How Much Money Does Per Diem Save a Trucking Company? The Real Numbers Behind the Savings — Driven for Success Episode 45

Per diem does not make money just appear out of nowhere. But it can stop your trucking company from sending money to the IRS and insurance company that you simply do not need to spend. And for a fleet with 20 or 40 or 80 drivers, that number gets real and significant right away. Per diem doesn’t change what you pay drivers, it changes how much of that gets taxed.

Welcome to the Driven for Success Podcast. This is the podcast for trucking company owners who want to build better businesses, make better decisions, and keep drivers without losing control. I’m Mike Ritzema, owner of Superior Trucking Payroll Service, where our mission is simple: to help trucking families. This podcast is one of the ways we fulfill that mission.

And today we’re going to talk about a question that every owner eventually asks about per diem. How much money does it actually save? Not in theory, not in vague tax language, not in FICA savings or something mythical like that. But we’re going to talk about real trucking company math.

When owners hear about per diem, a lot of them think it sounds complicated. They hear tax-free pay, they hear IRS rules or revenue procedures, they hear driver communication, they hear changes, and really they’re hearing disruption. And immediately the question becomes: is it worth the headache? And that’s a fair question.

Because not every tax strategy is worth changing your payroll process for. Some ideas sound good until you actually have to explain them to the drivers. But Per diem is different. Because the savings are not tiny, and they’re not just for the driver or the company, it’s for both.

And when it’s handled correctly, per diem can be the best thing that happens to your company this year. The question is not whether or not per diem saves money. The question is whether you’re capturing it correctly.

Per diem is not a magic trick. It is not a crazy fly-by-night idea you hear at a truck stop or on an internet board of crazy conspiracy theory things. It is completely legal. There are IRS revenue procedures that back it up and they come out with new ones every single year.

It works because part of the pay becomes reimbursement for meals and incidentals while the driver is on the road instead of being taxable pay. And it’s so important that the owner understands how this all works because they’re going to get asked questions and they need to know how it works.

Because if they don’t understand it, the drivers will never understand it. And if you give the driver something they don’t understand, it’s not going to go well. And we’ll talk in a future episode about how to launch this correctly.

But here’s the basic idea: a truck driver who’s away from home overnight can generally receive per diem for meals and incidentals. They have to be in a different meals and incidentals market, and the IRS has hundreds of them, so that’s usually true if they’re gone overnight. And they have to be subject to hours of service regulations, which is always true of every truck driver.

So right now, the IRS allows $80 a day. Because drivers are in multiple markets, it’s not subject to that city’s number. And that’s what you see in the IRS regulations, the different numbers for different cities. Because it costs more to spend the night in San Francisco than it costs to spend the night in Wichita, Kansas.

So truck drivers get those all averaged out. But that means that the company can take part of the driver’s pay and treat it as per diem instead of regular taxable wages. And here’s where it starts to matter for the trucking company. Those regular wages are subject to payroll tax and workers’ compensation.

And per diem is not the workers’ comp, you want to check your policy for sure, but I’ve never met one that was. So when you shift part of the driver’s pay from taxable wages to properly handled per diem, you reduce payroll taxes, you reduce workers’ compensation insurance premiums, and your driver takes home more because that per diem is also not subject to tax for them. So that $80 a day times five days if they’re over the road all week, or at least five days of the week, that’s $400 that they take home without paying any tax on it. So it’s the same total compensation, it’s just a different tax treatment.

Now, we’re not talking about just adding $80 a day to the driver’s pay. Anyone can do that, and your drivers will love you because they’re getting an $80 a day raise. We’re just talking about restructuring the pay. And the company has to do this correctly.

Otherwise, things go sideways and the workers’ comp auditor may not like it, or the driver may not like it. And if you don’t communicate this well to the driver, they’re going to think that something is been taken away from them. And that’s largely because in most situations, if the trucking company saves money, the driver gets cost money, or if the driver gets more money, it costs the company money. And this is one of those rare cases where that’s just not true.

And both sides win. And so sometimes you have to convince them it’s not an adversarial relationship between the company and the driver. We’re in this together.

So let’s talk about some driver savings here. Say we got a driver, drove 2,550 miles at $0.55 a mile, and was out five days. That’s the week that we’re going to pay him on. Here’s what I did.

I’m going to look down at my notes, but I did it with and without per diem.

So if the driver, and I used Michigan, by the way, I used Michigan for the state, just as a sample state. We’re pretty average as far as tax rates go. So it changes a little bit depending on what state you’re in or if you have local income tax, things like that. The rate times the miles, 2,550 times $0.55, is $1,402.50.

From that, a driver would pay FICA tax, which is Social Security and Medicare, of $107.30. They’d pay federal income tax the way I had the driver set up, which I think was single and one, or something equivalent to that with the new W4s. $138.75 in federal income tax, $59.61 in state income tax, and that left them $1,096.84. I didn’t do any advances or any reimbursements or any even pre-tax health insurance because it’d be the same for both people.

Now I did the same pay, another driver, same exact tax setup, but I did per diem. That driver instead gets $1,002.50 in taxable pay, plus they get $400 in per diem. That is a reimbursement. Their FICA tax, again, Social Security and Medicare, is only $76.70.

Their federal income tax is $78.37. Their state income tax is $42.61. Their net pay is $1,204.82.

I just threw a whole lot of numbers at you. And if you’re listening to this, even if you’re watching it on YouTube, it’s well, numbers sandwich, right? It’s just everywhere.

Now let me tell you the differences. Okay, both drivers got the same total compensation package. The driver that got per diem paid $30 and 60 cents less in FICA tax, Social Security and Medicare. The federal income tax was $60 and 38 cents lower.

And the state income tax was $17 lower. So their paycheck was $107.98 higher than the driver who did not get per diem. So $107, I’ll round it off times 52 weeks. I don’t have the math in front of me, but it’s $5,500 somewhere in there?

It’s the biggest raise a driver’s ever going to get. That’s fantastic. $107.98 every single week. That is how the driver benefits.

The driver doesn’t need to get a bigger gross check to get a bigger net check. And the net check is the one that goes into their bank. And so the driver, most drivers are going to, that’s the thing they want is you want more money in your bank account, right? Aren’t we all like that?

Oh, it’s never promise exact amounts if you’re going to do this. And we’re going to talk about how to roll out per diem to drivers in another episode. But this is basically how it works. And so the driver can get more money, not less money.

I think it’s a clear and obvious win for the driver to take the per diem plan and get them more money. So it’s a win for them. So that driver gets instead of $$1,096.84, they get $1,204.82. That’s a huge win, right?

$100 a week solves a lot of problems.

So now let’s talk about the company side. FICA savings is the same. $30.60 for that driver. The workers’ comp savings is also there.

It’s $400 times your workers’ comp rate.

For a sample workers’ comp rate, I like to use 8.5%. Yours may vary. I don’t know what yours is. But you can find it.

Just check your policy and you’ll see what your workers’ comp rate is. And we can go figure all this out. we have a great tool on our website, truckingpayroll.com. There’s a big button on there: Save Money with Per Diem.

Above the fold, you’ll see it right there. I’m going to use that to tell you how much you would save. I’m going to use one driver in the example.50 per hundred is how the insurance agent calls it. Anybody else would call it 8.5%.

And then we’re going to ask about your marginal tax rate for trucking for your trucking company because per diem is only 80% deductible, and I’ll get into that in a minute. But we need to know that we give you a default amount because we want you to have it. it’s the highest rate that you can have for corporate income tax. So we’re being what accounting would call conservative with this.

We’re minimizing your savings. So all you have to do is put those things in, give them your email, and you get instant results.

In this case, the example that I just gave, you’re going to save $1,768 a year in workers’ comp. You’re going to save $1,591.20 in FICA tax. That’s that $30.60 times 52. Your income tax bill is going to go up $873 because per diem is only 80% deductible.

So you lose some deductibility of it. But your savings, and this is again the number that matters, it’s like the net check for the truck driver. Your total savings is $2,485.60. That’s for one driver for the year.

That’s money in your pocket. It is tax savings, payroll tax savings, and workers’ comp insurance savings. We’re not talking about saving FTEs or any of that nonsense. We’re not talking about, oh, eventually you’ll get, like something where your utility rate would go down or something like that.

No, this is your free money. So almost $2,500 per driver per year. So $2,485, I think, was the number that I got there.

Now, this is owner math. So this is really for the owner. It goes right into the owner’s pocket. you can do this calculation yourself.

Go to truckingpayroll.com. I’ll put a link on the website for it as well. it’s right on the front page, but I’ll put a link in the show notes as well so you can find it.

So now that $2,500 sounds great. I’m rounding it up very slightly because the math gets a lot easier for me. That’s one driver.

What if you have 30 drivers? 30 times $2,500 is $75,000 a year that you can save starting right now by paying per diem to your drivers if you’re not.

As an aside, if you’re paying them at $40 a day or something that approximates that, and we’ll talk about that in a future episode, just cut all those numbers in half, right? You can save, in your case, with 30 drivers, and you’ve only been you’ve been paying them $40 a day or a mileage rate or something that amount is about that. $37,500 could be added to your pocket right now.

It’s amazing. it’s the big deal. It’s why Per diem is so important. It’s not because it’s trendy.

It’s not trendy. it’s not because it sounds clever, even though it does sound clever, that’s not why it’s a big deal. But it’s a big deal because when you run the math, it’s just too much money to ignore. I don’t know any trucking companies who can walk away from $75,000 a year.

If you can, good for you. If you come be a guest on the podcast, I want to talk about how you how you’re so successful, and I want to give you all your flowers because that’s incredible.

Per diem is one of the few payroll changes that can improve driver net pay and company cash flow at the same time. It’s really the only one because everything else where the company saves money on the driver compensation, it costs the driver. it’s amazing. So I’m using 30 trucks as the example.

Some of you have more than that. Some of you have 80 trucks. that’s $200,000 in your pocket. That’s a good day.

And if you’re if you’re listening to this and you’re the finance person for an 80 truck trucking company, you can walk into your owner’s office and go, number one, I have a way to save you $200,000 that also helps you keep drivers. Number two, I would like my bonus now. Right? that’s fantastic.

So I want to walk through that math because it’s so important. and this is all great and fantastic, and this may change your life, and I hope it does. If you’re not paying per diem now, I think this is going to be a fantastic change to your life.

But then the next part is where people get themselves in a little trouble because they hear the savings number and they’re excited, and they just start calling part of the driver’s pay per diem, but they never explain it to the driver, they never document how they’re doing it, they never show it clearly on the pay stub. They just tell the driver, oh, just trust me. And as we all know, drivers will get upset with that because there’s a pretty profound lack of trust in general between truck drivers and the companies they work for. It’s one of the things we work on all the time is we tell people you have to improve that driver trust and your driver retention will come right along with it.

So you have to show them the work and you have to show them how it benefits them.

Because if the driver can’t understand the check, the savings won’t matter. If you can’t make it clear to them why they’re getting more money, it won’t matter. As an example, if a driver just thought, oh, they’re doing some tax thing and I’m getting more money, they’re going to look at how their withholding’s lower and go, well, they just lowered my withholding. That’s not what you’re doing.

The withholding calculation is still proper. You’re not adding or subtracting manually to get that number.

And the trust is everything. I’m sure we’re going to talk about this in a future series about driver retention, but driver retention may as well be called driver trust because that’s why drivers leave. They don’t trust the company. And I would encourage you the way you build that trust is pay stub transparency.

Show your work. Show the driver here’s how I got from A to B. Then make the math, if they want to question the math, they can question the math, but they’re not at least questioning how you got there.

The driver has to see what was taxable pay, they have to see what was per diem, how many days it was, the rate is great if you can put it on there. how they got to the final net pay. You never want the driver guessing how you got to the pay. And even if you’re like, well, they never look at the pay stubs.

Well, at least it’s on the pay stubs when they do go to look at them eventually. At least you’ve been trying to show them the math. And you don’t want drivers calling going, did you short me? That’s that’s like I’ll look into driver trust.

It’s all showing the math, showing the transparency on the pay stub. Because once you lose trust, they’re gone. They’re going to go work somewhere else.

And the best per diem plan isn’t just tax efficient, it’s easy to explain. The driver will understand it right away. It will make your office life easier. It’ll lower the temperature in the room every time a driver calls, because you probably have that one driver who calls every week about their check.

Because you have 40 drivers, there’s the one who always calls. Did I get paid for this thing? Is this right? Is this right?

Is this right? They probably feel like they’ve been burned and they want to make sure. Well, now these calls go a lot lighter because they’re if you’re showing them the math, there’s a lot less things they have to ask about. If you’re showing them that, hey, yeah, I gave you that $25 for that extra stop, or whatever you pay for extra stops, or I paid you for this much for that detention on that load.

If you’re showing the work, that takes all the questions away. Right?

So if you’re trying to figure out what per diem, I figure out how much per diem could save you, start with these questions, and they’re right on that quiz that we give you, right on our website for free. How many eligible drivers do you have? How many nights are they away?

And you’ll get your savings.

And then you’ll need to know your workers’ comp rate and you’ll need to know your marginal tax rate. Again, we default to the highest tax rate to show you the smallest savings. Your savings could be higher. And with trucking, it’s even been so hard the last few years.

I imagine that a lot of people aren’t paying the highest tax rate, but we still want to show it that way for you. But you can edit that number. and then you’re going to get into the next things of how do we roll this out? How do we make sure the drivers understand it?

And that’s really going to be the big deal. And we’re going to talk about that in another episode because the rollout can make or break this whole thing to the drivers. If the drivers are unclear and start talking to each other as drivers are going to do, it’s not going to go well. And so you have to make sure that you explain it fully to them and that they understand it and that they are free to ask questions in front of everybody, which is why the owner needs to understand it so they can answer those questions.

Because the math gets their attention, but the explanation builds trust.

And the trust is what you have to have. So, that we’re going to roll this out next episode. We’re going to roll out the rollout. Isn’t that from a Schitt’s Creek episode or something?

And so, the owner needs to show savings and they need to be able to communicate it well, and you need to keep it as easy as possible. it can be a complicated thing, but with the right visual things or the right explanations, you can show them how it’s you and the driver against the government. It’s not you against the driver or the driver against you. so here’s my question for you how much money will you save with per diem?

Because I don’t know. I don’t know your situation. And the answer is it depends. But for a lot of trucking companies, it’s very easily $2,000 to $2,500 a driver a year in tax savings and workers’ comp, even net of the extra income tax.

For a 10-truck trucking company, that’s $25,000. That’s significant. And now just think of it for a 40- or 80-truck trucking company, it can be hundreds of thousands of dollars that you can start getting right now.

But don’t start this with the savings and forget the process. Per diem has to be calculated correctly, it has to be documented, it has to be explained to the driver, and it has to show up clearly on the driver’s pay stub.

Because the goal is not just to save money, the goal is to deliver a payroll system that drivers understand and owners can trust. Per diem saves money. Clarity keeps it from costing you trust. And that’s really the lesson.

If you have any questions about any of this, we’d love your feedback. Reply on social. There is a Contact Us page on our website. Anywhere you find this, you can send fan mail through most of the podcast apps.

Send us a question if you’ve got one. We’ll hopefully cover it in a future episode. And again, we’ve got tools on our website to help you calculate that savings. Just go right to truckingpayroll.com and there’s a big button right on top that says, calculate your per diem savings or something very similar to that.

It says Save Money with Per Diem. I just looked at it.

If you run a trucking company and you’re trying to figure out whether per diem makes sense for your fleet, this is easily the kind of things that we help trucking companies work through every week at Superior Trucking Payroll Service. We’d love to have the conversation with you, even if you never switch to us. Again, our mission is to help trucking families, and that’s you. So until then, we’ll see you next time.