HR startup Zenefits and 50-year-old corporate payroll incumbent ADP are pulling no punches in a battle over the use of third-party data.
The dispute seems to have started around June 4th when ADP cut off Zenefits small business clients using the ADP RUN payroll system from sharing data with Zenefits.
ADP said in a statement that it did this because Zenefits was, “pulling sensitive information, including unmasked Social Security numbers and employee banking information, in a manner that did not comply with ADP’s standards for data security.”
Zenefits called out ADP for being unfair and said that this action came without warning to its clients. “They’ve gone and shut down accounts without telling customers,” Zenefits founder Parker Conrad told TechCrunch.
Zenefits offers HR services to small and medium businesses and works with several third-party partners to provide things like payroll and insurance. ADP is one of many companies Zenefits integrates with to provide payroll processing for these businesses.
However, ADP said it had “never integrated with Zenefits in any sense,” and that it had “never authorized [Zenefits] method of extracting data.”
ADP shut off Zenefits access to its servers on June 4th, due to what ADP said was a spike in user traffic and a security risk from Zenefits.
“They gained access to our systems by convincing clients to give them administrative access to our platform. Despite having many legitimate ways to integrate with ADP properly, Zenefits chose an unsecure and indirect approach,” an ADP company statement read.
Conrad came back swinging, saying the two were partners and had an understanding. While ADP claims there was no relationship between the two, Conrad claims Zenefits and ADP were on friendly terms and that ADP helped set things up for Zenefits customers using ADP for payroll.
He also dismissed the traffic spike as bogus, saying ADP started shutting off access to certain customers well before the June 4th date and that using social security numbers and bank information is a normal practice.
“You can’t be an insurance broker or process payroll without a social security number,” Parker said. “There’s nothing we have done that is abnormal here.”
Parker believes the real reason for the shut down has more to do with ADP recognizing the little upstart as a threat. Zenefits may rely on third-parties for payroll services, but it handles other aspects of the business internally, particularly HR. This is also something ADP offers.
“They absolutely compete with us on the insurance side but more importantly they compete with us on the HR side,” Parker said.
He believes the recent $500 million funding round and $4.5 billion valuation was an “oh shit” moment for the corporate incumbent.
About .25 percent of ADP’s customers are from Zenefits, according to the ADP statement. Zenefits said the shut off affects about 10 percent of its customer base. Some of those customers have started asking on Twitter and directly to the startup what the solution is now that they can’t integrate with their preferred payroll method. Others have voiced their frustration with ADP’s decision on a Change.org petition.
“We’ll be reaching out to each one personally, by phone,” Parker said of those affected. He told TechCrunch that Zenefits will recommend each customer switch to another payroll provider such as Zenpayroll, Intuit or Paychex.
We’ve reached out to ADP for comment on Parker’s claims and will be sure to update you if we hear back.