Whenever we talk about accounting terms, there are many that create confusion among people, as they are not sure about the meaning of a particular term or concept. Well, one of the terms that is unknown to many people is Per Diem. If you have also come across this term and wondered what it means, then this article will ensure that you have all the information that you need to know. This guide will properly explain to you what does per diem mean and how this concept is used in accounts.
Understanding the meaning of Per Diem
‘Per Diem’ is a Latin word which refers to ‘by the day’. This term refers to the daily allowance or wage that is paid to an employee who goes out on a business trip. Different forms of expenses like accommodation, food and other incidental expenses such as fees and tips fall under this category.
Per Diem means a compensation system where the employee is paid for every day that they work, as compared to receiving a weekly salary. There are numerous companies who prefer the flat per diem rather than a burdensome requirement that they need to provide a complete list of all the expenses incurred. Now, you also need to understand that every company can set its own rates for per diem payments that are used to reimburse employees who go on business trips.
-
Company Credit Cards: Company Credit Cards are the first pick of many companies, as this allows employees to directly use the business credit cards of the company without using a single dime from their own pockets.
-
Full or Partial Expense coverage: There are also companies that cover employee expenses in full, whereas certain organisations have a set limit for the expenses that they will cover, which typically includes lodging, incidentals and food.
-
Fixed Amounts: The third form that is used by corporations is providing their employees with a fixed amount for a day. Employees are asked to cover all their daily expenses within the per diem provided to them.
In some rare cases, per diem meaning also shows the pay structure of workers. These workers receive their salary or wages based on the quantity of work that they have completed in a day. These workers are usually temporary or short-term, like travel nurses and substitute teachers.
Exploring Per Diem for Government Employees
It is common to see many government employees travelling for work, and these employees are also paid in per diem. The Per Diem for the federal government is set by the United States General Services Administration (GSA). These guidelines are used by corporations to set their own per diem policies.
The rates created by the government are based on the cost of living of the city in which the company is situated. This is the main reason why certain organisations have a higher standard rate, whereas some have a lower one.
Per Diems for Self-Employed People
Self-employed workers only use per diem for meal-related expenses. Like other employees, these self-employed workers are required to keep expense reports that substantiate the date, location, and reason for the business trip. Either way, a receipt might be required. It is best to keep the receipts anyway.
What are the benefits of Per Diem Payments?
Along with learning the Per Diem definition, you should also be familiar with the benefits of using Per Diem Payments, as these advantages are the main reason why numerous organisations opt for the same.
-
These payments also reduce the need for reviewing and inspecting the different receipts submitted by employees.
-
Additionally, companies are not required to manage paperwork work which essentially lessens the workload.
-
Per Diem Payments also make way for a streamlined tax-deduction process for businesses.
-
It also ensures that employees are not taxed for the allowances that they get as reimbursements.
The per diem rates set by a company are generally the same as those set by the GSA, as a higher company per diem would otherwise cause the employee to be taxed on the amount above the government rate unless reimbursed to the company. Per diems are recognised as effective and efficient management methods of travel expenses for the company and the employee.
Comments
0 comment