This month a new law requiring certain New York City employers to provide pre-tax commuter benefits to their employees went into effect. Under the law, covered New York City employers must give full-time employees the opportunity to use up to $255 per month in pre-tax income to purchase qualified transportation fringe benefits. (N.Y. City Local Law 53 (2014)). Although the law went into effect on January 1, 2016, the law provides a six-month grace period until July 1, 2016 for employers to begin offering commuter benefits to employees. After July 1, 2016, the New York City Department of Consumer Affairs will begin enforcement of the NYCCBL which includes the authority to fine employers up to $250 per violation.
Detailed below is a summary of the requirements of the NYCCBL, as well a description of the options for complying with those requirements.
Requirements of the New York City Commuter Benefits Law
For-profit and nonprofit employers with twenty or more full-time, non-union employees within the five boroughs of New York City are covered by the NYCCBL. A “full-time” employee is defined under the law as “any employee who works an average of thirty or more hours per week, any portion of which was in New York City, for a single employer.” (N.Y. City Dep’t of Consumer Affairs, Commuter Benefits Law FAQs). Employers should calculate the average number of hours worked by employees by looking at the most recent four weeks. Chain businesses must count full-time employees working at all locations in New York City to determine the total number of eligible employees. (N.Y. City Dep’t of Consumer Affairs, Commuter Benefits Law FAQs).
Covered employers must give full-time employees (not independent contractors or part-time, temporary, or seasonal workers) a written offer of the opportunity to use pre-tax income to purchase qualified transportation fringe benefits. In addition, covered employers must also establish a commuter benefits program that allows full-time employees to use up to $255 per month in pre-tax income for transit passes that can be used on qualifying publicly or privately owned mass transit or commuter vans with a seating capacity of six or more passengers. (N.Y. City Dep’t of Consumer Affairs, Commuter Benefits Law FAQs Appendix A). Pre-tax dollars may be used to pay for more than one mode of transportation, such as a commuter train and the subway in combination.
How to Comply with the NYCCBL
New York City employers who already offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits up to $255 per month are not required to do anything further under the NYCCBL. Covered New York City employers who do not already offer such benefits to full-time employees must take two steps in order to comply with the NYCCBL: (1) provide proper notice to full-time employees and (2) implement a commuter benefits program.
Employers can satisfy the written notice requirement by distributing a written offer form that full-time employees can sign to indicate whether they would like accept or decline commuter benefits. A sample written offer form is provided here by the New York City Department of Consumer Affairs. Employers should collect the signed forms from full-time employees and retain those forms for two years in order to document compliance. Employees who do not initially elect to enroll in the commuter benefits program may do so at a later time.
After notice has been provided, New York City employers have three choices for establishing a benefits program that is compliant with the NYCCBL requirements. First, employers can deduct the pre-tax amount directly from payroll and either (1) administer a benefits program themselves or (2) select and retain a third-party provider to administer the benefits program. Third-party providers typically charge 3-5% of the benefit received per employee and provide employees with a pre-paid debit card using money deducted from the employee’s pre-tax income. Employers electing to administer their own plan should consult with tax providers to ensure the program is implemented effectively.
Second, employers can elect to provide employees with a tax-free cash reimbursement for transportation up to the maximum amount of $255 per month. This option effectively amounts to giving the employees a raise, but does limit the administrative burdens associated with establishing a benefits program using direct deduction from payroll. Third, and finally, employers can provide transportation services (such as a van or car service) directly to employees in lieu of providing pre-tax payment for transportation.
Although it may create more of an administrative burden than direct cash reimbursement, the direct deduction option may make the most sense for many employers from both a tax and cost perspective. In particular, direct payroll deduction offers the dual advantages of (1) eliminating the need to give eligible employees what amounts to a raise and (2) reducing the employer’s payroll taxes.
With the grace period for enforcement ending on July 1, 2016, employers with twenty or more full-time employees working in New York City that do not already have a commuter benefits program should take steps to comply with the NYCBBL as soon as possible. Failure to comply with the law by July 1, 2016 could result in penalties of up to $250 per violation, with additional penalties available after every 30-day period of non-compliance.