What Is Per Diem? Meaning, Rates, Rules & Business Benefits Explained
Business travel is a normal part of operations for many companies. Whether employees attend client meetings, conferences, training programs, or site visits, travel-related expenses quickly add up. Managing these costs fairly and efficiently can become challenging, especially when employees submit multiple receipts for meals, lodging, and incidental expenses.
This is where per diem comes into the picture.
Per diem simplifies business travel reimbursements by providing employees with a fixed daily allowance instead of requiring detailed expense claims for every small purchase. It reduces paperwork, improves compliance, and makes travel expense management easier for both employers and employees.
In this guide, we'll explain the meaning of per diem, how per diem rates work, key rules businesses should know, and the benefits of implementing a per diem policy.
The term per diem comes from Latin and literally means "per day."
In business, a per diem refers to a daily allowance provided to employees to cover travel-related expenses while they are away from their regular workplace for business purposes.
Typically, per diem allowances cover:
Local transportation (depending on company policy)
Instead of asking employees to keep every receipt and submit detailed expense reports, organizations provide a predefined daily amount based on travel location and duration.
For example, if an employee travels to another city for three days and the company's approved per diem rate is $150 per day, the employee receives $450 for the trip.
Why Do Companies Use Per Diem?
Many organizations prefer per diem because traditional expense reimbursement processes can be time-consuming.
Without a per diem policy:
Employees collect dozens of receipts.
Finance teams manually verify expenses.
Reimbursement approvals take longer.
Expense fraud becomes harder to detect.
With per diem allowances, the process becomes more predictable and easier to manage.
Key Reasons Companies Use Per Diem
Faster Expense Processing
Employees don't need to submit receipts for every meal or minor expense.
Companies know travel costs in advance and can forecast budgets more accurately.
Reduced Administrative Work
Finance teams spend less time reviewing small claims.
Improved Employee Experience
Travelers receive funds quickly and avoid reimbursement delays.
A per diem system is relatively simple.
Step 1: Employee Travel Is Approved
The organization approves a business trip.
Step 2: Per Diem Rate Is Assigned
The employee receives a daily allowance based on:
Step 3: Travel Takes Place
The employee uses the allocated amount to cover eligible expenses.
Step 4: Expense Verification
Depending on company policy, employees may only need to confirm travel dates rather than submitting detailed receipts.
This streamlined process helps organizations save significant administrative time.
Types of Per Diem Allowances
Different organizations use different per diem structures.
1. Meals and Incidentals (M&IE)
Small incidental expenses
It does not typically include hotel costs.
This covers accommodation expenses during business travel.
Rates often vary depending on the city and season.
Some organizations provide a single daily allowance covering:
This approach is easier to administer but may not suit every travel scenario.
How Are Per Diem Rates Determined?
Per diem rates are not the same everywhere.
Travel costs vary significantly between locations.
New York City generally has higher lodging and meal costs than smaller cities.
International destinations may require different allowances due to currency fluctuations and local pricing.
Organizations usually determine rates based on:
Major business hubs often require higher allowances.
Longer trips may have adjusted rates.
Many companies benchmark rates against government or industry guidelines.
Organizations may set custom limits based on their travel budget.
Per Diem Rules Businesses Should Follow
A successful per diem policy requires clear rules and documentation.
Employees should know exactly what the allowance covers.
Set maximum allowable rates for different destinations.
Create Approval Workflows
All business travel should receive management approval before reimbursement.
Even when receipts are not required, businesses should keep records of:
Ensure Policy Consistency
Applying different rules to different employees can create confusion and compliance risks.
Per Diem vs Traditional Expense Reimbursement
Many businesses wonder which approach is better.
Employees may spend more than the allowance
Rates require periodic updates
Traditional Reimbursement
Employees recover actual expenses
Greater spending flexibility
Increased administrative burden
For growing businesses, per diem often offers a more scalable solution.
Business Benefits of Using Per Diem
Organizations that implement per diem policies often experience measurable operational improvements.
Better Expense Visibility
Travel costs become easier to track and analyze.
Finance teams can identify spending patterns and optimize budgets.
Fixed allowances minimize opportunities for inflated expense claims.
Faster Employee Reimbursements
Employees no longer wait weeks for reimbursement approvals.
A standardized travel policy reduces inconsistencies across departments.
Finance teams can focus on strategic financial management rather than reviewing hundreds of small receipts.
Common Challenges with Per Diem Management
While per diem simplifies travel expenses, businesses can still face challenges.
Travel costs change frequently.
Companies should review rates regularly.
Employees must understand:
Documentation requirements
Using spreadsheets for travel management can lead to errors and delays.
Modern expense management platforms help automate the entire process.
How Expense Management Software Helps Manage Per Diem
As organizations grow, manually tracking travel allowances becomes difficult.
Modern expense management solutions help businesses:
Automate Per Diem Calculations
The system automatically applies approved rates.
Managers gain visibility into travel schedules and expenses.
Travel requests and reimbursements move through predefined workflows.
Finance teams can analyze spending trends and identify cost-saving opportunities.
Built-in policy controls ensure employees follow company travel guidelines.
Businesses using solutions like ZYNO Expenz can automate travel expense management, streamline approvals, and gain better control over employee reimbursements without relying on manual spreadsheets.
Internal Linking Opportunities:
Travel Expense Management Software
Business Expense Tracker Software
Spend Management Solutions
OCR Receipt Scanner Features
Expense Management Software Guide
Best Practices for Implementing a Per Diem Policy
Document all travel reimbursement rules.
Adjust allowances according to destination costs.
Ensure everyone understands the policy before traveling.
Use expense management software instead of manual tracking.
Update rates based on changing travel costs.
Frequently Asked Questions (FAQs)
Per diem means "per day" and refers to a daily allowance provided to employees for business travel expenses.
What expenses are covered under per diem?
Typically, per diem covers meals, lodging, and incidental expenses, depending on company policy.
Is per diem better than expense reimbursement?
For many organizations, per diem is more efficient because it reduces paperwork and simplifies expense management.
Can companies set their own per diem rates?
Yes. Businesses can establish their own rates based on travel policies, budgets, and destination costs.
Do employees need receipts for per diem?
Requirements vary by company policy. Some organizations require minimal documentation, while others request supporting records for compliance purposes.
How can businesses manage per diem more effectively?
Using expense management software helps automate calculations, approvals, reporting, and policy compliance.
Per diem has become one of the most effective ways for businesses to manage employee travel expenses. By providing a fixed daily allowance, companies can reduce paperwork, improve budget control, simplify reimbursements, and enhance the employee travel experience.
Whether you're a small business handling occasional travel or a growing enterprise managing hundreds of employee trips, a well-defined per diem policy can save time, reduce administrative costs, and improve financial visibility.
