What Does Per Diem Mean

I can still remember the first time I encountered the phrase per diem. It was in my first sales job after college and I was going on a trip to San Francisco for training. I had all kinds of questions about how it worked.

The second time I encountered it was when I worked for a staffing agency and they placed people on per diem work.

In this article, I want to break down what per diem means in both of these situations and some things I wish I had known back then.

What Is Per Diem For Travel

If you are going on a business trip or you travel frequently for a sales job, your company may offer you a per diem. Per diem is Latin for “by the day.” In this case, it’s easiest to think of it as an allowance or stipend that can be used for meals, hotels, airfare, rental cars, parking, and business-related fees (even tipping the server at the restaurant).

It’s a daily amount of money given to you to meet these needs and many times doesn’t require approval or expense reimbursement. I’ll get into how it’s paid out in a little bit.

Does Per Diem Cover All Expenses

No, not necessarily. I’ve seen per diem cover all legitimate expenses, but I’ve also seen companies that only allow it for certain things such as meal allowances. Don’t assume that your company will pay for everything. Consult your employee handbook or ask HR or accounts payable what is covered. Both should know the answer.

One thing that I’ve never seen covered by per diem is alcohol. So if you’re planning on taking some clients out for a good time, don’t count on getting paid back for that.

Are There Laws About Reimbursement and Per Diem Pay for Business Expenses

Every state is different, so I would consult a legal expert if you have questions. For example, in California, employers are required to reimburse employees for reasonable business expenses and this may be in the form of a per diem amount.

One thing that per diem cannot cover is mileage. If you drive your personal car for work-related purposes, per diem does not cover this. Instead, the IRS provides a standard mileage reimbursement rate that companies follow and will reimburse you based on the miles you drive.

Companies can elect to do a car allowance, which is similar to a per diem payment, instead of mileage reimbursement, but depending on the state’s laws it can open them up to compliance and legal risks.

Guidelines for Per Diem Amounts

The General Services Administration (GSA) publishes federal guidelines that provide per diem amounts for meals, hotels, and other expenses in over 10,000 cities across the country. This federal agency sets per diem rates for federal government employees who travel for work and many companies use it as a guideline. There is however no rule that private companies have to follow these.

Every October, the GSA publishes new rates.

The IRS also publishes per diem rates which are updated annually as well.

And for international travel, a good per diem resource is the State Department’s Office of Allowances.

The reason I like these guides form the federal government is because they break down per diem amounts by location. A hotel in Los Angeles, CA is going to cost a lot more than a hotel in Fort Wayne, IN and therefore the per diem amount varies depending on the location.

How Does Per Diem for Travel Work

Every company is different, but here are the most common ways I’ve seen companies implement per diem pay for travel-related expenses.

Usually, an employee claims allowances for each day they are traveling. If the per diem rate is $100 and you travel for 2 days, you would claim two days for a total of $200. Some companies may allow you to spend that on any business-related item, others may have specific rules about it.

Some may not require itemized receipts and simply let you spend the per diem, but most companies will still want to know what you spent your per diem on. So save receipts in case you need them.

One thing I found out the hard way was that you may receive a partial per diem if you’re only traveling for part of the day. Let’s say you leave mid-day for a trip, your per diem for that day may only be 50% of the full-day amount.

Some companies treat per diem just like your parent’s allowance when you were a kid. It’s an amount you get regardless of whether or not you spent it all. If you earned $10 for the week and don’t spend it, it’s still yours. Not every company operates this way though. So be sure to ask.

Many companies I’ve worked with required me to track business purpose, date, time, and amount spent, and submit receipts for my per diem.

All of this doesn’t mean that you can’t spend money outside of the per diem amount, although that may be frowned upon. If you have expenses outside of the per diem amount, always get approval first before spending the money. Then you can submit them for reimbursement later. But unlike per diem, you’ll have to pay for it first and then get reimbursed later.

How Do Companies Pay Per Diem for Travel

I’ve worked at a few companies that issued business credit cards to me for my expenses. Those cards were then used to pay for my expenses, not exceeding the per diem amount. I’ve found that this is more common with senior-level roles and junior roles most likely won’t be given a corporate credit card.

More typical is that companies will pay you a fixed per diem rate that will be included in your paycheck for the days you are traveling.

Another way I’ve seen per diem paid is that a company will have a card on file with a hotel and then you can bill that card for any lodging and food you purchase up to your per diem amount for the day.

Taxes on Per Diem

One question you may be asking is, “If the company is paying me a fixed per diem rate on my paycheck, will I be taxed?”

Remember earlier how I said private companies don’t have to follow the IRS or GSA guidelines for per diem amounts? Well, that’s true legally, but if they pay you more than the IRS per diem amount, you will have to pay taxes on that money.

Anything equal to or below that amount is non-taxable. Anything greater than the standard rates are taxable income.

You can choose to return any excess amount to avoid taxes if you wish to. But if you do this, there are time limits to file business expense reports. The last time I checked, it was 60 days. If you don’t file within the timeline and your per diem amount is more than the IRS guideline, you will pay taxes on the income.

What Does Per Diem Mean for Jobs

Ok, let’s shift gears for a minute and discuss per diem as pay instead of for travel. They are not the same.

Per diem pay for work is the amount of money you are paid based on either the quantity of work you completed or a flat fee for the day.

I’ve seen this commonly occur in logistics and nursing. It’s fairly common with contracted specialists and temporary workers as well.

Let’s say you are packing boxes in a warehouse on per diem work. You might be paid a flat fee for the day or you might be paid per box that you packed. The more you pack, the more you make.

Another example would be in nursing. Per diem nurses are similar to travel nurses but they may work for multiple facilities that are close to home. They are scheduled to work as needed and it’s one of the most flexible work models out there. If you pick up a shift, you’ll be paid a per diem amount of hours in lieu of the work you performed.

What Does Per Diem Mean in a Job FAQ

What does per diem mean on a job?

Per diem is either the amount of money that you will be paid for doing a job or it is an amount paid to you as an allowance for business-related expenses.

What does $100 per diem mean?

It means that a company is giving you $100 to spend on business-related expenses such as hotels, meals, rental cars, and airfare. Depending on the company’s policy, you may be able to keep any money not spent.

How is per diem usually paid?

Per diem is most commonly paid to an employee as a stipend on their paycheck. As long as the amount does not exceed IRS per diem rates, it is non-taxable.

Why does per diem get paid more?

People who work on a per diem rate, meaning they are paid a flat fee for their daily work or they are paid based on the quantity of work, usually get paid more because they are not considered full-time employees receiving benefits and other payroll related costs. Contractors and temporary help usually do get paid more than regular employees but may not work as regularly.

How to calculate per diem pay?

Most companies use the GSA or IRS guidelines to determine a daily per diem amount. You can take that amount and multiply it by the number of days that you qualify for the per diem rate to calculate your total per diem pay.

What is the difference between per diem and prn?

A pro re nata (PRN) nurse is bound by the healthcare organization’s workplace policies regarding the minimum number of hours per week that they have to work. A per diem nurse is not and therefore has more flexibility in choosing when they work. PRNs also typically receive benefits and enjoy the stability of a regular paycheck. A per diem nurse does not.

Does Per Diem Apply To Interviews?

If you’re a highly sought-after candidate, you may be paid a per diem if required to travel for a job interview. I can remember traveling to San Diego for a job interview and the company gave me a per diem amount to cover my travel expenses which included lodging, meals, and incidentals.

Other companies may also offer to reimburse you for traveling to meet them in an interview.

Cole Sperry has been a recruiter and resume writer since 2015, working with tens of thousands of job seekers, and hundreds of employers. Today Cole runs a boutique advisory firm consulting with dozens of recruiting firms and is the Managing Editor at OptimCareers.com. He has also been a stay at home dad for the past 7 years.