February 9, 2017 / 7:36 PM / in 9 months

Zenefits cuts nearly half its workforce as startup's struggles continue

SAN FRANCISCO (Reuters) - Zenefits is laying off nearly half its staff as the software startup grapples with the fallout of insurance violations that resulted in hefty penalties from state regulators.

The company, which offers free human-resources software to manage benefits and payroll while making its money as an insurance broker, said on Thursday that 430 employees would lose their jobs. That leaves 4-year-old Zenefits with about 500 employees, roughly a third of what it had a year ago.

The layoffs are part of a widespread restructuring effort to reduce costs and had been planned by Zenefits’ board and previous chief executive officer, according to a company spokeswoman.

“This has been planned for some time and is the result of a lot of hard work over the past year to improve our products and service and make the operations of the company more efficient,” the spokeswoman said in a statement.

Employees were alerted to the layoffs in a memo sent by Jay Fulcher, who started as the San Francisco-based company’s CEO on Monday.

“In 2015, Zenefits grew too quickly, hiring employees to support revenue projections that far surpass where we are today,” Fulcher said in the memo, which Reuters saw. “Today’s action aligns our costs more closely to our business realities and gives us the runway we need to build the business properly for the long term.”

Fulcher said Zenefits would move its operations to its Tempe, Arizona, office while expanding product and engineering groups in Vancouver and Bangalore, India, to supplement its San Francisco team.

“This isn’t how any CEO would choose to spend his first week on the job,” Fulcher said in the memo, “but I strongly believe these difficult decisions are essential in setting Zenefits up for success.”

Zenefits also laid off more than 350 people last year.

The company’s software provides a range of human-resources functions, but Zenefits primarily makes money as a middleman between businesses and health insurance providers such as Anthem Blue Cross.

Founder Parker Conrad was replaced as CEO a year ago after revelations that employees had acted as insurance brokers without obtaining the required licenses, circumventing state laws.

Several states began investigating the company. In November, California fined Zenefits $7 million for licensing violations, one of the largest in the state insurance department’s history.

Fulcher, the company’s third CEO in a year, previously headed software companies Ooyala Inc and Agile Software Corp. His predecessor, David Sacks, announced his resignation in December.

BuzzFeed News reported the layoffs earlier on Thursday.

Reporting by Heather Somerville; Editing by Lisa Von Ahn

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