What is Per Diem? Per Diem Meaning, Rates & Top Tips

Per diem payments are an effective way to manage daily expenses and reduce the need for reimbursements. Per diems are relevant across teams, including business travel, contractors, HR, and finance. In the U.S. alone, businesses spend over $111 billion annually on travel expenses¹, and per diem rates help standardize and simplify those costs.

In this guide, we’ll explain what per diem means, how rates are set, and how tools like Wise make international per diem payments safer and smarter.

Make Per Diem Payments Easy with Wise

Wise helps businesses manage per diem allowances and travel reimbursements across borders without the stress of currency conversions or hidden fees. Pay your team abroad securely, receive payments like a local, and hold over 40 currencies in one place. With no monthly fees and access to the mid-market exchange rate, it’s the smarter way to handle global expenses.

Key Takeaways

• Per diem refers to a daily allowance provided to employees for travel-related expenses like meals, lodging, and incidentals.
• The meaning of per diem can vary depending on job type, covering temporary shifts, flexible roles, or fixed daily payments.
• Knowing current per diem rates and payment options helps businesses manage costs more efficiently, especially when traveling internationally.

What is Per Diem?

Per diem is a Latin phrase meaning "per day”. In the context of work and travel, it refers to a daily allowance given to employees to cover expenses incurred while traveling for business.

Per diems typically include meals, lodging, and incidental costs. Rather than reimbursing each receipt individually, companies use per diem rates to simplify expense management.

What is Included in Per Diem?

A per diem allowance typically covers three main categories of expenses during work-related travel:

1. Meals and Incidentals (M&IE): This includes breakfast, lunch, dinner, and small daily expenses like tips or service charges. Alcohol is usually not covered.

2. Lodging: Hotel stays or other overnight accommodations are often included as part of a separate per diem rate or reimbursed using actual receipts, depending on company policy.

3. Miscellaneous Costs: Depending on the employer, this can include transportation between work sites, Wi-Fi charges, or minor work-related purchases.

How Per Diem Works

Per diem is a daily allowance paid to employees to cover expenses incurred while traveling for work. Employees receive a fixed amount per day. This simplifies expense reporting and helps companies control travel costs.

In the U.S., the General Services Administration (GSA) sets standard per diem rates, which vary by location and are updated annually.² Employers can choose to follow these rates or set their own, provided they meet IRS guidelines.

Per diem is not considered taxable income as long as it's within federal limits and the employee provides required documentation (like travel dates and locations). Anything beyond that may be treated as income and subject to taxes.

Common Uses of Per Diem in Business and Travel

Per diem allowances are commonly used by companies and organizations to simplify the reimbursement process for business-related travel. Instead of tracking every individual receipt, employees receive a fixed daily rate to cover eligible costs.

Here are the most frequent use cases:

• Business Travel: Employees traveling for conferences, client meetings, or off-site work are often given per diem to cover meals, lodging, and incidental expenses.

• Field Work and Temporary Assignments: Workers on temporary assignments—especially in construction, healthcare, or engineering—often receive per diem to manage expenses without the need for relocation.

• Government and NGO Work: Public sector jobs, humanitarian missions, and international NGO roles frequently use per diem rates to compensate for living expenses abroad.

• Freelancers and Contractors: In some cases, independent contractors working on-site may negotiate per diem as part of their rate, especially for longer-term or travel-heavy projects.

How is Per Diem Calculated?

Per diem rates are typically calculated based on the destination, the duration of travel, and the type of expenses being covered.

In the U.S., the General Services Administration (GSA) sets standard per diem rates for federal employees, which many private companies also reference.

For international travel, per diem rates are usually based on U.S. Department of State guidelines, which consider foreign currency values and local cost of living.

Per Diem vs. Actual Expenses

When reimbursing employees for travel, businesses generally choose between two methods: per diem or actual expenses.

Per diem offers a simplified, daily allowance for meals, lodging, and incidentals. Instead of submitting receipts for each coffee or taxi ride, employees receive a fixed amount.

Actual expenses, on the other hand, require employees to track and submit receipts for every expense. This method may offer greater accuracy for irregular or high-cost trips, but it often demands more effort from both the employee and the finance team.

How to Send & Receive Per Diem Payments

Managing per diem payments across borders can get complicated, as they usually require direct deposits and bank transfers.

That’s where Wise Business makes life easier.

With Wise, companies can send per diem allowances in the local currency, avoiding confusion or delays. For employees, it means getting paid instantly and securely, whether they're traveling for a week or working per diem in a foreign country.

You can also send Wise-to-Wise transfers in the same currency for free, keeping things fast and cost-effective.

Open a Wise Business account online

Tax Implications of Per Diem

In the U.S., per diem allowances are generally not taxable as long as they don’t exceed the federal per diem rates set by the General Services Administration (GSA) and are used for legitimate business travel. If an employer provides more than the allowed amount, the excess is considered taxable income and must be reported.

For international per diem payments, rules vary by country. Some may treat all per diem as taxable, while others follow similar guidelines to the U.S.

Is Per Diem Taxable Income?

Per diem is not typically considered taxable income, as long as it adheres to government-approved rates and is used specifically for business-related travel expenses.

In the U.S., if your employer reimburses you based on the federal per diem rates and you provide required documentation (like date, destination, and business purpose), the amount is non-taxable. However, any excess above the standard rate is treated as taxable income and must be reported on your W-2.

For freelancers or international travelers, tax treatment can vary widely depending on local laws.

How to Report Per Diem on Taxes

For employees, you usually don’t need to report per diem on your taxes if your employer reimburses you at or below the federal per diem rate and you’ve submitted an expense report. In this case, the reimbursement is non-taxable and won’t appear on your W-2.³

For self-employed individuals or independent contractors, per diem can be deducted as a business expense on your tax return using IRS Publication 463. Just make sure you track dates, locations, and purposes of travel.³

Tax Benefits and Considerations

Using per diem payments instead of reimbursing actual expenses can offer tax advantages for both employers and employees. For businesses, per diem simplifies accounting; you don't need to collect and verify individual receipts for expenses.

For employees, properly documented per diem payments that don’t exceed federal limits are non-taxable, meaning they won’t count as part of your gross income. This can result in a lower overall tax liability compared to receiving taxable travel reimbursements or bonuses. However, it’s important to ensure compliance with IRS guidelines.

Tips for Managing Per Diem Effectively

Managing per diem well ensures compliance and avoids surprises down the line. Here are a few smart practices to streamline the process:

1. Use Standard Rates
   Stick to government-published per diem rates, like those from the U.S. GSA to avoid overpayment and keep things tax-friendly.

2. Establish a Clear Policy
   Create a written per diem policy that outlines eligible expenses, documentation requirements, and payout methods. This sets expectations and reduces confusion.

3. Automate Payments
   Consider using a tool like Wise to send per diem allowances in local currencies, eliminating cash handling and cross-border friction.

4. Track and Reconcile
   Even though receipts aren't always required, asking employees to submit basic travel details (dates, locations, purpose) helps validate payments and keeps internal records audit-ready.

5. Stay Up to Date
   Per diem rates change annually, sometimes even mid-year. Bookmark the relevant government sites and adjust your internal budgets and payouts accordingly.

Discover Wise: An Easier Way to Handle Per Diem Payments

Whether you’re sending per diem to traveling employees or receiving it abroad, Wise makes it effortless. With no monthly fees, mid-market exchange rates, and the ability to send and receive money in over 40 currencies, it’s a smart alternative to cash or traditional banking. You can also connect to accounting software, track expenses in real time, and receive local account details for major currencies.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks.

Open a Wise Business account online

Sources:

1. REPORT: Companies Spend $111.7 Billion Annually on Business Travel | TravelPulse
2. Per diem rates | GSA
3. Per Diem Payments Frequently Asked Questions
   All sources checked October 2025.