SACRAMENTO — Human resources startup Zenefits will pay up to $7million in penalties under terms of a settlement with Californiaregulators who had accused the San Francisco company of sellinginsurance policies without the proper licenses.

Related: Zenefits cuts valuation to $2 billion, makes dealwith investors

The fine — the largest levied against Zenefits in the nation,according to Insurance Commissioner Dave Jones — consists of $3million for licensing violations and $4 million for employees"subverting" education requirements plus $160,000 to cover thestate's investigation and exam costs. Half of the penalty will bewaived if the company can show continued compliance with applicablelaws in a 2018 review.

"Zenefits is an example of an internet-based startup whoseformer leaders created a culture where important consumerprotection laws were broken — a bad strategy that placed thecompany at risk and that other startups should not follow," Jonessaid in a prepared statement.

In 2013, Zenefits emerged as a rival to payroll giant ADP LLC,offering free personnel management software to businesses that areoften too small to have their own human resources director ordepartment. The company takes a cut of the purchase pricescustomers pay for products and services via the software.

Related: The Zenefits saga continues

The fast-growing company, once valued at $4.5 billion, attractedscrutiny from regulators across the country questioning whetherZenefits employees were properly licensed to sell the group andlife insurance policies offered to customers. A companyinvestigation, prompted by inquiries by the California Departmentof Insurance, found that of 8,118 policies Zenefits sold betweenJanuary 2014 and November 2015, at least 1,994 were handled byemployees lacking the required licenses.

The company also discovered that former Zenefits CEO ParkerConrad had created a software "macro" that allowed at least 99employees to complete pre-licensing insurance coursework online inless time than required by law, according to the settlement.

Shortly after Buzzfeed reported news ofthe fudged training records in February 2016,Conrad resigned and the state Department of Insurancepublicly confirmed its investigation.

Related: Parker Conrad reportedly sold $10 million in stockbefore resignation

Zenefits has settled similar improper-licensing claims withregulators in at least seven other states this year: Arizona,Delaware, Minnesota, New Jersey, South Carolina, Tennessee andWashington.

The Utah insurance commissioner in 2014 ordered the company tostop offering its free software in his state. That state'slawmakers and governor responded by enacting legislation that nowallows Zenefits to operate legally.

The company has also overhauled its executive team, namingJoshua Stein its chief compliance officer in February. Stein waspromoted to general counsel earlier this month.

In agreeing to conditionally suspend half the penalty, insurancedepartment officials noted that Zenefits reported some of itsmissteps to the state, retrained existing licensees and created anew automated system that allows only license-holders to solicitand sell insurance.

"We are pleased to reach a settlement with the CaliforniaDepartment of Insurance, which recognized our remediation effortsby suspending half the fine," Zenefits spokeswoman Jessica Hoffmansaid in an email. "New management has righted the ship atZenefits."

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