Discover the pros and cons of per diem vs reimbursed expenses for managing employee travel costs and find the best fit for your business needs.
Businesses often struggle to decide whether per diem or reimbursed expenses are best for managing employee expenses. These expenses usually result from essential business activities, including meetings, trips, seminars, and industry gatherings. While both approaches aim to ensure employees are compensated for business-related costs, they offer different advantages and implications for a company's financial control.
This article will explain how the two systems work and their administrative requirements. It will also cover how they can work to make business travel more manageable for your company and employees while ensuring you stay tax compliant.
What Does Per Diem Mean?
"Per diem" comes from the Latin phrase "per day.” It refers to a fixed daily allowance companies give employees to cover typical expenses like travel, meals, and lodging. The allowance is a flat daily rate that doesn't review employees' actual expenses.
In Singapore, per diem rates for international travel are based on the traveller's destination country. The Inland Revenue Authority of Singapore (IRAS) sets these rates and reviews them annually based on the latest information on the standard of living costs. IRAS publishes the updated rates in December.
Per diem offers companies and employees several advantages. It's simple and hassle-free because employees don't need to collect and submit receipts for every expense. Instead, they must document their travel dates. It's also predictable; employees know exactly how much they'll receive upfront. This predictability makes it easier to streamline the company's budget.
Per diem allowances cover fewer business expenses than reimbursed expenses. In Singapore, these include accommodation for international trips, overseas airport transfers, flights or train rides to the destination, and entertainment expenses must be covered with a travel reimbursement. If employees travel to locations with higher-than-average costs, the company's per diem rate may not fully cover their expenses.
For companies planning business trips involving similar daily patterns, pier diem can be a more convenient option. Employees may value the simplicity of not having to save and submit receipts.
What Are Reimbursed Expenses?
Reimbursed expenses involve employees submitting receipts and detailed reports for all expenses incurred during business travel and other work-related activities. The company then reviews the submissions before reimbursing employees based on their spending. It works as a "payback" system, with the employees fronting the costs for approved expenses before their company reimburses them.
It offers several perks, notably its flexibility. It's more suitable for expenses outside the typical per diem categories. It also reflects employees' actual spending more accurately, as reimbursements are based on real costs rather than a flat allowance. Reimbursements cover every valid expense, which can exceed a fixed per diem rate.
However, reimbursed expenses can create a more complex administrative process. Companies must review and approve receipts to ensure compliance with company policies. This review process can be especially cumbersome and time-consuming for finance teams that do not use software to centralise and simplify. Depending on the company's process, it could take employees a while to receive their reimbursements. It also requires the company to pay for business expenses first, which can be inconvenient if it is on a tight budget.
If your company's business travel involves unpredictable, fluctuating costs, reimbursed expenses can ensure your employees are reimbursed for every valid item they spend. Your employees may also prefer this system because they will be reimbursed for the exact amount they spend within policy limits.
Which Is Right for You?
Consider your company's specific needs when choosing between per diem or reimbursed expenses. Both systems can be straightforward to manage for finance teams and employees.
Per diem can be convenient for your finance team if you value its simplicity and predictability. Its set daily budget makes it easier to plan and manage finances for employees and the company without the need to keep and analyse receipts. By capping expenses at a reasonable rate, employees will be less likely to overspend and won't submit requests for additional reimbursements. There is also no incentive to inflate expenses.
Reimbursed expenses can be an administrative hassle if employees are forced to collect receipts before your finance team sifts through them. If you choose reimbursed expenses, consider Summit's Employee Expense Management. Employees can submit claims on the go using the mobile app or on their desktops in the office. After scanning their receipts, their transaction details are automatically captured and processed into expense reports.
Summit uses a centralised system, so you won't have to pay for multiple tools to track the expense process. Its AI-powered smart scanning removes the risk of processing errors, auto-populates receipt details, and simplifies reimbursement requests. It will also seamlessly integrate with your existing accounting systems.
If you're interested in simplifying your reimbursed expenses, please contact us. You can talk to a team member, book a demo, or ask us any questions about Summit's Employee Expense Management.
