Have you ever heard the term "per diem" but weren't quite sure what it meant? If so, you're not alone. Per diem is a Latin phrase that literally means "by the day." In the business world, it typically refers to a fixed amount of money allocated to an employee for daily expenses such as meals, lodging, and transportation while traveling on business.
Per diem rates are usually determined by the employer and should be sufficient to cover reasonable expenses without being excessive. They may vary depending on the location of the business trip, the employee's job title, and the company's policies.
Per diem is a common practice in many industries and can provide several benefits for both employees and employers. Let's explore these advantages in more detail in the subsequent section.
what does per diem mean
Per diem is a Latin phrase meaning "by the day." In business, it refers to a fixed allowance for daily expenses during travel.
- Fixed daily allowance
- Covers meals, lodging, transport
- Varies by location, job title
- Simplifies expense reporting
- Reduces employee out-of-pocket costs
- Helps control travel expenses
- Tax implications vary
- Common in many industries
- Can be beneficial for both employees and employers
Per diem rates should be reasonable and sufficient to cover necessary expenses without being excessive.
Fixed daily allowance
A fixed daily allowance is a predetermined amount of money allocated to an employee for each day of business travel. This amount is intended to cover the employee's reasonable expenses, such as meals, lodging, and transportation, while away from their home base.
Per diem rates are typically set by the employer and may vary depending on several factors, including:
- Location of the business trip: Major cities and popular tourist destinations tend to have higher per diem rates than smaller towns and rural areas.
- Employee's job title: Employees with higher-level positions may be eligible for higher per diem rates to reflect their increased responsibilities and expenses.
- Company's policies: Some companies have specific per diem policies that outline the allowable expenses and the maximum daily amount.
Fixed daily allowances are beneficial for both employees and employers. For employees, they provide a clear and predictable budget for their travel expenses, eliminating the need to track and submit receipts for every purchase. For employers, fixed daily allowances help control travel costs and simplify the expense reimbursement process.
It's important to note that per diem rates are not meant to be excessive or extravagant. They are intended to cover reasonable and necessary expenses incurred while traveling for business. Any expenses above the per diem rate are typically the employee's responsibility.
Covers meals, lodging, transport
Per diem allowances are typically intended to cover three main categories of expenses: meals, lodging, and transportation.
- Meals: This includes the cost of breakfast, lunch, and dinner, as well as snacks and beverages. Per diem rates for meals may vary depending on the location and the employee's job title.
- Lodging: This includes the cost of a hotel room or other overnight accommodations. Per diem rates for lodging may vary depending on the location, the time of year, and the employee's job title.
- Transportation: This includes the cost of airfare, train tickets, rental cars, taxis, and other forms of transportation. Per diem rates for transportation may vary depending on the distance traveled and the mode of transportation.
- Other expenses: Some per diem allowances may also cover other incidental expenses, such as laundry, tips, and parking fees. However, these expenses are typically limited to a small amount.
It's important to note that per diem rates are not meant to be excessive or extravagant. They are intended to cover reasonable and necessary expenses incurred while traveling for business. Any expenses above the per diem rate are typically the employee's responsibility.