Effective January 1, 2020, Seattle employers with twenty or more employees worldwide must offer their employees the opportunity to make pre-tax payroll deductions for transit or vanpool expenses. The goal of the new Seattle ordinance (SMC 14.30) is to encourage commuters to use public and group transit options and reduce traffic congestion and carbon emissions.

Coverage

Employers are covered under the ordinance if they employ twenty (20) or more employees worldwide, including part-time, seasonal, and temporary employees. Tax-exempt and government agencies are excluded from coverage. Employees who worked in Seattle an average of at least ten hours per week in the previous month are eligible for the election option. In other words, the ordinance could apply to companies with only one, part-time, Seattle-based employee.

Requirements

Under the ordinance, an employer must offer its employees a pre-tax election option for transit or vanpool expenses or a partially or wholly paid transit pass. Employers need to make the offer of the pre-tax benefits within 60 calendar days of an employee commencing employment. If an employee selects the benefit, the employer needs to apply the payroll deduction within 30 calendar days.

The Seattle Office of Labor Standards (OLS) has currently issued Proposed Rules, which provide more detail on employer provided passes and transit or vanpool expenses. The Proposed Rules also provide that the offer of the benefit to employees must be made in writing.

The maximum level of deductions an employee can select is the same as allowed under the Internal Revenue Code section 132(f), which is subject to change each year. In 2019, the maximum deduction limit was $265.00/month for transit and vanpool. Employers are allowed to administer a program themselves or use a third party administrator to oversee the elections. The benefit falls under Section 132(f) of the IRS as a “qualified transportation fringe” benefit. Employers cannot retaliate against employees who assert their rights under this ordinance.

Takeaways

Despite going into effect January 1, 2020, enforcement by the Seattle Office of Labor Standards will begin January 1, 2021. Employers covered under the ordinance need to determine how they will implement existing or new election benefits to their employees, and how they will retain appropriate documentation. Employers should be on the lookout for the Seattle OLS’ Final Rules in the near future for more information.