Private employers with 20 or more full-time, non-union employees in New York City should take steps promptly to ensure compliance with New York City’s Commuter Benefits Law, Local Law 53 (Intro 295-A). The law went into effect on January 1, 2016, but will begin being enforced on July 1, 2016. It requires covered employers to offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits, other than qualified parking, and is based on Internal Revenue Code provisions authorizing pre-tax commuter programs. Currently, federal tax law allows employees to use up to $255 of their pre-tax income per month for qualified transit expenses, up from the previous $130 cap.
Only private employers (non-profit and for-profit) with 20 or more full-time employees in New York City are covered. The applicable number is determined by calculating the average number of full-time employees for the most recent consecutive three-month period. For new businesses (those operating fewer than three months), the number is determined by calculating the average number of full-time employees per week for the period of time the employer has been operating.
Covered employers must continue to offer eligible employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits throughout the duration of their employment, even if the employer’s total number of full-time employees falls below 20.
Employers with more than one location are covered, as long as they have 20 or more full-time employees in New York City.
A chain business, i.e., a group of establishments that share a common owner or principal who owns a majority of each location and which (a) engage in the same business or (b) operate under a franchise agreement with the same franchisor, is also covered, as long as the total number of full-time employees at all of the chain business’ New York City locations equals 20 or more.
Temporary help firms that supply full-time employees to other organizations are also covered and are considered the employer of each such full-time employee for purposes of the law.
Only full-time, New York City employees (i.e., those who work in the Bronx, Brooklyn, Manhattan, Queens and Staten Island, regardless of place of residence) are covered by the law.
A full-time employee is one who works an average of 30 hours or more per week, any portion of which was in New York City, for a single employer. To determine whether an employee is full-time, employers should calculate the average number of hours worked in the most recent four weeks. Hence, compliance requires frequent payroll review by employers.
It is important to note that an employee who meets this hours threshold remains entitled to the benefit even if his or her hours subsequently are reduced.
To comply with the law, covered employers have to provide the opportunity to use pre-tax income, up to the federal maximum, to purchase eligible transit benefits, no later than four weeks after an employee begins full-time work.
An employer may administer its own commuter benefits program or utilize a third-party provider to do the same and must provide employees appropriate enrollment materials for participation.
An employer does not need to offer commuter benefits if it already provides to employees, at its expense, a transit pass for transportation on every mode of eligible public or privately owned mass transit. However, if the value of the employer-provided transit pass is less than the maximum dollar amount allowed under federal law for pre-tax purchases of qualified transportation fringe benefits, then the employer must offer employees the opportunity to use pre-tax earnings to purchase transportation fringe benefits in an amount equal to the difference.
Employers generally may not, as an alternative, provide cash reimbursements to employees participating in a commuter benefits program, as the Internal Revenue Service (IRS) announced new restrictions, effective January 1, 2016, on doing so in geographic areas where terminal-restricted debit cards or transit passes are “readily available.”
Employers have to keep records demonstrating that each eligible full-time employee was provided a written offer to use pre-tax income to purchase transit benefits and indicate whether the employee accepted or declined the offer. Such records may be maintained electronically and must be kept for at least two years. The Department of Consumer Affairs (“DCA”) has a Commuter Benefits Participation Form that may be used to document compliance.
Compliance Deadlines and Enforcement
The DCA currently is responsible for enforcing the law, although the New York City Office of Labor Standards (which is to be officially established sometime in the spring of 2016 and will also take over enforcement responsibilities for the New York City Earned Sick Time Act) ultimately will be responsible for enforcement.
Covered employers have a grace period, until July 1, 2016, before they will be subject to penalties for noncompliance. After July 1, 2016, employers will have 90 days to cure noncompliance before penalties will be imposed.
Employers can be fined $100 to $250 for the first violation of the law if they do not cure the violation within 90 days. If the violation is not cured after the first fine is imposed, an additional fine of $250 may be issued after every additional 30-day period of noncompliance. The law provides that penalties will not be imposed on an employer more than once in any 30-day period. It is not yet known whether such fines will be assessed on a per employee basis (i.e., $100 to $250 multiplied by the actual number of eligible employees for whom the employer does not provide the benefit), but it is important to note that the DCA has taken an aggressive stance in this area with respect to penalties for violations of the New York City Earned Sick Time Act and may do the same here.
Potential Hardship Exemption
The law’s requirements may be waived for certain employers. To qualify for a waiver, an employer must present “compelling” evidence that providing transportation benefits would be impracticable and create severe financial hardship or “significantly harm the business’s finances.” The DCA provides no further guidance in this area.
As many large New York City employers already offer pre-tax transit benefits to their employees, the law’s largest impact will likely be felt by the many smaller employers who may now be required to do the same.
Employers with employees in New York City should determine whether they are covered by the law. If so, employers should consider making changes to the administration of their benefits programs to ensure compliance. Employers should also communicate to employees the offer to use pre-tax income for commuter benefits and take steps to retain records of the same, along with any applicable payroll changes to comply with the law.
Employers should also consult their tax advisors to review any tax implications for their businesses and employees.