Companies do not generally have to pay per diem. No federal law requires a private employer to give you a daily allowance for lodging, meals, or incidental costs when you travel for work. That said, the answer flips in several common situations: a state expense-reimbursement law, an employment contract, a union agreement, or the federal minimum wage can each force an employer to cover travel costs one way or another.
The Federal Default
The Fair Labor Standards Act does not require employers to reimburse travel expenses or pay per diem. Deciding whether to cover a hotel room, meals, or incidentals during a business trip is left to the employer. Many companies pay per diem anyway because it simplifies accounting and helps recruit workers who are willing to travel, but the choice is theirs.
One federal rule does bite: minimum wage. If unreimbursed business expenses effectively drop your earnings below $7.25 per hour for the workweek, the employer has violated the FLSA.1U.S. Department of Labor. Minimum Wage The Department of Labor treats employer-required expenses that cut into wages the same way it treats wage deductions: no deduction or unreimbursed cost may push pay below the minimum wage or reduce required overtime.2U.S. Department of Labor. Fact Sheet 16 – Deductions From Wages for Uniforms and Other Facilities In practice, an employer who sends a low-wage worker on a trip and refuses to cover expenses may owe the difference as wages.
States That Require Expense Reimbursement
Federal law is silent, but roughly a dozen states and the District of Columbia require employers to reimburse employees for necessary business expenses. Coverage varies. Some statutes reach all out-of-pocket costs tied to job duties; others focus narrowly on tools, uniforms, or remote-work expenses. In a state with a broad reimbursement statute, an employer that requires travel and refuses to cover lodging and meals can face a wage claim.
States with well-known reimbursement laws include California, Illinois, Massachusetts, Montana, New Hampshire, and New York, among others. Penalties differ but can include the unpaid amount plus liquidated damages, attorney fees, and administrative fines. In more than 75 percent of states, no statute specifically requires expense reimbursement, so what your employer owes depends on the employment agreement.
Contracts and Union Agreements
Even without a statute, a written employment contract or company policy that promises per diem creates a binding obligation. If the offer letter, employee handbook, or travel policy says you get a daily allowance for business travel, the employer has to honor it. Failing to pay what was promised can lead to a breach-of-contract claim or a wage complaint, depending on how the state classifies the payment.
Union collective bargaining agreements often include per diem provisions for members who travel to job sites away from their home base. These negotiated terms are enforceable, and disputes over unpaid per diem are usually handled through the union grievance process or arbitration. If you are covered by a union contract, read the travel and subsistence provisions carefully. They typically specify exact daily rates and the conditions that trigger payment.
Government Contract Work
Employees of federal contractors sometimes assume the Davis-Bacon Act or the Service Contract Act guarantees a travel allowance. It does not. Both laws require prevailing wages and certain fringe benefits like health insurance, pensions, and paid leave, but travel and transportation expenses are explicitly excluded from the definition of fringe benefits under each.3U.S. Department of Labor. Fact Sheet 67B – Meeting Requirements for Service Contract Act Fringe Benefits4U.S. Department of Labor. Fact Sheet 66E – The Davis-Bacon and Related Acts Compliance with Fringe Benefit Requirements
What the federal rules do address is what the contractor can bill back to the government. The Federal Acquisition Regulation caps allowable travel costs at the daily per diem rates set by the General Services Administration for travel within the continental United States.5Acquisition.GOV. FAR 31.205-46 Travel Costs Whether the contractor has to pay you per diem at all still turns on your employment agreement or union contract, not on Davis-Bacon or the SCA.
How Per Diem Affects Your Overtime Pay
If your employer does pay per diem, the structure of the payment matters for overtime. Under the FLSA, overtime is one and a half times your “regular rate of pay.” A legitimate per diem that reimburses actual or reasonably approximate travel expenses is excluded from the regular rate, so it does not raise the overtime rate.6eCFR. 29 CFR 778.217 – Reimbursement for Expenses
A per diem counts as reasonable, and stays out of the regular rate, as long as it does not exceed the GSA per diem rate for the travel location or the amount allowed under IRS guidance.6eCFR. 29 CFR 778.217 – Reimbursement for Expenses When the “reimbursement” is disproportionately large compared to actual expenses, the DOL can reclassify the excess as wages. That pulls the extra amount into the regular rate and can create liability for back overtime.7U.S. Department of Labor. FLSA2024-01 Opinion Letter
The DOL looks at substance, not the label. Relevant signals include whether payments are made regardless of whether the employee actually incurs any costs, whether the employer requires any confirmation that expenses were incurred, and whether the payment varies with hours worked rather than with travel.7U.S. Department of Labor. FLSA2024-01 Opinion Letter A per diem paid on non-travel days, or one that scales with hours worked, tends to look like disguised wages.
How Per Diem Is Taxed
Whether per diem hits your paycheck as taxable income depends on the employer’s plan. Payments made under an IRS “accountable plan” are not treated as wages, which means no income tax, Social Security, Medicare, or federal unemployment tax comes out of them. The plan qualifies as accountable only if the expense has a business connection, the employee substantiates it within 60 days, and any excess is returned within a reasonable time.8Internal Revenue Service. Publication 15 (2026), Circular E, Employers Tax Guide
When per diem is paid at or below the federal rate, the substantiation rules are simplified. You only need to document the time, place, and business purpose of the trip, not every meal receipt.9Internal Revenue Service. Publication 463 (2024), Travel, Gift, and Car Expenses
If the employer pays more than the applicable federal rate, the excess is taxable income. The employer reports it on your W-2 and withholds income and employment taxes on that portion, while the amount at or below the federal rate stays tax-free.10Internal Revenue Service. Per Diem Payments Frequently Asked Questions If the plan fails any of the accountable-plan requirements, the full payment becomes taxable wages, not just the excess.11eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements
One more limit: per diem qualifies for tax-free treatment only when you are traveling away from your “tax home,” generally the city or area where your regular workplace sits. The IRS treats you as traveling away from home only when your work requires you to be away substantially longer than an ordinary workday and you need to sleep or rest before returning.12Internal Revenue Service. Topic No. 511, Business Travel Expenses Day trips do not qualify, and per diem paid for local assignments where you return home each night is generally taxable.
Current Federal Per Diem Rates
Federal rates set the benchmark that drives both tax treatment and the overtime safe harbor. The GSA publishes location-specific rates for the continental United States, and they change each fiscal year, October 1 through September 30.13U.S. General Services Administration. Per Diem Rates
For fiscal year 2026, the standard CONUS lodging rate is $110 per night, applied to any location without a separately listed higher rate.14Federal Register. Maximum Per Diem Reimbursement Rates for the Continental United States (CONUS) Meals and incidental expenses are paid in tiers by location, with each tier including a $5 daily incidental allowance.15U.S. General Services Administration. M&IE Breakdowns High-cost cities like New York, San Francisco, and Washington, D.C. carry significantly higher lodging and meal rates.
Many private employers use the IRS “high-low” method instead of looking up each city. For the period beginning October 1, 2025, the high-low rates are $319 per day for high-cost areas and $225 per day for all other locations, with $86 and $74 respectively allocated to meals and incidentals.16Internal Revenue Service. Notice 2025-54, 2025-2026 Special Per Diem Rates Paying at or below the GSA location rates or the high-low amounts gives the employer a safe harbor for both tax and overtime purposes.