If you own a business, chances are that you’ll probably need to pay for business travel at some point. Whether it’s for you or another employee at the company, travel (even during a pandemic) can often be unavoidable and expensive. Business travel is defined as taken specifically for work purposes and doesn’t include leisure trips, holidays, or daily commutes. This is where per diem rates for business travel come in.
What are per diem rates?
Per diem rates are daily “allowances” for businesses that travel for work to cover expenses for food, room service, accommodations, and more. They can be helpful to companies who use business-related travel because they allow for an alternative to reimbursement based on detailed expense records and documentation. Using per diem rates allows businesses to easily determine reimbursements for traveling employees and simplify their bookkeeping.
Who sets per diem rates?
The General Services Administration (GSA) sets the per diem rates for all locations within the continental U.S. and these are what we’ll be focusing on today. However, non-foreign rates for Hawaii, Alaska, and other U.S. territories such as Puerto Rico and Guam are set by the Department of Defense, while foreign rates for locations outside the U.S. and its territories are determined by the State Department.
Per diem coverage
We’ve established that per diem rates are allowances for travel reimbursement, but what exactly do they cover? The two categories that rates are broken down into are lodging and meals and incidental expense:
The first category for per diem rates is lodging and is relatively self-explanatory. Lodging per diem rates cover accommodations in hotels, apartments, inns, or other overnight stays. Both categories we discuss have separate rates but can be added to determine the total reimbursement payment per employee per day.
Meals & incidental expenses
The second category, M&IE, covers pretty much everything else. Daily meals (breakfast, lunch, and dinner) as well as other expenses that typically come with travel such as room service, dry cleaning, service tips, and more fall into this bucket. M&IE rates have five tiers that we’ll discuss in more detail below.
Changes in rates
Unfortunately, per diem rates aren’t as simple as a single number to remember. Things like location and annual reviews and updates of the rates mean you should always check and verify that your numbers are up-to-date.
While there is a standard lodging per diem rate, this number is often different depending on where you’re traveling to. The GSA calculates lodging per diem rates based on an area’s cost of living and average daily rate (ADR) data of local lodging properties. This means that larger cities such as New York, Los Angeles, Chicago, etc. will have higher per diem rates to account for the higher cost of living in those cities.
Locations can also have different rates throughout the year that change with things like seasonality. For instance, many large cities in the southern U.S. have higher rates in the winter when more people visit to enjoy the nice weather. When fewer people visit during the hot summers, the per diem rate goes down.
The GSA also reviews the per diem rates on an annual basis to determine whether increases or decreases need to be made. Non-standard areas, or NSAs, are locations that see frequent travel by the federal community and are individually reviewed each year. Other areas are simply known as “standard” locations and utilize the standard per diem rate.
Annual changes made could be by location, but we could also see rate changes across the board (like we saw with all M&IE tiers in 2022).
Summary of 2022 GSA per diem rates
Now that we understand what per diem rates are and how they’re broken down, here’s a summary of the different rates for the continental U.S. in 2022:
- Lodging rates are dependent on the location of the business travel, but they didn’t change from FY 2021. Look up your destination here.
- Standard lodging per diem rate stayed at $96 in 2022
- M&IE rates have increased to the following tiers:
|M&IE Total||Breakfast||Lunch||Dinner||Incidental Expenses||First & Last Day of Travel (75%)|
- Standard M&IE per diem rate also increased to $59 in 2022
- The standard total per diem rate is $155 ($96 lodging + $59 M&IE) for 2022
Benefits of per diem rates & GSA
Besides making bookkeeping and expense documentation easier for businesses, per diem rates and the GSA have other benefits worth considering. First, per diem reimbursements aren’t considered wages, so the payments are non-taxable under most circumstances. If any of the following apply, you will be subject to taxes:
- Per diem payment is more than the allowable federal per diem rate
- No expense report filed with your employer
- The expense report filed didn’t have the date, time, place, amount, and purpose of the expense
- Your employer gave you a per diem and didn’t require an expense report
In addition to per diem payments being non-taxable in most cases, the GSA also grants access to billions of dollars in federal contracts for certified small businesses. By getting your GSA Certification, your company will be listed in the GSA Advantage database to be found by potential buyers, reduce its business risk with vetted procurement, and gain access to exclusive contracts just for small business owners.