Per Diem Considerations

What do you need to know as you decide on a per diem rate for employees or negotiate a per diem rate with consultants and contractors? It can sometimes seem like a random number pulled from the air, but there a number of per diem rate considerations that you should be aware of.

Federal Rates
As we’ve mentioned here before, the federal per diem rates can play a significant role at tax time. On the plus side, they provide valuable guidelines. That said, it may be easier to work with only one rate, or maybe you don’t feel the federal per diem is adequate. But beware – any amount above the federal standard rate is considered additional compensation, and with that comes all the tax implications of wages.

Receipts
No matter what you decide on per diems, make sure that the actual spending and recuperated funds are accounted for. This is for your own records as well as for the IRS. Without them your system will not be considered an accountable plan, and you and your employee may be getting a tax bill.

Electronic Payments
The big advantage of having a per diem rate instead of reimbursable expenses is that you pay a flat fee and don’t have to worry about all the incidentals. Take it a step further and manage your per diems electronically to improve allocation and recuperation documentation.