The term per diem literally means "for each day." It's a term used to describe a set amount of money that an employee will be given to account for travel-related expenses while visiting other countries. If someone works in the United States but is in Europe on business, they will typically be given a set amount of living expenses from their employer to account for things like hotel accommodations and meals. If they weren't traveling for business, they wouldn't be required to pay—thus the burden of reimbursement falls on the organization that sent them there. But for a seemingly simple topic, there are a number of key aspects businesses should keep in mind.
Understanding Per Diems Rates in Europe
The most important thing to understand about per diems in Europe is that they are typically dictated by two key factors: first by legislation, and then by client preference. Some countries are far stricter than others when it comes to per diems. In Germany, for example, per diems are a non-negotiable method of expensing private meals when traveling. This stance has been taken both in an effort to protect employees from being forced to pay for work expenses out of their own pockets, and to protect employers when it comes to other critical issues like expense abuse.
Generally speaking, employees are entitled to per diem rates on a yearly basis. They're usually split up into different categories for various portions of a business trip, accounting for items like an employee's arrival or departure on the trip, paying for their necessary accommodations, food, and other daily expenses. Rates are usually set not only within the context of a particular country (like the aforementioned Germany), but also with regards to specific major cities or business hubs.
Receipts are not required to be submitted with Per Diems since these are already agreed upon. A client can, however, ask that the employee submit receipts.
Other Major Considerations for Per Diems
Another major benefit of the policy behind the per diem is that it was designed in part to help save employees a significant amount of time in terms of tracking business expenses and costs. Instead of a system that can vary wildly depending on where the employee is traveling, the type of business, or even for whom they happen to be working; everything is agreed upon in advance of a trip, and per diems are usually very easy to claim through whatever platform is being used.
Expensify, for example, is a popular expense platform that is compatible with current legislation and other rules in European and other countries that has all of this functionality baked right into the solution itself. With that type of asset at one's side, handling per diems and being guaranteed fair compensation is as simple as spending a few moments on a computer or smartphone.
But as one might expect, per diems is also not a topic without its fair share of controversy. One major point for many is the fact that per diems are reimbursed from a practical perspective. An employee will have a set rate or "allowance" that they can use per day. If they spend less than the allocated rate, however, they are still reimbursed for that precise figure. If they spend more than the allocated rate, the client in question does not actually have an obligation to pay the difference—even if the expense was legitimate and otherwise unavoidable during the trip. Many organizations will pay the difference, but they're not required to do so.
Equally concerning for many is the way that certain governments handle per diems when compared to other nations. U.S. officials often receive far more generous reimbursements for food and lodging than those in other countries, which has caused many to question if the United States government is unnecessarily spending millions of dollars on trips taken abroad. This isn't necessarily a problem with the idea of per diems themselves, and is rather a limitation of the system; some governments choose to handle the per diems differently than others. Until a strict, global system is created (which does not appear to be on the horizon any time soon), this type of controversy is likely to persist.
Sending an Employee Abroad Temporarily—Or Permanently? We Can Help.
Companies sending employees abroad for days, weeks, or months at a time have countless reasons for doing so. But for many, this is the first step in choosing a global expansion destination, especially after significant time spent abroad. If your organization is considering expanding its presence overseas, reach out to Velocity Global today to learn how our suite of global expansion services that includes our Employer of Record solution can have you up and running quickly and seamlessly—without the need for entity setup. We’re ready to talk when you are.
Updated February 21, 2019