What it means
The Latin phrase simply means "per day", and the arrangement replaces detailed expense claims with a predictable daily figure. An employee travelling for four days receives four days' allowance regardless of whether they ate cheaply or generously.
Anything left over is theirs, and anything spent above it is their own affair. It matters mainly because of administrative cost and control.
Processing an itemised claim of small receipts can cost more in finance staff time than the claim itself is worth, and a per diem collapses dozens of line items into one. It also caps the employer's exposure, because the total cost of a trip is known before it is booked.
Rates are usually set by destination, since a night in a major capital costs far more than a night in a regional town, and many employers simply adopt the published government travel rates for the relevant country. Rates are commonly split into an accommodation component and a meals and incidentals component so the two can be adjusted independently.
The calculation is straightforward: the daily rate multiplied by eligible days multiplied by the number of travellers. Most policies reduce the meals element on the first and last day of a trip, often to 75%, because those days are only partly spent away.
Some employers pay accommodation on actual cost and treat only the meals element as a true per diem. The nuance that catches companies out is tax.
In many jurisdictions an allowance paid at or below the officially published rate is treated as a reimbursement and is not taxable pay, while anything above that rate becomes taxable income that must run through payroll. Keeping a record of the business purpose, dates and destination of each trip is what protects that treatment.
In practice
Real-world examples.
Example
A management consultancy pays a flat $95 a day for meals and incidentals on domestic trips and reimburses hotels at cost. Consultants stop submitting coffee and taxi receipts, and the expenses team's monthly processing time falls by roughly a third.
Example
A film production company pays crew a daily location allowance of $110 while shooting away from base. Because the rate is fixed, the production accountant can forecast the entire location cost from the shooting schedule alone.
Example
A charity sending staff to a rural field office sets a per diem of $45 a day, well below its city rate, because accommodation is provided free by a partner. Staff still receive the meals element, and the finance officer records the business purpose of each trip for the annual audit.
Formula
Calculation
Total per diem = Daily rate x Eligible days x Number of travellers, adjusted for partial days
An engineering firm sends three technicians to a client site for four days. The company's policy for that destination sets accommodation at $160 a day and meals and incidentals at $75 a day.
Full daily rate = $160 + $75 = $235
Total eligible days = 4 days x 3 technicians = 12 days
Gross per diem = 12 x $235 = $2,820
The policy pays only 75% of the meals element on the first and last day of travel.
Reduced meals rate = $75 x 0.75 = $56.25, a reduction of $18.75 per partial day
Partial days = 2 per person x 3 people = 6 days
Total reduction = 6 x $18.75 = $112.50
Total per diem payable = $2,820 - $112.50 = $2,707.50
The finance team books $2,707.50 to travel expenses, with no individual receipts required, and the technicians receive the money before they leave.Case study
Seen in the real world.
The following is an illustrative and fictional scenario. Calder Utilities Services, a fictional pipeline maintenance contractor, was spending an estimated 60 hours a month of finance time processing travel claims for its 80 field engineers. Claims averaged $190 and often contained eleven or twelve separate receipts.
The company moved to a two-tier per diem, paying $205 a day for metropolitan work and $165 a day for regional work, both set just below the published national rates so the payments stayed outside taxable pay. Engineers were paid the allowance with their normal salary run in the week before travel, and receipts were required only for exceptional items such as emergency equipment hire.
Processing time fell to roughly 8 hours a month, and total travel spend dropped by about 9% because the previous system had quietly reimbursed a good deal of generous discretionary spending. A small number of engineers who habitually stayed in expensive hotels were unhappy, so the fictional company added an exception route for genuinely high-cost cities.
Watch out
Common mistakes.
- Setting a single national rate, which overpays for cheap regions and leaves staff out of pocket in expensive cities.
- Paying above the published official rate without running the excess through payroll, which creates an unreported taxable benefit.
- Keeping no record of the dates, destination and business purpose of trips, which is the evidence that makes the allowance defensible in an audit.
Questions
People also ask.
Do employees have to return unspent per diem?
Normally no, since the point of the arrangement is a fixed allowance rather than a reimbursement of actual costs.
Should the first and last day be paid in full?
Most policies pay a reduced meals element, commonly 75%, because those days are only partly spent travelling.
Can accommodation be reimbursed separately from a per diem?
Yes, many employers pay hotels at actual cost and use a per diem only for meals and incidentals.
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