“Per diem” is a Latin term meaning “per day,” commonly used in business, government, and travel to indicate a daily allowance or payment for expenses. It is a standard term in corporate, legal, and government contexts, helping employees understand compensation for meals, lodging, or incidentals when traveling for work.
This article explains the meaning of per diem, how it is calculated, its practical applications, examples, advantages, comparisons with other payment methods, and answers frequently asked questions. Whether you’re a new employee, business traveler, freelancer, or accountant, this guide will clarify everything about per diem.
Meaning of Per Diem
The term per diem literally translates from Latin as “for each day”. In modern usage, it usually refers to:
- Daily allowance for expenses (meals, lodging, transportation)
- Daily payment for work performed
- Fixed daily compensation for temporary duties or travel
Simple Definition
Per diem = Daily payment or allowance.
For example:
- “The company provides a per diem of $50 for meals while traveling.”
Origin and History of Per Diem
Understanding the origins of the term helps clarify its meaning and usage:
- The Latin root: “per” = for, “diem” = day
- Originally used in Europe for daily wages of laborers and soldiers
- Adopted by governments and organizations worldwide for travel and expense policies
The historical use emphasizes daily allocation, which remains central in modern corporate and government systems.
How Per Diem Works
Per diem serves as a daily reimbursement or payment for work-related expenses. Companies, government agencies, and contractors use per diem to:
- Simplify expense reporting
- Avoid complex receipt tracking
- Provide consistent compensation for temporary work
Key Components
- Meals – Breakfast, lunch, dinner allowances
- Lodging – Hotel or accommodation costs
- Incidentals – Tips, parking, transport
Example
If an employee has a per diem of $100/day for a business trip, they receive that amount daily without needing to submit individual receipts for meals or small expenses.
Per Diem in Business Travel
Per diem is most commonly associated with business travel:
- Companies set a fixed rate per day based on location
- Covers meals, lodging, and sometimes transportation
- Employees often do not need to submit receipts for the per diem portion
Common Scenarios
- Corporate meetings
- Conferences
- Training sessions in another city
- Short-term assignments away from home
Example
- A salesperson travels to New York for 3 days with a $75/day per diem.
Total per diem: 3 × $75 = $225
Per Diem vs. Reimbursement
Employees sometimes confuse per diem with expense reimbursement. Here’s the difference:
| Feature | Per Diem | Reimbursement |
|---|---|---|
| Definition | Fixed daily allowance | Actual expenses reimbursed |
| Receipts Needed | Usually no | Required |
| Calculation | Standard daily rate | Total actual costs |
| Flexibility | Easy to manage | Can vary daily |
| Use Cases | Travel, temporary assignments | Business meals, client meetings |
Per diem simplifies accounting and reduces paperwork, especially for frequent travelers.
Government and Military Per Diem
Per diem is heavily used in government agencies and the military:
- The U.S. General Services Administration (GSA) sets federal per diem rates for meals and lodging.
- Military personnel receive per diem allowances during deployment or training.
- Rates vary by city, state, or country.
Example
- A federal employee traveling to San Francisco may have a per diem of $120/day for meals and $200/day for lodging.
Advantages of Using Per Diem
- Simplicity: Easy for accounting departments to manage
- Predictability: Employees know their daily allowances in advance
- Flexibility: Employees can manage their spending as they prefer
- Time-saving: Eliminates need for detailed expense reporting
- Consistency: Standardized daily rates for all travelers
Example
An employee traveling for a week with a $100/day per diem can budget meals and incidentals without submitting multiple receipts.
Disadvantages of Per Diem
- Fixed limits may not cover actual costs
- Potential for over or under-spending
- Can create disparity between low and high-cost cities
- May encourage unnecessary spending
Organizations often balance these disadvantages by adjusting rates according to city or travel season.
Calculating Per Diem
Standard Formula
Per Diem Amount × Number of Travel Days = Total Allowance
Example
- Per diem: $80/day
- Travel duration: 5 days
- Total per diem: 80 × 5 = $400
Rates can include full per diem (meals + lodging) or partial per diem (meals only).
Adjustments
- First and last day of travel may be prorated
- High-cost locations may have higher rates
- Personal choice may influence how the allowance is used
Per Diem in Freelance and Contract Work
Freelancers and contractors sometimes negotiate per diem for temporary assignments:
- Covers meals, transportation, and lodging
- Prevents disputes over minor expenses
- Can be included in contracts or agreements
Example:
“A freelance consultant traveling for a client project receives a $150 per diem covering all daily expenses.”
Comparison with Salary and Hourly Wages
| Aspect | Per Diem | Salary | Hourly Wage |
|---|---|---|---|
| Payment Frequency | Daily | Monthly/biweekly | Hourly |
| Purpose | Expenses and temporary work | Regular work | Time worked |
| Flexibility | High | Low | Medium |
| Expense Tracking | Minimal | Usually none | Minimal |
| Best For | Travel, temporary assignments | Office-based work | Contract/part-time work |
Per Diem Policies and Guidelines
Many organizations have written per diem policies to ensure fairness and compliance:
- Specify allowable items (meals, lodging, incidentals)
- Set daily limits per location
- Define reporting or verification requirements
- Include rules for prorated rates or adjustments
Following policies ensures employees avoid misuse and organizations maintain budget control.
FAQs About Per Diem
Is per diem taxable?
- Generally, if it does not exceed IRS rates in the U.S., it is not taxable.
- Excess per diem may be considered taxable income.
Does per diem include transportation?
- Usually only meals and lodging. Some policies include incidentals or travel-related costs.
Can per diem be used for personal expenses?
- Officially, per diem is for work-related costs. Spending outside of that is the employee’s choice but may be discouraged.
How is per diem different from reimbursement?
- Reimbursement covers actual expenses with receipts. Per diem is a fixed daily allowance.
Do international trips have different per diem rates?
- Yes, rates are often higher in expensive countries or cities.
Conclusion
Per diem is a practical solution for managing daily expenses in business travel, freelance work, and temporary assignments. It provides employees with a fixed daily allowance to cover meals, lodging, and incidentals, simplifies accounting, and ensures fairness across teams. Understanding per diem rates, calculations, and policies is crucial for employees, managers, and organizations alike.
Whether you are a corporate traveler, government employee, or contractor, knowing how per diem works helps you budget efficiently, comply with policies, and maximize benefits during work-related travel.
