Per diem meaning: What is a per diem and how is it determined?

Companies use the term “per diem” for two reasons: to describe a specific type of role or job and to define a daily amount provided for certain business expenses, like business travel. For the latter, you might be wondering, “How is a per diem calculated?”

We cover all the above in this post, with the primary focus being on per diems provided for business expense reimbursement.

Per diem meaning

Per diem is a Latin word meaning “by the day.” As such, it makes sense that we use the term “per diem” in the United States to define payment by the day for business expenses or a specific job.

Per diem jobs defined

A per diem job is a job that is typically an on-demand or contract position. Per diem jobs can commonly be found in the healthcare and education industries.

In the healthcare industry, travel nurses are often a per diem position. Travel nurses are hired for short-term assignments with clinics and hospitals. Physical therapists are also hired frequently for per diem positions with facilities that require extra coverage or on-demand coverage, meaning a physical therapist might not be required full-time but is necessary to support patient care on an as-needed basis. Emergency Medical Technicians (EMTs) are sometimes hired for per diem jobs as well.

Substitute teachers in the educational field are often hired on a per diem rate, getting paid a set amount per day worked. Additionally, reporters, delivery people, and construction workers are common per diem jobs.

Benefits of per diem jobs

Many people prefer per diem jobs, given the many benefits that come with them. Benefits include:

  • Gaining experience: Per diem jobs allow workers to expand their knowledge base and skill set by working in new environments and with a variety of experienced professionals.
  • Flexible schedule: Workers who work per diem jobs can generally choose the days and jobs they’re willing to work, which means they can create their own schedules.
  • Higher pay: Per diem jobs often pay premiums for holiday work and busier shifts and incentivize positions by offering higher pay.
  • Test out positions: Per diem jobs allow workers to try out jobs, industries, and locations before committing to a full-time position.

Per diem business expense reimbursements

Companies typically reimburse employees for business expenses while traveling. Possible expenses covered by a per diem include transportation, lodging, incidentals, food, and beverages. It’s most common for companies to provide per diem reimbursement for food and beverages.

Some organizations require workers to submit an expense report with receipts to receive their per diem, whereas others provide a flat per diem amount per travel day. For the latter, the company might pay the per diem before travel, whereas others offer it after the worker returns from travel.

Standard practice is for businesses to request employees submit an expense report for reimbursement. Ideally, the employee will have access to a business credit card to charge expenses, though sometimes a personal credit card is required. When a worker uses a personal card, expense reimbursements are typically issued with the regular paycheck cycle, and the employee can take the reimbursement included in their paycheck to pay off their personal credit card when they have incurred out-of-pocket business expenses.

Per diem travel rates

When traveling for work, you want to ensure you’re clear on the federal per diem rates, as well as the per diem rates offered by your employer. Federal per diem rates dictate the amount workers should receive for a specific travel destination. The per diem rates provided by your employer are typically equal to or more than the federal per diem rates based on your work destination.

Why might it be less? The federal per diem rate is required for federal employees. In most instances, private employers abide by these rates, though there is no requirement to. With that said, you can opt to negotiate to receive at least the amount that federal employees receive with reasonable justification for the request.

Considerations for per diem rates

Length of trip

If your trip goes beyond 30 days, your per diem rate will likely drop to 75% of the normal rate. After 180 days, it could drop to as much as 55% of the standard rate, depending on your organization’s policies.


The cost of living at your travel destination dictates per diem rates for your trip. Big cities, like Chicago, Los Angeles, and New York City, will have the highest cost of living rates, whereas rural areas, like those in West Virginia and Nebraska, will have lower cost of living rates.

Type of expenses

Per diem rates are calculated based on meals, incidentals, and lodging expenses. The cost-of-living average for the area is used to determine these rates. Some companies require you to return leftover per diem allocations at the end of your trip, whereas others do not.

Lodging expenses cover your place of stay while traveling for business. If an employee stays overnight, an employer can combine lodging, meals, and incidentals within the total daily per diem amount issued.

Note: Taxes incurred on a worker’s bill are not typically covered by a lodging per diem, though they can be added to an expense report as a miscellaneous expense for reimbursement.

Meals and incidentals cover the cost of meals and incidental expenses, including housekeeping, laundry, fees, and tips. Self-employed individuals can only utilize per diems for meal costs, according to the IRS.

Tip: If you go out to eat with coworkers, it’s wise to get separate checks to support your expenses being covered without question.

Employer per diem and expense reimbursement policy clarification

The best step you can take is to request to see your employer’s per diem and expense reimbursement policy for business expenses, including travel. Then, you can be clear on what expenses are covered, the allotted per diem, and how to receive reimbursement. And when in doubt, ask your manager or human resources for clarification.