Expensive gasoline, due in part to the
economic fallout from Hurricanes Katrina and Rita and the war in
Iraq, is fueling new interest in transportation benefits, such as
qualified transportation expense plans and carpooling arrangements.
"We've seen a 30% increase in companies calling us interested
about transit plans," says Tom Guiler, vice president of Benefit
Resource Inc., which administers pre-tax benefit plans. High prices
at the pump have "created grassroots demand that is forcing
employers to get off the fence."
Qualified transportation expense plans enable employees to save
30% to 40% on out-of-pocket expenses on certain work-related transit
and parking costs by paying for them with pre-tax dollars. Under IRS
Code Section 132, these expenses are exempt from federal income
taxes, Social Security taxes, and they usually are not subject to
state income taxes. Furthermore, employers do not pay FICA tax on
the money their employees set aside.
Commonly used in major cities by commuters who take mass transit,
the benefit also is available to workers who use carpools, extending
the value of the benefit beyond urban centers. Qualified
transportation benefits are used to pay the cost of a growing number
of vanpool commuters, says Tom Wilson, vice president of benefits
operations at Ceridian, a large provider of transit benefits.
Vanpooling with 6 or more passengers, excluding the driver, is
another expense that is eligible for a reimbursement through a
qualified transit plan.
"The great thing about vanpools is that they are not plan-year
dependent. You can start one at any time of the year," Wilson
Most employees want to telecommute, carpool or take public
transportation, rather than face high gas prices at the pump,
according to a recent survey by ComPsych, which runs employee
While many workers want to shift their commuting habits to
cheaper alternatives, at least 44% feel they can't change their
commuting habits as they desire. Thirteen percent already
telecommute, carpool or take public transportation, and 16% plan to
do so due to steep gas prices. ComPsych surveyed more than 1,000
employees at its client companies.
Research conducted by Ceridian in late 2004 revealed that nearly
80% of current enrollees find commuter benefits "very important."
High gas prices have placed a financial burden on many employees.
ComPsych's EAP has seen a "noticeable uptick" in workers seeking
ways to cope, says CEO Richard Chaifetz.
Americans are now paying an average of $2.81 per gallon to fuel
the sedans, sports-cars, SUVs, and pickup trucks they depend on
everyday to get to work, according to an analysis by research firm
At the current gas price level and average fuel economy of 17.8
miles/gallon, average American workers, who earn the national
average salary of $40,409, spend 3.3% of their paychecks on gas
needed to commute to and from work, estimates Bill Coleman senior
vice president of compensation at Salary.com. (See chart) Coleman
worries that gas prices are wiping out any raises employees would
receive from their employers.
"The reality is that while every commuter is experiencing a
financial hardship with increases in gas prices, those individuals
earning the minimum wage of $5.15 per hour are being the hardest
hit, with a whopping 11.3% of their salary pumped into their gas
tank annually," Coleman notes.
Employers with teleworking benefits or subsidies for public
transportation should promote those perks in times of steep gas
prices, Chaifetz advises. About 37% of employers offer teleworking
benefits on part-time basis, and 19% offer them on a full-time
basis, according to the Society for Human Resource Management.
Long-term high gas prices might nudge more employers to offer the
benefit, but it hasn't done so in the past. Despite rising gas
prices over several years, the number of employers with
transportation benefits has remained relatively flat.
This year, 14% of companies offered a qualified transportation
expense plan or transit subsidy, compared to 13% in 2001, according
to the Society for Human Resource Management's 2005 benefits survey.
The Census Bureau reports that 12% of workers take public
transportation and 5% carpool.
Yet as high gas prices prompt many workers in the United States
to reconsider how they conduct their daily commute, Ceridian
observes increased enrollment in commuter assistance programs,
However, many employers are so focused on health care costs that
they feel they can't add additional benefits, Wilson observes. "The
reality is that transit benefits could offset the total cost of
providing benefits because employers save on FICA taxes," he says.
It typically costs a provider $4 or $5 per employee per month to
administer a transit plan, but the company would save roughly 7.5%
on every dollar put in that plan due to FICA, Wilson notes.
Salary.com analyzed how gas prices eat into the compensation of
the average American worker.
National average gas price $2.80*
Estimated commute cost
Effective gas-price per gallon per year pay cut 3.3%
National average gas price $4.00
Effective gas-price per gallon per year
pay cut 4.7%
National average gas price $5.00
Effective gas-price per gallon per year
pay cut 5.9%
* National average gas price per gallon in October