Do You Have To Pay Super On Directors’ Fees In Australia?

If you have a company with directors who are paid for their board work, you’re probably asking the same question many Australian business owners do: do we need to pay superannuation on directors’ fees?

It’s a really important compliance point. Getting it right protects your company from penalties, keeps your books clean and ensures you’re looking after the people helping govern your business.

In this guide, we’ll unpack when super applies to directors’ fees, how to calculate and pay it, how different payments (like bonuses and allowances) are treated, and the documents and processes you should have in place to stay compliant.

What Are Directors’ Fees (And How Do They Differ From Wages)?

Directors’ fees are payments a company makes to its directors for their duties on the board, such as attending meetings, sitting on committees and providing governance oversight.

These are different to wages or salary paid to an executive employee (for example, your CEO) for day-to-day operational work. A director can wear both hats. If a director also holds an executive role, they may receive both an employee salary package and separate directors’ fees for board work.

From a legal and payroll perspective, the distinction matters because different rules can apply to tax withholding and super. If you need a broader primer on how these payments work and common ways companies structure them, have a look at Director Fees for clarity on typical obligations and approaches.

Do You Have To Pay Super On Directors’ Fees?

In most cases, yes.

Under Australia’s superannuation guarantee rules, directors’ fees are generally treated as “salary or wages” for super purposes. Practically, that means your company must pay super on those amounts at the current Super Guarantee (SG) rate, up to the quarterly maximum contribution base.

Key points to keep in mind:

• The SG rate is currently 12% (check the ATO’s current rate each financial year).
• SG is usually calculated on Ordinary Time Earnings (OTE). For directors’ fees, they are treated as OTE for SG purposes in most common scenarios.
• There is a quarterly maximum contribution base; above this cap, SG isn’t required on the excess.
• Super is generally due at least quarterly (by the 28th day after the end of each quarter). Many businesses pay monthly to align with payroll cycles.

If you’re refreshing how OTE works across your payroll, this overview of Ordinary Time Earnings is a helpful starting point so you’re consistent across employee and director payments.

When might SG not apply? There are narrow exceptions (for example, certain non-resident arrangements where the director performs their duties entirely overseas). These situations are very fact-dependent, so it’s wise to get tailored advice if you think an exception could apply.

How To Set Up And Pay Super On Directors’ Fees (Step-By-Step)

1) Decide How You’ll Remunerate Your Directors

Clarify whether each director will be paid directors’ fees, a salary for an executive role, or both. Your company’s board should approve the framework and amounts in a formal resolution for transparency and record-keeping.

To keep governance tidy, many boards document decisions with a Directors Resolution Template and ensure their Company Constitution doesn’t impose any limits or extra approvals on paying fees.

2) Confirm Superannuation Eligibility And Rate

Assume SG applies to directors’ fees unless you have advice that an exception fits your situation. Confirm the current SG rate and the quarterly maximum contribution base for the year.

3) Capture Fees And Super In Your Payroll System

Set up a specific earnings type for “Directors’ Fees” in your payroll software so they’re reported correctly and super is calculated at the right rate. If any directors also receive an executive salary, keep those earnings types separate so you have clear audit trails.

4) Choose A Super Clearing House And Payment Cycle

Most businesses either use the ATO Small Business Super Clearing House or the clearing function in their payroll software. Pick a cycle that aligns with your cash flow-monthly payments often reduce quarter-end rushes and mistakes.

5) Meet Quarterly Due Dates

Pay super by the due date at least quarterly. Late super triggers the super guarantee charge (SGC), which is not tax deductible and comes with interest and admin fees. If you miss a deadline, lodge an SGC statement promptly to minimise penalties.

6) Keep Strong Records

Retain board approvals, engagement terms, invoices (if relevant), payslips, super payment confirmations and working papers that show how you calculated SG. Good records make payroll reviews straightforward and reduce risk if you’re ever audited.

How Are Bonuses, Allowances And Other Payments Treated?

Not all payments are treated the same way for super. If directors receive additional amounts, check how they’re categorised.

• Bonuses: If a bonus is connected to a director’s ordinary board duties, it generally counts towards OTE and attracts SG. If you’re reviewing broader payroll settings, Superannuation on Bonuses sets out practical considerations that also apply by analogy to directors.
• Allowances: Many allowances connected to ordinary duties (for example, a standard meeting allowance) are treated similarly to fees. True reimbursements (e.g. repaying a director the exact cost of a flight) are different and typically don’t attract SG.
• Termination Payments: Genuine redundancy or certain termination-type payments are treated differently and often do not attract SG. Payroll teams can cross-check their approach against Do You Pay Superannuation On Termination Payments? to ensure consistent treatment.

If in doubt, build a simple matrix in your payroll notes that lists each payment type you use for directors and indicates whether you treat it as OTE, along with a plain-English reason. This internal cheat sheet reduces mistakes when people change roles or software updates alter pay categories.

Structuring Options: Salary Vs Directors’ Fees Vs Dividends

Companies commonly use one or a mix of the following:

• Directors’ Fees: Paid for board duties; generally subject to SG.
• Salary/Wages For Executive Duties: If a director works as an employee (e.g. Managing Director or CEO), those wages are subject to SG as per normal payroll rules.
• Dividends: Paid to shareholders as a return on investment-not for services-so dividends do not attract SG.

The right mix will depend on your governance goals, tax settings and investor expectations. It’s important not to “relabel” what is actually payment for services as a dividend in an attempt to avoid SG. If an amount is truly for board or executive work, treat it accordingly and apply SG where required.

As you formalise your approach, ensure your governance documents are aligned. Many businesses review their Company Constitution when they first set or change board remuneration to confirm what approvals are needed and how conflicts are managed.

What Legal Documents And Policies Should You Have In Place?

A few key documents make director remuneration and super much easier to manage:

• Company Constitution: Sets the rules of your company, including how directors are appointed and how board decisions (such as fees) are approved. If you need to update or adopt one, Company Constitution is where many businesses start.
• Board/Director Appointment Letter or Deed: Outlines the terms of engagement, including fees, committee work and confidentiality. This keeps expectations clear from day one.
• Directors’ Resolution: A simple resolution approving the fee structure and any changes over time. Using a Directors Resolution Template ensures consistent wording and complete approvals.
• Employment Contract (for executive directors): If a director also performs an employee role, put a separate Employment Contract in place. It should cover salary, hours, leave, restraints, confidentiality and IP ownership, distinct from board fees.
• Payroll And Super Procedures: An internal checklist for how fees are processed, when super is paid, and who reviews payment files before finalising.

By separating board arrangements from any executive employment, you make compliance simpler and reduce the risk of confusion around which payments attract SG and why.

Common Compliance Pitfalls (And How To Avoid Them)

Paying Late Or Missing A Quarter

Set calendar reminders and assign responsibility (ideally with a backup person). Many SMEs pay monthly to reduce quarter-end pressure.

Using One “Catch-All” Earnings Type

Set up distinct earnings types for directors’ fees, executive salary, bonuses and allowances. This improves accuracy and reporting.

Inconsistent Treatment Across Directors

Adopt a board policy that outlines what counts as fees, which extras you allow, and when SG applies. Apply it consistently and minute changes promptly.

Assuming Dividends Replace Fees

Dividends compensate shareholders, not service providers. If a payment is for board or executive work, treat it as such and apply SG if required.

Forgetting The “Edges” Of OTE

If you update how you treat bonuses or allowances, apply that change across directors and employees so your OTE logic is consistent. A quick refresher on Ordinary Time Earnings can help align your payroll rules.

FAQs: Super On Directors’ Fees

Do non-executive directors attract super on their fees?

Yes, in most cases. Directors’ fees (executive or non-executive) are generally subject to SG, up to the maximum contribution base each quarter.

Can a director invoice the company instead of being paid via payroll?

Even if a director invoices, fees for board duties are typically treated as directors’ fees for SG purposes. If a separate entity is engaged for distinct consulting services, that may be treated differently-but ensure the arrangement reflects commercial reality and seek advice before relying on an exception.

What if we overpay or underpay super?

If you underpay, lodge an SGC statement and correct it as soon as possible. If you overpay for a period, you may be able to offset it against future periods-track these carefully and keep clear records.

How do bonuses to directors interact with super?

If a bonus is tied to ordinary board duties, it generally attracts SG. For treatment nuances and examples, Superannuation on Bonuses is a useful reference.

Key Takeaways

• Directors’ fees are generally subject to the Super Guarantee, and you should calculate and pay super at the current SG rate up to the quarterly cap.
• Set up clear categories in payroll for directors’ fees, salary, bonuses and allowances so OTE treatment is consistent and auditable.
• Document your approach with a board resolution and ensure your Company Constitution supports your remuneration framework.
• If a director also holds an executive role, put a separate Employment Contract in place to keep duties and entitlements clear.
• Be disciplined about payment timing-late super triggers costly SGC penalties and administrative headaches.
• When in doubt (for bonuses, allowances, overseas arrangements or edge cases), get tailored advice before finalising your settings.

If you’d like a consultation on superannuation obligations for directors’ fees and the right governance documents for your company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.