Cutting employees’ travel expenses without raising their ire can be like trying to buy dinner using change found in the sofa. In other words, it’s difficult. The federal government wants to help. If you use the fed’s per diem rates, employees can travel without having to book rooms at the Bates Motel.
With per diems, you pay employees a predetermined flat, daily amount for their hotel, meals and incidental expenses, instead of reimbursing them for the full cost.
The General Services Administration (GSA) has released the 2016 per diem rates, effective Oct. 1, 2015. However, you can continue to use the 2015 rates through the end of the year.
Happy trails to you
Per diems combine a flat, daily amount for meals (including tips and taxes), lodging (excluding taxes, energy surcharges and resort fees) and incidentals (e.g., tips to maids); they don’t cover transportation. For 2016, the standard per diem rates are $89 for lodging and $51 for meals and incidentals. The GSA lists localities with nonstandard rates in table form, by state. All the 2016 per diem rates are available at gsa.gov.
No receipts: Since you already know what employees can spend, they don’t need receipts for expenses the per diems cover. However, they must still document the time, place and business purpose of their trips, and submit receipts for expenses the per diems don’t cover.
Go mobile: Mobile apps allow employees to store and organize receipts electronically, thus cutting down on dreaded paperwork chores.
Tax advantage: If your per diems don’t exceed the government’s rates, reimbursements are tax-free; for per diems exceeding the fed’s, only the excess is taxable.
Example: You send Harry to Los Angeles for three days and reimburse him $70 a day for meals and incidentals. The 2016 meals and incidentals per diem rate for Los Angeles is $64 a day. Result: The $18 excess over the federal rate [($70- $64) × 3] is fully taxable.
Autumn in New York
The standard per diem rates are easy to use, but there’s a built-in disadvantage—they can short change employees who travel to very expensive localities, like New York City. If that’s the case, you can use the IRS’ high-low per diem rates.
For 2016, the high rate is $275, which includes $207 for lodging and $68 for meals and incidentals. The low rate is $185 ($128 for lodging and $57 for meals).
Beware: The high-low method comes with two key limitations that don’t apply to the standard per diem rates:
- You may use them only if you’re paying for an employee’s lodging, meals and incidental expenses
- You must use it each time the same employee travels during the year.