Per Diem: Meaning, Allowances, and Examples
The term per diem comes from Latin, meaning “per day.” In a U.S. business and employment context, it refers to a daily allowance paid to employees, contractors, or temporary workers to cover expenses incurred while performing their job. Per diem is most commonly associated with travel expenses such as meals, lodging, and incidental costs, but it can also describe day-based compensation for certain job types.
How Per Diem Works
Employers use per diem rates to simplify reimbursement and control costs. Instead of submitting every individual receipt for meals or hotel stays, employees receive a fixed daily rate. If they spend less than the allowance, they may keep the difference; if they spend more, they cover the excess.
- Travel per diem: A daily expense allowance for meals and lodging while traveling for work.
- Employment per diem: Daily pay for temporary, substitute, or on-call workers (common in education and healthcare).
- Medical per diem: In hospitals, per diem can refer to a daily rate billed to patients or insurers.
Per Diem Rates in the U.S.
In the United States, per diem rates for federal employees are set by the General Services Administration (GSA). These rates vary by city and region, reflecting local cost of living. Private companies often adopt similar policies but may adjust rates based on their own travel and expense guidelines.
Example of a Per Diem Allowance
An employee traveling from Dallas to New York City for a week-long conference may receive a per diem allowance of $100 per day. This amount is meant to cover meals and incidental expenses. Lodging may be included in the per diem or reimbursed separately depending on the employer’s policy.
Benefits of Per Diem
- For employers: Simplifies expense tracking, reduces administrative work, and creates predictable costs.
- For employees: Provides flexibility and autonomy in managing daily travel expenses without saving every receipt.
- For accounting: Easier revenue recognition and expense allocation in compliance with IRS and tax guidelines.
Per Diem vs. Hourly Pay
Per diem is not the same as hourly pay. While hourly pay compensates workers based on the number of hours worked, per diem is a flat daily rate regardless of hours. For example, a substitute teacher may earn $150 per diem whether they work a half day or a full day.
Key Takeaways
- Per diem means a fixed daily allowance for work-related expenses or daily pay for certain jobs.
- It is commonly used in business travel, healthcare, education, and project-based work.
- U.S. federal per diem rates are set by the GSA, but private employers may set their own policies.
- Per diem is different from hourly wages and can provide flexibility for both employers and employees.
Per Diem Policy Template
This Per Diem Policy defines how [Company Name] sets daily allowances for work-related travel and day-based compensation. It explains eligibility, rates, covered expenses, documentation, and approval workflows.
1) Purpose
Provide a simple, predictable way to reimburse reasonable meals, lodging, and incidental expenses or to compensate workers on a per-day basis, while keeping records compliant with company policy and applicable tax rules.
2) Scope
Applies to all employees and contractors of [Company Name] who travel for business or who are engaged on a per diem (daily rate) basis, as stated in their agreement.
3) Definitions
- Travel Per Diem: A daily allowance to cover meals and incidental expenses (M&IE) and, if applicable, lodging while traveling for work.
- Employment Per Diem: A flat daily pay rate for certain roles (e.g., substitute, on-call, or temporary staff), independent of hours worked.
- M&IE: Meals and Incidental Expenses (e.g., tips, small fees).
4) Rates
[Company Name] sets per diem rates by destination. Where practical, we reference publicly available guidelines (e.g., U.S. GSA for federal travel) and adjust based on business needs.
- Domestic – Standard: Meals & Incidental: $[MIE Rate] per day; Lodging: $[Lodging Rate] per night.
- High-Cost Cities: Meals & Incidental: $[MIE High-Cost]; Lodging: $[Lodging High-Cost].
- International: Publish destination-specific rates prior to travel: $[Intl MIE] / $[Intl Lodging].
5) What Per Diem Covers
- Meals: Breakfast, lunch, dinner while on approved travel.
- Incidentals: Tips and minor fees (e.g., baggage handling).
- Lodging: If included in policy for the trip (otherwise reimbursed at actuals with receipts).
6) Non-Reimbursable Items
- Alcohol (unless expressly approved), personal entertainment, room upgrades, minibar.
- Fines, penalties, personal travel costs, family/guest expenses.
- Expenses already covered by event sponsors, clients, or bundled hotel packages.
7) Calculation Rules
- Full day: Traveler receives 100% of the approved daily M&IE rate.
- Partial day: Arrival/Departure days: [e.g., 75% of M&IE].
- Provided meals: Reduce per diem if breakfast/lunch/dinner is provided: [e.g., -20%/-30%/-50%].
- Lodging per diem: Paid only if not covered by client/event or corporate booking.
8) Example (U.S. Domestic Trip)
Trip: 3 days to New York City. M&IE per diem: $100/day. Company pays lodging at per diem.
- Day 1 (arrival): 75% of $100 = $75; lodging per diem: $[Lodging Rate].
- Day 2 (full day): 100% of $100 = $100; lodging per diem: $[Lodging Rate].
- Day 3 (departure; lunch provided): 75% of $100 = $75 → minus 30% lunch = $52.50; lodging: $0.
9) Advances vs. Reimbursements
- Advance: Optional pre-trip advance of [X days] based on itinerary and approved rates.
- Reimbursement: Paid after submitting a Per Diem Expense Report within [X days] of return.
10) Documentation & Approvals
- Submit itinerary, purpose of trip, destination(s), and cost center before travel.
- After travel, submit dates, destinations, and any required receipts for non-per-diem items (e.g., airfare, ground transport).
- Manager approval required before payment; finance reviews for policy compliance.
11) Employment Per Diem (Daily Rate Roles)
- Applies to roles designated as per diem in the offer or contract.
- Rate: $[Daily Rate] per day worked; hours may vary by assignment.
- Per diem pay is not the same as hourly; daily rate applies whether the shift is partial or full (per contract terms).
12) International Travel
- Use destination-specific rates published internally prior to travel.
- Currency: Reimburse in [USD/local currency] using the rate on [settlement date/company FX policy].
- Visas, vaccinations, and insurance handled per [Travel Policy].
13) Tax Treatment
Per diem amounts that follow company policy and applicable tax guidelines are generally treated as non-taxable reimbursements for employees. Amounts exceeding policy or lacking documentation may be taxable. Contractors should consult their tax advisor regarding per diem income.
14) Policy Exceptions
Any exception to this policy requires written approval from [Finance/HR/Operations] before travel.
15) Acknowledgment
By submitting a travel request or accepting a per diem assignment, the traveler acknowledges they have read and agree to this policy.
Per Diem Expense Report
Complete and submit within [X days] of trip end.
- Employee: [Name] — Dept/Cost Center: [Dept]
- Trip Purpose: [Purpose] — Manager: [Manager Name]
- Destination(s): [City, State/Country]
- Dates: [Start Date] to [End Date]
- Per Diem: M&IE $[Rate]/day; Lodging $[Rate]/night
Daily Breakdown
- Day 1 — [Date]: [Full/Partial], Meals Provided: [B/L/D], Amount: $[ ]
- Day 2 — [Date]: [Full/Partial], Meals Provided: [B/L/D], Amount: $[ ]
- Day 3 — [Date]: [Full/Partial], Meals Provided: [B/L/D], Amount: $[ ]
Total Per Diem: $[ ] — Employee Signature: [ ] — Date: [ ]
FAQs Per diem
Per diem means “per day.” In business, it refers to a daily allowance paid to cover travel expenses, or daily compensation for temporary and on-call jobs.
It means the employer gives the employee $100 per day to cover eligible expenses (usually meals and incidentals) while traveling for work.
Per diem pay can be attractive because it provides tax-free reimbursements for qualified expenses and flexibility for workers. However, if expenses exceed the allowance, the worker pays the difference.
Employers may base it on IRS or GSA guidelines, which vary by location, or set their own fixed rates. It usually covers meals, lodging, and incidental expenses on a daily basis.
For workers seeking flexibility—like substitute teachers or nurses—per diem jobs can be worthwhile. However, they often don’t include benefits such as health insurance or paid time off.
No. Hourly pay compensates by the hour worked, while per diem is a flat daily rate, regardless of hours.
There’s no set number of hours. Some employers expect a full day of work; others may count a half-day as a full per diem. It depends on the policy or contract.
