How to Set a Per Diem Policy for Your Company

Building a per diem policy from a blank page is mostly a series of decisions, not drafting work — pick a rate structure, decide what it covers, set who qualifies, and nail down the documentation trail. Get those decisions right first and the actual policy document practically writes itself. If you want a ready-to-adapt example rather than the decision framework, see our sample per diem policy template.

A per diem policy tells employees how much they will be reimbursed

A per diem policy tells employees how much they will be reimbursed each day for lodging and meals while travelling on company business — no receipts required for M&IE specifically, which is one of the format's biggest administrative advantages. Here's how to build one that actually works in practice, not just on paper.

Choose a rate structure

• GSA rates: reimburse at the federal rate for each destination. Amounts vary by city and month. Best for companies that send employees across many different locations, since it automatically scales to local cost of living — see our methodology for how we source and update the underlying dataset.
• Fixed rate: a single flat per diem regardless of city (for example, $200/day). Simpler to budget, but employees in genuinely expensive cities may find it insufficient, and employees in cheaper cities may effectively be overpaid relative to real costs.
• Tiered structure: one rate for high-cost cities (New York, San Francisco) and a lower rate for standard destinations — a middle ground between GSA's full granularity and a single flat number.

Decide what the per diem covers

Most policies cover lodging and M&IE separately. Some companies pay per diem only for M&IE and reimburse actual lodging on receipt — see types of per diem allowances for how this hybrid compares to a fully combined rate. Others pay a single fully combined daily rate covering both. Be explicit in the written policy so employees know exactly what the allowance is meant to cover before they travel.

Apply the first-and-last-day rule

GSA policy pays M&IE at 75% on the first and last day of a trip. Matching this rule in your policy keeps reimbursements within the tax-free limit and aligns with what federal auditors and the IRS expect — see our full breakdown of the 75% first-and-last-day rule for the exact mechanics.

“An employer's reimbursement or allowance arrangement will be treated as satisfying the substantiation requirement if the amount of the expenses is deemed substantiated under an IRS-approved per diem method.”

— Internal Revenue Service, per diem substantiation guidance, irs.gov

Set eligibility and approval rules

• Who is covered: all travelling employees, directors and above, or specific roles.
• What trips qualify: customer visits, conferences, training, internal meetings with overnight travel.
• Pre-approval: trips over a certain length or cost may need manager sign-off in advance, which is worth building into the policy explicitly rather than leaving as an unwritten expectation.

Documentation requirements

Per diem for M&IE does not require meal receipts, but you still need documentation of the trip itself: dates, destination and business purpose. Require employees to submit an expense report within 30 days of returning, in line with the accountable-plan rules covered in our IRS accountable plan guide. For lodging, require the hotel receipt even when reimbursing at per diem, since the lodging portion is a reimbursement up to a cap, not a flat payment.