Per Diem Rates 2023: Meaning, Calculation, and Current Figures
Written by: Rinaily Bonifacio
Last updated: 19 September 2023
Table of contents
- What is meant by per diem rates?
- How per diem operates
- Comprehensive guide to calculating per diem
- What are the Per diem rates for 2023 in the United States
- Tips for business travelers
- Guidance for employers and organizations
- Is per diem taxable?
- Challenges and considerations
- Software solutions for centralized expense management
What is meant by per diem rates?
Per diem rates, often referred to simply as "diem rates," are a fundamental aspect of managing expenses during travel. These rates encompass the daily allowances allocated for meals, lodging, and incidental expenses that an individual incurs while away from their usual residence.
The primary purpose of per diem rates is to simplify the reimbursement process by providing a fixed allowance for various costs, eliminating the need for intricate expense reporting.
This streamlines financial management for travelers and proves invaluable for businesses, ensuring smoother accounting procedures and fostering financial transparency.
How per diem operates
Now that we've grasped the essence of per diem, let's dive deeply into its operational mechanics to better comprehend its functioning.
1. Understanding per diem rates
A fundamental aspect of this system are meticulously established by organizations, governmental bodies or companies. These rates are often influenced by factors such as the travel destination's geographical location and the trip's primary purpose. These variations acknowledge the differing costs of living and travel-related expenses across different areas.
2. The per diem calculation process
The calculation of per diem involves a comprehensive breakdown of distinct cost components:
Meals: Covering expenses for breakfast, lunch, dinner, and any incidental snacks that might be required throughout the day.
Lodging: Taking into account the cost of lodging accommodations, which could range from hotels to alternative lodging options.
Incidental expenses: Encompassing various small and miscellaneous expenses, including tips, local transportation, and minor incidentals that might be incurred.
3. Navigating the reimbursement process
When business traveler embarks on a journey, they become entitled to claim daily allowances for the duration of their trip. A remarkable feature of the per diem system is its streamlined reimbursement process.
Unlike traditional expense reimbursement methods, per diem often does not necessitate the submission of detailed receipts. The total reimbursement amount is generally calculated by multiplying the per diem rate by the number of days spent away on the trip.
4. Management of unused per diem
Should the actual expenses incurred fall short of the allocated per diem rate, certain organizations grant travelers the option to retain the unspent portion of the allowance. This practice aligns with the system's incentive to encourage cost-conscious behavior and responsible spending. It's important to note, however, that policies vary across organizations, and some might require any excess funds to be returned.
5. Accounting and reporting practices
Accurate accounting and reporting practices play a pivotal role within the per diem system, ensuring meticulous record-keeping and adherence to organizational guidelines. The following steps elucidate this process:
Expense tracking: Travelers are required to diligently track their expenses during the trip, while also documenting any additional costs beyond the fixed per diem rates, such as transportation expenses.
Submission of per diem reimbursement requests: Upon completing the trip, employees submit detailed expense reports to the finance or HR department. These comprehensive reports provide critical information, including the trip's purpose, destination, dates, and an itemized breakdown of daily expenses.
Receipts and documentation: Depending on the organization's stipulations, employees might need to provide itemized receipts as evidence of incurred expenses.
Approval and reimbursement: Finance teams meticulously review and authorize the submitted reports, paving the way for reimbursement of eligible expenses.
Unspent allowances and auditing: Organizations maintain thorough records of per diem rates, receipts, and expense reports, a practice essential for efficient auditing and ensuring compliance with tax regulations.
Incorporating specialized expense management software can significantly enhance these processes, leading to heightened efficiency, accuracy, and financial transparency.
Comprehensive guide to calculating per diem
Per diem is a daily allowance provided to employees or individuals for expenses incurred while traveling for work or other designated purposes. It covers various expenses such as meals, lodging, transportation, and incidentals. Calculating per diem involves determining the appropriate rates, understanding the different components, and adhering to relevant regulations. This guide breaks down the process step by step.
Step 1: Understand the purpose
Per diem rates vary based on the purpose of the travel, such as business trips, government-related travel, or medical purposes. Each purpose may have its own set of rules and rates established by the organization, government agency, or industry standards.
Step 2: Determine the location
Per diem rates are often location-dependent due to differences in cost of living. Different regions or cities may have varying rates. To accurately calculate per diem, you need to know the specific location where the individual will be traveling.
Step 3: Identify per diem components
Per diem is typically divided into various components:
Lodging: This covers the cost of accommodation, such as hotel expenses. Some organizations provide a flat rate for lodging, while others use the actual cost up to a certain limit.
Meals: Meals are usually divided into breakfast, lunch, and dinner. Per diem rates may vary based on the time of day, and they often include gratuities and taxes.
Incidentals: Incidentals cover minor expenses like tips, transportation between the hotel and work location, and other miscellaneous costs.
Step 4: Check the rates
Per diem rates can be found on official government websites, company policies, or industry associations. Government per diem rates are often set by the General Services Administration (GSA) in the United States, and they are adjusted annually.
Step 5: Calculate the per diem
Calculating per diem involves multiplying the applicable rates by the number of days spent in the travel location. Here's how:
Lodging: If using a flat rate, simply multiply the lodging rate by the number of nights stayed. If using actual cost, sum up the daily lodging expenses.
Meals: Calculate the daily meal allowance for each meal (breakfast, lunch, and dinner) and sum them up. Some organizations use a percentage breakdown of the total daily meal allowance for each meal.
Incidentals: This is usually a flat daily rate. Add up the incidental rates for the duration of the travel.
Total Per Diem: Sum the lodging, meals, and incidentals to get the total per diem amount for each day.
Step 6: Adjustments and regulations
Partial days: Per diem rates can be adjusted for partial travel days. Some organizations provide 75% or 50% of the full per diem for partial days.
High-cost locations: Certain locations with a higher cost of living may have higher per diem rates.
Low-cost locations: Conversely, per diem rates in areas with lower living costs might be lower.
Weekends and holidays: Some policies provide a reduced per diem rate for weekends and holidays, as fewer meals might be needed.
Step 7: Record keeping and reporting
Proper documentation is crucial. Maintain records of travel dates, locations, expenses, and receipts. Some organizations require travelers to submit expense reports with supporting documentation.
Step 8: Tax implications
Per diem payments might be taxable or nontaxable, depending on the country and the nature of the travel. Consult with tax professionals to understand tax implications.
Step 9: Variations in industry and organizations
Different industries and organizations might have unique per diem policies. Some might reimburse actual expenses rather than using per diem rates. It's essential to follow the guidelines provided by your employer or organization.
Step 10: Stay updated
Per diem rates and regulations can change. Regularly check for updates on government websites or official company policies.
Remember that this guide provides a general overview, and specific rules and rates can vary widely. Always refer to the relevant sources and consult with HR or financial professionals when needed.
What are the Per diem rates for 2023 in the United States
In the United States, the task of determining per diem reimbursement rates falls under the purview of the General Services Administration (GSA). Collaborating closely with the Department of State (DoS) and the Defense Travel Management Office (DTMO), the GSA takes charge of establishing these rates, a responsibility undertaken annually on October 1.
These rates serve as the yardstick by which Federal agencies gauge the reimbursement they provide to their employees for expenses incurred during official travel.
GSA per diem rates are a composite of two distinct components:
A maximum lodging allowance and a meals and incidental expenses (M&IE) allowance.
For the majority of locations encompassed within the contiguous United States (CONUS), which covers approximately 2,600 counties, the prevailing per diem rate stands at $157 per day. Out of this total, $98 is dedicated to lodging expenses, while the remaining $59 is allocated to meals and incidental expenses.
Changes and updates for 2023
The current fiscal year, 2023, introduces an interesting variation. A total of 316 non-standard areas (NSAs) exist, each possessing per diem rates that surpass the standard federal per diem rates set for the year. These non-standard areas are characterized by unique cost-of-living considerations, resulting in higher per diem allowances to appropriately cover the increased expenses.
One noteworthy facet of per diem calculations pertains to maximum lodging allowances, which have been determined through the application of the average daily rate (ADR) concept since the fiscal year 2005. ADR is a widely accepted metric within the lodging industry.
It involves the division of a property's room rental revenue by the number of rooms rented, effectively furnishing the average rate within a specific geographical area. The GSA’s official lodging rates webpage is a valuable resource for those seeking further insight into the intricacies of how lodging per diem rates are meticulously derived.
Tips for business travelers
Plan ahead: Prior to embarking on a business trip, research the per diem rates for your destination. This will help you budget effectively and avoid overspending on meal expenses.
Keep receipts: Even though per diem reimbursements typically don't require receipts, it's still a good practice to keep them. Some organizations may request them for documentation purposes.
Understand limits: Familiarize yourself with your organization's maximum per diem rates for lodging and meals. Staying within these limits ensures smooth diem reimbursements.
Choose cost-efficient options: Opt for meals that are within your allocated per diem amount. Being mindful of your expenses not only respects company policies but also aids in adhering to the Internal Revenue Service guidelines.
Stay informed: Be aware of changes in per diem rate, especially if you frequently engage in business travel. Regular updates from your organization or relevant authorities can prevent any surprises during your trip.
Guidance for employers and organizations
How to properly reimburse employees?
Reimbursing employees for business travel expenses requires clarity. Ensure your reimbursement policy aligns with the set per diem rates, and clearly communicate the process employees should follow to claim their diem reimbursements. Adhering to the guidelines from the Internal Revenue Service avoids unnecessary taxation issues.
Strategies for managing travel budgets:
Pre-trip planning: Encourage employees to plan their trips well in advance. This allows for better budget allocation and helps in optimizing travel expenses.
Technology utilization: Leverage real-time expense tracking tools to monitor and manage travel expenses. This enables timely interventions if spending approaches or exceeds diem allowances.
Preferred vendor partnerships: Collaborate with hotels and restaurants to negotiate special rates for your employees, which can lead to cost savings on lodging and meal expenses.
Flexible travel policies: Adopt a travel policy that provides a range of per diem rates based on destination. This flexibility ensures that employees are adequately reimbursed without encouraging overspending.
Regular auditing: Implement periodic audits of travel expenses to identify trends and areas for improvement. This proactive approach can lead to refined travel budgets and better utilization of resources.
In both scenarios, whether you are a business traveler or an employer, understanding the nuances of diem reimbursements, meal expenses, and compliance with regulations like those from the Internal Revenue Service is pivotal.
Is per diem taxable?
The tax implications of per diems for business travel in the United States hinge on the manner in which they are utilized by employees. Understanding the distinction between taxable and non-taxable per diems is crucial for employers and employees to ensure compliance with Internal Revenue Service (IRS) regulations.
1. Non-taxable per diems
A per diem is deemed non-taxable when it adheres to specific conditions stipulated by the IRS. For a per diem to qualify as non-taxable, it must align with the federal government's established standard per diem rates applicable to various locations.
These rates, as highlighted earlier, are published annually by the General Services Administration (GSA). Should the per diem amount fall within these GSA standard rates and be directed exclusively toward legitimate business travel expenses, it qualifies as non-taxable income.
In such cases, employees are relieved from the obligation of maintaining detailed records of actual expenses, simplifying the reimbursement process.
2. Taxable per diems
Per diems that exceed the federal government's standard rates or are not directly linked to business travel are classified as taxable income.
This means that if the per diem amount provided to employees surpasses the GSA standard rates or if the per diem is utilized for non-business-related expenses, it becomes subject to regular income tax withholding.
3. Accountable plan
To ensure proper handling of tax obligations related to per diem payments, many employers adopt what is known as an "accountable plan." This plan encompasses a series of policies and procedures designed to align with IRS requirements for reimbursing employees for business expenses.
Operating under an accountable plan entails that non-taxable per diem reimbursements are excluded from an employee's taxable income. Meanwhile, any surplus amount beyond the non-taxable threshold is treated as taxable income, subject to appropriate tax withholding.
Challenges and considerations
Potential challenges in accurately utilizing per diem rates
Utilizing per diem rates effectively can pose several challenges. One key issue is the variability of expenses in different locations. Standard per diem rates might not always align perfectly with actual costs, leading to either overpayment or underpayment of employees.
Accurately determining the per diem breakdown for meals and incidental expenses can be tricky, as the distribution might not always match an individual's actual spending patterns.
Scenarios where per diem might not be suitable
While per diem rates offer a structured approach to expense reimbursement, they might not be the best fit in some scenarios. For extended business trips or assignments, especially in high-cost areas, per diems might fall short of covering actual expenses, creating financial strain for employees.
Similarly, if an employee's spending habits diverge significantly from the per diem breakdown, they could be left with inadequate funds for certain essentials.
Solutions for overcoming common challenges
Hybrid approach: Combine a fixed per diem rate with the option for employees to submit actual expenses for certain categories, ensuring more accurate reimbursement for extended stays or high-cost areas.
Tailored per diems: Consider adjusting per diem rates based on specific locations or the nature of the trip. This approach acknowledges the varying cost of living and spending patterns in different areas.
Transparent communication: Foster open dialogue with employees about per diem expectations, potential discrepancies, and the reimbursement process. This helps manage expectations and reduces misunderstandings.
Expense management tools: Provide employees with digital tools to track and manage expenses, facilitating the submission of accurate and timely reimbursement requests.
Educational resources: Offer training or resources that help employees understand how to effectively use per diem funds and adhere to the provided guidelines.
Periodic reviews: Conduct regular assessments of per diem policies and rates to ensure they remain aligned with economic changes and evolving employee needs.
Case-by-case consideration: Empower managers or HR departments to evaluate unique cases where standard per diem rates might not suffice, allowing for tailored solutions when necessary.
Feedback loop: Encourage employees to provide feedback on the per diem system, enabling continuous improvement and refinement of the reimbursement process.
Flexibility for high-cost areas: Establish higher per diem rates for locations with exceptionally high living expenses, ensuring employees can cover essential costs without financial strain.
Expense audits: Implement periodic audits of per diem claims to identify patterns, anomalies, and potential areas for improvement in both policy and practice.
Software solutions for centralized expense management
Expensify: This comprehensive platform offers features like receipt scanning, expense reporting, and approval workflows. It integrates seamlessly with accounting software and offers real-time expense tracking.
SAP Concur: A widely used solution that automates expense management, from submitting receipts to reimbursement. It streamlines expense reporting and compliance and provides insights into spending patterns.
Zoho Expense: Designed for small to medium-sized businesses, Zoho Expense simplifies expense tracking, reporting, and approval processes. It offers integration with various accounting software.
Certify: With automated expense reporting, receipt capture, and policy enforcement, Certify ensures compliance and provides insights into spending trends. It also supports mileage and travel booking management.
Expenses App by Zoho: Part of the Zoho suite, this app simplifies expense tracking, receipt scanning, and reporting for businesses on the go.
QuickBooks Online: Integrate expense tracking seamlessly with accounting tasks. It offers expense categorization, receipt attachment, and report generation.
When selecting a software solution, consider factors like scalability, ease of use, integration with existing systems, mobile accessibility, and compliance with your organization's policies and regulations.
Per diem rates play a crucial role in simplifying expense management during travel, benefiting both individuals and organizations. By understanding the intricacies of per diem, its calculation, tax implications, challenges, and solutions, one can navigate the complexities of travel expenses efficiently.
Whether you're a business traveler or an organization aiming for streamlined financial processes, this guide equips you with the knowledge to make informed decisions that promote responsible spending and financial transparency.
Rinaily is a renowned expert in the field of human resources with years of industry experience. With a passion for writing high-quality HR content, Rinaily brings a unique perspective to the challenges and opportunities of the modern workplace. As an experienced HR professional and content writer, She has contributed to leading publications in the field of HR.
Please note that the information on our website is intended for general informational purposes and not as binding advice. The information on our website cannot be considered a substitute for legal and binding advice for any specific situation. While we strive to provide up-to-date and accurate information, we do not guarantee the accuracy, completeness and timeliness of the information on our website for any purpose. We are not liable for any damage or loss arising from the use of the information on our website.
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