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Per Diem Docking?

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PWHoppe:
Very sound advice Beer Court, that anyone from the Numanco days at DC Cook can relate to. The rules as you state them are true. The IRS is indeed on to this so be very careful how creative you get with your expenses.

BTW did you realize when you put the words The IRS together you get THEIRS... ;)

Tech-A:
The posts on here so far are correct from the "Labor Law" standpoint. But the other side of coin is the "CONTRACT" law.
A verbal contract is enforceable.
If you have 10 techs that show up on site and are being told that company is only going to pay them 7$hr and 50day Pd, when they were ALL told they was going to get paid 14$hr and 90day Pd, They could take the company to court and win.
Then there is the "AT WILL" argument.......

halflifer:
Also, talk to a lawyer if they are docking your per diem and didn't stipulate this at the time of hire. Per Diem means 'by the day' so you may be able to recover it if docking for time off wasn't a clear condition of hire.

Rennhack:
Per Diem Payments
Tax and Wage Issues Make Business Travel Reimbursements Complex

Because of the unique nature of the staffing industry and the temporary assignments worked by its employees, the subject of per diem payments is often a concern for staffing companies. Issues related to both income taxes and wages are inherent.

A per diem, or daily, allowance is a way for an employer to reimburse an employee, without the need to obtain expense reports or other documentation, for expenses incurred while temporarily away from home (or the usual place of business) on business. A staffing firm client company may also qualify to make per diem payments, and per diem reimbursements are available to self-employed individuals as well.


Accountable or Nonaccountable?
For a per diem plan to be eligible for favorable tax treatment, it must be an "accountable" plan. If the plan is deemed to be accountable, the payments will not be considered taxable income to the employee.
For a plan to be considered accountable, the following requirements set by Internal Revenue Service regulation 1.62-2(c)(1) must be met:

The plan must have a "business connection." This means that payments must be made for ordinary and necessary business expenses incurred (or that the employer reasonably expects to be incurred) by an employee for lodging, meals, and incidental expenses—or for meals and incidental expenses only.

Payments must be reasonably calculated to not exceed the amount of expenses or anticipated expenses.

Payments must be paid at or below the applicable federal per diem rate or some other recognized method, such as a flat rate or schedule.

The employer's plan must provide for return of excess payments—any of the per diem that is not spent on lodging, meals, and incidental expenses. Employees must be notified that excess payments must be returned through payroll deductions or employee reimbursement, and the employer must make a good faith effort to collect these excess funds.
If the employer cannot demonstrate that it meets these regulatory requirements, its plan will be considered "nonaccountable," and the amounts must be included in the employee's gross wages and W-2 form. Not having an accountable plan defeats the purpose of per diem, which is to reimburse the employee for business expenses without having that money considered income or part of wages. There is really no advantage to having a nonaccountable plan. An accountable plan is necessary if you want to pay per diem on a tax-effective basis.


Income Tax Issues
Remember that per diem means per day. With certain exceptions, an allowance that is computed on a basis similar to that used in computing wages or other compensation does not meet the business requirement and is not a per diem allowance. Accordingly, per diem should not be paid on an hourly basis—unless the employer can meet the limited exception, which provides that the employer must have had a per diem plan in place as of Dec. 12, 1989.
Under certain circumstances, an employer may provide per diem for meals and incidental expenses only (not lodging). However, under most circumstances, an employer may not allocate the full per diem allowance to lodging, even if the employer reimburses at a rate within the lodging-only portion of the government rates. One reason for this is that businesses are allowed to deduct only 50% of the expenses allocated to meals and incidental expenses, whereas lodging expenses are fully deductible.

Federal per diem rates separately identify expenses for lodging, and meals and incidental expenses. Even if the amount for lodging is the same as or greater than the total amount reimbursable to the employee per the agreement between the parties, the entire amount may not be attributed to lodging. There must be an amount separately attributable to meals and incidental expenses. If those amounts are not separately identifiable, the employer should allocate 40% to meals and incidental expenses.

It is important to remember that any amounts paid by an employer in excess of the allowable rates will be considered as having been paid under a nonaccountable plan—meaning that excess amounts must be included in the employee's gross income and reported as wages or other compensation, subject to tax withholding, on the employee's Form W-2.


One-Year Rule
Per diem is only available to employees temporarily away from home. If the employee is away from home in a single location for an assignment that is realistically expected to last for one year or less, then the assignment is temporary. If the length of the assignment is indefinite, no per diem is available.
However, the realistic expectation can change during an assignment. What happens if an assignment, which was originally expected to be temporary, is extended to a period beyond one year? Once the employer has a reasonable expectation that the assignment will last longer than one year, per diem payments must stop at that point. If that occurs, there is no requirement to retroactively tax the per diem. If an employer has to stop making per diem payments, then the employee would be required to submit expense reports and receipts to be reimbursed by the employer.

Generally, payments under an accountable plan are excluded from an employee's gross income and are not required to be reported on the W-2 as income. The employer may take a business deduction for the amount of proper reimbursements. Again, it is important to remember that while lodging expenses are fully deductible, expenses for meals and incidental expenses are subject to a 50% deduction.


Wage Issues and Split Rate
If per diem is improperly paid, it could form part of the regular rate of pay and therefore be subject to premium overtime requirements if more than 40 hours are worked in any workweek (or eight hours in a day in some states).
On occasion, employees will request that an employer pay what amounts to a split rate for all hours worked. A typical request might be that the employer pay $14 an hour in wages and an $80 per diem. That $80 a day would result in a payment of $10 an hour for a typical eight-hour day. When combined, the wages and per diem provide total compensation of $24 an hour. Accordingly, the employee could request premium overtime of $36 per hour.

These arrangements may technically meet the IRS and U.S. Department of Labor requirements because the $80 per day is less than the government reimbursement rates permit and $36 per hour is greater than the time and a half required for premium overtime hours payable to nonexempt employees.

However, split rates are specifically prohibited by IRS regulations and could result in problems for your staffing firm. If payments made by a staffing firm are investigated, a reverse calculation would reveal a premium overtime rate of 2.57 times the $14 per hour straight time rate. This is highly suspect—because it's so much greater than time and a half—and may lead to a finding of subterfuge and disqualification of an accountable plan, as well as loss of the deduction for the offending payments, or under certain circumstances, for the entire plan.

For more information on per diem, including reimbursement rates, visit the Web site of the U.S. General Services Administration at www.gsa.gov and click on the link Per Diem Rates.

Enlighten yourself:: 

Federal Statutes: 26 U.S.C 162
Internal Revenue Service Reg: 26 CFR  1.274-5
IRS Publications 1542, 463 and 535.
Revenue Procedure 2001-47
Revenue Procedure 2001-42
Revenue Procedure 2002-63
Revenue Procedure 2003-80
I.R.B. 332
Revenue Ruling 69-592
See also, United States v. Cornell, (1967) 389 US 299

Other links:

http://www.policyworks.gov/perdiem
http://www.gsa.gov/Portal/gsa/ep/contentView.do?contentId=17943&contentType=GSA_BASIC
http://www.uslegalforms.com/lawdigest/legaldefinitions.php/per_diem.html
http://www.staffingtoday.net/memberserv/0904ss/story6.htm
http://www.nysscpa.org/cpajournal/2003/1203/features/f123803.htm

Rennhack:
Troy, read this:
http://groups.msn.com/TheContractEmploymentCoffeeShop/faqs.msnw?action=view_list&row=5&viewtype=2&sortstring=

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