Directors' Service Contracts
Directors Service Contracts are designed for companies seeking to employ directors. They are intended for situations where a director is also employed by the company in an executive role and needs an employment contract setting out the terms of that employment.
When does a director need an employment contract?
Officially, a director is an officer of the company and not an employee. As such, they have no right of remuneration unless the company’s articles state otherwise, and in theory may not need an employment contract or agreement.
However, a director may also be employed in another capacity, for example as a finance director or managing director. In that case, they will be an executive director and will require an employment contract.
Director’s service contract options
The Director’s Service Contract – Fixed Salary is the standard option where the director’s remuneration is based on a fixed salary.
The Director's Service Contract - Including Bonus & Share Option Arrangements is designed for a director whose remuneration package includes bonus and share option arrangements.
Director offer letters and service contract consistency
An employment offer letter is usually issued before or alongside the service contract, so the offer, executive role, remuneration arrangements and contractual terms are consistent from the outset. The matching Directors' Service Contracts Employment Offer Letters can be used when making an offer to an executive director.
Employment Rights Act update
These directors’ employment contracts have been drafted and kept up to date by employment solicitors and HR professionals. The contracts have been updated to reflect the statutory sick pay changes set by the Employment Rights Act, under which SSP is now payable from the first full day of sickness absence.
Companies Act 2006 compliance
These Directors Service Employment Contracts are compliant with the Companies Act 2006.
These Directors Service Contracts are also available in the Corporate Document Collection in the Directors' Service Contracts.
Directors' Service Contracts is part of Employment. Just £38.50 + VAT provides unlimited downloads from Employment for 1 year.
Frequently Asked Questions
Does our company director need an employment contract, or is their appointment as a director enough? +
Appointing someone as a director makes them an officer of the company, not automatically an employee. If the director also works in an executive role, for example as a managing director or finance director, they will need a separate employment contract, called a director's service contract, to set out the terms of that employment. Without one, key matters such as salary, notice and sick pay are left unresolved. Simply-Docs provides two director's service contract templates for exactly this situation.
Which director's service contract template should we use: the fixed salary version or the one with bonus and share options? +
If the director's pay is a straightforward fixed salary, use the Director's Service Contract (Fixed Salary). If the remuneration package includes a bonus scheme, share options or both, use the Director's Service Contract Including Bonus and Share Option Arrangements. The right choice depends on the agreed remuneration structure, so confirm this before issuing the contract. Both templates are drafted for executive directors employed by the company.
We are appointing an executive director. Do we need to issue an offer letter before the service contract? +
An offer letter is not a legal requirement, but it is strongly recommended. Issuing one before or alongside the service contract ensures the offer, executive role, remuneration and key terms are consistent from the outset and gives both sides a clear record of what was agreed. Simply-Docs provides matching Directors' Service Contracts Employment Offer Letters for this purpose.
Does a director's service contract with a guaranteed term of more than two years need shareholder approval? +
Usually yes, but not in every case. Under section 188 of the Companies Act 2006, a director's service contract with a guaranteed term that is, or may be, longer than two years requires approval by an ordinary resolution of the shareholders before it is entered into. The requirement does not apply, however, where the company is not a UK-registered company or is a wholly-owned subsidiary of another body corporate (section 188(6)). If approval is required and the company proceeds without it, the long-term provision is void and the contract becomes terminable on reasonable notice. Check the company's articles in case a higher approval threshold applies.
Do we have to keep a copy of the director's service contract available for inspection, and for how long? +
Yes. Under sections 228 and 229 of the Companies Act 2006, a company must keep a copy of every director's service contract available for inspection, and any member of the company may inspect it free of charge. The copy must be retained for at least one year after the contract ends. Any officer of the company who fails to comply commits an offence.
The contracts mention an update to statutory sick pay. What changed and does that affect a director's service contract? +
From 6 April 2026, under the Employment Rights Act 2025, statutory sick pay (SSP) became payable from the first day of sickness absence, removing the previous three-day waiting period. The lower earnings limit was also abolished, extending SSP to more employees. The Simply-Docs director's service contract templates have been updated to reflect this change. If you are using an older version, review any sick pay clauses that reference the previous rules.
