This Time, It’s HR Getting Fired

Human resources, that catchall term for an often-maddening web of health-care and financial services, has given rise to an industry of middlemen. Most businesses with fewer than 1,000 employees arrange for health insurance or 401(k) management not through the companies doing the insuring or investing but through local brokers who collect fees for making the arrangements on their behalf. While companies may not like the extra bureaucracy, it’s long been preferable to negotiating deals with benefits providers on their own, especially given all the photocopying and faxing required to add even a single employee to a health plan, dental plan, and vision plan.

San Francisco startup Zenefits is offering smaller businesses an alternative: cloud software that simplifies the process of filling out forms, collects all the needed HR data in one interface, and comes with preset rates for its lists of available insurers. And Zenefits doesn’t charge for the software. It makes money through fees health insurers pay for signups, and says they’re lower than most brokers’ fees but add up quickly. “We figured out that if we can be that central hub system, the central system of record, we can make so much money on all these different spokes,” says Chief Executive Officer Parker Conrad. “It makes sense to give the hub and all the connective tissue away.”