Per diem is often an important negotiating factor that can make or break whether a candidate accepts a contract assignment. It is important, however, that recruiters use this allowance with caution and follow the rules set by the Internal Revenue Service (IRS).
Per diem is a reimbursement allowance paid to an individual for lodging, meals, and incidentals for travel away from home when performing services as an employee. Paying a per diem rate to a worker for business travel is often preferable to reimbursing them for the true and actual costs of the expenses they incur.
Per diem is more common in contract assignments because the employee is often working in a location far from their permanent residence, so they must maintain a second residence during their contract period. To qualify for full per diem, the contractor must maintain two residences during the contract assignment. The second residence could be an apartment, hotel, or other lodging. Per diem does not apply if they are living with a family member or friend during the assignment.
A common myth about per diem is that it can be given even if the contractor is permanently relocating their family to the new work location. In this situation, they will likely not be entitled to per diem because they are only maintaining one residence and therefore not duplicating expenses. For more information, please see IRS Publication 463 at http://www.irs.gov/pub/irs-pdf/p463.pdf
From a recruiter’s perspective, if a contractor receives full per diem when they shouldn’t, it opens both your client company and the contractor up to IRS scrutiny and audits. That is why it is important to educate both your clients and candidates on the proper application of per diem.
For more information, check out our 3-part series on Per Diem: Part 1, Part 2, and Part 3.
This article is for informational purposes only. It should not be construed as legal or tax advice.
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