Managing a business travel program is complicated enough. Tracking, managing, and reimbursing employees for their travel-related expenses is just one more time-consuming complication.
Per diem rates can help your organization streamline travel expenses and give employees a convenient way to budget for meals, accommodations, and other expenses. This guide breaks down what per diem rates are and how to determine an effective per diem policy for your company.
What are per diem rates?
The term per diem, derived from the Latin phrase for “by the day,” and refers to predetermined daily rates for . It’s a fixed amount that’s provided to traveling employees to cover the costs of their lodging, meals, and incidental expenses.
A per diem is typically offered in lieu of a traditional expense management process that requires employees to submit receipts for each and every actual expense they rack up while traveling.
How per diem rates work
Per diem rates make managing business travel expenses more efficient and transparent by providing employees with a fixed amount of money to cover the costs of their trip. The actual amount can vary based on the destination and the duration of the trip.
For most employees, per diems fall into two categories: lodging expenses and meals, and incidental expenses (M&IE rates). Lodging can include hotels, private rentals such as short-term apartment stays. M&IE includes meals and incidental expenses like tips, room service, laundry, and dry cleaning. It does not cover travel-related expenses for transportation, entertainment, or personal purchases. Your company travel policy should clearly explain what expenses are acceptable in your M&IE rate so there’s never any question.
Having an established rate in place can be a win-win for both employees and employers:
- For employees, a per diem eliminates tedious post-trip expense reporting and reimbursement processes. Rather than requiring travelers to itemize individual expenses, per diems give traveling employees a lump sum allowance. This means that as they’re planning their travel, your employees won’t have to worry about whether certain charges will be allowed.They also don’t have to collect receipts for every expense, and won’t need to spend valuable work hours filing expense reports when they return. A per diem also provides employees the funds they need to cover their basic needs without having to dip into their personal finances.Another benefit? Per diems give employees flexibility to upgrade their hotel room or enjoy a more expensive meal if they’d like—they can get reimbursed for the per diem allowance and then pay the rest out of their own pocket.
- From an employer’s perspective, per diem rates simplify the administrative burden associated with tracking and reimbursing individual expenses, saving your organization time and resources. It also helps simplify accounting by streamlining the expense claim process – plus, it allows you to write off business travel as an expense when you follow government guidelines.
What’s the average per diem rate for corporate travel?
The average per diem for business travel can vary depending on factors such as the destination, local lodging rates, and company policy.
Figuring out how to calculate per diem for business trips is typically a straightforward process. Most companies follow guidelines established by the federal government. Every year, the Internal Revenue Service (IRS) and U.S. General Services Administration (GSA) set a standard rate that outlines the amount of tax-free reimbursement federal government employees and contractors can receive for business travel expenses in the continental United States (CONUS), which includes the 48 contiguous states and Washington, D.C.
These rates serve as standard allowances for reimbursing travel-related expenses incurred during official business travel, helping to simplify the business trip expense reimbursement process and promote transparency and accountability in government spending.
For 2024, the IRS and GSA has established a standard rate of $166 ($107 lodging rate, $59 M&IE). And according to GSA, there are 302 non-standard areas (NSAs) that have per diem rates higher than the standard rate. Check out the per diem business trip calculator on GSA.gov to find current rates for these cities.
Rates for Alaska, Hawaii, and U.S. territories and possessions are set by the Department of Defense, while rates for foreign countries are set by the Department of State.
Using the high-low method to determine per diem allowance
The high-low method is a simplified approach for determining per diem rates that takes into account regional differences in expenses. Rather than calculating specific per diem rates for each destination, the high-low method involves setting two standard rates: a higher rate for high-cost areas like New York City or San Francisco and a lower rate for less costly locations.
Here’s how the high-low method typically works:
- Identify high-cost and low-cost locations: The first step is to identify high-cost and low-cost locations based on factors such as the cost of living, lodging rates, and meal expenses.
- Establish high and low per diem rates: Once high-cost and low-cost locations are identified, you set two standard per diem rates: a higher rate for high-cost locations and a lower rate for low-cost locations.
- Apply rates based on the destination: When employees travel to different locations, they’re reimbursed according to the applicable per diem rate. If the destination is a high-cost location, employees receive the higher per diem rate, and if they travel to a low-cost location, they receive the lower per diem rate.
- Regular updates: It’s important to review and update your high and low per diem rates every fiscal year to account for changes in expenses over time. This confirms that rates remain relevant and reflective of current costs in different locations.
How to determine per diem rates for international travel
Per diem rates for international travel vary widely depending on the destination. When setting international per diem rates, you can consult the U.S. State Department’s website to search foreign per diem rates by location to make sure you’re compensating employees fairly for expenses.
How partnering with an expense management solution can make per diem rates even easier
Per diem rates are great for adding ease to expense management but there’s still some admin involved. However, partnering with a corporate travel solution can simplify the process further while maintaining compliance, accuracy and efficiency while providing:
Automated calculation: An expense management partner can automatically calculate per diem rates based on the destination, and takes into account specific rates for meals, lodgings and incidental expenses set by government guidelines.
Reporting: Working with a corporate travel partner who can manage your expenses, will offer robust reporting and analytics features that help you gain insight into per diem spending patterns and help you determine where you can make savings.
Real-time updates: An expense management partner can provide real-time updates on per diem rates and adjust them to reflect changes in regulations, exchange rates and cost of living adjustments in different locations.
Expense tracking: If required, your travelers can submit their per diem expenses and attach receipts easily. This not only streamlines the reimbursement process but also provides accurate tracking.
So, if you want to simplify your expense management and stay on top of per diem rates, speak to American Express Global Business Travel (Amex GBT™) today to discover your perfect business travel partner.
