You’re heading to Los Angeles for a three-day conference. Or maybe you're a construction foreman sending a crew up to Sacramento for a month-long retrofit. Either way, the money conversation eventually lands on the same spot: per diem for California. It sounds simple enough. A flat daily rate to cover the taco trucks, the overpriced hotel coffee, and the Hyatt Regency room bill.
But California is never simple.
If you treat California like it’s Nebraska or Tennessee, you’re going to run into a wall of labor laws that make the federal guidelines look like a light suggestion. Between the Division of Labor Standards Enforcement (DLSE) and the standard IRS GSA rates, there is a massive gap where businesses lose money or, worse, get sued by their own employees.
The GSA Rate is Just the Starting Line
Most people think "per diem" and immediately go to the U.S. General Services Administration (GSA) website. They look up the 2026 rates for San Francisco or San Diego and think, Okay, $79 for meals and $270 for lodging. Done. Not quite.
In California, the per diem for California isn't just a tax-free allowance; it’s a proxy for expense reimbursement. Under California Labor Code Section 2802, employers are legally mandated to indemnify—which is just a fancy legal word for "pay back"—employees for all necessary expenditures incurred in direct consequence of their duties.
Here is the kicker: If the GSA rate is $74, but your employee is working in a part of San Jose where a decent lunch and dinner consistently hit $90, the GSA rate isn't a "shield." You might still owe them the difference. California courts have been notoriously friendly to workers on this. If the "flat rate" doesn't actually cover the cost of doing business, the employer is often on the hook for the actual costs, provided the employee kept the receipts.
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Why "Tax-Free" Has Strings Attached
The IRS allows per diem to be paid without taking out taxes, but only if you follow their "accountable plan" rules. Basically, you can't just hand someone $100 and say "have fun." To keep it tax-free, the payment can't exceed the federal per diem rate.
What happens if you pay more? Let’s say you want to be generous because it’s San Francisco and everything is expensive. If you pay $100 for meals when the GSA limit is $79, that extra $21 is considered wages. You have to withhold income tax on it. You have to pay payroll tax on it. If you don't, the IRS eventually comes knocking for their cut of that "extra" income.
It gets weirder with "lodging" per diems. Most private companies in California avoid flat-rate lodging per diems like the plague. Why? Because if an employee stays with a friend for free but pockets the $200 lodging per diem, that entire $200 is taxable income. It’s not a reimbursement anymore; it’s a bonus.
The "High-Low" Substantiation Method
For the sake of sanity, some businesses use the High-Low substantiation method. Instead of looking up every single tiny town in the Central Valley, the IRS designates certain areas as "high-cost."
For 2025 and into 2026, places like Los Angeles, Orange County, and the Bay Area are perpetually on the "High" list. The rest of the state often falls into the "Low" category. It’s easier for accounting, but honestly, it’s risky in California. If you’re using the "Low" rate for a technician working in a "High" cost area because of a clerical error, you’re technically violating Labor Code 2802.
Labor Code 2802: The California Difference
You really have to understand how aggressive Section 2802 is. In most states, if an employee agrees to a $50 per diem, that’s the end of it. In California, an employee cannot "waive" their right to full reimbursement.
Even if they sign a contract saying, "I accept $50 a day for food," they can later sue for the remaining $20 they spent on dinner, plus attorney fees. And in California, the employer almost always pays the employee’s attorney fees if they lose a 2802 claim. This is why many California-based HR experts suggest moving away from "flat" per diems and toward "actual expense" reimbursement for anything beyond the basic GSA rates.
The First and Last Day Problem
Travel days are a mess. The federal rule is 75% of the per diem for the first and last day of travel.
Example: You fly from Fresno to Burbank at 4:00 PM on Monday. You aren't entitled to a full day of meals because you were home for breakfast and lunch. But what if you were working through lunch at the Fresno office before driving down?
California law cares about when the "business expense" started. If the employee started their business trip at 8:00 AM, even if they didn't leave the city until 4:00 PM, they might have a claim for those expenses. Most companies stick to the 75% rule to stay aligned with IRS tax-free limits, but you have to be careful that the 75% actually covers the costs incurred.
Per Diem for California in the Construction Industry
Construction is where per diem for California gets incredibly localized. We aren't just talking about state law anymore; we’re talking about Project Labor Agreements (PLAs) and Prevailing Wage determinations.
If you are working on a public works project in Oakland, the "subsistence" pay—which is the construction version of per diem—is often defined by the specific trade union's collective bargaining agreement.
- Electricians (IBEW): Might have a specific radius (e.g., 50 miles) from the union hall. If the job is 51 miles away, per diem kicks in.
- Carpenters: Might have a different dollar amount entirely.
If you pay the "standard" GSA per diem but the prevailing wage determination for that specific county and craft requires a higher subsistence rate, you are now in "wage theft" territory. This carries massive penalties and can get a contractor debarred from future state work.
The Travel Time Trap
You cannot talk about per diem without talking about travel time. In California, if you are "under the control" of the employer, you must be paid at least minimum wage for that time.
If an employee is driving a company van with three other guys from San Diego to a job site in El Centro, the driver is working. The passengers? In California, if they are required to ride in that van, they are also working.
Per diem covers the cost of the trip, but it does not replace the wages for the time spent traveling. Some companies try to "roll" travel pay into a high per diem rate. Don't do that. It’s an easy way to lose a class-action lawsuit. Keep your wages and your per diems in two very different buckets.
Dealing with Incidental Expenses
The GSA rate usually includes $5 for "incidentals." This is meant to cover tips for baggage handlers, porters, and hotel staff.
In the age of digital payments and Uber, incidentals are getting harder to track. Technically, under California law, if an employee spends $10 on a mandatory baggage fee and $5 on a tip for a valet because there was no other parking option, those are "necessary" expenses. If your per diem is strictly $5 for incidentals, you're technically underpaying.
Most companies just tell employees to put large incidentals (like parking and baggage) on a company card or submit them separately from the meal per diem. It’s cleaner. It keeps the auditors happy.
Remote Work and the New Per Diem
Since 2020, "travel" has changed. We see more employees who are "fully remote" but live in, say, Tahoe, while the office is in San Francisco.
If that employee is required to come to the SF office once a month, is that "business travel"?
Usually, yes. If their "home office" is their primary place of business, then the trip to the headquarters is a reimbursable business trip. This means the employer owes per diem for California for those days.
However, if the employment contract specifies the SF office as the "base" and the employee just chose to live in Tahoe for lifestyle reasons, the commute is generally not reimbursable. This is a gray area that is currently being litigated in several California courts. The trend, predictably, is leaning toward the employee.
Setting Up a Bulletproof Policy
If you're managing a team in the Golden State, you need a policy that doesn't just copy-paste federal guidelines.
First, decide if you actually want to do per diem. For many California companies, actual expense reimbursement is safer. You tell employees: "We will reimburse up to $80 a day for food, but you must provide receipts."
If you stick with per diem, you must monitor the GSA updates every October. But you also need to check California's minimum wage and "split-shift" rules if your travel involves odd hours.
Secondly, make it clear what the per diem doesn't cover. It doesn't cover the flight. It doesn't cover the Uber. It doesn't cover the Wi-Fi on the plane. Those should be reimbursed separately based on actual cost.
Practical Steps for Employers and Employees
If you are an employee, keep your receipts for 90 days even if you get a flat per diem. If you find out your employer is paying you $40 a day in a city where a sandwich costs $22, you might have a claim for the difference.
For employers, here is the move:
- Audit your locations: Check if any of your job sites are in "High-Cost" areas according to the IRS.
- Update your handbook: Explicitly state that the per diem is intended to cover the "reasonable and necessary" costs as defined by Labor Code 2802.
- Provide a "top-up" mechanism: Allow employees to submit a request for additional reimbursement if the per diem was legitimately insufficient due to local prices. This "safety valve" can prevent a lawsuit because it shows you intended to fully indemnify the worker.
California's cost of living isn't a secret. The state expects employers to bear the burden of those costs, not the people doing the work. Whether it's a tech lead in Palo Alto or a pipefitter in Bakersfield, the rules for per diem for California are there to ensure the worker doesn't pay to work.
The most important thing is transparency. When the expectations are clear and the rates are fair, the per diem system works great. When it's used to "save money" on the backs of employees, that's when the California Labor Commissioner gets involved. And trust me, you don't want that.
Actionable Takeaways
- Check the Current GSA Rates: These change annually on October 1st. Ensure you are using the 2026 data for the specific county where work is performed.
- Distinguish Between "Subsistence" and "Per Diem": If you are on a prevailing wage job, throw the GSA book out and look at the DIR (Department of Industrial Relations) wage determination.
- Separate Lodging from Meals: Always try to pay lodging based on actual cost and meals/incidentals via per diem. It simplifies the tax implications significantly.
- Draft a 2802-Compliant Policy: Ensure your travel policy states that employees will be reimbursed for all necessary expenses and provides a clear path for them to report costs that exceed the standard per diem rate.