Directors’ Remuneration: Legal Considerations In New Zealand

If you run a company in New Zealand, paying directors can feel surprisingly tricky. It’s not just about “how much” - it’s also about how you pay, who approves it, how you document it, and how it gets taxed.

That’s why directors’ remuneration is one of those topics that’s best handled early, while things are calm - rather than later, when you’re raising capital, bringing on a new shareholder, or dealing with a dispute.

In this guide, we’ll break down what directors’ remuneration means in practice for NZ small businesses, the legal guardrails you need to stay inside, and the practical steps you can take to stay protected from day one.

What Is Directors’ Remuneration (And Why Does It Matter)?

In simple terms, directors’ remuneration is the value a company provides to a director in exchange for their services as a director (and sometimes for additional work they do for the business).

In a small business, the lines can blur because the director might also be:

• a shareholder (often a majority or sole shareholder)
• an employee doing day-to-day work
• a contractor providing specialised services
• someone who has paid for company expenses personally
• a person who’s lent money to the company (or borrowed from it)

Directors’ remuneration can include more than a “salary”. Depending on your setup, it might involve:

• Director fees (often a fixed amount for governance responsibilities)
• Salary or wages (where the director is also an employee)
• Management fees (where the director provides services through another entity)
• Bonuses or incentive payments
• Reimbursements for expenses paid on behalf of the company
• Non-cash benefits (eg vehicle use, insurance, accommodation)
• Dividends (this is different - it’s a shareholder return, not payment for services)

Why does directors’ remuneration matter legally? Because if you don’t structure it properly, it can lead to issues like:

• shareholder disputes (“Who approved this?” / “Why are you paying yourself that much?”)
• breaches of directors’ duties (especially around conflicts of interest and acting in the company’s best interests)
• tax compliance problems (PAYE, FBT, GST, or “hidden” shareholder salary issues)
• cashflow stress that creates solvency risk for the company
• problems in due diligence when you sell the business or bring in investors

In other words: getting directors’ remuneration right isn’t just admin - it’s part of having strong legal foundations for growth.

Do You Have The Right Legal Authority To Pay Directors?

Before you decide on a number, you should check whether the company actually has the authority to pay directors’ remuneration in the way you’re planning.

Under the Companies Act 1993 (NZ), directors can generally only be paid remuneration if it is authorised by the company’s constitution or approved by shareholders (typically by ordinary resolution). So it’s important to check what your documents say and make sure the right approvals are in place before payments start.

For most NZ companies, the key “authority” documents are:

• your company’s constitution (if you have one)
• shareholder agreements (common in multi-founder businesses)
• board and shareholder resolutions
• any written service arrangement with the director

Check Your Company Constitution And Shareholder Settings

Your Company Constitution often sets the baseline rules about director appointment, decision-making, and sometimes remuneration approvals.

If you have more than one shareholder, you’ll also want to ensure your Shareholders Agreement aligns with how directors are paid - especially where one director is more “hands-on” than another, or where only some shareholders work in the business.

Even where the Companies Act 1993 provides default rules, your constitution and shareholder agreement can modify how decisions are made. This is why it’s worth reviewing the paperwork before you start making regular payments.

Director Conflicts: Be Extra Careful When Paying Yourself

In many small businesses, a director is effectively approving their own pay. That’s not automatically wrong - but it’s a classic conflict-of-interest situation.

Under New Zealand company law, directors have duties (for example, to act in good faith and in the best interests of the company). When a director has a personal interest in a transaction (like being paid), that interest usually needs to be disclosed and handled through the right process (including recording the disclosure and approvals properly) under the Companies Act 1993.

Practical tip: even if you’re a sole director and sole shareholder, it’s still wise to document decisions properly so you can show the remuneration was considered, authorised, and sustainable for the business.

Get The Paper Trail Right (It Saves Headaches Later)

When you set (or change) directors’ remuneration, it’s a good idea to record it formally - usually with a board resolution or (in small companies) a written record of decision-making.

Using a Directors Resolution is a practical way to capture key details like:

• what is being paid (fee, salary, bonus, reimbursement, etc.)
• the amount and frequency
• the effective date
• any conditions (eg performance targets, cashflow triggers)
• how conflicts were managed (if relevant)

This kind of documentation also helps if you’re ever asked questions by an accountant, a bank, an investor, a buyer, or (worst-case) if the arrangement is challenged in a dispute.

What Are Common Structures For Directors’ Remuneration In NZ?

There’s no single “correct” model for directors’ remuneration - what works best depends on your company’s size, tax position, cashflow, and how the directors are actually contributing day-to-day.

Below are common approaches we see for NZ small businesses, along with the legal considerations to keep in mind.

1) Director Fees (Governance Payment)

Director fees are usually paid for performing the director role itself - governance, oversight, attending meetings, signing off major decisions, and carrying legal responsibility as a director.

Key legal considerations include:

• Approval and documentation: make sure the fee is authorised and recorded (and that the required shareholder/constitutional approvals are in place).
• Consistency and fairness: if there are multiple directors, you should be able to justify differences.
• Solvency and cashflow: fees shouldn’t push the company into financial stress.

2) Salary Or Wages (When The Director Is Also An Employee)

Many owner-directors do operational work (sales, delivery, operations, management). If the director is working in the business as well as on the business, paying them through payroll can make sense.

Where you’re paying a director as an employee, you should treat it like a real employment arrangement - including having a written Employment Contract if the director is genuinely employed by the company.

This helps clarify:

• what work is being performed (and expectations)
• salary, hours (if relevant), and benefits
• confidentiality and IP ownership
• termination rights and notice

It also reduces the risk of disputes later about whether payments were “wages”, “fees”, drawings, or something else.

3) Directors’ Service Agreement (A Governance/Engagement Agreement)

Especially where you have multiple directors, external directors, or you want a clearer set of expectations, a written Directors Service Agreement can be a solid option.

This can help set out:

• the scope of the director’s role
• their remuneration (including review cycles)
• expense reimbursement rules
• confidentiality obligations
• how the arrangement can end (including resignation/removal processes)

For small businesses looking to professionalise governance (or prepare for growth), this is often a clean way to formalise directors’ remuneration without confusion.

4) Dividends (Not Remuneration, But Often Part Of The Conversation)

Dividends are paid to shareholders as a return on investment. They are not directors’ remuneration, even if the director is also a shareholder.

Why does this matter? Because mixing these concepts can create tension and confusion, for example:

• one director/shareholder does all the work and expects “more pay”
• another shareholder expects equal dividends regardless of labour contribution

A good rule of thumb is to separate:

• payment for work (salary/fees) from
• returns on ownership (dividends)

Getting the balance right is often more of a commercial decision than a legal one - but the legal documents should support whatever you decide, so you avoid disputes later.

Tax, Payroll, And Compliance: What You Need To Consider

Directors’ remuneration is heavily tied to tax treatment, and this is where NZ business owners can get caught out if they assume all payments are treated the same.

This section is general information only and isn’t tax advice. Your accountant (or the IRD guidance relevant to your situation) should guide your specific tax position, but it helps to understand the moving parts so you can structure payments in a way that matches the legal reality.

PAYE And Withholding

If you pay a director a salary or wages as an employee, you’ll typically need to run payroll properly and meet PAYE obligations.

Even for director fees, there can be withholding obligations depending on the setup. The key point is: don’t treat director payments as casual transfers from the company account. Set them up correctly and keep records.

FBT And Non-Cash Benefits

If part of directors’ remuneration includes non-cash benefits (for example, a company vehicle used privately), you may have Fringe Benefit Tax (FBT) implications.

From a legal and risk perspective, the main thing is to document:

• what the benefit is
• who is entitled to it
• the business purpose (if any)
• how private use is handled

GST (If You’re Paying Via Another Entity)

Sometimes a director provides services through another company or as a contractor. In those cases, invoices, GST, and contracting terms matter - and you’ll want to ensure the arrangement reflects the genuine working relationship.

If you’re unsure whether a director should be treated as an employee vs contractor for operational work, it’s worth getting legal advice early. Misclassification can create messy tax and employment-law consequences.

Reimbursements Vs Remuneration

Not everything paid to a director is “remuneration”. For example, genuine reimbursements for business expenses are different from fees or salary.

To keep things clean, make sure your business has clear rules on:

• what expenses are reimbursable
• approval limits (eg over $500 needs sign-off)
• what evidence is required (receipts, invoices)
• how reimbursements are processed (timing, method)

This is one of those areas where good admin is good legal protection, too.

Related-Party Payments, Loans, And Solvency: The Risk Areas To Watch

In small companies, directors’ remuneration often overlaps with other “related-party” dealings - meaning transactions between the company and its directors (or people/entities close to them).

These situations aren’t unusual, but they do need extra care because they can create real legal risk if mishandled.

Loans To Or From Directors

It’s common for directors to lend money to the company in the early stages, or for the company to pay a director in advance when cashflow is tight. These arrangements should be documented properly so everyone is clear on:

• is it a loan or remuneration?
• repayment terms (if any)
• interest (if any)
• what happens if the director leaves or the business is sold?

Where a loan is involved, a simple written Loan Agreement can avoid misunderstandings and help protect the company (and the director) if things go sideways.

Solvency: Don’t Pay Remuneration The Business Can’t Sustain

As a director, you’re not just deciding what you “deserve” - you’re responsible for ensuring the company trades responsibly.

If the company is under financial pressure, aggressive directors’ remuneration can create:

• cashflow crises
• unpaid creditor issues
• greater personal risk for directors if the company later fails

This is why it’s smart to build guardrails into your remuneration decisions, such as:

• reviewing remuneration quarterly
• linking bonuses to profitability or cash reserves
• documenting the rationale (so you can show decisions were reasonable at the time)

If you’re worried about how personal exposure works as a director, it’s also worth understanding your personal liability risks so you can make informed decisions.

What If You Have Multiple Founders With Different Contributions?

This is one of the most common pressure points we see.

Imagine this: you and a co-founder both own 50% of the company. You’re working full-time in the business, while they’re part-time but still a director. Without a clear framework, you can quickly end up in conflict about whether extra payment is “fair”.

A practical way to reduce the risk is to separate, document, and agree on:

• director remuneration (governance fees)
• employment/contractor payments (day-to-day work)
• shareholder returns (dividends)

Getting this agreed early (and writing it down) can save you a lot of time, money, and stress later.

Key Takeaways

• Directors’ remuneration includes more than just salary - it can include fees, bonuses, reimbursements, and non-cash benefits, and each can have different legal and tax implications.
• Before paying directors, make sure you have the right authority in place (constitution/shareholder settings) and record decisions properly, especially where directors are approving payments to themselves.
• If a director is doing operational work, consider documenting it with an employment agreement or a written service arrangement so it’s clear what the payments relate to.
• Keep dividends separate from directors’ remuneration - dividends are a shareholder return, not payment for director services.
• Watch out for high-risk areas like related-party payments, director loans, and remuneration levels that could put the business under financial pressure.
• Good documentation (resolutions, agreements, consistent payment records) makes directors’ remuneration easier to manage and much easier to defend during disputes, investor discussions, or a sale process.

If you’d like help setting up directors’ remuneration properly (including documenting approvals and putting the right agreements in place), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.