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Per Diem or CPM?

Jan
7,
2009
33

As many trucking companies are still in the process of recovering from the recent high fuel prices and contemplating the uncertainties of future economic times, the pay per diem plan is rearing its head more and more. Trucking companies are beginning to “push” drivers toward this other option for pay, in regards to the more standard role of cents per mile pay.  Many drivers are still confused about this per diem situation, and rightfully so. Anything related to governmental taxes can be difficult to understand.  So which plan is the best plan?  Pay per diem or CPM?

The per diem plan is supposedly calculated to provide the driver with the maximum savings possible under the rules of the IRS.  The trucking company will begin with the drivers’ base mileage rate and then they will apply the per diem tax reduction amount by a certain CPM rate.  For illustration purposes, let’s use the reduction amount of 11.5 CPM.  The drivers’ taxes will then be calculated on that reduced amount. So if the trucking company is paying .10 cents per mile back as per diem, this qualifies as a non-taxable expense reimbursement, rather than showing as taxable income. The company will then take the 1.5 cent difference and use this to offset any administrative and additional taxes that the company may incur.

The per diem pay plan reclassifies a portion of your paycheck as “expense reimbursement” rather than actual income.  Therefore, your taxable income is lower.  In return, this will affect many other benefits that are calculated off of taxable income such as worker’s compensation, disability claims, unemployment benefits and the most important one…social security benefits.

Also, an important aspect to remember, is that by showing a lower taxable income, this could very well reduce your ability to secure loans at a decent rate, and to be able to obtain credit. This is because, of course, that banks and lending institutions look at your total income when basing their decision on extending loans and credit. Another important factor that could be disrupted by using the per diem, is any profit sharing plan your company may offer. Profit sharing plans are mostly based on taxable income, and any income tax savings you may receive from utilizing the per diem plan, would reduce your profit sharing contributions.

Per Diem pay used to mean the amount the company would give the driver, beyond the regular earned wages, to pay for meals while out on the road performing the job. However, it is now a way for the trucking companies to reduce their taxes along with reducing the drivers’ taxes, yet hurting the driver in the ways stated above. The per diem plan causes the drivers’ yearly income to look smaller, which again, can cause problems when applying for loans and credit.

Also keep in mind, that the per diem portion the driver receives is tax free when the trucking company pays it.  At the end of the year, if the driver has been over paid what the IRS allows, then the driver…not the company…will have to pay the difference in taxes.  We will all have to pay taxes anyway.  Why give up hundreds of dollars it will cost us over our lifetime of earnings, in order to “bring home” $35 to $75 more per week?  Drivers are basically trading their future retirement earnings, while the trucking company is increasing their daily earnings, by reducing their tax liabilities.

The trucking companies are really the ones benefiting from the pay per diem plan.  The company will pay less in unemployment tax, medicare, driver pay and social security.  The per diem pay plan can drastically reduce the drivers’ future social security benefits as well as other retirement plans such as the 401K.

Always check with your accountant who specializes in transportation if you are still uncertain about the per diem pay plan. Trucking companies are in business to make money. Any business is in business to make money, that is understandable.  Just remember, the plan the trucking company is pushing for the driver to utilize, is often the plan the driver wants to stay away from the most.  As for me, I would always go with the CPM pay plan.

© 2009 – 2010, Allen Smith. All rights reserved.

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By: Allen Smith

Allen Smith is a 34 year veteran ( started at an early age in family moving business) of the trucking industry, many of those years spent over the road. He has been an owner operator, company driver, operations manager, and has owned and operated a moving company, taking many of the long haul moves himself when needed. One thing though that most will say is that the reason and motivation behind the author, Allen Smith, is the fact he is driven by the desire to help others succeed within an industry where injustice, unrewarded sacrifice, and lack of respect and recognition exists. As you read many of the blog posts you’ll discover that he is opinionated and speaks openly about the ongoing issues of the trucking industry. He supports other fellow advocates who are also stepping up to the plate to help those who are in need of honesty, guidance and direction. The list of supporters and like minded people grows daily and their ability to network together and share their thoughts and ideas for the betterment of others within trucking, has allowed the forward movement of... "Raising the standards of the trucking industry"

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33 Responses to Per Diem or CPM?. - Post a Comment

  1. Steve Fleek

    Great information. I’ve been out here 11 mos and knew
    about the allotment of $52/day per diem but didn’t under-
    stand how being paid per diem by a company would
    affect that “tax break.” New to the Industry but not to
    life, if it’s good for the Company, probably not going
    to be good for the employees. Thank you.

  2. Allen Smith

    Hi Steve: That is usually the case. Per diem can help people like those hiding from child support or other such thing…by, showing less gross for the year….but I believe it’s always best to take the CPM. Take care, Allen

  3. ABear

    If i plan to move on from one job to another for the next few years and wont be enrolled into a 401 k and wont be needing a bank loan or credit in the future……. and I dont care about SS contributions…. or the long term ramifications… then taking the per diem is the best way to go… right? Ive got some funky life circumstances that makes all that stuff unimportant… so sounds like i should take a PD if offered… right?

  4. Allen Smith

    Hi ABear:

    The choice is always yours to make, of course…..speaking for myself, I would always go with CPM. As far as an individual basis, it would be best to discuss your situation with your accountant. Retirement funds may not seem important now, but when the time comes, someone might have wished they had done other wise…..Good Luck

  5. John Maurer

    And I thought PD was a good idea!of course, that’s because the co. explained it.I guess it all depends on who’s doin the ‘splainin,Lucy!Thanks for pointing out the down sides of PD.Now I just have to find a good co to work for!

  6. Allen Smith

    Hi John:

    Only on very rare occasions!! PD works more for the company, not the driver…..things are a little tougher now due to the economy situation, but keep at it….there are good companies still needing drivers.

  7. Raymond R Hazel

    The companies can’t force you, to take the PD can they?

  8. David Robson

    I know this may not be the time for investment, but it may be best to invest your Per Diem portion which will give you more tax breaks and become a borrowing leverage after time. Ask a financial expert for advice on how to use your tax free money. Work with the program to your best advantage.

  9. Allen Smith

    Hi Raymond:

    “Force” is too strong of a word. They can try to “lean” you that way, but NO, they cannot force you. The choice is yours. We have seen where drivers who decided not to take PD, suddenly discovered the company was “no longer needing” drivers due to the economy! hum…….For the most part though, they do give you the option……..

  10. tabasco

    Hey thanks for the great info. My husband has been driving for 35 years and he’s at this company now that’s doing the PD. Now my question is that his pay roll sheet doesn’t show anything about it as in the year to date amount. He got his W2 and it doesn’t have anything on it so do we claim his days out on the taxes or what since the PD was taken out but not shown anywhere. Also we figure with the 45.00 a day exspense he would’ve got over 11,000 dollars but on the settlement sheet it’s got 1,873.00 dollars for the year. That doesn’t sound right to me. Can we claim it as a loss? I hope I made sense with this.

    Thanks

    tabasco

  11. Allen Smith

    Hi Tabasco: I would hate to tell you the wrong thing when it comes to something as important as tax filings. Best to check with your accountant who specializes in this……good luck

  12. Kirk - brand new OTR trucker

    Hi all,

    I’m trying to figure out this per diem deduction.
    Q1) where is the $52/day in the IRS rules? I’ve found the 80% rule (form 2106) but not per deim allowance.
    Q2) I assume this is subject to the 2% rule if you are an employee (ie. must subtract 2% of your household adjusted gross income from amount claimed in itemized deductions) Correct?

    Thanks,
    Kirk

  13. Lucas

    quick question, i was employed by a company named covenant transport. when first starting they said..”you should all take per diem pay.. its very ‘beneficial’. we start you off at 3.5 cpm less, however it is still VERY ‘beneficial’”. from my knowledge, companies icur a 1 cpm cost for doing per diem. Is offering per diem covenants way of getting a 2.5 cpm discount on their drivers services. I went from earning 17 cpm to making 13.5 cpm and i had never been so broke in my life! the way that i think of it is like this…. what tax bracket was i in? 10 percent.. less than 9 grand that year ( iknow, pathetic) !, anyways. as a TEAM, we drove 1,000 miles per day 10 percent taxes. that would be 10 pecent of 1,000 which would equal 10 dollars. at 3.5 cpm, that would be 35 dollars a day we are charged to save that 10 dollarrs. we pay 35 dollars a day to save 10 !!! it sounds, looks and feels to me, that offering per diem was covenants way of scamming their employees out of an ADDITIONAL 25 dollars a day. what do you think?

  14. Allen Smith

    Many companies will push for the per diem pay because it is more beneficial to them and not the driver … per the main post above.

  15. Annette

    Sept 1, 2009 our company is telling us they will be taking out PD. Isn’t this against the law! Is there some law code we could give them to let them know they cannot force us to take PD?

  16. Allen Smith

    Any company can decide how they want to pay their employees. It is up to the employee to accept the job or not. This is why there are driving jobs that pay by mile, per diem or by load, etc. It is not against the law for a company to go completely over to per diem pay. It only becomes a company policy . . . but does not violate any law.

  17. Steve

    Being paid per diem will reduce your tax return by about a grand (at least in my case) as you are receiving it through out the year. My accountant informs me that at the end of the year, they will compare what I was paid, in my case $0.09/mile per diem to the 80% of the $52.00 a day allowed on days out. I will be able to claim any difference should the latter be more than what I was paid.

  18. ThunderBurst

    I would like to know if there are any laws that protect drivers when companies try to force the PD on them?

  19. Allen Smith

    Thanks for the info, Steve. It can help certain people such as those with child support, etc. The best thing anyone can do is to check with a competent accountant who understands all the transportation rules, laws, regulations, etc. to see if there is any benefit from the per diem to them as an individual. Across the board, overall …. CPM, in my opinion, is always better for the average driver.

  20. Allen Smith

    Hi ThunderBurst . . . you may have missed my reply to this question above …. so here it is ….

    Any company can decide how they want to pay their employees. It is up to the employee to accept the job or not. This is why there are driving jobs that pay by mile, per diem or by load, etc. It is not against the law for a company to go completely over to per diem pay. It only becomes a company policy . . . but does not violate any law.

  21. roni15

    What is CPM – is that the tax deduction we take on our 1040 for the Gov’t per diem (80% of $52)? Thanks for any help.

  22. Allen Smith

    cpm is cents per mile

  23. colson

    I know this post is old, but lets kick the ballistics here:

    You should be able to claim any difference between what the company paid and unreimbursed expenses. Per Diem is to cover meals and some forms of entertainment can fall in here, and lodging expenses associated with being on the road. This does *not* include unreimbursed expenses including business use of the cell phone, internet/wi-fi fees, tools, gloves, work-related clothing (fitting the IRS definitions), pens, paper, and miscellaneous business expenses the company doesn’t neccessarily reimburse.

    Now – A point was brought up about giving up potential benefits and losing some potential retirement income. For those that worried about it, don’t be unless you already have a 401(k) and have maxed out an IRA. If you haven’t – dump the extra into a qualified retirement plan (as most don’t contribute anything near the maximum). The long term probability is that the money you stuff into the plan will end up being more than any difference in your social security payments.

    Again, I don’t think there is any “right” answer. But to back up my claim, I’ll look to a heritage foundation study that shows the rate of return on social security to be approximated at 1.23%. At $50 per week, we’re talking about a future value of 94,801.74

    Even picking a safer bond investment returning a post expense rate of 4%, you end up with 151,653.67. The second benefit is that leveraging your cash which is paid partly in per-diem, you gain the extra tax benefit of being able to reduce your taxable income further using the tax deduction for a standard IRA. Or, plug it into a Roth IRA and you get the 151,653.67 tax free when you draw on it down the road (at the minimum).

  24. Joe

    Can a company force you to take the Per diem

  25. nogotrucker

    Per diem can also get companies into a lot of trouble. My state reported that companies are still required to pay at least the minimum wage of the state they operate in, and per diem is NOT a wage. Additionally, I read on-line that a driver just won a case against his company for overtime, which I’m told is federal. You know, those 30 hrs over 40 you work every week. Here’s the formula I was given to calculate if you’re making minimum wage: total miles (empty + loaded), divided by 55, times minimum wage. For example: you drove 110 miles, and made .11 cpm, and your companies state min. wage is $7.50 per hr. You did not make minimum wages. Your pay should be: 110 divided by 55 = 2 hrs X $7.50 = $15.00. That’s about .14 cpm. Remember, don’t add “per diem” as part of your wage.

  26. nogotrucker

    There are a lot of companies forcing this on Driver’s & I feel the benefits to the company, out weigh the benefits to the Driver. I’m also not sure if it’s legal, but probably is, so long as they meet minimum wage and overtime requirements. I opted out and my company was quite displeased, although they tried like crazy to convince me it was “in my best interest.” What a bunch of “bull.”

  27. wayne siskey

    When companies place u on pd. after u have been there for yrs. against ur will,,i consider that forcing you.

  28. Jesse

    Hi all,
    My question is: in a simple explination, how can one know if one is being paid the correct amount. I get my check and do my math, but I just don’t understand it. It seems that I get more, yet I know about the 50something $ and then It doesn’t look right. Please, if you can explain, Thanks

  29. Allen Smith

    Hey Jesse: The best advice I can give you for you to be certain your pay is correct – have an accountant and/or tax professional who specializes in trucking taxes, etc., look it over.

    This is the most accurate way of knowing for sure.

  30. TruckersWife

    I’m glad this conversation opened back up recently. In looking at my W-2 I noticed the reported amount in the wages and tips box is 10,000 less than the YTD gross amount on the paystub.
    The difference is due to two amounts listed in box 14 of the W-2. These amounts are referred to as “section 125″, and “subsistence”.
    I’ve been trying to find out what these automatic deductions are, as they have not been shown on the previous 2 years W-2 from the same company.
    My quesitons are:
    1. Are these two deductions considered per diem?
    2. And, if they are per diem I should not file a form 2106, right?

  31. Aimee

    My husband has just under a year in OTR Trucking, so we are new to this. I didn’t fully understand per diem until I read this website, so I thank you for that. Just out of curiousity, because we are getting ready to have our taxes done, do we get to claim the remaining per diem of what the government allows us to claim if we are under the daily amount from what the company has paid?

  32. bonnie

    our company used to give you your choice to participate in their per diem program, but not anymore. what i don’t understand is on our pay stub they add on the per diem then turn around and subtract the per diem. so there is no increase in pay. but then they subtract the per diem from your total gross amount you earned. Somehow to me this just doesn’t seem right to me. The only thing i see is at the end of the year our income is appx.15000.00 less. Is this legal?

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