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Driver Per Diem: To Pay or Not To Pay, That is The Question

Jeff Lovelady, Transportation Industry Accounting Specialist & Partner with Bell & Company Certified Public Accountants and Business Advisors

There are a lot of questions on the best way to manage per diem pay for truck drivers these days. Per diem, in this case, is a non-taxable reimbursement for meals and incidentals as it pertains to the trucking industry. Other types of per diem also include a lodging rate, which is based on the locale of the travel.  

By allocating a portion of a driver's pay, you eliminate the payroll taxes on that portion and also the federal and state income taxes on that portion for the driver. 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 percent 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 percent.  

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. Should you be subjected to an audit that is one of the first things the auditors 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 percent of the daily allowance. So in an ideal situation, when the driver leaves on Monday at 8 a.m. and returns Friday at 8 p.m., you can pay the driver two days at 75 percent of the daily rate and three days at 100 percent of the daily rate.

The payment of the per diem pertains to the amount of time the driver is away from his or 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 cents per mile, your driver may go 600 miles in a 24-hour period (obviously an almost perfect scenario), that amounts to only $48. Technically the driver should get $63, so you have missed out on the maximum savings of paying the per diem. By paying by the day, you calculate the per diem 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 showing that you have exceeded the daily rate.