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Zenefits partners with OneDigital, ditches Broker-of-Record business

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Zenefits, the embattled San Francisco-based HR software company, has jettisoned its Broker-of-Record (BOR) business after Washington Insurance Commissioner Mike Kreidler ordered the company to cease free distribution of its HR software, and has partnered with OneDigital Health and Benefits as first benefits brokerage partner.

Zenefits, founded in 2014 by Parker Conrad, offered software that promised to streamline HR tasks for small businesses. While this was lauded at the time as breathing new life into a ‘stodgy industry ripe for disruption’ according to a Bloomberg Businessweek piece written back in May of 2016, at issue was Zenefits’s practice of giving the software away for free while making money off of brokerage commissions that insurance companies paid when a client bought one of their plans.

Since the commissions recurred annually, Zenefits would stand to profit in the long term; but the innovative practice was soon quashed by state and federal regulators who saw the gifting of free software as a violation of laws against offering rebates or gifts to customers. In addition, some practices regarding licensing of Zenefits employees were challenged by regulators. Conrad was fired as CEO in February 2016, replaced by then-COO David Sacks, who stepped down after a year. Jay Fulcher, the former CEO of Ooyala and Agile Software now holds that lead position, and has pledged to make over the brand and get out of the insurance brokerage business while focusing on becoming an all-in-one HR tool for small businesses.

The partnership with OneDigital, the nation’s largest employee benefits-only company, will give both Zenefits (which is retaining the brand) and OneDigital customers access to the combination of Zenefits’ advanced technology platform, and more than 1,000 experienced benefits advisors across the country.

The agreement will greatly expand Zenefits’ addressable market, while OneDigital will gain access to the analytics, tools and support needed for the delivery of a full suite of HR services through a simple, mobile, and intuitive experience. The two companies hope to redefine cloud-based human capital management and integrated local benefits advisory.

“Partnering with Zenefits gives OneDigital a tremendous opportunity to bring advanced technology to both existing and future clients,” said Adam Bruckman, president and CEO, OneDigital. “It is an acknowledgment of the rapidly expanding convergence between technology and benefits consulting. Until now, no one company could do it all for small and mid-sized employers, but our partnership with Zenefits is about to make that happen for employers across the country.”

The partnership is seen with skepticism among industry professionals, however, with some LinkedIn commentators revealing that the Zenefits brand may be irreparably damaged:

‘I don’t think the broker community will be welcoming them back … why would we want to play with them?’

‘The Big Pay companies need to follow suite (sic) and stay clear of BOR.’

‘Be careful! By offering to ‘partner’ with brokers now via technology, they could be using this as a means to gain access to clients and then move to take over BOR by that means. I for one am not buying what they’re selling…back then or now!’

Only time will tell if the partnership can restore faith in the Zenefits software solutions.

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