There are a lot of questions on the best way to manage per diem pay for drivers these days. Per diem is a non-taxable reimbursement for meals and incidentals only which is unique to the trucking industry. Other types of per diem include a lodging rate as well, which is based on the locale of the travel.
By allocating a portion of a drivers pay, you eliminate the payroll taxes on that portion and also the federal and state income taxes on that portion for the driver as well. You also reduce the amount of worker’s compensation premium that you pay. But, be careful in this because most work comp policies have a limit on how much per diem you can exclude from pay for work comp premium calculation purposes. Although 20% of the per diem paid is not deductible for the company, the savings on payroll taxes and work comp premium will exceed the tax on the 20%.
By Day or Mile?
Paying per diem by the day is a more accurate method of payment. It eliminates the need for testing the per diem on a periodic basis which is required to be performed if you pay by the mile. If you are paying by the mile and you are not testing your per diem you need to start. If you are subjected to an audit that is one of the first things they will want to review. If you are paying by the mile there could be a chance, depending on the rate, that you could exceed the daily allowance which is currently $63 per day. On any departure or arrival day you can pay up to 75% of the daily allowance. So in an ideal situation, the driver leaves on Monday at 8 am and returns Friday at 8 pm you can pay the driver 2 days at 75% of the daily rate and 3 days at 100% of the daily rate.
The payment of the per diem pertains to the amount of time the driver is away from his/her “tax home”. Also, by paying by the mile, you could lose out on the maximum savings you can receive by paying the per diem. For example, if you pay per diem at .08 per mile, your driver may go 600 miles in a 24 hour period(Obviously an almost perfect scenario), that is only $48, technically he should get $63 so you have missed out on the maximum savings of paying the per diem. By paying by the day, you calculate it at the end of the trip and that means no need to test it periodically.
Make It Clear
Also, make sure you have a written policy on file that explains your per diem payment process. If you pay by the mile, include a plan on how you are testing the daily rate as well as a plan of action should your test come back that you have exceeded the daily rate.
Partner at Bell & Company
Transportation Industry Accounting Specialist