RSM Resources

Subsidized parking is the most common transportation benefit U.S.employers provide. But this popular benefit encourages employees todrive alone to work, contributing to increased traffic congestion, fuelconsumption and air pollution, according to a report by the NationalAcademy of Sciences. Employers may choose other options to makecommuting costs more affordable while lessening pressure on roadwaysand the environment.

Using incentives

Recentchanges in the Internal Revenue Code enable employers to offer severaltax-free commuting benefits under the Commuter Choice program. Thesebenefits provide financial incentives for employees to switch fromdriving alone to using mass transit or vanpools.

Employees can use these benefits in several ways:

Tax-free.Employers can provide tax-free transit or vanpool passes or vouchers toemployees in addition to their existing salaries. Employers deduct thecost of the benefit from their corporate income taxes. The benefit isfree from all federal income and payroll taxes to the employee, becausethe IRS treats the passes and vouchers as fringe benefits rather thansalary.

Pretax. Employers can also provide pretaxcommuting benefits. Employers may allow employees to set aside pretaxdollars to purchase transit passes and pay vanpool fares. The monthlylimit is $105 per employee for transit or vanpool expenses. (Bycomparison, the monthly pretax deduction limit for qualified parkingcosts is $205.) According to the Association for CommuterTransportation, the savings for employer and employee alike can besubstantial. Employers save payroll taxes on the funds their employeesset aside pretax, typically 7.65 percent. Employees save payroll andfederal income taxes on the set-aside funds. For employees in the 25percent tax bracket, for example, that savings can represent more thanthree months’ worth of commuting costs.

Beyond tax incentives

Offeringcommuting benefits yields only small financial returns to employers,but they may find other reasons to help make commuting more affordable.

"Themaximum tax savings to employers, primarily from lower FICA payments,are probably only $5 to $7 per month if they provide the full $105 permonth in transit or vanpool subsidies," says Philip L. Winters of theCenter for Urban Transportation Research at the University of SouthFlorida. "That low number means that financial savings are probably nota primary motivator. Improving recruitment and retention and reducingthe cost of parking are ultimately more compelling. Environmentalissues also play a role for some employers."

Common reasons why employers offer Commuter Choice benefits include:

Improved employee recruitment and retention. Thismay be especially true in areas with low unemployment or highlycompetitive job markets. Some companies have reported that programssuch as subsidized transit and vanpool fares give them an edge whenhiring and keeping employees.

Increased productivity and loyalty. Employersupport of commuting costs may generate an increased sense of employeeloyalty. Low-cost commuting options can help reduce employee stressors— from contending with morning rush hour to worrying about meetingafter-work commitments.

Lower parking costs. The highcost of parking, even when subsidized, can burden some employees. Fromthe employer’s perspective, parking demand is one of the mainmotivations for adopting a Commuter Choice program, especially if thejob facility lacks free parking accommodations.

They care.Commuter Choice represents a way for companies to show communityleadership by helping to reduce auto emissions, alleviate roadwaycongestion and conserve energy.

Other commuter benefits

Alternativework schedules also help lower commuting costs and provide moreoptions. For example, compressing a 40-hour workweek from five to fourdays can cut commuting costs by 20 percent. Telecommuting also reducestransportation expenses. These alternatives help companies controloperating expenses, too.

Adoption lagging

Despitethe advantages, many employers do not offer commuter benefits.According to the Bureau of Labor Statistics 2006 National CompensationSurvey, just 5 percent of workers have access to subsidized commuting.What’s more, things don’t seem to be improving.

"Generally, thisshare does not seem to change from year to year," Winters says. "But,the share varies depending on how you cut it. Companies with more than100 workers average 8 percent participation, and those with less than100 workers average 2 percent participation. The same goes for thosewho make $15 per hour (8 percent) or under $15 (2 percent)."

Check your numbers

Dependingon the complexity of your workplace commuting needs, you may want helpfrom a consultant to determine the most appropriate commuter benefitsyour organization should offer. In addition, consider visiting thisU.S. Environmental Protection Agency Web site — www.bestworkplacesforcommuters.gov— to learn more about the Commuter Choice program. The site highlightsadditional commuter benefits that make it easier for employees to getto work while spending less money and time stuck in traffic. It alsoshows real dollar values for your company’s potential savings based onnumber of employees, salary and facility costs, and other keyexpenditures.

A benefits calculator helps you determine theright combination of commuter benefits for your organization byallowing you to assess the costs and benefits of different options. Thecalculator also tells you whether a selected option meets the NationalStandard of Excellence for commuter benefits. Employers that meet thisstandard qualify for national recognition by the Best Workplaces forCommuters program sponsored through a partnership between the EPA andthe U.S. Department of Transportation.

Flexible enough to meet your needs

Managingcommuter tax benefits carries built-in flexibility, Winters says. Forexample, employers can offer the benefits to some or all employees,provide transit passes in lieu of compensation, use payroll deductionmethods similar to those of cafeteria plans, and choose whether or notto require annual selection by employees. These benefits are exemptfrom antidiscriminatory requirements and don’t require filings.Employees also enjoy flexibility: They generally can change theirselections at any time, and they don’t have to worry about "use it orlose it" rules.