Navigating Per Diem Work 2025: A Comprehensive Guide for Employers
Emily Maina
Last update on:
November 25, 2024 11:50 AM
Published on:
As business has evolved and companies are rapidly expanding, per diem work has become a popular choice for companies needing flexible temporary staffing. This employment method gives businesses the freedom to modify personnel levels in response to urgent demands, which reduces overall business expenses.
However, managing per diem work effectively requires establishing clear policies and guidelines, especially in matters of travel-related expenses. Implementing structured, transparent guidelines is essential to prevent misunderstandings, ensure adherence to labor laws, and maintain financial oversight.
This guide examines the specifics of per diem work, its significance to employers, and how companies can implement specific guidelines to efficiently navigate employee reimbursement.
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Under a per diem system, employees receive payment at the end of the workday for work they performed as well as any travel costs incurred. Per diem is frequently used for short-term, on-demand, or temporary work.
This structure is used in various sectors including healthcare, education, and hospitality where operations depend on flexibility and adaptability due to shifting workforce needs.
For employers, a well-defined per diem policy should include company guidelines for travel allowances, daily rates, and eligible expenses. Your per diem policy can help your company attract and retain top talent, encourage consistent recordkeeping, and achieve compliant expense management.
How many hours can a per diem employee work?
How many hours a per diem employee can work depends on your company policy, the nature of work that will be performed, and applicable legal guidelines. Currently, there is no limit to the number of hours a per diem employee can work. Temporary per diem employees may work anywhere between a few hours per week to 8-12 hours a day.
However, any per diem employee who works over 40 hours per week should be paid in accordance with the Fair Labor Standards Act (FLSA) as well as any state-specific guidelines.
In sectors such as health care and hospitality where employees often work long hours, companies may need to establish additional regulations for per diem employees, such as mandatory rest periods or a limit to the amount of hours they can work each shift.
The FLSA classifies employees as either exempt or non-exempt.
Exempt
Are not entitled to overtime pay.
Exempt status usually applies to salaried workers in administrative or professional roles.
Non-exempt
Have the right to overtime pay if they work more than 40 hours a week.
They receive 1.5x their normal pay rate for each additional hour worked.
Most per diem workers fall into this category.
Classifying employees accurately is essential for maintaining compliance with FLSA regulations and avoiding legal risks associated with unpaid overtime.
Best practices to ensure compliance
Consult state-guidelines to adhere to all applicable laws and regulations.
Review per diem employees’ job duties to verify they meet non-exempt status.
Consistently track hours worked to maintain accurate documentation for accurate overtime pay calculation.
Encourage clear communication among your workforce, to set expectations and prevent misunderstandings.
When is per diem required to be paid?
Companies often give per diem to workers who travel from their home office to a job site that is far away from the company’s headquarters.
For example, if a pipefitter is assigned to work at a nuclear plant out-of-state, they are given per diem to cover expenses for food, housing, and transportation.
To communicate per diem eligibility to employees, employers can:
● Include detailed guidelines in the employee handbook. Provide examples of scenarios that touch on business travel, distance thresholds, and multi-day assignments.
● Provide pre-travel briefings. Be sure to give employees details covering daily meal rates, lodging allowances, and destination-specific rules to prevent unexpected out-of-pocket expenses.
● Use digital communication tools. To inform your workforce quickly of policy updates and per diem rates, utilize the company’s intranet and emailing system.
● Emphasize receipt and reporting requirements. This is especially for companies who utilize reimbursement-based per diem. This ensures that employees understand how to track expenses and submit expense reports on time when required.
How is per diem usually paid?
Per diem is typically paid in one of two ways: through fixed allowances or reimbursements.
A fixed allowance is a set rate given to employees for travel expenses, meals, and lodging. This method provides simplicity and predictability for employers and employees. It's typically based on industry norms or government per diem rates, like those from the IRS.
The reimbursement method requires employees to pay for costs out of pocket and then submit receipts for reimbursement. This method is more transparent and accurate, but necessitates more administrative effort.
Both methods have their advantages. The payment method you choose to use depends on employer preferences, nature of work, and industry standards.
Choosing the right per diem payment method can be crucial for both employee satisfaction and your company's bottom line. If you're debating between fixed allowances and reimbursements, this table breaks down the key differences to help you make an informed decision.
Feature
Fixed Allowance
Reimbursement
Simplicity
High - Set rate, easy to understand and administer
Lower - Requires tracking and submitting expenses
Predictability
High - Employees know the exact amount they'll receive
Lower - Reimbursement amounts can vary
Accuracy
Lower - May not reflect actual expenses
Higher - Based on actual receipts
Administrative Burden
Lower - Less paperwork and processing
Higher - Requires expense reports and verification
Employee Experience
Can be convenient, less hassle
Can be inconvenient, requires upfront spending
Control over Spending
Lower - Less control over how employees spend the allowance
Higher - Ensures expenses are legitimate and within policy
Fraud Risk
Higher - Potential for misuse of funds
Lower - Receipts provide evidence of expenses
Best Suited for
Short trips, predictable expenses, less complex travel arrangements
Best practices for maintaining a consistent payment process
Establishing a streamlined, transparent process for issuing per diem is a necessity, regardless of whether your company uses fixed allowances or reimbursements.
Some best practices for maintaining a consistent payment process are found below.
● Define clear guidelines and rates. Employees need to be aware of per diem rates, as well as understand which expenses are eligible for reimbursement or included in the fixed allowance.
● If using fixed allowances, automate your payment system to simplify the submission and approval process, which saves you time and reduces errors.
● Regularly review payments to ensure they align with company policies and fall within budget.
● Educate employees on how per diem works within the company to reduce confusion and increase adherence to per diem rules.
● Establish consistency in how per diem is paid across different roles or departments. This ensures fairness and prevents disparities between employees doing similar work.
Is per diem taxable?
To differentiate between taxable income and non-taxable reimbursements for business expenses, the IRS offers precise standards for managing per diem payments.
When specific requirements are met, per diem payments are usually exempt from taxes. If a per diem payment is deemed "adequate reimbursement" for business expenditures, it is not subject to taxes.
The IRS publishes annual per diem rates, setting daily limits for meals, lodging, and incidentals based on location. Per diem payments made above these limits are taxable.
If an employer fails to file an expense report, or if an employee fails to submit their expense report.
If the expense report lacks sufficient details about the purchase including: the cost and business purpose of the purchase, as well as the time, date and place of purchase.
The employee is given a fixed per diem amount, and is not required to submit an expense report.
Employers providing per diem payments should adhere to IRS guidelines to avoid employee tax liabilities and potential penalties for the business.
Best practices to remain tax compliant
To manage per diem tax implications smoothly, employers can follow these best practices:
Check annual IRS per diem rates to keep payments within approved limits. You can use the GSA.gov rates lookup tool to verify rates for your state.
Require employees to document business travel details (like dates, destinations, and business purposes), and accurately report payments—showing any excess as taxable income on W-2 forms.
Keep employees informed of tax implications including when per diem payments are subject to taxation.
Use the best workforce management software to simplify tracking, ensure compliance, and prevent tax surprises for both employees and your business.
Per diem rates 2025
For the 2025 fiscal year – (October 1, 2024 - September 30, 2025), the per diem rates have been updated to reflect changes in regional costs across the United States. Federal agencies use these per diem rates for the continental United States (CONUS) to reimburse employees for expenses incurred during official travel. These rates include a meals and incidental expenses (M&IE) component and a maximum lodging allowance.
For most of CONUS, the standard rate is $178 per day ($110 for lodging and $68 for M&IE). In 2025, 296 non-standard areas (NSAs) have higher per diem rates based on local average daily rate (ADR) data from the lodging industry. When the standard rate is insufficient agencies can refer to the Federal Travel Regulation (FTR) which allows for actual expense reimbursement in order to meet necessary expenses.
Every year, the GSA modifies the per diem rates in response to fluctuations in regional cost of living.
Employers must stay up to date on these changes to effectively manage travel expenses, guarantee IRS compliance, prevent unforeseen financial consequences on corporate budgets, and guarantee equitable reimbursement for employees. Regularly checking the GSA’s official website helps employers access accurate and comprehensive per diem rate information across the United States.
Does per diem cover mileage?
Mileage and other transportation costs are usually not covered by per diem payments.
According to IRS regulations, mileage—the distance an employee drives in their personal vehicle for work purposes—is treated as a separate reimbursement. Employers can use the IRS-provided standard mileage rate to pay employees back for the number of miles they have driven. Vehicle operational expenses including fuel, upkeep, and normal wear and tear are included in this rate.
Best practices for handling mileage reimbursement
Understand the typical driving costs for your region. Set a fair rate that covers employee expenses as required by law without incurring additional taxes or overcompensating staff.
Utilize an automated GPS tracking system. A GPS mileage tracking systemcan reduce driving expenses and improve fleet efficiency by providing real-time data of miles traveled, idle time, and fuel use.
Inform staff members of your reimbursement policies, including rates, payment schedules, and how to submit expense reports.
Familiarize yourself with mileage reimbursement and labor laws to create effective policies and guidelines.
Track mileage accurately with Timeero
Tracking mileage and attendance is easy with Timeero.
Since mileage is not covered by per diem pay, your employees will need to accurately track and record their mileage to receive compensation.
Timeero is a powerful GPS time and mileage tracking app packed with innovative technology that makes it easy for business owners to reimburse their per diem employees.
When you use Timeero for time and mileage tracking, you gain access to…
Automatic overtime and mileage calculations for accurate reimbursement
Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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