What is per diem in business travel?

Per diem is a daily allowance that helps employees cover business travel costs like lodging, meals, and incidental expenses without the hassle of saving every receipt. If business travel is a core part of your business strategy, a thoughtful approach to per diem management makes life easier for both you and your employees by streamlining expense tracking.

What does per diem mean?

The term “per diem” is a Latin phrase that means "by the day" or "for each day." In business, per diem is a daily stipend companies provide employees to cover travel-related expenses, including lodging, meals, and incidental expenses.

Businesses typically offer per diem on top of reimbursed transportation costs like airfare. Many companies, government agencies, and contractors use per diem as a simpler alternative to a traditional expense management process because it doesn't require employees to retain and submit receipts for every travel expense.

Per diem work is a similar term, but it refers to employees hired on an as-needed, day-to-day basis rather than a travel allowance.

How does per diem work?

Any employee who incurs business expenses while traveling is eligible for a per diem allowance. As a company policy, you can choose to offer per diem dollars in advance or reimburse employees after submitting an expense report. Unlike the actual expenses method, where employees save receipts and get reimbursed for each individual cost, per diem offers a flat daily rate.

The IRS requires your business to keep expense reports that show the time, place, and business purpose for per diem expenses. However, employees don't need to submit receipts, which makes travel expense management easier.

Many businesses and government agencies set their own rates, though it’s common to use the federal per diem rates established by the General Services Administration (GSA) as a benchmark.

What does per diem cover?

Per diem is broken down into two categories: meals and incidental expenses (MI&E) and lodging.

• Meals and incidental expenses (MI&E): The meal per diem covers food and beverage costs for breakfast, lunch, and dinner. Incidental expenses include other travel costs, such as fees and tips for porters, baggage carriers, and hotel staff, as well as miscellaneous expenses like laundry or dry cleaning. The M&IE rate also includes taxes and gratuities.
• Lodging: Lodging rates pay for both hotel stays and short-term rentals. The per diem rate for lodging is based on average daily rate (ADR) data, which reflects the average cost of lodging in a given area. Note that lodging taxes aren’t included in the per diem rate. Instead, lodging taxes are reimbursable as a miscellaneous employee expense.

Federal per diem rate for 2025

The U.S. General Services Administration establishes daily per diem rates for the continental United States. These official rates are critical for compliance because exceeding them can create taxable income for employees. The daily per diem rate may vary depending on the cost of living in a particular location.

As such, there are two types of per diem rates:

• Standard per diem rate: The 2025 standard daily per diem rate is $178, including $110 for lodging and $68 for meals and incidental expenses
• Non-standard areas: For fiscal year 2025, the GSA identifies 296 non-standard areas with higher per diem rates than the standard rate. For example, the daily per diem rate for Los Angeles is $191, which is higher than the standard rate.

Some per diem rates are adjusted seasonally. For example, the rate for New York City will increase from $179 in January 2025 to $342 in September 2025 as the city experiences more tourism and business travel in the fall. Per diem rates are updated annually each October 1 and remain in effect through September 30 of the following year.

How to look up per diem rates for business travel destinations

Using official per diem rates is critical for compliance. If you reimburse employees more than the federal limit, the excess must be reported as taxable income. That’s why most organizations rely on official government sources when setting allowances.

The three main sources are:

• U.S. General Services Administration (GSA): Establishes per diem rates for the continental United States (CONUS)
• Department of Defense (DoD): Sets rates for military travel
• U.S. State Department: Publishes per diem rates for international travel

Rates differ by location, season, and agency. The IRS also allows employers to use the “high-low method,” which sets one rate for high-cost locations and another for all other areas, making administration easier.

How to search for per diem rates

To look up official GSA rates:

1. Visit the GSA per diem search tool
2. Enter a city or ZIP code where your employees will travel
3. Review the results, which break out lodging and M&IE rates separately

The GSA updates rates every fiscal year (October 1 to September 30). Seasonal adjustments may also apply. For example, ski destinations like Steamboat Springs, CO, have higher per diem rates in winter, while major metro areas often fluctuate based on tourism and business travel demand.

How to find foreign per diem rates

International per diem rates are published by the U.S. State Department. You can search them using the State Department’s per diem lookup tool.

Foreign rates often differ from domestic GSA rates, particularly for lodging, which can be significantly higher in certain countries. Unlike GSA rates, which are structured around U.S. cost-of-living data, State Department rates reflect global market conditions and may change more frequently.

Using a per diem calculator

Rather than manually searching multiple sources, you may want to consider using per diem calculators. These tools let you input a destination, travel dates, and type of rate (domestic or foreign) to get an instant daily allowance estimate.

Ramp offers its own per diem calculator to help your business quickly estimate travel costs using the latest federal benchmarks. This saves time, reduces errors, and ensures your policies remain compliant.

How to apply per diem rates

Once you know the rates, it’s time to create a per diem policy using either the fixed-rate method or the actual (out-of-pocket) expenses method:

• Fixed-rate method: Employees receive a daily allowance equal to the per diem rate, and they use that allowance to pay for travel expenses
• Actual expense method: Employees cover travel costs out of pocket and submit an expense report. Your company reimburses employee expenses up to the per diem limit.

For example, a salesperson traveling to Cincinnati in 2025 would have a per diem of $249 per day ($163 lodging + $86 M&IE). Under the fixed-rate method, the employee receives $249 per day up front. Under the actual expense method, the employee pays for meals and lodging and is reimbursed up to $249 per day.

The fixed-rate method is more straightforward and avoids cash flow issues for frequent travelers, while the actual expense method gives you more visibility into specific spending.

Are per diem payments taxable?

When you reimburse employees for per diem expenses using an accountable plan, the payments aren’t considered taxable income to the employee. However, this assumes you don’t pay per diem rates higher than the GSA guideline. If you pay more than the GSA rates, the excess is taxable income to the employee.

IRS Publication 463 provides rules on what constitutes an accountable plan:

1. Expenses must have a business connection. That means employees must have paid or incurred deductible expenses in the service of your business.
2. Employees must adequately account for these expenses within a reasonable period of time
3. Employees must return any excess reimbursement or allowance within a reasonable period of time. Specifically, employees must account for expenses within 60 days after they are paid or incurred.

When your team follows these rules, per diem reimbursements are not taxable. However, if you don’t follow these accountable plan rules, you must withhold payroll taxes on the reimbursement, and the employee must include the amount in taxable income.

The benefits of per diem for your business

Although calculating rates up front may seem more labor-intensive, adopting a per diem system could ultimately benefit your business. Here are just a few of the benefits:

• Process efficiencies: Controlling spending requires less time and effort with a per diem system, and it reduces paperwork for both employees and finance teams
• Future planning: When you know exactly how much you’ll pay for business trips, it can help you forecast a more accurate budget for the future
• Easier compliance and transparency: Because per diem policies are tied to federal guidelines, they support IRS compliance and give employees clear, predictable daily allowances
• Faster expense reports: You can streamline expense reports because employees don’t need to compile and attach expense receipts for every transaction
• Improved team morale: A per diem system can also improve morale since employees can choose how to spend per diem dollars based on their preferences

Best practices for implementing a per diem policy

While per diem can be easier to manage than traditional expense reporting and approval processes, it can still be hard to implement. Here are some best practices to set yourself up for success as you roll out a per diem policy:

• Decide on your rates: Choose whether to follow federal GSA rates, use the IRS high–low method, or set custom rates that reflect your company’s typical travel patterns
• Use expense management software: Modern platforms like Ramp allow you to set per diem rates as part of your overall travel and expense (T&E) policy. This helps control spending and ensures every employee gets the allowance they’re entitled to based on their travel destination.
• Document and communicate your policy: Create a written policy for per diem management and make sure employees can easily access it. The document should define the purpose and scope of your policy, specify rates, and outline what types of expenses are eligible for reimbursement. Communicating these rules clearly helps avoid confusion while traveling.
• Monitor spending and keep records: Compare your team’s actual spending to your travel budget and investigate variances to identify areas for cost savings. Keeping thorough records also ensures compliance with IRS requirements.
• Plan for exceptions: Be ready to adjust for special cases like international travel, seasonal high-cost areas, or extended assignments, where standard rates may not fully cover employee expenses

How Ramp eliminates the chaos of business travel expenses

Managing business travel expenses is tedious. You're tracking flights booked on personal cards, chasing down hotel receipts weeks after trips, and trying to enforce per diem limits while employees are thousands of miles away.

By the time expense reports come in, you're left reconciling a mess of out-of-policy spending and missing documentation that makes month-end close a nightmare.

Ramp’s automated solution

Ramp's expense management software transforms this chaos into a streamlined, automated process that starts before your employees even leave for their trips. Our platform issues virtual credit cards with preset spending limits for each trip, automatically enforcing your travel policies without constant oversight.

When an employee books a flight or reserves a hotel, you can create a virtual card specifically for that vendor with exact spending limits, eliminating the risk of overspending or personal expense mix-ups.

Real-time visibility and compliance

Real-time visibility changes everything about travel expense management. Instead of waiting weeks to see what employees spent, you get instant notifications for every transaction. Ramp automatically categorizes travel expenses, separating flights, hotels, meals, and ground transportation, while matching receipts to transactions in real-time.

Employees simply snap photos of receipts, send them via text or mobile app, and our optical character recognition (OCR) technology extracts all the relevant details, eliminating manual data entry and the inevitable errors that come with it.

Our platform's automated approval workflows ensure compliance without slowing down your traveling employees. You can set rules that automatically approve in-policy expenses while flagging anything unusual for review. This proactive approach prevents out-of-policy spending before it happens, rather than fighting to recover funds after the fact.

Simplify travel planning with automated per diem rates

Beyond real-time expense tracking, Ramp Travel takes the guesswork out of setting appropriate spending limits for different destinations. Our platform automatically pulls in the latest GSA per diem rates, giving you instant access to location-specific allowances for meals and lodging.

You can even apply custom multipliers to these rates, ensuring your team has adequate funds whether they're traveling to expensive cities or international destinations. This automated approach to per diem management saves hours of manual research while keeping your travel budgets consistent and compliant.

Try an interactive demo and see why Ramp customers save an average of 5% a year across all spending.