Understanding Per Diems: A Win-Win for Companies and Employees

Every business traveler can relate to the post-travel hassle of pulling out a stack of receipts, while the finance team sorts through the details of expense reports, chasing the receipts, assessing whether the charge is reasonably aligned with the location and context of travel.

Utilizing per diem rates for managing travel meal and lodging expenses can be an effective method to alleviate some of this burden, and here is why: Per diem rates offer a streamlined, compliant way to reimburse employees for meals and lodging during business travel. Instead of sorting through piles of receipts, companies can use pre-set daily rates. This reduces administrative burden, minimizing audit risk, and keeping travel expenses predictable. For finance leaders in regulated industries, this method helps maintain compliance, manage unallowable costs, and speed up reimbursements. Paired with tools like DATABASICS, per diem policies can be configured, enforced, and automated with ease.

What Is a Per Diem, and Why Should Companies Use It?

A per diem is an estimation of daily living cost in terms of meals and lodging, estimated by the U.S. government for almost to all cities within the U.S. and internationally. These are the average daily costs a traveler would typically incur for meals, including breakfast, lunch, dinner, incidentals and the lodging expense within each location. It eliminates the need for companies to research if a receipt for any particular hotel stay or a meal at a restaurant is excessive.

Companies and organizations can choose to implement a strict per diem reimbursement method or reimburse based on the actual receipts, with an option to compare the receipt against the per diem rates, for further cost analysis. This method can be effective in managing unallowable cost related to government contracts. This:

• Saves time for employees and finance teams
• Reduces disputes over what qualifies as a reimbursable expense
• Controls spending by aligning with government-defined reasonable costs

When is a Per Diem the Best Option for Companies?

Per diems are particularly beneficial for industries with strict regulations or a significant number of mobile and project-based workers, such as:

• Government Contractors & Subcontractors
• Nonprofit Organizations
• Healthcare Organizations
• Professional Services & Consulting Firms
• Engineering, Construction, and Project-Based Companies

These organizations often manage travel tied to strict compliance standards and need consistent, auditable processes for managing expenses.

How Do Per Diems Help Manage Unallowable Costs?

For infrequent, local travel, a per diem policy is likely too complex. Similarly, if travel expenses vary greatly or involve luxury expectations, actual expense reimbursement may be a better fit.

However, unallowable costs can still be managed through policies comparing the actual receipt amount against the GSA per diem guidelines.

Common examples of unallowable expenses include:

• Alcoholic Beverages: Generally excluded from meal allowances. 

• Entertainment Costs: Movies, concerts, or recreational activities. 

• Luxury Upgrades: First-class hotel upgrades, premium transportation services. 

• Personal Items: Toiletries, clothing, souvenirs, or personal gifts. 

• Meals Already Provided: If meals are provided at a conference, hotel, or event, the corresponding per diem meal allowance must be deducted. 

It is important to look for a system to able to configure rules that automatically flag or override unallowable expenses with an appropriate account, while reimbursing an employee for the full receipt amount, ensuring compliance before submissions reach the approval stage. 

Where Do Per Diem Rates Come From?

Per diem rates are determined by U.S. government agencies and split into two main categories: CONUS (Continental U.S.) and OCONUS (Outside Continental U.S.) rates.

Additionally, the GSA Per Diem Rate Lookup Tool can be used to search for the rates for individual locations.

What Are the Must-Have Rules in a Per Diem Policy?

When defining a per diem policy, it is important to take into account the following key factors associated with per diem calculation:

1. Partial Day Allowance Rule for Meals
   These rules govern the allowance rates for the first and last day of travel. Typically, a 75% per diem rate is applied on these days. Alternatively, the reimbursement can be calculated based on the actual number of hours traveled. For example, if an employee spends only a quarter or half day traveling, the reimbursement percentage may be proportionally reduced.
2. Multi-City Travel in a Single Day
   
   When travel spans multiple cities in a single day, meal reimbursement can be based on one of the following: the most expensive city visited, the least expensive city, or the final destination of the day. The chosen method should be clearly outlined in the policy.
3. Single-Day Travel Rule
   
   For travel that occurs within a single day (i.e., no overnight stay), the policy should define whether the traveler qualifies for a full-day meals per diem or only a partial allowance.
4. Meal Deductions
   
   If meals are provided during travel (e.g., at a conference, hotel, or event), the corresponding per diem amount must be deducted. According to GSA guidelines, if breakfast, lunch, or dinner is provided, the applicable portion of the per diem must be subtracted. The GSA provides a detailed breakdown of Meals and Incidental Expenses (M&IE), which is used to determine the deduction amounts based on the total daily per diem rate.

What Features Should You Look for in Per Diem Management Tools?

Modern expense management software can automate the upload of per diem rate data and handle the associated calculations, streamlining reimbursements and easing the accounting process for finance teams.

The right tool should offer:

• Automatic rate updates from GSA/DoD/State
• Configurable policies for meal deductions and partial travel days
• Built-in logic to handle unallowable expenses
• User-friendly interfaces for both travelers and approvers
• Audit-ready reporting and compliance tracking

DATABASICS supports all these needs, offering seamless automation of per diem reimbursements while helping you maintain compliance and save time.

What Are the Top Benefits of Using Per Diem Reimbursements?

In addition, there are vast benefits to using per diems as a reimbursement method:

• Faster Reimbursement: automatically apply the correct per diem based on the travel location, avoiding the need for receipt handling.
• Predictable and Controlled Cost: prevents overspending and unnecessary luxury expenses
• Compliance: alignment with federal standards and government regulations
• Tax advantage: qualified per diems (up to IRS limits) are generally non-taxable to the employee and deductible for the company. (Seek further advice from tax professionals.)
• Reporting and accountability: With automated enforcement of per diem limits, travelers are more likely to stay within policy. Rather than evaluating individual receipts, finance teams can focus on validating trip details (dates, locations), which improves reporting accuracy and efficiency. Per diem data is clean and consistent, which supports better tracking, reporting, and analysis of travel spending patterns across departments, projects, or clients.

As business travel continues to evolve, driven by shifting workforce expectations and increasing cost-consciousness, now is an ideal time for companies to reevaluate their existing expense policies. Per diem reimbursement offers a simplified, compliant, and efficient alternative to traditional receipt-based methods. By adopting a per diem approach, organizations can reduce administrative overhead, improve traveler satisfaction, and maintain greater control over costs. It’s a forward-thinking solution for the modern business environment.

When Should You Rethink Your Travel Reimbursement Strategy?

If your finance team is still buried in receipts, it might be time to make a change. Per diem policies reduce friction for travelers, simplify policy enforcement, and create scalable processes for growing organizations.

For CFOs, controllers, and compliance leads—especially in regulated industries—per diem-based reimbursement isn’t just convenient. It’s strategic.

Now is the time to modernize. DATABASICS Expense can help you get there.