Legal Question in Business Law in California

paying customers for referrals

I was wondering if there are any laws that prohibit companies from paying (either with money, or gift cards) customers for referring customers, or would they need to acquire some sort of permit.

This question may be more for the taxation law catagory, but I thought I'd post it here as well.

Thank you.


Asked on 4/09/09, 7:00 am

2 Answers from Attorneys
Timothy J. Walton Internet Attorney

Re: paying customers for referrals

There are laws that regulate the use of referrals, but mostly the prohibitions are related to the practice of law.

You should discuss with a competent attorney in your area whether the specific situation you are facing needs procedures for reducing exposure in this context.

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Answered on 4/15/09, 12:43 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: paying customers for referrals

Two aspects to this. In general, compensating someone for referring business is legal, but there are some businesses and professions, such as the practice of law, where it is regulated and limited by law or ethical standards. The second is, as you suspect, you are giving these people income (pay for services) whether it is cash or gift cards, and you will have a possible duty to report their compensation to the IRS. However, I think the 1099 reporting threshold is $600 per individual.

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Answered on 4/09/09, 12:36 pm


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