I’m a Company Director. How Do I Get Paid?

A company director holds a unique position of power and trust. They are responsible for making decisions that affect the company’s affairs. Likewise, company directors have several responsibilities and director duties, such as the requirement to act in good faith in the best interests of the company. As a director, your role includes overseeing management affairs, deciding who should be the CEO and maintaining proper company records. Likewise, there are a few different ways that you can receive an income or payment for your services. In this article, we look at how a company director can be paid through a salary, directors’ fees or dividends.

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1. Directors’ Salary

Getting paid through a salary is a simple and relatively straightforward option. In the event that your company also employs you in a role other than a director, you can earn a salary like any other employee. With this option, your company must also pay you superannuation. From July 2021, the guarantee rate is 10%.

2. Directors’ Fees

Directors’ fees are effectively compensation for the services you perform as a company director. Company directors can gain entitlements to receive directors’ fees instead of a salary if:

• you are not also an employee of the company; and
• you satisfy certain procedural requirements. 

Importantly, your company constitution must also include a provision allowing the company to pay you via directors’ fees. For example, directors’ fees can include:

• travelling costs;
• costs associated with attending meetings; and
• other expenses incurred in the position of a company director.

Generally, the law will not classify a director as a company employee. However, directors’ fees are subject to superannuation. You can calculate this amount using ordinary time earnings (OTE). This includes what directors earn as part of their services for their ordinary hours of work. For more specific details, you can refer to the relevant agreement, like your company constitution or shareholders agreement. Directors’ fees are also subject to payroll tax, much like a salary.

Additionally, companies need to ensure that they meet all of the procedural requirements when paying directors. Generally, courts have held that a director of a company acting as a trustee for a trust will not have any entitlement to remuneration. However, an exception is if the company passes a resolution in a general meeting authorising this entitlement. 

3. Payment Through Dividends

Dividends, or distributions, are payments to shareholders by the company using their generated profits from a certain period. Directors have entitlements to receive dividends if they hold shares that allow this. If you, as a director, receive dividends, the company does not have to pay the superannuation guarantee. This is because dividends are not included in the calculations of OTE. However, there are taxation consequences for a director and the company if the director receives dividends.

The company will need to pay tax on any profits made. Likewise, the director will receive a franking or imputation credit for tax the company paid when issuing the director with a dividend. If your personal tax total is less than the amount of the company’s tax total, the Australian Tax Office will refund you the difference. It is important to get tax advice from your accountant before receiving any dividends.

Key Takeaways

Directors are commonly remunerated through directors’ fees and payment through dividends. They will only receive a salary if they perform a role other than the company director. If you need advice about receiving payment for your services as a company director, call LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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