Zenefits payroll is here—and it's free. But how free is it? Really, the only product or service Zenefits provides totally for free is a very light HR solution in order to hook companies in. The instant one of these companies tries to tack on additional products or extensions in some way, shape or form, the company is paying for them.

In the context of payroll, there is a base version promoted as free, but from the start, there is a $25 setup fee and a couple of other service and penalty fees for items like expedited payroll, tax amendments or insufficient fees.

From there, think about how payroll is calculated. Yes, if there are only salaried employees, payroll is typically a flat amount based on an annual salary. But what about hourly employees? How will the time employees work make it into payroll? Through Zenefits' time and attendance software, of course, at a whopping $6 per employee per month with a year contract (or $8 per employee per month on a month-to-month contract). Typically, you'll see around $3-$5 in the market for much more feature-rich solutions.

If we continue down the calculation path, there's gross pay (total pay the employee earns) and the net pay (what the employee takes home). The net pay is calculated based on the gross pay minus a myriad of deductions such as taxes, Social Security, benefits, etc. Now, if this payroll is “self-driving,” how can companies automatically deduct the contributions employees make to their benefits packages? Again, through Zenefits additional services, of course. They automatically handle deductions for any benefits provided by Zenefits, including health or voluntary insurance, FSA, HRA, HSA, 401(k), etc.

If companies decide to manage their existing insurance plans through Zenefits, they will have to sign a letter to the carrier(s) making Zenefits the broker of record, and thereby allowing them to collect the commission from the carrier. OK, technically that's free for the company. However, if the company doesn't renew an existing plan, they're limited to the options Zenefits makes available in its exchanges, which may be a higher rate than current plans or other plans on the mark not included in the exchange.

On top of that, there is the FSA, which costs companies $4-$5 per employee per month with a $150 annual fee. Or an HRA option, which costs companies $5 per employee per month with a $150 annual fee. And lastly on the account front, perhaps an HSA, which has no direct cost to the employer, but a $2.50 fee paid by the employee on a monthly basis.

On the 401(k) front, the price ranges from $105 to $410 per month for the employer plus a $495 one-time setup fee. Then, each participating employee is charged $4 per month plus five basis points annually (about $5.50 for every $10,000 an employee has in the account).

How free is free now? Free is being used as a mousetrap for the acquisition of new clients by Zenefits. Before long, companies will find that there are actually a lot of costs and fees that will pop up, and once they manage their processes in Zenefits' solutions, it becomes difficult for them to leave.

At the end of the day, one thing is clear: Companies are moving toward technology to help them manage the spectrum of HR, payroll and benefits. Gone are the days of manual processes. Brokers need to remain competitive with the companies that provide this type of technology. And to do that, brokers need to put technology in place, whether they build it or license it, and begin providing—or partner with a company that provides—payroll.

Instant Insights /

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