Gas Prices Prompt Employers to Consider Commuter Benefits
by Agatha Gilmore
Tired of costly fill-ups? You're not alone. The rising price of gas has led more and more employees to take alternative transportation to work, and employers are beginning to view pretax commuter benefits as a competitive recruiting and retention tool.
"It's definitely becoming a standard workplace benefit; you almost have to offer it," said Dan Corbett, vice president of transportation development at WageWorks, a leading provider of tax-advantaged services. "Transportation costs and [related] issues are a big part of what employees are facing, and that's going to trickle back to their employers."
Corbett said the pressure for employers to relieve some of the burden likely will remain as commuting emerges. American Public Transportation Association (APTA) numbers seem to corroborate this. APTA reported more than 10 billion public transportation trips were taken in 2007, the highest number in 50 years. On top of that, the APTA reported last week that Americans have taken nearly 85 million more trips on public transportation in the first three months of this year than during the same time period in 2007.
Currently, employers can provide up to $115 a month for transit passes tax free, and parking passes up to $220 a month tax free, Corbett said. Employers also can reimburse vanpool expenses up to $115 a month tax-free, he said. To be eligible, the van must carry at least six people, plus a driver, and the company can either lease vans to employees to use or hire a third-party service, or employees can supply their own.
"More people are also starting to look at alternative commuting plans in addition to the traditional transit and parking plans," Corbett said. "Not all employers have offered it - it's still penetrating into the marketplace - but we're getting people look[ing] at providing biking subsidies, providing carpool subsidies and other things. Now, those don't have the tax preference under federal tax law, but [with] all this focus on commuting, I expect there's going to be some legislative activity in this area."
Corbett said in some cities in the West, such as Seattle and Phoenix, environmental and air-quality regulations already require corporations to come up with approved go-green plans to help reduce the number of people driving to work alone. As a result, companies in these areas already encourage carpooling, sponsor ride sharing or subsidize transit passes.
"You have a large employer, like a bank, with branches in any of those cities. They're going to potentially have to take those kinds of actions, and while they're at it, they might just implement it for everybody," he said.
How much can organizations expect to pay to implement a pretax commuter benefit system offered by a third party?
"If your employees elect a pretax program, as an employer you do not pay payroll taxes any more on that portion of their income," Corbett explained. "For most client [these tax savings] will fully pay for the program. Depending on exactly how they implement it, they can actually make a little money or they can at least [break even]."
WageWorks estimates employees generally save between 30 and 40 percent annually on transportation costs by using pretax benefits. For workers buying transit passes, that's roughly $500 a year, and for those paying for parking, it's about $1,000 a year.
"We do have participants who get the total maximum, so they're saving $1,500 a year," Corbett said.
With more and more employees seeking relief from pain at the pump regional transit, pretax commuter benefits represent one more way employers can recruit and retain their workers.
"We had a leading law firm in San Francisco that offered the benefit, and the legal [market in the area] was quite competitive, " Corbett said. "We had the three bigger competitors [sign up] within the end of the month, just because people basically said, 'We can't compete.' It's the same thing when 20 years ago you could get away not offering everyone a 401(k) program: You cannot today. I think we're going to see more and more of that penetration happening."
[About the Author: Agatha Gilmore is an associate editor for Talent Management magazine
by Agatha Gilmore
Tired of costly fill-ups? You're not alone. The rising price of gas has led more and more employees to take alternative transportation to work, and employers are beginning to view pretax commuter benefits as a competitive recruiting and retention tool.
"It's definitely becoming a standard workplace benefit; you almost have to offer it," said Dan Corbett, vice president of transportation development at WageWorks, a leading provider of tax-advantaged services. "Transportation costs and [related] issues are a big part of what employees are facing, and that's going to trickle back to their employers."
Corbett said the pressure for employers to relieve some of the burden likely will remain as commuting emerges. American Public Transportation Association (APTA) numbers seem to corroborate this. APTA reported more than 10 billion public transportation trips were taken in 2007, the highest number in 50 years. On top of that, the APTA reported last week that Americans have taken nearly 85 million more trips on public transportation in the first three months of this year than during the same time period in 2007.
Currently, employers can provide up to $115 a month for transit passes tax free, and parking passes up to $220 a month tax free, Corbett said. Employers also can reimburse vanpool expenses up to $115 a month tax-free, he said. To be eligible, the van must carry at least six people, plus a driver, and the company can either lease vans to employees to use or hire a third-party service, or employees can supply their own.
"More people are also starting to look at alternative commuting plans in addition to the traditional transit and parking plans," Corbett said. "Not all employers have offered it - it's still penetrating into the marketplace - but we're getting people look[ing] at providing biking subsidies, providing carpool subsidies and other things. Now, those don't have the tax preference under federal tax law, but [with] all this focus on commuting, I expect there's going to be some legislative activity in this area."
Corbett said in some cities in the West, such as Seattle and Phoenix, environmental and air-quality regulations already require corporations to come up with approved go-green plans to help reduce the number of people driving to work alone. As a result, companies in these areas already encourage carpooling, sponsor ride sharing or subsidize transit passes.
"You have a large employer, like a bank, with branches in any of those cities. They're going to potentially have to take those kinds of actions, and while they're at it, they might just implement it for everybody," he said.
How much can organizations expect to pay to implement a pretax commuter benefit system offered by a third party?
"If your employees elect a pretax program, as an employer you do not pay payroll taxes any more on that portion of their income," Corbett explained. "For most client [these tax savings] will fully pay for the program. Depending on exactly how they implement it, they can actually make a little money or they can at least [break even]."
WageWorks estimates employees generally save between 30 and 40 percent annually on transportation costs by using pretax benefits. For workers buying transit passes, that's roughly $500 a year, and for those paying for parking, it's about $1,000 a year.
"We do have participants who get the total maximum, so they're saving $1,500 a year," Corbett said.
With more and more employees seeking relief from pain at the pump regional transit, pretax commuter benefits represent one more way employers can recruit and retain their workers.
"We had a leading law firm in San Francisco that offered the benefit, and the legal [market in the area] was quite competitive, " Corbett said. "We had the three bigger competitors [sign up] within the end of the month, just because people basically said, 'We can't compete.' It's the same thing when 20 years ago you could get away not offering everyone a 401(k) program: You cannot today. I think we're going to see more and more of that penetration happening."
[About the Author: Agatha Gilmore is an associate editor for Talent Management magazine