What is Per Diem?

Per diem refers to a daily allowance or payment made to employees to cover expenses incurred while on a business trip or assignment. It is designed to cover meals, accommodation, and other incidental expenses while away from home.

Per diem is a common term in the business world, especially for companies with employees who frequently travel for work. Understanding per diem is essential for both employers and employees to ensure compliance and proper reimbursement during business trips.

What is Per Diem?

Per diem, Latin for 'per day,' typically refers to a daily allowance or payment made to employees by their employers. This allowance is meant to cover various expenses incurred while the employee is away on duty, such as meals, lodging, travel, and other incidental expenses.

How Per Diem Works

When an employee is required to travel for business, the company can either reimburse the actual expenses incurred by the employee or provide a per diem allowance. Per diem rates may vary depending on the travel destination, as some locations are more expensive than others. It is essential to adhere to the company's per diem policy and guidelines when claiming expenses.

Types of Per Diem

• High-Low Method: Companies may use the high-low method, where they set different per diem rates for high-cost and low-cost locations. Employees receive the higher rate for expensive cities and the lower rate for cheaper areas.

• OCONUS Per Diem: For international travel, companies may provide an Overseas Cost of Living Allowance (COLA) in addition to standard per diem rates due to higher costs abroad.

When to Use Per Diem

Per diem is commonly used for business trips, training seminars, client visits, and any other work-related travel where employees are away overnight. Companies opt for per diem to simplify expense management, promote budget predictability, and ensure equitable treatment among employees.

Why Companies Use Per Diem

Employers choose per diem for several reasons:

• Convenience: Per diem simplifies the reimbursement process for both employers and employees, eliminating the need for employees to submit detailed expense reports.

• Cost Control: Using per diem rates allows companies to control and predict expenses related to business travel, ensuring budget compliance.

• Compliance: Following per diem guidelines helps companies stay compliant with tax regulations and reduces the risk of audits or penalties.

• Equity: Per diem ensures that all employees receive similar allowances for similar travel circumstances, promoting fairness within the organization.

Overall, per diem is a practical solution for managing business travel expenses efficiently while providing employees with adequate support during their time away from the office.

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