Are you looking for the best way to support your drivers with per diem payments without adding complicated calculations to your payroll? Wondering which method saves the most on taxes and keeps drivers happy?
Choosing the right per diem method is crucial for trucking companies. Not only does it impact how much drivers take home, but it can also lead to significant savings on payroll taxes for your business. The right approach can help you avoid costly IRS penalties by keeping your company in compliance with strict tax guidelines. Making a thoughtful choice means fewer headaches at tax time, more satisfied drivers, and more money staying within the business.
The simplest and most effective way to pay per diem is by a daily rate. Not only does it align with IRS guidelines, but it’s also easy to track and maximizes benefits for drivers. In this article, we’ll break down why the daily rate is the best choice, while also exploring per diem by the mile and by a percentage of pay, so you can decide if one of these might work better for your specific needs.
Staying Compliant with IRS Rules for Per Diem
The IRS has strict rules on per diem payments to prevent misuse. To keep these payments tax-free, it’s important to:
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Stay Within IRS Limits
Pay only up to the IRS-approved daily rate or mileage allowance. -
Document Everything
Keep detailed records, including dates, miles driven, and amounts paid. -
Avoid Double Dipping
Drivers cannot claim per diem payments on their own tax returns anymore, per diem has to be given through a company payroll. Only true Contractors are able to claim per diem on their personal/business taxes.
Non-compliance can lead to penalties or audits, so it’s worth consulting a trucking payroll expert to make sure your per diem payments are set up correctly.
Ways to Pay Per Diem for Truck Drivers
There are three main ways to pay per diem: daily rate, per mile, or as a percentage of pay. Each one has its benefits and drawbacks. Here’s what you need to know about each method.
Daily Per Diem Rate: A Simple, Reliable Option
The daily per diem rate is the recommended and preferred option. With this method, you pay a fixed amount to the driver for each night they spend away from home. The IRS sets a maximum daily rate (currently $80 per day).
Example: If a driver is away for five nights, they could receive up to $400 in per diem for that week, tax-free.
Pros and Cons of the Daily Rate
- Pros: The daily rate is straightforward. It’s easy for both drivers and companies to track, and there’s less calculation involved.
- Cons: The amount paid is limited to the days a driver is away from home. Drivers who work shorter trips and are not away from home overnight will not benefit.
Using the daily rate makes sense if you want a clear, easy way to support your drivers with minimal record-keeping.
Per Diem by the Mile: Best for Long Routes
Some companies prefer to pay per diem based on the number of miles driven. In this method, a portion of each mile rate is classified as per diem. This option can be attractive for companies that run long-haul routes with high mileage.
Example: Imagine a driver earns 0.54 cents per mile and drives 2,500 miles in a week. If the company allocates 0.20 cents per mile as per diem, that’s $500 paid as per diem that week, tax-free.
Pros and Cons of Per Mile Per Diem
- Pros: The more miles a driver logs, the higher their per diem. This can boost pay for drivers who spend a lot of time on the road.
- Cons: It’s more complicated to calculate, and it can create a variable income that some drivers may find frustrating. Also, it is very easy to over pay per diem this way, which can get you in trouble with the IRS.
Mileage-based per diem can work well for companies with high-mileage routes, but keep in mind the added complexity of payroll and the risk of being out of compliance with the IRS.
Percentage-Based Per Diem: Great for Steady Schedules
Another option is to set per diem as a percentage of a driver’s pay. This means that a certain percentage of a driver’s income is treated as per diem, making that part of their income tax-free.
Example: Suppose a driver earns $1,200 in a week. If 15% of that pay is classified as per diem, then $180 goes untaxed.
Pros and Cons of Per Mile Per Diem
- Pros: Drivers receive a predictable per diem amount based on their pay, regardless of miles driven or days on the road.
- Cons:It’s dependent on a driver’s earnings, so lower-paying weeks will mean lower per diem. Also, it is easy to overpay per diem this way, which can get you in trouble with the IRS.
The percentage method can offer consistency for drivers who prefer a steady per diem amount but may work best for companies with stable, predictable loads. But keep in mind you need to say in compliance with the IRS, so you don’t overpay or underpay.
Now that you know the main ways to pay per diem, the next step is figuring out which method aligns best with your company’s goals and meets your drivers’ needs.
Choosing the Right Per Diem Method for Your Drivers
Choosing the best per diem method depends on your company’s needs, the routes you run, and what’s best for your drivers. Here are some factors to think about:
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Tax Savings
Each method has its own level of tax benefit, so you’ll want to choose a method that aligns with your company’s tax strategy. -
Driver Satisfaction
Consider what your drivers need and prefer. High-mileage drivers might benefit from per diem by the mile, while those on shorter routes might prefer a daily rate. -
Record-Keeping
Some methods, like daily rates, are simpler to track, which can make a difference if you’re managing payroll for a large fleet. -
Compliance
Staying IRS-compliant is essential. Make sure the per diem method you choose follows all IRS guidelines, and keep accurate records.
A well-thought-out per diem strategy can not only save you money but also help with driver retention. Happy drivers who feel supported are more likely to stay with your company, reducing turnover and keeping your trucks on the road.
Find the Best Per Diem Plan for Your Trucking Company
Selecting the right per diem payment method can make a big difference for both your company and your drivers. Among the options, the daily rate is the simplest and most beneficial, but paying per mile or as a percentage of pay may fit certain company needs.
Choosing the best method depends on balancing tax savings, driver satisfaction, and ease of compliance. Remember, per diem payments aren’t just about covering travel costs—they’re a way to support your drivers, reduce turnover, and lower your tax liability.
If you’re still unsure which per diem method is right for your fleet, consider reaching out to a trucking payroll service. An expert can help you evaluate each option based on your unique needs, ensuring that you stay compliant with IRS guidelines and maximize savings.
At Superior Trucking Payroll Service, we know that choosing the right per diem method can be confusing. If you have questions or need more details, contact us for a personalized assessment of your per diem options—no strings attached. We also have a dedicated per diem page on our website with detailed information and references available for anyone looking to learn more-check it out.
Before founding Superior Trucking Payroll Service, Mike was the CFO of a trucking company with 80 trucks and a thriving brokerage. This experience gave him the perspective that a payroll solution has to make the lives of the office people better. All the solutions he has designed are to benefit everyone. Our company mission is to help trucking families and that includes the company owners, the drivers, and the office.