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Per diem

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Per diem (Latin for "per day" or "for each day") or daily allowance for is a specific amount of money an organization gives an individual, often an employee, student athlete (usually for away matches), per day to cover living expenses when traveling for work.

A per diem can include part or all of the expenses incurred, for example it may exclude accommodation (for which reimbursement may be available on presentation of receipts) and only cover meals. Per diem is also used as an adjective and an adverb. Travel, particularly by motor vehicles, is often reimbursed at a rate determined only by distance travelled, e.g., the US Business Mileage Reimbursement Rate.

Fixed per diem (and per mile) rates eliminate the need for employees to prepare, and employers to scrutinise, a detailed expense report with supporting receipts to document amounts spent while travelling on business. Instead, employers pay employees a standard daily rate without regard to actual expenditure.

United Kingdom

Accommodation and subsistence (meals) payments paid as fixed daily amounts are described as "scale rate expenses payments" by the UK HM Revenue & Customs (HMRC). HMRC guidance does not use the term "per diem",[1] but it is used by some organisations.[2] HMRC allows scale rate expenses payments for income tax purposes for travel within the UK,[3] and allows a dispensation for such payments for travel abroad.[1]

United States

U.S. companies and organizations use the per diem rate guide published by the General Services Administration, which provides rates for a number of cities in the United States.[4] When an employer reports an employee's earnings at the end of the year on a W-2, the inclusion of amounts for a per diem is only required if it is paid under a non-accountable plan, or is paid under an accountable plan but the amounts are not fully substantiated. If W-2 reporting of a per diem paid under an accountable plan is required, the substantiated portion of the per diem is listed separately from taxable income, under 'Misc. non-taxable'. Per diem payments made to employees under a non-accountable plan or paid under an accountable plan but not substantiated are included in Box 1 of the W-2 as taxable income. (Please see IRS Publications for instructions for Forms W-2 and W-3.) [5]

Per diem is understood to include the additional expenses incurred living away from home—basically having two residences.[6] The GSA establishes per diem rates for hotels "based upon contractor-provided average daily rate (ADR) data of fire-safe properties in the local lodging industry.";[7] this means that per diem varies depending on the location of the hotel—for instance, New York City has a higher rate than Gadsden, Alabama.[8]

To qualify for a per diem, work-related business activity generally requires an overnight stay. The IRS code does not specify a number of miles.[citation needed] However, based on case precedent and IRS rulings, it is commonly accepted that an overnight stay is required and actually occurs to justify payment of per diem allowance.[9] The purpose of the per diem payment (or the deduction of expenses when inadequate reimbursements are provided) is to alleviate the burden on taxpayers whose business or employment travel creates duplicated expenses.

If the taxpayer anticipates employment away from home to last one year or less, then all the facts and circumstances are considered to determine whether such employment is "temporary".[citation needed] If the taxpayer anticipates employment to last (and it does in fact last) more than one year, the I.R.S. presumes that the employment is "indefinite".[citation needed] The taxpayer may rebut the presumption by demonstrating certain objective factors set forth in the revenue ruling. For employment with an anticipated or actual stay of two years or more, the I.R.S. holds that such employment is "indefinite", regardless of any other facts or circumstances.

Any tour of duty adding up to over 500 miles counts as a per diem.[citation needed] One can claim up to the per diem limit without receipts. Note also that as long as you keep a record of the amount spent and the date of the expense, then you do NOT need a receipt for any expense less than $75.[10]

The US military pays its members per diem in accordance with the Joint Federal Travel Regulations.[11] According to these regulations, the first and last days of travel are paid 75% of the daily General Services Administration rate, while all other days of travel receive the full rate.[12] The JFTR also states that lodging taxes for CONUS and non foreign OCONUS are a reimbursable expense but requires a receipt.[13] The JFTR also follows the 'expenses below $75 do not require a receipt' rule, although local disbursing officers may question charges they feel may be false.[citation needed]

The US Government also allows federal travelers to purchase a home at the temporary duty location and claim the allowable expenses of: mortgage interest, property taxes and utility costs actually incurred.[14]

Per diem is also used in contracts to specify penalty accruals. Such wording would be found in reference to the expected closing date for a real estate contract, typically compensating a seller for a buyer's lack of expedience (citation required).

In addition, truck drivers have a special way of calculating a tax deduction for per diem. All drivers who are subject to USDOT hours of service are eligible. As of October 1, 2009, the per diem rate is $59 per day, and they may deduct 80% of this amount from their taxable income (Internal Revenue Code 274(n)(3)).

For American railroads, per diem is a charge railroads levy when their freight cars are on other railroad's property, to assure prompt return.

Per diem committee

The Per Diem Committee[15] establishes per diem rates for overseas US areas; e.g., Alaska, Hawaii, Guam, and other non-foreign locations - and also Per Diem Committee provides worldwide per diem rates (from GSA for CONUS and from State Department for foreign countries).

In occupations that pay an hourly wage, per diem is calculated as an hourly rate and paid in addition to the contractor's base pay.

The following example demonstrates the method for calculating hourly per diem rate assuming a 40-hour work week with consecutive weeks on site:

Standard lodging: US$80/day
Standard meal: US$20/day
Per diem rate = (lodging + meal) * 7 days / 40 hours
= US$100/day * 7 days / 40 hours
= US$17.5 / hour

Some contract staffing companies pay contractors an all-inclusive rate to avoid the accounting complexity of per diem tax deductions. Thus, assuming a base salary pay of US$55/hour for example, then the contractor's all inclusive pay rate is:

Pre-tax Inclusive Rate = Base Rate + (Per diem Rate * Tax Bracket Factor)
= US$55/hour + (US$17.5/hour * 1.33)
= US$78.28/hour

Per diem tax deductions are an effective tool for sheltering the client company from paying the additional costs of per diem out of pocket.[citation needed] Instead of transferring the per diem burden onto the government through a tax deduction, the burden is shifted back to the company, which in turn refuses to pay, which in turn means that the entire burden of per diem and maintaining a temporary second lodging away from home falls entirely on the contractor. Thus, the contractor's pay is reduced to:

Base rate - Per diem rate

For example, at a base rate of US$55/hour and a per diem rate of US$17.50, the contractor's rate becomes:

US$55/hour − US$17.50/hour = US$37.50/hour

Russia

Per diem in Russia is normally set up by companies but in accordance with the legislation cannot be lower than 700 RUR for travel in Russia and 2500 RUR for travel outside of Russia. If employees pay for a hotel in cash or with a payment card, then they must keep the cash register receipt (kassovy check). The regulations governing the use of cash register by business entities allow certain taxpayers to produce handwritten receipts (kvitantsia) at a point of sale instead of printed cash register receipts. Handwritten receipts (kvitansia) usually contain the same information as cash register receipts and are treated as sufficient evidence of expense.

Per Diem Allowance

Generally a per diem allowance covers:

  • Cost of meal;
  • Fees and tips for services;
  • Laundry, dry cleaning etc.;
  • Room service.

Russian tax regulations do not provide for any alternative to per diem method for reimbursing employee’s meal cost and incidental expenses. Meal costs and other incidental expenses cannot be treated as deductible expenses because they are already covered by per diem allowances.

Meals may be treated as deductible expenses only if they qualify as hospitality expenses. Companies are free to set their own per diem rates or maximum allowances that employees are reimbursed for expenses incurred while on business trip.

The portion of per diem allowance in excess of RUB 700 for travel in Russia and RUB 2,500 for travel outside Russia is deemed employee’s taxable income. The excess is treated as part of employee’s taxable gross income and must be withheld from his/her earnings![16]

Kenya Section 5(2)(a) of the Kenya Income Tax Act imposes tax on subsistence, travelling, entertainment or other allowances received by an employee in respect of employment or services rendered. However, where the Commissioner is satisfied that the amounts so received “solely represent reimbursement” to the employee, the same shall not be chargeable to tax.

“Per diem” refers to payments in respect of subsistence, travelling, entertainment and other allowances made by an employer to his employee while the employee is on official duties outside his usual station of work.

Where per diem solely represents reimbursement, a person shall furnish supporting evidence to the Commissioner, provided that where the amount does not exceed two thousand shillings per day, no such supporting evidence shall be required.

However, the organisation can seek the Commissioner’s opinion regarding the admissibility of any per diem scales (or any other rates) prior to or after payment, in which case, the per diem amount shall not be taxable on the employee.

The opinion shall be accompanied with factors that influence the per diem rate and justification for the rates used including: the cost of living in different geographical zones or localities within the country and overseas travel, where applicable.

United Nations Development Programme

A Daily Subsistence Allowance (DSA) comprises the UNDP's total contribution towards such charges as lodging, meals, gratuities, transport cost from place of lodging to the first place of official business, and vice versa, and other payments made for personal services rendered.

A DSA is applicable for UNDP staff members on authorized official travel and for non-staff members when their travel is organized and paid by UNDP. For non-staff members it is on the basis of the standards established for staff members, except where otherwise expressly provided in the terms of their contract.[17]

See also

References

  1. ^ a b HMRC: Employment income: scale rate expenses payments: accommodation and subsistence payments to employees travelling outside the UK
  2. ^ Warwick University, Human Resources - Payroll: Per Diem Rates (Countries A-C)
  3. ^ HMRC: EIM05200 - Employment income: scale rate expenses payments: general
  4. ^ "Per Diem Rates Overview", US GSA
  5. ^ "General Instructions for Forms W-2 and W-3" (PDF).
  6. ^ "Frequently Asked Questions, Per Diem", GSA
  7. ^ GSA per diem FAQ
  8. ^ GSA: Per Diem Rates
  9. ^ Commissioner v. Flowers, 326 US 465
  10. ^ How much per diem are you allowed without receipts?; "Frequently Asked Questions, Per Diem", GSA
  11. ^ defensetravel.dod.mil
  12. ^ Chap 4; section a; Joint Federal Travel Regulations
  13. ^ Chap 4 Joint Federal Travel Regulations
  14. ^ http://usmilitary.about.com/od/travelpay/a/travel.-fT9.htm
  15. ^ defensetravel.dod.mil
  16. ^ Kuepper H., Sumin E. "Travel & Business Expenses in Russian Accounting" (PDF).
  17. ^ info.undp.org
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