Do You Have to Disclose Referral Fees to Customers?

Say you send a customer to an electrician you trust, and that electrician pays you a referral fee for the introduction. Do you have to tell the customer about the fee? For a lot of contractors this is the question that makes them nervous about referral fees in the first place — it feels like something that has to be hidden. It usually is not. In most cases, disclosing it is both the safe move and the one that builds more trust, not less.

Here is the general shape of it.

The general principle: disclose "material connections"

The Federal Trade Commission has long taken the position that when someone recommends a product or service and has a financial interest in that recommendation, that connection should be clear to the person receiving it. The idea is simple: a recommendation reads differently once you know the recommender is getting paid, so people are entitled to know. That is the same principle behind influencers labeling paid posts — a "material connection" between the recommender and the seller should be disclosed.

Applied to the trades: if you have a financial arrangement to send customers to another contractor, the customer generally should be able to know that a referral relationship exists before they make a decision.

Does this really apply to contractor referrals?

The FTC framework was written broadly, and the safest way to treat it is: if you are being compensated to steer a customer toward a particular business, assume disclosure is expected. It is far cheaper to disclose a fee you were entitled to charge than to defend a customer complaint that you hid one. Disclosure does not make the fee wrong — it makes it transparent.

Why disclosure actually protects you

Contractors worry that mentioning a fee makes them look like they are only in it for the money. In practice the opposite is true. A hidden fee, if it ever comes to light, looks like a kickback and can poison the customer relationship and your reputation. A disclosed fee looks like a normal business arrangement — the way real estate, insurance, and finance have operated for decades. The disclosure is what turns "kickback" into "referral fee."

The fee is not the risk. The secret is.

How to disclose it well

Keep it plain. You do not need legalese. Something a homeowner actually understands: "I may receive a referral fee if you hire the contractor I am recommending. It does not change your price, and you are free to choose anyone you want."

Do it before they decide. Disclosure after the customer has already committed is worth much less than disclosure up front. The point is to inform the choice, not to reveal it afterward.

Make it clear and conspicuous. Buried in fine print does not count. It should be easy to see and easy to understand.

Keep a record that you disclosed. A verbal mention is easy to dispute later. A written acknowledgment the customer actually saw and accepted is what protects you if anyone ever questions it.

What varies — and why you still need to check

The FTC principle is the baseline, but it is not the whole picture. Individual states have their own consumer-protection and referral rules. Some licensed trades — plumbing, electrical, and others — are governed by contractor licensing boards with their own anti-kickback or referral restrictions, and a few states limit or prohibit certain fee arrangements between licensed contractors entirely. What is perfectly fine in one state or trade can be restricted in another. This is exactly why the disclaimer at the top of this article matters: treat this as a starting point, not a green light.

How Referly builds disclosure in

Because disclosure is easy to forget and hard to prove after the fact, Referly makes it part of the flow instead of an afterthought. When a referral is sent, the customer receives a plain-language disclosure that a referral relationship exists and may involve a fee — and the referral does not move forward until the customer acknowledges it. That gives you a clean, timestamped record that the customer was informed before anything happened, without you having to remember to bring it up on every job.

See how the disclosure step works.