Per diem: Overview, definition, and example
What is per diem?
Per diem is a daily allowance given to employees or workers to cover expenses incurred during business-related travel or work assignments. The term "per diem" comes from Latin, meaning "per day," and refers to a fixed amount of money that is provided for meals, lodging, transportation, or other incidental expenses. Typically, per diem allowances are used by companies to avoid having employees submit detailed receipts for every expense, offering instead a set amount for daily expenditures.
Per diem rates vary depending on the company, the location, and the nature of the trip. For example, the per diem rate for a trip to a major city might be higher than for a rural area, reflecting the different costs of living in those locations.
Why is per diem important?
Per diem is important because it provides employees with a simple and efficient way to manage their travel expenses without the need for extensive reimbursement paperwork or tracking individual costs. It helps businesses control travel expenses while providing employees with the flexibility to manage their own spending within the allotted amount.
For businesses, offering per diem simplifies the expense process and reduces administrative burdens. It also helps ensure that employees are not financially burdened while traveling for work, ensuring a smooth and productive business trip.
Understanding per diem through an example
Imagine a sales employee, Sarah, is sent on a three-day business trip to a city for client meetings. Her employer provides a per diem allowance of $100 per day to cover meals, transportation, and other incidental costs. During the trip, Sarah spends $80 on meals, $15 on public transportation, and $10 on snacks and miscellaneous items. Since her total spending is below the per diem allowance, she does not need to submit receipts for reimbursement.
In another example, a company sets a per diem rate of $150 per day for employees traveling to a high-cost city like New York. If an employee, Tom, is traveling for a week, he will receive $1,050 in total ($150 per day for seven days) to cover his expenses. If Tom’s expenses exceed the per diem amount, he would need to cover the difference out of his own pocket.
An example of a per diem clause
Here’s how a per diem clause might appear in a travel policy or employee contract:
“The Company will provide a per diem allowance of $100 per day for employees traveling for business purposes. This amount is intended to cover meals, lodging, transportation, and incidental expenses. The per diem will not require submission of receipts, but any expenses above the per diem rate will be the responsibility of the employee.”
Conclusion
Per diem is a straightforward and effective way to manage travel expenses for employees, offering daily allowances to cover basic costs during business trips. By using per diem, businesses can simplify the expense reporting process and provide employees with financial support while traveling for work.
For SMB owner-managers, offering a clear per diem policy can improve administrative efficiency and help manage travel budgets effectively while ensuring employees have the resources they need to perform their duties away from the office.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.