Per Diem
A daily allowance paid to employees to cover lodging, meals, and incidental expenses incurred during business travel, based on fixed rates for the destination.
Per diem (Latin for "per day") is a fixed daily allowance provided by employers to cover the costs of accommodation, meals, and incidental expenses that employees incur while traveling for business purposes. Rather than requiring itemized receipts for every meal or minor expense, per diem simplifies the expense management process by providing a predetermined amount that varies by destination and cost of living. Rates are often guided by government standards — such as the U.S. General Services Administration (GSA) per diem rates — or set by company policy. Employees who spend less than the per diem amount typically retain the difference, while those exceeding it must absorb the excess themselves or seek specific approval.
Why it matters
Per diem reduces administrative burden substantially on high-volume meal and incidental expense categories. Rather than reviewing dozens of individual receipts per trip — each requiring categorization, policy checking, and approval — the per diem approach converts these into a single line item. For finance, it simplifies accrual and reconciliation. For travellers, it provides certainty and reduces the stress of receipt management. The trade-off is that it does not reflect actual spend — a traveler who spends below the per diem keeps the surplus; one who spends above it absorbs the shortfall.
How it works in practice
Per diem rates are applied at the destination level — different cities and countries have different rates reflecting local cost of living. The traveler claims the applicable daily rate for each day of travel, typically including a partial day rate for departure and return days. Many organizations use government rates (US GSA, HMRC, or equivalent in other jurisdictions) as their benchmark, adjusting upward or downward by category based on company policy. Receipts are generally not required for per diem claims, which is a substantial administrative simplification.
The takeaway
Per diem is most effective when rates are calibrated to the actual cost environment of frequently visited destinations. Rates that are too low force travellers to top up from personal funds, creating dissatisfaction and potential compliance issues. Rates that are too high waste money and can create tax complications in some jurisdictions. Review per diem rates annually against updated cost data for key destinations and adjust before the gap between policy and reality becomes wide enough to generate complaints.