Because the nature of contracting often requires contractors to live somewhere other than their permanent residence, those contractors can incur additional expenses most employees don’t have. In those cases, the contractor may be offered a daily “per diem” rate to help them cover those expenses. This is Part 3 of a three-part series examining the guidelines surrounding the payment of per diem. Don’t miss Part 1 and Part 2.
Per diem can be complex, so contract recruiters who are new to the concept often have many questions about contractor per diem. Here are some of the most common questions Top Echelon Contracting has received:
Can the per diem rate be more than the taxable pay rate?
Yes, as long as the taxable pay rate does not fall below the prevailing wage for that contract assignment. The prevailing wage is the median wage for a particular occupation in a specific location. Experience and education can also be factored into prevailing wage. You can research the prevailing wage by using the Bureau of Labor Statistics’ guide for given occupations in specific regions of the United States.
Can a client request that a candidate is reimbursed for “True and Actual” expenses rather than receiving a per diem rate?
Yes. In that case you (or your back-office service provider, if applicable) would request a traditional expense form with receipts for expenses incurred by the contractor.
Can the client handle expenses directly with the contractor?
Sure. In that case, you or the back-office service provider handling the contractor’s payroll would not reimburse any expenses in the contractor’s pay.
Does per diem cover car rentals or airfare?
Neither the High-Low Substantiation method nor the Per Diem Substantiation Method (CONUS) cover car rental expenses or airfare. Traditional per diem covers housing, meals, and incidentals. Situations requiring car rentals or airfare are normally handled as a True and Actual Reimbursement with receipt verification.
One of my contractors says his current employer is taxing his per diem. Is this legal?
Assuming the per diem rate meets the Federal guidelines under the methods discussed earlier, for the first 12-months, per diem should be tax-free. After one year, it can be rolled into the taxable pay rate and applicable payroll taxes should be withheld.
We can’t possibly cover all of recruiters’ questions about contractor per diem in one article, so if you have any questions about per diem, please contact a Top Echelon Contracting Contract Administrator at (330) 454-3508.
This article is for informational purposes only and should not be considered legal or financial advice.
Can the pay rate be reduced to include per diem in the middle of the contract?
If the contractor’s personal situation changes and they will now be maintaining two residences for the remainder of the contract period, it can be changed provided that they have the proper documentation to meet IRS guidelines.
Hi, I recently returned from a business trip. Not expecting to be reimbursed for everything because I forgot to keep most my receipts. However, I was expecting to receive lodging for the hotel and per diem. My contracting agency said I cannot receive per diem because it was not in my initial agreement!? I never heard of that, can they do that, deny me per diem because they said it’s not in my contract? This is my 3rd contract position and never knew I needed to get that in writing? I thought I was simply the law. Please advise, thanks!
Unfortunately, we cannot give legal advice. We suggest contacting an employment attorney in your local area.