In a year of dramatic twists and turns for Zenefits, the HR tech company is back in the spotlight with news of slower than expected revenue growth. The company also this week announced it will offer a free payroll option. The announcement follows a months-long public dispute with payroll giant ADP.
After three years of offering free software that automates employee benefits management and compliance, Zenefits said Monday it has now expanded that suite into payroll services. It also announced payroll integrations with the Quickbooks cloud accounting software for small and midsize firms and Xero, whose online accounting software has more than 600,000 subscribers in 180 countries.
“What Google’s driverless cars will do for your commute, driverless payroll does for your company,” Parker Conrad, CEO and co-founder of Zenefits, said in a statement. “The best payroll system is one that you never see.”
The move follows a bitter and widely publicized defamation lawsuit with payroll behemoth ADP and effectively ends what Zenefits describes as “the decades-old model of paying a big corporation to handle payroll – and turns those companies’ business into a mere product feature.”
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The announcement also comes at a time when Zenefits failed to meet its aggressive revenue targets, becoming what The Wall Street Journal called “the latest highly valued venture-backed company struggling to meet investor expectations.”
The nearly $45 million in annual recurring revenue that was reportedly achieved in August when Zenefits marked a milestone of 100,000 insured lives is barely half the figure it’s hoping for by January. Other financial woes include a smattering of executive firings, a hiring freeze in certain departments, pay cuts and a 48% downgrade in its market value, according to the WSJ report. That estimate was made by Fidelity Investments, which contributed toward the $500 million Zenefits raised from investors by May when it was then valued at $4.5 billion.
Like any start-up, Zenefits is focused on growth rather than earnings, says Joe Markland, president of HR Technology Advisors, LLC and co-founder of the ProSential Group, a national brokerage consisting of 60 employee benefits firms across the U.S
He concedes that Zenefits is the fastest growing brokerage in the U.S. relative to its competitors. Indeed, as one of the nation’s largest brokers with licensed professionals in all 50 states, Zenefits believes it’s infusing the field with new blood and training.
The fact that commissions are used to subsidize the company’s technology and services “is the thorn in the side of the brokers and other technology vendors,” Markland says.
For brokers who wish Zenefits would disappear, he notes that “$500 million does go a pretty long way. Brokers will not only have to compete against Zenefits, but others entering the space. Most brokers are making the mistake of thinking they don’t need to handle payroll. This is their mistake. Payroll is the glue. But it is not payroll in the way most think.”
While the timing of this announcement may appear to be a response to the company’s many challenges, the new offering actually has been in the works since summer. At that time, Zenefits sought to end the time-consuming nature of manually inputting every single payroll change in each pay period. Its goal was to tightly integrate payroll with the system organizations use to run their HR and business. Under that scenario, according to the company, “payroll is just a value-added feature – and it can, and should run, automatically. And it should be free.”
Zenefits is touting its new platform as the nation’s only free, full-service offering whose automated and integrated payroll experience “runs completely in the background.” It is said to free small and midsize businesses from having to manually make changes to employee deductions for health, retirement and other benefits such as paid time off each pay period. Another selling point is that there’s no need to pull data from multiple, disconnected systems.
Some customers have rejoiced about the opportunity to trade these tactical chores for a more strategic role. “For anyone who runs a company, Zenefits Payroll is a great service,” according to Mary Grant, founder of Grant Law Group. “It’s so streamlined and efficient. It helps you focus on your customers instead of being bogged down in administrative details.”
Key features include automatic pay runs, tax filing in all 50 states, on-boarding, off-boarding and upkeep. Employees also can view directly on their paystubs any changes made to their pay, while managers and accountants can track every payroll change made for every employee.
In addition to the free “self-driving” mode, a paid service is available for accountants and other professionals at a cost of $25, plus $4 per employee per month on an annual contract basis that Zenefits notes is still cheaper than most payroll providers.
Still, others may find that there’s no escaping the caveat about getting what you pay for or a free lunch. “ADP, Paychex and many others have far superior technology,” Markland believes. “The fact that Zenefits says they built a payroll system in 60 days is laughable. It can’t be as advanced or functional. I have sold and implemented over 500 systems and they say it is easy, but it is not.”
