TL;DR

Per diem is a daily allowance paid to workers to cover expenses incurred while working away from their primary location - meals, accommodation, incidentals. It simplifies expense management by replacing receipt-by-receipt reimbursement with a fixed daily rate.

What Per Diem Actually Means

Per diem is Latin for "per day," and that precision is the point. Rather than asking workers to itemise every coffee, taxi, and hotel, per diem sets a flat daily amount. The worker gets that amount regardless of what they actually spend. If they come in under, they keep the difference. If they go over, it's on them.

This creates a clean administrative arrangement. Employers don't need to audit receipts, employees don't need to chase reimbursements, and the accounting is straightforward. From a tax perspective, per diem payments within approved rates are generally not treated as taxable income - which is the key reason the model persists.

Per diem rates typically cover three categories:

• Lodging: accommodation costs for the travel period
• Meals and incidentals (M&IE): food, tips, and minor out-of-pocket costs
• Sometimes transportation: local travel costs at the destination

Governments and professional bodies publish standard per diem rates by location. In the US, the General Services Administration (GSA) publishes federal per diem rates for every major city. In the UK, HMRC publishes approved meal allowance benchmarks. These rates matter because payments within them can be made without requiring the employee to report them as income.

Why It Matters for Recruitment

Per diem comes up in recruitment whenever a role requires travel - and that covers more territory than the obvious cases. Construction, healthcare, consulting, field sales, government contracting, and staffing assignments with distant placements all routinely involve per diem arrangements.

For contract and temporary workers specifically, per diem is sometimes structured as part of the compensation package to reduce overall tax liability. A contractor working away from their tax home can receive per diem on top of their bill rate, with the per diem portion treated as a non-taxable expense reimbursement. This effectively increases their take-home pay without increasing the gross pay figure.

This creates a compliance wrinkle. In the US, the IRS has specific rules about what qualifies as a "tax home" and what counts as a legitimate temporary assignment. Staffing firms that structure per diem arrangements incorrectly can face significant back-tax liability. The worker must genuinely be working away from their primary residence, and the assignment must be temporary (generally under one year at a single location).

For recruiters negotiating packages with candidates, understanding per diem allows for more honest conversations about total compensation. A contractor role paying £450 per day plus £75 per diem is worth meaningfully more in take-home terms than one paying £525 per day with no per diem - even though the headline numbers are close.

In Practice

A [staffing agency](/glossary/staffing-agency) places a civil engineer on a 40-week infrastructure project in Aberdeen. The candidate lives in Bristol and will need to relocate temporarily. The client rate is £600 per day. The agency structures the package as £520 per day in pay plus £80 per day in per diem.

The per diem covers the engineer's weekly accommodation (averaging £350 for a serviced apartment) and daily meals (roughly £40-50 per day). Because the per diem is within HMRC-approved rates and the worker is genuinely away from their home, the £80 daily allowance is not subject to income tax or National Insurance.

Over 40 weeks at 5 days per week, that's £16,000 in tax-free per diem. Compared to receiving that same amount as gross pay, the engineer saves roughly £6,400 in tax at the higher rate. The total compensation package looks the same on paper; the net outcome is materially different.

Key Facts