If there is one tax issue that consistently causes real damage in healthcare staffing transactions, it's not entity structure, classification, or state filings.
It's per diems.
Specifically, tax‑free housing, meals, and travel reimbursements paid to doctors, nurses, and therapists on short‑term assignments away from home.
This is the issue that turns diligence from uncomfortable to adversarial.
Not because sellers are acting in bad faith — but because the exposure can be enormous, difficult to quantify, and hard to fix once a transaction is underway.
From the seller's perspective, per diems often feel straightforward. They're common in the industry. They're expected by clinicians. There's usually a written policy. Payments have been made for years without challenge.
From a buyer's perspective, per diems represent concentrated, multi‑year payroll tax risk — and the first place diligence teams dig deeply.
Here's why.
For per diems to be tax‑free, very specific conditions must be met. Assignments must be temporary. Clinicians must maintain a qualifying tax home. Payments must be reasonable. Documentation must exist. And perhaps most importantly, the company must actually follow its own policy — consistently, every time.
In diligence, buyers don't just ask, "Do you have a per diem policy?"
They ask, "Can you prove that you complied with it?"
That's where problems surface.
In many staffing firms, policies were written years ago and applied loosely as the business scaled. Assignments that were originally expected to be short stretch longer. Extensions pile up. Clinicians rotate locations. Documentation becomes inconsistent. Tax home determinations aren't refreshed. Exceptions are made to stay competitive or fill urgent needs.
Operationally, everything still works. Clinicians are happy. Recruiters close deals. Payroll runs.
Tax‑wise, exposure quietly accumulates.
Buyers care because per diem issues don't create small adjustments — they create retroactive payroll tax liability. If payments that were treated as tax‑free should have been taxable wages, the exposure includes unpaid payroll taxes, penalties, and interest. And it doesn't stop at the federal level. State payroll taxes follow.
When this spans thousands of assignments across multiple years, the numbers escalate quickly.
Even worse, this exposure often sits entirely inside the operating entity — the very entity a buyer is acquiring.
That's why per diems change deal dynamics.
If diligence uncovers inconsistent compliance, buyers don't debate whether the risk is real. They debate how much of it exists — and who is going to bear it.
Because the exposure is difficult to measure precisely, buyers protect themselves. Escrows increase. Indemnities expand. Deal structures shift. In some cases, buyers walk — not because they don't like the business, but because they can't get comfortable with the downside.
What frustrates sellers is that they often believed they were doing things "the right way."
They had a policy. They followed it most of the time. They never heard from the IRS.
But diligence doesn't evaluate intent or effort. It evaluates evidence.
Having a policy is not the same as enforcing it. And enforcing it inconsistently is often worse than not having one at all.
So what can staffing firms do before per diem issues derail a transaction?
First, leadership needs to understand that this is not a box‑checking exercise. Buyers will test compliance at the assignment level. They will look for proof of tax home determinations, assignment duration tracking, extensions, measurements for sleep or rest test, and consistency between policy and practice.
Second, firms need to stress‑test their policy against reality. Where have assignments exceeded intended timeframes? Where were exceptions made? Where was documentation light? Is every assignment far enough from home? Identifying those gaps early allows firms to quantify exposure — and address it on their own timeline.
Third, compliance has to be operational, not theoretical. Recruiters, payroll teams, and compliance functions all touch per diem decisions. If those groups aren't aligned, policies don't hold up under scrutiny.
The firms that navigate this issue successfully aren't perfect. But they know where they stand. They understand their exposure. And they don't discover gaps for the first time in a buyer's data room.
Per diem compliance is one of the few diligence issues that can genuinely kill a healthcare staffing deal — not because it's misunderstood, but because it's often underestimated.
In the next article, I'll step back and tie all of these issues together — worker classification, entity structure, state taxes, and per diems — and explain why the biggest risk in diligence is the gap between operational reality and tax reality.