Crafting an impactful and economically efficient benefits package for a diverse workforce is a little science, a little art. HR teams must meet employees’ wants and needs while maintaining fidelity to the budget and meeting business goals. So it’s not a surprise that navigating the plethora of flexible benefits a company can offer can be difficult and some benefits, like commuter benefits, get lost in the shuffle.

But commuter benefits deserve more than a passing glance. In this post, we’ll walk you through the crucial role commuter benefits can play in your overall compensation package, helping the company to save money and achieve business and culture goals without raising salaries across the board.  

What are commuter benefits?

Commuter benefits are employer-sponsored plans that help employees save and pay for their commute to and from work. Plans can be structured to allow employees to save money, pre-tax, to pay for commuting expenses like parking near the office, fares for mass transit like trains and subways, and carpooling expenses. Or plans can be structured to offer post-tax stipends from the employer to pay for bicycle maintenance (for employees that bike to work), gas, and rideshare services like Lyft and Uber. 

If companies offer pre-tax commuter benefits, employees will choose how much they want to save (up to the IRS limit of $315 per month for 2024), and the employer will take the appropriate amount from each paycheck before income taxes are assessed and deposit it into the commuter benefit account. Employees then submit receipts to get reimbursed for their commuting expenses.

If companies offer post-tax commuting stipends or perks, the companies can decide how much they want to offer and the substantiation requirements for employees to access said stipends or perks. Employees will pay income taxes on the expenses for which they reimburse.

Both of these commuter benefits structures can help the company achieve its business and people goals. Here’s how.

Reason #1 you should offer your employees commuter benefits: Save money

If companies offer a pre-tax commuter benefit account, employees contribute their money before income taxes are assessed. This lowers employers’ FICA responsibility. If employees contribute the maximum allowed, companies can save almost $300 per employee per year on FICA taxes. A company with 50 employees can save almost $15,000 a year just by offering a pre-tax commuter benefit.

Offering a commuter benefit (either pre- or post-tax) is also a cost-effective way to increase employees’ compensation packages without increasing their salaries across the board. 

Reason #2 You should offer your employees commuter benefits: Fix a culture challenge

Multiple studies, including this one by Harvard Business Review, show that a healthy, well-aligned company culture improves business outcomes. But culture can be hard to define and fix if there’s what the Sloan School at MIT calls “broken culture syndrome.” Broken culture syndrome occurs when there’s a gap between how leadership perceives and describes company culture and how the rest of employees experience the culture.

One of the areas where there tends to be misalignment is when it comes to the question of where employees should be required to work and who should pay for the commute if they’re required to be in the office. The majority of millennials (who represent the majority of the workforce) believe their employers should help pay for their commute. But employers, for the most part, don’t even consider the commute as part of the work day. This is a big disconnect that can lead to resentment if workers are required to come back to the office and give up the time (about 50 minutes on average) and money (about $700 per month) they accrued by working from home.

If as an employer, you want to encourage people to come back into the office, and you don’t want the company’s culture to suffer because of it, offering a commuter benefit can help you accomplish that. 

Reason #3 you should offer your employees commuter benefits: Improve recruitment and retention efforts

Recent studies have shown that employee burnout is expected to reach critical levels in 2024 and one of the things that employees have stated they want most is a flexible work schedule. The commute is a big component of work schedule flexibility. The more time the employees spend commuting, the less time they have to engage in activities outside of work. And, as we addressed in the last section, there is a gap between how employers and employees perceive the commute to work. 

In fact, 68% of employers think employees should be back in the office at least three days a week, while 68% of employees say they prefer working from home. And job postings that allow for remote or hybrid work get seven times the responses as those that require the employees to be on-site five days a week. 

So what is a company to do if they want to retain their top talent and attract new talent? Offer commuter benefits. And while offering the commuter benefits, address the elephant in the room. State you recognize and appreciate the impact commuting to the office has on their personal lives, and their financial, mental and physical health. In providing commuter benefits (perhaps in addition to others like Lifestyle Spending Accounts), your goal is to share in the commuting burden because it benefits everyone to be together in the office (at least part time). 

Reason #4 You should offer your employees commuter benefits: Help reduce employees’ financial stress

Almost 60% of employees say they are financially stressed. Employees that are financially stressed are more likely to be less productive and less engaged at work than their counterparts. In fact, it’s estimated that employees’ financial stress cost companies $40 billion in lost productivity in 2022. Given that U.S. workers spend an average of 19% of their paychecks on their commute, offering them a way to save money on this expense could go a long way toward relieving this financial stress. 

Pre-tax commuter benefits allow employees to save up to 37% on their commuting expenses (depending on their tax bracket) while post tax commuter stipends and perks are a direct way to financially support employees’ commute. 

Reason #5 you should offer your employees commuter benefits: Stay compliant with local laws

More and more local governments (and two states) are passing laws that require companies of a certain size to offer their employees commuter benefits. The following are the jurisdictions that require employers to offer transit benefits to their employees, as of January 2024.

San Francisco requires employers with a San Francisco location and 20 or more nationwide employees to offer said employees a commuter benefits plan. Businesses with 50 or more employees across the Bay Area are required to register for the Bay Area Commuter Benefits Program. Qualifying San Francisco businesses can choose to offer employees a pre-tax commuter benefit plan that reimburses for qualified tax-free expenses like transit passes, a taxable employer-paid benefit to reimburse for taxable transit costs like vanpools, or employer-provided transportation like employer-chartered buses.

New York City requires employers with a New York City location and 20 or more full-time, non-union employees to offer said full-time employees a commuter benefits plan that enables them to save tax-free money for qualified transportation expenses.

Washington, D.C. requires businesses with 20 or more employees located within the city to provide said employees with a commuter benefits plan. Employers have the option to offer a pre-tax commuter benefit plan into which employees save tax-deductible money to reimburse for qualified transit expenses, an employer-paid direct benefit for taxable reimbursements, or employer-provided transportation like a chartered bus.

Seattle requires businesses with 20 or more employees to provide said employees with a pre-tax commuter benefits plan through which they can save and reimburse for qualified transit expenses.

Richmond, CA requires businesses with 10 or more employees who work an average of 10 or more hours per week to provide said employees with one of the following: a pre-tax commuter benefits plan through which employees save and reimburse for qualified transit expenses, an employer-paid direct commuter benefit through which employees reimburse for taxable transit costs, an employer-provided transportation method like a chartered bus, or commuter benefits through the City of Richmond plan. Employers with 50 or more employees must register with the Bay Area Commuter Benefits Program.

Berkeley, CA-based employers with 10 or more employees must offer workers one of the following: a pre-tax commuter benefits plan through which they can save and reimburse for qualified transit expenses, an employer-paid direct benefit through which employees can reimburse for taxable transit costs, or an employer-provided transportation method like a shuttle. Employers with 50 or more employees must register with the Bay Area Commuter Benefits Program.

Los Angeles, CA-based employers with a total of 50 to 249 full and part-time employees at a single worksite must offer a commuter tax benefit to every full-time employee at that worksite - read the full bill. 

Philadelphia, PA-based employers with 50 or more employees must offer a mass transit program to covered employees, defined as anyone 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 remote employees and government entities are exempt and employers are not required to provide a commuter benefit unless an employee requests one. Once requested, employers have 60 days to provide a commuter benefit. Employers can offer an employee-paid, pre-tax payroll deduction, or provide an employer-paid direct benefit such as a public transit key card or transportation shuttle.

New Jersey requires employers with more than 20 employees to offer a pre-tax transportation fringe benefit to employees who are not currently in a collective bargaining agreement.

Illinois requires employers with 50 or more covered, full-time employees in a specific geographic area, who live within one mile of a transit route, to offer a pre-tax commuter benefit plan. 

How Lively can help

Lively offers a comprehensive suite of flexible benefit options to help you achieve your business and people goals while maintaining fidelity to your budget. We bring our extensive industry knowledge of what’s popular, what’s working (and what’s not) and which benefits pair well together, to our client partnerships so that you can craft the most impactful benefits package possible. 

Our commuter benefits are designed to meet the needs of the flexible, modern employee. They include tap-to-pay, mobile payment allocation, flexibility to pause or adjust contributions, and ability to add post-tax benefits that enable employers to cover “extra mile” expenses such as bike, scooter, and ride shares and meals at work.

We have specifically designed our benefits administration platforms to make bundling benefit accounts easy and cost-effective. You tell us your challenges and your goals, we give you the benefits solution. If you’re ready to uplevel your benefits package, reach out to Lively today.