre-tax dollars toward transportation benefits, eligible for mass transit or commuter highway vehicles seating six or more passengers plus the driver. Parking and bicycle-related expenses do not qualify under the law.
A comprehensive commuter benefits plan can include many moving parts—that’s why you need a simple solution your employees can understand and your benefits admin team can administer.
Benepass Commuter is your solution, offering flexibility for your in-house, hybrid, and remote employees to commute how and when they need. Here’s how to set up your account in four easy steps:
You can also include commuter benefits in a flexible lifestyle spending account if you want to give employees more freedom over how they spend their benefit dollars, whether it’s on commuting expenses, yoga classes, or WFH equipment. Consider supplementing a commuter account with a travel stipend that supports personal travel so your employees are covered on both work-related and leisure travel.
Want to see Benepass commuter benefits in action? Sign up for a free demo today or contact email@example.com with any queries. Interested in exploring other types of benefit stipends? Check out our comprehensive guides below: