How Do Company Directors Get Paid?

If you’re running a company in Australia, a common early question is how directors should be paid. Do you pay them a salary like an employee, or fees like a contractor? What about superannuation, PAYG withholding, or dividends? And are director loans allowed?

Getting this right matters. The way a director is paid has legal, tax and governance implications. It also needs to reflect the director’s role (oversight vs day‑to‑day work) and be recorded properly in your company documents.

In this guide, we’ll unpack the main ways company directors are paid in Australia, the compliance pieces to think about, and the documents you should put in place so you’re protected and set up for growth.

What Does A Company Director Do?

Directors are responsible for the overall management and direction of a company. In plain terms, they set the strategy and ensure the company complies with the law. Some directors only perform governance and oversight. Others also work in the business day‑to‑day as CEO, GM, or in another operational role.

This distinction matters because it often drives how they’re paid. A director who is only providing board‑level oversight is commonly remunerated with director fees. A director who also does an operational job may receive a salary for their employee role (plus any separate director fee if appropriate).

It’s also important to remember that a director and a shareholder are not the same thing. A shareholder owns equity, while a director manages the company. Understanding the difference between a director vs shareholder helps you decide whether a payment is remuneration for services (fees or salary) or a return on investment (dividends).

Common Ways Company Directors Get Paid

There isn’t one “right” way to pay a director - it depends on what they actually do for the company. In Australia, you’ll typically see one or more of the following:

1) Director Fees

Director fees are paid for board duties - preparing for and attending meetings, reviewing reports, contributing to strategy and risk oversight. Fees are usually set annually or per meeting and approved by the board (and sometimes shareholders, depending on your constitution and any agreements).

From a compliance perspective, make sure the board approves fees in minutes or by resolution and that your company’s governance documents allow for the payment of fees. For an in‑depth overview of how this works, see Director Fees.

2) Salary (If The Director Also Works In The Business)

If a director also performs an operational role - for example, as Managing Director or CFO - they can be employed and paid a salary for that role. In that case, standard employment obligations kick in, including payroll, PAYG withholding, superannuation and applicable leave entitlements under the Fair Work system.

This salary is separate from any director fee for board work. Many startups combine the two into a single package, but it’s cleaner to document them distinctly so you can track governance vs operational remuneration.

3) Bonuses And Incentives

Bonuses (cash or equity) can be used to reward performance. If a director is also an employee, bonuses are typically processed through payroll and may attract superannuation depending on whether they count as ordinary time earnings under your arrangements. Make sure any eligibility and performance criteria are clear and approved by the board.

4) Equity (Shares Or Options)

Early‑stage companies often use equity to align incentives and conserve cash. This might involve issuing shares, options, or other equity instruments subject to vesting and performance hurdles. Equity should align with your company’s capital structure, valuation, and long‑term plan, and it needs careful documentation and board approval.

If you’re considering options for directors or key team members, have a look at Employee Share Options to understand how option plans are typically structured in Australia.

5) Dividends (As A Shareholder Return)

Dividends aren’t “pay” for services - they’re a distribution of company profits to shareholders. A director can receive dividends only if they hold shares (and if a dividend is validly declared). We cover dividends in more detail below because they play a different role to fees and salary.

Do Directors Receive Superannuation And PAYG?

Whether a director receives superannuation and whether you must withhold PAYG depends on how they’re engaged and paid.

Director Fees

Director fees are typically not employment income, but they usually attract PAYG withholding. Superannuation on director fees can apply in some circumstances. Your accountant can advise on your specific obligations, and your payroll setup should reflect the board’s resolutions.

Salary (For Operational Roles)

If a director is employed by the company in an operational role, you’ll generally treat them like any other employee for payroll purposes. That means PAYG withholding, super contributions, and leave entitlements in accordance with employment law and your employment contract. For a quick refresher on what’s included in remuneration packages, see this overview on salaries and superannuation.

It’s important to clearly document which payments are director fees vs employee salary. This helps you apply the correct payroll treatment and avoid confusion at year‑end.

Can Directors Be Paid Dividends?

Yes - but only in their capacity as shareholders, not as directors. A dividend is a distribution of profits. Directors who hold shares may receive dividends in line with their share class and the company’s dividend policy.

There are strict rules around declaring dividends, including ensuring the company has sufficient profits and that paying the dividend won’t materially prejudice creditors. The board must consider the company’s financial position carefully and follow the Corporations Act requirements and your internal governance documents.

To understand how dividends work in practice (and the compliance obligations), read this guide to dividends paid to shareholders and the wrap‑up on legal obligations for dividends.

Two quick tips:

• Dividends are not a substitute for paying a fair salary for ongoing operational work - keep remuneration and shareholder returns conceptually separate.
• Record the board’s decision and rationale in minutes or a written resolution, and ensure you meet any franking and reporting obligations.

Are Director Loans Allowed?

Directors sometimes loan money to the company (or vice versa). Loans can be legitimate, but they come with risk and strict compliance expectations, particularly around documentation, commercial terms and tax treatment.

If the company lends to a director, you’ll typically want a written loan agreement on arm’s‑length terms, board approval, and a clear plan for repayments and interest. Poorly documented or non‑commercial loans can cause significant tax and legal issues.

Start with this explainer on what a Director Loan is and how it should be structured so you avoid unintended consequences.

Documents And Governance To Put In Place

Whatever mix of fees, salary, bonuses, equity or dividends you choose, strong governance and clear paperwork will save headaches later. Here are the essentials to consider.

Board Approvals And Records

• Board Minutes/Resolutions: Approve director fees, equity grants, bonuses, and dividends formally. Keep clear records so your decisions are traceable and compliant.
• Conflicts Management: If a director’s remuneration is being discussed, manage conflicts properly (for example, the interested director may abstain from voting where appropriate).

Core Company Documents

• Company Constitution: Check that your constitution allows paying director fees, issuing shares/options, and declaring dividends in the way you plan. If not, consider updating it.
• Board/Committee Charters: Clarify responsibilities for remuneration decisions, especially as your company grows.

Employment And Engagement Documents

• Employment Contract (for operational roles): If a director is also an employee (e.g. Managing Director), their salary, super, leave and bonus entitlements should be in a clear contract aligned with Fair Work obligations.
• Letter Of Appointment (for non‑executive directors): Set out duties, term, confidentiality, fees and any committee expectations.
• Bonus/Short‑Term Incentive Plan: If using performance bonuses, outline eligibility, targets, timing and board discretion. Keep it consistent with your payroll and tax treatment.

Equity Documentation

• Share Issue Or Option Plan Documentation: Equity grants to directors should be documented with offer letters, vesting schedules, and plan rules.
• Shareholders’ Approvals (if needed): Some equity grants or increases in director remuneration may require shareholder approval depending on your constitution and any agreements in place.
• Shareholders Agreement alignment: If you have (or plan to have) multiple founders or investors, ensure your approach to remuneration and dividends works alongside any shareholder rights and pre‑emptive protections.

Dividends And Loans

• Dividend Policy: A short policy can set expectations around profitability thresholds, franking, timing and board discretion for future distributions.
• Loan Agreements: If there are loans between the company and directors, use written agreements on commercial terms and keep the board’s approval on record.

Process Tips To Stay Compliant

• Separate Roles In Writing: Distinguish board fees from any employee salary so payroll and tax treatment are clear.
• Review Annually: Revisit director remuneration as the business changes. What made sense at seed stage may not fit after a capital raise or major growth.
• Coordinate With Advisors: Your accountant can advise on tax and super implications, while we can ensure your legal documents and processes are compliant.

Key Takeaways

• Directors can be paid fees for board work, a salary if they also have an operational role, bonuses/incentives, and dividends only in their capacity as shareholders.
• Make sure PAYG, superannuation and Fair Work obligations are applied correctly - document what is a director fee versus an employee salary.
• Dividends are a return on investment, not remuneration for services; declare them properly and record the board’s decision and rationale.
• Director loans are possible but should be documented on commercial terms to avoid legal and tax risks.
• Put governance first: use board approvals, keep minutes, align your approach with your constitution, and ensure contracts and equity documents are in place.
• As your company grows, revisit remuneration and ensure it stays aligned with your strategy, cash flow and legal obligations.

If you’d like a consultation about setting up director remuneration, governance documents or equity in your Australian company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no‑obligations chat.