For more information regarding the details of the ordinance click the link below:
Seattle Commuter Benefits Ordinance Info
In brief, the ordinance requires certain employers to offer a pretax payroll deduction for employees that utilize public transportation services (bus, vanpools, etc.). Of course employers can offer more than the minimum requirements, such as offering to pay for or subsidize an employee's transportation costs.
Here are some good questions to ask a client should they be requesting something related to this:
> How do you plan to track the commuter benefit?
> Will funds be predetermined amounts that employees can use towards transit expenses or will employees be submitting transit expenses for payroll to record?
> In either scenario, will the employer be paying for or supplementing any of the transit costs?
Scenario 1: Business A, wants to be compliant with the ordinance and provide employees a pretax deduction. Employees will submit to payroll eligible expenses for them to record.
In this instance the employees have already up fronted the cost for commuting, so the process to record this as a pretax deduction would be to first setup a non-taxable reimbursement earning type code and then a corresponding pretax deduction. Then this will be a two part process, recording the non-taxable reimbursement and then deducting it on a pretax basis, to lower the tax liability of employee wages. This essentially nets no cost to the employer and actually saves them money on their tax liability as well.
Scenario 2: Business B, wants to deposit funds deducted from an employee's paycheck onto the employee's transit card (i.e. Orca Card). In this scenario, the employee does not upfront the cost, but electing ahead of time the funds they will need to load. A pretax deduction will need to be setup, and the employer will need a report of the deductions to make the appropriate contributions to the employee's ORCA card.
Note: If funds will be loaded to a bank account, the deduction can be setup with a vendor that allows direct deposits settings on the employee deduction setup. This will then automatically deposit into the account the same way that clients do this with HSA contributions.
Scenario 3: Business C, pays the cost or a percentage of the cost of an employee's commuter expense. In this scenario, typically employees would submit a request for reimbursement and the employer adds this as a non taxable reimbursement to their paycheck. Because the employer is covering the cost in part or full there typically is nothing to deduct.
Depending on the scenario, you may need one or both of the following setup:
1) Non-Taxable Reimbursement Type Earning Code (Scenario 1 & 3)
2) Seattle Transit deduction [Section 125 Type Deduction Code] (Scenario 1 & 2) (W2 Box 14 - Other/ Description = Name or Earning Code i.e. Transit)
For deductions, employers may want to split out specific transit expenses (i.e. vanpool, bus pass, etc). In that case you can add multiple Seattle Transit deductions and rename them.
Screenshots for adding the deduction for reference:
Important note: If a client wants employees to submit reimbursement through PayNorthwest, additional setup can be configured to allow them to do this on the extra pay tab of the employee timesheet.