Employee Benefits

How Commuter Benefits Improve Employee Productivity?

With rising gas prices, soaring car maintenance and used vehicle costs, commuting to the office has become a costly burden that drains employees' finances, productivity, and satisfaction—making commuter benefits a vital solution for employers.

Has the world moved on from remote and hybrid arrangements?

Even if that’s the case, enticing workers to go back to the office has not been as straightforward, largely due to their commutes to and from work.

With rising gas prices, increasing car maintenance costs, and inflated used vehicle price tags, affordable transportation is increasingly challenging for the average worker.

In fact, on average, commuters in the U.S. spend around 19% of their annual income on commuting.

For these reasons, many companies offer commuter benefits as part of their employee benefits package to help their employees.

In this article, we examine how commuter benefits can boost employee productivity and satisfaction and contribute to broader societal and environmental goals.

What are Commuter Benefits?

To start, what are commuter benefits?

In simple terms, commuter benefits are employer-provided programs that help employees save money on commuting costs to and from work.

These benefits typically involve pre-tax deductions from an employee’s salary, which can be used to cover expenses related to public transit, vanpooling, biking, and sometimes parking.

As employees are using pre-tax dollars to pay for these costs, they can reduce their taxable income, resulting in savings on federal, state, and sometimes local taxes.

Employers also gain by offering commuter benefits.

They can lower their payroll taxes by reducing the amount of employee income subject to taxation.

For these reasons, commuting benefits are gaining popularity among employers and employees.

A recent Mercer survey involving 721 employers revealed that 18% of respondents with at least 500 employees currently offer some form of transportation benefit or plan to do so in 2024. This percentage increases to 21% among employers with 5,000 or more employees.

It’s important to note that in some areas, providing commuter benefits has become mandatory for businesses of a certain size or within specific geographic regions.

How do Commuter Benefits Work?

Generally, commuter benefits are intended to reduce the financial strain of traveling to work, but they are often underutilized because many employees lack a clear understanding of these programs.

So, how do commuter benefits work?

There are several models that employers can choose from, each with its structure and advantages.
Here’s a quick overview of the most common types:

Employee Pre-tax Program: This is the most common type. Employees set aside part of their salary before taxes through payroll deductions to pay for commuter benefits. They can change their contributions up to 12 times a year before each coverage period, which is usually a month. Cafeteria plan rules don’t tightly regulate these contributions and have a cap that adjusts annually with inflation.
Employer-funded Program: Here, the employer covers 100% of the transportation benefits, which are also capped monthly but are not taxed. This type is especially popular in densely populated suburban areas where attracting and retaining employees is important.
Combination Program: This method merges the employee pre-tax and employer-funded approaches. The same monthly caps limit the total contributions from both the employer and the employees.

For 2024, the Internal Revenue Service (IRS) allows employers to withhold up to $315 monthly for pre-tax commuter benefits, including qualified parking, commuter highway vehicle transportation, and transit passes.

According to the 2022 Benepass Benefits Benchmarking Guide, the average monthly contribution to these pre-tax accounts was $138.

Why is Employee Productivity Important?

Understanding what motivates employees to be productive daily is a concern for many organizations.

Researchers have explored this topic extensively and proposed numerous theories, but one consensus is clear: our sense of well-being significantly influences our productivity at work.

What happens when employees face long commutes even before their workday begins?

Spending excessive time driving or getting caught in traffic can be draining.

Thus, it’s not surprising that nearly two-thirds of American workers report that their commute increases their stress levels, which can sap their energy and reduce their effectiveness at work.

The reality is that commuting is a daily ritual that affects our productivity, well-being, and even the health of our planet.

By addressing the challenges of commuting, companies can not only enhance their team’s productivity but also contribute to broader societal and environmental benefits.

Types of Commuter Benefits

Commuter benefits offered by employers often vary depending on the location of the company and the main modes of transportation used by its employees.

For example, businesses in large cities often provide benefits for public transportation, which is a common commuting choice in urban areas.

On the other hand, companies in rural areas might focus more on parking or ride-sharing benefits if driving is the primary way employees get to work.

Here’s a breakdown of some popular expenses that might be covered under commuter benefits programs:

Mass transit – Buses, trains, ferries, trolleys, subways, streetcars, and water taxis
Parking-related expenses like meter fees and costs for parking garages and lot
Ride-sharing services like Uber or Lyft
Maintenance and repair of vehicles and bikes

The Link Between Commuter Benefits and Productivity

Considering that people spend a considerable portion of their day traveling to work, many researchers have attempted to discover the connection between commuting, life satisfaction, and productivity.

Studies indicate that commute times can negatively affect life satisfaction, with the American Psychological Association highlighting commuting stress as a major factor impacting workers’ well-being.

Employee Satisfaction & Retention

Over the past decade, commutes have consistently gotten longer.

Americans, on average, spend 28 minutes traveling to work one way, which adds up to roughly one hour of daily commute.

Considering that 85% of U.S. professionals would accept a lower salary for a shorter commute, business leaders must recognize the challenges commutes bring.

As a matter of fact, research has consistently shown that commuting can lead to mental stress, which can then spill into other areas, such as work performance and family relationships.

Unsurprisingly, commuting also takes a significant toll on productivity. According to the Journal of Applied Psychology, productivity drops by 1.2% for every additional 10 minutes of commuting.

And that long drive to the office can affect not only employees’ mental and physical health but also their financial wellness.

For many, especially hourly or low-income workers, transportation costs consume a substantial portion of their household income, with some spending nearly 37% of it on commuting alone.

All these factors can add up, leaving employees unsatisfied with their workplace and prompting them to seek employment elsewhere.

According to one survey, 62% of workers avoided applying for jobs due to the potential commute, and 30% have considered quitting their current positions because of their daily travel to work.

Environmental & Social Impact

Commuter benefit solutions were originally introduced in 1993 to encourage the use of mass transportation, with the goal of improving air quality and traffic congestion.

Today, broader environmental and social consciousness is impacting how employers design their employee benefits.

With the increased focus on social determinants of health, many employers are realizing how transportation can be a barrier and make it difficult to access essential services, jobs, education, and other critical aspects of daily life.

About one in four Americans face transportation insecurity, living in areas known as “transit deserts.” Like food deserts, these are places where public transportation is scarce or nonexistent, and even basic infrastructure like well-maintained sidewalks can be hard to find.

The impact of living in transit deserts is undeniable: among the 24.6 million people who reside in these areas, rates of poverty and social insecurity are higher than the national average.

Companies that provide commuter benefits are not only encouraging the use of more sustainable transportation methods but are also addressing some of the systemic issues linked to transportation inequality.

In short, improving mobility has wide-ranging benefits, not just for companies’ corporate social responsibility but for society overall.

The Implementation of a Commuter Benefits Program

Considering starting a commuter benefits program? Here’s a simplified guide to getting it off the ground:

1) Assess Employee Interest

Before rolling out the program, HR should send a survey to understand employees’ commuting challenges and preferences. This ensures the program meets actual needs, such as providing parking benefits instead of focusing solely on public transit.

2) Budget Planning

Calculate the costs once you know the desired benefits and potential participation rates. Ensure the program is economically viable and offers good tax savings for both the company and employees.

3) Designate a Program Manager

Managing commuter benefits can be demanding. Consider outsourcing this responsibility to specialized commute benefit providers.

4) Develop a Policy

Outline which expenses are eligible for coverage, the IRS limits, and how employees can access these benefits—via debit cards, vouchers, stipends, or reimbursements.

5) Launch and Evaluate

With the policy in place, it’s time to introduce the program. Use a mix of communication tools—emails, webinars, office posters, and direct mail—to educate and remind employees about the benefits.

Effective Commuter Benefit Solutions

To create an effective commuter benefit solution, employers must examine several key factors, including the specific commuting needs of their workforce, the financial implications of various benefit options, and the local regulatory requirements that might affect their choices.

As mentioned, the location of the company and workforce demographics can play a crucial role in the decision to offer commuter benefits.

For example, employees who work in suburban areas with plenty of free parking may not have high commuting expenses. However, workers who use public transport daily to their city office may value transport reimbursement.

Additionally, the number of employees working in-office versus remotely can influence whether a company decides to offer commuter benefits.

If your employees are mostly office-based, by preference or requirement, boosting your commuter program could improve their satisfaction and retention.

Also, remember that some cities and states have laws mandating commuter benefits for certain businesses. It’s essential to check whether these regulations apply to you and if you’re obligated to provide such benefits.

Latest Trends in Commuter Benefits

The latest trends show that some companies are incorporating commuter benefits into their sustainability efforts by providing transit passes, according to Mercer’s 2022 US Compensation Policies & Practices Survey.

Among the surveyed employers, nearly 20% encourage public transport use by offering subsidies or allowances.

Additionally, 5% plan to introduce similar benefits within the next two years and 13% promote alternative commuting options like vanpooling, reflecting a shift towards greener transportation programs.

In short, commuter benefits are an increasingly integral part of employees’ benefits packages, helping businesses attract and retain talent while promoting a healthier, more sustainable approach to workday travel.

Written by Ivana Radevska

Senior Content Writer at Shortlister

Sources

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