Handling business travel expenses is challenging, and mistakes can result in significant costs. When employees travel for work, expenses are inevitable, and it’s crucial to manage these costs properly to avoid complications. Ensuring that all travel expenses are tracked and managed correctly is vital to keeping things running smoothly.
One effective way to simplify this process is to use international per diem rates. Per diem allows for precise, consistent daily allowances, making it easier for the company and employees to handle travel-related costs without the hassle of detailed expense tracking.
“Per diem” translates to “per day” in Latin and refers to the daily allowance companies provide employees for travel-related expenses.
These rates can vary widely depending on the country, city, and even the type of expense being covered. In this blog, you’ll learn everything about international per diem rates.
What Are Per Diem Rates?
Foreign travel per diem rates are set amounts of money given to employees to cover daily travel expenses while on business trips. These expenses typically include:
- Meals: Breakfast, lunch, dinner, and sometimes snacks.
- Lodging: Hotel or other accommodation costs.
- Incidental expenses: Tips, laundry, and other minor expenses.
Per diem rates simplify the reimbursement process for employers and employees. Instead of keeping every receipt and submitting it for reimbursement, employees receive a set amount each day to cover these costs.
Why Are Per Diem Rates Important?
Foreign per diem rates are essential for several reasons:
- Cost Control: They help businesses manage travel costs effectively. By setting a fixed daily allowance, companies can predict and control travel expenses more accurately.
- Simplicity: Employees don’t need to keep track of every small expense, making the process smoother and less stressful.
- Tax Benefits: In many countries, per diem payments are tax-free up to a certain limit. This can be beneficial for both the employer and the employee.
How Are International Per Diem Rates Determined?
Foreign travel per diem rates are usually determined by government agencies or organizations. In the United States, for example, the General Services Administration (GSA)
- Location: Different countries and cities have different costs of living, which affects the per diem rate. For instance, the per diem rate in a city like Tokyo, Japan, will be higher than in a smaller town in a developing country.
- Time of Year: In some cases, foreign per diem rates can change based on the season, mainly if a location is a popular tourist destination.
- Type of Expense: Different rates may be provided for meals, lodging, and incidentals. For example, a higher rate might be provided for lodging to cover expensive hotels in big cities.
Examples of GSA International Per Diem Rates
To give you a better idea, here are some examples of per diem rates from various countries as set by the U.S. Department of State:
- London, United Kingdom: $541 per day
- Tokyo, Japan: $396 per day
- Sydney, Australia: $411 per day
Depending on economic conditions and inflation, these rates can change annually or even more frequently.
Check the complete list here.
How to Use Foreign Per Diem Rates
Using international per diem rates is straightforward. Here’s how it typically works:
- Before the Trip: The company determines the appropriate per diem rate based on the destination and the nature of the trip. Employees are informed of their daily allowance.
- During the Trip: Employees spend within the per diem limit. If they stay under budget, they keep the difference. If they exceed it, they cover the extra cost out of pocket unless special arrangements are made.
After the Trip: Employees don’t need to submit detailed receipts for expenses covered by the per diem. They simply receive the pre-determined amount.
How is Foreign Travel Per Diem Paid to Employees?
The method of per diem payment can vary based on company policy. Here are a few common ways employees might receive their per diem:
- Advance Payment: Employees may get the per diem amount in cash before their trip, giving them funds to cover expenses as needed.
- Company Credit Cards: Some businesses issue corporate credit cards with set spending limits, allowing expenses to be tracked and preventing misuse.
- Personal Funds: Employees may pay for travel costs out of their own pocket and then submit for reimbursement after the trip or on a regular schedule, such as monthly if the trip is extended.
Benefits of Per Diem Rates for Employees
International per diem rates offer several benefits to employees:
- Flexibility: Employees can choose how to spend their allowance. For example, they might decide to have a simple breakfast and spend more on dinner.
- Simplicity: The process of receiving and accounting for expenses is straightforward, with minimal paperwork.
- Fairness: Per diem rates are usually standardized, so all employees traveling to the same location receive the same allowance, promoting fairness.
Challenges of Per Diem Rates
While GSA international per diem rates are convenient, they can also present some challenges:
- Insufficient Rates: In some cases, the per diem rate may not be enough to cover actual expenses, especially in expensive cities.
- Lack of Flexibility: Some companies strictly enforce per diem limits, leaving no room for negotiation, which can be tough in high-cost locations.
- Inconsistencies: Different countries or companies may have different rules about what per diem covers, leading to confusion.
How to Optimize Per Diem Use?
To get the most out of your per diem, consider these tips:
- Plan Ahead: Research your destination to get a sense of costs for meals, lodging, and incidentals. This will help you budget effectively.
- Save Where You Can: If you find affordable options for meals or lodging, you can save the difference from your per diem.
- Be Aware of Company Policies: Some companies allow employees to keep any leftover per diem, while others require it to be returned. Knowing your company’s policy can help you plan better.
- Track Your Expenses: Even though you don’t need to submit receipts, keeping track of your spending can help you stay within your budget.
Simplify Per Diem Usage with itilite
Understanding international per diem rates is essential for both employees and employers. These rates help simplify the process of managing travel expenses. You can use travel management software to streamline per diem for travelers.
With itilite, managing per diem for business travelers becomes effortless. The software seamlessly integrates per diem rates with your ERP system by matching them to the relevant expense categories. This streamlined process means you only need to configure the correct codes once, and itilite takes care of the rest.
Additionally, the system allows flexibility in setting per diem rates based on travel duration, ensuring accurate and efficient expense management for your team.
Book a free demo with us to know more!
