A common way for companies to simplify travel expense is through the issuance of a “per diem” or daily allowance. Per diem comes from the Latin meaning “per day” and it is a fixed sum established by company policy that an employee working away from home is entitled to. Before a per diem can be established for an employee, the home base of that employee must first be set. For non-field personnel, this home base is usually the head or branch office where the employee regularly works.
The amount of the per diem usually covers meals, lodging and travel within the area outside of the home base. Transportation expenses from the home base to the area to be worked are not included in the per diem and are usually calculated on an actual basis.
Arriving at the amount of per diem as part of the policy on travel expense can be a complicated process, especially for those markets where information about room rates and restaurant charges are not readily available. Companies with the resources to do so usually commission research studies to determine the costs which may vary wildly from one area to another. And then there are the qualitative criteria to be set: what kind of hotel room is acceptable, what meals are considered adequate and what intra-area transportation facilities may be availed of.
While this information can be easily set within a given country, multinational companies face the added task of establishing an acceptable per diem for different countries. Aside from the likelihood that food, lodging and transport costs in a foreign country may change abruptly, foreign exchange fluctuations add to the problem. Many companies address this issue by establishing a per diem for travel expense to foreign countries based on a specified exchange rate. Any changes in the rate are automatically pro-rated.
One of the sensitive issues about a per diem as the basis for travel expense lies in the tax implications. In many countries like the USA, there are specific revenue regulations that govern how much per diem may be charged as travel expense in the different areas of the country. Some rules require a certain distance from the home base and an overnight stay before a per diem can be claimed. Tax authorities go to the extent of determining what is an allowable amount for lodging based on information from local authorities.
Still and all, the per diem has proven to be one of the most practical tools for simplifying the matter of travel expense and reducing the paperwork involved with other methods.