Per diem is Latin, but its meaning couldn’t be simpler. Employees paid per diem receive pay by the day. This is usually the daily stipend given to employees who travel for work. It’s also used when employees on short-term contracts are assigned a daily rate.
Both these scenarios affect payroll processing, which is why HR professionals need to be aware of regulations that governper diem pay. The good news is, Paycor has collected all the information you need below.
What is Per Diem Pay and what does it cover?
Travelling isn’t cheap. Even when transportation and accommodations are covered, meals, tips and laundry need to be paid for. Accounting in advance for each individual cost is challenging.
Per diems keep things simple. Employees receive a single daily allowance. This gives employees the freedom to prioritize spending on what matters most to them. You won’t be waving goodbye to expense reports, but they won’t need to be quite so detailed.
How is Per Diem Pay Decided?
Per diem pay is usually split into three different categories:
- Accommodations
- Meals
- Incidental Expenses
If accommodations have already been paid, an employee will receive a per diem only for ‘Meals & Incidental Expenses’ (M&IE). Meals can also be split into breakfast, lunch and dinner, with different amounts assigned to each. If an employee is driving, the cost of gas should be reimbursed according to IRS mileage reimbursement rates.
Federal law doesn’t, but states often require that businesses cover employees’ travel expenses. Check local regulations before creating a business travel policy. Many businesses set per diem stipends according to national guidelines. Here’s why: anything below these limits is considered non-taxable by the IRS.
For travel within the contiguous US, rates are issued by the General Services administration. Per diems for other US territories are set by the Department of Defense’s Per Diem Committee. Everywhere else in the world is decided by the Department of State.
Per Diem Rates 2026
In 2026, the federal standard (CONUS) per diem is higher than it was in 2022 and is split between a general rate and special higher-cost locations.
Business travelers can still follow federal per diem rates that vary by location and, in many cases, by time of year, with specific schedules for higher-cost “non-standard” areas. For most locations in the continental U.S. (CONUS) that do not have a special rate, the 2026 federal baseline per diem remains: lodging up to $110 per night and meals and incidental expenses (M&IE) $68 per day, for a combined standard rate of $178 per day. The IRS has also kept the standard CONUS per diem rate unchanged from 2025, so private employers using IRS substantiation methods can continue to rely on the same standard amounts in 2026.
In higher-cost localities—often called non-standard areas (NSAs) or high‑cost areas—the GSA publishes higher per diem limits to reflect local lodging and meal costs. These locations are listed individually by city or county and may have different rates by month, so employers should check the current GSA tables for the specific destination and travel dates,
First and last day reduction
Federal travel rules do not require employers to pay a full day’s M&IE for travel days at the beginning and end of a trip. Under the GSA’s 75 percent rule, travelers are only eligible for 75% of the applicable M&IE rate on the first and last days of travel (for the standard $68 M&IE rate, that’s $51 for those days).
Many organizations adopt this same approach in their internal travel policies, while still reimbursing lodging based on the actual nights stayed up to the published lodging per diem cap.
Per Diem Employees
Remember, per diem isn’t only used when talking about business travel. It also refers to employees who are paid by the day. Oftentimes these employees are hired on a short-term basis and offered shifts when required. This can offer useful flexibility to both businesses and workers.
Businesses need to identify who is an employee and who is an independent contractor. It doesn’t come down to whether someone is paid daily, weekly or monthly.
All employees, even if they are paid per diem, get a W-2 and have taxes withheld. Employment rules, like overtime pay and the minimum wage for your state, still apply.
Independent contractors can also be paid per diem, but if they complete 1099 forms, they aren’t counted as employees.
Per Diem Best Practices for Remote and Hybrid Workers
The traditional per diem was designed with the road warrior in mind — someone flying to a client site, checking into a hotel, and submitting receipts on the road.
But as more employees work hybrid and remote schedules, employers are getting more questions about per diem and how to administer it fairly.
A few scenarios to understand:
- Temporary travel to a different location: If a remote employee travels to the company’s main office or a client site for a work assignment, per diem may apply for that travel period — even if the employee normally works from home.
- Permanent remote workers: Per diem is generally not applicable for employees working permanently from their home office.
However, some states have reimbursement laws that may require employers to cover certain work-from-home expenses.
- Project-based or contract workers: Short-term contractors working at a client location may be paid per diem as part of their daily rate arrangement.
The key is having a clearly written business travel policy that defines who qualifies for per diem, what’s covered, and how reimbursements are submitted. Paycor Expense Management makes it easy to build those policies directly into your system — including per diem caps and automated receipt requirements.
Automating Per Diem Tracking
Managing per diem rates manually can quickly become a logistical headache, especially with the IRS updating locality rates annually.
For employers with a frequent-traveling workforce, utilizing an automated expense management system integrated directly with your payroll management software.
Automation ensures that employees are reimbursed accurately and promptly based on the most current federal rates, significantly reducing human error and keeping your organization strictly compliant with tax regulations and labor laws.
How Paycor Helps with Per Diem
Paycor builds HR solutions for leaders. With Paycor, you can modernize every aspect of people management, from the way you recruit, onboard and develop your team, to the way you pay and retain them.
Per Diem FAQs
Still have questions about per diem? Read below..
Is Per Diem Taxable Income?
Per diem payments that stay at or below the IRS standard rates are generally not considered taxable income for employees. Any amount that exceeds the standard rate becomes taxable and must be reported on the employee’s W-2.
Do I Have to Use the GSA Per Diem Rates?
Yes, contractors can receive per diem payments, but they are responsible for their own tax treatment since they file as self-employed. If a contractor completes a 1099 form, they are not classified as an employee.
Paycor is not a legal, tax, benefit, accounting or investment advisor. All communication from Paycor should be confirmed by your company’s legal, tax, benefit, accounting or investment advisor before making any decisions.