Stipend vs per diem: Which option is best for your team [full guide]

When you're designing total compensation and benefits packages, you'll encounter two common types of employee allowances: stipends and per diem.

Understanding the difference between these methods helps you make informed decisions about which approach best supports your workforce and business objectives.

While both provide financial support beyond regular salaries, they operate under different rules, serve distinct purposes, and come with unique tax implications that affect both you and your employees.

What is a stipend?

A stipend is a fixed amount of money paid at regular intervals to support specific activities or cover defined expenses. Unlike expense reimbursement that pays back actual costs after receipts are submitted, a stipend is set in advance and paid regardless of what the employee spends. 

Because it is issued on a monthly, quarterly, or annual cadence, it is predictable for budgeting and employee planning.

Employers and employees both value stipends for their flexibility. Employers use them to support health and wellness, education and training, professional development, and remote work needs while setting clear program rules. 

This adaptable structure gives employees meaningful choice in how to use funds and has led many organizations to broaden stipend programs beyond narrow use cases.

What is per diem?

Per diem is Latin for “for the day,” and is a daily allowance employers use to cover reasonable travel expenses when employees work away from their usual workplace. Instead of paying back exact costs after receipts are submitted, the company sets a daily rate for expenses like meals, lodging, and incidental expenses, and the total payment scales with the number of travel days. 

Because it is tied to trip length and sometimes destination-specific rates, the amount varies based on actual business needs.

This approach simplifies expense management for both the employer and the employee traveler. Employees usually do not need to save every receipt for small purchases, and finance teams get predictable guardrails for budgeting and policy enforcement. 

The scope typically includes meals and incidental expenses and lodging, and some programs also include local transportation while on the trip.

Federal per diem rates

The U.S. General Services Administration (GSA) establishes standard per diem rates for federal employees traveling within the continental United States. These rates serve as benchmarks that many private organizations adopt for their own travel policies.

GSA rates vary by location to reflect regional cost differences. Major metropolitan areas like New York City or San Francisco have higher per diem rates than smaller cities or rural areas. The fiscal year 2025 standard rate is $178 per day, comprising $110 for lodging and $68 for meals and incidental expenses.

For travel outside the continental U.S., different agencies manage rate structures. The Department of Defense oversees per diem rates for Alaska, Hawaii, and U.S. territories, adjusting for unique cost factors in these locations. The State Department handles international travel rates, accounting for currency differences and varying costs of living across global destinations.

These federal rates update annually based on market research and economic conditions. Organizations can choose to match federal rates exactly, set lower rates for cost control, or establish higher rates to ensure adequate employee support in expensive locations.

Key differences between stipends and per diem allowances

Stipends and per diem allowances both help companies support employees while keeping spending under control, but they solve different problems. 

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A stipend is planned support for defined needs such as wellness learning or remote work, while per diem is a trip based allowance for meals, lodging, and incidental costs when someone travels for business. 

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Understanding how they differ in structure scope taxes and eligibility makes it easier to choose the right tool or to use both side by side.

1. Payment structure

Stipends and per diem allowances follow completely different payment calculations and schedules. With stipends, you receive a fixed amount that remains consistent regardless of how much you actually spend. A $200 monthly wellness stipend stays at $200 whether you use it for one gym membership or multiple fitness activities.

Per diem calculations multiply daily rates by actual travel days. If your company's per diem rate is $150 per day and you travel for three days, you can spend up to $450. Travel five days, and you can spend up to $750. This variable structure directly ties compensation to business travel needs.

The payment timing also differs significantly. Stipends typically arrive on predetermined schedules—monthly with your paycheck, quarterly, or annually—making them predictable budget items. For example, you’d know exactly when to expect your remote work stipend or professional development funds.

Bottom line: Stipends are steady and programmatic, ideal for ongoing benefits that employees use across the year, while per diem is variable and event-based, ideal for matching spend to the exact length and location of each trip.

2. Purpose and scope

Stipends serve broad organizational objectives beyond expense reimbursement. They support employee development, promote wellness, enable remote work, and align with company culture initiatives. Your wellness stipend might cover anything from yoga classes to mental health apps, giving you flexibility within defined categories.

Per diem allowances serve a narrow, specific purpose: covering costs incurred during business travel. The scope limits to meals, lodging, and incidental expenses directly related to working away from your regular location. For instance, you cannot use your per diem allowance for home internet upgrades or professional certifications.

This scope difference affects how you use these payments. Stipends often allow creative applications within category guidelines. Your professional development stipend might fund online courses, books, conference tickets, or coaching sessions—whatever advances your skills within policy parameters.

Per diem restricts usage to travel-related expenses during authorized business trips. The daily allowance covers breakfast, lunch, dinner, hotel stays, and minor costs like tips or laundry services. Non-travel expenses fall outside per diem scope, even if they support your work.

Bottom line: Use stipends to drive ongoing support and employee choice across many categories, and use per diem to handle the specific costs of being on the road for work.

3. Tax treatment

The tax implications create one of the starkest contrasts between stipends and per diem. Stipends generally count as taxable income, appearing on your W-2 form and subject to standard income tax withholding. Your employer withholds federal, state, and FICA taxes from stipend payments just like regular wages.

Per diem allowances can avoid taxation when properly structured under IRS accountable plan rules. These rules require business connection, substantiation of expenses, and return of excess amounts. When your per diem stays within federal rate limits and meets documentation requirements, it remains non-taxable reimbursement rather than income.

The documentation requirements differ substantially. Stipends need minimal documentation for tax purposes—primarily just program enrollment and payment records. Your employer tracks stipend payments but may not require expense receipts or usage reports for tax compliance.

Per diem demands careful documentation to maintain non-taxable status. You must provide trip itineraries, business purposes, dates, and destinations. While per diem eliminates individual meal receipts, you still need records proving the business nature of travel and compliance with federal rate limits.

Bottom line: Stipends are simple but usually taxable, while per diem can avoid taxation if the policy design and documentation meet compliance standard.

4. Eligibility requirements

Stipend eligibility typically depends on your employment status, role, tenure, or participation in specific programs. Full-time employees might receive wellness stipends while part-time workers don't. Senior staff could access higher professional development stipends than entry-level employees. Some stipends require manager approval or link to performance metrics.

These eligibility rules usually remain relatively stable. Once you qualify for a remote work stipend, you usually keep receiving it as long as you maintain your employment status and continue working remotely. The ongoing nature creates predictable benefits you can count on month after month.

Per diem eligibility hinges entirely on approved business travel. You qualify only when traveling away from your tax home for legitimate business purposes. The IRS defines this as being away longer than an ordinary workday and needing sleep or rest before returning home.

Authorization for per diem happens on a trip-by-trip basis. Each travel request requires approval, typically from your manager or travel department. You might travel frequently one quarter and rarely the next, causing your per diem payments to fluctuate accordingly.  

Bottom line: Stipends behave like a standing benefit tied to the person and the program, while per diem allowances are activated only by the event of travel and therefore fluctuates with trip approvals and schedules.

Types of employee stipends

Stipends are employer-funded benefits that give people flexible support for defined needs and help teams guide spending with clear rules. 

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Before choosing or designing a program, it helps to understand the main types and how they map to goals like wellbeing, productivity, learning, and commuting support.

Lifestyle Spending Accounts (LSA)

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An LSA is a flexible account that the employer funds with a set allowance and clear categories such as wellness family support learning and lifestyle services. Funds are added on a regular schedule and employees choose approved options that fit their needs with simple guardrails for eligibility and merchants. 

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Programs through LSA platform providers like Forma can allow direct spending through a marketplace or card with no out of pocket cost or use reimbursement when needed. This structure concentrates many stipends in one place so benefits and finance teams can set rules by location, role, or budget, and track adoption and outcomes with a single view.

Wellness and health stipends

Wellness stipends give employees funds to invest in their physical and mental wellbeing. These allowances typically range from $50 to $300 monthly and cover a wide variety of health-related expenses.

Depending on your employer’s policy, you can use wellness stipends for gym memberships, fitness equipment, yoga classes, running shoes, or workout apps. Mental health support stipends may include therapy sessions, meditation apps, stress management programs, or mindfulness workshops. 

Many organizations structure wellness stipends to encourage holistic health approaches. Rather than limiting funds to gym memberships alone, you might apply your stipend toward massage therapy, acupuncture, or sleep improvement. This flexibility recognizes that wellness looks different for each person.

Some companies separate physical and mental health stipends to ensure adequate support for both areas. Others combine them into comprehensive wellness allowances that you allocate based on personal priorities.

Remote work stipends

Remote work stipends address the costs of maintaining a productive home office. 

Setup stipends can cover essential equipment like ergonomic chairs, standing desks, monitors, keyboards, and proper lighting. You might also be able to purchase noise-canceling headphones, webcams, or desk organizers to create an effective workspace.

Ongoing remote work stipends can help with recurring expenses, such as internet upgrades to ensure reliable connectivity for video calls and file transfers. Utility costs increase when you work from home full-time. Coworking space memberships provide alternatives when you need a change of environment.

Software subscriptions often qualify under remote work stipends. You might need project management tools, communication platforms, or specialized applications that your employer doesn't provide directly. Office supplies, printer ink, and basic furniture maintenance also fall within typical coverage.

Professional development stipends

Professional development stipends invest in your career growth through education and skill building.

These stipends can fund formal education like online courses, certification programs, and degree pursuits. Additionally, professional development stipends may cover industry conferences to provide networking opportunities and exposure to latest trends or workshop attendance to develop specific skills relevant to your position.

Other possibilities for professional development stipends may include books, audiobooks, and digital subscriptions to keep you current with industry knowledge; professional memberships and association dues to connect you with peer networks; or coaching services to offer personalized guidance for career advancement.

Technology stipends

Technology stipends ensure you have reliable tools for productive work. 

Phone bill reimbursement represents the most common technology stipend application. You might receive full or partial coverage for your mobile plan, especially when using personal devices for work communication.

Other technology stipend categories can include hardware purchases like laptops, tablets, smartphones, and accessories, or software licenses that cover productivity tools, security applications, and specialized programs. Your employer may include cloud storage subscriptions in a technology stipend to protect your work and enable collaboration.

These stipends may also include tech support services, protective cases, cables, and adapters to keep devices operational and secure.

Transportation stipends

Transportation stipends offset commuting costs for office-based or hybrid employees. 

Public transit passes represent straightforward transportation support. With this type of stipend, you receive funds for monthly subway, bus, or train passes. Parking fees at office locations or nearby facilities often qualify for coverage, too. Gas stipends can help with driving costs, though this requires careful structuring to avoid confusion with per diem travel.

Other transportation-related stipends may include bike-share memberships and equipment for eco-friendly commuting, ride-sharing credits that provide flexibility for irregular schedules or inclement weather, or electric vehicle charging costs.

Some organizations combine transportation stipends with environmental initiatives. You might receive higher amounts for choosing public transit or carpooling over single-occupancy vehicle commuting.

How do stipends and per diem work for taxes?

Stipends typically count as taxable income that appears on your W-2 form at year-end. Your employer withholds federal income tax, state tax, Social Security, and Medicare from stipend payments just like regular wages. As an example, a $200 monthly wellness stipend would add $2,400 to your annual taxable income.

The tax treatment depends on how you use the funds and the stipend's classification. Educational assistance stipends can qualify for tax-free treatment up to $5,250 annually when used for qualified education expenses like tuition, fees, and course materials. However, amounts used for room and board, transportation, or supplies you keep after coursework remain taxable.

Per diem allowances follow different tax rules that can keep these payments out of your taxable income entirely. When your employer structures per diem under IRS accountable plan requirements, the payments function as expense reimbursements rather than wages. This distinction makes a significant financial difference—a week of travel at $150 daily per diem could mean $1,050 in non-taxable reimbursement versus taxable income.

IRS accountable plan requirements

Three conditions must exist for per diem to remain non-taxable. First, the payments must have a clear business connection, meaning you receive per diem only for actual business travel away from your tax home. Second, you must adequately account for expenses within reasonable time periods, typically 60 days after travel. Third, you must return any excess per diem within 120 days after expenses occur.

Documentation standards differ dramatically between stipends and per diem. Stipends usually require minimal paperwork.

Per diem documentation focuses on trip details rather than individual expenses. You provide travel dates, destinations, business purposes, and confirmation that travel required overnight stays. While you skip keeping meal receipts, you still maintain records proving the business nature and duration of each trip.

When per diem becomes taxable

Per diem shifts from non-taxable reimbursement to taxable wages in several situations. Payments exceeding federal GSA rates for your travel location become taxable for the excess amount. If you receive $200 daily per diem in a location where GSA rates specify $150, that extra $50 per day becomes taxable income.

Failure to meet accountable plan requirements also triggers taxation. Not providing adequate trip documentation, keeping excess reimbursements beyond 120 days, or receiving per diem for non-business travel converts the entire payment to wages. Your employer must then withhold taxes and include the amounts on your W-2.

Some organizations simplify administration by treating all per diem as taxable income. While this eliminates complex compliance tracking, it reduces the value of per diem payments to employees who must pay taxes on travel reimbursements.

Tax planning considerations

Understanding these tax differences helps you evaluate the true value of each benefit type. A $3,000 annual professional development stipend might net closer to $2,000 after taxes, depending on your tax bracket. Meanwhile, $3,000 in properly structured per diem reimbursements provides the full value for covering business travel costs.

Timing matters for tax purposes. Stipends paid in December count toward that tax year's income, even if you plan to use the funds in January. Per diem tied to December travel but reimbursed in January typically counts in the payment year rather than the travel year.

Educational stipends offer unique planning opportunities. Coordinating stipend amounts with the $5,250 annual tax-free limit maximizes your benefit value. Amounts exceeding this threshold become taxable, so understanding your total education benefits helps optimize usage across calendar years.

4 benefits of stipends over per diem

Stipends and per diem both help companies support employees while keeping spending under control, but they solve different problems. A stipend is planned support for defined needs such as wellness learning or remote work, while per diem is a trip based allowance for meals, lodging, and incidental costs when someone travels for business. 

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Understanding the differences clarifies when a stipend first approach delivers more value for people and for the business.

1. Greater flexibility

Stipends adapt to evolving workforce needs in ways that per diem cannot match. Rather than locking support to travel days, a stipend can cover many categories such as wellness professional development, remote work, family, and transportation, with clear program rules that reflect company culture and employee demographics. 

This breadth lets each person choose options that fit their goals and context without being limited to travel related spending.

Flexibility also helps teams address geographic differences and changing life stages. Remote employees in high cost cities can direct funds to what matters most while colleagues in other regions can choose locally relevant services. 

New parents might emphasize childcare support while others focus on fitness or learning, all within the same policy framework and without maintaining complex location specific per diem rates.

2. Employee empowerment

Stipends shift everyday decisions to employees by defining categories and budgets and then letting people choose the solutions that work for them.

This autonomy increases engagement because individuals are more likely to use and stick with benefits they selected themselves, whether that is a therapy app, a conference, course, or a home office upgrade.

Choice also builds trust and signals respect, which strengthens commitment and retention. Early career employees can prioritize skills, managers can invest in leadership coaching, and long tenured staff can focus on wellbeing, all without adding administrative steps for finance or HR.

3. Strategic alignment

A stipend model supports broader organizational objectives that per diem cannot reach. Companies can target outcomes like retention, wellbeing, productivity, and skill growth by designing categories and budgets that align with business priorities and by adjusting them as needs change throughout the year.

Stipends also enhance hiring and employer brand. Candidates increasingly expect personalized benefits that acknowledge the whole person, not just travel schedules. 

A flexible stipend package stands out against rigid policies and helps attract diverse talent with different priorities and life circumstances.

4. Administrative efficiency

Consolidating many reimbursements into a platform like Forma that can manage a comprehensive set of stipend programs reduces paperwork and cycle time. Employees receive funds on a predictable cadence without submitting itemized receipts, and finance teams shift from transaction level review to simple policy checks and program level reporting.

Budgeting becomes clearer because stipend costs are fixed at the employee or program level rather than fluctuating with trip volume. Payments can run through regular payroll and basic systems, which shortens processing timelines and frees teams to focus on strategy and analysis instead of expense approvals.

How to choose between stipends and per diem allowances

Start by assessing your organization needs. Review the last 12 months of travel to see how many people travel, how often they travel, and how long trips last. If fewer than 20% of employees travel on a regular basis, a focused per diem policy may cover needs efficiently, especially when trips are concentrated in roles like sales or consulting. 

Look beyond travel to find benefit gaps through surveys, exit interviews, and retention data. Consider workforce demographics, remote and hybrid patterns, global locations, and what peers in your industry offer so you remain competitive without overcommitting resources.

Next, calculate the total cost impact. Stipends raise payroll tax obligations and create steady monthly costs that are easy to forecast, while compliant per diem payments are generally not taxed and will rise or fall with actual trip volume. 

Administration also differs. Per diem programs need approval workflows, rate checks, and reimbursement processing, which adds staff time. Stipend programs, especially when managed by a flexible benefit partner like Forma, can reduce transaction-level reviews but require clear categories eligibility rules and periodic evaluation. Think about utilization, too. Stipends usually see higher use because people can direct funds to relevant needs, while per diem usage depends entirely on how much travel occurs in a given period.

Finally, review compliance and technology and listen to employees before you decide. Per diem allowances require documentation of business purpose, travel dates, destinations, and adherence to rate limits, while stipends mostly rely on program rules enrollment and payment records. Stipends often run through payroll with simple reporting, while per diem allowances usually rely on an expense platform for receipt capture, approvals, and analytics. 

Which is better for modern workplaces: stipends or per diem?

For most modern workplaces, stipends are the better primary tool. Distributed and hybrid teams need support that extends beyond trips such as home office setups, faster internet, wellness resources, and learning. 

Stipends meet these use cases and needs with clear categories and spending rules while keeping budgets predictable and administration relatively simple. 

Modern stipend platforms like Forma add controls like category limits and merchant restrictions and provide real time reporting, which lifts utilization and employee satisfaction and often improves retention, recruiting, and productivity.

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Industry trends show continued movement toward flexible benefit structures that stipends enable. As workforce expectations evolve and competition for talent intensifies, rigid travel-only reimbursements appear increasingly outdated. Organizations leading in employee experience often feature comprehensive stipend programs that address the full spectrum of modern work challenges.

Forma helps you manage your customizable benefits with one flexible platform that adapts to your workforce’s needs. Whether you support remote teams, frequent travelers, or both, Forma simplifies program setup, compliance, and employee experience. 

Reach out to one of our Forma experts to learn more about implementing stipends today.

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