Many company drivers are offered per diem pay, but that doesn’t necessarily mean it’s easy to understand.
Per diem can be confusing. If you don’t understand how it works and you don’t keep track of how much you’re paid each year, you can be overpaid and your risk of an audit increases.
Add in the fact that per diem pay can be paid out differently at every single carrier and you can opt-in or opt-out of per diem pay, and you’re in for a whole lot of confusion. How do you make the best financial decisions for yourself as a company driver if you don’t have all the information you need to succeed?
It’s a guessing game. And I don’t want you to have to guess about your financial future.
As a truck driver, all you want is to earn a good income to support yourself and your family. As the operations support manager, helping drivers reach financial success is my number one goal.
Below, you’ll learn about:
- Per diem pay and how it works.
- The three types of per diem pay.
- How to decide if per diem pay will benefit you financially.
When you’re done reading through this article, you’ll understand how per diem works and if you should elect to receive it.
What is Per Diem Pay?
In Latin, per diem means “by the day” or “for each day.” Per diem pay is a non-taxable form of reimbursement that trucking companies can pay company drivers to use on items drivers can’t claim on their income taxes. This includes items like meals and laundry out on the road.
Per diem is paid out for every day that a driver is under a load. In order to qualify for per diem pay, you must travel more than 50 miles from home. However, some carriers do not offer per diem pay at all.
The secretary of the treasury, chosen by the president, gives orders to the IRS. The IRS sets a cap, or threshold, on the rate or per diem pay that drivers can receive each day. For instance, if the per diem rate is set at $60, a driver can receive a maximum amount of $21,900 in per diem pay for that year. For the last five years, that rate has fluctuated between $55 — $65.
The per diem rate can change each IRS calendar year and it’s likely to change with each presidential administration transition.
However, that is the only role the IRS plays in per diem pay. It is up to the carrier to decide whether they will or will not administer per diem pay and it is up to the carrier how much they will pay. As long as they don’t go over the threshold set by the IRS, carriers are allowed to administer per diem pay as they see fit. Similarly, drivers can opt-out of per diem pay.
Inflation can play a role in fluctuating per diem rates. States can also play a role in the per diem rate. This often correlates with whether the state has income taxes.
Three Ways Per Diem is Paid Out
Every carrier that offers per diem pay can choose to administer it differently. The only restriction they must follow is the cap set by the IRS. Some carriers don’t even pay per diem to company drivers at all.
Whether you are paid per diem and how you are paid has a lot to do with the size of the company and its administrative team. They may or may not have the capacity to administer per diem pay, so they may elect not to provide it for their drivers. Or, they may have limited staff so they decide to administer it a certain way — such as percentage vs. daily.
If your carrier chooses to offer per diem pay, they may pay it out one of three ways:
- Daily
- Percentage
- Cents per mile (CPM)
Daily Per Diem Pay
A carrier may decide to pay you each day you’re under a load. This is paid out at a flat rate. You must be under a load and more than 50 miles from home or the address in which you are taking home time.
When the load pays out or settles out, you will receive per diem pay for every day you were out on that load.
Some carriers don’t offer this option because it may diminish driver productivity.
Percentage Per Diem Pay
A carrier may decide to pay you a percentage of per diem. For instance, you may receive 10 percent per diem pay on top of your settlement check. The percentage paid can range and it is truly up to the carrier to decide what percentage of per diem they will pay drivers.
This can be a messier way to distribute per diem pay, but some carriers prefer this method. You will be dispatched on a load and told what percentage per diem pay you will receive on top of the load.
CPM Per Diem Pay
Some carriers will pay their drivers CPM per diem pay. For instance, for every mile you drive, you will receive a certain amount of per diem.
If you drive 2,000 miles one week and you get 10 CPM per diem pay, you would earn $200 in per diem pay that week.
How Do You Know if Per Diem Pay is Right for You?
You can decide to opt-in or opt-out of per diem pay depending on your financial needs and goals.
Many carriers will try to even out their programs so that drivers earning per diem pay and drivers electing not to earn per diem pay will still end up taking home the same amount of money. For instance, one driver may receive 50 CPM on each load, while the other driver will receive 40 CPM on each load and 10 CPM per diem pay.
Carriers do this to ensure drivers are treated equally and have the same amount of earning potential. So, while you will ultimately be taking home the same amount each year, some of your income will not be taxed if you’re receiving per diem pay.
If that’s the case with your carrier, you must carefully consider if per diem pay is the right choice for you. There are a few questions you can ask yourself to help you decide.
Do You Need to Finance a Large Purchase?
Per diem does not go against your W2 earnings and it doesn’t impact your earnings. However, it will lower your taxable income. When offered the choice of per diem pay, be sure to consider your financial goals and how your taxable income will impact these goals.
For instance, let’s imagine two company drivers:
One takes home per diem pay and one does not. They both take home $100,000 in 2021. Let’s say the driver that receives per diem pay receives $20,000 per diem pay on top of their $80,000 income. The other driver receives $100,000 with no per diem pay. One driver will have a taxable income of $80,000 and the other will have a taxable income of $100,000.
If either of those drivers is planning on taking out a loan to finance a large purchase, like a home, their taxable income can impact how big of a loan they can qualify for. Because the $20,000 per diem pay is not taxable, it essentially doesn’t exist to loan companies. The driver receiving per diem pay may not qualify for as large of a loan as he or she could if they weren’t receiving per diem pay.
Consider if you’re going to be making any big financial purchases in the near future. How will your taxable and non-taxable income affect this?
If you plan on buying a home soon, opt-out of per diem pay.
If you don’t have any big purchases ahead of you, per diem pay might be a good choice for you.
Consult with your financial planner and they can help you make the best decision that aligns with your long-term financial goals.
What are Your Freight Lanes?
You must also consider your freight lanes when deciding if per diem pay is right for you.
If you’re never 50 miles away from home, it doesn’t make sense to opt-in to per diem pay because you won’t ever be far enough from home to receive per diem pay. You must ensure you are incurring an expense far enough from home to receive per diem pay.
Can You Switch How You’re Paid?
Before you make your decision, ask your carrier if you are able to switch from per diem pay to no per diem pay. Many carriers will allow you to switch, but you can only switch a certain number of times in a specific time period. For instance, you may only be able to switch once per year.
Finding a Company that Aligns with your Financial Goals
Now that you understand per diem pay, you’ll feel more well-equipped to make sound financial decisions for yourself.
It may be time for you to review different truck driver pay structures and have a talk with your financial planner about your long-term goals. You have the power; you should feel in control of your financial future.
If per diem pay is important to you, then you need to find a company that offers it.
We’ve gathered a list of top-paying trucking carriers in the industry this year, as well as a guide to help you decide which carrier is right for you. Because while you’re considering your payment options, you also need to consider a carrier that is respectful and offers the equipment and home time you desire.