What Is a Per Diem? Learn About This Reimbursement Practice for Business Professionals

For business professionals on the road, understanding per diem can make all the difference. Per diem is a Latin term meaning “for each day,” and it typically refers to reimbursement payments made for everyday expenses incurred while working away from home. In order to help employees get the reimbursement they need while away from home, some companies offer a per diem allowance for food, lodging, and incidentals.

What Is a Per Diem Allowance?

A per diem allowance is a fixed amount or rate of reimbursement issued by an employer to an employee for business-related expenses incurred while away from their home base. A typical example is a sales representative who travels to different cities and needs to purchase meals and lodging. With a per diem allowance, this employee is reimbursed for the costs of travel expenses including meals, lodging, transportation costs, and other incidentals.

How Does a Per Diem Work?

Per diem works by allowing the employer to set a flat rate per day that will cover all of the employee’s travel-related expenses, including meals and lodging. Most employers will also include a separate allowance for expenses related to incidentals such as taxi fares and telephone bills. The employer will then reimburse the employee up to the maximum amount of the per diem for each day they are away on business.

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The Benefits of a Per Diem Reimbursement Plan

The primary benefit of a per diem reimbursement plan is that it provides employees with an easy way to be reimbursed for business-related expenses without having to keep track of their spending and submitting receipts. Additionally, it can help to simplify reimbursement requests and ensure that employees are not overspending on business-related expenses.

Per Diem and Tax Implications

It is important to note that any amounts received through a per diem reimbursement plan is fully taxable as income to the employee. Furthermore, it is important to check with the IRS to determine if the per diem allowance is subject to the value meal and lodging rate for the states in which the employee is traveling. Understanding these tax implications can help ensure that employees do not overspend on per diem reimbursements.

Per Diem Reimbursement and Your Business Travel

Per diem can be an invaluable tool for business travelers who need to be reimbursed for expenses while away on business. Understanding how it works and the tax implications can help ensure that both employers and employees have a successful experience with per diem allowances.

Related Legal Concepts

Understanding per diem allowances intersects with several legal principles, particularly negligence per se when companies fail to follow established reimbursement policies. The concept of per se also applies when examining whether certain per diem practices are inherently improper or require additional scrutiny. Additionally, per capita calculations may be relevant when determining fair distribution of travel allowances across different employee classifications within an organization.

The Bottom Line

Per diem allowances provide a structured approach to employee travel reimbursement that benefits both employers and workers through simplified expense management and predictable costs. However, proper implementation requires careful attention to tax implications and compliance with applicable regulations to avoid legal complications. For guidance specific to your situation, always consult a qualified, licensed attorney.