Understanding per diem allowance: benefits, cost, and implementation

In many companies, employees travel extensively for work, be it client meetings, conferences, or training. As a result, companies spend a lot of money reimbursing the staff for all kinds of expenses, including airfare, meals, and lodging.

While a few employers reimburse actual expenses, some organizations have started using the per diem allowance method that sets a daily fixed amount to cover a part or whole of the cost.

Per diem – Latin for “per day” – refers to a specific amount of money an employer gives to his employees to compensate for living expenses, such as meals and incidental expenses, and lodging.

While the meals and incidental expenses cover breakfast, lunch, dinner, laundry, room service, service tips, etc., lodging covers overnight stays in hotels or apartments. Per diem may also be established for domestic and international air travel, rental cars, and entertainment. It is also important to note that the per diem rates may vary based on the geography to which the employee is traveling.

So, let’s delve deeper into per diem allowance, its benefits, cost, and implementation.

Understanding per diem allowance

A simple example of a per diem allowance is –  an organization dispenses Rs.1500/ day meal per diem and Rs.3000/ day lodging per diem. In that case, the employee will receive Rs.4,500 per day, irrespective of his actual expenses. Moreover, the finance department no longer has to review hundreds of receipts and expense reports.

Per diem rates differ by the cost of living. Some cities are more expensive than others; for example, metropolitan areas are generally more costly. Lodging rates also vary seasonally in response to the weather and demand and supply factors.

In India, per diem allowance is tax-free to the extent of actual expenses incurred. In other words, whatever amount the company pays, if the employee can prove that the entire amount was spent on the business trip, the whole amount will be exempted; else, the balance will be taxed as per Indian laws.

Benefits of per diem allowance

• Per diem offers greater control over employee expenses as employers can easily calculate and budget for the annual travel costs.
• The per diem system can lead to enormous savings for the business instead of paying the actual employee expenses.
• Employees save on the precious time they would spend collecting receipts and completing expense reports, helping them focus on other value-adding tasks.
• Since the per diem system is simple, structured, and transparent, it prevents frauds and mishandling of business funds.
• Though taxable, any amount not spent while traveling can be retained by the employees. 

How can Zaggle help you implement an efficient per diem allowance system?

Zaggle Save, our enterprise expense management solution, brings all employees and expenses on a unified digital platform to get a single-window view of company-wide expenditure across any device.

Zaggle Save provides 100% visibility over employee expenditure and a 96% reduction in paperwork to businesses of all sizes through quick reporting and single-click, on-the-go approval of expenses.

With Zaggle Save, you can create per diem allowance rates for employees traveling for work with provision for the following – 

• A predefined list of per diem rates for the country or location of your choice
• Per diem rates for each category of expenses, including meal and incidents, lodging, etc.
• Per diem allowance based on grades, level, and designation

To know more about the other advanced features of Zaggle Save, please feel free to schedule a personalized consultation with our experts.