Zenefits to pay millions in unpaid overtime

A 4-year-old human resources software company based in San Francisco has agreed, following a U.S. Labor Department investigation, to pay $3.4 million in unpaid overtime to 743 current and former workers in California and Arizona.

Zenefits, founded in 2013, sells small and medium-sized businesses software for managing payroll and employee benefits. The company also sells group health and life insurance.

The Labor Department announced today that investigators in its Wage and Hour Division found Zenefits violated the federal Fair Labor Standards Act by misclassifying 743 account executives and sales representatives as exempt from minimum wage and overtime.

The company incorrectly paid the workers a flat salary for all hours worked, regardless of overtime or training time, the department said.

The $3.4 million will go to those 743 present and former employees. Zenefits also agreed to an enhanced compliance plan that will include monitoring by the department to prevent future wage and hour violations.

Ruben Rosalez, regional administrator in the Wage and Hour Division’s San Francisco office, said:

“We have put money back in workers’ wallets while also working with Zenefits to ensure future compliance with federal labor law. … This case allows us to level the playing field for all of the employers who play by the rules.”

Zenefits Vice President of Communications Jessica Hoffman said:

“We are pleased that after the DOL’s review regarding classification of two jobs at Zenefits, there were no penalties, fines or damages. … Zenefits fully cooperated with the DOL and we are happy to have this issue behind us.”

In a separate set of probes last year, the insurance departments of California and 16 other states reached settlements with Zenefits for insurance sales licensing violations.

California Insurance Commission Dave Jones said Zenefits allowed unlicensed agents to sell insurance and used a computer program to circumvent education requirements for employees seeking a license.

The program enabled workers to complete a licensing course in fewer study hours than required, by advancing the course timer even when the employee was not actively studying.

California levied a $7 million fine, the largest among the state settlements. But Jones said he would waive half the fine if Zenefits has no significant licensing violations by 2018.

In February, Zenefits laid off about 45 percent of its workers, or a total of 430 employees from its offices in San Francisco and Tempe, Ariz.

The company now has about 500 workers serving 10,000 small and medium-size businesses in all 50 states, according to its website.