Per diem, is Latin for "per day" or "for each day". It usually refers to the daily rate of any kind of payment. It may also refer to a specific amount of money that an organization allows an individual to spend per day, to cover living and travelling expenses in connection with work. It is the allowance given to the employee/worker for completing a task or going on tour away from home.
Per diem is understood to include the additional expenses incurred living away from home - basically having two residences. The IRS sets the maximum amount of per diem each year based on the location - for instance, New York City has a higher rate than Peoria, Illinois. Per diem is supposed to be paid on a daily basis, seven days a week, while you're at the remote location. It is not supposed to be tied to your salary, number of hours/days worked, etc. - just a flat daily rate. However, many brokers will try to save money by saying it's only for those days you work, or you get the full amount only if you work a full day, etc.
There are no ramifications if you later take a full time position with the company. In fact, you can collect per diem even if you are a full time employee, but are working away from home. You do not have to be a contractor.
They can continue to pay the per diem as long as you're working for them and maintaining two residences. However, if you do something like rent your house out while you're gone, you're no longer maintaining two residences, and no longer eligible for per diem.
Any tour of duty adding up to over 500 miles counts as a per diem. You can claim up to the per diem limit without receipts. Anything over this has to have records i.e. receipts. Note also that as long as you keep a record of the amount spent and the date of the expense, then you do NOT need a receipt for any expense less than $75. A logbook and a pocket calendar is a perfectly acceptable method of tracking these "undocumented" (with a receipt, at least) expenses.
The US military pays its members per diem in accordance with the Joint Federal Travel Regulations. According to these regulations, the first and last days of travel are paid 75% of the daily General Services Administration rate, while all other days of travel receive the full rate. The JFTR also follows the 'expenses below $75 do not require a receipt' rule, although local disbursing officers may question charges they feel may be false.
Per diem is sometimes written as "perdium" [sic]. Usage in this form is incorrect.