Per diem allowances for business travel
Managing your company's travel spend can be challenging. Without proper oversight, travel expenses can add up quickly and go over budget.To prevent that from happening, you can add per diem allowances to your corporate travel policy to help set and regulate travel-related expenses.Here's a guide to help you navigate the complexities of business travel and per diem policies so you can keep spending in check.What is a per diem allowance, and what does it cover?
A per diem allowance, also known as a scale rate payment, is a fixed amount paid by an employer to an employee to cover incidental expenses incurred while traveling away for business purposes. When claiming travel expenses, the key rule is that it must be essential to the performance of your employees’ job in relation to business objectives.Per diem payments are typically used to cover expenses like meal costs, travel expenses, and lodging expenses—even dry cleaning. The government provides official travel benchmark allowances that consider things like average maximum lodging costs, the general cost of living, and travel regulations. However, individual cases can be assessed based on typical costs.Per diem rates are legally enforced only for federal employers whose employees travel domestically or in foreign areas on official government business. However, private companies can also choose to adopt per diem rates for their business travel policies. This can help streamline reimbursement processes, reduce paperwork, and offer tax deductibility benefits, as long as these rates stay within the IRS-approved limits.Who sets per diem rates in the U.S.?
In the US, three federal agencies establish the per diem reimbursement rates depending on the geographical location of the travel destination:- The U.S. General Services Administration (GSA) regulates per diem rates for business trips within the continental United States (CONUS), which includes 48 contiguous states and the District of Columbia.
- The US Department of Defense (DOD) sets the per diem rates for travel within the US but outside of CONUS (Alaska, Hawaii, and other non-CONUS US territories).
- The US Department of State establishes the per diem reimbursement rates for foreign travel.
The Internal Revenue Service (IRS) separates expenses into two categories:- Lodging rates: The cost of overnight stays
- Meals and incidental expenses (M&IE) The costs of food, tips, transportation, mailing, and other minor expenses.
Employer Reimbursement Options
Employers have two options when deciding how to reimburse employees:- Standard rates method: These are different rates for each state and individual location.
- High-low method: Locations deemed ‘high-cost’ are assigned a per diem rate, with all other states taking the ‘low-cost’ rate.
Standard rates can be checked on the gsa.gov website. Some states have multiple rates depending on which city the employee is traveling to. However, as of 2025, most states within CONUS have a rate of $178 ($110 lodging, $68 M&IE).If using the high-low method, the current rates are:- High-cost: the full rate is $309, with $74 of that being the M&IE rate for meals and incidental expenses
- Low-cost: the full rate is $214, with $64 of that being the M&IE rate for meals and incidental expenses
Find out your per diem allowance for your upcoming U.S. trip
Our per diem calculator works out exactly how much you’re entitled to spend when you travel for work.What are the benefits of per diem allowances?
Per diem allowances provide employees with a certain amount of flexibility and trust when traveling for business. They reduce expense volatility, facilitate planning for a business trip, and decrease the administrative burden on both the employee and employer.Per diem allowances often promote mindful spending, as business travel costs are limited by the agreed allowances. They also encourage professional development—employees are far more likely to travel for learning opportunities if their expenses are covered.What are the drawbacks of per diem allowances?
While flexibility and prudence are beneficial, they can also be detrimental if unmonitored. If employees begin to consider their per diem allowances part of their income, they may cut corners to pocket the change from actual expenses.Internal governance systems can be put in place to monitor this. However, this offsets the administrative benefits of per diem payments. It’s also possible that employee travel could increase unnecessarily due to per diem allowances—traveling for meetings is more attractive when you’re essentially paid a little extra to do it.How do per diem allowances work?
When an employee goes away on business, the company has to ensure their per diem allowance is available. Whether it’s the benchmark allowance or one established through federal travel regulations, employers need reassurance that their employees’ expenses are covered.Traditional expense reporting can be tiring for both the employee and the travel manager. On the one hand, the employee must compile all travel expenses into an expense report. On the other hand, it’s the company’s (or travel manager’s) temporary duty to monitor and remain vigilant of business expenditure when trusting their employees.Per diem payments, however, provide the employee with a daily allowance in advance. It helps avoid the paperwork, given it remains within the standard rate, and reduces waiting time for employees claiming reimbursements for travel expenses, as their spending is pre-approved.How is per diem paid to employees?
How employees receive their per diem payments is up to the company and can be one of a few options:- Cash in hand: The employee receives the per diem payment upfront to use when necessary.
- Corporate credit cards: These can have limits and be monitored to ensure no employee misuse.
- Private spend: The employee uses their own money and is reimbursed upon return or regularly—like the last day of every month—if it’s a longer trip.
Can you keep unused per diem payments?
Per diem payments can be made before or after the employee travels. If made before, the employee has the agreed allowance on hand to spend. If made afterwards, the employee covers the costs of the trip and is reimbursed once back at the office, receiving the agreed per diem allowance. In both cases, the amount they receive is fixed, and repayment is not necessary if this fixed amount isn’t spent.Deciding whether per diem payment rates are fitting your business is a complicated but essential part of creating a business travel policy. Head to the TravelPerk Corporate Travel Policy Guide to learn how to simplify managing corporate travel by establishing a travel policy.Can you keep unused per diem payments?
Per diem payments, following the scale-rate payments system managed by HMRC, can be made before or after the employee travels. If made before, the employee has the agreed allowance on hand to spend. If made afterward, they are reimbursed the per diem allowance agreed. In both cases, the amount they receive is fixed, and repayment is not necessary if this fixed amount isn’t spent.Deciding whether per diem payment rates are your businesses’ best bet is a complicated but essential part of creating a business travel policy. Whether it's a 40-minute train to another office or a business trip to New York City, head to the TravelPerk Corporate Travel Policy Guide for more information and options regarding managing corporate travel.How is per diem calculated on travel days?
Travel managers have two options for calculating per diem payments:- Standard per diem rates: These are daily allowances determined by the federal government. .
- Company-determined rates: Company leaders establish daily rates for business travelers. They calculate this based on previous travel expenses, the current travel rates.Once determined, they’re communicated and agreed upon with the relevant governing body.
The first is a ‘one-size-fits-all’ approach that minimizes your company’s finance team’s administrative burden. Just look up the rate and stick to it—pretty simple. The downside to using standard rates is that the predetermined daily rate may not be enough for traveling employees. However, agreeing on a rate with the relevant authority provides increased flexibility while still qualifying as tax-deductible but requires more paperwork at first.Using company-determined rates can be more expensive. It also requires data input that may be hard to scrape together if you haven’t been using a travel management tool. If you can’t find average spending for previous business trips, it will be difficult to assign a realistic company-determined rate.Are receipts required for per diem payments?
No, receipts aren’t required for per diem payments in most cases. It’s a major benefit of per diem allowances—they don’t require as much paperwork as traditional expense reports.If you use the rates set by authorities, receipts aren’t needed. Employees get the standard rate, decided by what the governing bodies calculate to be the average business travel expenditure per location.If you plan to use a company-specific per diem rate that exceeds the GSA’s standard, employees will need to justify the rate with supporting documentation, such as receipts or expense data. If the excess spent can’t be justified, it is treated as taxable income.Traditional expense reports for reimbursing traveling employees require employees to collect and submit receipts to management. Once approved by the travel manager, the accounting team handles the expense report and employee reimbursement.Key takeaways on managing per diem allowances for US business travel
Per diem payments are a great way to lessen the administrative burden of travel expenses for the traveling employee, management, and finance teams.Diving deeper shows how useful per diem rates are to businesses when it comes to tax and paperwork and how they allow flexible travel arrangements for employees.Per diem rates differ depending on domestic and international travel, as costs vary depending on where your employees are in the world. We’ll be covering foreign per diem rates as part of this TravelPerk per diem allowances guide, so read on for more information.?)
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