What Is Per Diem?

Per diem is a Latin term meaning “per day.” It is a type of reimbursement used to cover certain expenses incurred by an employee or business traveler while on a business trip, usually related to food and lodging. Per diem is typically calculated based on the dates of the business travel, which is why it is also referred to as a daily allowance.

How Is Per Diem Used?

Per diem is often preferred by employers because it is easier to manage and track than reimbursements on a case-by-case basis. This method of reimbursement also limits an employee’s out-of-pocket expenses for business travel. College students learning about business and finance may not use this type of reimbursement themselves, but it is important to understand the concept.

Examples of Per Diem Usage

Per diem can be used in a variety of situations. For example, companies may reimburse business travel expenses with a per diem based on a geographic location. U.S. federal government employees working abroad may receive a per diem in accordance with the Department of State guidelines.

Employers may also provide a per diem to employees who drive their own vehicles for business purposes. The reimbursement rate is typically a set amount per mile, not per day.

In some cases, companies may also provide a per diem to employees who drive their own vehicles to travel from their home city to an out-of-town business meeting. This is also referred to as a “mileage rate.”

Finally, companies may use per diem rates to reimburse employees’ meals and entertainment expenses incurred while traveling for business. In this case, the company sets a rate for breakfast, lunch, dinner, and incidentals (e.g., tips) per day.

Conclusion

Per diem is an important concept for college students learning about business and finance to understand. While they may not use it personally, they need to know how employers use per diem to cover expenses associated with business travel. Understanding the concept, examples, and formulas for calculating per diem can be helpful for college students interested in pursuing a career in finance or business.