The most popular cloud HR software for small businesses in the US costs nothing to use. Zenefits doesn’t offer a limited version of the program in the hope that a business will eventually pay to access more features. The freemium model is so 2012. Now the whole program is available for free, in perpetuity.
Australian based HR app Employment Hero has recently followed suit with the intention of “democratising financial planning”.
The HR app includes sections on recruitment, onboarding new employees, HR documents, time and attendance, performance reviews, work health and safety and payroll. Businesses used to pay AU$8.80 (inc. GST) per employee per month.
CEO Ben Thompson has decided to give certain customers the app for free – on the condition they sign up to its Employee Benefits scheme, which mirrors the Zenefits model.
This is where Employment Hero morphs from software company to a bulk-buying services broker. Every employee on Employment Hero has their own portal for accessing payslips and HR related information. Employment Hero will use the point of contact to offer better deals on a range of common products such as superannuation, insurance, personal loans, car loans, home loans, utilities, car leasing and more.
This is a far broader array of services than Zenefits, which has focused heavily on solving the US’ arcane healthcare legislation for businesses.
Employment Hero receives a commission for every deal which is usually worth more than the $8.80 per month subscription paid by its business customers, Thompson says.
“Financial planners have historically dealt with people who have lots of money. If we can help the average employee we can be positioned at the heart of financial planning and wealth creation in a new way,” Thompson says.
“If you can save $50 a month and give them a place to save and invest that and build their wealth then you’re democratising financial planning and delivering it to the average employee.”
The app even gets into retail with an online store selling popular consumer products such as Apple Watches, GoPro cameras and Chanel perfume. Employment Hero gets access to wholesale rates on more than 10,000 products which it passes onto the employee.
Employment Hero promotes the online store as a way to reward your employees. These “perks” can be bought by the employee or by the employer as a gift for good performance.
When a company signs up for a trial account they can choose whether to pay AU$8.80 per employee or apply to receive the software for free. In the latter case, an Employment Hero agent calls the company to find out whether they are eligible (i.e. will generate enough commissions) to justify waiving the fee.
Employment Hero businesses can ask for an independent, licensed financial adviser to discuss the best option for employees who need new home loans, holidays, renovations, health insurance and life insurance.
Zenefits is growing quickly thanks to the “free software” business model. The company launched in 2014 – the same year as Employment Her0 – and last year hit 450 employees and raised another US$500 million at a valuation of US$4.5 billion.
Zenefits is backed by some of the best-known venture capitalists in Silicon Valley so it’s fair to say there’s a lot of confidence in the business model.
A new trend?
Will we soon use an array of business programs for free, with the cost of maintenance and development paid by third parties? In some ways it has already been with us for a long time in the advertising model. Gmail is probably the best known. It uses the data in your account (i.e. the words in your emails) to determine which ads from its ad network to show you.
Employment Hero and Zenefits have taken it a step further. These HR apps have access to a lot of detailed information – an employee’s salary, home address, superannuation plan, length of employment, role, and so on. The apps could serve up advertising like Gmail based on this data. However, there is more money to be made in making the sale.
This model could pop up in some other form in sales software (customer relationship databases, or CRMs), learning management systems, pricing software and communications apps. The type and value of the data will determine how effectively the app could be used to sell services of some sort.
Few other types of business software will be able to target the employee as effectively as HR apps. They are essentially becoming an insurance broker who earns commissions on health, dental, vision, life, disability and other insurance products.
The big question is whether this business model could come to accounting apps, and the answer to that is a resounding yes. Xero and Intuit already make money by giving financial institutions access to their customers’ files to sell them insurance and business loans – but only after the business has given their permission to do so.
It’s not difficult to imagine a day when a business will generate more in commissions for a bank loan through Xero than it will in annual subscription fees. This is the value of what Xero calls the Financial Web – a heavily interconnected network of financial services institutions, suppliers and small businesses, all tied into the Xero platform. (Intuit has discussed a similar vision.)
Right now there is no incentive for any of the accounting software companies to give away their software. Intuit and Sage are already selling heavily discounted software in a couple of markets to win market share.
Over time the pressure will build to reduce the price, at least. The Zenefits model shows that there is plenty of room to do so.
A word on the ethics of commissions-based sales structures. Any app that goes down this path should disclose the model to customers so they are aware of how they are being monetised. The “best deal” might not be the one with the cheapest price upfront.