To Per Diem or Not to Per Diem? Reimbursing Employee Travel Expenses
What is the best way to reimburse your employees for their business travel expenses?
As more and more companies compete in our global economy, it’s vital to consider how your company can maintain its presence in the marketplace, motivate employees to agree to high levels of business travel, and still manage to keep travel-related costs under control.
A survey conducted by the Bureau of National Affairs (BNA) noted that most companies still directly reimbursed their employees for reasonable travel expenses incurred on behalf of the company. Although this method has its merits, many employers should also consider the advantages/disadvantages of establishing a travel per diem program as an alternative method of cost control.
Some of the benefits of a per diem expense program are:
1) Simplified record keeping – employers can budget travel expenses for meals and lodging more accurately.
2) Quicker client billing – employers who bill clients for travel expenses, don’t have to wait for the employee to submit expense reports in order to calculate the cost to the client.
3) Employee choice is expanded – employees can exercise greater control over the selection of restaurants and hotels.
4) More cost effective employee purchasing – employees tend to be more prudent in their purchases while traveling, since the excess expense comes out of their own pocket.
Some disadvantages of the per diem plan are:
1) Location inequities – expensive urban locations vs. more affordable rural locations. Employees may become reluctant to travel to high expense areas because the per diem rate won’t cover all the expenses.
2) Domestic vs. international travel – overseas locations vary so dramatically in costs for meals and lodging that a per diem plan may not adequately cover costs.
3) Cutting corners on expenses – employees may not choose accommodations that reflect the corporate image, or even jeopardize their own safety, in order to save money on expenses by choosing accommodations in unsafe areas.
Some companies using per diem plans enjoy cost savings from the cap on expenses. However, we must be careful not to place the per diem cap so low that it discourages employees from traveling at all. Employers must analyze the current travel expenses in relationship to the places where the employees travel so that they can establish an appropriate rate.
Employers still have to consider other travel expenses incurred by the employee, such as airport parking fees, personal needs items (such as in-room movies or dry cleaning), mileage reimbursements, spousal travel, etc. are that are generally excluded from the per diem plan.
If your employees frequently travel for work, it’s important to weigh your pros and cons for each method of travel reimbursement to determine which is best for your organization.
Need help finding the best fit for your travel program? Simply call (833) 447-9111 during business hours (M-F, 8am-5pm PST) to be connected to a helpline consultant!
Written by Jeff Dodson, SPHR
Edited by EverythingHR Staff on July 23, 2018.