Per diem or daily allowance is a specific amount of money that an organization gives an individual, typically an employee, per day to cover living expenses when travelling on the employer's business. A per diem payment can cover part or all of the expenses incurred.

How does a per diem work?

Per diem employees work on an as-needed basis. While per diem means "for each day" and not "as-needed," a per diem position applies to someone who may be needed one day but not the next. ... They're paid per diem rates for the days they work, rather than hourly wages or salaries.

When Should per diem be paid?

You must use per diem pay if wages after travel expenses go below minimum wage requirements. The per diem is not taxable as long as you give the employee the maximum per diem amount per day or lower. The allowance is taxable if the per diem exceeds the maximum amount.