The Unintended Consequences of Changing Travel Per Diem Policies

In the world of corporate cost-cutting, decisions that seem prudent on the surface can sometimes lead to unexpected and costly outcomes. This article delves into a real-life scenario where a company’s decision to change its travel per diem policy, intended to save money, ended up costing the organization significantly more than it had anticipated.

The Initial Travel Per Diem System

Background

In many corporate settings, employees who frequently travel for work are provided with a travel per diem. This per diem typically covers expenses such as meals and incidentals incurred during business trips. It serves as a convenient way to reimburse employees for their out-of-pocket expenses without the need for detailed receipts.

The Benefit of Frugality

Under the initial travel per diem system, employees had the flexibility to manage their meal expenses. Many travelers adopted a thrifty approach by seeking out complimentary hotel breakfasts, opting for budget-friendly meals, and pocketing the difference. It was a win-win situation: employees saved money, and the company reimbursed them for reasonable expenses.

The Decision to Change the Policy

Rationale for Change

At some point, the company decided to reevaluate its travel per diem policy in an attempt to cut costs. The rationale behind this decision was to transition from the per diem system to one where employees were required to purchase their meals and then seek reimbursement for their actual expenses.

The Challenge of Equity

One challenge the company faced was ensuring that the new policy applied uniformly to all employees. While some employees, like those in sales, may have legitimate reasons to incur higher meal expenses due to client meetings, the company could not apply a cap to meal expenses for one group while allowing another group to spend freely.

The Unintended Consequences

Employees’ Response

The change in policy had an unexpected consequence: employees started to take full advantage of the new expense reimbursement system. Instead of adhering to the frugal habits they had previously adopted, many travelers began to indulge in expensive meals, dining at upscale restaurants and submitting claims for substantial expenses.

Comparison of Costs

Let’s compare the costs under the old per diem system to the new expense reimbursement system in a table:

Travel Expense Type	Old Per Diem System	New Expense Reimbursement System
Breakfast (Complimentary)	$0	$15 (Restaurant Breakfast)
Lunch (Budget Meal)	$10	$25 (Fine Dining)
Dinner (Budget Meal)	$10	$35 (Gourmet Dining)
Total Daily Expenses	$20	$75

As shown in the table, the shift from the old per diem system to the new expense reimbursement system resulted in a significant increase in daily meal expenses. This meant that the company was now paying much more for meals than it had under the previous system.

Unintended Financial Consequences

The unintended financial consequences of the policy change were significant. The company’s travel-related expenses skyrocketed as employees maximized their meal allowances. What had initially been intended as a cost-saving measure had backfired, leading to a substantial increase in operational costs.

Lessons Learned

The case of changing the travel per diem policy offers valuable lessons for organizations and decision-makers:

1. Consider the Behavioral Impact

When implementing changes in policies or benefits, it’s crucial to anticipate how employees might react. Behavioral responses, such as the one seen in this case, can have a profound impact on costs.

2. Equity vs. Efficiency

Balancing equity and cost efficiency is a challenge. While it’s essential to treat employees fairly, policies should be carefully designed to avoid unintended consequences that may increase expenses significantly.

3. Employee Engagement

Engaging with employees and seeking their input when making policy changes can provide insights into potential issues and help craft policies that are more likely to achieve the intended outcomes.

4. Cost-Benefit Analysis

Before making significant policy changes, organizations should conduct a thorough cost-benefit analysis. It’s essential to weigh the potential cost savings against the potential for increased expenses due to behavioral changes.

Conclusion

The case of changing the travel per diem policy serves as a reminder that even well-intentioned decisions to cut costs can have unintended consequences. In this instance, the shift from a per diem system to expense reimbursement led to employees taking advantage of the new policy, resulting in substantially higher meal expenses for the company.

Organizations should approach policy changes with a careful consideration of how employees may respond and conduct thorough cost-benefit analyses to assess the true financial impact. Striking a balance between cost savings and fairness to employees is essential for achieving desired outcomes without incurring unexpected expenses.