What is Per Diem Rate and How to Set It?
Per Diem is a Latin word for per day. Per Diem is a daily allowance or specific amount of money an organization gives to an individual, or an employee, per day to cover living expenses when traveling for work. Per Diem may include part or all of the expenses incurred, covering meals and incidental expenses as well as lodging.
Per Diem rates cover
- Meals and Incidental Expenses
Meals and Incidental Expenses
The meals and incidental expenses category covers all meals (breakfast, lunch, and dinner), room service, dry cleaning, laundry, ironing of cloths, and fees and tips for the people who provide services, such as food servers and luggage carriers. However, Per Diem rates for meals vary by location.
The lodging category covers overnight stays in hotels, inns, motels, or apartments. A separate Per Diem rate is set for both meals and incidental expenses and lodging for each location.
Per Diem rates are established for domestic air travel, international air travel, rental cars, vans, and trucks, other transportation, lodging, meals and entertainment. They are also established for telephone usage, miscellaneous reimbursement and non- reimbursement expenses. Companies also may specify preferred travel agencies and programs and establish policies for payment of travel expenses and Per Diem rates.
There are three different organizations responsible for setting Per Diem rates. The GSA (General Service Administration) sets Per Diem rates for each US city; The Department of State (DoS) sets rates for foreign territories, and the Defense Travel Management Office (DTMO) sets rates for overseas non-foreign areas such as Alaska, Hawaii, and Puerto Rico.
Per Diem rates change as costs rise. They even vary based on the geographic area to which the employee is traveling. Costs for hotels, meals and other travel expenses can vary widely from one city to another.
An area’s cost of living decides the Per Diem rates. Per Diem rates in large cities, such as Chicago, Los Angeles, and New York are higher than any non-metropolitan area because goods and services in larger cities are generally more expensive. Lodging rates can also vary by month in response to supply and demand.
GSA forms Per Diem rates for lower 48 Continental United States (CONUS), which are the maximum allowances that federal employees are reimbursed for expenses incurred while on official travel. Non-standard areas (NSAs) are frequently traveled by the federal community and are reviewed on an annual basis. Standard CONUS locations are less frequently traveled by the federal community and are not specifically listed on our web site.
Both the Standard and the Non-Standard Area Lodging Per Diem rate is determined each year by the GSA (General Services Administration). The GSA looks at Average Daily Rates (ADR) data, which is published by the GSA’s travel industry partners.
If lodging rates are much higher during a certain time of year, the GSA takes this into account and raises the Per Diem rate during those more expensive months. This only applies to Non-Standard Areas. Standard Areas receive one Per Diem rate for the whole year based on average pricing data from all 2,800+ Standard pricing areas.
What is the federal Per Diem rate?
The Federal Per Diem rates set by the GSA (General Services Administration) and are used by all government employees, as well as many private-sector employees who travel for their companies.
The GSA Per Diem rates are updated every year, usually on October 1st, the beginning of the US government’s fiscal year. You can search for Per Diem rates for locations where you are traveling by going to the GSA Per Diem webpage.
What is Per Diem pay?
Per Diem payments are not considered wages – and are therefore non-taxable – as long as they meet certain conditions.
However for some occupations and industries, Per Diem also refers to short-term, temporary employment. This is when the employer has workers that come in on a per-day basis to fill in gaps left by regular workers. This happens when a regular employee is on medical leave or a vacation. Rather than paying Per Diem workers hourly, an employer agrees on a per-day rate. The best per diem examples are substitute teachers and health care workers that are paid by the day.
Per Diem workers can be employees or contractors. Make sure you follow the payroll rules by keeping good records or paying employer payroll taxes.
The US Government also allows federal employees to purchase a home at the temporary duty location and claim expenses of like mortgage interest, property taxes and utility costs actually incurred.
Per Diem Rate Table
Is there a standard guide that clients would find acceptable? Does the guide determine standard Per Diem costs for lodging, meals and local transportation in major cities around the world?
For US you can do a cross-check with the US government Per Diem tables. In the GSA Per Diem Rate Table CONUS refers to continental US; OCONUS refers to outside continental US. This information is primarily for US government employees, but it can also be used by private employers who want to use the Per Diem rates.
The Per Diem table now is searchable online. You can search by state, city or by zip code. In the table, you will see lodging rates of the month and allowed Per Diem (meals and incidentals) on the right. This is the maximum lodging rate including taxes per month. If the employee is traveling to two cities on the same day, use the rate of the location where he sleeps.
Benefits of Per Diem Rate
- Employees save time that they would otherwise invest in keeping track of expenses, collecting receipts, and filling out expense reports after returning to the office.
- Employees are allowed to keep the money that they don’t spend while traveling which can discourage overspending.
- The employer benefits because they don’t have to invest time and money in reviewing expenses, inspecting the amount of money spent, and the employee’s time spent filling out paperwork.
- The employer can budget the amount of money they are willing to spend on employee travel and the employee was notified before they incurred the expenses.
- The Per Diem process can result in substantial savings for the employer as opposed to businesses that pay actual employee expenses.
It is an anti-employee to expect employees to cover their own expenses when they travel on legitimate business pursuits. This daily schedule usually consists of several days of employment for a Per Diem employee asked to fill in for a sick or vacationing employee.
Per Diem expenses look simple, but they need to be studied, and there are tax consequences to your business decisions on how to reimburse employees. Usually, there are different rules for travel within the country and international trips. Get help from professionals or use the table before you implement a per diem reimbursement policy.
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