Directors do not have to be employees of a company. Whether a director is an employee or not depends entirely on the nature of a director’s relationship with a company. A service agreement helps clarify key issues for all interested parties, including directors' responsibilities, as well as pay and benefits.

Whether or not a director is an employee, a service contract has benefits for both companies and directors. If a director is an employee, it is important that employment law, as well as company law, is complied with. A professionally drafted service contract will ensure that all applicable law is complied with. Amongst other things, a service contract should:

• Deal with work hours and place of work
• Deal with bonus or other reward scheme
• State whether the director is an executive or non-executive director
• State a director’s salary
• Deal with confidentiality and intellectual property 
• Deal with resignation and termination – including garden leave clause and restrictive covenants
• Cover directors’ duties 
• Sickness