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The short answer is, the more money your
company allocates to the payment of PD, the more money your firm
is going to make! Did you know that on PD payments your firm does
not have to pay the usual 7.65% FICA, unemployment insurance,
and Medicare?
The long answer is, do you know what per diem (PD) is?
Keep reading! PD is a
reimbursement for temporary living expenses incurred
while I'm working more than 50 miles away from my home
base. It's a lump sum payment in lieu of expensing my
employer for each separate expense I incur.
What is YOUR company's benefit of providing PD?
With PD, your company can attract out of town talent,
make a lot of money, and save a lot of money! Why? Because on
PD payments your firm does not have to pay the usual
7.65% FICA, unemployment insurance and Medicare contributions.
Keep in mind, as the "Example" near the end of this page
demonstrates, PD payments can increase your company's profits
by 63.8 per cent!!
Is there any additional cost to your firm?
No, there is no additional cost. The PD does not come out of
your company's money. The PD always comes out of MY
money!
How to increase profits:
The more money your company allocates to the payment of PD,
the more money your firm is going to make! Did you know
that on PD payments your firm does not have to pay the
usual 7.65% FICA, unemployment insurance, or Medicare?
Not a favor:
A few contract staffing firms, not realizing
that this is their chance to make more money, sometimes make
me think that they do me a favor when they pay me PD out of
my own money!
Fear:
Sometimes a contract firm uses *fear* to try to
make me think *fear* is holding them back before they agree
to pay me the Federal rate out of my own money. Think about it;
there's nothing to be feared! You're not breaking any rules!
Why don't you read the rulebook? Click
IRS Publication 463,
and study it or read it.
Does this PD go on my W-2?
No, it does not.
Read the rules. Read the lower right corner of page 8 of
IRS Publication 463 where it says, "Reimbursements
treated as paid under an accountable plan, as explained
next, are not reported as pay."
What are the Federal rates for PD?
PD rates are given in
standard tables by the IRS and the GSA. Which one do you use?
IRS Publication
1542 is excellent for filing your tax return (for last year),
however the standard tables at the
General Service Administration's web site are more current, more relevant, and
therefore far more useful to recruiters working on new contracts (in this year).
High-low rate:
Can you exceed the Federal
rate? Yes, you can. If this statement sounds like a
contradiction, you need to remind yourself the IRS Code is full of
contradictions. Read the rules.
Read
IRS Publication 463. Scroll down to page 30, and find the
subsection titled "High-low rate", and read that subsection where
it says the "high rate" (for New York City, San Jose, etc.) is $246
per day, and for any other location in the Continental United
States the "low rate" is $148 per day.
Higher rates are possible:
Can you get an even higher rate?
Yes, you can. The key is **your** location,
not the location of your end client. This means, if your end
client's plant is in a suburb, but your hotel is in a nearby BIG
city, a *higher* Federal PD rate may apply. Click
IRS Publication 463,
and read the lower right corner of page 29 that says, "For per diem
amounts, use the rate in effect for the area where you... sleep or rest".
Example:
If a client's plant is located in Coon Rapids MN, and
if you're staying at a hotel or motel in Coon Rapids MN, then,
based on 2008 Federal rates, you're entitled to a PD of $119 per day.
Hold it! Why don't you use the IRS' "high-low rate"? If you do, then
you're entitled to a PD of $148 per day! Wait a minute! How about an
even higher rate? How about staying at the nearest big city? Based on
2008 Federal rates, if your hotel or motel hotel is in Minneapolis
- just 5 miles from Coon Rapids MN - you're entitled to a PD of $185
per day!
Hourly payments:
Are hourly payments legitimate? I realize
this is a controversial subject, and opinions differ. My guide is the law
and the IRS who say that hourly payments are not legitimate. To be
considered legitimate by the IRS, the payments must be paid for every **day**
when I'm physically staying in a location more than 50 miles from my
home base. The days must include non-working weekends and holidays as
well as stand-by days. Your firm may **calculate** an hourly rate for the PD
based upon your firm's need for a reasonable profit, but your firm must
pay me a set rate for every **day** when I'm in that remote city. One possible
explanation is that "per diem" means *per day*, not "per hour". My
experience is that if an agency is telling me the PD must be paid hourly,
the agency is usually uninformed. The best contract staffing firms pay the
PD for every day. If this or the next two paragraphs sound confusing to you,
don't give up yet! With PD payments you can *still* increase your company's
profits by 60+ per cent!!
Can the PD fluctuate , based on my work hours?
No, it cannot.
Can it be not paid on my days off?
No, it must be paid for every day, as long as the contract is in effect.
Does the rate depend on the type of hotel
I stay at? NO, the PD rate has nothing to do
with whether I stay at a hotel or get a good deal on
a short-term apartment.
No need for record keeping:
Do I need to provide some
kind of *receipts* for food and housing? The rulebook says the
only proof I need is the proof of payment of PD. Read the third column
of page 25 and the second column of page 30 in
IRS Publication 463.
One possible explanation is that PD intends to promote
business and minimize accounting costs associated with travel expenses.
I prefer maximum Federal rates
just as I prefer high rates to low salaries.
Think about it for a second; there's nothing to be feared! You're not breaking any
rules! If you have too many fears, you shouldn't be representing me.
What do the best contract staffing firms do?
They calculate and pay my
PD correctly, and allocate the maximum Federal rates fairly. They're aware of
the fact that I'm entitled to the full amount of my Federal rates as long as I keep
working, and don't return to my permanent home.
Who sets PD rates and rules?
Rates and rules are set by Federal
law and the IRS. Do you need more information? Would you like to see the IRS rates
for your city or county? A reliable and excellent provider of the most current and
up to date PD rate information is the
General Service Administration's web site.
Do you need to report this PD on a W-2?
The answer is "no, you don't". See
"reimbursements" in chapter 6 of
IRS Publication 463.
The most useful rulebook
on PD that is also online is
IRS Publication 463. Other rulebooks on PD include IRS
Publications 511, 1509 and 1728.
Do you allocate PD for weekends
and standby days? The answer is "yes, you do". See
IRS Publication 463
and IRS Publication 1728.
Maximum federal PD rates:
Would you like to see the maximum federal PD rates for your city
or county? See the
General Service Administration's web site.
IRS Publication 463
is an important source of information on the subject of PD
payments, weekends, standby days, reimbursements, record keeping, reporting,
maximum Federal rates, high-low rates, proof of expenses and the IRS' four
conditions that qualify me to receive PD.
What do you say in your contract?
Splits are not my preferred way of doing business, but sometimes
they can
be done without too much harm being done. At other times,
if the split is offered and accepted, I start working and
get paid, but, when I look at my check stubs, there is a
little bit missing from my holiday or overtime pay. This
amounts to a minor irritation, and I often promise myself
that I probably won't do this "infamous PD
split" again.
For your information, let me tell you this: Tying the amount
of PD to the number of hours I work is fraught with
problems. If you pay PD on an Hourly basis, e.g. use an
"infamous PD split", there will be many
potential opportunities for misunderstandings.
Contractors want to know, "Is my check going to
going to be short, if, for example, one of the days of
the week is a holiday?"
A solution:
One contract-staffing firm
prevents potential problems associated with holidays,
weekends and other stand-by days. How do they do it? In
their contracts they spell out in advance the formula
they're going to use. For example, when they want $29/hr
split out of $60/hr, they use the following wording in
their contracts: "PD is divided as follows: 27 hours
or less: PD rate per hour. 28 to 32 hours: PD rate for 32
hours. 33-35 hours: PD rate for 35 hours. 36 to 40 hours:
full weekly PD rate. Overtime hours: $90/hr rate and no
additional PD."
NUMBER OF HOURS
WORKED PER WEEK
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HOW MUCH "PD" DO YOU PAY?
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27 hours or less
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PD rate per hour
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28 to 32 hours
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PD rate for 32 hours
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33 to 35 hours
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PD rate for 35 hours
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36 to 40 hours
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Full weekly PD rate.
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Overtime hours
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$90/hr rate, and no additional PD.
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Is there any additional cost to your firm?
No,
there is no additional cost. The PD does not come out of
your company's money. The PD always comes out of MY
money!
How much money would you like to make?
The more money your company allocates to the payment of PD,
the more money your firm is going to make! Did you know
that on PD payments your firm does not have to pay the
usual 7.65% FICA, unemployment insurance, or Medicare?
Example:
Let us say your company's
billing rate is $100/hr, my rate is $80/hr, your firm's
sales cost is $8.88/hr, I work on W-2; and for your city,
Boston, the IRS allows a maximum PD of $238 per day. Your
firm has the option of breaking out OR not breaking out
of my $80/hr rate, a PD of ($238/day x 7 days) / 40 hrs=
$41.65/hr.
A) If your firm pays no
PD, on my work your firm will make only ($100/hr
- 80/hr - $8.88/hr - 6.12/hr FICA)= $5.00/hr.
B) Alternatively, if
your firm breaks out of my $80/hr rate the PD of
$41.65/hr, then on my work your firm will be able
to make ($100/hr - 80/hr - $8.88/hr - 6.12/hr
FICA + 3.19/hr FICA)= $8.19/hr. The key is the
$41.65 x 7.65%=$3.19/hr FICA that you will save
on the PD of
$41.65/hr. This means that your firm will be able
to make an additional profit of $3.19/hr!! Or, to
put it differently, your firm will be able to
increase its profits by a whopping ($8.19 - 5.00)
/ 5.00= 63.8 percent !!
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