A per diem is a daily allowance employers give employees to cover business travel expenses. The allowance covers travel, accommodations, meals, and transportation partially or fully. Employers usually issue per diem payments via company credit cards or cash.
Every company has its own reimbursement policy. Some companies choose to issue a check before the trip to cover expenses. No matter the company’s payment method, a per diem payment is a flat rate decided on by the organization that covers any foreseen costs.
Who receives per diem?
Employees who travel on behalf of a company receive per diem. Whether employees travel to another city or internationally, they can receive per diem. An organization can also choose to provide per diem payments to contractors or freelancers if they need to work on a project away from the company’s office.
What expenses does per diem cover?
Per diem can cover expenses such as:
- Lodging
- Meals
- Transportation
- Incidental expenses (fees and tips given to hotel staff)
Some employers grant a partial per diem. They may offer $200 a day for lodging and the employee will need to cover their food expenses. Other employers’ per diem will cover all of the expected travel expenses.
Are there federal rates for per diem?
Some countries have government-required rates for per diem allowances for specific locations or regions within a country. In the United States, the General Services Administration (GSA) creates federal per diem rates for federal employees traveling to various cities and regions for work.
These rates help governments devise a uniform way to reimburse employees for business-related travel without needing to record receipts.
Why do companies pay per diem?
Paying a per diem rate is easier and more cost-efficient than reimbursing employees for travel costs. Per diem frees both the employer and the employee from spending time collecting receipts and recording their spending.
Many companies pay certain workers (such as travel nurses and substitute teachers) a per diem rate because it requires less administrative effort than adding them to the regular payroll system.
How is per diem calculated?
- The total per diem is the total amount of the meals and incidental expenses (M&IE) rate and the lodging rate.
- Total per diem = M&IE rate + Lodging rate
- Companies often take into account that per diem rates for meals can vary depending on the time of day and the location.
