Reading time: 5 minutes

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.

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.

Download Now

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%.

Importantly, the superannuation guarantee rate will progressively increase by 0.5% until it reaches 12% by July 2025. The table below outlines the guarantee rate progression.

Financial year Superannuation guarantee rate
1 July 2021 – 30 June 2022 10%
1 July 2022 – 30 June 2023 10.5%
1 July 2023 – 30 June 2024 11%
1 July 2024 – 30 June 2025 11.5%
1 July 2025 – 30 June 2026 12%

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.

Alternatively, shareholders can approve this under the Corporations Act 2001 (Cth).

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. 

In Kelly v Commissioner of Taxation (No 2) [2012] FCA 689, the company trustee had deducted superannuation contributions for its directors when the directors were not employees of the company. The court held that the directors were not entitled to these deductions because they had not met the regulatory requirements. Likewise, they did not fall within the scope of the term ‘employee’.

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.

Frequently Asked Questions

How are company directors paid?

Company directors can be paid in several ways. Firstly, if you are an employee as well as a director, you can receive a director’s salary. Alternatively, you can receive directors’ fees to compensate you for your services. Finally, you can receive payment through dividends if you are a shareholder.

Do company directors have to pay superannuation?

Yes, superannuation applies to salary and fee payments made to company directors. However, superannuation does not apply to directors’ dividend returns. These are calculated using your ordinary time earnings.

Can company directors receive compensation for expenses?

Yes, company directors can recover costs associated with your travel, meeting attendance or other expenses related to your role. This will be paid under directors’ fees.

Webinars

5 Essential Contracts for your Online Business

Thursday 14 October | 11:00 - 11:45am

Online
Learn which key contracts will best protect your online business with our free webinar.
Register Now

Key Considerations When Buying a Business

Thursday 11 November | 11:00 - 11:45am

Online
Learn which questions to ask when buying a business to avoid legal and operational pitfalls, so you can hit the ground running. Join our free webinar.
Register Now

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer