One of the most awkward conversations in early-stage startups happens when founders finally sit down to figure out what they should be paying themselves. It’s a question that feels deeply personal, uncomfortably financial and weirdly political all at once.

Should you take a salary at all? If so, how much? Should it be the same for all co-founders, or should equity split and salary be different? What about director fees? And what on earth are dividends, and should you even be thinking about them yet?

Most founders get this wrong. Not because they’re being greedy or irresponsible, but because they don’t understand the tax implications, the equity trade-offs or how investor expectations factor into the decision.

Here’s what you need to know.

The Founders Who Pay Themselves Nothing

There’s a certain badge of honour in the startup world around paying yourself nothing. Living on savings, ramen and sheer determination while you build something from scratch. It signals commitment. It shows investors you’re serious.

But here’s the thing – paying yourself nothing can actually backfire.

First, it’s not sustainable. If you’ve got a mortgage, kids or any kind of financial obligations, burning through your savings puts pressure on the business to generate revenue faster than it should. You start making short-term decisions because you need cash flow, not because it’s the right move strategically.

Second, it creates weird tax and super issues down the track. If you’re working full-time in your business and not paying yourself a salary, you’re not making super contributions. That’s fine in year one, but by year three or four, you’ve got a compliance problem. The ATO doesn’t love it when directors work for free indefinitely.

Third, it can complicate future fundraising. When you eventually start paying yourself, investors will want to know why your burn rate suddenly jumped. If you’ve been underestimating your actual operating costs by not including founder salaries, your financial model is misleading.

The Founders Who Pay Themselves Too Much

On the flip side, there are founders who pay themselves market-rate salaries from day one. They’ve come from corporate jobs, they’re used to a certain lifestyle and they structure their startup accordingly.

This is also a mistake – just in the opposite direction.

Investors hate seeing founders take big salaries early. It signals that you’re prioritising personal income over growth. It also burns through runway faster, which means you’ll need to raise more capital sooner. And when you do raise, you’re giving away more equity to fund your lifestyle, not your business.

There’s also a tax angle here that founders often miss. If you’re paying yourself a high salary, you’re paying income tax at marginal rates – potentially up to 47% once you factor in the Medicare levy. That’s money leaving the business that could be reinvested in growth, and it’s taxed inefficiently.

So What’s the Right Amount?

The right amount depends on your stage, your funding situation and what you actually need to live on – not what you’re “worth” or what you used to earn.

A good rule of thumb for early-stage founders is to pay yourself enough to cover living expenses without bleeding the business dry. That usually means something between $60K and $100K – enough to pay rent, bills and groceries, but not enough to fund the lifestyle you had in your last corporate role.

If you’re pre-revenue and bootstrapped, you might need to go lower or pay yourself nothing for a short period. If you’ve raised capital, investors will expect you to pay yourself something reasonable – zero salary raises red flags just as much as excessive salary does.

The other factor to consider is equity. If you’re paying yourself below market rate, you should be compensating for that with equity. That’s the trade-off. Lower salary, higher ownership. It’s also why co-founder equity splits should reflect both contribution and financial sacrifice.

Director Fees vs Salary vs Dividends

Here’s where it gets messy, and where a lot of founders make expensive mistakes.

A salary is straightforward. It’s income, you pay PAYG and super, and it gets deducted as a business expense. It’s clean, compliant and easy to explain to investors.

Director fees are payments for board duties. They’re also income, but they don’t attract super (unless you’re a common law employee). Some founders use director fees to top up income without triggering super obligations, but this only works in specific circumstances and gets tricky fast.

Dividends are distributions of profit to shareholders. If your company is profitable and has retained earnings, dividends can be tax-effective because they come with franking credits. But here’s the catch – most startups aren’t profitable. If you’re paying dividends while raising capital or running at a loss, you’re doing something wrong.

The other trap with dividends is that they don’t reduce your company’s taxable income. Salaries do. So if your startup is generating revenue and you’re trying to minimise tax, paying yourself a salary is usually smarter than taking dividends.

Why This Matters Beyond Your Bank Account

How you pay yourself isn’t just a personal finance decision. It affects your cap table, your runway, your tax position and how investors perceive you.

If you’re paying yourself nothing, you’re not building super, you’re not creating a sustainable model and you’re potentially setting yourself up for ATO scrutiny. If you’re paying yourself too much, you’re burning runway and signalling to investors that you’re not all-in.

The right approach is somewhere in the middle – enough to live on, structured in a way that’s tax-effective and defensible to investors, and aligned with the stage and funding position of your business.