Referral Fees In New Zealand: Rules For Paying And Receiving Them

Referral relationships can be a great growth lever for small businesses. You team up with another business, they send customers your way, and you reward them with a referral fee when a deal closes.

Simple, right?

It can be - but only if you set it up properly. Referral fees sit right at the intersection of contracts, marketing, privacy, tax, and (sometimes) industry-specific rules. If you get the details wrong, you can end up with disputes about who “earned” the referral, awkward customer complaints about undisclosed commissions, or compliance issues if personal information is shared (or used for marketing) without the right consent.

Below, we’ll walk through what a referral fee is, the key legal risks for New Zealand businesses, and how to set up a referral fee arrangement that protects your business from day one.

What Is A Referral Fee (And How Is It Different To Commission Or An Affiliate Payment)?

A referral fee is a payment (or other benefit) you give to someone who introduces you to a customer, client, or opportunity.

Typically, the referrer isn’t the one delivering the service or selling the product - they’re being paid for making the introduction that leads to revenue.

Common Referral Fee Structures

• Flat fee per referral: e.g. $100 for each customer who books and attends.
• Percentage of revenue: e.g. 10% of the first invoice or first month’s subscription.
• Tiered payments: e.g. 5% for the first 5 successful referrals, then 7% after that.
• Store credit / discounts / reciprocal referrals: still a “benefit”, even if no cash changes hands.

Referral Fee Vs Commission

“Commission” is often used when someone is directly involved in selling (for example, a sales representative negotiating the deal). With a referral fee, the referrer might not be involved beyond the initial introduction.

That said, the label isn’t what matters most legally - what matters is what’s actually happening (who is doing what, what is being paid, and when).

Referral Fee Vs Affiliate Marketing

Affiliate arrangements are usually online and link-based (trackable links, cookies, discount codes). Referral fee arrangements are often relationship-based and offline (or a mix of both).

Either way, you’ll want the terms written down in a way that’s enforceable and fair - usually through a tailored Service Agreement or a specific referral agreement.

Is Paying Or Receiving A Referral Fee Legal In New Zealand?

In many industries, paying or receiving referral fees is legal in New Zealand - but it depends on:

• the industry you’re operating in (some industries have tighter rules);
• how the referral fee is described and disclosed (especially in customer-facing communications);
• whether any personal information is shared to make the referral; and
• whether the arrangement creates misleading impressions about independence, pricing, or endorsements.

So the more helpful question isn’t “is it legal?” - it’s “what do we need to do to make it compliant and low-risk?”

Be Careful With Misleading Conduct And Hidden Commissions

If the referrer is recommending you while being paid, and the customer would reasonably assume the recommendation is independent or unbiased, you may need to think carefully about whether (and how) that relationship should be disclosed. What’s appropriate can be highly context-dependent (including the product/service, the audience, and the way the recommendation is made).

In New Zealand, the Fair Trading Act 1986 prohibits misleading and deceptive conduct (including misleading omissions). In practice, problems can arise where:

• a referrer describes your business as “the best” or “the cheapest” without a basis;
• a referrer implies they’ve compared the whole market when they haven’t;
• a customer isn’t told a referrer is being paid, and that payment could affect the recommendation in a way that would matter to the customer; or
• the referral arrangement results in confusing or unclear pricing.

This doesn’t mean you can’t pay referral fees. It means you should make sure everyone involved understands what can and can’t be said when promoting your business, and you should document those expectations.

Industry Rules Can Change The Answer

Some industries have specific legislation, licensing conditions, codes of conduct, or regulator expectations around referral payments (particularly where there’s a strong consumer protection focus).

If you operate in a regulated space, it’s worth getting tailored advice before launching a referral fee program - especially if the referrer is advising customers, handling sensitive information, or presenting themselves as independent.

What Laws And Compliance Issues Apply To Referral Fee Arrangements?

Referral fees aren’t governed by a single “referral fee law” in New Zealand. Instead, several legal areas can apply at once. Here are the big ones for small businesses.

1) Contract Law: Can You Enforce The Referral Fee?

If your referral arrangement is vague, you can run into disputes like:

• Who actually introduced the customer first?
• Does the referrer get paid if the customer buys 6 months later?
• Do you pay on signing, delivery, or when you’ve been paid?
• What happens if the customer cancels and asks for a refund?

Having clear written terms is what turns a “handshake deal” into something you can actually rely on.

If you’re putting the arrangement into a broader commercial relationship (for example, a partnership where each party also provides services), a tailored Consulting Agreement or service agreement structure can help set expectations around scope, payment triggers, and liability.

2) Consumer Law: Referrals Shouldn’t Undermine Customer Rights

If you sell to consumers, your normal consumer law obligations still apply. Paying a referral fee doesn’t change the standards you must meet.

For example, under the Consumer Guarantees Act 1993, consumers have certain rights around the quality and fitness of services and products. If a customer complains and you need to provide a remedy, your referral fee arrangement should deal with what happens next (including whether a referral fee must be repaid or withheld).

3) Privacy Act 2020: Sharing Customer Details Is A Big One

A lot of referral fee arrangements involve someone saying: “Here’s my client’s name and number, give them a call.”

That sounds harmless - but it can trigger privacy obligations.

Under the Privacy Act 2020, “personal information” is information about an identifiable individual (names, phone numbers, emails, and sometimes even context about what they need). If a referrer is sending you personal information about a prospective customer, you should consider:

• Is the customer expecting their details to be shared?
• Has the customer consented? (or is there another lawful basis?)
• Are you collecting only what you need?
• Are you storing it safely?
• Have you clearly explained how you’ll use it?

In many cases, the safest approach is to structure the referral so the referrer passes your details to the customer, and the customer contacts you directly (instead of their information being shared behind the scenes). Where that’s not practical, you’ll usually want a clear process for confirming the customer has agreed to their details being shared.

If you are collecting personal information as part of your referral process (for example, via a referral form on your website), make sure your Privacy Policy and your collection wording match what you’re doing in practice.

4) Spam And Marketing Rules: Don’t Let Referrals Turn Into Unwanted Outreach

If your referral system involves emails, texts, or other electronic messages being sent to customers, you’ll also want to think about electronic marketing compliance under the Unsolicited Electronic Messages Act 2007 (including consent and unsubscribe requirements). The key is to avoid “cold” outreach to someone who hasn’t agreed to be contacted - and to make sure any commercial messages include the required sender information and a functioning unsubscribe option.

This is another reason why “customer-initiated contact” referral models often reduce risk.

5) Employment And Contractor Classification: Who Is The Referrer, Really?

Some small businesses offer referral fees to individuals who regularly bring in work - and over time, that relationship can start to look like ongoing labour or sales work.

If your referrer is:

• working mainly for you,
• taking direction from you,
• presenting as part of your business, or
• dependent on your work for their income,

…you’ll want to be careful about whether they’re truly a separate business (contractor) or whether the relationship looks more like employment. Misclassification can create serious liabilities.

Where the referrer is genuinely providing services as a contractor, you should document that properly in a Contractors Agreement. If they’re actually joining your team, you’ll want an appropriate Employment Contract instead.

How Do You Set Up A Referral Fee Agreement That Protects Your Business?

The best referral fee arrangements are the ones that are clear, fair, and easy to administer. From a legal perspective, your goal is to remove ambiguity - because ambiguity is where disputes live.

Here are the core terms most New Zealand businesses should consider including.

Define What Counts As A “Referral”

Start with the basics. Your agreement should say what a referral is, for example:

• an introduction email to a named contact;
• a completed referral form with minimum details;
• a lead that hasn’t already been in your pipeline; and/or
• a customer who hasn’t engaged your services in the last X months.

This is also where you can address “duplicate referrals” (two people claim the same customer) and what evidence is required.

Set The Payment Trigger (When Is The Referral Fee Earned?)

This is one of the most important clauses, and one of the most commonly misunderstood.

Common triggers include:

• On signing: when the customer signs your proposal/quote.
• On invoicing: when you issue the first invoice.
• On payment received: only after you’ve actually been paid.
• After a cooling-off period: e.g. 14–30 days after the first payment, to reduce refunds/cancellations risk.

For cashflow and dispute prevention, “payment received” is often the cleanest trigger - but it depends on your industry and sales cycle.

Be Clear On The Amount And How It’s Calculated

If the referral fee is a percentage, define what it’s a percentage of. Is it:

• the total contract value?
• the first invoice only?
• net of GST?
• net of refunds, chargebacks, discounts, and credits?

The more precise you are, the less room there is for disagreement later.

Decide How Long The Referral Fee Applies (The “Tail Period”)

Imagine this: a referrer introduces you to a business, you pitch, and nothing happens. Then 9 months later, the customer comes back and signs up.

Does the referrer still get paid?

This is where a “tail period” helps, such as:

• referral fees apply only if the customer signs within 90 days of introduction; or
• referral fees apply to the first project only, not future work; or
• referral fees apply for the first 6 months of revenue, then stop.

There’s no one-size-fits-all answer - but you do want an answer.

Set Boundaries Around Marketing And Representations

If the referrer is promoting you, you’ll want them to do it in a way that doesn’t create legal headaches. Consider including rules like:

• they must not make promises about outcomes you can’t guarantee;
• they must not misrepresent pricing, timeframes, or inclusions;
• they must only use approved brand assets (if relevant); and
• they must disclose the referral relationship where appropriate.

This helps reduce Fair Trading Act risk and keeps your brand consistent.

Privacy And Confidentiality Obligations

Your agreement should address how referrals will be made without mishandling personal information. For example, you might require the referrer to confirm they have consent (or another lawful basis) before sharing any customer details.

If sensitive business information will be shared (pricing, customer lists, strategies), you may also want confidentiality terms, or a standalone Non-Disclosure Agreement depending on the situation.

Dispute Handling And Termination

Referral arrangements often start friendly - until the first disagreement about who is owed what.

Your agreement should cover:

• how disputes are raised and handled (for example, escalation steps);
• your ability to withhold payment while investigating a disputed referral;
• termination rights (including immediate termination for misconduct); and
• what happens to pending referrals and unpaid fees if the agreement ends.

These terms don’t make the relationship “less friendly” - they make it predictable, which is what protects both sides.

Practical Risks For Small Businesses (And How To Avoid Them)

Referral fees can be a win-win, but small businesses are often the ones who feel the pain when things aren’t documented properly. Here are some of the most common risk areas we see.

“Handshake Deals” That Turn Into Disputes

You might think you’ll remember what you agreed - but people remember things differently, especially when money is involved.

What to do: Put the arrangement in writing before referrals start, even if it’s a simple agreement. If the relationship is ongoing or high value, get it drafted properly so it actually fits your business model.

Customers Feeling Misled

If a customer later discovers someone was paid to recommend you, they can feel like the recommendation wasn’t genuine - even if your business did a great job.

What to do: Decide whether disclosure is appropriate in your context, and build it into your process and messaging (including what the referrer is allowed to say).

Privacy Complaints From Unsolicited Contact

If you call or email someone because you were “given their details”, and they didn’t agree to that, you can end up with complaints, reputational damage, or an avoidable privacy issue.

What to do: Structure referrals so consent is obtained before personal information is shared, or have the customer reach out to you directly.

Tax And Record-Keeping Issues

Referral fees are generally taxable income for the recipient, and often deductible to the payer as a business expense (depending on the circumstances). GST may also apply - for example, if the recipient is GST-registered and the referral fee is consideration for a taxable supply, they may need to charge GST and issue a tax invoice. The right treatment can vary based on who is paying, who is receiving, and how the arrangement is structured.

What to do: Keep clean records, and make sure you’re collecting invoices/receipts where appropriate. It’s also worth checking with your accountant for the correct tax and GST treatment for your specific setup.

Accidentally Creating An Employment-Like Relationship

If your “referrer” starts acting like your salesperson, you might unintentionally create obligations you didn’t plan for.

What to do: Make sure the relationship is documented accurately - and if the relationship evolves, update the paperwork rather than hoping for the best.

Key Takeaways

• A referral fee is a payment or benefit provided in exchange for introducing a customer or opportunity, and it should be documented clearly to avoid disputes.
• Referral fees can be legal in New Zealand, but you need to manage risks under laws like the Fair Trading Act 1986, Consumer Guarantees Act 1993, and the Privacy Act 2020 (and in some cases industry-specific rules).
• Your biggest practical risks are unclear payment triggers, disagreements about who made the referral, and customers feeling misled by undisclosed referral payments (where disclosure is relevant).
• If personal information is shared as part of a referral, you need to think carefully about consent, collection notices, and how you handle that data in practice.
• If referrals involve electronic messages, consider compliance with the Unsolicited Electronic Messages Act 2007 (including consent and unsubscribe requirements).
• If the referrer is regularly bringing in work, make sure the arrangement is structured correctly (contractor vs employee) and properly documented.
• A well-drafted referral arrangement should cover what counts as a referral, when the referral fee is earned, how it’s calculated, tail periods, marketing rules, privacy obligations, and what happens if the relationship ends.

If you’d like help setting up or reviewing a referral fee arrangement, or you’re not sure what your business should disclose and when, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.