Per Diem Rates: Understanding the Basics

When you’re on a business trip, you’re likely going to incur expenses beyond the usual cost of doing business. For instance, you need to factor in accommodation, meals, and transportation. Per diem is one way to help offset these costs, but what exactly is per diem, and how does it work? In this comprehensive article, we’ll explore per diem rates, how the rates are determined, and the relevance of per diem rates to employees and businesses.

What is Per Diem?

Per diem is a Latin phrase that means “”by the day.”” As such, per diem refers to a daily allowance paid to employees who travel for business or work-related purposes. The per diem rate is set by an employer to cover the costs of lodging, meals, incidental expenses, and other travel-related expenses incurred by employees on a business trip.

Typically, an employer will set a per diem rate based on the location of the employee’s business trip and their duration there. Certain amounts are set for each location, and businesses determine per diem rates for their employees based on those amounts.

It is important to note that the per diem rate is not a form of compensation and is not taxable income to the employee. Instead, it’s designed to reimburse employees for expenses they incur when they are away from home overnight for work-related reasons.

How are Per Diem Rates Determined?

Per diem rates are set by the government and established by the General Services Administration (GSA) in the United States. The GSA sets per diem rates for every region in the country. These rates are updated each year and are based on data from the previous year that reflects what people typically spend on lodging, meals, and incidental expenses in various cities throughout the country. They also factor in the time of year when travel occurs when appropriate, especially taking into account seasonal and holiday periods.

The GSA establishes two per diem rates for each location: a lodging per diem rate and a meals and incidental expenses (M&IE) per diem rate. The lodging rate is the maximum amount an employee can be reimbursed for lodging expenses, not including taxes. The M&IE per diem rate is the maximum amount an employee can be reimbursed for meals and incidental expenses during their business trip. This rate may vary depending on the destination’s location and local taxes and fees.

Although the GSA establishes per diem rates, employers are not required to use them, and they can choose to set their own rates. However, most businesses will adopt the GSA rates since they provide a standard for businesses across the country.

Why Per Diem Rates Matter for Employees?

Employees traveling for work expenses will benefit from per diem rates in several ways. First, it eliminates the need for employees to keep track of all their expenses and receipts during their business trip. Instead, employees will receive a per diem allowance at the beginning of their trip that covers all projected expenses.

This means that employees won’t need to keep receipts for all their expenses and won’t need to justify each dollar spent while on the trip. The per diem rate is a set amount that employees can use to cover necessary expenses.

Additionally, per diem rates ensure that employees receive a fair and consistent allowance regardless of their location. For instance, an employee in New York City will receive a different per diem amount than an employee in a smaller city like Topeka, Kansas.

Why Per Diem Rates Matter for Businesses?

Per diem rates are vital to businesses, especially those that require employees to travel for work. They enable businesses to budget effectively for travel expenses by using one standard rate for each employee regardless of their destination. This consistency makes it easier for businesses to manage and control travel expenses.

Furthermore, since per diems are a non-taxable expense, businesses can write them off as a deductible expense, helping to reduce their overall tax liability.

Per Diem Rates for 2021

The GSA released updated per diem rates for FY2021 in September of 2020. Below are some of the notable changes in per diem rates by location:

– The standard lodging rate for Seattle, Washington, has increased from $181 to $182.
– The standard lodging rate for San Francisco, California, has increased from $297 to $303.
– The standard lodging rate for Boston, Massachusetts, is now $262, up from $259.
– The standard lodging rate for New York City remains unchanged at $292.
– The standard meals and incidental expenses rate for Orlando, Florida is now $76 per day, up from $74.
– The standard meals and incidental expenses rate for New Orleans, Louisiana, has dropped to $64, down from $69.

Conclusion

Per diem rates are an essential component of business travel. They allow employees to be reimbursed for expenses they incur while traveling without having to keep receipts for every expense, and businesses can have a consistent way of accounting for employees’ travel expenses. The GSA sets per diem rates annually, with several factors for employers to keep in mind when setting their rates. It’s a system that’s beneficial to all involved, and as demonstrated by the latest per diem updates for 2021, it remains flexible and responsive to the unique needs of businesses and employees alike.

Everything to know about Per Diem Rates

If you’re a government employee, you may be offered what is called a per diem rate that covers your expenses while traveling.  If you’ve never used per diem rates before, you may have some questions about what is covered and how your per diem will be calculated.  This guide will give you a quick rundown on how to find the per diem rates relevant to you and how to calculate your total per diem.

What is a Per Diem?

Per diem refers to a set rate that will be paid to you per day that is generally thought to be sufficient to cover lodging, food, and incidental expenses in your travel location.  If you are able to spend less money than your per diem on those expenses, you will generally be able to keep the remaining funds.  This gives government employees an incentive to be frugal in their expenditures rather than billing expensive rooms and food to the government.

Differences Between Federal and Non-Federal Per Diem

Federal per diem rates are set by the federal government and cannot be altered except by the government.  If you’re working for a state or municipal government, your per diem rates may be higher or lower than the ones offered by the federal government.  Additionally, corporate per diem rates are set by individual corporations.  You should check the terms of your contract to see if your private employer specifies per diem rates if you are not working for the federal government.

How is the Federal Per Diem Calculated?

The federal government bases per diem rates on the cost of lodging and expenses.  Incidental expenses are kept to $5 a day, and a separate amount is incorporated for breakfast, lunch, and dinner as well as first and last day expenses (like additional costs for baggage).  Lodging rates are calculated based on seasons and months.

Lodging rates with these per diems tend to allow for a relatively nice hotel, not just the cheapest hotel in a location.  The per diem rates are calculated to allow people to obtain a fire safe hotel and reasonable meals, so there’s often the flexibility to save at least some money when traveling on a per diem.

How Much Will My Per Diem Be?

To find out your federal government per diem rates in any city in the United States, simply go to https://www.gsa.gov/portal/category/21287 and click on the state where you will be traveling.  From there, enter the city you are traveling to.  Most states have the base rate, then several cities where there are higher per diem rates because lodging and meals are more expensive.

There are six total per diem categories for meals and incidental expenses (M&IE).  When meals are provided to you by the government, you will need to deduct the meal from your per diem.  You can find the correct amount to deduct here: https://www.gsa.gov/portal/content/101518.  For example, if you were given breakfast in a location where your per diem for M&IE was $66, the chart shows that you would need to deduct $11 from the per diem due to not having to pay for breakfast.

Changes in 2013 Fiscal Year

The standard per diem rates in 2013 are $77 for lodging and $46 for meals and incidental expenses.  There are over 400 areas with non-standard rates that are higher than standard rates.  The GSA has added 10 new non-standard areas in 2013:

·    Bakersfield/Ridgecrest, California

·    Stockton, California

·   Hancock and Pearl River Counties, Mississippi

·   Sidney/Glendive, Montana

·   Dickinson/Beulah, North Dakota

·   Minot, North Dakota

·   Williston, North Dakota

·   Carlsbad, New Mexico

·   Watertown, New York

·   Pasco, Washington

Requirements for Lodging

The GSA states that all qualifying lodging for per diem rates require the following:

·  fire safe properties defined under the Hotel & Motel Fire Safety Act of 1990

·  properties that fall in the mid-price range (in the middle of the area’s upscale and low-priced properties)

·  properties that have business ravel week data for Monday through Friday

Hotels and Per Diem rates

Hotels are not required by law to honor federal per diem rates.  The hotels have discretion to offer or deny the rates to individuals such as government contractors as well.  Hotels can also offer a “GOV” rate that is higher than the federal per diem rates.  In this case, the employee must receive prior approval from their agency in order to be fully reimbursed.

Lodging taxes are not covered in per diem rates.  Some federal agencies reimburse travelers for lodging taxes, and others do not.

Meals/Incidental Expenses and Per Diem rates

Tips and taxes are included in the rates for meals, so a federal employee cannot be reimbursed for tips and taxes on food.  In order to determine rates for meals, the GSA conducted a nationwide study in the 2010 fiscal year that examined restaurants frequently visited by federal employees.  The study examined over 9,000 restaurants and the range between $46 and $71 was established.

Incidental Expenses are described in Chapter 300, Part 300-3 of the GSA’s Federal Travel Regulations.  These expenses are described as fees and tips for porters, baggage carriers, bellhops, maids in hotels, or stewards and stewardesses on ships.

Searching for Per Diem Rates:

To evaluate the per diem rates for various locations in the United States you must follow these steps.

Step 1: Visit the United States’ General Services Administration at https://www.gsa.gov/portal/category/100000

Step 2: Please click “Per Diem Rates” found on the left side of the page under the “most requested links” menu.

Step 3: This tool (https://www.gsa.gov/portal/category/21287) allows you to search for per diem rates based on city, state or zip code. To do this simply access the search bars and when finished click “find per diem rates.” After inputting the information you will be provided with the per diem rates for the subsequent months through September of 2013. These per diem rates fluctuate based on lodging expenses; however, the meals expenses per day are set and can be found on the far right side of the chart. Please note that, again, the lodging per diem rates fluctuate based on month to reflect demand, but the meal per diem rates is set and locked-in for 2013.