Recruiting company directors

Types of director, their duties and employment status

Guide

A director is defined in law according to what they do, rather than their actual job title. Even a person not formally appointed to the board might be deemed a director if their role could be considered equivalent to that of a director, or if they have acted as a director. This is known as a de facto director. De facto directors and their liabilities.

Directors' duties

Directors are responsible for ensuring the success of the business and compliance with relevant regulations - such as health and safety, employment law, tax and corporate governance. Directors' duties and responsibilities.

Types of company directors

There are two types of director, executive and non-executive. There is no legal distinction made between executive and non-executive directors - the difference is that non-executive directors do not get involved in the day-to-day running of the business.

Executive directors perform operational and strategic business functions such as:

  • managing people
  • looking after business assets
  • hiring and firing staff
  • entering into contracts

Non-executive directors use their experience and expertise to provide independent advice and objectivity, and they usually have a role in monitoring executive management. A non-executive director might be appointed to carry out a specialist role on a part-time basis or for their expertise in specific activities, such as strategy and contract negotiation.

They usually work part time, attending board meetings and spending time on specific projects.

Non-executive directors bring an objective view of the business, can improve the board's effectiveness at relatively low cost and provide valuable business connections. What is the role of the non-executive director?

The employment status of company directors

A director is an officer of the company.

Many directors work under a contract for services and are therefore paid a fee. In these circumstances, they would be regarded as self-employed.

However, it's possible for them to work for you under a contract of service, making them an employee. If so, you must pay them a salary and make deductions through the PAYE (Pay As You Earn) system. However, National Insurance arrangements are different for directors compared to other types of employee.

Note that directors who are employees will also benefit from certain employment-protection rights not available to non-employees, eg the right to claim unfair dismissal.