The term per diem literally means “for each day.” It’s a term used to describe a set amount of money that an employee is given to account for travel-related expenses while visiting other countries.
For example, if someone lives and works in Switzerland but is in the U.S. on business, their employer will typically give them a set amount of living expenses to cover things like hotel accommodations and meals.
Per diem is not a mandated employee entitlement in many countries, such as the U.S., but it is in countries like Austria, Germany, and Belgium. Employers sending employees to different countries for business should keep a few key aspects in mind when it comes to international and European per diem.
Understanding per diem rates in Europe
Per diem rates in Europe are dictated by local legislation and company policies, and some countries are far stricter than others when it comes to per diems.
For example, in Germany, per diems are a non-negotiable method of expensing private meals when traveling. This mandate protects employees from being forced to pay for work expenses out of their own pockets and protects employers from critical issues like expense abuse.
Employees in Europe are generally entitled to per diem rates on a yearly basis. Per diem is usually split into categories for different portions of a business trip, accounting for items like an employee’s arrival or departure on the trip and paying for their accommodations, food, and other daily expenses. Rates are usually set not only within the context of a particular country but also with regard to major cities or business hubs.
In short, there are many variables at play, making it crucial for businesses operating in Europe to recognize the factors that influence per diem rates.
Factors influencing European per diem rates
Several factors influence per diem rates across Europe, from city-specific rates to governmental mandates. The myriad of these factors adds complexity to planning international travel.
Government regulations significantly shape per diem rates, with each European country setting its own rules. For instance, Belgium has strict regulations mandating minimum per diem rates, while France offers more flexibility but still provides guidelines. On the other hand, the U.K. doesn’t set official per diem rates but allows companies to establish their own policies within certain tax-free limits.
Per diem rates often vary considerably between major cities and rural areas within the same country. Cities like Paris, Berlin, and London typically have higher rates due to increased living costs, while rural areas generally have lower rates. This disparity reflects the differences in accommodation, food, and transportation expenses across regions.
Exchange rate fluctuations further complicate per diem rates, particularly for employees traveling from non-European countries. Currency value changes can significantly impact the purchasing power of allocated per diems. For instance, a strengthening euro might reduce the practical value of a per diem for a U.S.-based employee traveling to Europe.
Companies must regularly review and adjust their per diem policies to account for these currency fluctuations and ensure fair compensation for their traveling employees.
Comparing European and U.S. per diem policies
Per diem policies in Europe and the U.S. share similar objectives but differ significantly in their implementation and generosity. Understanding these differences is crucial for businesses operating across both regions.
U.S. per diem rates, set by the General Services Administration (GSA), are generally more generous than their European counterparts. For instance, the standard U.S. per diem rate for the fiscal year 2025 is US$178, comprising $110 for lodging and $68 for meals and incidental expenses (M&IE). However, rates for major U.S. cities can be substantially higher. New York City, for example, has a maximum per diem of $342 ($250 for lodging and $92 for M&IE) during peak seasons.
European per diem rates vary by country and are often higher than the standard U.S. rate. For example, the European Commission’s latest per diem rates set Stockholm at €353, Paris at €324, and Berlin at €208. These rates cover both accommodation and daily subsistence allowance, often resulting in higher overall reimbursements than standard U.S. rates for similar destinations.
Tax implications also differ significantly between the two regions. In the U.S., per diem reimbursements are generally not taxable if they fall within the GSA-prescribed limits and are properly documented. Any amount exceeding these limits is considered taxable income.
European tax treatment of per diems varies by country. In Germany, for instance, per diems are tax-free up to certain limits, while in the U.K., they may be subject to tax and National Insurance contributions unless they meet specific criteria. Some European countries offer more favorable tax treatment for per diems, making them a more attractive option for both employers and employees.
Best practices for managing per diem rates in Europe
Managing per diem rates across various European countries can be complex due to differing regulations and cost of living standards. Here are some best practices to help businesses effectively manage per diem rates in Europe.
- Ensure compliance with local regulations. Consult with local legal experts or use the services of global employment partners to stay updated on per diem regulations in each European country where employees travel.
- Customize per diem policies. Tailor policies based on travel duration, destination, and employee roles to better manage costs and meet specific business needs.
- Regularly update per diem rates. Review and adjust rates annually to account for changes in the cost of living and local regulations across different European countries.
- Utilize appropriate expense management platforms. Invest in software solutions that offer built-in support for European per diem rates and can automatically adjust for different countries and currencies.
- Implement clear documentation processes. Establish straightforward procedures for employees to report travel details and per diem claims, ensuring all necessary information is captured for compliance and auditing purposes.
- Educate employees on local customs. Provide guidance on local tipping practices and cultural norms to help employees manage their per diem allowances effectively.
- Consider partial day rates. Implement policies for partial travel days, such as arrival and departure days, to ensure fair compensation without overpayment.
- Integrate with travel booking systems. Connect per diem management with travel booking platforms to automatically calculate appropriate rates based on itineraries.
- Offer flexibility with meal allowances. Consider allowing employees to allocate their daily meal allowance as they see fit rather than prescribing specific amounts for breakfast, lunch, and dinner.
- Implement approval workflows. Set up multi-level approval processes for per diem claims to ensure oversight and prevent misuse.
- Provide clear guidelines on non-reimbursable expenses. Clearly communicate which expenses are covered by per diems and which require separate reimbursement to avoid confusion and potential overpayment.
- Conduct regular audits. Perform periodic reviews of per diem claims to ensure compliance with company policies and local regulations and to identify any patterns that might require policy adjustments.
By implementing these best practices, businesses can effectively manage European per diem rates, ensuring compliance, cost control, and employee satisfaction.
International per diem rates: overview and differences
Per diem rates vary significantly across continents and even between countries within the same region. These variations reflect differences in cost of living, economic conditions, and local policies. For businesses operating internationally, recognizing these regional differences is critical to effective travel expense management.
Regional variations in per diem rates include:
- European Union. Rates often vary by country, with higher rates in major cities like Paris or London.
- Asia. Significant differences exist between developed economies like Japan and emerging markets like Vietnam.
- North America. Rates in the U.S. and Canada are generally higher than those in Mexico.
- Middle East. Rates can be exceptionally high in cities like Dubai due to the high cost of living.
- Africa. Wide variations exist, with higher rates in business hubs like Johannesburg compared to other areas.
While many countries set their own per diem rates, international organizations often provide guidelines that serve as benchmarks. For instance, the U.S. Department of State’s per diem rates are widely referenced globally. However, these rates may differ from those set by European countries or other national governments. Companies operating across borders must navigate these differences to ensure fair compensation for their traveling employees while maintaining cost-effectiveness.
Navigating overseas per diem rates for long-term assignments
When sending employees on assignments in Europe, businesses must carefully consider the duration of the stay and its impact on per diem rates. Short-term and long-term assignments often require different approaches to per diem structures, necessitating thoughtful planning and negotiation.
For short-term assignments, typically lasting a few weeks to a couple of months, standard per diem rates usually suffice. These rates cover daily expenses such as meals, incidentals, and sometimes lodging. However, long-term assignments extending beyond several months often require a different strategy. As employees settle into a more permanent living situation, their daily expenses may decrease, making the standard per diem rates less appropriate.
When an assignment unexpectedly extends beyond its initial timeframe, businesses should be prepared to adjust per diem rates accordingly. This often involves negotiating with employees to find a fair balance between covering necessary expenses and avoiding excessive payments. Strategies for negotiation might include:
- Gradually reducing per diem rates over time
- Switching to a mixed model of lower per diem plus reimbursement for specific expenses
- Providing a housing allowance separate from the daily per diem
It’s crucial to approach these negotiations with transparency and fairness. Clear communication about the reasons for adjustments and a willingness to consider individual circumstances can help maintain positive relationships with employees on long-term assignments.
Fair and adequate per diem rates contribute significantly to employee satisfaction and productivity. Employees who feel their living expenses are adequately covered are more likely to focus on their work and adapt positively to their new environment. Conversely, inadequate per diem rates can lead to financial stress, resentment, and decreased job performance.
To maintain employee morale during long-term assignments, consider the following:
- Regularly reviewing and adjusting rates based on local cost of living changes
- Providing additional support for cultural adaptation and integration
- Offering flexibility in how per diem allowances can be used
The complexities of overseas per diem rates come with its fair share of challenges. For long-term assignments, businesses must ensure compliance with regulations, manage costs effectively, and support employee well-being. This balanced approach contributes to the success of international assignments and strengthens the organization’s global operations.
Send employees abroad with peace of mind
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 global expansion, reach out to Velocity Global to learn how our Employer of Record (EOR) solution helps businesses of all sizes quickly and compliantly grow across more than 185 countries without the need for entity setup.
Disclaimer: The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. © 2024 Velocity Global, LLC. All rights reserved.
