Yesterday, we discussed the DOL’s focus on employers’ per diem payments to employees. I promised an easy–and more easily defensible–solution to employers who want to pay per diems but don’t want the headache of tracking every last receipt that comes with it. Fortunately, employers do have a ready-made solution direct from the federal government itself, but not the DOL. What is it? Use IRS-approved per diem rates established by the General Services Administration (GSA). We have looked at per diem rates from the GSA in the past in the context of determining a reasonable commuting area. Employers who pay per diems will find them just as useful here.
Employers who don’t want to track actual expenses (always the best plan, just like with rounding) can rely on this shortcut for lodging and meals and incidental expenses (M&IE) of employees on business travel. Every September before the beginning of the upcoming federal fiscal year, the IRS issues an annual notice on simplified per diem rates that employers may use to reimburse employees for business travel.
The current IRS Notice 2015-63 applies to travel expenses incurred during Fiscal Year (FY) 2016. GSA sets its applicable per diem rates for employees traveling to destinations in the 48 states of the continental U.S and the District of Columbia (the “CONUS rates”); for areas outside the continental United States (Hawaii, Puerto Rico and U.S. possessions (the “OCONUS rates”); and for foreign countries. Although these GSA rates are furnished for government employees, private employers are permitted to use them, too. Thus, you may be able to avoid many of the recordkeeping hassles that can accompany frequent business travel. This year, the rate for certain “high-cost areas” in the continental U.S. increased by $16, while the other areas went up by $13. In addition to the standard rates for specific destinations, certain high-cost areas are specified. All the other destinations are treated as low-cost areas if the high-low alternative is used. For FY 2016, the per diem rate for high-cost areas is $275, (up from $259 in FY 2015), consisting of $207 for lodging and $68 for meals and incidental expenses (M&IE). The per diem for all other localities is $185 (up from $172 in FY 2015), consisting of $128 for lodging and $57 for M&IE.
For this purpose, M&IE includes:
- Meals and room service,
- Laundry, dry cleaning and ironing of clothing, and
- Fees and tips to service providers, such as food servers and luggage handlers.
Other special rules may apply, too, for employees who don’t have meal expenses during a calendar day, who also own a share of the business, or who work in the transportation industry within the CONUS area. Employers must require employees to provide basic substantiation for the trips—including time, place and business purpose.
Upshot for Employers
For large employers in particular, this solution can make handling travel expenses simpler to bill and simpler to reimburse. Establishing a policy gets simpler, too. For example: “For domestic travel, the company reimburses travelers in accordance with the Federal State Department per diem amounts as published on the GSA website.”
If you follow the IRS’s rules, the per diems would not be subject to income or payroll taxes (and employees do not have to report them as income, either). Of course, the DOL is not bound by the IRS’s rules. Whatever reimbursements you make must still must reasonably approximate” the employee’s work-related expenses (29 C.F.R. § 778.216(a), (b)(3), (c)), or the DOL may heavily scrutinize those payments and require you to include them in the regular rate. This is particularly true where, as in the oil field services case from yesterday, the per diems represent a substantial portion of the employees’ income or where actual expenses are few and far between. Business travel expenses often attract both IRS and DOL attention, so although this per diem method is simpler, you still must keep detailed, accurate records and this approach might not work for every employer. Reimburse actual expenses if you can, but consider this alternative if per diems make the most sense for your industry or business.