Automating per diems and expenses: What you need to know

What is a per diem?

A per diem is a flat-rate allowance covering the increased living costs an employee incurs when travelling for work, primarily meals and incidental expenses. The alternative is reimbursement of actual costs, where the employee is reimbursed against receipts for meals and similar expenses.

The choice of method can have both practical and tax implications. In Sweden, meals reimbursed at cost during a business trip are a taxable benefit, whereas per diems are paid tax-free up to the Swedish Tax Agency’s standard rates. This is one of the reasons why per diems are the dominant model in Sweden. They are simple for the employee and tax-efficient for both parties.

Sweden is, however, relatively unusual in taxing meals during business travel as a benefit in kind. Many other countries make no such distinction, which leads to a greater mix of approaches. Even so, per diems are the dominant model in Norway, Finland, Germany, Poland and several other European countries. There are also places such as the United Kingdom, where per diems exist as a concept but most organisations still reimburse actual costs. And there are countries where per diems are entirely absent from tax legislation, but where organisations can create their own flat-rate models.

It’s rarely a binary choice

For international organisations, the choice between per diems and reimbursement of actual costs is rarely either/or. The most common approach is to use per diems in countries where they are established and reimbursement of actual costs elsewhere, but with a cap on what is reimbursed for breakfast, lunch and dinner, so that reimbursement levels remain reasonably consistent globally.

This means the system needs to handle both models in parallel, ideally with logic that makes them comparable and reasonably easy to administer.

Calculation models vary considerably

Even in countries with statutory per diems, the calculation models vary. There are essentially three main models:

Calendar-day based: the allowance is calculated per calendar day 24-hour periods: the allowance is calculated based on how many 24-hour periods the trip covers Fixed rates per meal: breakfast, lunch and dinner are reimbursed at fixed amounts

On top of that, there are countries with no statutory model at all, but where an internal model can be created.

For an organisation operating in ten countries, this can mean ten different calculation logics. Ask the supplier which countries have ready-made models and how they are maintained when the rates change. The next question is just as important: how are countries without a ready-made model handled?

A global approach is possible, but it requires the right system

Some organisations choose to use per diems in every country, even where it isn’t customary, in order to have a consistent global approach. This can be an entirely reasonable choice, as it creates equal conditions for employees wherever they are.

However, very few systems can manage this in practice. Building and maintaining per diem models for every country has traditionally been costly, both in terms of development and ongoing maintenance, as someone needs to update the system every time a country’s rates change. It becomes even more expensive when a custom flat-rate model needs to be built.

AI has changed that. If the system can take a plain-text description of a country’s per diem rules and generate the calculation logic from it, much of the technical barrier disappears*. What previously required a developer can be handled by someone who understands the tax logic and can provide the system with the relevant legislation. A global approach suddenly becomes feasible without maintenance costs spiralling.

*AI can hallucinate and invent its own solutions, so the code and calculation models still need to be tested.

Rates that aren’t always tax-free

Per diems don’t have to be set at exactly the tax-free level. Some organisations choose to pay more, either as a fixed supplement for specific countries, a percentage uplift on the tax-free rates, and/or as a taxable per diem for day trips where no tax-free allowance applies.

There is also the dimension of collective agreements, where different employee groups within the same organisation may be entitled to different allowance levels. The system needs to be able to handle this if required.

What the system needs to handle

Flexible configuration. Can the system handle your specific countries and models? Can you configure your own calculation logic for countries without a ready-made model, and how difficult is that in practice?

A clear user interface. AI agents can take over more and more of the administrative work, but for now a person should still be able to understand and complete a per diem claim without having to read a manual. Test this in a demo using real-life scenarios.

Integration with receipts and cross-checking. A per diem system should ideally talk to the receipts side of the system. If an employee has a restaurant receipt for the same day a per diem has been claimed, the system should recognise that a meal deduction needs to be made. This should happen automatically, not after a manual review.

Questions to ask the supplier

1. Which countries have ready-made per diem models, and how are they maintained when the rates change?
2. How are countries without a ready-made model handled? Can we configure our own calculations?
3. Does the system support reimbursement of actual costs alongside per diems?
4. Can the system handle taxable supplements on top of the tax-free rates?
5. How are collective agreements or other variations between employee groups handled?
6. Does the system recognise that a meal deduction should be made if the employee has a restaurant receipt for the same day?