By: Chris Lambert, CPA, CGMA, CCIFP
You may have heard of other contractors offering Per Diems – or you may get asked by your employees if you offer Per Diems. They are an easy way to reimburse employees for costs incurred with business travel, but what exactly is a Per Diem?
Per diem derives from Latin and translates to ‘per day’. Per day, allowed amounts are set by the US General Services Administration (GSA), specific to travel location, and are designed to cover certain employee travel expenses related to work. Using a per diem plan is an alternative to expense reports to track actual expenses of lodging, meals and incidentals. Their use results in much less record-keeping for construction employees who travel away from home. If you use per diem, you do not need to have employees submit detailed receipts. You must still document the time, place, and purpose of your travel.
The per diem can cover meals alone or the combined lodging, meals, and incidentals. Employers can choose which per diem to pay. The allowed amounts can be found at www.gsa.gov/travel/plan-book/per-diem-rates. The amounts (also called rates) are tied to the cost of living of where the employee is working and are changed annually unless otherwise specified. There are different allowed amounts when there are significant differences in costs for locales. For example, in WV, there are three rates. One main rate, plus separate rates for Charles Town, and Charleston.
If you use the combined rate for meals, lodging, and incidentals the rate covers overnight stays in hotels/motels, apartments, rental homes etc, plus meals which includes breakfast, lunch, and dinner. Or you can use the meals/incidentals per diem if the employee is not staying overnight or lodging is covered some other way. Incidentals are for room service, dry cleaning, tips, etc. Whichever method is chosen, the company should be consistent throughout the year.
Note that per diem does not cover transportation cost to and from each work site. Companies can give a car allowance, provide a company vehicle or reimburse their employees for using a personal vehicle up to the IRS business mileage rate for each year. California, Illinois, and Massachusetts require employers to reimburse for employees for any personal use of their vehicle. Employees traveling to a location or job site lasting longer than one year is considered commuting. Any reimbursement to the employee from the company of this type of mileage is considered taxable compensation. If the company allows personal use of company vehicles, the commuting must be included in the employee’s compensation.
Calculating travel costs using per diem rates instead of using itemized expense reports has the potential to save both time and money. Not reviewing dozens of receipts when employees return form their trips or having to estimate how much money to give them before their trip, per diem is a simple flat rate. Per diem can also encourage employees to be more frugal, since they have a limited amount of money to spend while on work trips. While you cannot require employees to turn in any per diem, it is still a benefit. No need to use company credit cards and track expenses.
Should you pay the per diem to employees before travel or after?
It is generally up to the company to decide how to pay per diem, but there are a few different options:
- Full upfront payment in either cash or set limit on company credit card
- Partial upfront payment like covering meals but reimbursing later for lodging
- Reimburse later after the employee returns form their work trip
Per diems are reimbursable expense and as such are not included in employees’ wages nor taxable to the employee. But they must be used correctly. They are only for work outside the employee’s tax home area and not for periods extending more than one year.
The payment is a deductible business expense by the Company – with the meals portion subject to the applicable limitation for all meals expenses. For 2024, meals are 50% deductible.
Suttle & Stalnaker, PLLC is ready to help you. If you would like more information on per diems and how they apply to you, please contact Chris Lambert, CPA, CGMA, CCIFP at 304.343.4126 or at cslambert@suttlecpas.com.