If Uber took the taxi industry by storm and Airbnb the hotels, what is shaking up the HR industry? The answer it seems is Zenefits, a cloud-based HR software that integrates all HR related compliance work into its free interface. A recent round of funding gave the company a valuation of $4.5 billion.

For small firms that cannot afford a full-time human resource person, HR related compliance work can be too much to handle. The founder, Parker Conrad’s eureka moment happened at his earlier start-up SigFig. Zenefits was envisioned as an automated system which reduced the pressure of mass paperwork, filling out forms and adding or removing a person from 20 different places every time an employee was hired or terminated.

In the two years of its existence, Zenefits has seen phenomenal growth. With more than 1,000 employees, Zenefits is on-boarding people at a rate of 150 per month. This San Francisco based start-up has already raised about $84 Million from Andreessen Horowitz, Institutional Venture Partners and even Hollywood actor Jared Leto. The company booked $20 Million in revenue last year and is estimated to quintuple the figure in the upcoming year.

Spat with ADP

In early June this year, a public brawl of sorts emerged between Zenefits and payroll giant ADP. The latter started blocking thousands of their joint customers from accessing ADP payrolls through Zenefits Software. While Zenefits accused ADP of blocking its service for competitive reasons and not security reasons as alleged, it asked its customers to sign a Change.org petition asking ADP to stop blocking accounts. ADP noted that Zenefits was drawing a disproportionate amount of traffic and pulling sensitive information.  The start-up further escalated the squabble by offering their mutual clients $1,000 to switch to a different payroll. ADP has charged Conrad and Zenefits for defamation, false advertising, intentionally interfering with customers, and unfair competition.

What makes Zenefits a HR disruptor?  

By leveraging technology, the company has brought about a paradigm shift. Its software is a singular system that replaces half a dozen systems of record including payroll, health care, retirement, time-tracking, commuter benefits and so on. When a manager decides to give a raise, they could simply type in the new salary into the software and it would handle the changes in information with every other service provider online.  Not only does this save time but it also makes small businesses an attractive place for fresh talent.

Pankaj Bansal, CEO, PeopleStrong, notes that “the system of automation that Zenefits has come up with could be replicated in other areas of HR including recruitment. That is what is called Cloud 2.0 or new generation technology that aims to remove the intermediate in the service.” Bansal also points out that it is only a matter of time when a hiring manager would be directly interacting with the candidate using technology based applications on their phone.

Zenefits charges no money on the interface and only earns revenue on the value added services that are run on top of the software. It invited scrutiny from regulators and players in the brokerage industry, who argued that Zenefits is providing free software which could be considered a rebate.

Competition and the future

The brokers affected by the success of Zenefits it seems have found a way to strike back. Flock, a broker backed online HR platform is pitted to take on Zenefits in the small and midsized business market.  The service is co-founded by Raj Singh and Chirag Bhatt, who have been in consultation with small and large brokers for the last eight months. The venture was supported by Heffernan and Beere & Purves, a general insurance agent that works with 400 brokers.  Flock does not disrupt existing relationships from a broker’s perspective.  While basics are free, when customers want to integrate insurance enrollments into their package, a fee is charged. As technology based products and solutions gain traction in driving business innovation, companies like Zenefits and Flock are challenging conventional HR Software Industry and the role of the HR function itself.

(Sources: Business Insider, Fortune, Inc, Zenefits, Biz Journals, WSJ)