What is per diem allowance? A practical guide for employers and employees

What is per diem?

“Per diem” comes from the Latin phrase meaning “by the day", and it refers to the daily allowance you give employees when they travel for business.

It refers to the daily allowance provided to employees who travel overseas, either into or out of Singapore, for business purposes. Employees typically receive per diem when travelling to meet clients, attend conferences, or undergo training. The allowance is intended to cover essential living expenses, including meals, local transportation, and incidental costs such as laundry.

As a business owner, you can use per diem to:

• Standardise travel expense limits
  
• Remove the hassle of collecting, checking, and approving multiple receipts
  
• Reduce the turnaround time for employee reimbursements
  
• Ensure consistency in corporate travel budgeting
  

A well-set per diem aligns employee expectations with your company's financial controls.

After learning what is per diem allowance, let’s explore how per diem rates work and how these payments are typically made.

Per diem rates and how payments work

Many businesses in Singapore refer to IRAS-accepted per diem rates, which are published annually and take effect on 1 January each year. In the 2025 guidelines, for example, the acceptable rate ranges from SGD $55–190, depending on the country destination. However, the rates may change in the future, so you need to ensure you're using the latest published rates to maintain compliance.

It's also important to note that IRAS-acceptable per diem rates are provided solely for tax treatment purposes, and you aren't required to use them. Therefore, as a business owner, you may choose to:

• Follow the IRAS rates, or
  
• Set your own internal per diem rates
  

You can determine your own rate based on past travel costs, budget constraints, or company policy. However, any rate above the IRAS-acceptable amount becomes taxable income for the employee.

How can you pay per diem

Depending on your business travel workflow, you may:

• Issue per diem upfront through a bank transfer
  
• Load employee allowances onto corporate cards
  
• Allow employees to spend first and claim reimbursements later
  

Many businesses prefer using corporate cards because loading employee allowances onto these cards allows for ring-fenced spending, ensuring the allowance is used for its intended purpose and providing an automatic, auditable trail that simplifies reconciliation for both employees and the accounting team

What per diem covers and what it doesn't

Per diem allowances typically cover the following incidental and daily travel expenses:

Covered under per diem

• Meals and refreshments
  
• Local travel (taxis, buses, MRT)
  
• Laundry, tips, and incidental expenses
  
• Airport parking when employees use their own car
  
• Minor office supplies needed during the trip
  

Note on office supplies: While per diem covers most incidentals, a strong policy should explicitly define what falls under 'minor office supplies' to prevent ambiguity.

Not covered under per diem (reimbursed separately)

• Overseas airport transfers
  
• Hotel accommodation
  
• Airfare
  
• Client entertainment or hosted meals
  

These non-per-diem expenses are still fully deductible for your business and have no tax implications for employees.

Tax treatment: What you must know

Understanding how per diem allowances are taxed is essential for ensuring compliance with IRAS regulations.

In Singapore, a per diem allowance is non-taxable if the amount paid doesn't exceed the IRAS-acceptable rate for the specific location and year, and if you can clearly demonstrate that the payment is for subsistence. Otherwise, it's taxable.

A quick, conversational summary of how these expenses are taxed

Here’s an easy way to think about how different overseas travel payments are treated for tax purposes:

• Per diem allowance: If you pay more than the IRAS acceptable rate, only the extra portion is taxable.
  
• Reimbursement of actual expenses: When your employee submits receipts for expenses such as meals, laundry, accommodations, airport transfers, or business entertainment, these reimbursements are not taxable.
  
• Mix of per diem and reimbursements: The reimbursement part stays non-taxable, while any per diem paid above the acceptable rate becomes taxable.
  
• Airport parking fees: These are considered taxable if your employee drives to the airport for a business trip.
  
• Travel insurance: As long as the insurance covers the employee only for the period they’re overseas for business, it’s not taxable.
  
• Travel between home and the airport: Reimbursements (since 2005) and per-trip allowances (since 2007) for these journeys aren't taxable.
  
• Warm clothing for business trips: If you provide an allowance to buy winter clothing, that allowance is taxable. But if you reimburse the actual amount spent, it isn’t.
  
• Luggage allowance: Any allowance provided for purchasing luggage is taxable.
  

Tax treatment for employees travelling out of Singapore

IRAS now publishes acceptable per diem rates for overseas business travel, removing the need for employers to submit rates for approval.

For per diem allowances paid for overseas travel (from 2005 onwards), the tax treatment is as follows:

[Table:1]

Important note:If you pay a per diem allowance that is lower than the acceptable rate for a trip, the unused balance can't be used to offset taxable excess amounts from other trips.

Tax treatment for employees travelling to Singapore

For per diem allowances paid for inbound business travel on or after 1 January 2016, the tax treatment is:

[Table:2]

Special exemption:If an employee travels to Singapore for business for 60 days or less in a calendar year, their earnings are exempt from tax, which may affect how the per diem is treated.

What are the acceptable per diem rates in Singapore

Because the cost of living varies across countries and regions, IRAS publishes a list of acceptable subsistence rates by destination to standardise tax treatments. For 2025, the relevant domestic and inbound Singapore rates include:

• SGD $160/day — acceptable rate for employees travelling within Singapore for business
  
• SGD $160/day — acceptable rate for overseas employers sending staff to Singapore
  

These rates vary across regions globally. You should always refer to the latest IRAS table to ensure compliance.

However, the IRAS domestic per diem rate applies only when employees are travelling within Singapore and staying overnight for business purposes. Most employers don't use domestic per diem for same-day local travel, as those expenses are typically covered through standard reimbursement instead of a fixed daily allowance.

How to create strong per diem policies

To build an effective and compliant per diem policy for your organisation, you need to outline clear rules, ensure transparency, and define processes that employees can easily follow. Here's how you can create a strong and scalable per diem policy:

• Define the purpose and scope of the policy so employees understand when and to whom the per diem applies.
  
• Set clear per diem rates based on IRAS-acceptable rates, destination costs, and your company's internal budgets.
  
• Specify what the allowance covers and excludes, such as meals, local transport, incidental expenses, and non-reimbursable items.
  
• Detail the approval process so employees know how to request, receive, and use their per diem allowance.
  
• Provide clarification on the documentation requirements, specifying when receipts are necessary and when they are not.
  
• Outline rules for excess spending, unused amounts, or situations where actual expense reimbursement applies.
  
• Clarify tax treatment, especially how taxable portions (if any) will be recorded for employees.
  
• Define the payment method, such as bank transfers, corporate cards, or pre-loaded allowance systems.
  
• Ensure regular reviews and updates to keep the policy aligned with IRAS changes, travel trends, and your company’s operating needs.
  

A well-designed policy provides your employees with clarity, enhances compliance, and helps you maintain predictable and efficient travel expenditures as your organisation grows.

Calculating per diem the right way

To calculate the per diem for a trip:

Per diem amount = daily rate × number of travel days

Example:

• Rate: SGD $160/day
  
• Trip length: 5 days
  

Total allowance = SGD $800.

When planning your rates, consider:

• Exchange rates
  
• Seasonality
  
• Local cost of living at the destination
  
• Employee role and trip purpose
  

Your goal is to maintain a reasonable, compliant, and practical allowance.

After calculating the allowance, you also need to determine whether it is taxable or non-taxable. To do this, you must refer to IRAS’ acceptable per diem rates.

For example, consider this scenario: your employee travels to Hong Kong for a three-day business trip. Under your internal policy, the per diem allowance is SGD $120 per day.

However, based on the IRAS acceptable rate for Hong Kong in 2025, the non-taxable limit is SGD $105 per day. This means the amount above the acceptable rate becomes taxable. The taxable portion is calculated as follows:

Taxable allowance = 3 days x (SGD $120 - SGD $105)

Taxable allowance = 3 days x SGD $15

Taxable allowance = SGD $45

Best practices for implementing per diem

When designing a per diem payment policy, as a business owner, it is your responsibility to ensure that:

• The policy is clear, fair, and accessible for all employees.
  
• You provide updated acceptable rates from tax authorities to avoid compliance issues.
  
• Engage technology to streamline diem payments and expense reports.
  
• Update policies regularly to align with living expenses and travel trends.
  

Benefits of using per diem allowance

Here are some major benefits of providing per diem allowance:

• Your business's travel expense management is streamlined.
  
• Employees work with a predetermined daily allowance and don’t have to collect receipts. This results in a reduction in administrative effort, shortened approval periods, and more consistent handling of business expenses.
  
• A well-structured per diem allowance demonstrates that your business values transparency, comfort, and fairness in its business travel practices.
  
• Implementing a clear and reliable per diem policy showcases your commitment to your employees, making it easier for you to attract and retain top talent who appreciate predictable and hassle-free travel experiences.
  
• As a business owner, you can budget better for your employees’ work trips. The travel expense is predictable, which gives you control over the costs of business trips.
  
• It promotes transparency and equity in the reimbursement process.
  

Implementing a simple, well-structured process can significantly reduce your admin workload and ensure that reimbursements are processed swiftly, making it ideal for you and your employees.

How to manage per diem efficiently

Here’s how you can simplify per diem management across your organisation:

• Establish clear daily rates, adhere to acceptable rates, outline reimbursement rules, and ensure your employees understand how to report travel expenses.
  
• Provide digital expense management tools to ensure compliance and streamline financial processes. This will automate the tracking of expenses and simplify your reimbursement process.
  
• Issue physical or virtual corporate cards for expenses. Provide employees with company credit cards that are loaded with the total trip allowance. This simplifies expense tracking, if needed.
  
• Establish clear corporate travel policies for your organisation. This will ensure that everyone understands the per diem rates, the reimbursable expenses, and the reimbursement process.
  

The smartest way to manage per diem with Aspire

Managing per diem becomes dramatically easier when you use a unified financial platform like Aspire.

With Aspire, you get:

• Corporate cards for domestic and international travel
  
• Automated trip-wise or daily spending limits
  
• Real-time expense tracking
  
• Automatic syncing of transactions into centralised reports
  
• Faster reimbursement and approval workflows
  

Aspire eliminates paperwork, reduces manual errors, and gives you complete visibility into travel spending in one dashboard.

If you want effortless per diem management, predictable travel budgets, and instant reconciliation, an Aspire account gives you all the tools you need.

Frequently asked questions

What does 'per diem' mean in a job?

In the broad sense of the term, 'per diem' refers to a daily wage, in reference to contract wages or temporary employment. In the context of this article, 'per diem' refers to the daily allowance for employees on a business trip. This encompasses their expenses for their local travel, food, and other relevant costs.

What is per diem in Singapore?

As per the IRAS in Singapore, the acceptable per diem rates are issued for business trips overseas. The exact rates depend upon the region of travel. As an employer, you can set your own rates, higher or lower than the IRAS rates. Any amount exceeding the acceptable rate is considered taxable income.

Is per diem good or bad?

Per diem can be beneficial for both you as a business owner and your employees. This solution simplifies your expense reports, reduces your administrative workload, and makes your business trip costs predictable and thereby manageable. This approach eliminates the need to track actual expenses incurred for incidental costs.

Is per diem included in salary?

No, per diem allowance is a special allowance allotted to employees when they are on business travel. It is not a part of their salary but is an expense reimbursement meant to cover expenses incurred during business trips. It is not taxable unless the amount exceeds the IRAS-defined acceptable rate. In that case, any amount above the acceptable rate is considered taxable.

What is the difference between a per diem allowance for business travel vs a per diem employment?

There is a vast difference between the two terms. Below is the explanation:

• Per diem employment: When you hire individuals on a contract wage or per-day basis for a job or gig.
  
• Per diem allowance: When you compensate your employees for any incidental expenses incurred while on business travel.
  

The only common factor between the two concepts is that they both use a daily pay rate structure, although it is applied for different purposes.