Common network marketing compliance questions answered

What to take away

Question 1: Is this post an earnings claim?

An income claim is any statement, express or implied, about what a distributor earns or can earn. The awkward questions cluster around money. A testimonial showing a six-figure check is a claim. So is a photo of a luxury car with a caption about the business.

Section 5 of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices. Under the FTC's advertising substantiation policy, objective claims need a reasonable basis before you disseminate them. The FTC's Business Guidance Concerning Multi-Level Marketing discusses how the agency evaluates MLM practices, including earnings representations and compensation structures. The Business Opportunity Rule is not a blanket rule for every MLM; it applies when an offer meets the rule's coverage criteria.

The FTC does not prescribe one universal income-disclosure table or percentage threshold for every MLM. A claim still needs support, and some state laws impose additional requirements. Some states require an average-earnings figure and information about the percentage of distributors who reach it. New York General Business Law § 349, enforced by the New York Attorney General, prohibits deceptive acts and practices; it is not a universal earnings-disclosure template.

California's seller assisted marketing plan law is one example: it requires average earnings data and the percentage of purchasers who reached it. Confirm the current requirement with your state regulator before you publish.

Question 2: Does our recruiting script promise an outcome?

"Start your own business" is a description. "Replace your salary in ninety days" is a claim you must substantiate. Which one your script says is the question nobody asks out loud.

Write the script down and read it as a stranger would. If a reasonable prospect hears an income promise, the script is the problem, not the prospect's optimism. Trainers who improvise around a written script reintroduce the risk.

Keep the approved script versioned. When a leader rewrites it in the field, the old approval no longer covers the new words.

Question 3: Is this distributor an employee?

The IRS uses common-law factors to decide whether a worker is an employee or an independent contractor. The factors fall into three categories: behavioral control, financial control, and the type of relationship. The IRS behavioral and financial control tests explain two of those categories.

A distributor who must attend daily meetings, follow a fixed pitch, and pay for samples looks different from one who sets their own hours and prices, but no single fact decides status. IRS Publication 15-A describes the common-law factors. A worker or business can file Form SS-8 to ask the IRS to determine the worker's status.

Canada second-market angle: Canadian distributors file T2125 for business income and expenses. Which expenses qualify varies, so send the question to a CPA rather than a forum.

Question 4: What record do we hand a state attorney general?

Each answer above becomes a record: the claim, its evidence, the reviewer, and the review date. A state attorney general may seek records through a civil investigative demand or subpoena when state law authorizes it. The response deadline is stated in the demand or subpoena and depends on the jurisdiction; there is no single nationwide response period.

Question 5: How do we test a claim before it goes wide?

Run a new claim through a small, defined group before it reaches every distributor.

Use the claim record from Question 4 for steps 2 through 4.

A small test group can help identify confusing wording, but anecdotal results do not establish typical earnings. Match each earnings representation to evidence for the population and period it implies, and correct or stop the claim if the evidence no longer supports it.

Common questions

Can a distributor post their own income?

A distributor can post a truthful figure, but the post can still mislead if it implies that the result is typical. Under Section 5 of the FTC Act and the FTC's MLM guidance, the overall impression and the evidence for typical results matter. Include material context, such as expenses, and check whether state law adds requirements.

Do we need a written compliance program?

No single federal form is required for every compliance program, but enforcement can examine what controls existed. The claim record in Question 4 helps document those controls. See how to manage network marketing compliance for the control set.

What happens when a claim turns out to be wrong?

Correct the public output where the error appeared and preserve the original record. Note who approved it and what changed. A network marketing compliance register keeps corrections traceable.

Who decides if a claim is allowed?

The FTC enforces federal consumer-protection law, and state attorneys general enforce state laws within their authority. Whether a claim is allowed depends on its context and evidence. A licensed attorney can apply the rules to your facts. This page is informational and is not legal advice.