What exactly is “Per Diems”? How do they function, and how might they benefit your business? In this new blog article in our “T&E for Dummies” series, we’ll walk you through the fundamentals.
Have you missed our last updates on “T&E for Dummies”? Check them out.
First things first: What are “Per Diems”?
The term “Per Diem” comes from the Latin language and it literally means “per day.” In the business world, the term stands for the daily allowance employees can get from their employers to cover all of their business expenses when on a business trip. Simple as that.
The most common expenses typically covered by per diem allowances are lodging, meals, and entertainment. Flights or trains to get to your business trip destination are typically excluded, but Uber and Taxi rides might be – depending on the purpose of the journey.
From the corporate point of view, one of the biggest advantages of using “Per Diems” is the gain of control over expenses. If your employees have a daily allowance to spend, you can predict in advance your costs regarding his or her business trip. This is a way of protecting your business from unexpected and unpleasant surprises.
How does Per Diems work?
If your company has opted to use Per Diems instead of working with actual expense reimbursements, you can typically not request reimbursement for any expenses during your business trip, as your Per Diem is ought to cover these.
If a business trip requires you to stay on the road for 5 days, will receive a new allowance for each day.
Learn here more about our expense claims solutions!
This means that instead of saving all receipts for record-keeping, your employee will get a daily allowance – and that will be the limit that your company allows them to spend on a daily basis. Thereon, it is up to him or her to decide what to do with it. It’s a method that prioritizes efficiency and simplicity – both for the employee and the employer.
Great, but how do I set a Per Diem rate?
It’s important to highlight that most jurisdictions do allow the use of Per Diems, but every jurisdiction has its own regulations and maximum amounts of non-taxable daily allowances. Companies can decide to abide by these maximum amounts, or not. If they decide to grant higher daily allowances than the government-set rates, the surplus is counted as the taxable income of the employee.
Each country has its own regulations when it comes to this type of payment, and they can be really complex to understand. That’s why, we decided to didactically explain everything about Per Diems for specific jurisdictions, including the USA, UK, Germany, and Spain.
Nevertheless, Per Diems payments normally differ if the trip in question is domestic or international. If you travel to a country that costs are known for being high, such as Sweden or the UK, it’s likely that you’ll receive a more generous Per Diem than for your business trip to Portugal or Russia.