Small business owners wear the finance hat, the HR hat, and the compliance hat. A per diem policy is one of the few things that simplifies all three at once — if you set it up correctly. This guide shows how to build a compliant, simple per diem policy for your U.S. small business in 2026.

Why Small Businesses Should Use Per Diem

  • Kill the receipt pile. Per diem replaces itemized meal receipts with one daily number.
  • Predictable costs. A trip to Austin has a known daily ceiling before anyone books anything.
  • Clean payroll. Correct per diem never touches W-2 wages.

Pick Your Rate Method

Option A — GSA per-locality: accurate but requires lookups. Use the DayFig directory for the exact city, or the trip calculator for multi-day totals. Standard rate is $178/day; big cities run higher (e.g., NYC up to $434/day).

Option B — IRS high-low: $319 high / $225 low. Two rates, one policy, no lookups. Best when employees visit many cities.

Option C — M&IE only: pay actual lodging + a daily M&IE per diem. The most common hybrid.

Write the Policy (5 Lines)

  1. Per diem covers lodging, meals, and incidentals (or specify the hybrid).
  2. Rates: GSA per-locality or IRS high-low for the current fiscal year.
  3. Substantiation: employee provides dates, destinations, and business purpose.
  4. First/last day: 75% of M&IE under GSA method (see the 75% rule).
  5. Excess: any advance over the federal rate must be returned or becomes taxable.

Payroll Treatment

  • Per diem ≤ federal rate under an accountable plan = not wages; no withholding, no W-2.
  • Excess = wages: withhold income tax, Social Security, Medicare, and report on W-2.
  • Keep the rate table with your records in case of audit.

Avoid These Traps

  • Paying a "flat" per diem above the federal rate. The excess is wages.
  • No substantiation. Without dates and purpose, the whole payment can be treated as wages.
  • Forgetting the 50% meals limit on the deduction side.

One-Person Companies

Sole proprietors and single-member LLCs can use the same per diem rates for their own business travel on Schedule C — no policy needed, just the substantiation records and the 50% meals limit. See the per diem tax guide.

Sources: IRS Rev. Proc. 2019-48; Notice 2025-54; GSA FTR 26-01. Not tax or legal advice.