Salary and wages paid to an employed director are subject to the same superannuation guarantee law as any other employee.
Directors fees, paid to a company director, are considered to be ordinary time earnings and therefore superannuation applies.
However, payment for the performance of duties as a member of an executive body, such as a body corporate, may be deemed salary or wages which may not be “ordinary time earnings”, and therefore no super applies to these payments.
If a director is engaged as a contractor principally for their labour, then the ATO would deem them an employee for superannuation purposes. A director may legitimately be engaged as a contractor and yet super may still be payable.
Dividends paid to a director of a company are not subject to super.
According to the ATO Superannuation Guarantee Eligibility Tool, a contracted director who invoices the business directly, and who receives director fees is eligible for super. However, a director invoicing through a company is not eligible for super to be paid by the business, because the director is deemed to be an employee of the entity invoicing the business.
This tool contradicts other advice and interpretations that would state if a company director receives remuneration for services as a company director then it would be considered payment as an employee and super would be a requirement.
Note that an employed director must pay their own superannuation guarantee as they would for any other employee. The rules are not different for a director of their own company – contrary to the opinion of many business owners, directors do not get to make up their own rules about the payment of their own superannuation.
If a director is employed, then they can enter into an effective salary sacrifice arrangement, (see below for more detail on sacrificing to superannuation). However, if a director is paid, for example, an annual fee which is not defined as wages or salary, then it may not be sacrificed into superannuation.
A company may have an agreement with a director to pay a half-yearly and/or annual bonus. Often this will be sacrificed to superannuation. The same rules apply as for any other employee, that there should be an agreement in place ahead of time that relates to future earnings. The agreement may state something in general terms, for example, “agreed director’s fee or end of year salary bonus” even if the exact amount is not determined until the end of the year.
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