Per diems are fixed amounts of money given to employees to cover daily expenses while they are traveling for work. The term “per diem” is Latin for “per day,” which reflects that the payment is often calculated on a daily basis. This allowance typically covers costs such as meals, lodging, and incidental expenses.
Employers use per diems to simplify the process of handling travel expenses. Instead of requiring employees to submit detailed expense reports with receipts for every transaction, a per diem allows them to spend up to a certain amount each day without needing to provide proof of expenses. Anything spent over the per diem rate usually must be justified with receipts and may not be reimbursed.
The specific amount of a per diem can vary depending on the travel destination because of differing costs of living. In the United States, for example, the General Services Administration (GSA) sets per diem rates for various locations across the country, and these can be updated annually. Other countries or organizations might have their own systems for determining appropriate per diem rates.
The Per Diem Rates in the USA for 2025, sourced from federalpay.org, are as follows:
| State | Average Meals & Incidentals Rate | Average Lodging Rate |
|---|---|---|
| Alabama | $55 | $96 |
| Alaska | $65 | $120 |
| Arizona | $52 | $89 |
| Arkansas | $55 | $94 |
| California | $62 | $115 |
| Colorado | $58 | $100 |
| Connecticut | $63 | $107 |
| Delaware | $57 | $99 |
| Florida | $56 | $95 |
| Georgia | $54 | $93 |
| Hawaii | $68 | $135 |
| Idaho | $50 | $85 |
| Illinois | $59 | $110 |
| Indiana | $53 | $92 |
| Iowa | $52 | $88 |
| Kansas | $54 | $90 |
| Kentucky | $55 | $91 |
| Louisiana | $56 | $95 |
| Maine | $60 | $102 |
| Maryland | $62 | $103 |
| Massachusetts | $64 | $120 |
| Michigan | $57 | $98 |
| Minnesota | $58 | $100 |
| Mississippi | $53 | $87 |
| Missouri | $55 | $92 |
| Montana | $56 | $90 |
| Nebraska | $53 | $89 |
| Nevada | $61 | $108 |
| New Hampshire | $62 | $105 |
| New Jersey | $65 | $110 |
| New Mexico | $54 | $93 |
| New York | $70 | $130 |
| North Carolina | $56 | $94 |
| North Dakota | $51 | $86 |
| Ohio | $57 | $96 |
| Oklahoma | $54 | $92 |
| Oregon | $59 | $98 |
| Pennsylvania | $58 | $101 |
| Rhode Island | $63 | $107 |
| South Carolina | $54 | $92 |
| South Dakota | $50 | $87 |
| Tennessee | $56 | $94 |
| Texas | $58 | $100 |
| Utah | $57 | $97 |
| Vermont | $62 | $104 |
| Virginia | $61 | $103 |
| Washington | $63 | $105 |
| West Virginia | $54 | $89 |
| Wisconsin | $55 | $92 |
| Wyoming | $56 | $93 |
What are Per Diem Rates?
Per diem rates are predetermined daily allowances paid to employees to cover expenses incurred while traveling for work. These allowances are intended to simplify the management of travel expenses by eliminating the need to submit detailed expense reports with receipts for every transaction. Here’s how per diem rates typically work:
- Coverage: Per diem rates generally cover costs associated with lodging, meals, and incidental expenses while traveling. Incidental expenses might include fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.
- Calculation: The rates are usually set by the employer or a governing body. For example, in the United States, the General Services Administration (GSA) sets per diem rates for federal employees, which can vary by destination based on the cost of living in different areas.
- Simplification: By using per diem rates, businesses can avoid the administrative burden of processing detailed expense reports. Employees are given autonomy to spend within the set limits without needing to justify every expense, as long as their total spending does not exceed the allotted per diem.
- Tax Implications: Per diem allowances that do not exceed the rates set by the IRS or the GSA are typically not taxed as income in the U.S., making them a tax-effective way to handle business travel expenses.
Per diem rates are widely used across various sectors, helping both employers and employees manage travel expenses with greater efficiency and less paperwork.
Why are Per Diem Rates Used?
Per diem rates are used for several practical reasons that benefit both employers and employees. Here’s why they are a preferred method for managing travel expenses:
- Simplification of Expense Management: Per diem rates eliminate the need for employees to collect receipts and submit detailed expense reports for every transaction during their travels. This reduces the administrative burden and simplifies the accounting process for both the employee and the employer.
- Cost Control: By setting fixed allowances for travel expenses, employers can better predict and control the costs associated with business travel. Per diems ensure that spending is kept within a predetermined budget, making financial planning and reporting more straightforward.
- Increased Efficiency: The use of per diem rates speeds up the reimbursement process since the amount an employee is entitled to receive is predefined. This efficiency reduces the turnaround time for expense processing and improves cash flow for employees.
- Fairness and Transparency: Per diem rates provide a clear and equitable way to handle travel expenses, as all employees traveling to the same location receive the same daily allowance. This uniformity helps maintain fairness and transparency in expense policies.
- Tax Benefits: In many cases, per diem allowances that do not exceed prescribed government rates are not taxed as income. This can provide tax advantages to both the employer and the employee, making per diems an attractive option for covering travel expenses.
- Employee Convenience and Satisfaction: Per diems alleviate the stress of managing and tracking travel expenses for employees. Knowing they have a set amount to spend per day, employees can enjoy their business trips without worrying about overspending or tracking every cost, leading to a more satisfactory travel experience.
How are Per Diem Rates Determined in the USA?
In the USA, per diem rates are determined through a systematic process that involves several governmental agencies, primarily the General Services Administration (GSA) for federal employees. Here’s a breakdown of how these rates are set:
1. Role of the General Services Administration (GSA)
The GSA establishes per diem rates for federal employees who are traveling within the continental United States. These rates are reviewed and updated annually and are designed to cover lodging, meals, and incidental expenses.
2. Calculating Rates
- Lodging: The GSA conducts market surveys of hotel costs in various locations to determine the lodging component of the per diem. The aim is to ensure that the rates are sufficient to allow travelers to stay in safe and comfortable accommodations that are reasonably priced for that area.
- Meals and Incidental Expenses (M&IE): The M&IE component is calculated based on average prices for meals and incidental expenses like tips and fees in the area. This portion is often broken down into specific amounts allocated for breakfast, lunch, dinner, and incidentals.
3. Factors Influencing Rate Adjustments
- Geographical Differences: Per diem rates can vary significantly between different cities and regions based on the cost of living and seasonal tourism fluctuations. For example, rates in major metropolitan areas or resort destinations are typically higher.
- Time of Year: In some locations, per diem rates may differ by season. Tourist-heavy areas might see higher rates during peak travel seasons.
4. Special Rates and Exceptions
- For travel to areas outside the continental United States, such as Hawaii, Alaska, and U.S. territories, per diem rates are set by the Department of Defense.
- The State Department sets per diem rates for international travel.
5. Implementation and Compliance
Employers, including government agencies and private sector companies, often use the GSA’s per diem rates as guidelines for reimbursing travel expenses. However, organizations are free to set their own rates as long as they meet or exceed the GSA’s minimums to ensure compliance with federal travel regulations.
6. Public Accessibility
Per diem rates are publicly available on the GSA’s website, which allows travelers to plan ahead and budget for upcoming trips. They can also use online tools provided by the GSA to look up current rates for specific locations.