Over the past few months, Washington D.C. and New York City have each passed laws for employee commuter benefits, and Honolulu and Kansas City are considering it.
So why the growing interest? Probably partly because these cities have seen how, in San Francisco, there has been an increase in the use of sustainable commuting modes and a reduction in employee commuting costs.
Good city policies can encourage businesses to work with their employees to save money commuting and create workplace incentives.
Begin with environmental goals
The San Francisco Board of Supervisors passed the Commuter Benefits Ordinance in 2009 with support from the business community. As part of the San Francisco Environment Code, the goal of the ordinance is to help the city achieve its air pollution and greenhouse gas reduction goals by reducing drive-alone commuting rates through increased use of walking, biking, transit, carpooling, and vanpooling. The ordinance also supports the Transit First Policy which gives priority to people movement over vehicles.
The San Francisco Department of the Environment administers the ordinance, which also has contributed to making the city more affordable to commute into and around, and effectively helped businesses recruit and retain employees.
Commuter-benefits programs provide financial savings for both employees and businesses. Employees who deduct pre-tax funds from their paycheck reduce their taxable income. As a result, business payroll taxes decrease up to nine percent per participating employee. Companies who choose to provide a transportation subsidy also do not pay payroll taxes and employees do not pay federal or payroll taxes on the benefit amount, up to the current IRS pre-tax limit.
How the public sector helps the private sector
The department’s primary goal is to motivate and assist businesses in implementing a program. We do this through education, consultations, and outreach, and without punitive enforcement.
Businesses with 20 or more employees nationwide, and a location in San Francisco, can choose one or more of three options for compliance that are consistent with Section 132(f) of the IRS tax code:
- The employees deduct transit or vanpool expenses from their pre-tax salaries
- Employers pay the subsidies, and
- Shuttle service offered from the nearest regional transit hub or employee residential locations.
We ask businesses to complete a compliance form to let us know what program they are offering. Over the past five years, we estimate 65 percent of all businesses with San Francisco locations have come into compliance.
Through the responses of the compliance form, we also know that:
- Close to 40 percent of businesses started a commuter benefits program because of the ordinance
- Of these businesses, a third offered these benefits to employees at all offices nationwide. Of all the compliance forms received, 61 percent of all businesses reported offering benefits to all employees nationwide, showing that the ordinance enhances employee benefits beyond the city’s boundaries
- The most common option chosen is the pre-tax program
- Small companies (under 100 employees) have the highest participation rates. The majority do offer the pre-tax program and out of all the employer size categories, these small businesses were more likely to offer a paid subsidy, and
- Overall, 23 percent of all San Francisco employees take advantage of their employer’s commuter-benefits program, and collectively decrease CO2 emissions by 280,000 metric tons a year.
Commuter-benefits programs initiated due to San Francisco ordinance.
How the law is enforced
Through the ordinance, we have enforcement authority. However, we did not start enforcing the ordinance until last year. As mentioned, our primary purpose is to educate, motivate, and assist employers with implementing a program.
After five years, we felt that the initiation of enforcement action was a tool we could use to get the rest of the businesses (the remaining 35 percent) in compliance, but again, our primary goal was to have a program in place and therefore did not penalize businesses if they implemented programs after receiving a fines.
Average participation rate in commuter-benefits program in San Francisco by company size.
Commuter-benefits laws continuing to gain steam
A similar law is now in place for the nine-county San Francisco Bay Area. In 2012, California Governor Jerry Brown passed Senate Bill 1339, which requires businesses with 50 or more employees offer a commuter-benefits program. Two regional agencies, the Bay Area Air Quality Management District and the Metropolitan Transportation Commission manage the Bay Area Commuter Benefits Program.
Over the five years administering the ordinance, we have adopted a few practices that allow us to be more effective and supportive to businesses:
- We offer free one-on-one consultations to guide businesses through the implementation process
- Our website has downloadable step-by-step guides
- We offer Emergency Ride Home (the city pays for emergency rides for any employee working in the city using a sustainable commute mode) and Rideshare matching services as a way to encourage and support employees to take advantage of their employer’s programs
- We provide flyers and posters for businesses to hang in offices to advertise their programs
- We try to make the compliance form as easy to complete as possible
- All materials are available (or will soon be available) in multiple languages, and
- We continually conduct outreach to commuters and businesses throughout the year. We have built relationships with business and neighborhood groups throughout the city to help with outreach.
The ordinance has environmental, affordability and business benefits. Both businesses and employees save on taxes. For the business, it can be a cost-neutral and easy benefit to provide compared to some of the other benefits they are required to provide.
For more information, download the 2013 Commuter Benefits Ordinance report.
Photos by Jayson Lorenzen and Luigi Anzivino.