As an HR leader, selecting the best ways to give your employees the remuneration they’re due can be a daunting task. When it comes to payroll and benefits, there's no one-size-fits-all solution — every organization needs to determine which method works for their team.
One of these solutions is per diem payments – but what do employers need to know before opting in? Our blog post dives into everything you should consider when deciding if per diem is right for your company. From its tax implications to calculating payouts, let's explore all facets of this form of compensation so that you can make an informed decision on how best serve your workforce.
What is Per Diem?
Per diem is a set amount of money paid to employees daily during business travel. (It comes from a Latin phrase meaning "for each day.") A per diem allowance is to cover travel costs like food, lodging, transportation, andincidental expenses, such as dry cleaning or hotel staff tips. The per diem rate varies depending on the employee's location and company policy.
Per Diem Rates for 2023
Federal per diem rates are established every year in October by theU.S. General Services Administration. From 2022 to 2023, the per diem tiers for meals and incidentals stayed the same ($59 to $79) while accommodations requirements increased (from $96 to $98).
While these are the federal recommendations, some regions have higher per diem norms. TheGSA's Travel Resources lookup page allows businesses and employees to calculate the per diem rates for their specific destination on the dates of travel. Additional helpful resources for determining a reasonable rate include:
- Per diem rates by state
- Rates for Alaska, Hawaii, and other U.S. territories
- Foreign country rates
- M&IE rates by meal in the continental United States
How Does Per Diem Work?
There are two ways to provide a per diem to employees traveling for business: dispersing it in advance or providing it to them after their trip.
Employers can pay more or less than the federal per diem rate. If you pay your employee more than the national per diem rate, they will owe taxes on the amount exceeding the rate. As mentioned earlier, per diem is based on a fixed rate and is an alternative to reimbursing employees for actual expenses incurred on a trip.
Despite this fixed rate, however, your business is still required to collect expense reports. They do not need to be as detailed as a typical expense method, but having a record of what your employees are spending their money on while on a business trip is important.
Employees need to submit an expense report within 60 days of using a per diem, according to the IRS. The report should detail the following information:
- Date, time, and place of the expense
- The diem amount spent
- The business purpose
- Receipts for expenses
The Benefits of Per Diem
A per diem can be attractive to both employers and employees. On the business side, it helps avoid unexpected travel costs. This helps organizations anticipate employee travel costs more accurately so they can adjust their spending and budget needs. It can also make expense reporting and accounting easier, as it saves time spent on paperwork and endless reimbursement receipts.
Any policy that covers travel costs can also help attract and retain talent. Employees appreciate travel perks because they can enable professional development opportunities, like conferences or training events. And a per diem can be an attractive funding setup, as they can pocket any extra left over from traveling cheaply.
Is Per Diem Taxable for Employees?
Per diem is not generally considered taxable income for employees. As long as employee per diem expenses meet the criteria outlined by the IRS, employees do not need to report them on their taxes.
There are exceptions, however. A per diem payment can be counted as an employee's taxable wages if:
- The employee doesn't file an expense report within 60 days using a per diem.
- The employer provides a fixed allowance for business travel expenses but does not need an expense report.
- The employer pays a per diem rate that exceeds the standard federal limit, in which case the funds above the federal rate are considered taxable (not the whole payment).
Is Per Diem Tax Deductible for Employers?
Yes, the per diem you give to your employers can betax deductible if it follows the IRS rules. Lodging expenses of employees within the federal per diem rate are 100% tax deductible, and restaurant meals are 50% tax deductible.
Claiming a deductible requires you to reimburse your employees for these expenses under anaccountable plan. To comply with this plan, each employee must fulfill the following:
- Pay or incur deductible expenses while performing services as your employee.
- Report these expenses to you within a reasonable period.
- Return any extra money they were reimbursed or received as an allowance within an appropriate time.
If you don't provide evidence or the employee does not return an excess per diem reimbursement within a reasonable time frame, the reimbursed expenses cannot be considered part of an accountable plan. Instead, they are treated as paid under anonaccountable plan.
Types of Per Diem Jobs
The phrase ‘per diem’ can also refer to employment arrangements where employees are paid for each day they work instead of by the hour or month. This type of job offers flexibility as employees can set their own hours and are not required to be available at specified times or for full shifts. Often, per diem jobs are used by employers to fill short-term positions or to supplement their existing workforce.
Common per diem jobs include:
- Event staff
- Nurses or healthcare professionals
- I.T. technicians
- Construction workers
- Delivery drivers/couriers
- Warehouse workers
- Substitute teachers
Taking Care of Your Employees
Monetary support like per diem pay isn’t the only thing that matters to employees — 83% percent of employees say that wellbeing support is just as important as compensation. This means that work-life wellness can extend beyond compensating for travel expenses like food and lodging.
Employees are also looking to stick to their regular fitness routines, by going to the gym, yoga studio, or anywhere else they might get a workout in. A robust wellness program can support your team members’ health and wellbeing by providing access to fitness and wellbeing partners while they're traveling.
Gympass offers access to thousands of gyms, studios, and fitness partners, no matter where or when your employees want to work out. Learn more about how to supply these benefits to your workforce by speaking to a Gympass wellbeing specialist today!
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- FY 2023 Per Diem Highlights. U.S. General Services Administration. Retrieved May 23, 2023 from https://www.gsa.gov/travel/plan-book/per-diem-rates/fy-2023-per-diem-highlights.
- M&IE Breakdown. U.S. General Services Administration. Retrieved May 23, 2023 from https://www.gsa.gov/travel/plan-book/per-diem-rates/mie-breakdown.
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- Per Diem Payments. IRS. Retrieved May 23, 2023 from https://www.irs.gov/pub/irs-regs/perdiemfaq%26a.prn.pdf.
- Per Diem Rates. U.S. General Services Administration. Retrieved May 23, 2023 from https://www.gsa.gov/travel/plan-book/per-diem-rates.
- Publication 463 (2022), Travel, Gift, and Car Expenses. IRS. Retrieved May 23, 2023 from https://www.irs.gov/publications/p463.
- Publication 535 (2022), Business Expenses. IRS. Retrieved May 23, 2023 from https://www.irs.gov/publications/p535#en_US_2022_publink1000209157.
- Revised Non-Foreign Overseas Per Diem Rates. (September 27, 2021). Federal Register. Retrieved May 23, 2023 from https://www.federalregister.gov/documents/2021/09/27/2021-20948/revised-non-foreign-overseas-per-diem-rates.
- Travel Resources. U.S. General Services Administration. Retrieved May 23, 2023 from https://www.gsa.gov/travel-resources.
The Gympass Editorial Team empowers HR leaders to support worker wellbeing. Our original research, trend analyses, and helpful how-tos provide the tools they need to improve workforce wellness in today's fast-shifting professional landscape.