The Seattle Commuter Benefits Ordinance becomes effective on January 1, 2020. Businesses with 20 or more employees must allow a covered employee to make a monthly pre-tax payroll deduction for transit or vanpool expenses. The ordinance encourages commuters to use transit options other than single occupancy vehicles, thus reducing traffic congestion and carbon emissions. Because the deduction is pre-tax, the law has the added benefit of lowering costs for both workers and businesses. The Seattle Office of Labor Standards (OLS) is responsible for implementing the Commuter Benefits Ordinance. The OLS’s enforcement begins January 1, 2021. In 2019 and 2020, OLS will develop administrative rules and enforcement procedures.
Sound Benefit Administration is ready to provide administration of this plan by creating plan documents, enrollment materials, transit debit cards and easy claim administration.
Frequently Asked Questions regarding the new Seattle Commuter Benefits Ordinance
Q1: What does this ordinance do?
A: This ordinance requires employers of 20 or more employees to allow an employee to make a monthly pre-tax payroll deduction for transit or vanpool expenses. The ordinance encourages employees to take transit or vanpool to work, which reduces traffic congestion and carbon emissions. It also results in tax savings for both workers and businesses.
Q2: Where can I read the ordinance’s language?
A: You can find the ordinance in the City of Seattle’s Municipal Code.
Q3: What are pre-tax election commuter benefits?
A: Under this ordinance, “pre-tax election commuter benefits” are monthly payroll deductions before taxes to cover transit and vanpool expenses. An employer may also offer a partially or wholly employer-paid transit pass to satisfy its obligations under this ordinance. Employers can administer a program themselves or use a third-party administrator to oversee a program for them. The Internal Revenue Code (Section 132(f)) refers to this benefit as “qualified transportation fringe” benefits. Note: While the Internal Revenue Code also allows pre-tax deductions for parking expenses, this ordinance does not require a business to offer pre-tax deductions for parking.
Q4: Who is considered an “employer” for purposes of complying with the ordinance.
A: The Ordinance defines an employer as any individual, partnership, association, corporation, business trust, or any entity, person or group of persons, or a successor thereof, that employs another person and includes any such entity or person acting directly or indirectly in the interest of the employer in relation to the employee.
Q5: Is an employer who is not domiciled in the Seattle city limits, but has employees working in the Seattle city limits, required to comply?
A: We understand that, yes, if an employer, domiciled anywhere, has even one employee working within the city limits an average of 10 hours per week, that employee must be offered a transit plan.
Q6: What businesses are exempt from this Ordinance:
A: Employers with fewer than 20 employees worldwide. It also does not apply to tax-exempt organizations and government agencies.
Q7: How does a business determine how many employees they have?
A: A business calculates the number of employees by counting the average number of employees who worked for compensation each calendar week during the prior calendar year. In doing so, businesses must remember to do the following:
- Count all employees worldwide
- Count employee of all employment statuses (full-time, part-time, seasonal, temporary, employees supplied by a placement agency, etc.); and
- Include any week during which at least one employee worked. Employers should not include weeks where no employees worked.
Q8: Which employees does this ordinance cover?
A: Whether the ordinance applies to an employee depends on the number of hours worked in the previous month. The ordinance will apply to an employee if they worked at least an average of 10 hours per week within the city limits in the previous month. This includes seasonal, part-time or temporary workers.
Q9: Does the ordinance apply to employees who occasionally work in the City of Seattle?
A: Yes, the ordinance may apply. If the employee works an average of ten or more hours per week in Seattle, the ordinance applies.
Q10: Does the ordinance apply to employees who live outside Seattle but commute to Seattle to work?
A: Yes. The ordinance covers employees who work in Seattle. It does not matter where the employee lives.
Q11: Must an employer offer the pre-tax deduction to employees who telecommute?
A: Yes, but only if the employee works an average of ten or more hours per week in Seattle. An example: Employer A is domiciled in Woodinville. Their employee, Jack, works 2 eight-hour days per week from his home in Seattle, he works the remaining 3 days at HQ in Woodinville. Employer A is required to comply with the Ordinance and Jack is eligible for pre-tax deductions.
Q12: How do new businesses calculate the number of employees they have?
A: Employers that did not have any employees during the previous calendar year count the average number of employees employed per calendar week during the first 90 calendar days that the employer engaged in business.
Q13: Does an employer have to comply if it undergoes a workforce reduction to fewer than 20 employees?
A: No. If the average number of employees who worked for compensation each week in the prior calendar year does not meet 20, an employer is not required to provide commuter benefits to their employees beginning in the new calendar year. However, an employer is encouraged to continue doing so voluntarily.
Q14: What if the employer already pays for the commuter benefits for employees using public transportation?
A: If the employer pays 100% of the commuting expenses for the employee, then they meet the requirement of the Seattle Commuter Benefits Ordinance.
Q15: When do employers have to begin complying?
A: Businesses must comply with the ordinance beginning on January 1, 2020.
Q16: When does enforcement begin?
A: The Office of Labor Standards will accept complaints about alleged violations beginning on January 1, 2021.
Q17: What must an employer do in order to comply with the Ordinance?
A: Covered employers can meet their obligation under the ordinance by doing one of the following:
- Create a program that allows employees to make a pre-tax deduction for transit or vanpool expenses up to the full amount allowed by federal law; or
- Pay for the entire or part of an employee’s transit pass.
Note: Future rulemaking will impact these requirements, including about how using an employer subsidy will satisfy the requirements.
Q18: How much may an employee deduct from their wages?
A: In 2019, the limit is $265 per employee per month for transit (bus, light rail, ferry, and water taxi) and vanpool. Each year, the Internal Revenue Service will announce the new cap. OLS will update this document with future relevant amounts when available. Please also see the Internal Revenue Service Employer’s Tax Guide to Fringe Benefits (2019) for more information.
Q19: Is an employee required to make a pre-tax deduction?
A: No. The ordinance does not require an employee to make a pre-tax deduction. Rather, the ordinance requires an employer to make a pre-tax deduction available to the employee and the employee may choose (or not choose) to take advantage of it.
Q20: When must an employer first offer the pre-tax deduction to their employees?
A: Employers must offer pre-tax deductions to covered employees within 60 calendar days of the employee commencing employment or January 1, 2020.
Q21: After an employee elects to exclude money from their taxable wages, how soon must an employer provide the payroll deduction?
A: The employer must provide the deduction within 30 calendar days of the employee selecting the option.
Q22: What are the notice and posting requirements of the ordinance?
A: As of January 1, 2020, covered employers must display a poster that gives notice of an employee’s rights to exclude commuting costs incurred for transit or vanpool expenses from their taxable earnings. Employers must display the poster in English and in the primary languages of the employees at the workplace.
The Office of Labor Standards will create this poster and make it available to employers in late 2019. It is likely that OLS will incorporate commuter benefits information into the existing Labor Standards Workplace Poster that it updates annually.
Q23: Where can I find a copy of the Office of Labor Standards Workplace Poster?
A: You can find a copy of the Office of Labor Standards Workplace Poster online on their website or you can pick one up at their office. They are located in downtown Seattle at 810 Third Avenue in Suite 375.
Q24: What records must an employer keep?
A: Employers are required to keep records that document compliance with the ordinance, including written documentation of the employer’s offer of pre-tax deduction to individual employees. OLS strongly encourages employers to retain documentation of an employee’s response to the offer as it may be required to show compliance. Employers must keep these records for three years. An employer must keep records of offering pre-tax deduction to ANY employee who worked more than an average of 10 hours per week within the city limits in each prior month – INCLUDING seasonal and temporary workers.
Q25: Are there any reporting requirements?
A: No, since ERISA does not apply to this plan, a Form 5500 (Annual Return/Report of Employee Benefit Plan) is not required to be filed. An employer can choose to report deductions on Form W-2 (under Box 14, for “Other”), but this is entirely optional. Additionally, it does not appear at this time that the city of Seattle will require any type of reporting. An employer must simply keep accurate records.
Q26: Is a Transit debit card available to employees if we have Sound Benefit Administration as our third-party administrator?
A: Yes, the transit debit card will work only at transit locations where the card machines are programmed with parking or transit merchant codes.
Q27: What if we opt to not offer a Transit debit card, can employees submit claims manually?
A: Yes, receipts for transit pass purchases and vanpool statements or invoices are all eligible documentation for reimbursement.
Q28: Is this plan a COBRA eligible benefit?
A: No, it is not.
The Bottom Line
Q29: What does my business need to do prior to January 1, 2020.
A: Prior to January 1, 2020, employers will need to assess if they are required to comply with the Ordinance. Qualifying employers will need to implement a written plan document, prepare enrollment materials and contact their payroll company about collecting pre-tax deductions for transit beginning in January, 2020.
As we mentioned, we expect to see some changes as the OLS issued rules and procedures. One big unanswered question is what will the penalty be for non-compliance? Stay tuned right here and we’ll keep you updated.
The main thing employers need to do now is get their plan in place prior to January 1, 2020. We can help with that. Contact us if you would like a quote for administration services.
If you have additional questions about how the Transit and Parking (not required in this Seattle Ordinance) plans work, see the Frequently Asked Questions on our website.
Gina Marken is President of Sound Benefit Administration, a boutique, yet full-service Third Party Administrator located in Poulsbo, WA. To receive the latest updates on COBRA, HRA, HSA, FSA, POP or Transportation Plan news, subscribe to our Soup Scoop Newsletter, like us on Facebook, follow us on Twitter or connect with us on LinkedIn.