ADP AND ZENEFITS BATTLE AS CUSTOMERS ARE CAUGHT IN THE CROSSFIRE.

In case you missed it, the internet and social media exploded last week with the recent accusations by Zenefits that ADP was not playing ball and being systematically uncompetitive. Zenefits claims that ADP systematically de-activated Zenefits accounts within ADP. Zenefits has gone so far as to create a petition aimed at the ADP executive team and socially promote #ADPeeved. ADP accuses Zenefits of “un-masking Social Security numbers and the way in which Zenefits integrates to its payroll systems”. ADP fired back legally by filing a defamation lawsuit in San Francisco and socially promoting their response to Zenefits claim. “We have never integrated with Zenefits in any sense and have never authorized their method of extracting data from our RUN payroll system. They gained access to our systems by convincing clients to give them administrative access to our platform. Despite having many legitimate ways to integrate with ADP properly, Zenefits chose an unsecure and indirect approach.”

For those of you that have not heard of Zenefits, the company was started in 2013 by Parker Conrad and recently received several rounds of VC money including a whopping $500 million from Andreessen Horowitz, Maverick and Venrock. That type of investment instantly put them on the map of being a major player in the HR Cloud business. A major player behind this investment and adding serious rocket fuel to Zenefits growth is Lars Dalgaard, the former Founder and CEO of SuccessFactors; now a board member of Zenefits.

Parker decided not to build just another HR App for small businesses, but combine the technology with health insurance and employee benefits services in one offering. It is a very creative way to attractive small businesses and those individuals struggling to justify an investment to leadership. Zenefits approach allows HR professionals a way to ask for an HRIS without having to pay for it. “It’s Free”. This model of combining HRIS + Benefits is not exactly new, CheckPointHR launched their offering in 2001 with a similar concept, by purchasing OEM rights from Ultimate Software and offering an HRIS + Payroll + Tax + Benefits/Insurance solution. CheckPointHR’s offering isn’t free, but concentrates on businesses larger than 100 employees and regionally focused in the Northeast corridor. What is different about Zenefits and CheckPointHR offerings is most small business do not have a relationship with a benefits broker like a mid-market firm in my opinion. Asking a 500-person firm to leave their broker after many years is quite difficult unless you catch them at the right time. Asking a 20-person firm to leave their broker is significantly easier and in my opinion why Parker and crew are now approaching 10,000 clients.

MY POV ON HOW ZENEFITS IS MAKING A POSITIVE IMPACT ON THE INDUSTRY.

ZENEFITS IS A DISRUPTER AND HAS HAD AN UBER EFFECT ON THE INDUSTRY.

1. Zenefits will help the entire HRIS/HCM landscape by offering small businesses an HR platform to help companies better manage their workforce with onboarding, benefits and absence management. Most of the 10,000 Zenefits customers probably came from spreadsheets, so educating the 5.2 million U.S. businesses under 100 employees that there is a better way is brilliant.
2. Solidify to end-users that the UI (User Interface) needs to be simple, intuitive and fast.
3. Disrupting the traditional benefit broker model and the high commission fees associated with purchasing benefits for employees is on a steep decline. Brokers are under siege and many won’t be able to compete against the wave of companies entering the space (e.g. Paychex, ADP and Zenefits).

MY CONCERNS WITH ZENEFITS AND HOW THEY ARE EFFECTING THE INDUSTRY.

1. Zenefits loves to claim their offering is Workday lite for businesses. This is a joke considering how little they actually have in their HR offering. What they have is good for a small company, but proclaiming yourself as Workday is beyond stretch.
2. Their HR App isn’t free, but included in the costs of assigning Zenefits as the BOR and purchasing insurance. If you are looking for just an HRIS without leaving your relationship with your broker, Zenefits probably isn’t going to work.
3. Zenefits is commoditizing the technology by overstating the capabilities “All-in-One” and offering it for free. This is aggressive and an exaggeration of “All-in-One”. Typically the words “All-in-One” in the HR software world is synonymous to having all core HR functionality (i.e. recruiting, onboarding, benefits administration & open enrollment, performance management, compensation, training, absence management, workflow, employee and manager self service, reporting and analytics) in one application. Often times marketed as an end-to-end solution from hire  to retire. To my knowledge, Zenefits is missing major functional areas with their offering to call their app “All-in-One”.
4. Zenefits offers no professional services, best practices, value add from an implementation standpoint. I’m not aware of any HR Vendor that says their system is so intuitive that it doesn’t require any training, configuration, etc. Even open source app OrangeHCM provides implementation and training services. In my opinion, not only is Zenefits commoditizing the HR technology, but continues by commoditizing the value of professional services. Read my blog Buyers Beware: The Communization of Professional Services.
5. Last point! Over aggressive marketing. Zenefits does not offer anything special with regards to Payroll. On their website, the first type of service they have listed is “Payroll & Taxes”. They state that their app manages the payroll for a company. “Manages”? You would think that they are a HRMS (HR + Payroll Solution) provider based on my definition. Read my Blog on Types of HRIS Systems: HRIS vs. HCM vs HRMS. Add to the fact that they have hyper-growth, a young sales team, and follow the talking points handed to them while they call HR professionals. I think this is very misleading. Just stick to HRIS Zenefits, you’re not in the payroll business.

In not a lawyer, but based on my experience, everyone loses in the court of law. It will be interesting to see where this goes and could either result in a big win for Zenefits over a giant of the industry or a major black eye. Whatever the legal outcome, the ADP and Zenefits relationship is forever changed and client confidence shaken. It also appears that ADP may be following Zenefits model and offer some sort of free HRIS offering with insurance and benefit services in the near future.

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