For San Francisco Bay Area employers, there’s a new sheriff in town: The Bay Area Air Quality Management District. Its new regulations require Bay Area employers to offer qualifying commuter benefits to employees, as well as register which benefits will be offered, by September 30, 2014. As much of our attention centers on the January 1, 2015 effective date of the PPACA employer mandate/pay or play/employer shared responsibility1 rules, Bay Area employers should take care not to let this new interim compliance requirement slip between the cracks.
The Bay Area Commuter Benefits Program (the “Program”) is a new mandate imposed by the Metropolitan Transportation Commission’s and the Bay Area Air Quality Management District’s (collectively, the “Air District”)’s recently adopted Regional Commuter Benefits Ordinance (the “Ordinance”). The California Legislature established the Air District’s authority to implement and enforce the Ordinance through SB 1339,2 which codified into law California Government Code § 65081 upon Governor Brown’s signature in 2012.
By the terms of § 65081, this authority sunsets when the law is automatically repealed at the end of 2016, unless the Legislature acts to extend that date or make the law permanent. The stated purpose of the Program is to decrease motor vehicle travel and traffic congestion, and to reduce associated emissions of greenhouse gasses and other air pollutants, in the interest of protecting public health and the climate.
Air District Regional Jurisdiction for the Program
Although certain Bay Area cities have had their own commuter benefits ordinances in effect since 2009,3 the Program is the first requirement that broadly applies to the entire Bay Area region. The Program applies to the entire area within the Air District’s jurisdiction, which includes Alameda County, Contra Costa County, Marin County, Napa County, San Francisco County, San Mateo County, Santa Clara County, and two portions of Solano County.
Click here for a full description of the Air District’s jurisdictional boundaries.
A Bay Area employer is subject to the Program’s mandates if it employs an average of 50 or more full-time employees (defined as an employee who performs an average of at least 30 hours per week, excluding seasonal and temporary employees) within the geographic boundaries of the Air District. The Air District’s published materials make clear that the Program is mandatory for covered employers.
Employers must offer the Program to all employees who work at least 20 hours per week within the geographic boundaries of the Air District.
Program Compliance Options
The Ordinance specifies four options for employers to comply with the Program. The employer must offer at least one of these options to comply:
Option 1) Pre-Tax Benefit: This is the standard Internal Revenue Code § 132(f) qualified transit plan structure. Under this approach, which is likely the option most covered employers already or will offer to comply, the employer allows employees to make pre-tax contributions to pay for a “transit pass” or “vanpooling” (see below). The transit plan must permit the employee to contribute up to the maximum limit under § 132(f), which is currently $130/month.4
“Transit pass” defined: Any pass, token, farecard, voucher, or similar item (including an item exchangeable for fare media) that entitles a person to transportation on mass transit facilities (whether or not publicly owned) or provided by a person in the business of transporting persons for compensation or hire in a highway vehicle with a seating capacity of at least 6 adults (excluding the driver). (See: Treas. Reg. § 1.132-9, Q/A-3).
“Vanpooling” defined: Transportation in a commuter highway vehicle in connection with travel between the employee’s residence and place of employment. A commuter highway vehicle is a highway vehicle with a seating capacity of at least 6 adults (excluding the driver) and with respect to which at least 80% of the vehicle’s mileage is reasonably expected to be (i) for transporting employees in connection with travel between their residences and place of employment, and (ii) on trips during which the number of employees transported for commuting is a least one-half of the adult seating capacity of the vehicle (excluding the driver). (See: Treas. Reg. § 1.132-9, Q/A-2).
Option 2) Employer-Provided Subsidy: Under this approach, the employer provides a transit pass or vanpool (as defined above) subsidy to offset the employee’s monthly cost of commuting via transit or vanpool. To satisfy this requirement, the employer must provide a subsidy of at least $75 per month (or, if lower, the employee’s actual cost of commuting via transit or vanpool) through vouchers, debit/credit cards linked to a commuter account, or directly loaded on to a Clipper card. These subsidies are excludible from income (up to $130/month) under § 132(f). However, unlike Option 1, this subsidy amount is paid for by the employer. The required subsidy amount is indexed for inflation for future year increases based on the California Consumer Price Index for San Francisco-Oakland-San Jose.
Employers can also offer a tax-free qualified bicycle commuting reimbursement subsidy as an alternative option offered for employees to choose instead of the transit or vanpool subsidy. There are a few important considerations to be aware of under this relatively new addition to § 132(f):
- The tax-free limit for this benefit is only $20/month;
- The amount must be used for reasonable expenses incurred for the purchase, improvement, repair, or storage of a bicycle that is regularly used for travel between the employee’s residence and place of employment;
- The employee must choose between the qualified bicycle commuting reimbursement or the transit pass/vanpool reimbursement — the employee cannot receive both; and
- Employees cannot contribute on a pre-tax basis to the qualified bicycle reimbursement program in the same manner as permitted for the transit pass or vanpool benefit — it must be entirely employer-paid.
Option 3) Employer-Provided Transit: If the employer provides transportation from the employee’s home community to the worksite at no cost or at a low cost (as defined in the Ordinance) to the employee, this also satisfies the Program requirement (e.g., Google bus or Facebook bus from San Francisco to Silicon Valley).
Option 4) Alternative Commuter Benefit Program: This final option allows employers to propose an alternative commuter benefit that would “provide at least the same reduction in single-occupant vehicle trips as any of the options described [above].” 5 The Air District must evaluate and approve any such alternative proposed by the employer. The Air District has developed a list of pre-approved commuter benefit alternatives that are comprised of “Primary Measures” and “Secondary Measures.” The Air District will approve an alternative commuter benefit program under this Option 4 if the employer (i) selects one Primary Measure plus at least two Secondary Measures, or (ii) selects at least four Secondary Measures. The table listing these Primary Measures and Secondary Measures is available on page 8 of the Program’s Employer Guide.
Employers must designate a “Commuter Benefits Coordinator” to complete an online registration process specifying which Program option the employer offers to comply. The Commuter Benefits Coordinator is required to update the registration form annually.
Employers must maintain and retain records, files, and documentation to establish compliance with the Program for a period of three years. These records, files, and documents must be available to the Air District upon request.
Employee Notice Requirement
Employers must use “appropriate means” such as “email messages, paper memos, in-house newsletters or bulletins, and/or conventional or electronic bulletin boards” to notify covered employees of the Program.6 The notice content requirements include:
- That the employer is subject to the Program’s requirements,
- Which Program option the employer has chosen to comply,
- How a covered employee may apply for and receive a commuter benefit, and
- A point of contact within the organization for further information.
This notification must be included as part of any employee benefits package provided to all newly hired employees. It also must be provided when the Program is first made available to employees, and at least once annually thereafter.
Violations of the Program’s requirements are subject to civil penalties applicable to the air pollution control laws in the California Health and Safety Code § 42402 et. seq. The applicable penalty ranges from up to $1,000 per day to up to $10,000 per day, depending on the degree of culpability. A separate penalty provision of up to $35,000 applies for knowing or intentional falsification of documents.
In a FAQ document, the Air District has stated that although “[t]he focus of the Program is to achieve voluntary compliance…[i]f an employer refuses to comply, then the Air District can impose a financial penalty as authorized by the California Health and Safety Code. The penalty for failure to comply would be determined on a case-by-case basis….”
The Ordinance was adopted and approved by the Air District effective March 26, 2014. The Ordinance states that employers must initially register with the Air District no later than six months after that date (i.e., by September 26, 2014). However, the Air District’s published materials state that the compliance deadline is September 30, 2014.
- 1. Identify whether your organization currently offers a commuter benefit that complies with the Program.
- 2. If not, consider which Program option and any commuter benefit service provider your organization will utilize to comply.
- 3. Designate a Commuter Benefits Coordinator to register your organization’s Program selection with the Air District.
- 4. Prepare the required Program notice to employees.
- 5. Create and maintain proper records to demonstrate Program compliance.
1 Protip: These are three commonly used names for the same requirements under IRC § 4980H.
2 SB 1339 was authored and introduced by State Senator Leland Yee, who is currently on paid suspension from his office after being arrested and charged by federal authorities with conspiracy to traffic in firearms without a license and accepting campaign funds in exchange for political favors.
3 Only San Francisco employers with fewer than 50 employees in the Bay Area but more than 20 employees nationwide should report under the San Francisco Commuter Benefits Ordinance.
4 The Senate Finance Committee recently approved the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act (commonly referred to as the “tax extenders” bill). If enacted, the EXPIRE Act would increase the transit and vanpool limits to $250/month (in parity with the qualified parking limit) through 2015.
5 Air District Regulation 14, Rule 1, Section 14-1-302
6 Air District Regulation 14, Rule 1, Section 14-1-405.