Per diem allowances for traveling employees: a recap
Per diem payments are daily allowances given to traveling employees to cover costs associated with business travel and trips. The allowances and methods of determining per diem allowances vary in different countries, and alternative arrangements can be arranged in some cases.
In the UK, rates are decided by HMRC. They cover meal expenses and incidental expenses (M&IE). Lodging expenses for overnight stays must be arranged with HMRC via a
bespoke rate application
. In order to do this, businesses must provide previous business expenditure proof.
In the continental United States (CONUS), which excludes Alaska and Hawaii, rates are decided by the U.S. General Services Administration (GSA).
They separate rates into lodging rates and M&IE rates and provide figures for both. Unlike in the UK, the Internal Revenue Service (IRS) requires expense reports for employee travel.
There are two methods to determine per diem allowances in the U.S.:
- Standard per diem rates: individual per diem rates for different locations.
- High-low substantiation method: ‘high-cost’ locations take one rate; all other locations adopt the ‘low-cost’ rate.
The main benefit of per diem allowances is they aren't considered to be taxable income. They’re also beneficial as they offer flexibility to the employee in how they spend travel allowances. Per diem payments are also less hassle than reimbursing actual expenses, as the latter requires expense reports and receipts for proof of per diem expenses.
The potential downsides to per diem payments are that they can push employees to cut corners to pocket any excess. The same trust offered as a benefit can ultimately be abused.