Are you a recruiter or HR leader looking to hire traveling workers for the first time? This happens a lot in the healthcare space, but can also happen in other industries. Many of these workers will be asking you questions about per diem or “stipends”. If you’ve never paid per diem before, it may be confusing how exactly to offer this to your employees. You may not be able to offer it at all based on some legal factors. So, ensuring you know how to offer it, and that you do so compliantly is key. Below we will explore how to do so, to make sure you understand your responsibilities when paying per diem.
What is Per Diem?
Perdiem pay is separate from employee wages. It’s like a stipend or an allowance that can be used to cover lodging, meals, and incidental expenses while traveling for work. This is not the same as expense reimbursements, which can vary depending on each transaction. Rather, per diem is a set amount of money provided to the employee. There are limits on how much the allowance can be, and the allowance is not taxed like regular wages.
Is my employee eligible for per diem?
There are two main qualifications to be eligible for per diem pay. An employee must be able to show proof of a second address, which they are paying for. This can be something like a hotel receipt, or a lease agreement, or AIRBNB booking.
The other qualifications are for employees that are not staying in a second residence, but rather driving a far distance from work. The employee must show they are traveling greater than 50 miles to and from work (100 miles total), each day. This would qualify them for meals only per diem payments.
Is Per Diem Taxable?
The short answer is “no”, per diem is not to be taxed because it is not a part of “wages” as classified by the IRS. However, that is only true when per diem pay is administered properly. If you were to administer it improperly, there could be a risk that the per diem may need to be considered part of wages, exposing you to back taxes and fines.
How do I calculate the per diem amount for my employee?
There are two different methods permitted by the IRS to calculate per diem amounts. Both are based on the location the employee is traveling to in order to work. However, they are administered a little differently.
- CONUS Tables
The CONUS or OCUNUS tables are essentially a spreadsheet of approved rates for certain locations around the country. These locations are very specific and usually are city or county based. Those rates are supposed to be based on the cost of living in that location. The amount listed in the table for each location is the maximum you can offer the employee in that location. These rates can change throughout the year, so frequent monitoring and adjustment is required.
- The “high/low” Method
High/Low is similar to the CONUS tables, but applies much more broadly. Rather than providing rates for every location around the country like they do with the CONUS tables, they instead apply rates to larger regions. Those regions are either “high cost” or “low cost”. There are typically only a few high cost regions each year. Everything else is categorized under “low cost”. Again, the IRS will provide a rate that is the maximum allowable for that region, which you can use to set the rate for your employees.
With either model you have options for cover lodging and meals, or just meals. There are set rates for lodging and meals separately, so that you can account for any type of traveling situation.
Does my employee need to submit expense reports?
The answer is “yes”. According to the IRS, employees “must file the expense report with the employer within a reasonable period of time (60 days)”. This is a recent change and has challenged many staffing and recruiting agencies who were used to paying per diem and never collecting any expenses. The IRS seems to want the expense reports to ensure workers are spending the allowances they receive on lodging, meals, and incidental expenses as designed by the per diem pay tax code.
How long can my employee get per diem for?
If an employee is traveling for work, and paying for lodging, they are eligible for per diem pay for 12 months. Once that twelve month period is complete, they should not be paid per diem. However, if they are not paying for lodging, but rather only paying for meals because they are driving a far distance for work (greater than 50 miles), they are eligible as long as they have to drive that distance.
Does per diem factor into Overtime pay?
The answer is maybe. Depending on how diligent you are with compliance measures, you could ensure that per diem is not included in “wages”. However, if you are not diligent, you may be exposing yourself to risks, which would cause the IRS to classify the per diem payments you make as “wages” and thus make them subject to overtime. Be careful how you approach per diem payments to ensure you are not exposed to those risks, and you make per diem payments properly.
Need Help Managing Risks?
Looking to offer per diem payments without taking on all the risk? FoxHire’s Employer of Record (EOR) services support thousands of traveling workers, ensuring compliance for per diem payments. We can employ your traveling employees, like nurses as an example, and pay them per diem properly, so you don’t have to worry about getting the compliance piece right. If you are a recruiting firm, staffing firm, or HR leader struggling with per diem, give us a call. You can also book a demo of our services here.