Director Fees In Australia: What You Need To Know

If you run a company in Australia, there will often come a point where you ask: “How do we pay directors properly?” Maybe your startup is moving beyond bootstrapping, you’re budgeting for board oversight, or you’re simply trying to separate “salary for day-to-day work” from payment for director responsibilities.

That’s where directors’ fees come in.

Directors’ fees can be a helpful (and common) way to compensate directors for their governance role. But they also raise practical and legal questions for small businesses - including what exactly counts as a director’s fee, how it should be approved, what paperwork you need, and whether the payment can be made to an entity connected to the director instead of to the director personally.

Below, we’ll walk you through how directors’ fees work in Australia (from a small business and startup perspective), what to think about before you start paying them, and how to document it properly so you can avoid disputes later.

What Are Directors’ Fees (And When Do They Make Sense)?

In simple terms, directors’ fees (also written as director fees, director’s fees, or a director fee) are payments made by a company to a director for performing the duties of being a director.

For many small businesses, it helps to separate two different “hats” a person might wear:

• Director hat: governance, oversight, strategic decision-making, attending board meetings, ensuring the company meets its legal obligations.
• Worker hat: operational work (e.g. sales, product, engineering, marketing, admin) - often paid as wages/salary or contractor fees under a separate arrangement.

Director fees are typically used when a director is being paid specifically for board-level duties. This is common for:

• companies with external or independent directors
• companies that have grown and now want formal governance
• companies where founders want clearer pay structures (especially before fundraising)

In very early-stage startups, founders often don’t pay directors’ fees at all - not because it’s “not allowed”, but because cashflow is tight and founders may be compensated later through salary, equity, or both. Still, it’s worth understanding the option, particularly as your company matures.

If you want a deeper breakdown of practical obligations and common approaches, directors’ fees can be a helpful reference point when you’re mapping out how to pay people in different roles.

How Do You Decide The Right Director Fee For Your Business?

There’s no single “correct” director fee in Australia. What’s appropriate depends on your business, risk profile, and what you’re actually asking the director to do.

As a small business owner, you’ll usually want to avoid two extremes:

• Paying too little (which can make it difficult to attract the right skills, or can create resentment and uncertainty internally)
• Paying too much (which can create cashflow pressure and raise governance concerns - particularly if payments aren’t properly approved)

Practical Factors To Consider

When setting director fees, businesses commonly look at:

• Time commitment: Are you expecting a quarterly meeting, or weekly calls plus ongoing input?
• Scope of responsibility: Is the director bringing oversight only, or actively guiding strategy and major decisions?
• Risk and complexity: Higher-risk industries (or heavily regulated businesses) may justify higher fees for experienced directors.
• Stage and budget: A bootstrapped startup may offer a lower fee (or equity) compared to a mature company.
• Independence: Independent directors are often paid fees because they’re not otherwise compensated through a salary or founder equity.

Director Fees Vs Salary (And Why The Difference Matters)

A common mistake in small companies is using “director fees” as a catch-all payment label, when the director is actually doing operational work.

If your director is also your CEO or your head of sales, you’ll often need to think about whether part of their compensation should be documented as an employment or contractor arrangement, rather than only as a director’s fee.

From a risk-management point of view, it’s usually better to be clear: governance work is paid as director fees, and day-to-day work is paid under a separate agreement. If you’re working through the bigger question of owner compensation, paying yourself the right way is a good starting point for structuring these discussions.

How Do Directors’ Fees Get Approved And Documented?

This is where many small businesses get caught out: it’s not enough to simply “agree over email” that a director will be paid $X per month.

Because directors are effectively on both sides of the arrangement (they help run the company that is paying them), you need to ensure the decision is properly authorised under your company’s rules and corporate governance process.

Check Your Company’s Rules First

Your starting point is usually:

• your company’s constitution (if your company has adopted one), and/or
• the replaceable rules under the Corporations Act 2001 (Cth) (if you don’t have a constitution).

It’s common for a Company Constitution to include provisions about director remuneration, how it is set, and whether shareholder approval is required.

Board And Shareholder Approval (What’s Common In Practice?)

Whether you need a board resolution, shareholder resolution, or both can depend on your structure and governing documents.

In practice, many companies will:

• document the fee arrangement in writing (for clarity)
• pass a directors’ resolution approving the payment terms (where appropriate)
• if required by the constitution or shareholders agreement, obtain shareholder approval (particularly when directors are also shareholders and conflicts may exist)

Where there are multiple founders or investors, you’ll often see directors’ fees addressed in a Shareholders Agreement - for example, by setting rules around founder pay, approvals, and what happens if cashflow becomes tight.

Be Careful With Conflicts Of Interest

Because directors have legal duties to act in the best interests of the company, decisions about director fees should be handled carefully where the director receiving the fees is involved in approving them.

As a practical step, you’ll want to:

• record the decision properly (minutes/resolutions)
• be transparent about who benefits from the arrangement
• follow the process required by your governing documents

This can feel “formal” for a small business, but it’s one of the best ways to reduce future disputes - especially if a co-founder leaves or you bring in new investors.

Tax, Super And Reporting: How Are Director Fees Treated In Australia?

Director fees can trigger tax and reporting obligations, and the right approach depends on how the director is engaged and how payments are structured.

Important: Sprintlaw doesn’t provide tax or accounting advice. Because tax outcomes can vary based on your circumstances, it’s a good idea to speak with your accountant or registered tax agent (and get legal advice if you’re unsure how to document the arrangement). That said, here are common compliance questions small businesses raise.

PAYG Withholding And ATO Reporting

Where director fees are paid to an individual, the company may need to consider:

• PAYG withholding: whether amounts need to be withheld from payments and remitted to the ATO
• reporting obligations: how the payments are reported (for example, whether Single Touch Payroll reporting applies in your circumstances)

In other words, even if you’re calling it “director fees”, you still need to check the correct payroll and reporting treatment for your situation.

Does Superannuation Apply To Directors’ Fees?

This is a common question for small businesses: “Do we pay super on director fees?”

The answer depends on the particular arrangement and the nature of the relationship in practice. Superannuation treatment for directors can be complex, and it’s not something you want to guess. If you’re unsure, it’s worth getting advice from your accountant or registered tax agent early, and making sure your legal documents align with how payments are actually being made.

If your directors also receive other types of payments, you’ll also want to keep your records clean so you can separate:

• director fees for governance duties, and
• salary/wages (or contractor fees) for operational work.

Director Fees Vs Director Loans (Don’t Mix These Up)

Another area where companies get tangled is where payments are made informally and then treated later as a “director loan” in the accounts.

A director loan is a different concept (and can have different legal and tax implications). If this is something that has come up in your company, director loan arrangements should be handled carefully and documented properly.

Can Director Fees Be Paid To A Company Instead Of The Individual Director?

This question comes up a lot, especially where your director has their own consulting company or family trust structure: can director fees be paid to a company?

This is a “slow down and check” area. A director is always an individual appointed to the office of director, and companies generally pay director fees to that individual for their board and governance duties. Paying an invoice to a separate entity can change how the payment is characterised and can create legal and tax risks if the documentation doesn’t match what’s actually happening.

If you’re considering paying a director’s company (or another related entity), you should think carefully about:

• What the payment is actually for: is it remuneration for acting as a director, or payment for separate consulting/services deliverables?
• Who is being engaged: the director personally, or a separate service provider?
• Approval and documentation: the company should clearly document who is being paid, for what, and on what terms (including managing conflicts of interest)
• Tax and compliance: there may be different tax, invoicing, and reporting outcomes depending on the structure (get advice from an accountant/registered tax agent)

In many cases, the practical solution is to separate the arrangements clearly, for example:

• Director fees paid to the director personally (for board and governance duties), and
• Consulting fees paid to the director’s company (for defined services under a services agreement).

The key is that your paperwork should match reality. If the director is being paid for strategic oversight as a director, document it that way. If you’re paying for deliverables (like a sales strategy, product roadmap, or operational support), you may be looking at a services arrangement instead.

This is also a good moment to review your signing and approval processes generally. If you’re executing agreements with directors or related parties, ensure your company is signing properly under the Corporations Act - section 127 is commonly used, but what’s “right” depends on your company’s setup.

Key Takeaways

• Directors’ fees are payments made to directors for their governance duties, and they’re common as your business grows or brings on independent directors.
• It’s important to distinguish between director fees (governance) and salary/contractor payments (day-to-day operational work), so your contracts and records match what’s happening in practice.
• Before paying a director’s fee, check your governing documents (like your Company Constitution) and document approvals properly to manage conflict-of-interest risks.
• Director fee arrangements can trigger tax, reporting, and potentially super obligations. Because the tax treatment depends on your circumstances, it’s worth aligning your legal documentation with advice from your accountant or registered tax agent from the start.
• While some businesses explore whether director fees can be paid to a company (or other related entity), this usually requires careful structuring and clear documentation so the payment characterisation, approvals, and compliance obligations are handled correctly.

If you’d like help documenting directors’ fees, setting up your governance documents, or reviewing how payments to directors should be structured, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.