The human resources startup Zenefits will shutter its remote sales office in Arizona, restructure its operational division, and offer to pay employees to quit, in an overhaul that will include more than 100 layoffs, CEO David Sacks announced in an internal memo Tuesday morning that was obtained by BuzzFeed News.
The once high-flying Zenefits, seeking to rebound after an insurance broker licensing scandal and a period of breakneck growth, is hoping that these changes will help it operate more efficiently and improve its customer service.
Around 106 employees, roughly 9% of the company, will lose their jobs, Sacks said. Zenefits cut about 250 jobs in a previous round of layoffs announced in February, almost all from sales.
Zenefits, valued at $4.5 billion in a funding round last year, gives away free software to help small businesses manage their human resources, though it makes money as an insurance broker when it sells those businesses health insurance. Its founding CEO, Parker Conrad, was forced to step down in February when the company acknowledged it created software to let employees cheat on the insurance broker licensing process in California.
In a significant reversal, Zenefits plans to close its sales organization in Arizona, consolidating its sales reps in its San Francisco headquarters. The company opened a Phoenix-area office in 2014, filling it with a hard-charging sales team though neglecting to ensure those reps were properly licensed to sell health insurance to customers, BuzzFeed News reported last fall.
The Arizona office, in Tempe, currently includes around 60 employees in sales, some of whom will be given the option to relocate to San Francisco, according to a person with knowledge of the matter. In the future, the Arizona office will include only operational employees.
The operational division, which includes customer-facing roles such as implementation and account management, is being restructured to be “simpler and less siloed” and to “create a more holistic and fulfilling experience for employees,” Sacks said.
Specifically, the organizational changes are intended to let individual employees control more aspects of the relationship with a given customer, Abhijeet Dwivedi, the chief operating officer, said in a memo that was obtained by BuzzFeed News. “I remember one customer case that got bounced between teams because no one was clear about who ‘owns’ it,” Dwivedi said. “From now on, ownership and accountability must sit together.”
Dwivedi added that some operations employees “will be leaving us.” The person with knowledge of the matter said about 35 operations employees will be laid off. All the laid off employees will get three months’ severance pay and six months’ health coverage, Sacks said in his memo.
Beyond the latest cuts, Sacks gave employees a one-time offer to leave the company, in exchange for two months’ severance pay and four months’ health coverage. The risky move, intended to root out any malcontents, echoes a similar offer at the shoe retailer Zappos. Employees who joined before February 8 are eligible, Sacks said.
Sacks said employees had until noon on Thursday to decide whether to take his offer — which he named “The Offer.”
“The company isn’t making The Offer because we don’t want you,” Sacks said. “We do want you, but we want the best of you.”
Sacks said he planned to create “version 2” of Zenefits, which he named “Z2.” He said that if employees couldn’t get excited about the company’s plans, “then frankly we need you to make space for someone who will.”
“I have no idea how many people will take the Offer,” he said. “But I’m certain that I want to work with people who want to be here and who are unified in the purpose of what we’re trying to achieve.”
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