Per diem is a term that, in Latin, means “per day.” Per diem refers to a payment that a company gives an employee to use for their expenses during business trips. Additionally, per diem can also refer to the payment that a short-term employee or contractor is paid per day. Contractors and short-term employees are usually hired per day to fill in for somebody who is on medical leave or vacation leave.
What is per diem for employees who travel for business?
Companies commonly use per diem payments for positions that require frequent business travels. During a business trip, employees can incur various expenses like transportation, accommodation, food, among others.
Employers have different policies in place to pay for expenses incurred by employees during business trips. They also provide per diem payments in several ways. The first one is via a company credit card that allows employees to pay for their expenses when needed during business trips. Having a company credit card will ensure that the employee will not pay out-of-pocket. Also, employers can provide a fixed per diem amount which employees need to budget for costs during business trips.
What are per diem rates?
Companies that give a fixed daily amount to employees to use for business trips use per diem rates. They also commonly use the guidelines set by the U.S. General Services Administration (GSA) for per diem rates which are based on the city the employees are traveling to. While this serves as a guide, employers are free to set their per diem rates higher or lower depending on their company policy. However, note that for employees who are given funds for travel that are above the federal per diem rate, the amount above the threshold is deemed taxable to the employee.
The GSA sets per diem rates per year which are broken down into lodging, meals, and incidentals. The rates are set by fiscal instead of the calendar year and are effective October 1 of each year. If you are an employer, you can check for the GSA’s per diem rate per state on their website.
For example, if an employee is traveling for a business trip to Los Angeles, California in May 2021, the GSA recommends the following per diem rates:
Continental breakfast/Breakfast: $16
Incidental expenses: $5
The GSA also recommends that the amount on the employee’s first and last day of travel will be 75% of the normal expenses because the employee will not need the same number of meals on those days.
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