How To Pay Superannuation On Directors’ Fees In Australia

If you run a small company, it’s common to pay directors for the work they do at board level - whether that’s attending meetings, making strategic decisions, signing off on budgets, or overseeing compliance.

But once you start paying directors, one question tends to come up quickly (often after your accountant asks it): do we need to pay superannuation on directors’ fees?

This is where things can get tricky. Directors are not always “employees” in the ordinary sense, and some directors are also shareholders, founders, or contractors in the business. Still, under Australia’s superannuation laws, directors’ fees can attract compulsory super in many cases.

In this guide, we’ll walk you through the practical side of directors’ fees superannuation: when it applies, how to set it up, what to watch for, and how to keep your company compliant from the start.

Important: This article is general information only and doesn’t constitute legal, tax or financial advice. Superannuation guarantee (SG), PAYG withholding, Single Touch Payroll (STP) reporting and the deductibility/penalties relating to late super are tax administration issues - it’s a good idea to confirm your position with your accountant or a registered tax agent, especially if you’re changing how people are paid.

What Are Directors’ Fees (And How Are They Different From Wages Or Dividends)?

Directors’ fees are payments made to a company director for performing their duties as a director. This is typically separate from:

• Wages/salary (paid for day-to-day operational work, often under an employment arrangement)
• Dividends (paid to shareholders out of company profits)
• Reimbursements (repayment of out-of-pocket expenses incurred for company business)

For small businesses, one person might wear multiple hats - director, shareholder, and employee - which is exactly why it’s important to be clear about what the payment is actually for.

As a starting point, it helps to document what you’re paying and why. If you want a plain-English overview of how director payments generally work, director fees is a good reference point when you’re setting up your internal processes.

Why This Distinction Matters For Super

Whether superannuation is payable usually depends on whether the payment is treated as “salary or wages” for superannuation guarantee (SG) purposes - and director remuneration can be captured under those rules even if the director is not a typical employee.

Dividends generally don’t attract SG, but directors’ fees often do.

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

In many cases, yes - paying super on directors’ fees can be a real compliance obligation for Australian companies.

Under the superannuation guarantee regime, companies must make minimum super contributions for eligible workers. Importantly, the definition of “employee” for SG purposes is broader than the everyday meaning.

In particular, a director who is paid for performing duties as a director is generally treated as an employee for SG purposes (this comes from the extended definition of “employee” under the superannuation law, not ordinary employment law). For example, if your company pays an individual a fee for services performed as a member of the board, that payment is commonly treated as “salary or wages” for SG.

So, if your company pays directors’ fees to an individual director, you should treat SG as a key issue to check early - and confirm your specific position if your arrangements aren’t straightforward.

What Rate Of Super Applies?

The superannuation guarantee (SG) rate has increased over time. Currently, the SG rate is 12% (and it can change, so you should always confirm the current rate when you run payroll and lodge BAS).

Are There Any Exceptions?

There are situations where the analysis becomes more complicated, such as:

• payments that are not actually “directors’ fees” (for example, genuine expense reimbursements)
• payments made to a separate entity rather than the director personally (for example, where invoices are issued by a company or trust - this can raise separate tax and structuring issues, and SG outcomes can depend on the facts)
• directors who are under 18 (special SG eligibility rules can apply, including hours worked)
• directors who are non-residents or where services are performed overseas (cross-border arrangements can affect SG obligations)
• arrangements that are, in substance, contractor arrangements (but still may be “employee-like” for SG)

Because the penalties for getting SG wrong can be significant, it’s worth getting tailored advice early - especially if you’re trying to structure payments in a specific way for tax or cashflow reasons.

How To Pay Directors’ Fees (And Super) In A Practical, Compliant Way

Once you’ve decided to pay director fees, it helps to treat it as a proper, repeatable process - not a once-off transfer that gets cleaned up at year-end.

Here’s a practical framework for how to pay directors fees while also handling superannuation properly.

1. Approve The Directors’ Fees Properly

Directors’ remuneration should be approved and recorded. Depending on your structure and governing documents, that might involve:

• a board resolution
• shareholder approval (in some cases)
• updating internal company records

It’s much easier to defend your position (to the ATO, an auditor, or in a dispute between founders) if your company has good governance foundations like a Company Constitution that matches how you actually run the business.

2. Decide How The Fees Will Be Paid (Regularly Or Ad-Hoc)

Directors’ fees might be paid:

• monthly (common in small businesses where directors are also hands-on)
• quarterly (sometimes aligned with SG quarters)
• annually (less common, but happens where directors meet only periodically)
• per meeting (more common in larger or more formal boards)

Whatever you choose, keep it consistent and document it.

3. Run Payments Through Payroll (Where Appropriate)

Many companies process directors’ fees through payroll to ensure:

• PAYG withholding (if required) is handled
• super is calculated correctly
• reporting is consistent (including STP reporting, if applicable to your setup)

Even though directors aren’t always “employees” in the usual HR sense, running payments through payroll is often the cleanest way to ensure you’re not missing SG obligations. Your accountant or payroll provider can help confirm whether STP and withholding apply to your specific arrangements.

4. Pay Super Into The Director’s Nominated Fund By The Due Dates

SG contributions are generally due quarterly. If you miss the cut-off, you may be exposed to the Superannuation Guarantee Charge (SGC), which can be more costly than simply paying on time.

From a cashflow perspective, we often see small businesses get caught out because director fees are paid “when there’s money available”, but super deadlines don’t move just because your trading month was slow.

5. Make Sure Your Records Match The Story

Your accounts, resolutions, and payment descriptions should align. For example:

• If it’s a director fee, label it as such (not “loan”, not “reimbursement”, not “dividend”).
• If a payment is a reimbursement, keep receipts and a reimbursement policy.
• If you’re taking money out as a loan, understand how a director loan works and the risks if it’s not documented properly.

Mixing categories can create compliance issues, tax complications, and headaches if there’s ever a dispute between founders or a review by the ATO.

Common Mistakes Businesses Make With Directors’ Fees Superannuation

Most directors aren’t trying to do the wrong thing - it’s just that director remuneration sits in an awkward space between employment, tax, and corporate governance.

Here are some common issues we see when small businesses handle directors’ fees superannuation informally.

Assuming “Directors Aren’t Employees, So No Super”

This is one of the most common misunderstandings. Superannuation law can treat directors as employees for SG purposes even when there’s no classic employment relationship.

If the company is paying an individual director for their services, you should treat SG as a live issue from day one - and get advice if you have a more complex structure (for example, payments via a related entity, overseas services, or a mixed director/contractor role).

Paying Director Fees As “Dividends” To Avoid Super

Dividends are a shareholder return - they’re not meant to be a substitute for remuneration.

If payments are really for work performed (director duties), trying to label them as dividends can create risk. It may also cause friction with other shareholders if the company’s dividend policy isn’t clear.

If your business has multiple owners, you’ll often want a Shareholders Agreement to set expectations around dividends, decision-making, and how directors get paid - before misunderstandings turn into disputes.

Missing SG Due Dates

Late SG payments can be expensive. Unlike ordinary super contributions, late payments may not be deductible and can trigger the SGC, plus potential penalties and admin charges.

A simple internal checklist and calendar reminders can prevent this, especially if you only pay directors’ fees occasionally.

Not Being Clear On “Director Work” Versus “Employee Work”

In smaller companies, directors often do operational work too - sales, product development, customer service, managing staff, and so on.

That can lead to blurred lines between:

• director fees (board/oversight duties)
• salary and wages (day-to-day work)
• contractor payments (if the person is engaged as an independent contractor)

From a compliance standpoint, it’s much easier if you have the right agreements in place, including an Employment Contract where a director is also performing an employee role in the business.

What Legal Documents And Governance Steps Help You Get This Right?

Handling directors’ fees properly isn’t just about payroll settings. It’s also about making sure your company’s governance and legal foundations support what you’re doing in practice.

Here are a few documents and steps that can make directors’ fees superannuation much easier to manage (and explain later).

Company Constitution

Your constitution can set out how directors are appointed, how meetings work, and how certain decisions are approved.

If you’re paying directors - particularly where founders are also directors - it’s worth ensuring your Company Constitution aligns with your actual governance and approval process.

Shareholders Agreement (If There’s More Than One Owner)

A shareholders agreement is often where the “real world” rules live - including expectations around:

• director appointments and removals
• how directors are paid
• dividend policies
• deadlocks and decision-making power

That’s why a Shareholders Agreement can be particularly useful where director remuneration could otherwise become a sensitive topic.

Clear Payment Policies For Founders And Directors

Even if you don’t have a formal written “policy”, you should be clear internally on:

• what payments are director fees (and when they’re approved)
• what payments are salary/wages
• whether reimbursements are allowed and how they’re substantiated
• whether the company uses director loans (and how they’re recorded)

This also ties into the broader question of paying yourself as a business owner. If your business is at the stage where you’re weighing up salary, dividends, director fees, and other options, pay yourself as a business owner is a helpful framework for thinking through the legal and structural side (alongside tailored accounting advice).

Proper Execution Of Company Decisions

If your company is documenting resolutions about director payments, make sure they’re executed properly. For example, when agreements or minutes need signing, it’s worth understanding how signing under section 127 works so your records hold up if they’re ever relied on later.

Key Takeaways

• Directors’ fees are payments for director duties, and they’re different from wages (employee work) and dividends (shareholder returns).
• In many cases, superannuation on directors’ fees is payable because super law can treat directors as employees for SG purposes when they’re paid for their services as directors.
• A practical way to stay compliant is to approve director fees properly, run them through payroll where appropriate, and pay super by the due dates.
• Common pitfalls include assuming no super is required, mislabelling payments as dividends or loans, and missing quarterly super deadlines.
• Good governance documents - like a Company Constitution and Shareholders Agreement - help you document approvals and reduce disputes around how directors are paid.

If you’d like help setting up or reviewing your director remuneration arrangements (including directors’ fees and superannuation compliance), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.