Per diem allowances for business travel

A per diem, also known as a scale rate payment, is a fixed amount paid by an employer to an employee to cover incidental expenses incurred while traveling away for business purposes. When claiming travel expenses, just like any business expense, the key rule is that it must be essential to the performance of your employees’ job in relation to business objectives.Per diem payments are typically used to cover expenses like meal costs, travel expenses, and lodging expenses—even dry cleaning. The government provides official travel benchmark allowances that consider things like average maximum lodging costs, the general cost of living, and travel regulations. However, individual cases can be assessed based on typical costs.

In the UK, per diem payments are governed by HM Revenue and Customs (

HMRC

)—who modulate the payroll system, rules, and travel allowances for a company’s employees.There are two ways in which HMRC allows you to set up per diem payments:HMRC also provides benchmark rates for employees traveling outside of the UK for international business. Per diem rates vary depending on the destination country and the country in which the company is based.

In the continental United States (CONUS), which includes Alaska and excludes Hawaii, per diem payments are set and regulated by the U.S. General Services Administration (

GSA

).The Internal Revenue Service (IRS) separates expenses into 'lodging' and 'meals and incidental expenses (M&IE)'—important to acknowledge if you're heading to the continental U.S.Employers have two options when deciding how to reimburse employees:Standard rates can be checked

here

, and some states have multiple rates depending on which city the employee is traveling to. If using the high low method, the current rates are:If you’re a U.S.-based company, international per diem rates are managed by the U.S. Department of State—check them

here

.

Per diem allowances provide employees with a certain amount of flexibility and trust when traveling for business. They reduce expense volatility and facilitate planning for a business trip and decrease the administrative burden on both the employee and employer.Per diem allowances often promote prudence in business travel, as costs are restrained by the agreed allowances. They also encourage professional development—employees are far more likely to travel for learning opportunities if their expenses are covered.

While flexibility and prudence are beneficial, they can also be detrimental if unmonitored. If employees begin to consider their per diem allowances part of their income, they may cut corners to pocket the change from actual expenses.Internal governance systems can be put in place to monitor this. However, this offsets the administrative benefits of per diem payments. It’s also possible that employee travel could increase unnecessarily due to per diem allowances—traveling for meetings is more attractive when you’re essentially paid a little extra to do it.

When an employee goes away on business, the company has to ensure their per diem allowance is available. Whether it’s the benchmark allowance or an HMRC-agreed amount, they need reassurance that their expenses are covered.Traditional expense reporting can be tiring for both the employee and the travel manager. On the one hand, the employee must compile all travel expenses into an expense report. On the other hand, it’s the company’s (or travel manager’s) temporary duty to monitor and remain vigilant of business expenditure when trusting their employees.Per diem payments, however, provide the employee with a daily allowance in advance. It avoids the paperwork, given it remains within the standard rate, and reduces waiting time for employees claiming reimbursements for travel expenses, as their spending is pre-approved.How is per diem paid to employees?How employees receive their per diem payments is up to the company and can be one of a few options:

For employee travel to be covered by per diem payments, the expenditure must qualify as per the HMRC-established conditions:If these conditions are met, the current HMRC benchmark per diem rates in the UK are:However, these are subject to change, so it’s essential to keep up with allowances for business expenditure and daily rates. There are no benchmark rates for overnight accommodation costs. Employers wishing to agree on a rate with HMRC for overnight accommodation will need to apply using the

bespoke rate process

.If travel expenses and related expenses exceed the HMRC limits, they're considered a taxable benefit to your employees. For help avoiding unnecessary high-costs throughout your fiscal year, head to

TravelPerk's Guide to Managing Business Travel Expenses

.

Per diem payments, following the scale-rate payments system managed by HMRC, can be made before or after the employee travels. If made before, the employee has the agreed allowance on hand to spend. If made afterward, they are reimbursed the per diem allowance agreed. In both cases, the amount they receive is fixed, and repayment is not necessary if this fixed amount isn’t spent.Deciding whether per diem payment rates are your businesses’ best bet is a complicated but essential part of creating a business travel policy. Whether it's a 40-minute train to another office or a business trip to New York City, head to the

TravelPerk Corporate Travel Policy Guide

for more information and options regarding managing corporate travel.

Per diem rates can be determined in many different ways. Travel days are tax-deductible, so a well-thought-through business travel plan is essential for reducing costs.Travel managers have two options for per diem payments. However the specific of these options vary depending on the country from which the business operates. Essentially, the two options are:The first is a ‘one-size-fits-all’ approach that minimizes your company’s finance team’s administrative burden. Just look up the rate and stick to it—pretty simple.The second allows for flexibility in your plan; however, it’s more of a high-cost option. It also requires data-input that may be hard to scrape together if you haven’t been using a

travel management tool

. If you can’t find average spends for previous business trips, it will be difficult to assign a company-determined rate.Using the benchmark rates is quick and easy; however, it can be somewhat restrictive and may not be enough for traveling employees. Agreeing on a rate with the relevant authority provides increased flexibility while still qualifying as tax-deductible but requires more paperwork at first.

Nope. Receipts aren’t required for per diem payments in most cases. It’s a major benefit of per diem allowances—they don’t require as much paperwork as traditional expense reports.If you use the rates set by HMRC, receipts aren’t needed. Employees get the standard rate, decided by what the governing bodies calculate to be the average business travel expenditure per location.If you plan to agree on a company-specific per diem rate, you’ll need evidence of typical expenses—such as receipts. This is then sent to the governing body, and together you agree on a company-specific rate.Traditional expense reports for reimbursing traveling employees require a detailed collection of receipts to be submitted to management. Once approved by the travel manager, the accounting team handled the expense report and employee reimbursement.

Per diem payments are a great way to lessen the administrative burden of travel expenses for the traveling employee, management, and finance teams.Diving deeper really shows how useful per diem rates are to businesses when it comes to tax and paperwork and how they allow flexible travel arrangements for employees.Per diem rates differ depending on domestic and international travel, as costs vary depending on where your employees are in the world. We’ll be covering foreign per diem rates as part of this TravelPerk per diem allowances guide, so read on for more information.