Finance teams spend hours checking expense reports and receipts before reimbursement of business travel expenses to employees. The expense validation process can be an administrative nightmare because of uncountable receipts, expense heads, destinations, and employee levels. Per diem or per day is the best solution to reduce the administrative workload that is complex and time-consuming for the finance staff. Per diem, meaning per day is clubbing several expenses into a merged daily allowance.
What is per diem meaning?
Per diem is a Latin term referring to daily or per day allowance, which an employee can claim to cover routine food and accommodation costs. An organization can set an individual definition of per diem employee allowances to suit the expense and travel policy.
An employee may receive a specific amount as an advance to purchase goods and services on a business trip. Accounts staff can speed up the validation of expense reports and ensure faster reimbursements to boost employee morale. Fixing a specific amount for the definition of per diem employee allowance mitigates the stress of validating the claims and streamlines the expense management process in a company.
What does per diem include?
The Internal Revenue Service offers helpful guidelines for companies to manage travel expenses. The per diem rates depend upon the business trip destination or through the high-low substantiation method. The IRS provides details of expenditure, including in per diem allowance meaning. These are meals, lodging, and incidentals.
1. Lodging or accommodation expenses
An employee may have to stay overnight in a lodge during a business trip. The accommodation may be a resort, an apartment, or a hotel. The per diem allowance may change as per the location of business travel.
2. Food and drinks expenses
These allowances are subject to change as per the location. The meal allowance can comprise expenses for breakfast, lunch, dinner, and refreshments.
3. Incidental expenditure
Per diem meaning may include incidental expenses unless the company combines these with meals (M&IE). The only expense that does not fit into the per diem definition is the mileage or transportation expenses, as these are variable expenses.
How does per diem work?
Expense reporting becomes an easy process because of per diem allowances. Employees need not collect myriad receipts for hotel, meals, and incidental expenses and store them for attaching with expense report forms for reimbursements.
The employee should submit the expense report within sixty days of the business trip to comply with the accountable expense reimbursable plan. The per diem allowance meaning entails the following information:
- The purpose of a business trip
- Dates and business destinations covered during the business trip
- Lodging or hotel receipts for M&E per diem allowance
Since expense claim reimbursements do not qualify as income for employees, it is not part of their taxable income for them. They must submit expense reports within 60 days and should not exceed the amount beyond federal limits to ensure that the reimbursements do not qualify as taxable income.
Suggested Read: How To Efficiently Use Travel Expense Reporting In Corporates
How to calculate per diem?
The rate of per diem allowance must have relevance to the current rates of food and lodging. An outdated travel policy and lack of knowledge of existing rates can be detrimental to the company’s travel program. Referring to the site of the General Services Administration (GSA) will help you get the current per diem rates for the business travel destination’s zip code.
These rates enable companies to calculate per diem allowances. You need to deduct 25 percent for the first and last day of the business trip as employees incur fewer expenses on meals and lodging on these days. Another way to set a per diem definition is to bifurcate rates as 60 percent and 40 percent for lodging and meals, respectively.
Conclusion
The simple per diem meaning is per day. The term is common in business travel parlance as many companies leverage per diem allowances to make the life of employees and accounts staff easier. Per diem allowance integrates meals, lodging, and incidental expenses and does not mandate employees to collect and present supportive documents and receipts for these expenses. Daily allowances streamline travel management and improve claim reimbursement processes.
Adopting an online travel and expense management tool enables companies to configure daily allowances as per current federal per diem rates. The online travel management software automates expense reporting and reimbursement. It enhances expense and travel policy compliance and employee satisfaction, as they need not struggle to check uncountable receipts and prepare complex expense statements. Paxes is a travel management platform that can be added to several expense management software for better effectivity.
Per Diem Meaning FAQs
What does a per diem allowance comprise of?
A per diem or daily allowance comprises expenses toward meals, accommodation, and other incidental expenses an employee incurs daily while on a business trip.
Can an employee save money using per diem allowances?
An employee may save money by compromising on the quality of food or accommodation, as the company does not mandate receipts by fixing per diem allowances.
How to ensure employee satisfaction and expense cost optimization?
Adopting online travel management software helps companies set per diem by creating a travel policy and partnering with a travel management company to look after transportation and accommodation to enhance the traveler experience.
What is T&E in the business travel context?
T&E stands for travel and expenses, referring to the costs of traveling to a business destination. It includes the cost of transportation, lodging, and other incidental expenses.
What is an expense claim?
Companies may ask employees to spend on their behalf while on business travel. Employees mention expenses for purchasing goods and services like transportation and lodging in a typical format of an expense claim. The company reimburses expenses to employees after the approval of line managers.
