Independent Contractor Compliance Blog

SAN FRANCISCO– Mayor Gavin Newsom has signed into law a requirement for all San Francisco employers, with 20 or more employees, to offer one of three transit programs to any employee who works 10 hours or more per week within the city limits. Transit advocates say the law will boost Muni ridership and reduce carbon emissions.

San Francisco has enacted other employer requirements not seen elsewhere.

This is the latest employer requirement by San Francisco officials. In the past the city has required paid sick leave, health care benefits and a minimum wage that is one of the nation’s highest.  San Francisco also has a 1.5% employee tax assessed on employers on top of state and federal payroll taxes.

Enforcement?

This law will be enforced by a joint effort of San Francisco’s Director of the Department of the Environment and the San Francisco Office of Labor Enforcement.

Although this latest law officially goes into effect in 30 days, employers have 120 days to show proof they have complied with it, which is January 2009.

The penalties range form $100 up to $500 per violation.

The law’s highlights

This latest law requires businesses with 20 or more employees to establish a program to promote the use of public transit by its workforce.

Businesses are required to show they have offered their employees one of three options within 120 days of passage of this law. Participation by employees would be voluntary.

The options are:

1. Offering workers free transit passes or vanpool reimbursement;
2. Providing door-to-door shuttle service on vans or buses,
3. Use the existing federal program under Title 26 U.S.C. Section 132(f), in which employers can set up a program where employees can make pretax contributions to the federal legal limit of $115 a month to pay for mass transit expenses.(train, bus, ferries or by vanpool). The accounts can not pay for parking under the San Francisco law, which is acceptable under federal law.

The best option?

Using the existing federal program is probably the best option for San Francisco employers. It’s relatively cost free to the employer. It will also save an estimated 40 percent on the employee’s commute costs. A San Francisco Municipal Railway FastPass, for example, would cost a participant $27 instead of $45.

Another hidden benefit

Also this option may qualify employers a 9 percent reduction on the participating employees’ federal payroll taxes (check with your tax accountant).

A hidden recruiting benefit to bring in IC’s

There is another federal regulation that allows the value of transit passes for independent contractors to be excluded on the 1099 MISC as income. Although you cannot provide qualified transportation fringes to independent contractors, the working condition and de minimus fringe rules for transit passes and parking apply to independent contractors too. Therefore, contributions for tokens or passes that enable an independent contractor to commute on a public transit system (not including privately operated van pools) are excludable from the independent contractor’s gross income and are not reportable on Form 1099-MISC, if their value is $21 or less per month. However, if the value of a pass provided is greater than $21 a month, the full value is includible as gross income and is reportable on Form 1099-MISC. If you want to learn more about this see IRS Regulations Section 1.132-9(b),