Key takeaways
Per diem allowances can simplify business travel reimbursement, reduce paperwork, and give employees a clear budget for eligible travel costs.To build an effective program:- Use current GSA, DoD, or Department of State rates as appropriate;
- Separate lodging from meals and incidental expenses where helpful;
- Define how partial travel days and provided meals are handled;
- Keep records of the travel dates, destination, and business purpose;
- Explain receipt requirements clearly;
- Review tax treatment before paying amounts above federal rates; and
- Include per diem rules in a clear, accessible travel policy.
Per diem allowances can help companies control business travel spend while giving employees a clear, predictable budget for meals, lodging, and other eligible costs.
Instead of asking travelers to submit receipts for every qualifying expense, employers can provide a fixed daily allowance based on the trip destination and their travel policy. Done well, a per diem program reduces administrative work, supports policy compliance, and helps employees avoid paying out of pocket for business travel.
This guide explains how per diem works for U.S. business travel, including domestic and international rates, meals and incidental expenses, reporting requirements, tax considerations, and what to include in a corporate per diem policy.
What is a per diem allowance?
A per diem allowance is a fixed daily amount an employer provides to an employee traveling away from their regular work location for business. It is intended to cover eligible travel costs, typically including:
Lodging: Hotel stays and other overnight accommodation
Meals: Breakfast, lunch, dinner, and related food costs
Incidental expenses: Eligible small expenses such as tips for baggage carriers, laundry, and dry cleaning
In the U.S., per diem is commonly split into two categories:
Lodging
Meals and incidental expenses (M&IE)
Per diem payments are not the same as a general cash allowance. They must relate to legitimate business travel and be handled under an accountable reimbursement arrangement to receive favorable tax treatment.
Employers can use government-published rates as a benchmark, establish their own rates, or reimburse actual expenses. Whatever approach they choose, the rules should be clearly documented in the company’s corporate travel policy.
Who sets per diem rates in the U.S.?
Three federal agencies publish per diem rates depending on where an employee travels:
The U.S. General Services Administration (GSA) sets rates for travel within the continental United States (CONUS), which includes the 48 contiguous states and the District of Columbia.
The U.S. Department of Defense (DoD) sets rates for non-foreign areas outside CONUS, including Alaska, Hawaii, Puerto Rico, Guam, and other U.S. territories.
The U.S. Department of State (DoS) sets foreign per diem rates for international business travel.
These rates are mandatory for many government travelers. Private employers are not generally required to use them, but many adopt them because they provide a defensible, location-specific benchmark for travel budgets and reimbursements.
Rates change regularly. GSA domestic rates are generally updated by fiscal year, while Department of State foreign rates may be revised monthly. Companies should always check the applicable official rate before approving or reimbursing a trip.
What does per diem cover?
A company can decide which categories are covered by per diem, provided its approach is clearly communicated and applied consistently.
Lodging
Lodging per diem covers overnight accommodation, such as hotels, motels, serviced apartments, or short-term rentals. Lodging rates vary significantly by destination and, in many locations, by season.
Employers may:
Reimburse actual lodging costs;
Book accommodation directly through an approved travel platform;
Apply a location-specific lodging cap; or
Include lodging within a combined daily per diem allowance.
Many companies choose to book lodging directly while giving employees a separate M&IE allowance. This provides tighter control over a major travel cost while preserving flexibility for meals and incidentals.
Meals and incidental expenses (M&IE)
M&IE generally covers meals, meal-related tips, and certain minor expenses incurred while traveling for business.
For federal travel purposes, incidental expenses are limited to specific categories, such as fees and tips for baggage carriers, hotel staff, and similar service providers. They do not automatically include every small travel purchase. For example, local transportation, parking, laundry, and dry cleaning may be handled differently depending on the employer’s policy and the applicable reimbursement rules.
GSA rate tables may also show how an M&IE amount is allocated among breakfast, lunch, dinner, and incidentals. Employees do not necessarily need to spend the exact amount shown for each meal, but employers may use these breakdowns to determine appropriate deductions when a meal is provided by a hotel, conference, client, or event organizer.
How per diem rates are calculated
Employers generally have three practical options for determining per diem amounts.
1. Use standard location-based rates
The standard rate method uses the government-published rate for the employee’s specific travel destination.
For travel within CONUS, employers can use the GSA per diem rate lookup to find lodging and M&IE rates by state, city, or ZIP code. This is useful for companies that send employees to high-cost destinations where a single nationwide allowance would not be realistic.
For example, a trip to New York City may have a substantially different lodging allowance than a trip to a smaller city in the same state. The standard-rate method accounts for those local differences.
2. Use the high-low substantiation method
The IRS high-low method gives employers a simpler alternative to tracking a separate rate for every destination. Under this approach:
Designated high-cost localities use one higher daily rate.
All other U.S. locations use one lower daily rate.
The IRS updates the high-cost locality list and applicable rates annually. Some locations qualify as high-cost destinations only during specific periods of the year, meaning they revert to the low-cost rate outside their designated season.
For example, destinations such as Boston/Cambridge, Sedona, Santa Barbara, and Naples may have seasonal rate considerations. Employers using the high-low method must check the current IRS notice before applying a rate.
The high-low method can make administration easier for finance teams, especially when employees travel frequently across multiple U.S. destinations. However, companies should ensure that the simplified rate remains appropriate for their actual travel patterns and employee needs.
3. Set company-specific rates
A company may establish its own per diem rates based on historical travel spend, destination costs, employee roles, and internal budget requirements.
This approach can offer greater flexibility, but it also requires stronger governance. Employers should document how rates were determined, define which costs are covered, and review rates regularly as travel prices change.
If a company pays more than the applicable federal per diem rate, the excess may be taxable unless it is otherwise substantiated as a legitimate business expense.
Per diem rates for international business travel
International per diem rates work similarly to domestic rates, but the responsible authority changes.
For most foreign destinations, the U.S. Department of State Office of Allowances publishes rates that include:
A maximum lodging amount
A daily M&IE amount
The Department of State foreign per diem rate list allows employers and travelers to search rates by country and city. Rates can vary substantially within the same country, particularly between major business hubs and smaller cities.
For instance, an employee traveling to Perth, Australia, should search the Department of State rate list for Perth rather than relying on a generic Australia-wide allowance. The applicable rate should reflect the specific destination and travel dates.
Foreign per diem rates may change monthly, so companies should verify the current rate before each trip rather than relying on a previous travel budget.
For international assignments involving defense-related travel, the Department of Defense may publish the relevant rate instead.
Per diem meals and incidental expenses in the U.S.
For companies using standard GSA rates, M&IE is set separately from lodging. The GSA rate lookup provides both the combined daily allowance and a breakdown for meals and incidental expenses.
This can be useful when:
A hotel provides breakfast;
A conference registration includes lunch;
A client hosts dinner;
An employee travels only for part of a day; or
The company needs to calculate deductions for employer-provided meals.
Federal travelers generally receive 75% of the applicable M&IE rate on the first and last day of travel. Private employers are not always required to follow this convention, but many adopt it because it creates a consistent and reasonable method for partial travel days.
The GSA also publishes rates for popular business travel destinations, including New York City, Chicago, Phoenix, San Francisco, Seattle, Dallas, San Diego, Washington, DC, Miami, Atlanta, and Boston. Rather than using a fixed city list in your policy, link employees to the current GSA lookup or provide rates through a travel management platform.
How does per diem work on travel days?
A per diem program should state exactly when the daily allowance begins and ends. Common approaches include:
Paying the full rate for every overnight business travel day;
Applying a reduced rate for departure and return days;
Paying M&IE only when lodging is booked separately by the company; or
Providing no allowance when meals and accommodation are fully covered by a client, event, or employer.
For a multi-day trip, employees are generally eligible for an allowance for each qualifying day away from their tax home or regular work location. The company should define how it handles early departures, late returns, travel extensions for personal reasons, weekend stays, and trips that combine business and leisure.
Clear travel-day rules prevent confusion and reduce inconsistent reimbursements.
How is per diem paid to employees?
Employers can distribute per diem in several ways:
Upfront payment: The employee receives the allowance before the trip.
Reimbursement after travel: The employee receives the agreed amount after submitting required trip information.
Corporate card: The company provides a card with travel spending controls or category limits.
Payroll or expense platform payment: The allowance is issued through an expense-management or payroll workflow.
Paying per diem in advance can reduce the financial burden on employees. Reimbursing after travel can give finance teams more control, particularly if payment depends on itinerary confirmation and timely reporting.
Companies should document the payment method in their travel policy, including the expected reimbursement timeline.
Can employees keep unused per diem?
In many per diem arrangements, employees can keep the unused portion of a fixed allowance, provided the payment is properly structured and the employee completed qualifying business travel.
For example, an employee may receive a daily M&IE allowance of $70 but spend only $55 on meals and incidentals. If the employer’s policy allows a fixed per diem payment, the employee would not ordinarily need to repay the $15 difference.
However, this flexibility can create a risk that some employees may cut corners on meals or accommodation to retain more of the allowance. Employers can manage this risk by:
Setting realistic destination-based rates;
Excluding lodging from employee-controlled per diem;
Requiring travel authorization before booking;
Deducting provided meals from the allowance;
Monitoring unusual travel patterns; and
Reviewing policy compliance through reporting.
The aim should be to give employees flexibility without making per diem feel like additional compensation.
Are receipts required for per diem payments?
Not always. One of the major benefits of per diem is that employees may not need to submit receipts for every meal or incidental expense when the employer uses a properly substantiated per diem method.
However, employees and employers still need records showing that the trip was legitimate business travel. This typically includes:
The employee’s name;
Travel destination;
Travel dates;
Business purpose of the trip;
Number of days away; and
The applicable per diem rate.
Receipts may still be required for lodging, depending on the employer’s reimbursement method. They may also be required when employees claim actual expenses, exceed the company allowance, or need to substantiate costs outside the per diem categories.
A company should not assume that a per diem payment eliminates all documentation obligations. It reduces receipt collection for qualifying expenses, but it does not remove the need for a clear audit trail.
What should a per diem expense report include?
A per diem expense report helps finance teams connect a business trip to the correct daily allowance, confirm policy compliance, and process reimbursement efficiently.
If your company uses manual forms or spreadsheets, each report should include:
Employee information: Name, department, contact details, and employee ID where relevant
Travel dates: Departure and return dates, including the number of eligible per diem days
Destination: City, state, country, or other location details needed to identify the correct rate
Business purpose: Such as a client meeting, conference, onsite project, sales visit, or internal meeting
Expense category: Lodging, M&IE, mileage, transportation, or another eligible category
Applicable per diem limit: The approved daily rate and calculation method
Meals provided: Any meals included by a hotel, event, client, or employer
Payment method: Corporate card, upfront allowance, employee-paid expense, or reimbursement
Comments or exceptions: Explanations for itinerary changes, additional costs, or policy exceptions
Supporting documentation: Receipts or booking records when required by company policy
A well-designed report should be simple for employees to complete and easy for finance teams to review. It should capture only the information needed to substantiate the trip and apply the correct policy rules.
Can expense management software simplify per diem reporting?
Yes. Manual per diem calculations can become difficult when employees travel to multiple cities, cross international borders, receive provided meals, or use different payment methods.
Expense management software can help businesses automate much of this work by supporting:
Location-based per diem calculations;
Travel-date and partial-day calculations;
Multiple employee profiles and allowance levels;
Receipt capture for expenses that still require documentation;
Policy controls and approval workflows;
Corporate card reconciliation;
Real-time travel spend visibility; and
Integrations with accounting, payroll, and travel-booking tools.
A connected travel and expense process can also reduce back-and-forth between travelers, managers, and finance teams. Employees can book within policy, understand their spending limits before departure, and submit trip details without relying on separate spreadsheets and email threads.
How should a corporate travel policy address per diem?
A corporate per diem policy should give employees clear, practical answers before they travel. At a minimum, it should explain:
Who is eligible for per diem;
Which travel qualifies as business travel;
Which expenses per diem covers;
Whether lodging is included or booked separately;
Which rate method the company uses;
How first and last travel days are calculated;
How provided meals affect M&IE;
Whether unused per diem can be retained;
Which receipts and records are required;
How employees receive payment or reimbursement;
Who approves exceptions; and
How international travel is handled.
The policy should also distinguish between reimbursable and non-reimbursable expenses. For example, a company may cover standard meals and accommodation while excluding alcohol, minibar charges, entertainment, personal upgrades, and leisure travel costs.
For a broader framework that covers approvals, booking rules, traveler responsibilities, and expense reimbursement, use a corporate travel policy template.
Per diem and travel risk management
Per diem is only one part of a responsible business travel program. Companies also need to consider employee safety, insurance coverage, incident reporting, and support while employees are away.
A travel risk management policy should define:
Roles and responsibilities
Employees, managers, travel arrangers, and emergency contacts should understand their responsibilities before, during, and after a trip.
Travel approval
Travel approval workflows should consider both business need and destination-specific risk. This may include location risks, traveler-specific needs, visa requirements, health guidance, or transportation concerns.
Incident reporting and support
Employees should know how to get help while traveling, including emergency contact details, escalation procedures, and how to report security, medical, or travel disruptions.
Insurance coverage
The policy should clearly explain what travel insurance covers, including medical support, trip disruption, lost belongings, and other eligible circumstances.
A clear travel risk management policy helps ensure that employees are supported, not simply reimbursed, when they travel for work.
Are per diem payments taxable?
Per diem payments may be non-taxable to employees when they are paid under an accountable plan, do not exceed the applicable federal rate, and are supported by required business-travel records.
Generally, an employer needs to be able to substantiate:
The time of travel;
The place of travel; and
The business purpose.
If an employer pays more than the applicable per diem rate and the excess is not substantiated, that excess may be treated as taxable wages. Similarly, a general “round sum” travel allowance that is not tied to specific business travel can be taxable compensation.
Tax treatment depends on the employer’s reimbursement arrangement, the destination, the type of expense, and applicable federal, state, and local rules. Companies should consult a qualified tax adviser or review current IRS guidance before implementing or changing a per diem program.
Businesses operating outside the U.S. should also follow local rules. For example, UK employers may use HMRC benchmark scale rates or agree bespoke rates based on evidence of typical employee expenses. Tax and reporting requirements differ by country, so a single global policy should account for local compliance requirements.
Benefits of per diem allowances
A well-managed per diem program can offer meaningful benefits for both employers and travelers.
More predictable travel spend
Daily limits make it easier to forecast travel costs and prevent spending from rising without oversight.
Less administrative work
Employees may not need to save and submit a receipt for every qualifying meal or incidental cost, while finance teams spend less time reviewing low-value claims.
Faster employee reimbursement
Upfront allowances and automated reimbursement workflows reduce the time employees spend waiting to be repaid for business expenses.
Greater employee flexibility
Travelers can choose where and how to spend their meal allowance within the policy, rather than needing approval for every purchase.
Stronger policy compliance
When rates, eligible categories, and reporting rules are clearly defined, employees have less uncertainty about what they can spend.
Potential drawbacks of per diem allowances
Per diem is not the right solution for every company or trip. Potential drawbacks include:
A fixed rate may be too low in unusually expensive destinations;
Employees may reduce spending to retain unused funds;
Company-set rates can require regular research and maintenance;
Weak documentation can create tax and audit risk; and
A policy that is too rigid may not account for legitimate traveler needs.
The best approach is usually a balanced one: use reliable rate benchmarks, set clear guardrails, make exceptions easy to request, and review actual travel spend regularly.
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