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Updated on October 27, 2023
Per diem is an allowance that employers provide to their employees to cover job-related travel expenses, such as lodging and meals. The term ‘per diem’ is Latin for ‘for each day,’ indicating that the allowance is designated for daily expenses.
Employers who require their employees to travel for business purposes often seek to compensate them for the associated expenses. One way to do this is by providing a per diem.
Though per diem payments are not required by federal law, it can be a good business practice for companies that need their employees to travel for reasons other than the normal commute to and from work.
Employers can give per diem payments upfront (such as in the form of cash or via a company credit card), or they can reimburse employees after the travel is complete. They also have the flexibility to use per diems to cover all or a portion of the employee’s travel expenses.
While private employers can determine their own per diem rates, federal agencies adhere to specific guidelines:
Private employers are not bound by federal per diem rates; they can choose to pay more or less than the prescribed amount.
Per diem is an allowance meant to cover daily expenses incurred during business travel. Typically, this includes
It’s important to understand that per diem doesn’t cover transportation expenses. For mileage reimbursement, you can refer to the IRS’ mileage rate.
According to the IRS, per diem becomes taxable under any of the following circumstances:
If the per diem amount is taxable, it should be incorporated into the employee’s gross wages for payroll tax withholding. Additionally, the taxable amount needs to be detailed on the employee’s Form W-2.
In their expense report, the employee should state the following:
The employee is required to submit this report to their employer within 60 days of completing the business trip. Failure to meet any of these criteria may result in the employee being taxed on the per diem payment.
Figuring per diem is a straightforward process:
Keep in mind, employers can typically deduct most of their per diem payments as business expenses on their federal tax returns.
For more information on per diems, see the GSA’s Frequently Asked Questions and IRS Publication 1542.
“Reimbursing my employees with a per diem for business trips goes a long way toward fostering trust because they can rest easy knowing they will be compensated for job-related travel expenses.”
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