Understanding per diem
Per diem simplifies travel expense management by paying a fixed daily rate instead of reimbursing actual expenses. It covers meals, accommodation, and incidentals while employees travel for work. The ATO publishes reasonable rates that affect tax treatment.
What per diem covers
- Meals and drinks
- Accommodation
- Incidentals (tips, laundry)
- Sometimes transport
Benefits
- Simple administration
- No receipt tracking
- Predictable costs
- Tax-efficient (if within ATO rates)
How per diem works
- Fixed daily rate: Set amount per day regardless of actual spending
- Paid in advance or arrears: Can be provided before travel or with regular pay
- Location-based rates: Different rates for different destinations
- Partial day rates: Reduced amounts for travel days or partial days
- No receipts required: Within reasonable amounts, no documentation needed
Tax implications
Australian tax treatment
Check current ATO rates
ATO reasonable allowance amounts change annually. Using outdated rates can affect tax treatment for employees and employers. Check the current Tax Determination for accurate rates before setting your per diem policy.
Best practices
Policy design
- Align with ATO reasonable rates
- Clear rules on eligibility
- Location-appropriate rates
- Annual rate review
Administration
- Simple claim process
- Timely payment
- Record travel details
- Correct payroll treatment
Common mistakes
Using outdated ATO rates
Not updating per diem rates when ATO reasonable amounts change. This can inadvertently create taxable income for employees or underpay for actual costs.
Paying per diem without travel
Allowances are only tax-free when actual travel occurs. Paying per diem to employees not travelling creates fully taxable income and incorrect tax treatment.
Inconsistent application
Different rates or rules for different employees in similar situations. Per diem policy should apply consistently. Inconsistency creates fairness issues and administrative confusion.
Key takeaways
Per diem is a daily allowance for travel expenses, simpler than receipt-based reimbursement. Align rates with ATO reasonable amounts for tax efficiency. Update rates annually, apply consistently, and ensure actual travel occurs for tax-free treatment.
RosterElf's staff management helps Australian businesses coordinate travelling staff and track time across locations.
