Paying director fees in Australia and your company's legal obligations

What your company must do when it pays director fees

Every company that pays fees to its directors takes on obligations that go beyond writing a cheque. Director fees must be approved in the right forum, paid through payroll with tax withheld and reported, assessed for superannuation, and backed by minutes and records. These obligations come from the Corporations Act 2001 (Cth) and from the tax and superannuation laws administered by the ATO, and they apply with full force even when the director is also the owner of the company.

This article sets out who the obligations apply to, the main duties (approval, PAYG withholding and Single Touch Payroll reporting, superannuation guarantee, and record keeping), the consequences of getting them wrong, and a checklist you can act on.

Who the obligations apply to

The obligations fall on almost every company that has directors. A proprietary company needs at least one director, and that director must ordinarily reside in Australia (s 201A of the Corporations Act 2001 (Cth)). A public company needs at least three directors, two of whom must ordinarily reside in Australia. Because only an individual aged 18 or over can be appointed as a director (s 201B of the Corporations Act), director fees are always paid to a natural person, never to a company or trust. The obligations break down by who bears them:

The company: must approve the fees properly, withhold and report PAYG, assess superannuation guarantee, and keep minutes and financial records.
The director: is personally taxed on the fees and owes the company statutory duties of care, good faith and proper use of position.
Owner-directors: a sole director who owns the whole company is still caught. The approval, payroll and reporting steps apply in the same way.

The trigger is simple: the obligations arise when the company pays, or agrees to pay, remuneration for board duties. They also arise when the company gives a director a non-cash benefit such as a car.

Approve the fees in the right forum

Under s 202A of the Corporations Act 2001 (Cth), directors are paid the remuneration that the company determines by resolution. That section is a replaceable rule, which means your constitution can set its own process. If you have a constitution or shareholders agreement, check what it says about who approves fees, any caps and review cycles, and the level of approval required. If you have no constitution, the replaceable rules apply and a resolution is the mechanism that sets the fees. In practice, the approval process has three steps:

Check the constitution and any shareholders agreement for the approval pathway.
Pass a resolution (board or members, whichever your documents require) confirming the fee amount, the frequency and the start date.
Record the decision in the minutes and keep the signed minutes on file.

The company can also pay a director's travelling and other expenses properly incurred in attending meetings and on company business (s 202A(2) of the Corporations Act), but the decision should still be documented.

Public companies face a stricter regime. Chapter 2E of the Corporations Act requires member approval for financial benefits given to related parties, and director remuneration sits within that regime subject to its exceptions. If you are a public company, treat director remuneration as a member approval matter rather than a board decision.

Paying fees before the approval step is complete is more than a paperwork problem. A director who authorises a payment that was never approved can be exposed to claims of breach of duty, and the company or its members can seek to recover the amount.

Withhold PAYG and report through Single Touch Payroll

Director fees are subject to PAYG withholding. The ATO lists payments to company directors and office holders alongside payments to employees as payments you must withhold from. In practical terms:

Set the director up as an individual payee in your payroll system.
Withhold tax at the rate that applies to the director's circumstances.
Report the payment through Single Touch Payroll (STP).

Directors' fees are specifically in scope for STP reporting. If you are a small employer (19 or fewer payees) and the director is a closely held payee, which the ATO defines to include directors and shareholders of a company, you can choose to report the amounts quarterly (actual payments or a reasonable estimate) rather than on or before each payday, as long as any arm's length employees are still reported each payday. Larger employers must report directors' fees on or before payday like any other payment.

At the end of the financial year you finalise the payee in STP, and the year to date figures appear as an income statement in ATO online services. Traditional PAYG payment summaries have effectively been replaced by this process.

If you fail to withhold, the company can be liable for the amount that should have been withheld, plus interest and penalties. The joint ATO and ASIC guidance for small business also warns that a failure to withhold may mean the company cannot claim a deduction for the payment.

Assess superannuation guarantee on the fees

The superannuation guarantee (SG) rate is 12% and has been since 1 July 2025. Since 1 July 2026, Payday Super has applied: you must pay SG for each payday, and the contribution generally needs to be received by the director's fund within 7 business days after the payday.

The ATO's guidance on who is eligible for SG is explicit that it does not matter if the employee is a company director. The joint ATO and ASIC guidance for small business similarly directs companies that pay salary, wages or directors' fees through payroll to withhold tax and make employer superannuation contributions on those payments. For a director who is an employee, such as an executive or managing director, SG on fees paid through payroll is the usual position.

Where a director is engaged only for board duties and is not an employee in any other sense, the position can differ, and you should confirm it with your accountant or tax adviser before assuming either outcome. The distinction matters because the consequences of missing SG are significant.

Under the Payday Super rules, if contributions are not received within the 7 business day window, the ATO calculates a super guarantee charge (SGC) and issues a notice of assessment; you no longer lodge an SGC statement yourself. The charge has four components: the unpaid super amounts, notional earnings calculated at the general interest charge rate and compounded daily, an administrative uplift, and a choice loading if you did not follow the choice of fund rules. The ATO has said it will take a supportive compliance approach in the first year of Payday Super, but only for employers who are paying each payday and fixing errors quickly.

Keep the minutes and the financial records

Two record keeping duties in the Corporations Act back up the payment process.

First, s 251A of the Corporations Act requires the company to keep minute books and record the proceedings and resolutions of directors' meetings within one month. The minutes must be signed, and the minute books kept at the registered office or principal place of business. A signed minute is evidence of the resolution, which is exactly what you need to prove the fee was approved. If your company has a single director, declarations made by that director must also be recorded. Breaching these requirements is a strict liability offence.

Second, s 286 of the Corporations Act requires the company to keep financial records that correctly record and explain its transactions, and to retain them for 7 years. Both a fault based and a strict liability version of the offence exist. Your payroll records, STP reports and super contribution confirmations are the practical evidence that the withholding and super duties were met, so keep them within the same 7 year window.

Beyond the core obligations, four areas deserve attention:

Fringe benefits tax: non-cash benefits such as a company car used privately can attract FBT. The FBT law treats directors as employees for this purpose, and ATO guidance such as MT 2019, which deals with directors of corporate trustees, applies the FBT framework to benefits provided to directors.
Equity based remuneration: if part of the package is options or performance rights, keep the cash fees and the equity approvals separate, and take advice on the tax treatment of employee share schemes before granting anything.
GST: fees paid to an individual in their capacity as director are generally not subject to GST, but the outcome can depend on the facts, so confirm it with your adviser.
Paying fees to an entity: because only individuals can be directors, arrangements that redirect fees to a related company or trust are high risk. They may not achieve the intended tax outcome and can attract compliance attention. Get specific advice before adopting one.

What happens if you get it wrong

The consequences are layered. Unauthorised fee payments expose the directors who authorised them to breach of duty claims and possible recovery, and they invite shareholder disputes. Missed PAYG withholding makes the company liable for the amount that should have been withheld plus interest and penalties, and may cost the company its deduction. Missed super triggers the super guarantee charge, which the ATO calculates to include interest and an administrative uplift on top of the unpaid amounts. Breaches of the minutes and records provisions are offences under the Corporations Act. In the worst cases, persistent failures feed into broader questions about whether directors are discharging their duties, which matters for ASIC enforcement and for director disqualification.

A compliance checklist for paying director fees

The checklist covers the approval, payroll, super and record keeping steps:

Check your constitution and shareholders agreement for the approval pathway and any caps.
Pass and minute a resolution setting the fee, frequency and start date before the first payment.
Set the director up in payroll, withhold PAYG and report through STP (quarterly reporting is available to small employers for closely held payees).
Pay superannuation at 12% on the qualifying earnings for each payday, received by the fund within 7 business days.
Finalise the payee in STP at year end.
Keep the signed minutes, payroll records, STP reports and super confirmations for 7 years.
Review any benefits in kind, equity arrangements and unusual structures with your adviser before they are put in place.

When to get legal help

A lawyer's role here is to make the approval and documentation side defensible. That means reviewing or drafting your constitution and shareholders agreement so the fee process is clear, preparing director service agreements where a director also holds an executive role, advising on equity plans and board approvals, and helping resolve disputes about fees that were paid without authority. For public companies, legal advice on the Chapter 2E member approval requirements should come before the fees are set, not after. Tax positions, including the PAYG, super and FBT numbers, are the province of your accountant or tax adviser; the two should coordinate on anything unusual.

Start with the resolution

The step that costs companies most is the one that looks like a formality: the formal approval. If the fee was never set by a resolution, everything downstream, the payroll entries, the STP reports, the super payments, rests on a payment the company never actually authorised. That is the question an auditor, the ATO or a disgruntled shareholder will ask first. If you pay director fees and cannot put your hand on a signed minute approving them, that is the gap to fix this week. For a one director company, a signed resolution recorded in the minute book is enough to close it.