COLA vs. Per Diems
To understand the difference between a cost of living allowance (COLA), and a per diem, it is important to review the intent of each approach.
Cost of Living Allowance:
A COLA is designed to fully protect the home goods and services living standard for “long-term” assignments (between one and five years’ duration). While on assignment, the assignee is expected to contribute from salary what would normally be spent on goods and services at home (spendable income). The cost of living allowance is the differential; it is paid to bridge the gap between what the assignee spends on goods and services at the host location compared to their home spendable income. Since home living standards vary by home country due to differences in incomes, taxes, and local costs, the cost of living allowance is specific to each home-host combination, and varies by income and family size.
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