Per diem employee rights: What employers should know

There’s no federal law that requires employers to pay per diem. However, many businesses still choose to reimburse employee travel expenses regardless, whether they use a per diem system or a traditional employee expense reimbursement program.

In this post, we’ll define per diem and explain per diem advantages for employers and employees alike. We’ll also discuss why employers choose to pay per diem even when it isn’t required by law, as well as the special cases when per diem is required to be paid.

What is per diem?

Per diem is Latin for “by the day” or “for each day.” The business definition of per diem can vary depending on the context:

• In employment law, per diem refers to per diem workers who earn a daily pay rate, typically hired on an as-needed basis
• In business travel, per diem is a daily allowance given to employees that covers meals, lodging, and incidental expenses they incur during work trips

It can be tricky to understand what per diem covers, what it doesn’t, and when employees are due per diem for business travel. We’ll explain in depth below.

When is per diem required to be paid?

Is per diem required by law? The short answer is no: There’s no federal law that requires businesses to pay per diem. You can manage business travel expenses without using per diem payments.

However, you should reimburse employees for business expenses they pay out of pocket. Under the Fair Labor Standards Act (FLSA), you must reimburse employees for business expenses that drop their earnings below the federal minimum wage (currently $7.25 per hour).

Additionally, 11 states and two municipalities have enacted laws that mandate employee expense reimbursements in various scenarios. If you have a remote or otherwise distributed workforce, you’ll need to familiarize yourself with employee reimbursement laws by state.

Benefits and challenges of per diem

The main advantage of per diem to employers is that it simplifies the reporting and reimbursement of travel expenses. However, you must comply with particular standards and regulations to avoid accounting and tax issues.

Advantages of per diem for employers

Per diem simplifies the travel expense reporting process. Employees can generate expense reports in less time because there are fewer receipts to submit and document.

Using per diem empowers employees to spend their allowance as they see fit (within certain guidelines) and, if you issue per diem as an advance, it eliminates the need for employees to pay out of pocket for expenses, improving goodwill and satisfaction.

Drawbacks of per diem employers

If you don’t pay per diem allowances before travel, employees must pay expenses out of pocket and wait for reimbursement. This situation can be frustrating for your team. Additionally, if you don’t manage per diem payments and expenses properly, per diem may be considered taxable income to employees.

Per diem legal requirements

If you’re planning to implement a per diem program for your business, you’ll need to follow certain guidelines and regulations:

What does per diem cover?

Employees can only use per diem to pay for the following three business expenses:

1. Meals: Food and beverage costs for breakfast, lunch, and dinner
2. Incidental expenses: Fees, tips, and other expenses, including laundry and dry cleaning
3. Lodging: The cost of hotel stays and short-term rentals

Meals and incidental expenses are grouped together under the M&IE category. The GSA assigns separate per diem rates for lodging and M&IE. Per diem doesn’t cover other business travel expenses like airfare, car rentals, other ground transportation, and so on.

Per diem rates

The US General Services Administration (GSA) sets per diem rates for government employees annually. The standard daily per diem rate for 2025 is $178, including $110 for lodging and $68 for M&IE. Many companies use the GSA rates as a benchmark for their per diem program.

There are a few other things to note about the GSA per diem rates:

• Continental US: The GSA rates apply to business travel in the continental US (CONUS)
• Standard and non-standard areas: The GSA’s standard rate applies to most areas of the country, but each year, the GSA also identifies several non-standard areas. These locations are assigned specific per diem rates due to factors like cost of living and seasonality
• Compliance: When you use the GSA per diem rates, you comply with IRS requirements around business expense deductions

To illustrate, say a salesperson plans to travel to Denver, CO, in March 2025. Denver is a non-standard area with its own specific per diem rate. The daily lodging rate is $165, and the MI&E rate is $92.

However, the salesperson only receives 75% of the M&IE rate on their first and last travel days. Because they’re technically not traveling for a full day on the first and last days of the trip, they receive $69 for M&IE rather than the full daily rate of $92.

Per diem lodging rates may be adjusted seasonally based on tourism and business travel demand. For example, Denver’s daily lodging rate for the summer months of 2025 is $215.

How per diem is paid

You can choose to advance per diem allowances and let employees decide how to spend their dollars on lodging and meal costs. Alternatively, you could choose to have employees incur these travel expenses out of pocket and reimburse them up to the GSA per diem limits.

Are per diem payments taxable income to employees?

If you follow these guidelines, per diem payments are considered legitimate business expenses and are not taxable income to your employees:

• Documentation: Employees still need to submit expense reports for expenses paid with per diem. The report should document the time, place, and business purpose of each expense, and it must be filed within 60 days of the trip. However, under per diem, the requirements to produce and attach expense receipts are more flexible.
• GSA rates: You can choose to set any per diem rate you like, whether that’s below or above the GSA rate. However, note that if you reimburse employees at a higher rate, the excess will count as taxable income.
• Excess per diem: Employees who receive per diem allowances must return any unused per diem to their employer. Any unreturned per diem counts as taxable income to the employee.

Per diem best practices

Per diem rates are updated frequently, and your employees may travel to dozens of locations. You need a system that not only helps you identify per diem payments at scale but also track and approve expense reports quickly.

Consider these best practices to stay on top of per diem payments:

• Create a written per diem policy and communicate it to your entire staff. Keep the policy updated and make the document available on the cloud.
• Consider using the high-low per diem method rather than tracking per diem rates for every business travel destination
• Cost control is an ongoing process. Monitor spending and look for areas to cut costs.
• Use travel expense management software to save time and increase productivity

Automate your per diem process with Ramp

Per diem offers clear advantages for employers and employees alike. But even though it helps simplify travel expense management, it can still be a lot to manage.

Whether you use per diem or another method, Ramp offers an all-in-one solution to streamline travel and expense management from start to finish. Ramp Travel automatically pulls in the latest GSA per diem rates for your business travel destinations, reducing manual work and keeping your team organized.

With Ramp, you can control costs, work more efficiently, and free up employees from the burden of manually creating and approving expense reports. Try Ramp and see why customers save an average of 5% a year across all spending.