The concept of per diem is very important for entrepreneurs to know and understand as they start, run and grow their business.
What is a daily wage?
Per diem is a Latin phrase that translates to “daily.” In the modern sense, per diem refers to a daily allowance, standard rate, or fixed amount that an employer provides to a part-time or full-time employee or contractor.
This covers food, accommodation and other expenses while they are away, such as mileage reimbursement.
The per diem rate you set can help your business understand and determine travel reimbursement and reimbursement rates.
For businesses, you can understand daily rates using a simple equation:
overnight stay + food + supplement = daily wage
But how do you determine each factor in this metric? What are the benefits and challenges of per diem payments? And where should you incorporate this strategy into your own business?
How do per diems work?
People often travel for work, incur various expenses such as food, transport and accommodation.
In this case, budgeting and cost savings can be difficult to measure. You want flexibility in this process, but you also want to be tax efficient. So how can you organize it?
What are the daily travel rates?
Travel per diems are daily allowances paid to employees for business purposes. By using per diem travel rates, employers can streamline the process of reimbursing their employees for travel expenses.
Instead of requiring employees to submit individual receipts for food, lodging, and other expenses, the employer can provide a fixed daily allowance based on the location and duration of the employee’s trip.
This travel policy reduces the administrative burden of processing individual expense reports and ensures that employees are adequately reimbursed for their travel expenses while on business trips.
What are the criteria for using a per diem?
The standard daily rate includes accommodation, meals and incidentals. However, every situation is different and you will rarely find the same daily wage for every workplace.
Fortunately, there are several standard criteria used to calculate an employee’s daily wage:
- The per diem rate varies by location of travel, making it important when calculating the total allowance given.
- The duration of the trip also affects the daily wage. the longer the stay, the higher the allowance.
- This rate should also take into account the purpose of the trip, just a monetary calculation of the utility for the trip.
- Finally, individual employer policies are standard for day trips.
Any owner of their respective company should thoroughly research what the standard rates are, even with their competition, to get a good idea of their individual per diem policy.
How are daily rates determined?
Per diem rates are usually set by the Internal Revenue Service (IRS) or the General Services Administration (GSA).
The IRS per diem rates set the maximum tax deduction an employee can claim for business travel expenses.
GSA per diem rates determine the maximum amount of reimbursement that federal government employees can claim for business travel expenses. These rates are based on the average cost of accommodation, food and incidentals in a particular location.
The US General Services Administration (GSA) provides per diems for domestic travel within the US and US territories. In contrast, the State Department provides a per diem for international travel. You can always check their websites to find the daily rates for the place you will be traveling to.
It is important to note that both rates are always subject to change and change annually, adjusted as surveys suggest.
Related to:An entrepreneur’s guide to cutting travel costs
What is a day laborer?
Day laborers are hired on an as-needed basis and are paid on a daily or hourly basis. This is usually described as seasonal staffing.
These employees may work part-time or full-time, but are not considered permanent employees.
They are typically hired to fill short-term staffing needs, such as filling in for a regular employee on vacation or going on vacation. For example, substitute teachers and travel nurses are often paid per diem.
Day laborers are typically paid a higher hourly or daily rate than regular workers to compensate for the lack of benefits such as health insurance, retirement benefits, or paid vacation.
Depending on their job duties and performance, they may receive additional compensation, such as overtime pay or bonuses.
Day laborers are also responsible for their own taxes and their wages are not subject to deductions.
What are the advantages of hiring day laborers?
While having a fixed employee benefit may seem like a risky proposition, especially when it’s easy to overcompensate, you can use this tool with proper research.
Simplifying and securing the accounting process
Because of the fixed allowance, there is no need to account for or account for the amount spent. All this is eliminated by the amount of money spent by the employee.
A per diem can even help with budgeting and financial planning, providing a predictable and consistent way to manage business travel expenses.
Employers can set a daily wage that corresponds to the location and duration of the trip. This can help them estimate the cost of the trip and factor it into their overall budgeting process.
Per diem also simplifies the workers’ compensation process and reduces the amount of paperwork and documentation required by the accounting department.
Additionally, it reduces the risk of errors and fraud in the reimbursement process, as there is less opportunity for employees to submit false or inflated expense reports.
Related to: How payday payments can simplify your bookkeeping and taxes
Per diems are not taxed as wages
The good news for the employee is that the award is tax-free as long as the per diem is within the IRS limits.
While the federal government includes restrictions, this is good news for both parties. Employees do not need to report per diems as income on their tax returns and pay taxes on their payments.
Employees aren’t the only ones who benefit from the tax exemption. Per diems are tax deductible as a business expense, which can lower their taxable income and save money on taxes.
What are the downsides of hiring day laborers?
While there are advantages to hiring day laborers, there are also some potential downsides to consider
Day laborers may opt out of shifts
Part-time workers may not be as invested in the company or its goals as full-time workers. They may be less likely to go above and beyond or fulfill their work responsibilities.
This can also create tension with low-wage workers working with hourly and tipped workers.
Related to: Recruitment and hiring of high-quality employees
Per diem rates are often higher than standard wages
Although day laborers may be paid a higher hourly or daily rate than full-time workers, the total cost of hiring day laborers may be higher due to additional costs such as recruiting, training, and supervision.
What is the difference between per diem and employee per diem?
Day laborers are temporary or part-time workers who are hired on an as-needed basis. Employees are not day laborers just because they are paid a single day’s wages.
In contrast, a per diem rate is the rate that employees are paid for certain trips or activities.
How can you invest in per diem in your business?
Per diem always works differently in every situation. Create a per diem policy that outlines per diem payment rules and guidelines specific to your company.
Experiment with what works and what doesn’t. This policy should include maximum per diem rates, the types of expenses covered by per diem and the terms of payment of per diem.
Once the per diem policy is in place, you should communicate it to all levels of staff, especially employees who travel for business. You should communicate with management and discuss the idea of per diem with your company management.
You should also explain the policy in detail, including how per diems are calculated and the types of expenses covered. You should also train employees on how to use the timesheet system. This training should include calculating per diems, submitting per diem expenses and using the online system.
Related to: How does investing in employee training benefit your business?
Once a per diem is implemented, it is vital to monitor the system to ensure it is working effectively. This will help you identify problems or areas for improvement. Don’t shy away from growth and don’t be afraid of failure because it is through failure that you learn.
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