The term “per diem” is derived from Latin and translates to “per day.” In the context of employment, it signifies a compensation structure where the employee is paid a fixed daily rate. Unlike traditional full-time or part-time employees who have ongoing employment relationships, per diem employees are hired to meet immediate and temporary demands.
A per diem employee, often known as a daily or day-to-day worker, is an individual employed on a short-term, daily, or as-needed basis rather than under a long-term or fixed-term contract.
How Per Diem Compensation Works
When hiring per diem employees, their compensation is based on a fixed daily rate set in advance. Regardless of whether they work one hour, three hours, or a full eight-hour day, per diem employees are entitled to their full per diem rate.
It’s crucial to note that while per diem workers have a set daily rate, businesses must still adhere to relevant labor laws, including those governing minimum wage and overtime pay.
You may want to read our guide on state and federal labor laws for employers. Or, learn more about various types of employees and factors to consider when hiring.
Per Diem vs Reimbursement
Traditional employees are sometimes subject to per diem pay in certain situations. Per diem can sometimes refer to a daily allowance given to employees who travel for work. Employees may receive a per diem to cover expenses incurred during their time away. This can include meals, lodging, transportation, and incidentals.
While per diem and reimbursement may seem similar, they differ in key aspects. Per diem is a fixed daily amount provided in advance, covering anticipated expenses. Reimbursement, on the other hand, involves employees submitting receipts for actual expenses incurred, and they are reimbursed accordingly.
To help monitor expenses and ensure accurate reimbursements, check out our free employee expense report template in our guide.
Pros of Hiring Per Diem Workers
Like any employment model, per diem arrangements come with their own set of advantages:
One of the significant advantages of hiring per diem is the ability to pay for the work you need, when you need it. Unlike full or part-time employees, where consistent work commitments are expected, per diem workers offer the flexibility to only pay for labor during specific periods. This is especially beneficial for businesses with fluctuating workloads.
Per diem employees provide an excellent solution for filling gaps in your workforce. Whether due to employee absences, sick days, vacations, or personal leaves, per diem workers ensure that your business maintains operational continuity. This flexibility allows you to scale your workforce based on daily needs.
Hiring per diem employees can result in significant cost savings for small businesses. Traditional employees often come with overhead costs, such as equipment and program licensing fees, as well as benefits like health insurance. Per diem workers, being present only for the day, minimize these costs, making them a cost-effective alternative for short-term labor needs.
Cons of Per Diem Employment
While per diem employment offers flexibility and simplicity, it also comes with certain disadvantages for both employers and employees.
Steps to Implement Per Diem Employment
Per diem employees can be a valuable asset for small businesses, providing flexibility and cost-effectiveness in addressing short-term staffing needs. Here’s how you can optimize their use for your small business:
1. Identify Short-Term Needs
Assess your small business’s staffing requirements and identify areas with short-term or intermittent workloads. Per diem employees are particularly useful for handling spikes in demand or covering temporary absences.
2. Clearly Define Roles and Expectations
Clearly outline the roles, responsibilities, and expectations for per diem employees. Providing a detailed job description ensures that individuals understand the scope of their work and contributes to a smoother working relationship.
3. Establish Competitive Per Diem Rates
Research industry standards and set competitive per diem rates. Offering attractive compensation ensures that you can attract qualified per diem workers when needed.
4. Create Transparent Policies
Develop transparent policies regarding per diem allowances, including how expenses will be covered and reimbursed. Clear communication helps prevent misunderstandings and fosters a positive working relationship.
5. Utilize Per Diem for Special Projects
Leverage per diem employees for special projects or tasks that require specific skills or expertise. This allows your small business to access specialized talent without committing to long-term contracts.
6. Streamline Onboarding Processes
Develop efficient onboarding processes for per diem employees to ensure they can quickly integrate into your small business. Providing essential information and training materials in advance helps them contribute effectively from day one.
7. Ensure Compliance with Labor Laws
Familiarize yourself with labor laws and regulations relevant to per diem employment in your region. Compliance is crucial to avoid legal issues and ensure fair treatment of per diem workers.
8. Build a Pool of Reliable Per Diem Workers
Establish relationships with reliable per diem workers who understand your business. Building a pool of trusted individuals allows for smoother transitions during periods of increased demand.
Frequently Asked Questions (FAQs)
The per diem rate is typically agreed upon between the employer and the employee in advance. It may be influenced by industry standards, regional cost-of-living considerations, and the nature of the work. Some employers also follow guidelines provided by government regulations or industry associations.
Per diem employees usually do not receive the same benefits as full-time or part-time employees. Benefits like health insurance and retirement plans are often associated with regular employment contracts. Per diem employees are compensated on a daily basis, and benefits are generally not included in their arrangements.
Per diem payments may have tax implications, and it is essential to consult with tax professionals. In some regions, per diem may be considered taxable income, while in others, it might be nontaxable. Understanding and complying with local tax regulations is crucial for both employers and employees.
Per diem employment is traditionally associated with short-term or intermittent work. While it is possible to have long-term per diem arrangements, employers should carefully consider whether the nature of the work aligns with the benefits of per diem compensation.
Yes, labor laws, including minimum wage and overtime regulations, apply to per diem employees. Employers must ensure that per diem arrangements comply with relevant labor standards to avoid legal issues.
While per diem employees are typically engaged for short-term needs, some may transition to full-time positions if there is a mutual interest and a long-term fit. Employers and employees should discuss the possibility of transitioning from per diem to a more traditional employment arrangement if it aligns with their goals.
Bottom Line
Hiring per diem employees provides businesses with a strategic and efficient approach to managing workforce demands. The ability to pay for actual work, ensure flexible coverage, and realize cost savings makes per diem arrangements an attractive option for businesses looking to navigate variable workloads without incurring unnecessary expenses. By understanding per diem employment and leveraging its benefits, businesses can optimize their workforce strategy and achieve greater operational efficiency.
