What are per diem travel allowances and how to include them in your travel policy

Understanding per diem: The basics

What is per diem?

Let’s start with the basics. Per diem, Latin for "per day," is an allowance given to employees to cover daily expenses while travelling for work. Think of it as a financial safety net ensuring your team isn’t out of pocket for work-related expenses.

It’s crucial for businesses because it simplifies expense management and ensures employees are adequately compensated.

How does per diem work?

Per diem covers a range of daily expenses, from meals to lodging and incidental expenses like tips or laundry.

Imagine your top salesperson is flying from Brisbane to Sydney for a week. Instead of juggling receipts for every coffee and taxi ride, they receive a per diem allowance to cover these costs. It’s a win-win: they focus on closing deals, and you avoid a mountain of paperwork.

Types of per diem payments

Per diem payments can be categorised mainly into fixed and actual expenses:

• Fixed per diem: Employees receive a set amount daily, regardless of actual expenses. It’s predictable and easy to manage.
• Actual expenses: Employees are reimbursed based on actual expenses incurred, requiring detailed expense reports and receipts.

Each method has its pros and cons. Fixed per diems simplify accounting but might not cover high-cost locations adequately. Actual expenses provide precise compensation but can be administratively burdensome. Choose the method that aligns best with your business needs.

What are the benefits of per diems?

Per diems offer multiple benefits:

• Simplifies expense management: No more juggling receipts and lengthy expense reports.
• Tax efficiency: For businesses, per diems can be tax-deductible, while employees enjoy non-taxable income.
• Flexibility for employees: Allows your employees to manage their allowances as per their needs and preferences.
• Increases compliance and efficiency: Standardises travel expenses and reduces administrative load.

Calculating and applying per diem rates

How is per diem calculated?

Calculating per diem rates might sound like a complex math problem, but it’s simpler than you think.

Factors include location, duration, and type of travel. For example, the cost of living in Melbourne differs from that in a regional town, so rates adjust accordingly.

Generally, you’ll find per diem rates set by government guidelines or industry standards. There are handy calculators and resources online to make this process a breeze.

The per diem rates in Australia

In Australia, per diem rates cover meals, lodging, and incidental expenses for those away from home overnight. The Australian Taxation Office (ATO) provides daily rates for accommodation, meals, and drinks.

Keep in mind regional differences: what’s enough for Sydney might not cut it in a rural area. Always refer to the latest ATO guidelines for the latest, most accurate rates.

Qualifications and conditions for per diem payments

What qualifies for per diem payment?

Per diem typically covers expenses associated with business travel, including accommodation, meals, and incidental costs. Exclusions might apply—luxury items or personal entertainment aren’t usually covered. To qualify, employees need to ensure their expenses are business-related and fall within the provided guidelines.

Do you get per diem on travel days?

Great question! On the days you depart and return, employees often receive 75% of the standard per diem rate. This accounts for partial days of travel when full expenses might not be incurred. However, specific policies can vary, so it’s important to clarify this within your travel policy.

Per diems for domestic and international business travel

Domestic business travel

When travelling within Australia, employees benefit from the ATO’s clear guidelines on per diem rates. These rates vary by location and are updated annually. For instance:

Major cities: Higher per diem rates are allocated for cities like Sydney, Melbourne, and Brisbane to account for higher living costs.

Regional areas: Lower per diem rates apply to less expensive, regional locations.

International business travel

International travel introduces additional complexity, but per diems simplify it. Here’s how:

• Global rates: The ATO doesn’t set specific international per diem rates, so businesses often use rates from sources like the U.S.
• General Services Administration (GSA) or private organisations that provide global travel data.
• Currency considerations: Adjust per diem rates to the local currency of the destination country, factoring in exchange rates.
• High-cost destinations: Allocate higher per diem rates for cities known for their high cost of living, such as Tokyo, New York, or London.

How to incorporate per diem rates and allowances into your business travel policy

Creating a per diem policy might seem daunting, but breaking it down makes it manageable:

Tools and resources

Leverage tools like expense management software to streamline per diem tracking and reporting. Resources such as the ATO’s guidelines on travel allowances offer invaluable reference points for setting accurate and compliant rates.

While this blog is a good starting point, having an expert in your corner can make a HUGE difference in getting things right from the get-go. Corporate Traveller can help you finetune your existing travel policy or create a new one that integrates per diem allowances in a way that's a win-win—for your business, and your travellers.

Final thoughts

Per diem travel allowances are a game-changer for business travel. They simplify expenses, provide flexibility, and enhance compliance. As you refine your travel policy, consider how per diems can make travel smoother and more efficient for your team.

Need help crafting the perfect travel policy? Contact Corporate Traveller—we’re here to make business travel a breeze.