How Do Company Directors Get Paid? (2026 Updated)

If you’re starting (or growing) a company in New Zealand, it’s completely normal to wonder how directors actually get paid - and what the “right” way looks like from a legal and tax perspective.

It can feel a bit awkward too. You might be working huge hours, taking on real responsibility, and still unsure whether you should be paying yourself a salary, taking drawings, invoicing as a contractor, or waiting for dividends.

This 2026-updated guide breaks down the common ways directors get paid in NZ, what to watch out for, and how to set things up properly so you’re protected from day one (and not accidentally creating compliance issues for your company).

What Does “Getting Paid As A Director” Actually Mean?

A director isn’t automatically “an employee” of the company, and being a director also isn’t the same thing as being a shareholder.

In practice, a lot of founder-directors wear multiple hats at once. You might be:

• A director (responsible for governance and legal duties under the Companies Act 1993)
• A shareholder (entitled to dividends if declared)
• An employee (doing day-to-day work under an employment arrangement)
• A contractor or consultant (providing services under a contractor-style agreement)

How you can be paid depends on which “hat” you’re wearing when you do the work - and what your company documents say.

It’s also worth remembering that directors have specific obligations, including duties to act in good faith and in the best interests of the company, and to avoid reckless trading. Pay decisions sit right in the middle of those duties, because paying directors too early, or paying them inconsistently, can create risk (especially if the company is under financial pressure).

Why Getting The Structure Right Matters

Putting the right structure in place isn’t just admin - it can affect:

• your PAYE and tax obligations
• your personal liability exposure
• your investor and bank due diligence readiness
• your ability to resolve disputes cleanly if a founder leaves

That’s why it’s usually a good idea to check your Company Constitution and any shareholder arrangements early, rather than trying to “patch it up” later once money starts moving around.

What Are The Main Ways Company Directors Get Paid In New Zealand?

There isn’t one single “best” method. The best option depends on your company’s cashflow, growth goals, and who else is involved (co-founders, investors, family shareholders, etc.).

Most director payments in NZ fall into these categories:

• Director’s salary/wages (paid through payroll with PAYE)
• Director fees (often used for governance-only roles)
• Dividends (paid to shareholders, not “for work performed”)
• Shareholder-employee salary (common in owner-operated companies)
• Contracting/consulting payments (director invoices the company)
• Reimbursements (repayment of legitimate expenses)
• Loans and drawings (generally higher risk if not carefully documented)

Let’s walk through each one, and the key legal considerations to keep in mind.

Option 1: Paying A Director A Salary (Or Wages) Through Payroll

If you do day-to-day work in the business (sales, operations, product, client work), you may decide to pay yourself like an employee. This is one of the most common ways founder-directors get paid.

Typically, this means the company:

• puts you on payroll
• deducts PAYE and other required withholdings
• pays you net salary/wages on a regular schedule
• records the salary as an expense in the company’s accounts

Do You Need An Employment Contract If You’re A Director?

It’s often still sensible to have a written agreement that sets out what you’re doing and how you’re paid - even if you’re a founder.

For example, if your role looks like employment (regular hours, ongoing duties, you’re integrated into the business), using a proper Employment Contract can help clarify expectations and reduce messy disputes later (especially if there are multiple directors or shareholders).

Where the director role is more senior or involves specific governance obligations, some companies use a dedicated director service arrangement. The “right” approach depends on what you actually do in the business and how your company is structured.

Common Pitfalls With Director Salaries

• Cashflow overcommitment: locking in a salary the business can’t reliably afford can put pressure on the company (and create director duty issues if the company is or becomes insolvent).
• No documentation: even if everyone agrees informally, that agreement can fall apart when circumstances change.
• Mixing payments: paying “some salary, some dividends, some reimbursements” with no clear tracking is where bookkeeping (and disputes) go off the rails.

If you’re unsure whether salary is right for you, it can help to map out your goals first - are you trying to reinvest everything into growth, or do you need stable income now?

Option 2: Paying Director Fees (Especially For Non-Executive Directors)

Director fees are commonly used where a director is providing governance oversight rather than working “in” the business day-to-day.

For example, you might bring on an experienced independent director who attends board meetings, provides strategic guidance, and helps with accountability. In that case, a fee structure can make sense.

How Director Fees Are Usually Set

Director fees might be:

• a flat monthly or quarterly fee
• a fee per meeting attended
• a combination of a base fee plus committee or chair responsibilities

Because directors have serious legal duties, good governance also means being transparent about how fees are decided and approved. If you have multiple directors/shareholders, it’s especially important that the process is documented and consistent.

Where This Links Back To Company Documents

Some constitutions and shareholder arrangements include rules about director remuneration or require certain approvals. This is one reason it’s worth having your key documents aligned, including a Shareholders Agreement where appropriate.

Even if you’re a small company, having clear rules early can prevent a surprisingly common fight later: “Who approved that payment, and why?”

Option 3: Taking Dividends As A Shareholder

Dividends are not “payment for work” - they’re a distribution of profits to shareholders.

So, if you’re asking “how do company directors get paid?”, dividends are only relevant if the director is also a shareholder (which many founders are).

When Can You Pay Dividends?

In New Zealand, companies generally need to meet legal requirements before paying dividends, including satisfying solvency tests. In plain terms, the company should be able to pay its debts as they fall due and have assets greater than liabilities after the distribution.

This matters because paying dividends when the company can’t afford it can create major risk - including potential claims and director liability exposure.

Pros And Cons Of Dividends

• Pro: dividends can be a tax-effective way to return profits, depending on your broader tax position (you should get accounting advice on this).
• Pro: dividends align payment with profitability.
• Con: dividends don’t help if the company isn’t profitable yet (which is common for startups).
• Con: dividends must be paid in accordance with share rights - you can’t usually “just decide” to pay one shareholder and not another unless your share structure allows it.

If you have (or plan to have) different classes of shares, or investors coming in, get advice early so you don’t accidentally create unfairness or a compliance problem when it’s time to distribute profits.

Option 4: Contracting Or Consulting To Your Own Company

Some directors provide services to the company as contractors - for example, a founder might invoice the company for consulting services, or a specialist director might invoice for project work outside normal governance activities.

This can work, but it needs to be structured carefully. The big risk is accidentally treating what is really an employment relationship as contracting (which can create tax and employment compliance issues).

When A Contractor Structure Might Make Sense

• you’re providing a defined service for a defined period
• you genuinely operate independently (for example, you work for multiple clients, supply your own tools, control your own schedule)
• the arrangement is closer to “business-to-business” than employment

If this is the model you’re considering, it’s worth putting a proper contract in place rather than relying on emails or a handshake. Depending on the arrangement, that might look like a service agreement or a contractor agreement.

When you’re dealing with people providing services (including founders), having clear terms about scope, fees, IP ownership, confidentiality, and termination can prevent misunderstandings and protect the company as it grows. In some cases, a Service Agreement is a practical starting point.

Don’t Forget IP Ownership

If you’re building products, software, content, or branding, clarify who owns what. A classic startup mistake is paying a founder or contractor without a clear IP arrangement, then discovering later that the company doesn’t fully own what it’s selling.

This becomes especially important if you’re fundraising or planning a sale, because investors and buyers will want confidence that the company owns (or has a licence to use) its core IP.

Option 5: Reimbursements, Loans, And “Drawings” (Proceed With Caution)

This is where a lot of director payment issues start - not because reimbursements and loans are “bad”, but because they’re easy to do informally and hard to unwind later.

Reimbursing Legitimate Business Expenses

If you’ve paid for a legitimate business expense personally (for example, software subscriptions, travel, or supplies), the company can usually reimburse you.

The key is keeping it clean and defensible:

• keep receipts and invoices
• make sure the expense is genuinely for the business
• record reimbursements properly in the accounts
• avoid using reimbursements as “informal salary”

Director Loans And Shareholder Current Accounts

Sometimes the company owes the director money (for example, because the director funded early expenses), or the director owes the company money (because they’ve taken money out).

These situations are often tracked through a director/shareholder current account in the company accounts. This can be legitimate, but it can also get risky quickly if:

• there’s no clear agreement about repayment
• money is being taken out without a clear basis (salary, dividend, fee, reimbursement)
• the company is facing cashflow pressure

If you’re lending money to the company or the company is lending money to you, it’s usually smart to document it properly, including interest (if applicable), repayment terms, and what happens if the relationship breaks down. Depending on the scenario, a loan agreement may be appropriate.

“Drawings” In A Company (Not The Same As A Sole Trader)

If you’ve previously operated as a sole trader, you might be used to taking drawings. But a company is a separate legal entity - you can’t treat the company bank account like your personal account, even if you own 100% of the shares.

Payments still need a legal basis and should be recorded properly. If they’re not, you can end up with tax issues, shareholder disputes, and problems in due diligence if you try to sell or raise capital later.

What Approvals And Legal Documents Should You Have In Place?

Even in small companies, it’s worth setting clear rules for director remuneration. That doesn’t mean making things complicated - it means making them clear.

Here are the documents and decision points that commonly matter when paying directors:

Company Constitution And Shareholder Rules

Your constitution may include how directors are appointed, removed, and paid, and what approvals are required. If you don’t have a tailored constitution, your company will rely more heavily on default rules and informal decision-making - which can work early on, but often causes friction later.

Having a fit-for-purpose Company Constitution can make director payment rules clearer, particularly once you have more than one shareholder.

Shareholders Agreement (Especially With Co-Founders Or Investors)

If you have multiple shareholders, a shareholders agreement is often where you set expectations around:

• how key decisions are made
• what requires unanimous approval vs majority approval
• how dividends are handled
• what happens if someone stops working in the business

It can also be the place where you build a fair approach to founder pay - for example, agreeing that salaries start at a certain revenue level, or that director fees need approval from non-conflicted parties.

Where it makes sense, putting these rules into a Shareholders Agreement can significantly reduce “founder fallout” later.

Employment Or Service Agreements

If you’re working in the business, document the arrangement so there’s no confusion about:

• your duties and responsibilities
• how (and when) you’re paid
• confidentiality and IP
• what happens if you resign or are removed as a director

In many cases, a well-drafted Employment Contract is the simplest way to cover the “worker” side of a founder-director role.

Record-Keeping And Resolutions

Even where the company is closely held, it’s good practice to keep written records of key decisions. That might include board minutes or shareholder resolutions approving:

• director fees
• salary changes
• bonus arrangements
• dividend declarations

This might sound formal, but it becomes incredibly helpful if you ever face:

• a dispute between founders
• tax questions about the nature of payments
• investor due diligence
• a business sale process

Don’t Forget Privacy And Admin Basics

Once you start paying directors (and potentially employees), you’ll be handling personal information like IRD details, bank account information, addresses, emergency contacts, and potentially health information.

As a practical step, make sure your business has a fit-for-purpose Privacy Policy (especially if you’re collecting personal information through a website or HR systems) so your processes align with the Privacy Act 2020.

Key Takeaways

• Company directors can be paid in several ways in New Zealand, including salary, director fees, dividends, contracting payments, and reimbursements - but the right option depends on the role you’re performing and your company’s structure.
• A director isn’t automatically an employee, and dividends aren’t payment for work, so it’s important to match each payment type to a proper legal basis and document it clearly.
• Director salaries are common for founder-directors doing day-to-day work, but they should be supported by clear terms (often an employment-style agreement) and should be sustainable for the company’s cashflow.
• Dividends should only be paid when the company can meet its legal requirements, including solvency considerations, and dividends must align with shareholder rights and your share structure.
• Contracting to your own company can work in some situations, but you should be careful about misclassification risks and make sure IP and confidentiality are properly covered in writing.
• Reimbursements and director loans are often legitimate, but they’re a common source of confusion if they’re not tracked carefully and documented, especially once there are multiple shareholders.
• Solid legal foundations - including a company constitution, shareholder rules, and clear agreements - help prevent disputes, support compliance, and make your business easier to fund, sell, and grow.

If you’d like help setting up the right structure for director payments (or reviewing your existing setup), reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.