How Do Company Directors Get Paid?

Summary

• Directors can be paid through salary, superannuation, dividends, or director’s fees, and the method chosen affects tax obligations and compliance requirements.
• A company must have authority in its constitution or shareholder approval before paying a director, and payments must reflect genuine services rendered.
• Failing to follow proper procedures when paying a director can expose a company to legal and financial risk.
• This is a plain-English guide to director remuneration in Australia, written for business owners and company directors operating under Australian corporate law.
• The content is produced by LegalVision, a commercial law firm that specialises in advising clients on director duties and company governance.

Tips for Businesses

Review your company constitution before setting director pay to confirm the authority exists. Document all remuneration decisions in board minutes. Distinguish between salary and director’s fees, as each carries different tax treatment. Ensure superannuation obligations are met where applicable.

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On this page

• Legal Framework and Governance Requirements
• 1. Director’s Salary
• 2. Director’s Fees
• 3. Payment Through Dividends
• Key Takeaways
• Frequently Asked Questions

As a company director, you hold significant legal responsibilities and financial entitlements that are often misunderstood. The law permits directors to receive payment, but does not automatically require it. You are responsible for overseeing the management of the company, being a key decision maker and maintaining proper company records. However, there are a few different ways that you can receive an income or payment for your services. This article will explain how a company director can be paid through a salary, director’s fees or dividends.

Legal Framework and Governance Requirements

Director remuneration in Australia is governed by the Corporations Act 2001, covering termination benefits and related party transactions. Directors must understand that remuneration decisions often constitute related party transactions requiring either shareholder approval or compliance with arm’s length exceptions.

Directors' Duties Complete Guide

If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.

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1. Director’s Salary

Getting paid through a regular salary is a simple and relatively straightforward option. The company is able to hire a person to act as a full-time director as if they were an employee. This means you are taking a hands-on, day-to-day interest in the operation of the company. When the company employs you as a full-time director, there are minimum wage and other employer obligations that must be adhered to, including: 

• paying the national minimum wage or award rate (if applicable);
• making compulsory superannuation contributions;
• withholding PAYG tax; 
• ensuring WorkCover insurance coverage, as employed directors are typically considered workers under state workplace injury legislation; and
• providing leave entitlements, such as annual and personal leave.

The superannuation guarantee rate reached 12% on 1 July 2025. For easy reference, the table below outlines the recent progression of the guarantee rate.

If you are being hired as a full-time director, there must be an employment/director agreement in place between you and the company. This will outline:

• your roles and responsibilities; 
• remuneration; and 
• the company’s rights to terminate you for cause, such as fraud, misconduct or breach of the employment/director agreement. 

2. Director’s Fees

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

• are not employees of the company; and
• satisfy certain procedural requirements. 

For example, directors’ fees can include:

• fixed annual remuneration (i.e. salary, wages, etc.);
• travelling and accommodation costs;
• costs associated with attending meetings; and
• other expenses incurred in the position of a company director.

Commonly, a director’s agreement will include provisions outlining: 

• whether a director is entitled to be reimbursed for the above expenses; and 
• the procedure for doing so (i.e. incurring the expense, providing a receipt to the company and then being reimbursed). 

Generally, the law will not classify a director as a company employee. However, directors’ fees may be subject to superannuation.

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 are payments to shareholders by the company using the company’s profits from a certain period. Directors have the entitlement to receive dividends if they hold shares in the company with the right to receive dividends. If you, as a director, receive dividends, the company does not have to pay superannuation or PAYG withholding on those dividends. However, there are taxation consequences for you and the company if you receive dividends.

The company will need to pay tax on any profits made. Likewise, you may receive a franking or imputation credit for the tax the company paid when issuing you a dividend. If your income is such that the amount of the dividend you receive is being taxed at a lower rate than the company’s tax rate, the Australian Tax Office will refund you the difference. 

Key Takeaways

When managing your salary, some challenges require careful consideration to ensure legal compliance and effectiveness, including: 

• Reasonableness of Salary: Your salary should be proportionate to your role, responsibilities and value to the company. 
• Payroll Management: It is crucial to maintain a reliable payroll system to ensure accurate salary payments.
• Cash Flow Impact: You need to plan and budget the director’s pay to ensure it does not affect the company’s cash flow. 
• Performance and Remuneration Link: There must be a clear connection between the director’s pay and their performance in the company to ensure remuneration aligns with the company’s objectives. 
• Record Keeping and Transparency: You should maintain clear documentation of the salary and how it was determined, including any performance metrics used.

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Frequently Asked Questions