Do you wonder about Is Director An Employee Of The Company? It is considered normal that the company directors are the officeholders. It does not matter if you are carrying out a small business on your own as a sole director, you are not an employee of the company automatically. There are certain conditions under which you can consider the director as an employee. We are going to focus on this discussion in the blog explained below.
The discussion involves the category of a director position, how the directors are paid, and whether the directors are self-employed or not. However, to develop a basic understanding, we will begin with knowing how can a director be an employee of the company and what are the certain conditions for that.
Is Director An Employee Of The Company?
It has been observed that there are no contracts with the individuals who are working as a director of the company. However, the existence of the service contract is still there. It is essentially considered the same thing as a regular contract. The purpose of this document is to give the employment status to an individual who is part of the company in any way.
Moreover, this is a myth that the directors become the employee of a company automatically. A company will not consider an individual as its regular employee unless he has the service contract to work with the company. It is to fulfil the purpose of rules and regulations of employment law. It is, however, possible to consider directors as employees if they match up to the majority part of the employment criteria. The employment criteria are also to identify whether an individual who is working for your company is on an employee status or not.
If we talk about the case of limited companies where there is only one director and he is the sole shareholder as well. If we class the director as an employee of the company, there is no noticeable advantage to the director. It is just for the purpose of employment law.
Are you offered a director position in a company? Get in touch with one of our experts to get to know how you will be paid.
Do Directors Receive The Salary?
Some directors tend to take dividends and their role in the company is of a shareholder. Such cases of directors do not withdraw the amount as salary. Also, they are not taken as the employees of the company because you have o be on the payroll to be a part of the company as an employee.
Moreover, if a director is being paid the amount of money as salary and there is no existence of a service contract, even then the individual is not classed as an employee. This is according to employment law. In other cases, the directors draw dividends as well as their salary, these are some of the tricks to reduce their tax bills. For instance, if a director makes £9,100 every year, it is not required for them to pay the National Insurance Contribution NIC or Income tax. With this figure, even the company is not asked to make the NIC of the employee.
In order to be tax-efficient or to reduce the tax burden, many sole directors get themselves paid as salary by staying within the limit of the second threshold and smartly topping up with the number of dividend payments.
Directors and Self Employment
A director of the company can’t be considered self-employed in relation to the same company where they have their physical office. The following salient features are to be noted with serious consideration:
- An individual can be a director and an employee at the same time.
- There is no possibility to become the director and then call yourself a self-employed contractor in relation to the same company.
In simple words, the director of a company is not allowed to invoice for performing services and job role as a director. All the services and job roles are paid in form of salary. There is a possibility of being a director of one company and performing on a self-employed contract for another business. The option of wearing different hats by the same individual turns out to be really smart and beneficial for the directors.
Learn more about directors’ positions and the way they are paid by talking to one of our professionals. We will ensure to answer your queries instantly. Give us a call on 02034411258 or request a callback.
The Bottom Line
Now that you have gathered enough information related to Is Director An Employee Of The Company, we can bring the discussion towards wrapping up. To sum up the discussion finally we can say that the directors can be classed as the director and the employee of the company. To make the most out of it, people withdraw the money as salary and then top it up with the extra money from the dividend payments.
Moreover, this is also considered a smart way to reduce the tax bills. We hope these few minutes of reading will help you develop a better understanding and let you decide best for your future.
Disclaimer: The information about Is Director An Employee Of The Company provided in this article, including text and graphics, in general. It does not intend to disregard any of the professional advice.