Per diem

Per diem (Latin for "per day" or "for each day") is a daily allowance for expenses—a specific amount of money an organization gives an individual, often an employee, per day to cover living expenses when traveling for work.

A per diem can include part or all of the expenses incurred, for example it may exclude accommodation (for which reimbursement may be available on presentation of receipts) and only cover meals. Per diem is also used as an adjective and an adverb. Travel, particularly by motor vehicles, is often reimbursed at a rate determined only by distance travelled, e.g., the US Business Mileage Reimbursement Rate.

Fixed per diem (and per mile) rates eliminate the need for employees to prepare, and employers to scrutinise, a detailed expense report with supporting receipts to document amounts spent while travelling on business. Instead, employers pay employees a standard daily rate without regard to actual expenditure.

Accommodation and subsistence (meals) payments paid as fixed daily amounts are described as "scale rate expenses payments" by the UK HM Revenue & Customs (HMRC). HMRC guidance does not use the term "per diem", but it is used by some organisations. HMRC allows scale rate expenses payments for income tax purposes for travel within the UK, and allows a dispensation for such payments for travel abroad.

U.S. companies and organizations use the per diem rate guide published by the General Services Administration, which provides rates for a number of cities in the United States. When an employer reports an employee's earnings at the end of the year on a W-2, the inclusion of amounts for a per diem is only required if it is paid under a non-accountable plan, or is paid under an accountable plan but the amounts are not fully substantiated. If W-2 reporting of a per diem paid under an accountable plan is required, the substantiated portion of the per diem is listed separately from taxable income, under 'Misc. non-taxable'. Per diem payments made to employees under a non-accountable plan or paid under an accountable plan but not substantiated are included in Box 1 of the W-2 as taxable income. (Please see IRS Publications for instructions for Forms W-2 and W-3.)

Per diem is understood to include the additional expenses incurred living away from home—basically having two residences. The GSA establishes per diem rates for hotels "based upon contractor-provided average daily rate (ADR) data of fire-safe properties in the local lodging industry."; this means that per diem varies depending on the location of the hotel—for instance, New York City has a higher rate than Gadsden, Alabama.

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