Per diem covers only certain expenses during an employee’s travels.
Transportation
The cost of shuttles or taxis used to get to and from the airport or business event can be included in per diem.
These costs may also include car rentals, ride-share fees, and public transportation.
Lodging
Employees’ lodging expenses are considered part of the per diem pay when they stay overnight for business.
Whether they stay in a chain hotel, boutique hotel, extended stay apartment, or even an Airbnb, this expense should be considered when calculating the per diem rate.
Of course, the lodging rate can fluctuate greatly depending on where the employee is traveling, which we’ll discuss in further detail later.
One way your business can save on these lodging costs while still accessing a variety of locations is to use
Hotel Engine. Hotel Engine assists companies with corporate travel by offering hassle-free booking, automated budgeting, and 24/7 support.
Meals
Meals eaten during business travel are also considered a part of per diem expenses.
Food ordered at restaurants on the road, as room service while at a hotel, or groceries bought to eat while on a business trip are included in meal expenses.
Incidental Expenses
Incidental expenses are usually just tips, but they can also include service fees such as dry cleaning, cab fares, ATMs, and tolls.
These expenses are usually lumped together with meals for M&IE in per diem.
Mileage
When a privately owned vehicle is used to travel to a business destination, it is common for the employee to be reimbursed for the mileage placed on their car based on the company mileage policy.
The IRS has a standard rate for mileage rates for 2022 posted here. They will be updated in December of 2023.
What It Doesn’t Cover
There are some expenses that aren’t covered by per diem.
These include alcohol, entertainment, souvenirs, postcards, and other non-business-related expenses.
Per Diem Rate Methods
Several methods can be used to determine the per diem rate a company will use.
Aside from a separate corporate policy, these three are the main methods used, especially by small businesses.
Standard Reimbursement Rates
The standard reimbursement method is dependent on the travel location. Each town will have a different rate.
The GSA has determined localized rates based on the cost of living in the area. They have a handy search tool available to calculate the standard per diem rate based on city or zip code.
This is a more specific method of calculating per diem, which differs from the high-low method. We will highlight the difference between the two under the corresponding heading.
Self-employed individuals must use this method in order to claim per diem on their income tax.
M&IE Rates
This reimbursement model is used when employees don’t spend the night at their destination. Only meals and incidental expenses are covered.
According to the GSA, M&IE rates can be from $59 to $79 inside the US.
High-Low
Another method is to break all per diem into two rates; one for high-cost localities and another for all other cities.
Using the standard method requires looking up the rate for the specific area. If the area does not have a specified rate on the GSA lookup tool, you will use the standard $157 per diem.
The high-low method separates areas into two groups. One group has a higher per diem, the other lower. This is just a simpler way of calculating per diem.
This year the IRS has set the high rates at $296 and the low at $202.
The IRS determines the list of high-cost localities. Some locales are considered high-cost only during certain times of the year.
It is up to each company to decide which per diem method they prefer to use.
Additional Per Diem Expenses
