When you’re running a company, one of the first governance questions you’ll face is how directors are remunerated. What counts as a director fee? How are fees approved? And what exactly do you need to do to stay compliant with Australian company law and tax rules?
Whether you’re a startup founder formalising your board for the first time or a growing business refining your governance, understanding director fees will help you avoid costly missteps and set clear expectations from day one.
In this guide, we break down what director fees are (and how they differ from salary), how fees are decided and approved, the practical steps to pay them correctly, the key tax and superannuation rules in Australia, and the documents you should put in place to protect your business and your board.
What Are Director Fees (And How Do They Differ From Salary)?
Director fees are payments made to a director for performing their duties as a director. This usually includes attending board meetings, setting strategy, overseeing risk and compliance, and fulfilling responsibilities under the Corporations Act 2001 (Cth).
It’s useful to separate this from any operational role the person might also hold in the company:
- Director fees: Paid for the director’s board role and statutory responsibilities.
- Salary or wages: Paid for an operational job in the business (for example, CEO, Managing Director or other executive role).
Many founders and executives wear both hats. In that case, it’s common to pay a director fee for board work and a salary for management duties. Keep them clearly recorded and approved as separate items in your accounts and governance records.
Important clarification: in Australia, only individuals can be appointed as directors. As a rule, director fees for Australian companies are paid to the individual director and processed under PAYG withholding. Arrangements that attempt to pay a director’s fee to a related entity are high-risk and can trigger personal services income rules or compliance action.
Who Decides Director Fees And How Are They Approved?
The process for setting director fees depends on your structure, size and constitutional rules. Getting the approvals right helps you stay compliant and avoid disputes later.
Private Companies (Pty Ltd)
For most SMEs and startups, director fees are set by the board within the limits and process outlined in your Company Constitution and any Shareholders Agreement.
- Check what your constitution says about setting or changing fees.
- Ensure the board (or shareholders, if required) passes a formal resolution.
- Record the decision clearly in board minutes and keep it on file.
If you don’t have a formal constitution or agreement, now is a good time to put them in place. They create a consistent, defensible process for remuneration decisions and help prevent disagreements as your company grows.
Public Companies
Public companies must meet additional requirements, including shareholder approval of the total fee pool. While this guide focuses on private companies, the governance principles around clear approvals and transparent disclosure still apply across the board.
How To Pay Director Fees In Australia: Step-By-Step
Once fees are approved, paying them correctly is mainly a process discipline. Here’s a practical sequence most private companies can follow.
1) Confirm Authority And Amount
- Check your constitution and agreements for the approval pathway.
- Pass a board or shareholder resolution (as required) confirming the fee, frequency and start date.
- Document any additional benefits (e.g. equity, meeting fees, committee fees) separately.
2) Use Payroll And Withhold PAYG
Director fees are subject to PAYG withholding. Even owner-directors should be set up in payroll so tax is withheld and reported correctly. Most Australian companies report via Single Touch Payroll (STP).
- Set up the director as an individual payee in your payroll system.
- Withhold PAYG at the applicable rate.
- Report the payment through STP on or before payment day.
Note: under STP, directors generally don’t receive traditional PAYG payment summaries at year end. Instead, their year-to-date totals are finalised in STP and appear as an income statement in ATO online services (via myGov).
3) Assess Superannuation Obligations
In many cases, the Superannuation Guarantee (SG) applies to director fees paid to an individual. If super is payable, contribute at the current SG rate to the director’s nominated fund by the due date (the same timing that applies to employees).
4) Clarify Equity-Based Remuneration
If part of a director’s remuneration includes equity (for example, options or performance rights), keep the cash fees (and related PAYG/Super) separate from your equity plan documents and approvals. Equity may also have tax and disclosure implications, so coordinate with your tax adviser and keep complete board minutes. If you’re exploring options, many companies use employee share options for key talent-board members included in some cases-subject to proper approvals.
5) Keep Clear Records
- Board minutes and resolutions authorising fees.
- Payroll records showing PAYG withheld and STP reports.
- Superannuation contribution confirmations (if applicable).
- Separate documentation for any equity or additional benefits.
Good record-keeping is not just best practice-it’s essential for audit, governance and stakeholder confidence.
Tax, Superannuation And Reporting: What Applies To Director Fees?
Director fees have specific treatment under Australian tax and superannuation rules. While your accountant or tax adviser should guide tax positions, here’s the high-level picture so you know what to organise internally.
PAYG Withholding And STP
- Director fees are assessable income to the individual and subject to PAYG withholding by the company.
- Report payments through STP at or before the time of payment.
- At year end, finalise the payee in STP so the income statement is available through ATO online services.
Superannuation Guarantee (SG)
Directors commonly qualify for SG on fees paid to them as individuals. The SG rate changes periodically, so confirm the current rate and payment due dates. For context on what counts towards super calculations, it’s helpful to understand ordinary time earnings in an employment context-then apply the director-specific rules to your situation.
FBT And Non-Cash Benefits
If a director receives non-cash benefits (for example, a company car or certain reimbursed expenses), Fringe Benefits Tax (FBT) may apply. Track these benefits and speak with your tax professional to ensure you capture and report them correctly.
GST
Director fees paid to an individual in their capacity as a director are generally not subject to GST. However, tax outcomes can vary depending on fact patterns-get tax advice before adopting anything unusual.
Important note: Sprintlaw is a law firm and this guide focuses on legal and governance obligations. We don’t provide tax advice. Always confirm tax treatment, withholding and superannuation obligations with your accountant or tax adviser.
What To Put In Your Company Documents (And Why It Matters)
Clear documents make remuneration decisions simpler, faster and more robust. They also help keep your board aligned as your business evolves.
Company Constitution And Shareholders Agreement
Your Company Constitution and Shareholders Agreement should outline:
- Who can approve director fees (board, shareholders, or both).
- Any caps, review cycles, or special approval thresholds.
- Processes for changing remuneration and handling disputes.
If these documents are missing or outdated, consider updating them now. It’s much easier to agree on the rules before any tricky situation arises.
Directors Service Agreement (For Executive Directors)
Where a director also has a management role, a Directors Service Agreement sets out day-to-day duties, performance expectations, confidentiality, IP ownership, restraints and termination provisions. Keep this separate from board fee approvals so there’s no confusion between board remuneration and executive salary or bonuses.
Deed Of Access, Indemnity And Insurance
To support good governance and attract quality board members, companies commonly provide a deed covering indemnity, access to records and D&O insurance arrangements. A tailored Deed of Access and Indemnity can help protect directors acting in good faith, consistent with the Corporations Act.
Company Set-Up And Director Requirements
If you’re formalising your structure for the first time, ensure your base registrations and director details are correct with ASIC. Many founders use a company set up service to streamline this process, then put governance documents in place and confirm ongoing director eligibility (for example, resident director rules).
Common Pitfalls And Practical Tips
Setting up director fees isn’t complicated once you know the rules, but there are a few traps worth avoiding.
Pitfall 1: Paying Without Proper Approvals
Paying fees before the board (or shareholders, if required) has approved them can create compliance issues and shareholder frustration. Always pass and minute the resolution first.
Pitfall 2: Blurring Board Fees And Executive Salary
If a director also has an operational role, separate the remuneration streams and approvals. Use a Directors Service Agreement for the executive role and minute board fee decisions separately.
Pitfall 3: Skipping PAYG And STP
Director fees are not “cash in hand.” Withhold PAYG, report through STP, and finalise at year end. This applies even when directors are also owners or founders.
Pitfall 4: Misunderstanding Super On Fees
In many cases, SG applies to director fees paid to individuals. Missing super can lead to penalties and director dissatisfaction. Align your super process for directors with the cadence you use for employees.
Pitfall 5: Trying To Pay Fees To An Entity
As a general rule, pay director fees to the individual who is appointed as director. Alternative arrangements can be high-risk and may not achieve the tax outcomes you expect.
Practical Tips
- Keep approvals simple: Use a standing annual resolution that sets the fee framework, then minute any changes or additional committee fees during the year.
- Benchmark pragmatically: Consider company size, complexity and time commitment when setting fees. Reasonableness matters-to your board, your investors and the ATO.
- Plan for growth: As your business scales, revisit remuneration, board composition and insurance. A strong governance foundation helps you attract talent and capital.
- Check director eligibility: When appointing or replacing directors, ensure you continue to meet resident director and other ASIC requirements. If you’re new to this, a guided company set up can reduce admin and errors.
Key Takeaways
- Director fees are payments for board duties and should be kept separate from any salary for executive or operational roles.
- Get the process right: check your constitution and agreements, pass the required resolution, and minute every remuneration decision.
- Pay fees through payroll with PAYG withholding and Single Touch Payroll reporting; in many cases, Superannuation Guarantee also applies.
- Use core governance documents-your Company Constitution, Shareholders Agreement, and a Directors Service Agreement (for executive roles)-to create clarity and reduce risk.
- Avoid common pitfalls like paying without approvals, blurring fee types, skipping PAYG/STP, or attempting to pay fees to an entity.
- For equity components and tax treatment (including FBT and super), coordinate with your accountant-Sprintlaw can help with the legal framework while your tax adviser confirms the numbers.
If you would like a consultation on director fees, board documents or company governance, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
