DRIVING THE NUMBERS:
A look at the trucking industry’s financial landscape
5
What Is a Per Diem
Program?
A per diem program is a plan that
enables up to $66 per night away from
home ($71 for outside the continental
U.S.) to be disbursed to OTR drivers,
as opposed to having drivers turn in
receipts for direct expenses. It reduces
administrative burden, while providing
additional cash to drivers on a pre-tax
basis. To qualify, companies must have
an accountable plan, which would
include these requirements:
• The travel must have a business
purpose;
• There should be logs showing that
you adequately account for the
eligible amount within a reasonable
period of time;
• The amount should be tested
regularly to ensure that drivers are
not exceeding the allowable amount;
• Employees must return any excess
reimbursement or allowance within a
reasonable period of time or;
• Treat the overage as compensation.
As previously mentioned, the driver
receiving the per diem must be over
the road, meaning out overnight, where
they cannot reasonably be expected to
complete a route without sufficient rest.
Example
There are benefits of having a per diem
program both for the driver and the
carrier. Not only is the driver reducing
their federal and state tax by receiving
a tax free disbursement, but they also
avoid paying FICA and Medicare tax on
the per diem amount. Additionally, the
carrier is able to reduce the employer
portion of payroll taxes. For example, if a
driver is paid 55 cents per mile over 2,500
miles, but is able to convert 10 cents per
mile to a per diem payment, the driver
would save $43 a week in federal and
state taxes (assuming a combined rate
of 17 percent) in addition to saving $19
a week in FICA and Medicare tax (see
chart below). Furthermore, the employer
would save an equal amount of FICA and
Medicare tax.
Other
Considerations
There are further implications
to restructuring compensation.
Transportation companies are only able
to deduct 80 percent of per diems paid
to drivers. Depending on the carrier’s tax
situation, this reduced deduction may be
less impactful. For instance, company
owners with suspended losses may not
be impacted by the lost deduction for
years. ESOP carriers would also be less
impacted, since ESOPs are not federal
taxpayers. Furthermore, in light of the
reduction in corporate tax rates, this 20%
addback is less punitive than it used to
be. “With the reduction in corporate tax
rates, the math finally made sense for us
to move towards a per diem program,”
Higginbotham added. “We realized
we could implement a driver friendly
program on a cost neutral basis for the
company.”
There may be some additional unintended
consequences for companies instituting
a per diem program. While reducing tax
to the company and the drivers seems
like a win-win, drivers should consider
that, since their reportable income will
decrease, their ability to obtain financing
may be impacted. Other benefits, such
as 401(k) contributions that are based
on compensation, will also be impacted
since per diems are not considered
compensation. Unemployment insurance
is also based on taxable wages and
would not include amounts received as
per diem.
Impact to Driver
No Per Diem 10 Cent Per
Mile Per Diem
Driver Pay Per Mile:
$0.55
$ 0.45
Driver Per Diem Per Mile 0. 10
Diver miles per week: 2,500 2,500
Gross Pay
1,375
1,125
Per Diem 250
Payroll Taxes 105 86
Federal and State Withholding
(1) 234 191
Net Pay $1,036 $1,098
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