Director’s service agreements
The directors regulate corporate affairs of the public limited company. They are responsible for formulating plans, policies, and strategies.
A Director’s Service Agreement is a contract by which a company hires a director as an employee. An executive director will usually have a written contract of employment, commonly known as a service agreement. An executive director who is an employee will benefit from various employment laws, including the right to a statutory minimum notice period, the right to be paid at least the national minimum wage, the right not to be unfairly dismissed, following completion of the requisite period of qualifying service and protection from discrimination. It is a long-form contract with detailed provisions on various aspects of employment.
If the director is to serve as a non-executive director, they will not normally have an employment contract or service agreement but a letter of appointment. A non-executive director’s letter of appointment should, amongst other things, state the minimum time that the non-executive director will be required to spend on the company’s business and seek confirmation from the non-executive director that he can devote that time to the role. Many Directors do not have any written contracts of employment and those who do are usually employed underwritten terms which are not fit for purpose. Non-executive directors are not employees and do not benefit from employment rights. However, any fees paid to a non-executive director for their director services must be paid subject to deduction of tax PAYE like an employee. It is important to ensure that these agreements clearly set out what is expected of the director in their dual role – as a member of the board and as an employee.