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In our rapidly evolving business landscape, employees frequently need work-related travel. This can, however, lead to escalating expenses for both the individual and the company. To alleviate these costs, numerous businesses have adopted per diem policies.
But what is per diem, and how can it benefit your organization? This quick guide sheds light on per diem, its operation, and the merits of integrating a per diem policy into your workplace.
The phrase “per diem” originates from Latin, signifying “per day.” Within the framework of business travels, per diem denotes a daily stipend provided to employees to defray their travel expenditures, which include meals, lodging, and incidental costs.
Usually, this allowance is granted over and above the reimbursement of transportation expenses, such as airline tickets or vehicle mileage.
Typically, per diem is segmented into two sections:
For instance, an IT consultant assigned to a week-long project in a different city could receive a per diem stipend of $200 daily, with $100 intended for accommodations, $50 for meals, and $50 for non-itemized, discretionary (miscellaneous) costs, which could include charges like laundry services, internet access, room service, gratuities for service personnel, among others.
Each section has its daily cap set by the employer or the General Services Administration (GSA) for public sector employees. In addition, companies may issue a per diem allowance before the employee’s travel. This can benefit the latter, enabling them to plan their expenses more effectively.
In some scenarios, temp workers positioned to work in a different city or region might also qualify for per diem allowances. Here, the rates may be adjusted to account for living costs in the worker’s temporary location.
Remote employees may also be entitled to per diem allowances when commuting to the office or another work site. This can help mitigate the cost of transportation, accommodation, and meals during travel.
Calculating per diem rates can be intricate, considering many variables, including the employee’s role, travel destination, and length of stay. In the US, numerous organizations refer to the per diem rates set by the GSA as a benchmark for defining their own per diem policies.
It annually updates per diem rates for various locations within the country. For example, major cities such as Los Angeles, New York, and Chicago usually have higher per diem rates because the cost of goods and services is typically more elevated in these locations compared to non-metropolitan areas.
Additionally, rates for accommodation may change monthly due to supply-demand dynamics. For instance, the highest per diem rates for accommodation in New York are often witnessed during the fall season, which sees an influx of tourists and business travelers.
These rates are revised yearly and are implemented starting October 1st, marking the beginning of the federal government’s fiscal year. To determine per diem rates for your employees, you can start with the GSA’s rates and modify them as required based on your organization’s unique needs and policies. Then, you can do your calculations by heading to the GSA site.
Some companies may also prefer to formulate their own per diem rates, considering factors like the average cost of living in the destination, the employee’s role, and the purpose of the trip. This can ensure the rates suit your business travel budgets and are equitable for all employees.
As of October 1, 2024, the GSA set the standard CONUS (Continental United States) lodging rate at $110 per night, up from $107 the previous year.
The M&IE rate for most locations increased to $68, with non-standard areas seeing rates as high as $92.
Some regions, known as Non-Standard Areas (NSAs), have higher per diem rates due to the higher cost of living. In FY 2025, 296 NSAs have per diem rates above the standard rate. These rates are based on the Average Daily Rate (ADR) data, which reflects the average cost of lodging in a particular area.
Quick Tip: To determine your government per diem rate, go to the GSA's Travel Resources Per Diem Look-Up page. Enter your travel destination, dates, and year. Then click Search.
For government employees, per diem rates are crucial as they define how much can be reimbursed for travel-related expenses. The GSA is responsible for setting these rates, which apply to federal employees traveling within CONUS.
The rates ensure that employees are daily compensated for their expenses while maintaining a balance to protect government funds.
In some instances, an employer may choose to provide per diem rates that exceed the federal rate, particularly in high-cost areas. This is often necessary when the standard federal per diem does not adequately cover the costs incurred by the employee. In such cases, the employer must ensure compliance with IRS regulations to avoid tax complications.
Employers can benefit from simplified tax reporting when they set their per diem rates to match the federal rates. Per diem payments that do not exceed federal rates are not considered taxable income, provided they are paid under an accountable plan. This makes managing travel-related finances easier for both the employer and the employee.
Per diem payments can vary depending on the company’s policies:
These payments can be issued via company credit cards, checks, or direct deposits, depending on the organization’s preference.
Companies use different methods to calculate and distribute per diem payments. Some prefer to provide employees with a company credit card, covering all or part of their travel expenses.
Others may issue a fixed daily rate or require employees to pay out-of-pocket and seek reimbursement afterward.
For example, a company might offer a $150 per diem to cover meals and lodging, with the employee responsible for any additional costs. This approach helps streamline expense management and ensures that employees are compensated fairly.
An accountable plan in the context of per diem refers to a structured reimbursement arrangement companies use to compensate their employees for business-related expenses incurred while traveling or working away from their usual place of business.
The accountable plan enables employees to receive tax-free reimbursements for qualifying expenses, such as meals, lodging, transportation, and incidental expenses, without the need to report them as taxable income.
Employers must follow three key rules for per diem to be included in the accountable plan. Only upon satisfying these rules does it qualify as an accountable plan:
The IRS states that the definition of a “reasonable period” may vary depending on the company and the purpose of the employee’s business trip.
However, they have outlined certain actions that should be taken within a reasonable time. These include:
While per diem payments can simplify the process of expense reimbursement, there are reasons why both companies and employees might prefer actual cost reimbursement instead.
Administering per diem can be challenging, particularly in expansive organizations with numerous employees undertaking work-related travel. Here are a few tips to help you manage this more efficiently:
Ensuring that your per diem policy is explicitly articulated and disseminated among all employees creates a foundation of understanding and compliance. The policy should define the purpose and scope of per diem, specifying what types of expenses are eligible for reimbursement.
It should also establish maximum per diem rates for different locations or categories of travel, note factors such as cost of living and travel duration. By providing employees with this information upfront, they will clearly understand the reimbursement process and the limits within which they can spend.
Systematically examine submitted expenses to ensure they align with budgetary constraints and adhere to your organizational policies. By conducting these audits, you can identify potential issues or discrepancies early on and take appropriate measures to rectify them.
Auditing per diem expenses helps maintain financial control, prevents overspending, and promotes accountability. It also allows you to analyze expense trends and patterns, identifying areas where cost-saving measures can be implemented or where your employees may require additional guidance or training.
Equipping employees with adequate training to document and submit their per diem expenses accurately is vital for efficient management. Providing proactive training ensures that they understand the per diem policy and know how to comply with it.
Training sessions should ideally cover topics such as the purpose of per diem expenses, eligible expenses, proper documentation requirements, and submission procedures. They should also be educated on any specific tools or software used to manage per diem expenses.
Fyle offers a comprehensive solution for managing per diem expenses, ensuring efficiency and accuracy throughout the process.
Finance teams can define per diem or daily allowance rates that apply to employees. Fyle allows you to create multiple per diem rates in different currencies, catering to your organization's specific needs. You can customize these rates by department or employee level, ensuring that only the relevant per diem options are available to each user.
Tracking per diems is simple with Fyle. Employees just need to complete a per diem expense form, enter the travel dates, and select the applicable rate. The system then automatically calculates the total expense. For added flexibility, you can customize the form to capture additional details like project codes or cost centers, ensuring that all necessary information is recorded accurately.
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With Fyle, employees can capture and submit receipts via text messages on the go. Our AI automatically creates, codes, and submits expenses, increasing convenience and efficiency. This feature is particularly useful for employees who travel frequently, ensuring that expense reporting is quick and easy.
Fyle also directly integrates with credit card networks like Visa, Mastercard, and American Express to bring you real-time purchase alerts via text message on all business credit card transactions. Employees just need to reply to this message with a picture of the receipt and Fyle will automatically reconcile!
Per diem payments, being non-taxable might prompt some to consider opting for a lower salary with per diem instead of a higher salary without per diem. The answer is decidedly “no.” Per diem policies should not be structured in such a way that they serve to reclassify what ought to be wages as something different—in this instance, per diem.
This is because it is designed not as an additional compensation but as an expense reimbursement. The underlying assumption is that individuals traveling for work will incur daily costs for meals and incidentals. These costs are not intended to serve as an incentive for employees but rather to ensure they maintain a safe and healthy standard of living while traveling for work.
The daily allowance paid to an employee by an employer to cover their expenses while on a business trip or assignment is known as a per diem. The fixed amount of money paid by an employer to an employee regularly is called a stipend. It can be paid weekly or monthly, or as a one-off payment for a specific project or task.
Per diem payments are typically provided for travel-related expenses such as lodging, meals, and incidental costs. The specific qualifications depend on the company’s policy and the nature of the employee’s work.
Companies pay per diem to simplify expense management, ensure fair compensation for travel-related costs, and reduce the administrative burden of tracking and reimbursing individual expenses.
The maximum per diem allowed varies by location. For example, in 2025, the standard CONUS per diem for lodging is $110, and for meals and incidentals, it ranges from $68 to $92, depending on the location.
The maximum per diem allowed for travel outside of CONUS can vary depending on the location.
Yes, per diem is reported to the IRS on Form 2106. However, per diem that is paid within the established federal per diem rates is not considered taxable income.
It is always a good idea to keep receipts in case there is any question about your expenses. Here are some reasons to do so:
We know how messy manual receipt keeping can become. Just snap a picture and send it to us via text message; our AI will automatically create, code, and submit the expense.
Per diem policies are a valuable tool for managing business travel expenses and ensuring that your employees are fairly compensated for their expenses.
By defining per diem in the workplace, understanding how i works, and establishing clear policies and processes for managing per diem expenses, you can simplify your expense management process and promote a fairer workplace.
