Two new laws require employers in Washington, D.C. (D.C.) and New York City (NYC) to offer pre-tax transit benefits, effective on January 1, 2016. Employers with employees in these cities must take action quickly to ensure compliance with the new requirements.
Under D.C. law (D.C. Transit Ordinance, D.C. Law 20-142), by January 1, 2016, employers with 20 or more employees in Washington, D.C., (including nonprofits) must provide at least one of the following benefits to employees:
- A transportation fringe benefits program allowing employees to make pre-tax deductions for commuter highway vehicle, transit or bicycling costs, consistent with section 132(f)(1)(A), (B), and (D) of the Internal Revenue Code (Code), with benefit levels at least equal to the maximum gross income deduction allowed for such programs under Code Section 132(f)(2);
- An employer-paid benefit program in which the employer provides a transit pass for a public transit system requested by each covered employee, or reimbursement of vanpool or bicycling costs that are at least equal to the purchase price of a transit pass for an equivalent trip on a public transit system; or
- Employer-provided transportation at no cost to the covered employee in a vanpool or bus operated by or for the employer.
Although the law currently only applies to employers with 20 or more employees in Washington, D.C.; under the terms of the law the mayor of D.C. may, through a future rulemaking, require employers with less than 20 employees to provide such benefits. This less than 20 employee requirement will not go into effect until January 1, 2017, if at all. For purposes of this law, an ‘employer’ is defined as “any individual, partnership, association, corporation, business trust, or any person or group of persons acting directly or indirectly in the interest of an employer in relation to an employee” (excluding the United States and the District of Columbia as employers), and an ‘employee’ is any individual employed by an employer (excluding certain volunteers, babysitters and lay persons elected or appointed to office in a religious organization). Thus, an individual who is employed by any such employer in Washington, D.C., must receive one of the specified benefits, even if the individual does not reside in D.C.
Employers failing to offer at least one of the specified benefit programs will be subject to civil fines and penalties under the D.C. Department of Consumer and Regulatory Affairs Civil Infractions Act.
Under NYC law (NYC Transit Ordinance, Local Law 53), New York City employers (including nonprofits) with 20 or more full-time employees (this includes employers within the five boroughs of NYC) must offer those full-time employees the opportunity to use pre-tax earnings to buy qualified transportation fringe benefits (other than qualified parking), in accordance with federal law. Under federal law, a qualified transportation fringe benefit includes vanpooling/commuter highway transportation, transit passes and bicycle commuting reimbursement.
Under the terms of the law, full-time employees are those working 30 hours or more per week for the employer. If an employer’s number of full-time employees drops below 20, any employee who was eligible to purchase pre-tax qualified transportation fringe benefits under this requirement prior to the reduction must continue to have such an opportunity for the entirety of that employee’s employment.
The new requirement is effective January 1, 2016, but employers will not be subject to penalties for violations occurring before July 1, 2016. An employer who fails to comply with this requirement has 90 days to cure the first violation before a penalty is imposed. After 90 days, the employer is subject to a fine of not less than $100 and not more than $250 for the first violation, and every subsequent 30-day period in which the employer fails to offer the required benefit constitutes an additional violation. Each additional violation results in a $250 penalty. A penalty will not be imposed on an individual employer more than once in any 30-day period.
This requirement does not apply to the federal government, New York state government or the city of New York government as employers; where a collective bargaining agreement exists between employers and employees, except where 20 or more full-time employees are not covered by the agreement (in which case all such employees must be offered the pre-tax transportation benefits option); or to employers who are not required to pay federal, state and city payroll taxes. In addition, this requirement can be waived if an employer demonstrates that offering the benefit would be a financial hardship for the employer.
Proposed rules provide clarification on the new requirement, including the following:
- The required benefit need not be offered to full-time employees who work remotely and do not commute to a physical office or work site in NYC.
- An employer’s number of full-time employees is determined by calculating the average number of full-time employees for the most recent consecutive three-month period (or the number of full-time employees per week for the period of time in which the employer has been in operation, if less than three months), counting the full-time employees at all of the employer’s NYC locations.
- A full-time employee for purposes of the requirement is an ‘employee,’ ‘manual worker,’ ‘railroad worker,’ ‘commission salesman,’ and ‘clerical or other worker’ (as those terms are defined in New York State Labor Law) who has worked an average of 30 hours or more per week in the most recent four weeks, any portion of which was in NYC, for a single employer. An individual need not reside in NYC to be an employee for this purpose.
- The required benefit must be offered by the later of January 1, 2016, and four weeks after the full-time employee begins employment with the employer.
- Employers must retain, for two years, records that are sufficient to demonstrate that (1) each eligible full-time employee was offered the opportunity to use pre-tax earnings to buy qualified transportation fringe benefits as required under the law, and (2) whether the employee accepted or declined the offer (a form is available to document compliance).
- Instead of offering the opportunity to purchase pre-tax transportation fringe benefits, an employer may provide (at the employer’s expense) a transit pass or similar form of payment for transportation on public or privately owned mass transit to commute to or from a workplace or work location in NYC. If the employer-provided transit pass or similar form of payment is less than the maximum qualified transportation fringe benefit allowed under federal law, then the employer must offer employees the opportunity to make up the difference in pre-tax payroll deductions.
Next Steps for Employers
In light of these new laws, employers need to determine whether their current transit benefit programs, if any, comply with the new D.C. and NYC requirements, and update these benefits as necessary, effective by January 1, 2016. In addition, employers, who are subject to the new requirements and do not currently offer any transportation benefit programs, need to establish such programs in compliance with the new laws, effective by January 1, 2016.