Updated January 2023
What is per diem?
“Per diem” translates from Latin to English as “per day”. Fiscally, a per diem is a daily allowance that employees receive from their employers to cover expenses such as accommodation and meals when traveling for business. A per diem implies that the costs it is meant to cover (food or accommodation) aren't being separately reimbursed by the employer.
Per diem rates, or daily allowances, vary depending on the employee’s “home base” and the duration and destination of travel.
While most countries (and even cities) allow per diems for traveling employees, the maximum (tax-free) amounts and accompanying regulations vary.
How is a per diem taxed?
Per diems (up to the legal maximum) are tax-free because they are intended to cover expenses related to doing business. They are not, fiscally speaking, a bonus or part of an employee’s regular compensation. Companies can choose to pay their employees more than the maximum legal per diem. However, the surplus is considered “income” by the tax authorities and the employee will have to pay taxes on it.
Advantages of a per diem
Using a per diem has numerous advantages for both organisations and their employees.
Per diems make it easy for employees to cover their costs for small purchases such as snacks or soft beverages while travelling for work. They also avoid the dreaded collection of paper receipts which tend to fade very quickly and get lost.
For companies, per diems set a maximum daily spend limit and avoid unpleasant bookkeeping surprises. Per diems can also eliminate the need for a detailed expense report: because they are paid as a lump sum, these expenses don’t require itemisation or proof of purchase. This also makes per diems easy for controllers to verify.
Drawbacks of a per diem
Of course, a per diem can also have disadvantages. This is especially true for smaller companies without much cross-border experience and multinational companies with centralised financial services. Both can struggle to keep on top of the different and ever-changing local regulations regarding per diems. And as with anything tax related, mistakes are costly.
Because expenses aren’t itemised, per diems also offer no cost transparency. This leaves the traveller a certain amount of discretion regarding how to spend the per diem and makes for less accurate cost reporting.
How to use a per diem?
A per diem offers efficiency and simplicity to both employers and employees, which explains why it is commonly used despite stringent regulations.
What is the solution for companies wanting to give their travelling employees per diems? It’s simple: automated expense solutions. These integrate the rules, regulations, and maximum amounts for the countries employees are traveling to and from, including historic amounts from one year to the next.
Expense management solutions also make it easy for employees to calculate and claim per diems. In parallel, they ensure that the relevant deductions are made when the same employee claims a per diem with another item such as a meal.
Deductions can get tricky, especially when an employee travels over multiple days. The first and last day of travel usually give right to a different, lower per diem rate than full days of travel. As this can vary by location and even time of departure and arrival, an expense management solution that makes the calculations and deductions for the traveller ensures proper accounting and simpler business travel.
What are some examples of local per diems?
Each year, the German Federal Ministry of Finance publishes the applicable meal allowances for the following year. There are two rates:
- A small meal allowance, for business trips lasting between 8 and 24 hours. This rate also applies on the departure and return day of multi-day trips.
- In 2023, this small meal allowance is €14 for travel within Germany.
- A large meal allowance, for business trips lasting more than 24 hours. This rate applies for every full calendar day of the trip.
- In 2023, this large meal allowance is €28 for travel within Germany.
Trips totalling under 8 hours in a 24-hour period do not give rise to a per diem.
The same logic (partial, full and no allowance) applies for trips abroad. The amount, however, depends on the location.
Meals not paid for by the employee (e.g. as part of an event) must be deducted from the per diem to the tune of:
- 20% of the daily flat fee for breakfast
- 40% of the daily flat fee for lunch
- 40% of the daily flat fee for dinner
In Belgium, the 2023 daily allowance for trips within the country is €19.60. To be eligible, the trip must last at least 6 hours and be at least 25km from the centre of the employee’s commune of residence. The employee must also receive no other compensation for their meals.
For overnight stays (within Belgium) at least 75km away, a lodging allowance of up to €147.04 per night can be granted provided accommodation isn’t reimbursed separately.
To qualify for the destination country’s full per diem, trips abroad must last 10 hours or more. For trips under 10 hours, employees may receive the equivalent of the Belgian per diem.
For multi-day trips, an employee is entitled to 50% of the destination country’s per diem on their day of departure and return and 100% of that amount for full days spent abroad.
Meals not paid for by the employee must also be deducted from the per diem:
- 15% of the daily flat fee for breakfast
- 35% of the daily flat fee for lunch
- 45% of the daily flat fee for dinner
The last 5% is intended to cover other incidental costs on short trips. No meal deduction applies in cases where the employee receives 50% of their daily rate (i.e. the first and last day of travel).
The UK functions with “subsistence allowances”. These allowances are currently:
- £5 for qualifying travel of 5 hours or more
- £10 for qualifying travel of 10 hours or more
- £25 for qualifying travel of 15 hours or more and where travel continues past 8pm. If travel ends before 8pm, only £10 are due.
- An additional meal allowance of up to £10 per day may be paid for trips that last 5 hours or more if travel is ongoing past 8pm.
The following meal deductions also apply in the UK for meals not paid by the employee:
- £5 for breakfast
- £5 for lunch
- £5 for dinner if the trip ends before 8 pm
- £10 for dinner if the trip ends after 8pm
These are just three examples of how per diems are managed in different countries. If your organisation has entities in multiple countries or your employees travel a lot, expense report compliance can become complex to follow, especially as they tend to change year on year.
An automated expense management solution like Mobilexpense ensures that your per diems are compliant. It also helps both the organisation and the employee get the most out of this simplified expense system.
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