Understanding Business Travel Per Diem Costs

When your employees travel for work, they’ll rack up plenty of small expenses: hotel rooms, breakfast before a meeting, takeout after a long day of client visits, tips for housekeeping, etc. Offering employees a fixed daily allowance gives companies a simple way to cover those per diem costs. 

What is a Per Diem?

Per diem is Latin for “per day.” Fittingly, the term usually refers to a daily stipend companies provide employees to apply to their business travel expenses. 

Employers aren’t generally required to reimburse employees for travel expenses (except in certain states, including California), but it’s widely considered a sound and equitable business practice. 

However, if a company has established a policy or contract promising a per diem, they do have a legal obligation to follow it. 

What About Per Diem Work?

There’s also per diem employment, which refers to situations where employees get hired on an as-needed, day-to-day basis. Per diem employment arrangements are common in industries with fluctuating staffing needs like healthcare, education, and hospitality.

Per diem workers typically earn a higher daily rate than their full-time counterparts because they don’t receive benefits like health insurance, paid time off, or retirement contributions. Unlike standard part-time employees who have a set schedule, per diem employees have no guaranteed hours and are called in only when the employer needs additional coverage.

For the sake of this article, we’ll be focusing on the former definition and the way businesses reimburse per diem costs, what those payments cover, how they’re calculated, and how they get taxed. 

What Do Per Diem Payments Cover?

Per diem costs get broken into two categories: Lodging, and meals and incidental expenses (also known as M&IE). 

Lodging

Lodging rates apply to hotel and short-term rental per diem costs. Lodging taxes aren’t included, but can get reimbursed as a miscellaneous employee expense. 

Meals

Meal stipends are usually standardized per day, and cover breakfast, lunch, and dinner. According to the IRS, individuals who are self-employed can only use a per diem for meals.

For employers that use federal per diem rates (more on those in a moment), only ¾ of the standard rate needs to be paid for the first and last days of travel. 

Incidental Expenses 

Incidentals cover any other small, but necessary travel-related per diem costs. For example, tips for hotel or service staff might be covered with an employee’s per diem allowance. Officially, per diem rates just for incidental expenses are $5 per day. 

Businesses can pay per diem to cover all three categories, or separate lodging from meals and incidental expenses (M&IE). This is common if the company books the hotel in advance or an employee is staying with family and will not incur any lodging expenses.

What About Transportation? 

Per diem costs usually don’t include the actual cost of transportation (flights, rental cars, taxis, and so on), but the company may choose to arrange travel on employees’ behalf or reimburse them for those costs. However, this can vary from company to company.

Transportation that takes place in an employee’s personal vehicle, however, falls under the governance of mileage reimbursement, rather than that of per diem costs. 

How Do Federal Per Diem Rates Work?  

Every year on October 1, the General Services Administration (GSA) calculates and releases per diem rates for the fiscal year. They provide standard rates that can be used regardless of location (as of October 2026, the standard lodging per diem is $113, and the standard M&IE total is $68). 

However, the GSA also offers location-specific rates to account for how widely the cost of living can vary from location to location.. For example, the standard lodging rate to cover per diem costs in Austin, Texas, (as of October 2026) is $184. In San Francisco, California, it’s $279. 

The High-Low Method

Some businesses use a “high-low” method to figure out rates to cover employees’ per diem costs. 

Every year, the IRS provides a list of high-cost locations (on the 2026/2027 list: Gulf Shores, Alabama, Tucson, Arizona, and Los Angeles, California, among many others), along with rates for those high-cost areas, and a rate for all other areas in the continental United States (CONUS).

For late 2026 going into 2027, the rate (for lodging and M&IE) for high-cost localities is $329 for high-cost locations and $230 for other CONUS locations. The meal portions are $86 and $74, respectively. 

Does My Business Have to Cover Per Diem Costs at Federal Rates?

No! Federal per diem rates are regulated for federal employees, and dictate the maximum amount federal workers can receive to cover per diem costs without requiring additional documentation. Many businesses do use them as a benchmark, but it’s not a requirement. 

If your business doesn’t want to go by federal rates, it can choose any rate that feels reasonable to cover per diem costs. However, if you do choose to compensate at a higher rate than the federal standard, the excess will be taxable to employees, so keep that in mind. 

Types of Per Diem

If you choose to use a per diem allowance, there are a few different ways of structuring payments to cover per diem costs.

Fixed Allowances

A fixed allowance for per diem costs sets a predetermined daily amount that gets applied to all eligible travel expenses. That fixed amount does not change, regardless of the actual expenses. 

This method is the simplest for workers and administrators alike due to its consistency, and because it doesn’t require employees to track their individual expenses for each travel day. 

Fixed allowances work best for businesses whose employees have predictable travel patterns or frequently visit the same locations. It’s also a good choice for companies that want to minimize administrative work around report processing and documentation. 

Partial Allowances

Partial allowances take a hybrid approach to per diem costs. Employees receive fixed allowances for meals and incidental expenses. For lodging, transportation, and any other costs, employees document their actual expenses.

This method for per diem costs offers a higher level of control and oversight over larger costs. On the other hand, it adds the challenge of communicating guidelines, and documentation requirements, to employees. 

Out-of-Pocket 

This method asks employees to personally pay their travel expenses, and the company later reimburses them up to the approved per diem limits, which act as the maximum amounts for reimbursement. This process requires employees to submit expense reports with receipts and documentation of their travel. 

Company Card 

Some organizations use company-provided cards to cover employees’ per diem costs. Those cards come with established per diem limits. Company card programs that integrate with expense management software can help businesses by capturing required documentation, speeding up the expense reporting process significantly. 

What About Taxes? 

If your reimbursements for per diem costs follow the rules of an accountable plan (and stay at or lower than the rates set by the GSA), those payments won’t get counted as taxable income. 

As outlined in IRS Publication 463, an accountable plan requires that:

• Expenses must have a provable business connection.
• Expenses must be adequately accounted for within a reasonable time period
• Employees must return any excess reimbursement or allowance within a reasonable time period 

So…How Does Per Diem Stack Up?

So should your business cover employees’ per diem costs with a per diem allowance program? Like with most things, there’s some positives and some negatives, so let’s take a quick look at both.

The Positive 

• It’s easy and predictable: It’s a straightforward, simple way of reimbursing employees’ business travel per diem costs.
• Less paperwork: Because a per diem is usually a fixed rate, it requires less documentation and paperwork than other expense management solutions. This speeds up the reporting cycle considerably. 
• More choice for employees: A per diem usually lets the employee decide how to spend their allowance, giving them more autonomy.

The Not-so-positive 

• Misaligned costs: As we noted when we talked about car allowances, it’s basically impossible for pre-fixed rates to match actual costs, especially when travel costs can vary so wildly. You run the risk of keeping rates too low (leaving employees frustrated), or too high (at which point you’re basically giving employees pocket money, which isn’t efficient for your business’s finances – nor is it a great precedent to set with your workforce). 
• Less visibility: Less paperwork means you get less oversight into how, exactly, the money is being spent. 

CompanyMileage Keeps Expense Management Simple 

Maybe a fixed allowance sounds like the best way to cover employees’ business travel per diem costs. Or maybe you’re looking for other ways to reimburse your workforce. Either way, CompanyMileage has you covered!

Our suite of reimbursement software solutions were specifically designed to make travel and expense reimbursement for employees as accurate, intuitive, and cost-effective as possible. 

This starts with SureMileage, our mileage reimbursement solution for businesses whose employees use their personal vehicles as part of their regular work-related travel. Using a unique point-to-point method, SureMileage automatically calculates the best route between the start and end point of a work-related trip, and from there the mileage and amount for reimbursement. 

SureMileage users can create, edit, and submit expense reports right from their smartphones using our mobile app, SureMobile. With one-touch reporting, an integrated address book, and an Offline Mode, employees always have mobile and expense tracking abilities right at hand, even when cell service is spotty.

Finally, our T&E software, SureExpense, simplifies travel and expense management for businesses and employees alike. Employees just have to take five minutes at the end of their day to edit reports, attach receipts or invoices as necessary, and then submit an expense report for reimbursement.

Once submitted, those reports move through an automated approval workflow, which can be easily customized to meet the unique needs of your business. Our systems also integrate with all major accounting and approval software, guaranteeing a smooth, seamless process, from reporting all the way through reimbursement. 

Per diem or no, if you’re ready to learn more about how CompanyMileage helps organizations manage travel and expense reimbursement, and even save money in the process, contact us for a demo today!