The startup Zenefits provides software that helps companies handle benefits, payroll, and related taxes. It gives away its software for free and gets a commission from benefits providers that customers pick through Zenefits software.
And now, the Utah Insurance Department has threatened to shut Zenefits down for being free, and underpricing incumbent brokers.
This isn’t just a case of incumbent businesses using legislation to prevent more innovative companies from springing up, which is already an enormous problem in America. Government over-regulation is a big part of the problem, too.
After all, the reason why companies need services like Zenefits to begin with is the morass of regulations and taxes that they have to deal with. Companies have to file with the IRS whenever they hire employees, pay independent contractors, or when they reimburse their employees for their expenses. They have to pay state and local taxes on top of federal. And then there is the wonderful thicket of benefits: health insurance (medical, dental, vision), COBRA regulations (“I’m from the federal government, and here’s a COBRA”), 401(k)s, and so on. And yes, this is the very system that ObamaCare further entrenches.