If you're wondering what is per diem work, you're not alone. It's not unusual if you've heard about per diem employees and per diem pay. Still, you only have vague knowledge about what they are. That's exactly why we've created this article: so you can learn everything you need to know about this type of work.
Let's dive deeper into what per diem work is, how it works, and how it's calculated. We'll address other important issues as well, so you can stay on top of this type of employment.
Per Diem Meaning
What does per diem mean in the first place? Per diem is a Latin phrase that can be translated in a few ways: "per day," "for each day," and "by the day" are the most cited ones. In a business setting, this term is used either in the context of per diem employees or per diem business travel expenses.
We'll cover both of these meanings in the following few sections.
What Is a Per Diem Job?
When someone says "per diem job," they actually mean the type of work an employee completes on a daily, as-needed basis. Like the name says, per diem employees are employed by the day, and there is no ongoing employment contract. Instead, these positions are typically used for substitute coverage.
Companies may need extra support from time to time, whether to assist an understaffed team, fill in a coverage gap, or help things run smoothly while handling a big project. An employee may quit without warning or go on a vacation - either way, their daily tasks need to be tackled. This is what per diem employees are typically hired for.
Therefore, per diem employees aren't guaranteed any hours. Their work hours and shifts may vary from week to week, depending on the need for that particular work. In reality, this can mean that a per diem employee will work 40 hours one week, and the following week there may not be any hours for them.
In comparison to that, traditional employees have a set schedule and guaranteed hours. For instance, it's common for full-time workers to work the standard 9 am to 5 pm, Mondays to Fridays.
These are some of the most common per diem jobs:
- Substitute teaching
- Reporting for broadcast media companies
- Products delivery
To ensure a smooth workflow, well-run organizations and companies have a mixture of staff: full-time, part-time, and per diem. This way, their schedules and tasks will be covered in any case scenario.
What Does It Mean When an Employee Is Per Diem?
Healthcare and education are two industries where this type of job is relatively common. For example, a travel nurse is a per diem role. Hospitals or clinics that have a need for additional coverage will typically sign short-term contracts with travel nurses. These shifts are paid at a per diem rate.
Compared to a typical nurse's salary, the per diem payments are higher on average. It's not unusual for per diem roles and positions to offer premium pay, as there are no benefits.
Bear in mind that in addition to per diem work, employees can hold either a full- or a part-time position. Furthermore, they can choose additional shifts based on their schedule.
A chance to earn an additional higher-paid shift can motivate travel nurses to take shifts in rural areas and medical facilities with staff shortages. The same applies to other industries too.
Healthcare and education aren't the only sectors that hire and benefit from per diem employees. Businesses of all sizes also use per diem employment for support. It includes numerous roles within the administrative department, warehouse support, and creative and event support.
Per Diem Reimbursements: Business Travel Expenses
What are per diem reimbursements? This type of compensation is when an organization reimburses its employees for business expenses they've incurred while traveling. Per diem reimbursements work like a daily allowance paid to employees to cover their travel-related expenses.
What does it include? Per diem reimbursements include hotel stays, food, and beverage, transportation, or incidental expenses. These expenses are divided into three categories:
- Lodging expenses
- Mileage expenses
- Meal and incidental expenses (frequently abbreviated as M&IE)
How Does Per Diem Work?
Now that we've clarified what per diem work is, it's time to explain how it works. There is an important difference between traditional hourly employees and per diem workers that business owners need to be mindful of:
Per diem employees are entitled to their full per diem rate, even if they've worked one, five, or eight hours.
In other words, their total hours worked don't affect their daily earnings (unless there are overtime hours).
How Many Hours Can a Per Diem Employee Work?
There is no set limit to how many hours a per diem employee can work. They can work as many hours as company policy allows. Per diem employees can cover both full- and part-time workers. They can work different shift lengths and schedules too.
Labor Laws and Per Diem Employee Rights
Working conditions for per diem employees can vary from one company to another. To complete their work, they are usually granted access to the same tools as full- and part-time workers (for example, equipment and software). Regardless of the specific working conditions, relevant labor laws also apply to per diem employees. Employers need to be aware of this and watch out for overtime work and minimum wages.
For instance, if you've hired a photographer to take photos of the products your company sells, and the job took 10 hours instead of 8, you'll be required to pay extra for the overtime hours. Basically, you'll need to pay the per diem rate plus the extra two hours, similar to how you would compensate hourly employees.
However, since per diem employees aren't employed full-time, they aren't eligible for employer benefits.
So, healthcare, paid time off, or retirement plans may not be offered to per diem workers. Still, some per diem workers may receive benefit packages from certain staffing agencies.
How Is Per Diem Pay Calculated?
Per diem pay calculation is straightforward. The only thing you need to do is multiply the per diem rate by the number of days.
Typically, the employer sets the per diem rate per day in advance. The employees are paid for the days they attend work.
When it comes to per diem allowance, the calculation is similar. So how does it look in a real-life example?
If your employee has had a two-day business trip with a per diem meal expense allowance of $40 total per diem is calculated as below:
Per diem meal expense allowance: 2 x $40 = $80
How can you determine the per diem rate for your employees? Most of the companies choose to use federal per diem rates.
Federal Per Diem Rates
Every year, the U.S. General Services Administration (GSA), a federal agency that supports other federal agencies, sets federal per diem rates. They vary based on the location. Companies don't have to use GSA's rates when reimbursing their employees, but they are frequently used as benchmarks. Note that if you reimburse your teams for more, they will owe taxes on the excess amount they were given.
The GSA's standard per diem rate for the 2022 fiscal year is $96 for lodging and $59 for meals and incidental expenses. This federal agency also establishes rates for specific destinations where living costs are above the average.
A pro tip: you can also use GSA's per diem tool to calculate business trip allowances.
Also, the Department of State sets foreign per diem rates and updates them monthly.
The IRS Per Diem Rates
To determine employees' per diem, you can use the IRS per diem rates as well. You can find them in IRS Notice 2021-52. The IRS system is based on the so-called "high-low" rates. Areas with a higher cost of living have one standard rate explicitly established, while lower-cost areas come with another, lower one.
However, most employers opt for GSA rates.
Is Per Diem Taxable?
Per diem reimbursements for travel expenses usually aren't subject to income tax, but they can be. There are a few caveats that you should be aware of. As we've briefly mentioned previously if your maximum per diem rates for reimbursing travel-related expenses exceed the GSA's, the amount above the GSA's rate is a taxable income.
It needs to be included on the employee's W-2 form.
For instance, if the GSA's maximum per diem rate is $120, but you set your company's rate at $150, the difference of $30 between the two is considered taxable income for the worker.
Actually, per diem payments become taxable if any of the following criteria are met:
- The payment is above the federal per diem rate
- The employer didn't receive an expense report from the employee (it has to be submitted to the employer within 60 days of the conclusion of the trip)
- There was no relevant information included in the expense report (the date, time, location, amount, business purpose for the incurred expenses)
- The employer gave its employee a flat amount and didn't ask for an expense report.
If none of the above apply, the per diem payment will not be taxed.
Can Employers Deduct Per Diem?
Yes, employers can deduct per diem payments. For meals and incidental expenses, up to 50% of per diem spending can be deducted. As for lodging expenses, if they are within per diem limits, they are entirely deductible.
Just remember that you have to retain records of the expense reports.
Per Diem vs. Part-Time: What Is the Difference?
With so many types of work, it's easy to get confused. For some, distinctions between per diem and part-time work can be blurred, so we'll list and explain common differences between these two types of employment.
The consistency of the schedule is one of the essential distinctions between per diem and part-time work. These employments provide flexibility because workers can base their schedules on their availability. This is especially true for the per diem work, as it offers the utmost flexibility.
Companies and organizations hire per diem employees to work in shifts only when they need extra support.
It is not uncommon for companies to hire per diem workers due to last minute needs. This is why they may get paid a premium rate. Also, when holidays draw closer, per diem pay may become even more substantial. One of the main perks of per diem jobs is increasing the hourly wage.
For example, per diem nurses are paid a higher rate than regular nurses. In comparison, part-time nurses are typically paid the same pay base as regular nurses.
If you want to attract and retain the best talent, one of the most important rules is to pay competitive rates. If you offer competitive compensation, you'll be able to secure top per diem talent.
Per diem work is organized on an "as needed" basis. This premise implies that the per diem employees are never guaranteed hours, which is not the case with part-time workers. There is no per diem schedule either since workers on the schedule are considered full-time or part-time.
As already mentioned, per diem employees are typically used as a substitute when an organization is understaffed. It may be due to vacations, sick days, or other reasons.
Overall stability is yet another distinction between per diem employment and part-time work. Part-time employees typically work the same number of hours each week, although they can be set at different hours.
In comparison to that, you may have the need for a per diem employee to work 40 hours one week and then just 15 or 5 the next one.
Final Thoughts: Make Per Diem Work in Your Business
As you can see, per diem work can be more than helpful in various industries. Many companies that want to be well-run and follow their schedules to the letter can benefit from this type of employment. It can help business owners ensure smooth workflow even during holiday seasons, flu seasons, or when understaffing happens.
Hiring per diem employees is particularly convenient since the per diem hours are usually based on a specific company's needs. For example, if you're running a home healthcare organization, you can hire additional nurses during flu season.
And if your employees need to take business trips, you can consider providing per diem reimbursements before the travel. This way, you'll prevent any financial challenges that paying for expenses out of pocket can cause. In addition, your teams will be grateful for taking steps to ensure they don't have to worry about covering any additional costs.