Per-Diem | Meaning and Definition

What is per-diem?

Per diem is a Latin phrase meaning “for each day”. It refers to a fixed amount of money reimbursed to an employee by the organization every day to meet the outlays when traveling for business purposes. The rates of per diem are based on the place where the employee has to travel to instead of how much they spend. Utilizing fixed per diem amounts eradicates the requirement for typical record-keeping and streamlines the compensation process. That is because employees do not have to turn in the receipts to the department of accounts.

How is per diem pay estimated on travel days?

For employees who are traveling, per diem is calculated as follows:

•   Use the federal or company’s per diem rates
•   Determine the number of days eligible for per diem reimbursement or prepayment of per diem expenses.
•   Multiply the company’s per diem rate by the eligible travel days.

Let’s understand this with an example,

For instance, your enterprise offers $300 per night for a hotel and $50 dollars for your meals when an employee is sent to attend a four-day convention. So, your per diem would be:

($300 * 3 nights) + ($50 * 4 days) = $1100 gross employee reimbursement

For transportation, meals, and other expenses, per diem is estimated on a per-day basis while for a hotel is measured by the number of nights a hotel is reserved by the employee.

Although there is no legal need for employers to reimburse per diem rates to the employees traveling for business purposes, it is considered a good business practice. Furthermore, employees expect it.