Per diem definition

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What is Per Diem?

Per diem is a daily allowance for expenses incurred that is paid by an employer to its employees. This payment is usually associated with employee travel, and is the standard amount that the employer expects its staff to spend on hotels, meals, and incidentals while on the road. A simplified form of per diem is the standard mileage rate paid to employees who drive their own cars while on company business.

Advantages of Per Diem Reimbursement

There are several advantages associated with the use of per diem allowances, which are as follows:

  • Simplified expense management. Per diem payments eliminate the need for employees to save and submit detailed receipts for every meal or incidental expense. This reduces the administrative workload for both employees and the accounting department, making expense management more efficient.

  • Predictable travel costs. By setting a fixed daily allowance, businesses can better predict and budget for travel expenses. This helps in managing cash flow and preventing unexpected or inflated expense claims, leading to more accurate financial planning.

  • Reduced risk of expense fraud. Since per diem payments are fixed amounts, there is less opportunity for employees to submit inflated or false expense claims. This simplifies audits and minimizes the risk of expense fraud.

  • Increased employee satisfaction. Per diem simplifies the reimbursement process for employees, as they receive a flat amount without needing to track every expense or wait for reimbursements. This convenience can boost employee satisfaction during business trips.

Overall, per diem payments offer a streamlined, predictable, and fraud-resistant approach to managing travel expenses for businesses.

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Which Per Diem Rates to Use

An employer can pay any per diem amount it wants, but there are some standards that are generally followed. For example, employers pay the standard mileage rate published by the Internal Revenue Service each year. Another source of per diem information is the General Services Administration, which regularly publishes a guide that states travel and entertainment reimbursement costs for a large number of cities.