Zenefits slashes over 100 jobs and closes Arizona sales office

David Sacks
David Paul Morris | Bloomberg | Getty Images

Zenefits continued its housecleaning on Tuesday, announcing plans to eliminate more than 100 jobs and close its sales operation in Arizona, according to an internal memo from CEO David Sacks.

The 106 job cuts equate to about 9 percent of company head count, Sacks said, and all of Zenefits' sales and marketing efforts will be relocated from Arizona to San Francisco. The company is also offering to pay employees to quit.

"This is a painful decision," Sacks wrote in a memo obtained by CNBC. "But it is the right thing to do."

In the original memo, Zenefits said it was closing its office in Arizona, but later corrected the statement to say that it's phasing out its sales operation there. The office will remain open with about 350 employees, the company said.

Zenefits provides free software to help small businesses manage their own human resources, and the San Francisco-based start-up was valued at $4.5 billion in its latest round of funding. The company makes a profit as an insurance broker by selling health insurance to its business partners.

Sacks took over Zenefits in February, after co-founder and former CEO Parker Conrad was forced to resign. Conrad was found to have encouraged salespeople to skirt licensing laws, while also promoting a frat-like culture in the office. Zenefits was a poster-child for Silicon Valley's growth-at-all-costs ethos of recent years. Sacks fired 250 employees soon after becoming CEO.

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In a separate email to employees on Tuesday, Chief Operating Officer Abhijeet Dwivedi wrote: "We have too much complexity, and we have an opportunity to create a more customer-centric way of operating. The goal of the changes we are making today in operations is to amplify what we do well, and obliterate our deficiencies."

Dwivedi said the company had become "too siloed," and he then outlined his new vision to employees that focuses on a better customer experience and reduced internal complexity.

"Every now and then we need to step back and ask, 'Why is this done this way?' and change it if the answer doesn't make sense anymore," Dwivedi wrote.

In addition to the layoffs and the closing of the Arizona operation, Sacks said employees have a one-time offer to leave the company in exchange for two months of pay and four months of health coverage. Employees who joined Zenefits before Feb. 8 are eligible and "The Offer," as Sacks calls it, is open until noon on Thursday.

"The company isn't making 'The Offer' because we don't want you," Sacks said. "We do want you, but we want the best of you."

Sacks told employees that he's focused on creating a version two of Zenefits, which he named "Z2." In order to achieve "Z2," Sacks wrote, Zenefits needs to be "structured correctly" and "moving in the same direction."