Per diem employee rights explained for employers

There’s no federal law requiring you to pay per diem. But you must still reimburse employees for legitimate travel expenses, whether through a per diem system or a traditional expense reimbursement program.

Confusion often arises when employees assume they’re entitled to per diem or when employers misunderstand the federal rules. Clarity about what you actually owe—and how best to structure reimbursements—can help you avoid compliance risks and frustrated travelers.

What is per diem and how does it work?

Per diem is Latin for “by the day.” In business, it shows up in two different ways:

• Per diem payments: daily allowances that cover travel-related expenses like meals, lodging, and incidentals.
• Per diem employees: temporary workers hired on an as-needed basis and paid a daily rate, without guaranteed hours.

This article primarily addresses per diem payments and the rules around travel allowances, but it also covers the employment rights of per diem workers later on.

What does per diem cover?

Per diem allowances apply only to three categories of business expenses:

• Lodging (e.g., hotels or short-term rentals)
• Meals (e.g., breakfast, lunch, and dinner)
• Incidental expenses (e.g., tips, parking, laundry, and similar costs)

Meals and incidentals are grouped under the M&IE category. The General Services Administration (GSA) sets separate rates for lodging and M&IE. Airfare, car rentals, and other business travel expenses are not covered by per diem.

Per diem payments vs. per diem employees

Per diem payments and per diem employment status are completely different concepts that happen to share a name.

Per diem payments are flat daily allowances your company provides to employees traveling for work. They cover meals, lodging, and incidental expenses. Most government and private-sector employees who travel for work receive them, but employers aren't legally required to offer them.

Per diem employees, on the other hand, are workers you bring in on an as-needed basis. They don't have guaranteed schedules or hours. Think of nurses who pick up shifts at hospitals or substitute teachers who fill in when needed. Despite their variable schedules, these workers still have legal protections under federal and state labor laws.

Per diem vs. expense reimbursement

Traditional reimbursement requires employees to save every receipt and submit detailed reports. Per diem flips this approach: employees receive a set daily allowance up front or as a fixed reimbursement, regardless of what they actually spend.

Per diem benefits both sides. Employers cut down on paperwork and avoid combing through stacks of receipts. Employees get faster reimbursements and know exactly how much they can spend each day. The approach also removes the awkward back-and-forth over whether a meal or hotel choice was "reasonable."

Per diem also gives employees more control. A traveler might choose a budget hotel and spend more on dinner, or opt for nicer accommodations and eat lighter meals. As long as they stay within daily limits and follow company policy, they decide how to use their allowance.

Who qualifies for per diem payments?

Employees traveling away from their tax home overnight for business purposes typically qualify for per diem payments. Your tax home is your regular place of work—not necessarily where you live.

Local travel doesn't qualify. If an employee leaves for a meeting across town and returns home the same day, per diem doesn't apply. The overnight requirement is the key threshold. The IRS uses it to distinguish routine commuting from genuine business travel that creates additional expenses for the employee.

Independent contractors generally don't receive per diem from clients, though they can deduct travel expenses on their own tax returns. If you're unsure whether a worker qualifies, look at whether the trip takes them away from their primary work location overnight and serves a clear business purpose.

Understanding 2025 GSA per diem rates

The General Services Administration (GSA) sets annual per diem rates for lodging and meals & incidental expenses (M&IE). For 2025, the standard continental U.S. (CONUS) rate is $178 per day: $110 for lodging and $68 for M&IE. That’s up from $166 in 2024, reflecting higher costs for both lodging and meals compared to the previous year’s release.

The GSA also raised the M&IE tiers for non-standard areas (NSAs) from $59–$79 to $68–$92. These updated rates will carry forward into 2026, giving employers more predictability.

Location plays a big role. While rural Kansas stays at the standard $178, Los Angeles carries a rate of $277 per day due to its higher cost of living. In total, 296 NSAs now have rates above the baseline.

How to find your location's per diem rate

The GSA’s lookup tool lets you search rates by city, state, or ZIP code. Rates are set by county or city and follow the federal fiscal year (October through September). Standard areas default to the $178 CONUS rate, while NSAs receive customized allowances based on local data.

Major metros, tourist destinations, and remote areas with limited lodging often fall into the NSA category. If your employees travel internationally, note that the Department of Defense sets separate OCONUS (outside the continental U.S.) rates.

First and last day travel rules

Federal guidelines apply a 75% rule on the first and last travel days. Employees receive three-quarters of the full M&IE rate for partial travel days, since most travelers eat fewer meals at departure and return.

For example, if the M&IE rate is $68, the first and last days are reimbursed at $51 each. On a three-day trip, the total M&IE reimbursement would be: $170.

This calculation applies regardless of your actual meal schedule or expenses. The reduced rate acknowledges that most travelers don't need full meal allowances when they're only away from home for part of the day.

Extra allowance for actual expenses

In limited cases where actual costs far exceed published rates, agencies can approve reimbursements up to 300% of the standard per diem rate. This exception applies only with proper documentation and approval.

Legal requirements and employee rights

Federal law doesn’t require employers to provide per diem allowances. However, you must reimburse employees for legitimate business travel expenses. Under the Fair Labor Standards Act (FLSA), unreimbursed expenses can’t reduce an employee’s effective hourly wage below the federal minimum of $7.25 per hour. Ignoring reimbursements can also create overtime compliance issues if expenses push net pay below wage thresholds.

Clear reimbursement policies—whether through per diem, traditional expense reporting, or a hybrid system—help you avoid wage disputes while keeping employees financially whole.

Federal vs. state requirements

Federal guidelines focus mostly on tax compliance and leave the choice of reimbursement method up to employers. But state laws can be stricter. For example, California requires employers to reimburse all necessary business expenses. Other states have looser or more specific requirements.

That patchwork creates challenges for multi-state employers. What works in Texas, for instance, might not meet California’s higher standard for protecting employee reimbursement rights.

Documentation requirements

Per diem simplifies reimbursement, but it doesn’t remove reporting obligations. Employees must still submit expense reports documenting the time, place, and business purpose of each trip. Reports must be filed within 60 days to maintain tax-free treatment.

The good news: receipts are required only for lodging and for individual expenses over $75. Using GSA rates also gives you added flexibility, since IRS rules provide built-in compliance when those rates are followed.

Tax implications of per diem payments

Per diem payments are treated differently depending on how your reimbursement plan is structured. The IRS divides them into two categories: accountable plans and non-accountable plans.

Under an accountable plan, per diem reimbursements that follow IRS rules stay tax-free for employees and remain deductible for the employer. A non-accountable plan skips those requirements—meaning the payments count as taxable wages, subject to payroll taxes and income tax withholding.

When per diem becomes taxable income

Per diem is tax-free only if certain conditions are met. It becomes taxable when:

• You pay more than the federal per diem rate—the excess is treated as wages and must be reported on the employee’s W-2
• Employees don’t provide proper documentation for expenses
• Expense reports are filed late or beyond a reasonable timeframe
• Employees fail to return unused advance funds

IRS accountable plan requirements

According to IRS Publication 15, a per diem policy qualifies as an accountable plan if:

• Business connection: Payments must cover legitimate work-related expenses, not serve as disguised wages
• Substantiation: Employees must document the time, place, and business purpose of each expense
• Return of excess: Employees must return any unused advance funds within a reasonable timeframe

If these requirements aren’t met, the entire payment is treated as taxable income under a non-accountable plan.

Implementation best practices for employers

You can set up per diem programs as either advance payments or post-trip reimbursements. Each approach has tradeoffs. Advances prevent employees from covering expenses out of pocket, but they require tracking and potential refunds. Reimbursements give employers tighter expense control, but they place the initial financial burden on travelers.

Think about your company’s cash flow, how often your teams travel, and your admin bandwidth. Advances usually work best for frequent or predictable trips. Reimbursements fit better for occasional or variable travel.

Setting up your per diem policy

A clear policy keeps your program fair, compliant, and easy to follow. Make sure to cover:

• Consistent application: Apply the same rules across departments and employee levels
• GSA rate standards: Use federal per diem rates as a defensible baseline
• Automated processing: Rely on expense software to reduce errors and speed approvals
• Documentation rules: Spell out what reports, receipts, and timelines employees must follow

Common mistakes to avoid

Several implementation pitfalls can create tax issues and administrative headaches for your per diem program:

• Disguised wages: Don’t use per diem to pay regular compensation. The IRS treats this as taxable income.
• Weak recordkeeping: Missing or incomplete documentation turns tax-free reimbursements into taxable wages
• Policy extremes: Avoid rules that are too complex (which discourage compliance) or too loose (which invite abuse)

Preventing these common errors protects your company from tax penalties and keeps your per diem program running smoothly.

Managing per diem employees

Don’t confuse travel per diem allowances with per diem employees—temporary staff paid a daily rate. These workers are still covered by FLSA wage and overtime rules. If daily pay averages below minimum wage or if overtime is ignored, employers risk compliance violations.

How Ramp simplifies per diem expense management and reimbursements

Managing per diem reimbursements can quickly become time-consuming. Finance teams often have to track location-based rates, review submissions against policy, and handle back-and-forth with employees—all while staying compliant with IRS guidelines.

Ramp automates this process by applying location-based per diem limits in real time. When expenses are submitted, the correct allowance is applied instantly, and any out-of-policy spend is flagged without manual review.

Employees can see their remaining daily allowance as they spend, helping prevent overages before they happen. Expenses are submitted in a few taps, receipts are captured and matched automatically, and approvals follow predefined workflows.

Take control of per diem with Ramp

Ramp Travel keeps your per diem rates current by automatically pulling the latest GSA rates for every destination. As part of a broader finance operations platform, it connects travel, expenses, and reimbursements in one place.

Try Ramp and join the 50,000+ businesses that save an average of 5% annually while giving their finance teams time back to focus on strategic work.