Negosentro | What Employers Need to Know About Per Diem Employee Rights | When your business includes employees traveling for the job, per diems are an essential part of your practices.
These stipends are simple in theory: They replace cumbersome refund requests and keep your workers from having to pay out-of-pocket for business expenses. When you use per diems, you eliminate a substantial amount of (although not all) back-end accounting, record-keeping, and reports.
However, the IRS establishes and monitors per diem rates and employee rights. As a manager or business owner, ensuring your travel policies reflect these guidelines is part of your job. Most importantly, you want to create practices that include everything your employee has a federal or state right to for their protection and your business’s.
Dealing with government regulations can be challenging, especially as laws and legislation change. But when it comes to per diems, there are a few vital pieces of info you must know about your employee rights, and we’ve included them here.
1. What Per Diem Includes
Per diem is the Latin term for “per day.” In essence, it refers to employees who receive a “pay per day” benefit while they’re traveling for their jobs. It can also refer to the wage a short-term worker receives when they’re paid by the day.
The daily stipend covers specific travel expenses regulated by the government. If transportation and lodging aren’t paid for directly by the employer, they must be included in the per diem. Meals, tips, and laundry services are also part of the pay.
Since every trip will be different, per diems make accounting for these expenses easier. The employee receives one set allowance to use per day. They can use those funds to pay for meals and incidentals (M&IE) on the road.
Because the funds are already decided, employees have the right to choose how they spend them. For example, if they prefer to pay for one expensive meal rather than splitting the meal allocation into thirds, that’s their choice. But they won’t be reimbursed for anything over the MI&E pay.
2. How Per Diem Amounts Are Determined
Business owners have the right to decide what their travel pay policies are, but, at a minimum, they must follow the IRS guidelines. Most businesses stick with the federal rates because anything over them becomes taxable to the employee.
Covered categories typically include accommodations, meals, and incidentals. Transportation is separate from M&IE, although it must be covered. In most situations, the employer pays for the expense of travel tickets or rental cars. The cost of gas for employees driving to their destinations is covered by the IRS’s mileage reimbursement rates.
Meal coverage can vary, with different values placed on breakfast, lunch, and dinner, as long as all are included.
Note that federal law doesn’t require you to cover your employee’s travel costs. This is determined by state law and varies from state to state. Your state and local regulations may be more stringent than the national guidelines. However, any per diem stipends set below national limits are non-taxable.
Per diem rates also change by zip code. Check the General Services Administration’s page to ensure your rates are aligned with theirs.
3. What Your Employees’ Rights Include
As you design your travel policy and per diem guidelines, remember that they’re supposed to be beneficial to you and your employees.
All employees receive a W-2 and pay taxes, so employment rules governing per diems, overtime pay, and mileage reimbursement apply. Any traveling worker or those employees you’ve hired as pay-per-day help are entitled to travel cost reimbursement. (Independent contractors completing 1099 forms aren’t in this category, although they can receive per diems.)
But when you’re talking about employee rights, you should know they aren’t entitled to a per diem. Federal law, the Fair Labor Standards Act and the Department of Labor don’t require you as the employer to offer per diems.
You do have to reimburse travel expenses if they’re business-related, but you can choose to use alternatives. Many employers use per diems simply because they make the reimbursement process easier.
Whatever your travel policy includes, it must be in line with the employees’ rights regarding overtime and minimum wage. For more information regarding these categories, read this article by Hotel Engine.
Sending your employees on the road for business purposes is an excellent way to grow your company. Studies show that corporate travel can bring in a hefty return on your investment.
As long as your travel policies are in line with federal and state guidelines and cover your employees’ rights, you can choose how you want to reimburse expenses. Per diems simplify the process and are an easy solution to what could otherwise be quite challenging bookkeeping and accounting.