Why Directors Should Pay Themselves a Salary

Business director in formal suit reviewing documents and preparing to sign papers at a desk.

At On Q Accounting, we often sit with owner-managed companies where the director tells us:

“I don’t take a salary. I just draw money when I need it.” Sometimes those “drawings” are later labelled as dividends, or even worse, the company pays the director’s personal expenses and parks them on the loan account. It might feel convenient, but in reality it creates unnecessary risks and disadvantages.

Let’s be clear: if you were employed at another company, you would expect a payslip at month end. So why should it be different when you work for your own business?

SARS and Lifestyle Audits

SARS is making increasing use of lifestyle audits — comparing what you declare as income with how you live. If your company is covering school fees, groceries, vehicle instalments or even medical costs through the loan account, while you declare little to no salary, that misalignment stands out.

A regular salary aligns your declared income with your lifestyle and reduces the risk of unwelcome audit attention.

Personal Credit and Affordability

Banks, vehicle finance houses and even cellphone providers rely on proof of income in your personal name. Irregular drawings, inflated loan accounts, or once-off dividends are seldom accepted.

This is why some directors, despite running profitable businesses, struggle to qualify for bonds or credit facilities. On paper, they can appear unemployed. Having a consistent salary changes that.

Building a Responsible Payroll Culture

Putting yourself on payroll is also about governance. It demonstrates that directors are not above the system. Just like staff, directors are subject to PAYE and UIF.

It also disciplines your company’s cash flow. A regular salary prevents the common habit of running personal expenses through the business and accumulating large loan accounts. That habit not only weakens financial statements but also raises compliance and tax risks.

Long-Term Benefits

  • Retirement savings: Salary provides a base for deductible retirement contributions (up to 27.5% of remuneration/taxable income, capped at R350 000).
  • Insurance and medical aid: Easier to structure premiums and enjoy the medical aid tax credits if a salary is in place.
  • Tax predictability: PAYE spreads your liability across the year, avoiding lump-sum shocks.
  • Governance and records: Payroll entries and resolutions create a transparent trail in case of disputes or audits.

Our Opinion

Drawings, dividends and loan accounts all have their place in a company. But avoiding payroll is short-sighted. Even a modest monthly salary puts you on a stronger footing with SARS, with banks, and with your own financial future.

We say this often: if you’d expect a payslip at month end when working for someone else, why would you not expect the same when working for yourself?

    Final Word

    Running your own company offers flexibility, but it also requires discipline. Paying yourself a salary is one of the simplest steps you can take to align your tax affairs, build credibility, and protect your financial health.

    If you’re still relying only on drawings, dividends or loan accounts, it’s time to reconsider. Talk to On Q Accounting & Tax Services — we’ll help you put a proper salary structure in place that balances compliance, cash flow and long-term planning.

    Disclaimer: This article is intended for general information purposes only and does not constitute professional tax advice. For tailored guidance, please speak to a registered tax practitioner.