Zenefits, Gusto and the Revolution in Digital HR & Insurance

The digital revolution disrupts core corporate administrative functions.

The digital revolution has upended many industries over the last two decades as the powerful forces of cloud computing, machine learning and mobile usage accelerate the speed of disruption. This revolution is perhaps most visible in the consumer-facing landscape where new brands and platforms have emerged that have captured our attention, engagement and imagination. However, the revolution is perhaps equally as disruptive in the enterprise and business to business services sector. For decades, small and mid-sized businesses struggled under the daunting task of administering employee benefits, payroll and core HR services like COBRA notifications, employment verification requests and worker’s compensation enrollment. A whole industry sprung up – led by behemoths like USI, ADP, Paychex, Aon Hewitt, Marsh Mclennan and thousands and thousands of middle market and lower-middle market employee benefit agents and outsourced HCM managers.  In these arrangements, an employee benefits broker was paid by the insurance companies for every company (and resulting employee) they enrolled onto a health plan. Separately, HR software and services providers charged subscriptions and advisory fees for work done to related to payroll and core HR functions.

In 2012, the introduction of several regulations that mandated the digitization of several types of employee benefit documentation created a space for digitally inspired entrepreneurs to leverage the scale of cloud computing and the power of automation to fundamentally reshape the way HR and Benefits are administered. These companies, led by Zenefits and Gusto, had a radically different approach. They offered the core HR services for free – all digitally enabled and automated to be self serve – in return for the right to broker the employee benefit insurance on behalf of the companies which they serve. Effectively, by leveraging technology, these disruptors eliminated a major cost center for small and mid-sized businesses and created a digital experience that allowed for easier usage of HR functions.

In the years that would follow – many other digital HR platforms emerged which have collectively raised over $1.5bn of venture capital and transformed a landscape. In prior decades, an employee benefits broker could not have afforded the cost to provide HR services for free as this required thousands and thousands of HR back office administrators (in addition to the thousands and thousands of brokers) – however, this new digital age has enabled innovators to replace those thousands and thousands of HR back office administrators with automation, artificial intelligence and bots to drive more efficent and digitally-enabled corporate services.

The success stories of Uber and Facebook are indeed incredible and exhilarating – but the story of Zenefits and Gusto (and Stripe, Guideline and many others) is perhaps as interesting and exhilarating. The digital revolution has eliminated the need for many cost centers – thereby enabling new and insurgent business models that will change the way enterprises and small-business alike administer their businesses.


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