Commuter connections: helping employees reduce their commuting expenses can cut employers' costs, too

HR Magazine, July, 2004 by Carolyn Hirschman

The money spent on vanpool arrangements is eligible for favorable tax treatment, the IRS says, if 80 percent of the vans' miles are used for transporting employees to and from work. Employers generally purchase or lease vans and offer a guaranteed-ride-home program.

The IRS doesn't require a written plan for commuter benefits, but experts say it's a good idea to have something in writing to show employees. The plan should describe the benefits offered, how to enter and exit the program, how to make and change payroll deduction amounts, and other details.

Setting Up the Program

The employer's first step in establishing commuting benefits is to determine the kinds of benefits to offer and who will pay for them. Survey workers to learn how they get to work, how they'd like to get to work and how much they spend on commuting.

The employer's decision on whether to contribute to employees' costs makes a difference in the outcome, says the Federal Transit Administration's William B. Menczer, who manages the federal government's commuting benefits program, Commuter Choice. "When the employer pays for the benefits, there's a mode shift of 10 percent to 20 percent ... from single-occupancy automobile to transit," he says. "If the employee pays, the shift is minimal."

Ask your local transit agency to make an employer presentation, says David Judd, vice president of marketing at Commuter Check Services Corp., a TPA in Englewood, N.J. "They're knowledge-, able about the options. They'll walk you through the process."

Startup tasks are fairly simple: Communicate the benefit to employees in company newsletters, on web sites and in other media. Some employers hold "commuter fairs" or other special events to publicize a plan. Then enroll those who want to participate, and set up payroll deductions if necessary. Although participation may start slowly, Rhodes says, it will "almost always double in the first six months."

Once a program is up and running, employers order transit passes or vouchers (often done quarterly), store them securely and distribute them (usually monthly). Employers can buy passes in bulk from local transit agencies or commuter-assistance programs. Some companies purchase transit vouchers--coupons that can be redeemed for fares. Vouchers must match fares exactly, however, because no cash can be returned to the user.

TPAs can handle the whole process, including startup, for an administrative charge of $5 to $7 per participant per month, not including costs such as vans and transit passes. Small companies can generally handle the program on their own. Although there's no rule of thumb on when to employ a TPA, one expert suggests 25 participants as the threshold.

Multiple-site employers and those in large metropolitan areas face a more complicated situation because of different transit and payment systems. Also, employees at one location may spend more on commuting than employees at another, so they may want a richer benefit.

One solution is to use cash-like vouchers that can be redeemed on all transit systems. At the nonprofit American Association for Cancer Research (AACR) in Philadelphia, more than half of the 104 employees make pretax contributions to a plan that provides vouchers good on trains and buses in New Jersey, Pennsylvania and Delaware, says Vern Mitchell, human resource director. The vouchers come in $15, $20, $30, $35, $60 and $65 denominations. Employees determine what they need each month.