Employers Are Not Required to Provide Transit Fringe Benefits—Except in California

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
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Since the Golden State sometimes can be a bellwether for national trends, employers nationwide may want to keep an eye on what’s occurring in California regarding commuter benefits. Certain employers in the San Francisco Bay Area have less than six months to comply with a new law that requires them to provide commuter benefits to employees. The law is intended to help reduce air pollution and alleviate traffic congestion in the Bay Area by encouraging employees to take mass transit, vanpools, carpools, or bicycles, or to walk rather than drive alone to work.

Effective March 26, 2014, the Bay Area Commuter Benefits Program, which applies to nine Bay Area counties, mandates that by September 30, 2014, all employers with 50 or more full-time employees (excluding field employees), offer commuter benefits to all employees who work at least 20 hours per week (other than field employees). The Bay Area Commuter Benefits Program is a partnership led by the Metropolitan Transportation Commission (MTC) and the Bay Area Air Quality Management District (Air District).

Senate Bill 1339, which Governor Jerry Brown signed into law and which is now codified in California Government Code section 65081, called for the creation of the commuter benefit program. The law requires a pilot project to be in effect through December 2016, and is based on the San Francisco Commuter Benefits Ordinance, which was passed in 2009 by the City and County of San Francisco. Governor Brown had previously vetoed a similar bill that would have applied to the entire state of California and to any business with 20 or more employees due to concerns about the burden the bill would have placed on small businesses.

Who Must Comply?

The program applies to any public, private, or nonprofit entity that employs 50 or more full-time employees per week—excluding field employees and any seasonal/temporary employees—within the Bay Area. The Bay Area is defined as including all of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, and Santa Clara counties, as well as the western portion of Solano County and the southern portion of Sonoma County.

Employers with fewer than 50 Bay Area employees may be subject to local commuter benefit ordinances that have been adopted by the cities of San Francisco, Berkeley, and Richmond, as well as the San Francisco International Airport.

Definitions

For purposes of the program,

  • a full-time employee is defined as an employee who performed an average of at least 30 hours of work per week within the previous calendar month within the Bay Area, unless the employee is a seasonal/temporary employee;

  • a seasonal/temporary employee is defined as anyone who works 120 days or less within the calendar year; and

  • a field employee is defined as an employee whose primary job responsibilities are at temporary job sites and who does not report to the employer’s home office or other permanent job location. Employees who report to the employer’s main office to pick up an employer-provided vehicle for use in the field are not considered field employees.

The employee count is based on the average number of full-time employees (excluding field employees) on the employer’s payroll over the course of the most recent three-month period.

Program Requirements

The program requires that, by no later than September 30, 2014, each covered employer offer commuter benefits to any employee (other than a field employee) who works at least 20 hours per week. In order to comply with the regulation, employers must offer one of four commuter benefit options.

  • Pre-tax option. This option allows employees to exclude their transit or vanpool costs from their taxable income, up to the maximum amount allowed as a qualified transportation fringe benefit under section 132(f). (Currently the maximum amount of costs that employees may exclude from their income is $130 per month. ) Under this option, the employee saves on federal and state income taxes and Federal Insurance Contribution Act (FICA) taxes, while the employer saves on FICA taxes.

  • Employer-paid benefit. Employers may offer their employees a subsidy of up to $75 per month to offset the cost of commuting via mass transit or by vanpool. This employer-paid subsidy can be provided through vouchers, debit or credit cards linked to a commuter account, or directly loaded on to a Clipper® card. Up to $130 per month of the employer-paid subsidy is tax-free to the employee, and the employer does not pay FICA taxes on the subsidy.

  • Employer-provided transit. A third option is to provide employees with transportation in the form of a bus, shuttle, or vanpool service at little or no cost. The transportation service may be operated by or for the employer. Employer-provided transit is tax-free to the employee, and the employer may be able to deduct the transportation costs as a compensation expense.  .

  • Employer provided alternative benefit. Employers also have the option to implement an alternative benefit as long as it is as effective in reducing solo vehicle commutes as the three other options. For example, employers may provide a bicycle, carpooling, or walking subsidy; permit telecommuting or compressed work week schedules; or promote the use of electronic vehicles by employees. Depending on the design, this option may be taxable to the employee. Employers must obtain advance approval before implementing an alternative benefit.  To help employers develop alternative benefits, the Air District and the MTC have defined a menu of possible measures from which employers can choose to submit a “pre-approved” alternative. In addition to the menu approach, employers may propose their own alternative commuter benefit..

Although employers are not required to provide a commuter benefit to field employees, they may choose to do so on a voluntary basis.

Many employers already offer commuter benefits that are consistent with one (or more) of the four commuter benefit options offered through this new law.

The Next Steps for Covered Employers

Employers doing business in the San Francisco Bay Area should take action to comply with the new law. All employers should first determine whether they are subject to these new requirements. Covered employers should take the following additional steps:

  • Evaluate the four commuter benefit options and select one (or more) of the options to offer to employees.
  • Designate a commuter benefits coordinator.
  • Register for the program no later than September 30, 2014.
  • Notify all covered employees that they are covered by the program. This notification should include the benefits options the employer has selected, instructions on how to obtain the benefit, and contact information for the employer’s commuter benefit coordinator. Employers must also provide newly hired employees with notice of the benefit at the time that they are hired when other benefits entitlements are explained. Current employees, on the other hand, are entitled to the notice when the employer first makes the commuter benefit available and, subsequently, at least once a year.
  • Retain records that document implementation of, and compliance with, the program. Employers must maintain these records for at least three years and make them available to the Bay Area Quality Management District or Metropolitan Transportation Commission upon request.
  • Update the Bay Area Commuter Benefits Program registration once a year.

To register with the Bay Area Commuter Benefits Program, visit the Commuter Benefits webpage on 511.org.

Penalties for Noncompliance

Violations of these requirements are subject to the same civil penalty provisions as are violations of the air pollution control laws in the California Health and Safety Code. Under those laws, penalties are determined on a case-by-case basis, based upon factors such as whether the violation was done knowingly or negligently. Penalties may exceed more than $1,000 per day.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

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