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 who qualifies?

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

• Per diem employees: Temporary workers hired on an as-needed basis and paid a daily rate
• Per diem travel allowances: Daily stipends that cover meals, lodging, and incidental expenses during work trips

Most government and private-sector employees who travel for work receive per diem allowances, but employers aren’t legally required to provide them.

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 fall outside per diem.

Per diem vs. regular employee 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. For example, 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.

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. Standard areas default to the $178 rate, while NSAs receive customized allowances based on local data. Major metros, tourist destinations, and remote areas with limited lodging often fall into this category.

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 creates unnecessary complexity for finance teams. You're calculating daily allowances based on location, tracking which employees are traveling where, and manually processing reimbursements while ensuring compliance with company policies and IRS regulations. The back-and-forth between employees submitting expenses and finance teams verifying amounts against per diem rates wastes hours every week.

Ramp's expense management software automates this entire process through intelligent policy enforcement and streamlined reimbursement workflows. Instead of manually checking each expense against per diem rates, you can configure location-based spending limits that automatically apply when employees submit expenses. When an employee travels to San Francisco, for example, Ramp automatically applies the $92 M&IE allowance for that city, flagging any submissions that exceed the limit.

The platform's real-time expense tracking eliminates the guesswork around per diem compliance. Employees see their remaining daily allowances directly in the mobile app, preventing overages before they happen. If someone has already expensed $50 for breakfast and lunch, they'll know they have $42 left for dinner—no mental math required. This visibility reduces policy violations and the time you spend reviewing and rejecting non-compliant expenses.

Ramp also streamlines the reimbursement process itself. Employees submit expenses with a few taps, attaching receipts through the mobile app's camera feature. The system automatically extracts transaction details and routes expenses through your configured approval workflows. Once approved, reimbursements process automatically, eliminating manual payment runs.

You maintain complete audit trails showing which per diem rates applied to each trip, who approved expenses, and when reimbursements were issued. This automation transforms per diem management from a manual, error-prone process into a seamless system that ensures compliance while getting employees reimbursed faster.

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. This integration with our broader finance operations platform means you're not just managing per diem—you're transforming how your entire company handles travel expenses.

Try Ramp and join the 40,000+ businesses that save an average of 5% annually while giving their finance teams time back to focus on strategic work.