Game of Thrones has nothing on the world of HR Technology! You want political intrigue and warring factions? Check! How about a giant challenged by an upstart in the court of public opinion? Check and check! In case you haven’t heard, things got a little nasty this week after ADP stopped Zenefits’ automations from accessing ADP’s small market solution, RUN. Zenefits took their anger to social media and all HR PR hell broke loose! (That’s meant as PR as in public relations, not payroll – I couldn’t resist the cadence of the abbreviations.)
While I’m an outside observer and not able to judge intentions, I think I can summarize what you need to know, summarize how this may impact our industry (stay tuned for our next blog post) and submit both blogs as my audition tape to be the color commentator in the “HR Tech Gladiatorial Smackdown” that’s sure to follow.
Of course it would be easy to jump on the bandwagon of evil corporate empires that squash innovation by stamping out competitors. However, I don’t think that’s an accurate picture of what’s going on. We’re already to the he said/she said portion of the deathmatch, but several missteps have come to light that may serve some humble pie to the uber-rapidly growing Zenefits. At the same time, ADP has not done themselves any favors, and may have created a well-funded competitor.
The Players
I’m going to assume you know ADP since they pay one out of every six Americans, and have a better credit rating than the United States (that’s true, look it up!). Zenefits, however, may be new to you. They are a Bay-area-based startup with a HUGE war chest of cash ($500 million last I heard!) that’s been in business two years. They are a disrupter to the small employer broker market, bringing their start-up-hip-technology and mindset to an often ignored section of the business-to-business marketplace. They posit that by offering free HRIS (Human Resources Information System) software, they can supplant more typical brokers. (Full disclosure: Lockton, for whom I work, is a broker but not one that typically serves the same small employer market as Zenefits. I’m attempting to write this – and every article – as a disinterested, objective advisor. I owe that to you, my faithful readers!)
Zenefits doesn’t offer payroll – and has said they will not go down that road. Just between us, if the lawsuit or settlement goes ADP’s way, I bet they’ll reconsider that statement. After all, I could build one hell of a payroll system with only five percent of their cash! So, without payroll, they must send deduction data to the employer’s payroll system for benefit elections, as well as process new hires and life events (births, marriages, etc.). This should have been a perfect complementary match: Zenefits does HR and benefits, ADP does the payroll, everyone’s happy.
Here’s the Rub
For whatever reason, Zenefits did not go through the front door of ADP to get system access. That’s actually an easy door to find: partners.adp.com. Here’s my guess as to why: ADP requires partners to embrace an API-driven data exchange model, and sign on for liability of data in transit and at rest. If that sounds expensive to you, you’re spot on! Also, it would slow down Zenefits’ explosive growth by putting the interface before the IPO.
Instead, Zenefits had employers set up a third-party account within their system. This is a common practice as smaller employers often have accountants, bookkeepers or outsourcers help in this fashion. What happened next is what I expect triggered ADP’s reaction to shut down Zenefits’ access. Instead of using humans to enter transactions into ADP’s RUN, Zenefits coded some software to automate the data exchange. ADP asserts that this is less secure and calls it “screen-scrapping.” They point to excessive server utilization due to this process and have shut down the access. Zenefits claims it’s secure. And that’s how we have a disagreement.
It Got a Little Mean After That
Zenefits took to social media to generate a petition and put pressure on ADP. Of course, they did it in the most hipster way: with a hashtag. #ADPPeeved
ADP responded with a public declaration of their intent. They cast aspersions on the security of Zenefits’ data handling. (Please check out ADP’s side of the story, if you’re interested.) There was a Saturday CEO-to-CEO phone call that didn’t let off the pressure, so this week, ADP filed a defamation suit against Zenefits.
Wednesday, Zenefits updated its blog with a “gotcha” revelation that ADP was releasing a competing product called Opum. However, their claim was based on one ADP sales representative’s email to a mutual client. Between the rep’s errors and Zenefits’ hearing what it wanted to hear, it’s pretty funny. Here’s how ADP responded: Optum Insight is a harmless benefits product owned by UnitedHealth Group that has no connection to this squabble.
If this level of knee-jerk reactions continues from Zenefits, we should have some great blog posting adventures to share together! ADP is playing everything safe (as far as I can tell), refusing to comment past the news release postings, but stay tuned true believers. We’ll update you on the news as it breaks. Our next blog post will focus on the impact of this squabble on employers and our HR Technology industry, and how employers can be prepared! Please post any comments using the comment link below.