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Are You Making These Mistakes When Managing Employee Per Diem and Travel Expenses?


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Construction continues to be a mobile industry, which means we all deal with travel expenses. Creativity in construction is plentiful, and nowhere is it more evident than in payroll practices. The recent United States Department of Labor crackdown on companies paying per diem in lieu of wages, highlighted the not-so-positive side of that creativity. But, per diem, when done properly, helps employees cover the costs of travel they do while working, and benefits companies by reducing costs and streamlining complex processes. 

The Findings

The Department of Labor discovered that some staffing agencies supplying labor to construction firms were avoiding overtime payments by paying per diem in place of regular wages. More than 3,000 employees are getting almost $3.5 million disbursed in back wages from the staffing companies. Liability extends to staffing agency clients if it’s determined that the workers are jointly employed.

For large corporations, dependence on the paper trail is increasing processing expenses by 43%.

But there is no easy or fast way to determine the above, which has caused several states to pass legislation clarifying the relationships. In general, your company can become a joint employer if it has “direct and immediate control” over another company’s employees. The final decision is up to the courts, but in disputes the ruling was that staffing agencies are joint employers with their clients. The best defense is a good offense, which means properly vetting your staffing agency, and knowing how it is paying the employees it provides to you. 

Another Form of Payment

There are also reports of entire construction companies using per diem in place of regular wages for overtime pay. Those receiving per diem instead of overtime think they’re getting a deal because the money is tax free. Processed correctly, per diem payments are not taxable wages, and not subject to employment taxes. But, when used to replace overtime, experts say it’s a form of wage theft because the per diem doesn’t pencil-out to what the person would have made if they had gotten overtime. It’s also misusing a system that is supposed to help businesses avoid the hassles of accounting for travel expenses.

Each year in October, the Internal Revenue Service publishes the daily amounts companies can use when accounting for travel expenses. When using a per diem system, employers don’t have to require workers to account for each meal and lodging expense. Instead, the employee claims the per diem rate, so receipts are not necessary what make the process quite painless.

Besides Per Diem

Per diem is just one part of the employee travel expense picture. What about all those other expenses a construction employee might incur while traveling? Fuel, equipment, tools, materials, and even costs for entertaining clients are just a few examples. All these expenses have to be accounted for, and there’s surprising evidence that companies aren’t taking advantage of technology to tame this administrative task. 

Many organizations still sift through hundreds of papers when processing travel expenses, increasing costs by 23% for small business. For large corporations, dependence on the paper trail is increasing processing expenses by 43%. A PayStream Advisors, Inc. poll confirmed the issue behind the rising costs was reliance on manual processes. For example, 69% of respondents said, “they file their receipts by mailing them to the accounts payable department”. Even more troubling was finding that 80% of organizations didn’t even know how much it was costing them to process employee expenses. 

Having a Policy

Besides adopting automation when processing employee expenses, construction companies also need to tend to the basics. This means implementing a written expense policy. It doesn’t have to be complicated, in fact, the simpler the better. The goal should be to list the categories of expenses and tell whether employees can use their own discretion, if there are limits based on per diem, and what expenses require approval up front. 

Policy Availability

Having a sound policy not only informs employees so as to avoid misunderstandings, but also acts as support if you’re ever questioned by the IRS about whether expenses are genuine. Make sure the policy is easy for employees to access, and that you promote it regularly. Also make sure people know who to talk to when they need help with expenses. A recent poll found that more than half of the employees surveyed didn’t understand their travel expense policies. 

Capturing the Right Info

It is vital that your employees capture the right information. For tax purposes, some expenses require different information than others. Be specific in your policies so employees are not forced to guess. Take advantage of technology because certain expense management solutions like Procore let you tailor fields that must be completed before an employee can submit expenses.

When you manage employee expenses properly, the benefits exceed just saving time and money––you avoid the unwanted notoriety that comes with wage disputes.

Click here to learn more about how to keep track of the productivity of your employees on the jobsite.