What Is a Per Diem?
QUICK ANSWER
A per diem is a fixed daily amount an employer gives an employee to cover travel expenses like meals, lodging, and incidentals, instead of reimbursing every receipt. The rate is usually set by destination, and any unspent portion is often the employee's to keep.
Per diem is a common term in business travel, but employees new to it are often unsure what it covers or how it works. Here is what a per diem is, what it covers, how it works in practice, and how it differs from expense reimbursement.
What is a per diem?
A per diem, Latin for per day, is a fixed daily allowance that an employer provides to an employee to cover the costs of business travel. Instead of the employee paying for everything and submitting receipts for each expense, the employer pays a set amount for each day of the trip, and the employee uses it to cover their costs. Per diems simplify travel expenses for both sides: employees do not have to track and file every receipt, and employers have predictable, capped travel costs. The per diem rate is usually determined by the destination, since cities vary widely in price. Governments and many companies publish standard per diem rates, giving a consistent daily figure for meals, lodging, and other travel costs.
What does a per diem cover?
A per diem typically covers the everyday costs of being away for work, most commonly broken into meals and incidental expenses, sometimes called M&IE, and lodging. Meals covers breakfast, lunch, and dinner, while incidentals covers small costs like tips and minor fees. Lodging covers your hotel or accommodation, though some employers book and pay for lodging separately and give a per diem only for meals and incidentals. What a per diem generally does not cover is major travel costs like airfare, which are usually booked or reimbursed separately, and personal or non-work expenses. The exact scope depends on your employer's policy, so it is worth confirming whether your per diem includes lodging or just meals and incidentals.
How does a per diem work?
In practice, your employer sets a daily per diem rate, often based on standard published rates for the destination city, such as the government rates many organizations follow, which are higher for expensive cities. You receive that amount for each day of travel, sometimes paid in advance and sometimes reimbursed afterward, and you use it for your covered expenses. A common advantage is that you usually do not need to submit receipts for per diem amounts, and if you spend less than the allowance, you often keep the difference, though policies vary and some employers require any unused portion to be returned. Travel days may be paid at a partial rate. Always follow your company's specific per diem policy on rates, payment, and documentation.
What is the difference between a per diem and reimbursement?
The two are different ways of handling travel costs. With a per diem, you receive a fixed daily amount regardless of exactly what you spend, so there is no need to itemize, and you may keep any unspent money; it trades precision for simplicity. With reimbursement, you pay for your actual expenses, keep the receipts, and your employer pays you back for the real amounts you spent, up to any limits; it matches costs exactly but requires tracking and filing every receipt. Some employers use a mix, such as a per diem for meals but reimbursement for lodging and airfare. Per diems favor simplicity and predictability, while reimbursement favors paying only for what was actually spent.
A per diem is a fixed daily allowance for business travel that covers costs like meals, incidentals, and often lodging, without the need to submit every receipt. Rates are usually set by destination, and you can often keep any unspent portion. It differs from reimbursement, which pays back your actual, receipted expenses instead.
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