What is Per Diem: Explained Completely for 2025

March 7, 2025
9:29 am

7 min read

In today’s fast-paced business world, work-related travel is more common than ever. But with frequent trips come rising costs—for both employees and companies. In fact, business travel expenses in the U.S. reached $317 billion in 2023, and companies are always looking for ways to manage these costs efficiently. That’s where per diem policies come in.

What do you mean by Per Diem?

The term “per diem” comes from Latin and simply means “per day.” In the business travel world, it refers to a daily allowance that companies give employees to cover travel costs like meals, lodging, and incidentals.

Unlike transportation expenses—such as flights or mileage, which are typically reimbursed separately—per diem provides a fixed amount each day, making expense tracking simpler for both employees and finance teams.

How Does Per Diem Work?

Think of per diem as your company’s way of saying, “We’ve got your travel expenses covered—no need to save every coffee receipt.” It’s a daily allowance that simplifies reimbursements, usually split into two categories:

Meals & Incidentals – Covers your food, drinks, and small extras like tipping the hotel staff or grabbing a last-minute taxi.

Lodging – Pays for your stay, whether it’s a hotel, an Airbnb, or another short-term rental

Imagine you’re an IT consultant traveling to another city for a week-long project. Your company provides a daily per diem of $200—$100 for accommodations, $50 for meals, and $50 for other expenses. That extra $50 covers things like laundry, internet, room service, or tips—whatever you need to make your stay comfortable.

Employers or government agencies (like the GSA for public sector workers) set daily per diem limits. Some companies even provide the allowance upfront, helping employees budget their expenses better.

Temporary workers assigned to a different city may also qualify for per diem, with rates adjusted based on local living costs. Even remote employees traveling to the office or another work site might receive a per diem to cover transportation, meals, and lodging, making work-related travel more manageable.

How to Figure Out Per Diem Rates

Setting per diem rates isn’t one-size-fits-all—it depends on factors like job role, travel destination, and trip length. Many U.S. organizations use the General Services Administration (GSA) rates as a guideline since they’re updated annually based on location.

Big cities like New York, Los Angeles, and Chicago typically have higher per diem rates due to higher living costs. Accommodation rates can also fluctuate monthly—for instance, hotel prices in New York peak in the fall due to increased tourism and business travel.

The GSA updates these rates every year on October 1st, the start of the federal fiscal year. Businesses can use GSA rates as a baseline and adjust them based on their own budgets and policies. Some companies even set their own per diem based on local living costs and travel purposes, ensuring fair and practical allowances for employees. To check official rates, you can visit the GSA website and calculate accordingly.

2025 Per Diem Rates: What to Expect

Starting October 1, 2024, the GSA raised the standard lodging rate for the Continental U.S. (CONUS) to $110 per night, up from $107. The daily meals and incidentals (M&IE) allowance also increased to $68 in most areas, while some high-cost regions (Non-Standard Areas or NSAs) have rates as high as $92.

In 2025, 296 NSAs will have higher per diem rates due to increased living costs. These rates are based on Average Daily Rate (ADR) data, which tracks lodging costs in different areas. If you’re traveling for work, checking the latest GSA rates can help you plan your budget accordingly.

Essential Guide to Per Diems for Government Employees

For government employees, per diem rates play a vital role in covering travel-related expenses. Set by the General Services Administration (GSA), these rates determine the daily allowance federal employees receive when traveling within the Continental United States (CONUS). The goal? To ensure employees are fairly compensated for their expenses while keeping government spending in check.

When Per Diem Exceeds the Federal Rate

Sometimes, the standard federal per diem just doesn’t cut it—especially in high-cost areas where lodging and meals can be significantly pricier. In these cases, employers may choose to offer a higher per diem rate. However, to avoid tax headaches, they must ensure compliance with IRS regulations. Any amount paid above the federal rate could be considered taxable income unless properly documented under an accountable plan.

Matching the Federal Rate: A Simpler Approach

Many employers stick to the federal per diem rates because it simplifies tax reporting. When per diem payments align with federal rates and follow an accountable plan, they remain non-taxable income for employees. This not only streamlines financial management but also reduces administrative burdens for both the employer and the employee.

By understanding these per diem guidelines, government employees and their agencies can make smarter, more compliant travel expense decisions.

Different Types of Per Diem Payments

Per diem payments come in different forms, depending on company policies:

Fixed Rates: Employees receive a set daily amount to cover travel expenses, eliminating the need for detailed receipts (as long as costs stay within the limit).

Reimbursement for Out-of-Pocket Expenses: Employees pay for their expenses upfront and get reimbursed later, up to the approved per diem limit.

How is Per Diem Calculated at Work?

Companies use different methods to handle per diem payments. Some issue a company credit card to cover travel expenses, while others provide a fixed daily allowance. In some cases, employees pay upfront and get reimbursed later.

For example, a company might set a $150 per diem for meals and lodging, with employees covering any extra costs. This simplifies expense tracking and ensures fair compensation.

Understanding the Accountable Plan for Per Diem

An accountable plan is a company’s structured way of reimbursing employees for work-related travel expenses. Under this plan, employees can receive tax-free reimbursements for qualifying costs like meals, lodging, and transportation—without having to report them as taxable income. This keeps expense management simple and fair.

Key Rules for an Accountable Per Diem Plan

To qualify as an accountable plan, employers must follow three key rules:

Business Purpose – Expenses must be related to work.

Proper Documentation – Employees must submit expense reports within a reasonable time.

Return Excess Funds – Any unused per diem must be repaid to the employer.

What Counts as a “Reasonable Period” for Per Diem?

The IRS allows some flexibility in defining a “reasonable period” for reporting expenses, but they recommend a few key timelines:

Advance Payments – Employees should receive per diem up to 30 days before their trip.

Expense Reporting – Employees should submit receipts and details within 60 days after the trip.

Returning Excess Funds – Any unused per diem should be paid back within 120 days of the expense.

Quarterly Statements – Companies should send reminders every quarter, and employees must respond within 120 days.

10 Advantages of Per Diem

Better Expense Management – A fixed daily allowance helps employees plan their spending and avoid overspending.
Simplified Expense Tracking – Employees don’t need to save and submit every receipt, reducing administrative work.
Fair Compensation – Ensures equal reimbursement for all employees, regardless of personal spending habits.
Reduced Fraud Risk – Pre-approved per diem minimizes the chance of exaggerated or fraudulent expense claims.
Faster Reimbursements – Employees receive their allowance upfront, avoiding delays in reimbursement processing.
Tax Benefits – Under an accountable plan, per diem reimbursements are tax-free, benefiting both employees and employers.
Increased Compliance – Standardized per diem rates help businesses stay compliant with IRS regulations and labor laws.
Less Administrative Burden – Finance teams spend less time reviewing receipts and approving individual expenses.
Predictable Budgeting – Employers can estimate travel costs more accurately, leading to better financial planning.
Improved Employee Satisfaction – Employees appreciate the convenience of per diem, making business travel less stressful.

Disadvantages of Per Diem

While per diem makes expense reimbursement easier, it’s not always the best option for every company or employee. Here’s why:

May Not Cover All Expenses – If actual costs exceed the per diem allowance, employees may have to pay out of pocket.
Location-Based Variability – Per diem rates differ by city, which means some employees may be overcompensated while others may not receive enough.
Not Always Cost-Effective – Companies might end up paying more than necessary if the set per diem is higher than actual expenses.
Lack of Flexibility – Employees who prefer to spend more on lodging but save on meals (or vice versa) may find per diem restrictive.
Compliance Risks – Employers must ensure per diem rates align with IRS regulations to avoid tax penalties.
Potential for Misuse – Some employees might prioritize saving money over securing comfortable accommodations or meals.
Challenges with International Travel – Per diem rates may not reflect fluctuating exchange rates, making it harder to estimate fair allowances.
Inconsistent Cost Coverage – Unexpected expenses like tips, parking, or local fees may not always be included in the per diem structure.
Employee Dissatisfaction – Some employees prefer actual cost reimbursements, especially if they tend to spend less than the per diem amount.
Administrative Oversight Needed – Companies still need to monitor and update per diem rates regularly to keep up with inflation and cost variations.

Future Predictions and Trends in Per Diem Expenses

As business travel evolves, per diem expenses are also expected to undergo significant changes. Emerging trends, technology, and economic factors will play a crucial role in shaping how companies manage and reimburse travel expenses in the coming years.

1. Increased Adoption of Automated Expense Management

With the rise of AI and automation, more businesses will shift from manual per diem tracking to advanced expense management platforms. Tools like Expense Tracker 365 will streamline per diem calculations, reduce administrative work, and improve compliance.

2. Rising Per Diem Rates Due to Inflation

As the cost-of-living increases, per diem rates are expected to rise. According to recent economic forecasts, global inflation rates could push business travel costs up by 5-8% annually, requiring companies to adjust their per diem structures accordingly.

3. Remote and Hybrid Work’s Impact on Per Diem

With remote and hybrid work models becoming the norm, businesses may see a shift in per diem usage. Instead of traditional corporate travel, employees may receive per diem for coworking spaces, home office setups, or occasional team meetups in different locations.

4. Stricter Compliance and Tax Regulations

Governments worldwide are tightening regulations on per diem reimbursements. The IRS and other tax authorities may introduce new reporting requirements, making it essential for companies to ensure compliance through structured policies and automated tracking systems.

5. Global Expansion of Per Diem Policies

As businesses continue to operate across borders, companies will need to implement flexible, region-specific per diem policies. Multi-currency support and location-based rate adjustments will become standard features in expense management tools.

6. Increased Use of Virtual and Contactless Payments

With the growing preference for digital transactions, per diem payments are likely to shift from cash advances to virtual cards and contactless payment methods, ensuring secure and real-time reimbursements.

7. Sustainability and Eco-Conscious Travel Policies

Companies are increasingly prioritizing sustainable travel. Future per diem structures may include incentives for using eco-friendly transportation, staying in green-certified hotels, or dining at sustainable restaurants.

Key Statistics on Per Diem Expenses (2025 and beyond)

Business Travel Spending: Global business travel spending is expected to reach $1.5 trillion by 2027, up from $933 billion in 2022 (GBTA).

Corporate Travel Inflation: Per diem costs for lodging and meals are predicted to increase by 6-10% annually due to inflation and demand.

Automation in Expense Management: By 2026, 75% of companies are expected to implement AI-driven expense management systems to handle per diem and travel expenses (Deloitte).

Remote Work & Travel: A study by Upwork estimates that 22% of the workforce will be fully remote by 2025, shifting per diem usage from traditional business travel to remote work-related expenses.

Industries That Use Per Diem Expenses

Per diem expenses are widely used across various industries where employees frequently travel for work, attend off-site assignments, or work in temporary locations. These industries benefit from per diem policies as they streamline expense management, ensure compliance, and reduce administrative overhead.

1. Corporate & Business Travel

Who Uses It?

Consultants

Executives & Sales Representatives

Business Development Managers

Why It’s Used?

Corporate professionals often travel for meetings, client engagements, and conferences. Per diem ensures they receive standardized reimbursements for meals, lodging, and incidental expenses without the need for detailed expense reports.

2. Construction & Engineering

Who Uses It?

Construction Workers & Contractors

Civil Engineers & Architects

Project Managers

Why It’s Used?

Many construction and engineering projects require employees to work at remote sites for extended periods. Per diem covers lodging, meals, and daily expenses, reducing the burden of tracking individual costs.

3. Healthcare & Medical Professionals

Who Uses It?

Traveling Nurses & Physicians

Medical Consultants

Emergency Response Teams

Why It’s Used?

Healthcare professionals often work on temporary assignments in different cities or rural areas. Per diem helps cover accommodation and food costs while ensuring they can focus on patient care.

4. Government & Military

Who Uses It?

Federal & State Employees

Military Personnel on Temporary Duty (TDY)

Law Enforcement Officers on Special Assignments

Why It’s Used?

Government agencies and military organizations use per diem to simplify expense tracking for employees traveling for training, missions, or conferences while complying with federal regulations.

5. Education & Research

Who Uses It?

University Professors & Researchers

Field Study Teams

Academic Consultants

Why It’s Used?

Academics and researchers often travel for fieldwork, conferences, and collaborative projects. Per diem ensures they are reimbursed for meals, lodging, and incidental costs without complex paperwork.

6. Transportation & Logistics

Who Uses It?

Truck Drivers & Delivery Personnel

Airline & Maritime Crew

Ride-Share & Long-Distance Drivers

Why It’s Used?

Employees in transportation often spend long hours on the road, requiring food and lodging expenses. Per diem simplifies reimbursement, ensuring drivers and crew members receive fair compensation.

7. Entertainment & Media

Who Uses It?

Film & Television Crews

Journalists & Reporters

Musicians & Touring Artists

Why It’s Used?

The entertainment industry involves frequent travel for location shoots, live performances, and news coverage. Per diem helps cover travel-related expenses, reducing financial stress for crew members.

8. Information Technology & Consulting

Who Uses It?

IT Consultants & Software Engineers

Cybersecurity Specialists

Business Analysts

Why It’s Used?

Tech professionals often travel for client projects, training, or system installations. Per diem simplifies reimbursement while ensuring compliance with corporate policies.

9. Energy & Utilities

Who Uses It?

Oil & Gas Workers

Renewable Energy Technicians

Utility Service Personnel

Why It’s Used?

Many energy workers operate in remote or offshore locations. Per diem helps cover the cost of meals and lodging while working on temporary assignments.

10. Non-Profit & Humanitarian Organizations

Who Uses It?

Aid Workers & Volunteers

NGO Field Officers

Disaster Relief Teams

Why It’s Used?

Non-profit employees often travel for humanitarian missions and disaster response. Per diem ensures they can cover essential expenses while working in different locations.

Tips for Managing Per Diem Expenses

Managing per diem can be tricky, especially in large organizations. Here are some simple ways to streamline the process:

Set Clear Policies
Per diem rates refer to the fixed daily allowances set by companies or government agencies to cover employees’ travel expenses, including lodging, meals, and incidentals. Eligible expenses typically include hotel stays, food, transportation, and minor work-related costs incurred during business travel. Organizations must establish clear per diem policies to ensure compliance with tax regulations and prevent overspending. Employees should follow reporting guidelines, such as submitting expense claims within a specified timeframe and providing necessary documentation. Properly defining these elements helps streamline reimbursement, maintain financial transparency, and reduce administrative workload.
Use Digital Tracking
Leveraging expense management software can significantly simplify the process of managing per diem. These tools automatically calculate per diem allowances based on travel details such as location and duration, eliminating manual errors and saving time. Employees can easily submit their claims, while the system ensures approvals are aligned with company policies. Automation streamlines the workflow, speeding up reimbursements and increasing efficiency. Additionally, these tools often integrate with accounting systems to ensure compliance and maintain accurate records, reducing administrative burdens.
Ensure IRS Compliance
It’s crucial to regularly review your company’s per diem policies to ensure they remain compliant with current tax regulations. Changes in tax laws or per diem rates may require adjustments to your policies to avoid costly penalties. Staying updated helps you maintain accurate records and ensures your employees receive appropriate reimbursements. Regular audits of per diem expenses also prevent over or under-compensation, keeping your financial practices transparent. By aligning policies with tax guidelines, you safeguard your organization from non-compliance issues and penalties.
Adjust Rates as Needed
Per diem amounts should be adjusted regularly to reflect changes in travel locations and the cost of living. As travel expenses such as lodging, meals, and transportation vary by city or country, it’s important to update per diem rates accordingly. This ensures employees are fairly compensated for their expenses while avoiding the risk of over or under-reimbursement. Regularly tracking cost fluctuations helps maintain accuracy and compliance with industry standards. By keeping per diem rates up-to-date, businesses ensure both employee satisfaction and financial integrity in expense management.
Communicate with Employees
It’s important to clearly communicate to travelers how per diem works and what expenses it covers. Providing employees with detailed guidelines ensures they understand which costs are eligible for reimbursement, such as meals, lodging, and incidentals. Offering training or resources can help prevent confusion and ensure compliance with company policies. By setting clear expectations, you also reduce the risk of unnecessary expense claims. Ensuring travelers are informed helps streamline the reimbursement process and fosters trust between employees and the company.
Monitor Spending Trends
Analyzing expense data allows businesses to spot inefficiencies in their current per diem and reimbursement processes. By reviewing spending patterns, companies can identify areas where employees may be overspending or where per diem rates are insufficient. This data-driven approach helps refine policies to better align with actual travel costs, ensuring more accurate reimbursements. Regular analysis can also reveal trends that prompt updates to per diem amounts or guidelines, ensuring they remain fair and competitive. Ultimately, refining policies based on data improves overall expense management, reducing unnecessary costs and increasing financial control.
Require Timely Reporting
Setting deadlines for submitting expense reports is essential to maintain accuracy in financial tracking. Clear submission timelines help ensure that all expenses are reported in a timely manner, reducing the risk of errors or forgotten transactions. Establishing deadlines also facilitates quicker approvals and reimbursements, improving cash flow management. Regularly adhering to these deadlines ensures that financial records are up-to-date and accurate. By enforcing submission deadlines, companies can streamline their expense management process and maintain compliance with internal and tax regulations.
Provide Advance Payments
Issuing per diem before trips helps employees manage their expenses without needing to pay out-of-pocket. Providing a set allowance upfront ensures that they have the necessary funds for meals, lodging, and incidental costs during travel. This approach reduces the financial burden on employees and makes expense reporting simpler. Pre-issuing per diem also promotes transparency and helps employees plan their budgets in advance. By giving employees their allowance before the trip, companies can streamline the expense management process and avoid reimbursement delays.
Offer Support for Exceptions
It’s important to have a clear process for handling expenses that exceed the per diem limits. Employees should be aware of the procedure for submitting additional expenses that go beyond the set allowance. This process could involve submitting extra receipts for approval or providing a detailed explanation of why the opportunity costs exceeded the limit. Establishing clear guidelines ensures that such exceptions are handled consistently and fairly. Having a process in place helps maintain control over expenses while ensuring that employees are reimbursed appropriately for legitimate extra costs.
Conduct Regular Audits
Regularly reviewing per diem claims is essential to prevent misuse and ensure fairness in expense management. By auditing claims periodically, companies can identify discrepancies or patterns that may indicate potential abuse of the system. This review process helps ensure that employees are only reimbursed for legitimate, work-related expenses. It also maintains transparency and upholds company policies, promoting a fair system for all employees. Periodic reviews help companies stay compliant with tax regulations and maintain financial control over per diem expenses.

How Expense Tracker 365 Simplifies Per Diem Management

Expense Tracker 365 provides a seamless and efficient way to manage per diem expenses, ensuring accuracy and simplicity at every step.

Customize and Track Per Diem Effortlessly with Expense Tracker 365

Tailored Per Diem Rates

With Expense Tracker 365, finance teams can set customized per diem rates based on department, employee level, or location. You can also define rates in multiple currencies, ensuring they align with your organization’s specific needs.

Hassle-Free Tracking

Employees simply enter their travel dates, select the applicable per diem rate, and let the system handle the calculations. For added flexibility, you can customize the expense form to include project codes, cost centers, or other key details—ensuring accurate record-keeping with minimal effort.

Simplified Receipt Management

With Expense Tracker 365, submitting receipts is as simple as sending a text. Employees can capture and upload receipts on the go, and our AI automatically logs, categorizes, and submits expenses—saving time and effort.

For added convenience, Expense Tracker 365 integrates with major credit card networks like Visa, Mastercard, and American Express. Employees receive real-time purchase alerts and can instantly reply with a receipt photo, allowing the system to reconcile expenses automatically. This ensures seamless tracking, faster approvals, and hassle-free reimbursements.

Conclusion

Per diem isn’t extra income—it’s a structured way to reimburse employees for travel costs without the hassle of saving every receipt. When managed correctly, it benefits both employees and employers by streamlining expenses and maintaining financial transparency. By setting clear policies, leveraging automation, and ensuring compliance, businesses can make per diem management effortless. In 2025, adopting smart expense tracking tools like Expense Tracker 365 will be key to maximizing efficiency and accuracy.