Human resources startup Zenefits will pay $3.4 million to 743 current and former employees the company misclassified as exempt from overtime and minimum wage rules, the U.S. Department of Labor said Tuesday.

An investigation by the Labor Department’s Wage and Hour Division found Zenefits incorrectly paid account executives and sales representatives a flat salary. The employees worked in San Francisco and two now-shuttered offices in Arizona.

Zenefits also entered into an “enhanced compliance agreement” with the labor department, which includes monitoring to avoid future misclassification violations. A copy of the document wasn’t immediately disclosed.

“This case allows us to level the playing field for all of the employers who play by the rules,” said Ruben Rosalez, the Wage and Hour Division’s regional administrator in San Francisco. “We are dedicated to protecting both workers and employers.”

Jessica Hoffman, vice president for communications at Zenefits, said in an email the company, which creates software that manages businesses’ payrolls, insurance offerings and other benefits, is “happy to have this issue behind us.”

“We are pleased that after the Department of Labor's review regarding classification of two jobs at Zenefits, there were no penalties, fines or damages,” she said.

Allegations of missed payments and worker misclassification at Zenefits go back to 2015, when the company offered former employees payouts of approximately $5,000 if they gave up their rights to file claims over unpaid time-off and overtime, The Wall Street Journal reported.

In November, Zenefits agreed to pay up to $7 million to settle claims by California regulators that the company had sold insurance policies without obtaining the necessary licenses for their employees first. Two months ago, the state of New York fined Zenefits $1.2 million for allowing unlicensed insurance brokers to sell policies.

The company in February announced that it had laid off about 45 percent of its workforce in an effort to cut costs.

Instant Insights /

Zenefits pays $3.4M to misclassified employees

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