On January 1, 2016 employers with 20 or more full-time employees in New York City will be required to offer up to $130 in pre-tax transit benefits to their employees. The law covers a wide array of employers including for-profit and nonprofit businesses, business headquartered outside the City with NYC-based employees, and chain businesses. Employers will be required to keep records demonstrating compliance with the law and provide eligible employees with commuter benefits enrollment materials. Although penalties for noncompliance will not be enforced until July 1, 2016, with the January 1, 2016 deadline fast approaching employers are well advised to reexamine their benefits programs to ensure compliance with the new law.
On January 1, 2016 New York City’s new Commuter Benefits Law will take effect. Under the law, for-profit and non-profit employers with twenty or more full-time non-union employees in New York City must offer their full-time employees the opportunity to use pre-tax income to purchase qualified transportation fringe benefits, other than qualified parking and bicycling expenses (N.Y.C. Admin Code §20-926). The transportation costs covered under the law include most New York City regional mass transit services and certain ferry, bus, para-transit and vanpool services.
The law does not apply to (1) employees who are covered by a collective bargaining agreement (“CBA”); (2) employers who are not required to pay federal, state, and city payroll taxes; and (3) certain government employees.
The new law defines full-time employees as employees who work an average of 30 hours or more per week in the most recent four weeks, any portion of which was in the New York City. Full-time employees who live outside New York City, but commute to any of the five boroughs are covered by the law. The law does not apply to part-time employees, former employees, independent contractors, or to any employees who are New York City residents but commute to jobs outside of New York City.
To determine whether an employer has at least 20 full-time employees, calculate the average number of full-time employees for the most recent consecutive three-month period. If an employer has multiple locations, the employer must count all full-time employees at all locations in New York City to determine the number of covered employees. If an employer’s workforce is reduced to less than twenty full-time employees, the employees previously eligible for the commuter benefits will remain eligible for the duration of their employment.
Employers must offer eligible employees the opportunity to deduct the maximum amount of pre-tax income, which is currently $130 per month. There is no minimum amount. Alternatively, the employer may provide, at its own expense, a transit pass or a similar form of payment for transportation on public or privately-owned mass transit or in a commuter highway vehicle. However, if the employer funded transportation benefit is less than the maximum allowable commuter benefit (i.e. $130), the employer must offer eligible employees the opportunity to use their pre-tax income to pay for qualified commuter benefits in the amount equal to the difference between the value of the employer-funded transportation benefit and the maximum allowable amount.
Employers must provide eligible employees with a written offer to use pre-tax income to purchase transit benefits and for two years maintain records sufficient to demonstrate that each eligible full-time employee was offered the opportunity to use pre-tax income to purchase transit benefits and indicate whether the employee accepted or decline. The Department of Consumer Affairs (DCA) provides a sample form on its website to document compliance. Employers may select a third-party provider to manage a commuter benefit program or to manage the program themselves. The DCA website has a non-exhaustive list of providers. In any case, employers must provide eligible employees with the appropriate enrollment materials.
While the law goes in effect on January 1, 2016, employers have a six-month grace period until July 1, 2016 to comply and will not be subject to penalties during that time. After the expiration of the grace period, the DCA can seek penalties of $100 to $250 for the first violation, and $250 for each subsequent violation once in any 30-day period of noncompliance. Employers will have 90 days to cure noncompliance after a first violation. The DCA may allow for a financial hardship exemption from the law, if an employer can demonstrate with compelling evidence that complying with the law would be impracticable and create a severe financial hardship for its business.
Employers are well advised to reevaluate their benefits administration programs and implement necessary changes to ensure compliance with the new law in 2016.