I am a salaried manager working in the United States. Due to job duties and industry practice my weekly salary is based on two parts to form what we in call in the industry the "total package". We use this phrase because we use this number to compare offers between employers (there is high probability that you will work numerous companies over your career in my industry).

The two parts are:

  1. Typical compensation (taxable, reported) = A
  2. Per-Diem (non-taxable, not reported) = B

So, to arrive at the "total package" one simply adds the two... A+B=C

Recently, the amount of Per-Diem paid per week was increased. No annoucment was made of this change, and the only reason I noticed was because the amount of my paycheck was greater than the previous week. I asked the office manager (who submits the payroll) about the change, and she told me that "it came from corporate" (meaning that it was decided this was to happen, no questions asked, no explanations given). In my opinion, since Per-Diem is based on the cost of living, the increase was given for this reason.

After reviewing my pay stub I noticed that my "total package" had remained unchanged. To me this makes no sense. In theory I am now making less because my "salary" (A) is now less. However, in practice I am netting more per week because less is being taxed.

It amounts to (A-X) + (B+X) = C

I my mind if a cost of living increase is determined my "total package" should increase... A+B+X=C+X

My question is: Does my reasoning make sense, and how can I approach my supervisor about it?

closed as off-topic by Lilienthal, Jim G., gnat, HorusKol, Chris E Jun 27 '16 at 15:48

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  • Why A is less ? – Gautier C Jun 16 '16 at 13:19
  • Pretty simple. You did not get a raise. You have the same C. – paparazzo Jun 16 '16 at 13:23
  • Might be some sort of accounting gimmick. A better question is how much does this actually affect you? Is it a negative change? – AndreiROM Jun 16 '16 at 13:28
  • 1
    I think you might want to ask a tax advisor about this. Especially after reading: tssdservices.com/_Employee/_files/… – Wesley Long Jun 16 '16 at 17:01
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    @Skooba Then I would assume that they are breaking contract by decreasing A even if B is going up. Assuming this is a non-trivial amount I would definitely discuss with your manager. – Myles Jun 16 '16 at 18:14

You should have been informed of any change to your compensation.

I think you should definitely ask your manager about it, as it is a legitimate question.

Your reasoning makes sense. However, it is not the only possible explanation. Alternative: your employer intends to keep your overall compensation the same. However, it is beneficial to you if as much of your compensation as possible is paid as (non-taxable) per diem. The maximum per diem is set by regulations, so when this maximum went up, they shifted your compensation accordingly so you could have more of your salary non-taxable.

It's worth asking about, but at the end of the day, your take-home pay went up. So I don't think the company has done anything improper, at least based on what we know here.

If you want the same salary, with an increased per diem, this probably does amount to asking for a raise. It may be a very defensible raise (with the cost of living issue being one point to make), but it's still a raise.

  • The office manager should have sent out an e-mail stating the change, that would have been common decency. However, I do agree that this change is certainly not a change you want to complain about. – Stephan Bijzitter Jun 16 '16 at 15:18
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    Yes, his take home went up, but if he's ever laid off, his unemployment benefits have just been cut (because unemployment benefits are based on the percentage of your salary, not your per diem amounts). At the very least, he should have been notified of the change. – Stephan Branczyk Jun 17 '16 at 6:44

To me this is not a raise. But the bigger question is how on earth are they paying you per diem and using it to justify a total package?

Per diem, as far as I know, is only to be used to cover expenses related to travel away from you normal work location.

From the IRS, "Per diem is an allowance paid to your employees for lodging, meals, and incidental expenses incurred when travelling. This allowance is in lieu of paying their actual travel expenses."

Unless you are constantly travelling for this position, I'd say your work is breaking the law to avoid paying taxes. By claiming some portion of your "package" isn't taxable, they can avoid paying their share of the employment taxes (things like Social Security, unemployment, and Medicare/Medicaid).


IRS Per Diem FAQ

Also, I would never consider per diem as part of my "total package". You want me to travel for work then you need to pay. That what per diem is for. It is only going to cover my expenses. I would only get extra if I didn't use the entire per diem for the day. Otherwise it's a wash. Unless they are giving you above the federal rate, I wouldn't consider it as part of my "package". And if it is above the federal per diem rate, then it's taxable anyway.

To me, anyone that would consider per diem plus your salary as part of your "package" is being disingenuous.

  • Yes, we are constantly traveling and the per-diem is used as you describe... to cover our "living expenses". – Skooba Jun 16 '16 at 16:27
  • Again, though, per diem is not for "living expenses" it is strictly for travel expenses. You should only be getting it for days when you are traveling. – EL MOJO Jun 16 '16 at 17:38
  • Say during a week, you were traveling (FOR BUSINESS) three days during the week and were in the office the other two days. You should only receive three days of per diem. If they give you five, then those two days per diem should be considered salary and thus are subject to taxation. – EL MOJO Jun 16 '16 at 17:40
  • We travel for months at a time. – Skooba Jun 16 '16 at 18:03
  • OK, but I still wouldn't consider that as part of my compensation package. That is what the job entails so you need to be reimbursed for those expenses. Reimbursement is far different than compensation. – EL MOJO Jun 17 '16 at 14:29

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