Per Diem – More Than Good “Cents” For Your Business?

This month’s President’s Blog is courtesy of our good friends at Superior Trucking Payroll Service.  To learn more about the services that Superior offers, please visit their website at www.truckingpayroll.com or call them at 866-296-5911.

Per Diem is a way you can save your company thousands of dollars a year while at the same time put more money in your drivers’ paychecks.

Once you understand the “why’s & how’s,” it’s a simple process to implement.  Let’s start with an explanation of paying per diem.  It is really just a matter of modifying your payroll process by a couple of simple steps.  First, you calculate the gross wage by multiplying the rate you pay by the miles run.  Next, subtract out the per diem you plan to pay.  Use this new amount to calculate the tax withholdings before adding back the per diem.  For example, let’s compare two drivers driving 2,500 miles at 34 cents per mile but only one is paid per diem:

You’re probably wondering about the savings.  By paying per diem, your company will save money on workers’ compensation insurance.  The reason is because the per diem portion of the wage is not included in the workers’ compensation premium calculation.  Netting out the per diem reduces payroll, which reduces your workers’ compensation premium.  The IRS allows up to $59.00 per day in per diem.  If your workers’ compensation rate is 8%, you could reduce your premium by $4.72 per driver per day.  Annually that’s $1,180 per driver.  Here is how I calculated  it:

$59.00 per diem x 8% W.C. Insurance = $4.72 savings per driver per day.

$4.72 x 5 days per week x 50 weeks per year = $1,180.00 per driver annually.

Imagine the savings if you have ten drivers, twenty drivers, or one hundred drivers!

It is important to note that your insurance company may have a cap on the amount of per diem they allow and there are rules that govern when you can use per diem and how much you can use.  Navigator can help you with the first question and we can help you with the second.

As for the drivers seeing more in their paychecks… it all comes down to the fact that the per diem is non-taxable.  At the maximum IRS per diem allowance, your driver who is on the road 250 days per year will take home $14,750 each year – tax free! 

There are a few other things I want to point out.  First, only 80% of per diem may be deducted on the company’s income taxes.  However, you will find that the reduction in FICA tax you pay (as per diem is not subject to FICA) usually offsets the extra income tax.  Second, if one of your drivers has a lost time workers’ compensation claim, the indemnity benefit paid to them (wage replacement) is based upon their wage (which is now lower because per diem is not included in their wage).  Third, on the rare occasion that one of your drivers is currently deducting the per diem on their income taxes, they will no longer be able to do so.  However, most drivers are agreeable to points two and three since they are bringing home a larger paycheck each pay period.   

Could you use some help implementing the use of per diem?  Do you have questions regarding trucking payroll administration?  Superior Trucking Payroll Service works with trucking companies of all sizes.  If you have one truck or a thousand trucks, please contact us.  Trucking is all we do and we would love to help you out.  You can email me directly at mritzema@truckingpayroll.com or call 866-296-5911 and ask for Mike.

Thanks Jeff for sharing your Blog this month.  I owe you one!