What is per diem, and is it a good expense system? A simple guide

Last updated: July 2026

Corporate travel finance teams spend countless hours on expense-related tasks, like tracking down missing receipts, rekeying data, and reconciling endless line items. We call this shadow work, the manual, repetitive cycle that chips away at your team's focus and drains productivity.

Implementing a structured per diem program is one of the most effective ways to eliminate this administrative friction. It gives your teams the agility to move fast while providing finance departments with ironclad expense control.

This guide breaks down everything businesses need to know about per diem, including its definition, 2026 General Services Administration (GSA) federal rates for the US, comparison with actual expense reimbursement, and how to find rates globally.

What is per diem?

The term per diem is Latin for "per day." In business travel and finance, a per diem is a fixed daily allowance that a company provides to people to cover expenses incurred while traveling for work.

Instead of requiring travelers to pay out of pocket and save every physical receipt for later reimbursement, employers provide a flat daily stipend. This method offers massive benefits:

• For companies

  It sets predictable travel budgets, eliminates rogue spending, and removes the administrative burden of manually auditing hundreds of micro-transactions.

• For business travelers

  It grants autonomy, streamlines field workflows, and removes the pressure of preserving every coffee and lunch receipt.

What does per diem cover in the US?

A common point of confusion for travel managers is defining exactly what per diem covers. According to the IRS and federal guidelines, per diem allowances are strictly split into two foundational components:

• Lodging

  This covers overnight accommodations, including standard hotels, motels, resorts, or corporate apartments. It does not cover long-term housing arrangements.

• Meals and Incidental Expenses (M&IE)

  This portion covers breakfast, lunch, dinner, taxes, and room service. It also includes small hospitality fees, such as tips given to baggage handlers, porters, or hotel staff.

What does per diem exclude?

• Per diem does not cover core transportation expenses. 

• Flights, train tickets, rental cars, and long-distance travel bookings should be managed and paid for through your central company travel platform.

• It also excludes personal trip extensions or entertainment expenses that do not serve a direct business purpose.

What does this mean for business travelers?

There’s no federal law requiring businesses to pay per diem, but you must still reimburse travelers for legitimate travel expenses.

This includes those traveling for work overnight and away from their tax home, and the tax home will be their regular place of work, not necessarily where they live.

Per diem doesn’t apply when travel is local. So if someone leaves for a meeting across the same city and returns during the same day, per diem doesn’t apply. 

Current GSA per diem rates (FY2026)

The table below shows the standard CONUS (Continental United States) per diem rates set by the GSA. Many locations have higher rates based on local costs.

Rates effective October 1, 2025 through September 30, 2026. Source: U.S. General Services Administration (GSA). 

Tax rules: Is per diem considered taxable income?

Per diem allowances are completely non-taxable to the employee and represent a direct business per diem deduction for the employer, provided you follow the rules of an IRS Accountable Plan.

To keep travel allowances completely tax-free, your program must satisfy three essential pillars:

• Business Connection

  The trip must serve a clear, legitimate professional purpose.

• Substantiation

  Employees must submit a formal expense report documenting the specific dates, locations, and business goals of the trip.  Note: While exact receipts for individual food plates are not required under a per diem model, the overall trip details must be validated.

• Return of Excess Amounts

  If an employer provides an upfront cash advance that exceeds the federal GSA rate caps, the employee must return the excess within 120 days.

You must not exceed the GSA maximums

If your business chooses to pay an allowance higher than the maximum federal limit set by the GSA, the excess amount is treated as standard taxable wages.

This surplus must be reported on the employee’s W-2 and is subject to standard payroll tax withholdings.

How do per diem reimbursements work?

Per diem rates are typically based on the location and duration of the business trip. Different cities and countries have varying costs of living, which is taken into account when determining the per diem rate.

For example, traveling for business purposes to a major city with high living costs may have a higher per diem rate compared to a trip to a smaller town.

Calculating per diem rates

When it comes to determining per diem rates in the US, several factors come into play. The location, local and company travel regulations, duration of the trip, and the employee’s job function all play a role in this calculation, and Perk’s per diem calculator can help with this.

1. Setting lump sums

The first step in the per diem reimbursement process is to establish the per diem rates. These rates can vary based on factors such as the destination, the purpose of the trip, and the organization’s policies.

Rates are typically determined for specific expense categories, including lodging, meals, and incidentals.

2. Identifying eligible expenses

It’s crucial to define which expenses are eligible for per diem reimbursement. As said, common categories include:

• Lodging

• Meals

• Incidentals

3. Calculating the per diem amount

To calculate the per diem reimbursement amount for a specific trip, follow these steps:

• Determine the per diem rate

  Look up the applicable per diem rates for the destination and expense categories. Rates can be found on government websites, tax authorities’ platforms, or internal company policies.

• Multiply by the number of days

  Multiply the per diem rate by the number of days the employee will be on the business trip. This provides the total per diem allowance for that trip.

4. Daily allowance

People receive a daily allowance based on the per diem rates. For example, if the per diem rate for meals is $68, and an employee is on a 3-day trip, they would receive $204 as their daily allowance for meals.

5. Submission of expenses

With per diem reimbursements, business travelers do not need to submit individual receipts for each expense. Instead, they receive the predetermined daily allowance, simplifying the expense reporting process.

6. Compliance and documentation

Although per diem reimbursements reduce the administrative burden on those submitting expenses, it’s essential to maintain compliance with company policies and tax regulations. Finance professionals should ensure that teams adhere to per diem guidelines, including not exceeding the daily allowance.

7. Reconciliation

After the business trip, travelers should provide a summary of their travel dates and the number of days they were eligible for per diem reimbursement. Finance teams can then calculate the total reimbursement amount based on this information.

8. Automation and software

Many organizations use AI-driven expense management software to automate the per diem reimbursement process. These tools can calculate per diem amounts, track travel dates, and ensure compliance with policies, reducing the risk of errors and improving efficiency.

9. Tax considerations

Finance professionals should be aware of tax implications related to per diem reimbursements. In some countries, per diem payments may be subject to taxation, and proper documentation and reporting are necessary to comply with tax laws.

10. Regular updates

Per diem rates can change, so it’s essential to regularly update rates based on government guidelines or company policies to ensure accurate reimbursements.

As you can see, per diem reimbursements provide a structured and simplified way to compensate people for business-related expenses during trips.

Types of per diem payments and methods

Depending on your company size, organizational structure, and compliance needs, there are three main methods utilized for calculating and issuing a travel allowance:

The Lodging + M&IE Method (GSA Lookup)

The business uses exact, location-specific rates provided on the GSA lookup table for each city visited. This is highly accurate but requires administrative tracking across multiple destinations.

The High-Low Substantiation Method

To eliminate the need to manage hundreds of localized rate variations, the IRS allows companies to utilize a simplified "High-Low" method. Under IRS Notice 2025-54, locations are consolidated into two tiers:

• High-Cost Localities: $319 per day ($233 lodging / $86 M&IE)

• All Other Localities: $225 per day ($151 lodging / $74 M&IE)

M&IE Only Method

Used when lodging costs are pre-paid directly by the company via a centralized platform or corporate card, leaving the employee with a flat allowance solely for meals and tips.

Per diem vs. actual expense reimbursement

Businesses tend to choose one of two ways to manage employee business travel costs: per diem or actual expense reimbursement.

Selecting the right approach for reimbursing work travelers

The choice between per diem payments and actual expense reimbursement depends on your organization’s specific needs, policies, and objectives. Consider the following factors when making your decision:

1. Expense volume

   If your colleagues frequently incur expenses, actual expense reimbursement may provide better control and accuracy.

2. Policy compliance

   If strict adherence to expense policies and tax regulations is crucial, actual expense reimbursement offers detailed documentation for compliance assurance.

3. Simplicity vs. accuracy

   Per diem offers simplicity, while actual expense reimbursement provides accuracy. Choose the balance that aligns with your organization’s priorities.

4. Technology integration

   Consider how automation and AI-driven expense management software can streamline either method, reducing manual work and errors.

To illustrate the impact of these approaches, let’s look at two hypothetical scenarios:

Scenario 1: Per Diem

Company A implements per diem and reduces expense report processing time by 30%.

The company saves $50,000 annually in administrative costs.

However, an audit reveals $20,000 in overpayments due to fixed per diem rates exceeding actual expenses.

Scenario 2: Actual Expense

ReimbursementCompany B opts for actual expense reimbursement with automated expense management.

Compliance violations decrease by 25%, resulting in $10,000 in tax savings.

Teams appreciate accurate reimbursements, leading to increased job satisfaction.

Global per diem rates

US per diem rates for international travel by government employees are set by the United States Department of State, and they are updated monthly because prices at hotels and restaurants change frequently.

You can learn more about per diem rates in different countries in our compliance center.

Legal considerations for employers and employees

Compliance with labor laws and tax regulations is paramount for employers and employees in Europe, Switzerland, and the UK when it comes to per diem reimbursement.

Establishing clear policies and procedures is essential to navigate the intricacies of regional regulations successfully. People must also be aware of their rights and responsibilities concerning per diem, including its impact on taxation, documentation requirements, and any restrictions related to personal expenses while traveling in these specific regions.

How businesses can establish a clear policy

• Tier your rates by destination

  Do not apply a flat US domestic per diem rate to international trips. Align your budgets with the specific statutory per diem tiers set by the destination country's tax authority (e.g., HMRC in the UK or federal rules in Germany) to avoid unexpected corporate or individual tax liabilities.

• Define the tracking mechanics

  Specify how the company treats meals provided by a host or included in a hotel stay. In many European regions, companies must deduct an exact percentage from the daily allowance if a meal is provided.

• Automate policy enforcement

  Relying on manual math creates what we call shadow work, the endless stream of invisible tasks that drains your finance team's focus. Use an intelligent travel and spend platform like Perk to present your global compliance rules, automatically apply local per diems, and flag out-of-policy exceptions in real time.

Considering per diem for your business?

If your business has people regularly traveling for work, you might be considering adding some simplicity to expense reporting by opting for per diem payments - where rates are fixed and predefined. Or perhaps accuracy is key and you are looking to opt for actual expense reimbursement, where people are reimbursed precisely for what they spend. 

Once your business has decided on the best expense system, the Perk platform brings your expense reporting and other travel spending into one intelligent platform. With real-time AI automation, built-in compliance checks, and a seamless user experience, Perk removes the shadow work of expense management so you stay in total control.

Schedule a demo with Perk today to see how simple real-time spend management can be.