I suspect that your employer MUST state the policy in writing BEFORE they do any of it.

If you are paying for the Lodging/and Per Diem directly and submitting it for "Reimbursement" then ,at least morally, the employer is considering it as a valid expense. Which is deductable on their part. However if they are paying it outright and then deciding to classify it as income then the employer cannot claim it as a deduction (i think). Sounds like a bean counter had an idea that should have been ignored and/or rejected. May be some weird way to improve the bottom line.

Had a similar debate with a former employer. They told me that they would give me a vehicle allowance rather than mileage reimbursement for use of my personal vehicle. My stand was (at the time and after consulting my tax specialist) I would only accept Mileage Reimbursement for actual miles driven in the course of my job. The only other option I was willing to accept was the company would supply me a Company Vehicle. At the time, allowed reimbursement was 31 cents a mile. It only took a couple of 1000 mile months before they saw the benefit of a company vehicle. Plus, to my benefit, reimbursement was not taxable as income at that time where the "Vehicle Allowance" was taxable as income.