What is a travel allowance in business?

A travel allowance is a type of business allowance designed to compensate for the cost of work-related travel by employees.

Businesses with employees that travel for work sometimes pay staff travel allowances to account for the cost of things like meals and accommodation.

In some countries, businesses are legally required to reimburse employees for work-related travel expenses. 

Here are some common examples of travel allowances and how it all works.

Examples of travel allowances

While the finer details can vary from business to business, some of the most common examples of travel allowances include:

• A transport allowance to cover expenses incurred during travel outside an employee’s usual commute. This can include costs such as airfares, taxis or ridesharing, car hire, tolls, parking fees, and gas.

• A meal allowance to cover the cost of food and drink during business trips.
• An accommodation allowance to compensate for the cost of hotel stays as well as incidental expenses such as tips and gratuities.

• An entertainment allowance in cases where employees need to dine with or entertain clients while on business trips.

• A medical allowance to cover treatments such as vaccinations for international travel. 

Travel allowances can also cover the cost of things like travel insurance, drycleaning, and laundry services.

What is a per diem allowance?

Rather than reimbursing employees’ travel expenses individually, some businesses choose to pay employees a set amount per day while they’re travelling. This is known as a per diem allowance.

A common way to manage per diem allowances is to give employees a prepaid credit card with a daily limit for travel.

Giving employees a per diem allowance can make expense tracking more predictable, as well as encourage employees to stick to a specific travel budget.

Travel allowances vs travel expenses

It’s worth noting that travel allowances aren’t the same as travel expenses. 

Generally speaking, travel allowances are payments specifically made to employees to cover the cost of business-related travel. 

Travel expenses, on the other hand, are expenses incurred by a business for the cost of travel. 

For example, if you own a business and travel to another state to explore an opportunity or attend a conference, the cost of the trip (airfares, car rental, accommodation etc.) would be considered a travel expense.

Travel expenses are often Sales tax-deductible, which means you can deduct the cost of business-related travel from your business income.

You can find out more about tax-deductible expenses here.

Are travel allowances required?

In some countries, businesses are required by law to reimburse employee travel expenses through an allowance or similar payment system. 

The ins and outs of travel allowance rules vary from one country to the next, as do the tax implications. 

So if you think you might need to pay a travel allowance to your employees, it’s a good idea to review your local labour laws or talk to a tax advisor about your obligations.

How to streamline travel allowances for your business

Whether you need to set up a travel allowance for employees on an ongoing basis or as a one-off, the quickest and easiest way to do the job is by using accounting software. 

With QuickBooks Online, you can set up a travel allowance so it automatically appears in each pay run for specific employees, or apply it on an ad-hoc basis.

Streamline and automate business allowances with QuickBooks. Get started today.