Per diem, a Latin phrase meaning “by the day,” refers to daily allowances given to employees traveling for business purposes. While that sounds like a simple concept, it is far from it. The per diem rate decided by an organization is based on numerous criteria such as government regulations, destination accommodations, meal rates, employee designations, frequency of travel, company budgets, and more.
Apart from setting up per diem rates, organizations must regularly communicate, update, and revise these rates as per regulations and employee feedback. This ongoing effort to set and manage per diem rates is a process finance professionals, travel admins, and HR professionals follow to ensure employee satisfaction and compliance.
Here’s a short guide on how you can set, manage, and leverage per diem rates within your organization.
How to set per diem rates for your company
Check government regulations
Governments ensure employees are compensated fairly through fair wage laws. Similarly, in many countries, such as Singapore, the USA, Germany, Australia, and others, the government also regulates per diem rates by law. In some instances, such as the per diem rates set by the US General Services Administration, the government body sets per diem rates for federal employees. However, as a common practice, most private organizations follow the same. Check for existing regulations or guidelines that apply to your company.
Check for taxation
While government regulators ensure employees are fairly compensated for their travel expenses with per diem rates, they also extend businesses certain tax benefits by allowing per diem allowances to be deducted as business expenses. To ensure companies do not take advantage of these benefits, regulatory bodies set limits for tax-free per diem allowances as well. Be sure to look into those so you can properly account for these benefits if they apply to your company.
Analyze business travel activity
The next step is to track and analyze business travel across your organization and collect information such as:
- Why are employees traveling?
- Who travels frequently?
- Where are the employees traveling?
- When do employees usually travel?
- Preferred travel vendors
- General feedback shared by employees
This will help you determine business travel trends and patterns and set specific budgets for different travel activities. Depending on employees’ seniority level, department, and the frequency at which they travel, you can even set custom per diem rates in the travel policy.
Research and analyze the “cost-of-living” for destinations
Determine the average cost of accommodation, meals, and entertainment for frequent travel destinations. Ensure the per diem allowance is sufficient for your employees to stay comfortably, eat, and travel within the city as they meet with customers or attend events.
Collect and implement constructive employee feedback
Are your employees facing difficulties finding accommodations within their per diem allowances? Were actual employee expenses much lower than the allowance? If so, it’s time to revise your per diem allowance. When per diem allowances remain stagnant and fail to reflect rising prices, employee experiences are negatively affected.
Benefits of per diem allowances
Save time
Without a fixed per diem rate, travel teams process employee reimbursements based on actuals, making it necessary for the team to look through paperwork and for employees to maintain detailed reports. On the other hand, whether you’re managing employee expenses manually or via an application, setting up per diem rates to be automatically filled in depending on travel policies saves time. As long as employees spend within the per diem limits, companies need not spend time checking every expense report in detail.
Encourage employee frugality
According to this 2022 survey, 37% of HR and finance professionals expect employees to claim fraudulent expenses, highlighting a common problem that many companies face, especially during hard economic times. Companies without a per diem allowance find it difficult to curb extravagant and unapproved spending. With an allowance limit, employees must look for options within the set rate, ensuring frugality. For cases where per diem rates are specified for expense categories, such as accommodations, meals, or travel, employees ensure they stay within the stipulated budget while also having the freedom to choose from available options without waiting for approvals.
Ease business travel expensing
While every expense employees make needs to be accounted for, finance teams often find it overwhelming. Set per diem rates help companies ease the expensing process as admins can automatically assign the rate for traveling employees based on travel policies. This also helps the company avoid fraud and budget overshoots without having to audit every expense claim.
Budget management
Once you analyze the average number of business trips held across destinations and the per diem allowance set for each destination, it becomes easy for a company to estimate the cost of business trips and build accurate budgets.
How to manage per diem allowances
Clear communication
Once you set a per diem policy, communicate it to your employees. Clear communication helps employees track per diem rates, exceptions, limitations, and more that apply to them before they travel. Ensure the communication is shared through multiple channels, whether discussed with the team through their approvers, broadcast via email, or readily available in shared folders and platforms; the per diem policy must be easy to refer to for all employees whenever needed.
Technology
Leverage technology to save, track, apply, and audit per diem rates within your organization. With feature-rich expense management software solutions, like Zoho Expense, companies can set per diem rates based on locations, regulations, expense categories, and more. All expenses raised by employees can have per diem rates auto-filled and updated by the software, making expense report submissions, approvals, and reimbursements a swift and easy process.
Expense management software also allows admins to pull analytical reports of per diem expenses based on employees, locations, departments, and designations, helping them make informed decisions regarding rate revisions, modifications, and budgeting. Ensure the software supports regulatory compliances for your company’s countries and can scale with your company’s growth.
Reporting and analysis
Lastly, tracking and analyzing per diem expenses before revising or setting the rate for newer locations is a must. As mentioned earlier, you can invest in a comprehensive software to ensure accurate and detailed reports, dashboards, and trends to help forecast budgets, identify savings opportunities, and build the right per diem policies for the best employee travel experience.
Managing per diem rates for traveling employees in an organization requires research and continuous evaluation. The prime objective for setting up a per diem policy is to help travel and finance teams allocate budgets, track expenses, ease approvals, and ensure superior employee experiences. A well-managed per diem policy adds to an efficient travel program and ultimately helps control business travel spends.
