Corporate professionals these days travel for various business purposes – meeting clients in person, exploring new markets, and attending networking events. They incur several expenses while traveling to multiple destinations for work purposes. Companies reimburse the travel expenses incurred by employees in various ways.
Some companies support post-trip reimbursements. They pay the exact amount spent by an employee based on expense reports submitted by them after the business trip. At the same time, some companies provide per diem to employees in advance for business trips. But what is a per diem and what expenses does it cover? Let us find out.
What is Per Diem, and What Expenses does it cover?
Let us try to first understand what is a per diem. The term per diem means for each day. As an expense reimbursement method, per diem makes employers pay a daily allowance to cover expenses incurred during a business trip. The fixed amount helps employees cover business travel expenses without using personal funds.
Government agencies determine the per diem rate for domestic and international business trips in several countries. They set the per diem rate according to the cost of living of the travel destinations. Hence, companies increase per diem rates when employees travel to large and expensive cities.
While determining per diem rates, companies consider the business trip’s length and expenses incurred by work travelers. The costs covered by per diem include lodging, meals, and incidental expenses like laundry, dry cleaning, room service, and tips provided to service providers.
However, regulations governing per diem expenses vary across countries. In several countries, companies are allowed to determine per diem rates. Employers also have the option to cover additional expenses by increasing the per diem rate. However, they require employees to return the unutilized per diem funds after the business trip.
How does Per Diem Work?
Companies use per diem allowance as an alternative to post-trip travel expenses. Instead of reimbursing travel expenses incurred by an employee, they provide per diem allowances to employees in advance at specific rates. Most employers these days support differential per diem rates.
Hence, an employee receives a per diem allowance in advance before engaging in business travel. He can spend the per diem allowance without getting approvals from designated authorities. However, he is required to submit expense reports within a stipulated time frame after the business trip.
While preparing expense reports, employees must mention the nature and amount of expenses, purpose, date, and time. Also, they must submit invoices and receipts along with the expense report. They must return the unutilized per diem funds to the employer while submitting the expense report.
Many companies these days allow work travelers to retain unused per diem funds. Hence, the expense policies of an organization determine how per diem works. Employees must comply with predefined organizational policies while preparing and submitting expense reports.
How do Employees Manage Per Diem Budgets Efficiently?
Company policies allow employees to spend per diem allowance without getting approvals. The flexibility allows them to prioritize expenses and save money by managing per diem budgets efficiently. Here are some strategies employees use to make the most out of per diem allowances.
Per Diem Rate Calculation
Companies support differential per diem rates. They set different per diem rates for individual cities and destinations. However, many companies do not share per diem rates with employees clearly. Smarter employees always make budgets according to per diem rates. They precisely understand the per diem rate by contacting the travel manager or using online information.
Accommodation Selection
While planning business trips, work travelers book either hotels or homestays. But, some intelligent employees save money by opting for hotels that offer complimentary services like free breakfast, airport transfer, and Wi-Fi access. Also, they prioritize hotels that support early check-ins or late checkouts. The complimentary services make it easier for them to save per diem money.
Early Booking
Many hotels offer rooms at premium rates at the last minute. But they offer rooms at lower rates to guests who book early. However, several websites help work travelers get the best rates by recommending the best time and day to book. Smart work travelers these days leverage these options to curtail lodging costs.
Using Special Rates and Offers
Many companies these days implement travel management software. The tech tool enables employees to book accommodation at negotiated rates. Also, employees can use the software to find deals and discounts various hotels provide. Smarter work travelers use the corporate booking tool to save money in several ways.
Heavy Meals
As noted earlier, work travelers save per diem money by opting for hotels that offer complimentary breakfast. At the same time, many employees curtail meal costs by opting for high-protein meals that keep them whole. However, some competent employees practice remaining active after walking around for a while after launch.
Unexpected Expense Planning
Often, employees have to solve unexpected travel issues and overcome unexpected travel challenges. Some employees understand the significance of keeping a part of the per diem budget for unforeseen expenses. The provision helps them meet unexpected expenses like emergency medical and transportation without spending money.
Technologies Adoption
Companies these days streamline travel expense management by implementing unified travel and expense (T&E) expense management software. The software helps work travelers make per diem budgets and track travel expenses. Smarter employees leverage the software to control the per diem budget by avoiding overspending and unnecessary costs.
Conclusion
Companies reimburse the travel expenses incurred by employees in several ways. They enable employees to avoid paying costs out of their pockets by supporting per diem payments. Employers often pay per diem at a daily rate. However, what is a per diem and how does per diem work is based on several factors, including travel destination and duration.
Also, per diem rates vary across cities, states, and countries. Smarter business travelers avoid out-of-pocket expenses by managing their per diem budget efficiently. They save money by booking travel products and avoiding unnecessary costs. However, they save a significant part of the budget for unexpected expenses and emergencies.
