What is Per Diem and is it Included in My Employee’s Wages?

Per diem payments is another area of payroll that is increasingly complicated. This blog will answer some of the more frequently asked questions we hear asked about per diem, such as:

• What does per diem cover?
• What prerequisites does an employee need to meet to receive a per diem?
• What is the federal per diem rate these dates?
• And more.

What is a Per Diem?

A per diem is different from employee wages. Think of it as an allowance for your employees. Per diems are usually paid for travel expenses such as lodging, meals, or any incidental expenses incurred while on the job. This is different from reimbursing the employee for these expenses. A per diem is a set pool of funding that pays for travel costs.

What Types of Expenses Does Per Diem Cover?

If you’re self-employed, a per diem only covers meals. However, for anyone other than self-employed, there’s a mandated per diem amount for lodging and meals. There’s another per diem amount for just meals alone. If you’re the employer, you can use either method of per diem for the employee.  

The per diem rate typically includes:

• Meals
• Room service
• Laundry, dry cleaning, or the pressing of clothing.
• Tips or any fees for service workers, such as luggage handlers at the hotel or food servers.

One tip? Make sure you don’t add the per diem into the employee’s paycheck if:

• The payment is equal to or less than the federal per diem rate.
• The employer receives an itemized expense report from the employee.  
• The employee has established their “tax home” as a significant distance from where they’re traveling to do work. (Typically, 50-miles or so.)
• The employee must file the expense report with the employer within about 60-days.
• If the per diem doesn’t come with an expensive report, the per diem counts as income for the employee which may create a tax liability.
• If the employer is paying more in the per diem than the federal taxable rate, the difference will be taxable to the employee.

Also, note that the IRS just announced a new per diem rate for traveling away from home starting October 1, 2021. As always, employees must track time, place, and the business purpose of their travel and keep the itemized receipts.

What’s the Easiest Way to Handle Per Diem Expense Reporting?

Substantiating and reimbursing travel expenses or tracking documentation on per diem allowances is incredibly complex. Are you still handling this manually? Many employers still do, and it makes for a complicated and unwieldy system that could get you into regulatory hot water if you make a mistake. FoxHire can handle all of the complexities of the hiring and payroll process, freeing your HR teams up to focus on the core mission of the business. Our software automates many of the manual tasks you’re undertaking today, including tracking per diems for your traveling workforce. When you’re ready to simplify your life, talk to the team at FoxHire about what we can do for your business.