Per Diem Finance - Financial Data

Per diem, Latin for “per day,” refers to a specific allowance for daily expenses when traveling for business. It’s a fixed amount intended to cover lodging, meals, and incidental expenses, simplifying expense reporting and reimbursement for both employers and employees. The most significant benefit of per diem is its ease of administration. Instead of meticulously tracking every receipt and submitting detailed expense reports, employees receive a pre-determined amount for each day they’re away. This reduces administrative burden for both the employee and the accounting department. It also promotes budgeting and cost-consciousness on the employee’s part, as they’re incentivized to manage their expenses within the allotted per diem rate. Per diem rates are typically established by governmental agencies like the General Services Administration (GSA) in the United States. The GSA sets rates for federal employees based on location, reflecting the varying costs of living across different cities and regions. Private companies often use these GSA rates as a benchmark, although they can customize their own per diem policies to suit their specific needs and industry standards. When structuring a per diem policy, companies need to consider several factors. These include: * **Location:** Per diem rates must accurately reflect the cost of living in the travel destination. High-cost areas like New York City will naturally have higher per diem rates than more affordable locations. * **Job Function:** Certain roles might require different per diem rates. For example, a sales representative entertaining clients might need a higher meal allowance than an engineer attending a conference. * **Company Budget:** Ultimately, the per diem rates need to be financially sustainable for the organization. Balancing employee needs with budgetary constraints is essential. * **Meals and Incidentals Breakdown (M&IE):** Many per diem policies break down the total daily allowance into specific amounts for meals and incidental expenses, such as tips, laundry, and local transportation. This provides more clarity and helps prevent employees from overspending in one category while neglecting others. While per diem simplifies expense management, it’s crucial to have a clear and well-communicated policy. This policy should outline: * **Eligibility:** Who is entitled to per diem, and under what circumstances? * **Rate Structure:** The specific per diem rates for different locations. * **Documentation Requirements:** While receipts aren’t always required, some companies might request documentation for certain expenses, especially lodging. * **Payment Method:** How and when will the per diem be paid? * **Accountability:** Employees are responsible for managing their expenses within the per diem allowance. Any unused funds might need to be returned to the company. Proper accounting for per diem is also essential. The IRS has specific rules regarding deductible per diem expenses. If the per diem rate is considered reasonable (generally defined as meeting or falling below the GSA rates), the employer doesn’t need to report the payments as wages. However, amounts exceeding the reasonable rate are considered taxable income and must be reported accordingly. In conclusion, per diem offers a streamlined approach to managing employee travel expenses. By implementing a well-defined and equitable per diem policy, companies can reduce administrative overhead, empower employees to manage their expenses responsibly, and ensure compliance with tax regulations.