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Barrett Business ServicesUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2015.oroTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________to _____________________Commission File No. 1-13998Insperity, Inc.(Exact name of registrant as specified in its charter)Delaware 76-0479645(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 19001 Crescent Springs Drive Kingwood, Texas 77339(Address of principal executive offices) (Zip Code)Registrant’s Telephone Number, Including Area Code: (281) 358-8986Securities Registered Pursuant to Section 12(b) of the Act:Common Stock, par value $0.01 per share New York Stock ExchangeRights to Purchase Series A Junior Participating Preferred Stock New York Stock Exchange (Title of class) (Name of Exchange on Which Registered)Securities Registered Pursuant to Section 12(g) of the Act: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ýIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ý No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer xAccelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company)Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýAs of February 5, 2016, 21,257,515 shares of the registrant’s common stock, par value $0.01 per share, were outstanding. As of the last business dayof the registrant’s most recently completed second quarter, the aggregate market value of the common stock held by non-affiliates (based upon the June 30,2015 closing price of the common stock as reported by the New York Stock Exchange) was approximately $966 million.DOCUMENTS INCORPORATED BY REFERENCEPart III information is incorporated by reference from the proxy statement for the 2016 annual meeting of stockholders, which the registrant intendsto file within 120 days of the end of the fiscal year. TABLE OF CONTENTSPart I Item 1.Business2 Item 1A.Risk Factors17 Item 1B.Unresolved Staff Comments23 Item 2.Properties23 Item 3.Legal Proceedings24 Item S-K 401(b).Executive Officers of the Registrant24 Part II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities26 Item 6.Selected Financial Data28 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations30 Item 7A.Quantitative and Qualitative Disclosures about Market Risk48 Item 8.Financial Statements and Supplementary Data49 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure49 Item 9A.Controls and Procedures49 Item 9B.Other Information49 Part III Item 10.Directors, Executive Officers and Corporate Governance50 Item 11.Executive Compensation50 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters50 Item 13.Certain Relationships and Related Transactions, and Director Independence50 Item 14.Principal Accounting Fees and Services50 Part IV Item 15.Exhibits, Financial Statement Schedules51 Table of ContentsPART IUnless otherwise indicated, “Insperity,” “we,” “our” and “us” are used in this annual report to refer to Insperity, Inc. and its consolidatedsubsidiaries. This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. You can identify such forward-looking statements by the words “expects,” “intends,” “plans,” “projects,” “believes,”“estimates,” “likely,” “possibly,” “probably,” “goal,” “opportunity,” “objective,” “target,” “assume,” “outlook,” “guidance,” “predicts,” “appears,”“indicator” and similar expressions. In the normal course of business, in an effort to help keep our stockholders and the public informed about our operationswe may, from time to time, issue such forward-looking statements, either orally or in writing. Generally, these statements relate to business plans or strategies,projected or anticipated benefits or other consequences of such plans or strategies, or projections involving anticipated revenues, earnings or other operatingresults. We base the forward-looking statements on our current expectations, estimates and projections. We caution you that these statements are notguarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Therefore, the actual results of the future events described in suchforward-looking statements in this annual report, or elsewhere, could differ materially from those stated in such forward-looking statements. Among thefactors that could cause actual results to differ materially are the risks and uncertainties discussed in this annual report, including, without limitation, factorsdiscussed in Item 1, “Business,” Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.”ITEM 1. BUSINESS.GeneralInsperity, Inc., (“Insperity”) provides an array of human resources (“HR”) and business solutions designed to help improve businessperformance. Since our formation in 1986, we have evolved from being solely a professional employer organization (“PEO”), an industry we pioneered, toour current position as a comprehensive business performance solutions provider. Our long-term strategy is to provide the best small and medium-sized businesses in the United States with our specialized human resources serviceoffering and to leverage our buying power and expertise to provide additional valuable services to clients. Our most comprehensive HR services offerings areprovided through our Workforce Optimization® and Workforce SynchronizationTM solutions (together, our “PEO HR Outsourcing solutions”), whichencompass a broad range of human resources functions, including payroll and employment administration, employee benefits, workers’ compensation,government compliance, performance management and training and development services, along with our cloud-based human capital management platform,the Employee Service CenterSM (“ESC”). Our Workforce Optimization solution is our most comprehensive HR outsourcing solution and is our primaryoffering. Our Workforce Synchronization solution, which is generally offered only to our mid-market client segment, is a lower cost offering with a longercommitment that includes the same compliance and administrative services as our Workforce Optimization solution and makes available, for an additionalfee, the strategic HR products and organizational development services that are included with our Workforce Optimization solution.In addition to our PEO HR Outsourcing solutions, we offer a number of other business performance solutions, including Human CapitalManagement, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening,Financial and Expense Management Services, Retirement Services and Insurance Services, many of which are offered via desktop applications and cloud-based delivery models. These other products and services are offered separately, as a bundle or along with our PEO HR Outsourcing solutions.Our PEO HR Outsourcing solutions are designed to improve the productivity and profitability of small and medium-sized businesses. Thesesolutions relieve business owners and key executives of many employer-related administrative and regulatory burdens, which enables them to focus on thecore competencies of their businesses. Our PEO HR Outsourcing solutions also promote employee performance through human resources managementtechniques designed to improve employee satisfaction. We provide our PEO HR Outsourcing solutions by entering into a Client Service Agreement (“CSA”),pursuant to which we and our client act as co-employers of the employees who work at the client’s worksite (“worksite employees”). Under the CSA, weassume responsibility for personnel administration and assist our clients in complying with employment-related governmental regulations, while the clientretains the employees’ services in its business and remains the employer for various other purposes. We charge a comprehensive service fee (“comprehensiveservice fee” or “gross billing”), which is invoiced concurrently with the processing of payroll for the worksite employees of the client. The comprehensive- 2 - Table of Contentsservice fee consists of the payroll of our worksite employees plus an additional amount reflected as a percentage of the payroll cost of the worksiteemployees.We accomplish the objectives of our PEO HR Outsourcing solutions through a “high-touch/high-tech” approach to service delivery. In advisoryareas, such as recruiting, employee performance management and employee training, we employ a high-touch approach designed to ensure that our clientsreceive the personal attention and expertise needed to create a customized human resources solution. For transactional processing, we employ a high-techapproach that utilizes the ESC, our cloud-based PEO HR Outsourcing solutions portal, to provide an online platform through which our clients, worksiteemployees and we manage employee information, payroll, benefits and retirement solutions, creating efficiencies for all parties. In addition, the ESC, ourcloud-based PEO HR Outsourcing solutions portal, is designed to provide automated, personalized PEO HR Outsourcing solutions to our clients and worksiteemployees.As of December 31, 2015, we had 60 offices, including 52 PEO HR Outsourcing solutions sales offices in 26 markets. In addition, we had fourregional service centers along with human resources and client service personnel located in a majority of our 26 sales markets, which serviced an average of153,144 worksite employees per month in the fourth quarter of 2015. Our service centers coordinate PEO HR Outsourcing solutions for clients on a regionalbasis and localized face-to-face human resources services.We were organized as a corporation in 1986. Our principal executive offices are located at 19001 Crescent Springs Drive, Kingwood, Texas77339. Our telephone number at that address is (281) 358-8986 and our website address is insperity.com. Our stock is traded on the New York StockExchange under the symbol “NSP.” We file or furnish periodic reports with the Securities and Exchange Commission (“SEC”), including our annual reportson Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and if applicable, amendments to those reports filed or furnished pursuant toSection 13(a) or 15(d) of the Securities Exchange Act of 1934. Through the investor relations section of our website, we make available electronic copies ofthe documents that we file or furnish to the SEC, the charters of the committees of our Board of Directors and other documents related to our corporategovernance, including our Code of Conduct. Access to these electronic filings is available free of charge as soon as reasonably practicable after filing orfurnishing them to the SEC. Printed copies of our committee charters or other governance documents and filings can be requested by writing to our corporatesecretary at the address on the cover of this report.PEO IndustryThe PEO industry began to evolve in the early 1980s largely in response to the burdens placed on small and medium-sized employers by anincreasingly complex legal and regulatory environment. While various service providers were available to assist these businesses with specific tasks, PEOsemerged as providers of a more comprehensive range of services relating to the employer/employee relationship. In a PEO arrangement, the PEO assumescertain aspects of the employer/employee relationship as defined in the contract between the PEO and its client. Because PEOs provide employer-relatedservices to a large number of employees, they can achieve economies of scale that allow them to perform employment-related functions more efficiently,provide a greater variety of employee benefits, and devote more attention to human resources management than a client can individually.We believe the key factors driving demand for PEO services include:•the focus on growth and productivity of the small and medium-sized business community in the United States, utilizing outsourcing toconcentrate on core competencies•the need to provide competitive health care and related benefits to attract and retain employees•the increasing costs associated with health and workers’ compensation insurance coverage, workplace safety programs, employee-relatedcomplaints and litigation•complex regulation of employment issues and the related costs of compliance, including the allocation of time and effort to such functions byowners and key executivesA significant factor in the development of the PEO industry has been increasing recognition and acceptance of PEOs and the co-employerrelationship by federal and state governmental authorities. Insperity and other industry leaders, in concert with the National Association of ProfessionalEmployer Organizations (“NAPEO”), have worked with the relevant governmental entities for the establishment of a regulatory framework that protectsclients and employees, discourages unscrupulous and financially unsound PEOs, and promotes further development of the industry. Currently, 41 states haveenacted legislation either recognizing PEOs or requiring licensing, registration, or certification, and several others are considering such regulation. Such lawsvary from state to state but generally provide for monitoring the fiscal responsibility of PEOs. State regulation assists in screening insufficiently capitalizedPEO operations and helps to resolve interpretive issues- 3 - Table of Contentsconcerning employer/employee status for specific purposes under applicable state law. We have actively supported such regulatory efforts and are currentlyrecognized, licensed, registered, certified or pursuing registration in all of these states. The cost of compliance with these regulations is not material to ourfinancial position or results of operations.In 2014, the Small Business Efficiency Act (“SBEA”) was enacted. The SBEA created a federal regulatory framework for the payment of wages toworksite employees and the reporting and remittance of payroll taxes on those wages paid by PEOs certified under the statute (“CPEOs”). We activelysupported the enactment of this law. The law is effective with respect to wages for services performed on or after January 1, 2016. The law instructed theSecretary of the Treasury to establish a certification program not later than July 1, 2015. However, during 2015, the Internal Revenue Service (“IRS”) statedthat it intends to delay the certification program until July 1, 2016. The SBEA clarifies that a CPEO, rather than the client, will be treated as the employer forpurposes of reporting and remitting payroll taxes. It also clarifies that a CPEO shall be treated as a successor employer for purposes of the wage base ofworksite employees on which federal payroll taxes are applied. In addition, the law clarifies that clients of a CPEO remain eligible for specified tax credits forwhich they would have been eligible absent the CPEO relationship. We intend to become a CPEO. Implementation of these provisions will require us tomodify our internal processes and systems. The cost of implementation and compliance with the new law is not expected to be material to our financialposition or results of operations.Service OfferingsPEO HR Outsourcing SolutionsWe serve small and medium-sized businesses by providing our PEO HR Outsourcing solutions, which encompass a broad range of services. Both ofour PEO HR Outsourcing solutions offer the following:•benefits and payroll administration•health and workers’ compensation insurance programs•personnel records management•employer liability management•assistance with government compliance•general HR advice•access to the ESC for employees, managers and client owners•401(k) retirement plan sponsored by usOur Workforce Optimization solution also provides additional services that our Workforce Synchronization clients can purchase for an additionalfee, including the following:•employee recruiting and support•employee performance management•training and development servicesOur PEO HR Outsourcing solutions are designed to attract and retain high-quality employees, while relieving client owners and key executives ofmany employer-related administrative and regulatory burdens. Among the employment-related laws and regulations that may affect a client are thefollowing:- 4 - Table of Contents•Internal Revenue Code (the “Code”)•The Family and Medical Leave Act (FMLA)•Federal Income Contribution Act (FICA)•Genetic Information Nondiscrimination Act of 2008•Federal Unemployment Tax Act (FUTA)•Drug-Free Workplace Act•Fair Labor Standards Act (FLSA)•Occupational Safety and Health Act (OSHA)•Employee Retirement Income Security Act, as amended (ERISA)•Worker Adjustment and Retraining Notification Act (WARN)•Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)•Uniformed Services Employment and Reemployment Rights Act(USERRA)•Immigration Reform and Control Act (IRCA)•State unemployment and employment security laws•Title VII (Civil Rights Act of 1964)•State workers’ compensation laws•Health Insurance Portability and Accountability Act (HIPAA)•Health Care and Education Reconciliation Act of 2010 (the“Reconciliation Act”)•Age Discrimination in Employment Act (ADEA)•Patient Protection and Affordable Care Act (PPACA)•Americans with Disabilities Act (ADA)•State and local law equivalents of the foregoingWhile these laws and regulations are complex, and in some instances overlapping, we assist our PEO HR Outsourcing solutions clients in complyingwith these laws and regulations by providing services in the following categories:Administrative Functions. Administrative functions encompass a wide variety of processing and recordkeeping tasks, mostly related to payrolladministration and regulatory compliance. Specific examples include: •payroll processing•payroll tax deposits•quarterly payroll tax reporting•employee file maintenance•unemployment claims processing•workers’ compensation claims reportingBenefit Plans Administration. We maintain several benefit plans including the following: •a group health plan•a health savings account program•a health care flexible spending account plan•an educational assistance program•an adoption assistance program•group term life insurance•group universal life insurance•accidental death and dismemberment insurance•short-term and long-term disability insurance•a 401(k) retirement plan•cafeteria plans for group health and health savings account contributionsThe group health plan includes medical, dental, vision and prescription drug coverage, as well as a work-life program. All benefit plans are providedto eligible employees based on the specific eligibility provisions of each plan. We are the policyholder responsible for the costs and premiums associatedwith any group insurance policies that provide benefits under these plans, and we act as plan sponsor and administrator of the plans. We negotiate the termsand costs of the plans, maintain the plans in accordance with applicable federal and state regulations and serve as liaison for the delivery of these benefits toworksite and corporate employees. COBRA coverage is extended to eligible terminated worksite and corporate employees and other eligible individuals, inaccordance with applicable law. We believe that the variety and comprehensive nature of our benefit plan offerings are generally not available to employeesin our small and medium-sized business target market and are usually offered only by larger companies that can spread program costs over a much largergroup of employees. As a result, we believe the availability of these benefit plans provides our clients with a competitive advantage that small and medium-sized businesses are typically unable to attain on their own.- 5 - Table of ContentsEmployee Service Center. The ESC is our cloud-based human capital management platform for our PEO HR Outsourcing solutions. The ESC isdesigned to provide role-based access to a wide range of human capital management functions, along with personalized content to the managers, owners andworksite employees of our PEO HR Outsourcing solutions clients, including:For managers and client owners:•WebPayroll for the submission, approval and reporting of payroll data•tools to manage the onboarding of new employees•employee administration functions such as viewing or changing information about employees•access to client-specific compliance-related information relevant to many HR areas, including the Affordable Care Act•a reporting and analytics tool to create, view, save and export reports and data about employees•ability to manage employee time and attendance information, absences and paid time off•access to Talent Management tools in the areas of Recruiting, Performance Management and Learning Management•access to a library of online human resources forms•access to a wide range of best-practices human resources management content•through Insperity Mobile, access to review and approve payroll transactions and employee time entry from most mobile devicesFor worksite employees:•access to view, edit and change a range of employee profile information•online check stubs, pay history reports and W-2s•employee-specific benefits content, including summary plan descriptions and enrollment status•access to 401(k) retirement plan information through the Retirement Service Center powered by Insperity•e-Learning web-based training•links to benefits providers and other key vendors•performance management tools including self-reviews and review history•ability to submit time and attendance information, absences and paid time off requests•through Insperity Mobile, access to view a wide range of employee-specific information such as pay stub, insurance coverage and ID card,401(k) balances and other commonly accessed dataPersonnel Management. In addition to the services that we deliver through the ESC, we provide a wide variety of personnel management servicesthat give our clients access to HR advisors and additional resources normally found only in the human resources departments of large companies. All PEO HROutsourcing solutions clients have access to our advice concerning personnel policies and practices, including recruiting, discipline and terminationprocedures. Other personnel management services we provide include:•drafting and reviewing personnel policies and employee handbooks•designing job descriptions•performing prospective employee screening and background investigations•designing performance appraisal processes and forms•professional development and issues-oriented training•employee counseling•substance abuse awareness training•outplacement services•compensation guidanceEmployer Liability Management. Under the CSA, we assume many of the employment-related responsibilities associated with the administrativefunctions, benefit plans administration and personnel management services we provide. For many of those employment-related responsibilities that are theresponsibility of the client or of both the client and us, we may assist our clients in managing and limiting exposure. This includes first-time and ongoingsafety-related risk management reviews, as well as the implementation of safety programs designed to reduce workplace accidents and consequently, workers’compensation claims. We also provide guidance to clients for avoiding discrimination, sexual harassment and civil rights violations, and we assist withtermination decisions when consulted to attempt to minimize liability on those grounds. While we do not provide legal services to our clients, we employ in-house and external counsel who specialize in several areas of- 6 - Table of Contentsemployment law, have broad experience in disputes concerning the employer/employee relationship and provide support to our human resources servicespecialists. As part of our comprehensive service, we also maintain employment practice liability insurance coverage for ourselves and our clients, monitorchanging government laws and regulations, and notify clients of the potential effect of such changes on employer liability.MarketPlaceSM provided by Insperity®. Through our many alliances with best-of-class providers, Insperity’s MarketPlace is an eCommerce portal thatbrings a wide range of products and services to our clients, worksite employees and their families. Through MarketPlace, which is provided through the ESC,our clients also have the opportunity to offer their products and services to other clients and worksite employees.MidMarket Solutions™. We believe the mid-market sector, which we generally define as those companies with employees ranging fromapproximately 150 to 2,000 worksite employees, has historically been under-served by the PEO industry. Currently, we have a dedicated sales managementand consulting staff who concentrate solely on the mid-market sector. In addition, we have service personnel who have been trained and specialize in themid-market sector. Our average number of worksite employees per month with our mid-market clients increased 11.6% over 2014, representingapproximately 23.3% of our total paid worksite employees during 2015.Other Product and Services OfferingsOur other product and services offerings are designed to expand the type of business performance improvement services we offer to our current andprospective clients and to increase our overall client base by providing products and services that can be offered separately from our PEO HR Outsourcingsolutions. We also strive to leverage our relationships with clients of our other other products and services to cross sell our PEO HR Outsourcing solutions aswell as additional products and services. We offer all of our products and services to both PEO HR Outsourcing solutions clients and non-PEO HROutsourcing solutions clients, with the exception of Human Capital Management and Payroll Services, which are offered separately to non-PEO HROutsourcing solutions clients because comparable solutions are already included within the PEO HR Outsourcing solutions.During 2015 and 2014, revenues from our other products and services offerings as a percentage of our total revenues were 1.6% and 1.5%,respectively. Also during 2015 and 2014, our gross profit from our other products and services offerings as a percentage of our total gross profit was 6.8% and6.5%, respectively.The following are the key components of our other products and services, which are offered separately or as a bundle:Human Capital Management. Insperity HCM™ is a comprehensive human capital management solution for human resources data and processes. Thiscloud-based solution is a unified human resources suite that includes payroll processing, payroll tax compliance, employee administration, benefitsmanagement and enrollment, reporting and analytics, and employee and manager self-service. The solution is offered as a stand-alone cloud-based solutionor in conjunction with our Payroll Services offering and/or our Time and Attendance products. We initially launched this product in late 2012.Payroll Services. Insperity® Payroll Services offers a robust cloud-based payroll solution that is designed to help alleviate administrative burdensassociated with payroll processing and government-related compliance and includes a premium level of support from our highly skilled service team. Ourpayroll solution is integrated with three additional offerings, including Insperity NetSaver™, an online 401(k) solution for small businesses; a pay-as-you-goworkers’ compensation program; and HR Essentials, an HR platform that assists companies with tracking employee data, important milestones and companyproperty.Time and Attendance. Our Time and Attendance products and services provide small to medium-sized businesses with software, hardware andservices to track, allocate, and analyze employee resources and provide inputs into clients’ payroll processing and accounting systems. The service isdelivered as a cloud-based solution or as an “on-premise” client-server solution. For customers utilizing the Time and Attendance solution in conjunctionwith our PEO HR Outsourcing solutions, we provide access through the ESC.Performance Management. Our Performance Management products and services provide human resources software offerings including a suite ofdesktop products: Insperity® Descriptions Now®, Insperity® Policies Now®, Insperity® Performance Now®, and Insperity® Ultimate Employer®; along withInsperity® PerformSmart® a performance management cloud-based offering. Insperity PerformSmart is available, for a fee, to both our Workforce Optimizationand Workforce Synchronization clients. For customers utilizing PerformSmart in conjunction with our PEO HR Outsourcing solutions, we- 7 - Table of Contentsprovide access through the ESC. We intend to continue to sell packaged software through online subscription arrangements and through various resellerarrangements.Organizational Planning. Organizational planning offers cloud-based and desktop software used by companies to facilitate the creation,management and communication of detailed organizational management charts.Recruiting Services. Our Recruiting Services offer direct hire placement on an as-needed basis and provides outsourced support for individualrequisitions or large-scale hiring projects. In addition, we provide consulting services to assist in the creation and maintenance of consistent hiring practicesand retention strategies. We also provide compensation services, behavior-based interview training and talent assessment. Employment Screening. Our Employment Screening services offer a customized approach to background-check reporting for companies. Servicesinclude criminal records checks; verification of employment history or education; driving record, civil record and credit history checks; and confirmation ofextraordinary credentials.Financial Solutions. Insperity® Financial Solutions offers a suite of financial management tools and solutions for small to medium-sized companiesthat provides business owners with financial intelligence. The core products and services include Insperity Reveal®, a web-based financial dashboard andtoolset, and an online bookkeeping and controller service offered through an alliance with a third party.Expense Management. Our Expense Management product delivers employee expense management solutions that automate employee expensereporting, enforce travel and expense policies, and provide management reporting and analysis. The service is delivered both as a cloud-based solution andas a desktop software product.Retirement Services. Our Retirement Services solutions deliver comprehensive 401(k) retirement plan recordkeeping and administrative services tosmall and medium-sized businesses, primarily in connection with a 401(k) retirement plan sponsored by us related to our PEO HR Outsourcing solutionsclients. Services include employee education and enrollment, participant communications, elective deferral withholding and transmission, matchingcontribution calculation, loan and distribution processing, regulatory filing preparation and nondiscrimination testing.Insurance Services. Our Insurance Services solutions offer assistance through our licensed insurance agency to small and medium-sized businessesin all 50 states to secure affordable, customizable business insurance packages and life, health and disability insurance policies. Insurance Services alsoassists individuals in obtaining insurance coverages.Client Service AgreementAll PEO HR Outsourcing solutions clients execute a CSA with us. The CSA generally provides for an ongoing relationship between Insperity andthe PEO HR Outsourcing solutions client. For most clients, the CSA generally is an annual contract subject to termination by Insperity or the client upon 30days’ written notice or upon shorter notice in the event of default. CSAs for our mid-market clients are generally two-year contracts, subject to earliertermination by clients upon payment of a termination fee or otherwise by the parties upon an event of default. The CSA establishes our comprehensiveservice fee, which is subject to periodic adjustments to account for changes in the composition of the client’s workforce, employee benefit election changesand statutory changes that affect our costs. Under the CSA, clients active in January of any year are obligated to pay the estimated payroll tax component ofthe comprehensive service fee in a manner that reflects the pattern of incurred payroll tax costs. This practice aligns clients’ payments to Insperity for payrolltaxes with Insperity’s obligations to make payments to tax authorities, which are higher in the earlier part of the year and decrease as limits on wages subjectto payroll tax are reached. New clients enrolling subsequent to January of any year are invoiced at a relatively constant rate throughout the remainingportion of the year, resulting in Insperity’s improving profitability over the course of the year for those clients because of the typical pattern of incurredpayroll tax costs.The CSA also establishes the division of responsibilities between Insperity and the client as co-employers. Pursuant to the CSA, we are responsiblefor personnel administration and for compliance with certain employment-related government regulations. In addition, we assume liability for payment ofsalaries and wages (as well as related payroll taxes) of our worksite employees and responsibility for providing specified employee benefits to suchpersons. These liabilities are not contingent on the prepayment by the client of the associated comprehensive service fee and, as a result of our employmentrelationship with each of our worksite employees, we are liable for payment of salary and wages to the worksite employees as reported by the client and areresponsible for providing specified employee benefits to such persons regardless of whether the client pays the associated comprehensive service fee. Theclient retains the employees’ services and remains liable for complying with certain government regulations that require control of the worksite or dailysupervisory responsibility or is otherwise beyond our- 8 - Table of Contentsability to assume. A third group of responsibilities and liabilities are assumed by both Insperity and the client where such concurrent responsibility isappropriate. The specific division of applicable responsibilities under our CSAs generally is as follows:Insperity•Payment of wages and salaries as reported by the client and related tax reporting and remittance (local, state and federal withholding, FICA,FUTA, state unemployment)•Workers’ compensation compliance, procurement, management and reporting•Compliance with the Code, COBRA, HIPAA and ERISA (for each employee benefit plan sponsored by Insperity), as well as monitoring changes inother governmental laws and regulations governing the employer/employee relationship and updating the client when necessary•Offering benefits under Insperity-sponsored employee benefit plans that comply with PPACA requirements•Employee benefits administration of plans sponsored solely by InsperityClient•Payment, through Insperity, of commissions, bonuses, vacations, paid time off, sick pay, paid leaves of absence and severance payments•Payment and related tax reporting and remittance of non-qualified deferred compensation and equity-based compensation•Ownership and protection of all client intellectual property rights•Compliance with OSHA regulations, EPA regulations, FLSA, FMLA, WARN, USERRA and state and local equivalents and compliance withgovernment contracting provisions•Compliance with federal, state and local pay or play health care mandates and all such other similar federal, state and local legislation•Compliance with the National Labor Relations Act (“NLRA”), including all organizing efforts and expenses related to a collective bargainingagreement and related benefits•Professional licensing requirements, fidelity bonding and professional liability insurance•Products produced and/or services provided•COBRA, HIPAA, PPACA, Code and ERISA compliance for client-sponsored benefit plansConcurrent•Implementation of policies and practices relating to the employee/employer relationship•Compliance with all federal, state and local employment laws, including, but not limited to Title VII of the Civil Rights Act of 1964, ADEA, TitleI of ADA, the Consumer Credit Protection Act and immigration laws and regulationsWe maintain employment practice liability insurance coverages (including coverages for our clients) to manage our exposure for various employee-related claims, and as a result, our incurred costs in excess of annual premiums with respect to this exposure have historically been insignificant to ouroperating results.Because we are a co-employer with the client for some purposes, it is possible that we could incur liability for violations of such laws, even if we arenot responsible for the conduct giving rise to such liability. Our CSA ordinarily addresses this issue by providing that the client will indemnify us forliability incurred to the extent the liability is attributable to conduct by the client. Notwithstanding this contractual right to indemnification, it is possiblethat we could be unable to collect on a claim for indemnification and may therefore be ultimately responsible for satisfying the liability in question.In most instances, clients are required to remit their comprehensive service fees no later than one day prior to the applicable payroll date by wiretransfer or automated clearinghouse transaction. Although we are ultimately liable, as the employer for payroll purposes, to pay employees for workpreviously performed, we retain the ability to terminate immediately the CSA and associated worksite employees or to require prepayment, letters of credit orother collateral upon deterioration in a client’s financial condition or upon non-payment by a client. These rights, the periodic nature of payroll, and theoverall quality of our client base have resulted in an excellent overall collections history.- 9 - Table of ContentsPEO HR Outsourcing Solutions ClientsInsperity’s PEO HR Outsourcing solutions provide value-added, full-service human resources solutions we believe are most suitable to a specificsegment of the small and medium-sized business community. We target successful businesses with approximately 10 to 2,000 employees that recognize theadvantage in the strategic use of high-performance human resources practices. We have set a long-term goal to serve approximately 10% of the overall smalland medium-sized business community in terms of worksite employees. We serve clients and worksite employees located throughout the United States. Byregion, our 2015 revenue change compared to 2014 and revenue distribution for the year ended December 31, 2015, was as follows: Revenue Change % of TotalRevenuesNortheast 10.0% 25.9%Southeast 16.1% 10.3%Central 17.9% 15.4%Southwest 2.8% 25.5%West 12.5% 22.9%All prospective PEO HR Outsourcing solutions clients are evaluated on the basis of a comprehensive analysis of employer-related risks entailingmany factors, including industry and operations, workplace safety and workers’ compensation, unemployment history, operating stability, group medicalinformation, human resources practices and other employer risks. As part of our client selection strategy, we strive to minimize offering our PEO HROutsourcing solutions to businesses falling within certain specified NAICS (North American Industry Classification System) codes for those industries thatwe believe present a higher employer risk such as employee injury, high turnover or litigation. Our PEO HR Outsourcing solutions client base is broadly distributed throughout a wide variety of industries including:Industry % of Client BaseComputer and information services 17%Management, administration and consulting services 17%Finance, insurance and real estate 14%Manufacturing 10%Wholesale trade 9%Engineering, accounting and legal services 8%Medical services 6%Retail trade 5%Not-for-profit and similar organizations 4%Construction 4%Other 6%This diverse client base lowers our exposure to downturns or volatility in any particular industry. However, our performance could be affected by adownturn in one of these industries or by general economic conditions within the small and medium-sized business community.We focus heavily on client retention. During 2015 and 2014, our retention rate was approximately 85% and 82%, respectively. Of our PEO HROutsourcing solutions clients that remain with us for more than one year, our retention record over the last five years is approximately 82%. For all PEO HROutsourcing solutions clients, the average annual retention rate over the last five years was approximately 81%. Client attrition is attributable to a variety offactors, including: (i) client non-renewal due to price or service factors; (ii) client business failure, sale, merger, or disposition; (iii) our termination of the CSAresulting from the client’s non-compliance or inability to make timely payments; and (iv) competition from other PEOs or business services firms.- 10 - Table of ContentsMarketing and SalesAs of December 31, 2015, we had 52 PEO HR Outsourcing solutions sales offices located in 26 markets. Our sales offices typically consist of six toeight Business Performance Advisors (“BPAs”), a district sales manager and an office administrator. To take advantage of economic efficiencies, multiplesales offices may share a physical location. Insperity’s markets and their respective year of entry are as follows: InitialMarket Sales Offices Entry DateHouston 5 1986San Antonio 1 1989Austin 1 1989Orlando 1 1989Dallas/Fort Worth 5 1993Atlanta 2 1994Phoenix 1 1995Chicago 3 1995Washington D.C. 2 1995Denver 2 1996Los Angeles 5 1997Charlotte 1 1997St. Louis 1 1998San Francisco 3 1998New York 4 1999Maryland 2 2000New Jersey 2 2000San Diego 1 2001Boston 2 2001Minneapolis 2 2002Raleigh 1 2006Kansas City 1 2007Columbus 1 2010Nashville 1 2011Philadelphia 1 2012Seattle 1 2015Our existing and prospective markets are identified using a systematic market evaluation and selection process. We continue to evaluate a broadrange of factors in the selection process, using a market selection model that weighs various criteria we believe are reliable predictors of successfulpenetration based on our experience. Among the factors we consider are:•market size, in terms of small and medium-sized businesses engaged in selected industries that meet our risk profile•market receptivity to PEO services, including the regulatory environment and relevant history with other PEO providers•existing relationships within a given market, such as vendor or client relationships•expansion cost issues, such as advertising and overhead costs•direct cost issues that bear on our effectiveness in controlling and managing the cost of our services, such as workers’ compensation and healthinsurance costs, unemployment risks and various legal and other factors•a comparison of the services we offer to alternatives available to small and medium-sized businesses in the relevant market, such as the cost to thetarget clients of procuring services directly or through other PEOs•long-term strategy issues, such as the general perception of markets and our estimate of the long-term revenue growth potential of the market- 11 - Table of ContentsWe develop a mix of national and local advertising media and a placement strategy tailored to each individual market. After selecting a market anddeveloping our marketing mix, but prior to entering the market, we engage in an organized media and public relations campaign to prepare the market for ourentry and to begin the process of generating sales leads. We market our services through various business promotions and a broad range of media outlets,including television, radio, newspapers, periodicals, direct mail and the Internet. We employ public relations firms for most of our markets as well asadvertising consultants to coordinate and implement our marketing campaigns. We have developed an inventory of television, radio and newsprintadvertisements, which are utilized in this effort.We routinely seek to develop new marketing approaches and campaigns to capitalize on changes in the competitive landscape for our humanresources services and to more successfully reach our target market. We have an agreement with the Professional Golf Association Champions Tour to be thetitle sponsor of the annual Insperity Invitational™ presented by UnitedHealthcare® professional golf tournament held annually in The Woodlands, Texas (asuburb of Houston). In addition, we have arrangements with Arnold Palmer and Jim Nantz, a sports commentator, to serve as our national spokespersons. Ourmarketing campaigns use this event and the relationships with Mr. Palmer and Mr. Nantz as a focal point of our brand marketing efforts.Our organic growth model generates sales leads from five primary sources: direct sales efforts, advertising, referrals, marketing alliances and theInternet. These leads result in initial presentations to prospective PEO HR Outsourcing solutions clients, and ultimately, prospective PEO HR Outsourcingsolutions client census reports. A prospective PEO HR Outsourcing solutions client’s census report reflects information gathered by the BPA about theprospect’s employees, including base compensation, level of benefits coverage options, job classification, state of employment and workers’ compensationclassification. This information is used to generate a bid from our customized bid system, which applies Insperity’s proprietary pricing model to the censusdata. Concurrent with this process, we evaluate prospective clients through the previously described comprehensive employer risk analysis. Uponcompletion of a favorable employer risk evaluation, the BPA presents the bid and attempts to complete the sale and enroll the prospect. Our selling processtypically takes approximately 90 days for clients with less than 150 employees, and 180 or longer days for mid-market clients. The process can be extendedduring economic downturns.We have implemented cross-selling channels between our PEO HR Outsourcing solutions business and our other products and services in order toexecute on our cross-selling strategy. This strategy focuses on using our PEO HR Outsourcing solutions to increase market penetration in each of our otherproducts and services and using our other product and service offerings as a source of leads for our PEO HR Outsourcing solutions. The cross-sellingchannels attempt to reduce barriers to selling our products and services and allow us to tailor service packages to better meet the specific needs of thebusiness.CompetitionWe provide a value-added, full-service human resources solution through our PEO HR Outsourcing solutions, which we believe is most suitable to aspecific segment of the small and medium-sized business community. This full-service approach is exemplified by our commitment to provide a high levelof service and technology personnel, which has produced a ratio of corporate staff to worksite employees (the “staff support ratio”) that is higher than averagefor the PEO industry. Based on an analysis of the 2012 through 2014 annual NAPEO surveys of the PEO industry, we have successfully leveraged our full-service approach into significantly higher returns for Insperity on a per worksite employee per month basis. During the three-year period from 2012 through2014, our staff support ratio averaged 57% higher than the PEO industry average. During the same three-year period, our gross profit per worksite employeeand operating income per worksite employee exceeded industry averages by 151% and 120%, respectively.Competition in the PEO industry revolves primarily around quality of services, scope of services, choice and quality of benefits packages, reputationand price. We believe reputation, national presence, regulatory expertise, financial resources, risk management and information technology capabilitiesdistinguish leading PEOs from the rest of the industry. We also believe we compete favorably in these areas; however, other PEOs may offer their PEOservices at more competitive prices than we may be able to offer.Due to the differing geographic regions and market segments in which most PEOs operate, and the relatively low level of market penetration by theindustry, we consider our primary competition for our PEO HR Outsourcing solutions to be the traditional in-house provision of human resourcesservices. The PEO industry is highly fragmented, and we believe Insperity is one of the largest PEO service providers in the United States. Our largestnational competitors include the PEO divisions of large business services companies such as Automatic Data Processing, Inc. and Paychex, Inc., and othernational PEOs, such as TriNet Group, Inc. In addition, we compete to some extent with: (i) fee-for-service providers such as payroll processors and- 12 - Table of Contentshuman resources consultants; (ii) human resources technology solution companies; and (iii) large regional PEOs in certain areas of the country. As Insperityand other large PEOs expand nationally, we expect that competition may intensify.Vendor RelationshipsInsperity provides benefits to its worksite employees under arrangements with a variety of vendors. We consider our contracts with UnitedHealthcare(“United”) and member insurance companies of ACE American Insurance Company (“ACE”) to be the most significant elements of our employee benefitspackage. These contracts would be the most difficult to replace.We provide group health insurance coverage to our worksite employees through a national network of carriers including United, UnitedHealthcareof California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii and Tufts, all of which provide fully insured policies orservice contracts. During 2015, we terminated our relationship with Unity Health Plan. The health insurance contract with United provides approximately85% of our health insurance coverage and expires on December 31, 2019, subject to cancellation by either party upon 180 days’ notice. For a discussion ofour contract with United, which is accounted for using a partially self-funded insurance accounting model, please read Item 7. “Management’s Discussionand Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Benefits Costs.”Our workers’ compensation coverage (the “ACE Program”) has been provided through an arrangement with ACE since 2007. The ACE Program is afully insured policy whereby ACE has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Foradditional discussion of the ACE Program, which includes terms shifting some of the economic burden to us, please read Item 7. “Management’s Discussionand Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Workers’ Compensation Costs.”Information TechnologyInsperity utilizes a variety of information technology capabilities to provide its human resources services and business performance improvementservices to its clients and worksite employees and for its own administrative and management information requirements.Insperity’s PEO HR Outsourcing solutions information system is a proprietary system that utilizes internally developed and licensed softwareapplications. This system manages transactions and information specific to our PEO HR Outsourcing solutions and to Insperity, including:•worksite employee enrollment•human resources management•benefits and defined contribution plan administration•payroll processing•client invoicing and collection•management information and reporting•sales bid calculationsCentral to this system are transaction processing capabilities that allow us to process a high volume of payroll, invoice and bid transactions thatmeet the specific needs of our clients and prospects. We administer our employee benefits through a proprietary application designed to process employeeeligibility and enrollments, manage carrier relationships and maintain a variety of plan offerings. Our retirement services operations are conducted utilizingan industry-leading retirement plan administration application in a third-party hosted environment. Aspects of all of these components are delivered to ourPEO HR Outsourcing solutions clients and worksite employees through the ESC. We utilize commercially available software for other business functionssuch as finance and accounting, sales force activity management and customer relationship management.Our products and services utilize a variety of owned and licensed software applications to deliver business performance improvement services to ourclients, including to some of our PEO HR Outsourcing solutions clients.Insperity has hosting facilities located at two separate leased facilities, located in Bryan, Texas and The Woodlands, Texas. The hosting facilitieshouse the majority of our business applications, telecommunications equipment and network equipment. Each hosting facility houses a mix of primaryproduction applications, disaster recovery, replication and back-up applications, and pre-production environments with the Bryan facility acting as ourprimary data center for all mission-critical applications. Both hosting facilities are designed to run all of our critical business applications and have sufficientcapacity to- 13 - Table of Contentshandle all of our operations on a stand-alone basis, if required. Periodically, we perform testing to ensure our disaster recovery capabilities remain effectiveand available. We leverage the hosting facilities and related infrastructure that we originally designed for our PEO HR Outsourcing solutions system tosupport the systems required for our other products and services.Our network infrastructure is designed to ensure appropriate connectivity exists among all of our facilities and employees and provides appropriateInternet connectivity to conduct business with our clients and worksite employees. The network infrastructure is provided through industry standard corenetwork hardware and via high-speed network services provided by multiple vendors.We have incorporated a variety of measures to maintain the security and privacy of the information managed through our systems andapplications. These measures include industry standard technologies designed to protect, monitor and assess our data centers and network environment; bestpractice security policies and procedures; and a variety of measures designed to control access to sensitive and private information.Industry RegulationsThe operations for our PEO HR Outsourcing solutions are affected by numerous federal and state laws relating to tax, insurance and employmentmatters. By entering into a co-employer relationship with our worksite employees, we assume certain obligations and responsibilities of an employer underthese federal and state laws. Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships,such as PEOs, temporary employment and outsourcing arrangements, many of these laws do not specifically address the obligations and responsibilities ofnontraditional employers. Currently, 41 states have passed laws that recognize PEOs or require licensing, registration or certification requirements for PEOs,and several others are considering such regulation. The SBEA, which was enacted in 2014, will establish a certification program and create a federalregulatory framework for the payment of wages to worksite employees and for the reporting and remittance of payroll taxes on those wages by CPEOs. Thislaw was effective January 1, 2016, however, the IRS has delayed the certification application process to July 1, 2016.As an employer, we are subject to federal statutes and regulations governing the employer/employee relationship. Subject to the issues discussedbelow, we believe that our operations are in compliance, in all material respects, with all applicable federal statutes and regulations.Employee Benefit PlansWe offer various employee benefits plans to eligible employees, including our worksite employees. These plans include:•a 401(k) retirement plan•cafeteria plans under Code Section 125•a group health plan, which includes medical, dental, vision and prescription drug coverage, as well as a work-life program•a health savings account program•a welfare benefits plan, which includes life, disability and accidental death and dismemberment coverage•a health care flexible spending account plan•an educational assistance program•an adoption assistance program•a commuter benefits programGenerally, employee benefit plans are subject to provisions of the Code, ERISA and COBRA. The number and complex nature of federal and stateregulations relating to employer-sponsored health plans has continued to increase over time. We believe that additional regulatory burdens placed onemployers can increase the demand for our services because small and medium-sized businesses are especially challenged in their efforts to comply withgovernmental regulations due to limited resources and a lack of expertise. As a co-employer in the PEO relationship, we assume or share many of theemployer-related responsibilities and assist our clients in complying with many employment-related governmental laws and regulations. Historically, webelieve that we have successfully marketed the compliance component of our service offering and that our compliance-related services have increased thevalue proposition of our service offering. Employer Status. In order to qualify for favorable tax treatment under the Code, employee benefit plans must be established and maintained by anemployer for the exclusive benefit of its employees. Generally, an entity is an “employer” of individuals for federal employment tax purposes if anemployment relationship exists between the entity and the individuals- 14 - Table of Contentsunder the common law test of employment. In addition, the officers of a corporation are deemed to be employees of that corporation for federal employmenttax purposes. The common law test of employment, as applied by the IRS, involves an examination of approximately 20 factors to ascertain whether anemployment relationship exists between a worker and a purported employer. Generally, the test is applied to determine whether an individual is anindependent contractor or an employee for federal employment tax purposes and not to determine whether each of two or more companies is a “co-employer.” Substantial weight is typically given to the question of whether the purported employer has the right to direct and control the details of anindividual’s work. Among the factors that appear to have been considered more important by the IRS are:•the employer’s degree of behavioral control (the extent of instructions, training and the nature of the work)•the financial control or the economic aspects of the relationship•the intended relationship of the parties (whether employee benefits are provided, whether any contracts exist, whether services are ongoing or for aproject, whether there are any penalties for discharge/termination, and the frequency of the business activity)ERISA Requirements. Employee pension and welfare benefit plans are also governed by ERISA. ERISA defines “employer” as “any person actingdirectly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.” ERISA defines the term “employee” as “anyindividual employed by an employer.” The United States Supreme Court has held that the common law test of employment must be applied to determinewhether an individual is an employee or an independent contractor under ERISA. A definitive judicial interpretation of “employer” in the context of a PEOor employee leasing arrangement has not been established.If Insperity were found not to be an employer with respect to worksite employees for ERISA purposes, its plans would not comply withERISA. Further, as a result of such finding, Insperity and its plans would not enjoy, with respect to worksite employees, the preemption of state laws providedby ERISA and could be subject to varying state laws and regulations, as well as to claims based upon state common laws. Even if such a finding were made,we believe we would not be materially adversely affected because we would endeavor to make available similar benefits at comparable costs.In addition to ERISA and the Code provisions discussed herein, issues related to the relationship between Insperity and its worksite employees mayalso arise under other federal laws, including other federal income tax laws.Patient Protection and Affordable Care Act. The PPACA was signed into law on March 23, 2010. The PPACA was subsequently amended onMarch 30, 2010, by the Reconciliation Act. The PPACA and the Reconciliation Act (collectively the “Act”) entail sweeping health care reforms withoriginal staggered effective dates from 2010 through 2018, some of which were subsequently extended until as late as 2020. While the Act did not have amaterial adverse impact on our results of operations in 2015, the future impact of the following provisions or changes to the provisions is unknown at thistime.Beginning in 2014, the Act provided for the establishment of state insurance exchanges (“Exchanges”) to make health insurance available toindividuals and small employers (initially defined as 100 employees or less). States had the option of building a state-based exchange, entering into a state-federal partnership exchange or accepting the federally-facilitated exchange. States that accept the federally-facilitated exchange can transition to a state-based exchange at a later date. The Exchanges provide consumers with educational services and information on available options and offer a variety ofhealth plans. Small business tax credits and subsidies are available to qualifying businesses and individuals who purchase health insurance through theExchanges. At this time, the Exchanges, tax credits and subsidies have not had a material impact on our operations, but the impact of future changes to theseprovisions is unknown.Additionally in 2014, the Act ushered in a number of insurance market reforms for the small group and individual markets. The reforms requiredguaranteed issue and renewability of coverage, eliminated certain underwriting practices by issuers, consolidated the number of risk pools in each state andrestricted the permissible factors and variable ranges of those factors that can be considered in determining health insurance premiums. Transition reliefpermitted states to delay the effective date of some of these reforms. At this time, we are unable to determine whether the insurance market reforms will havean adverse impact on our business operations, our ability to attract and retain clients, or our ability to increase service fees to offset any increased costs.The health insurance industry became subject to additional excise taxes in 2014, and reinsurance taxes were imposed on insurers and third-partyadministrators for the purpose of helping to offset the cost for insurance covering high-risk individuals. As the policyholder, all or a portion of theseincreased costs were passed on to us by our carriers. At this time, these taxes have not had a material impact on our operations, but the impact of futurechanges to these provisions is unknown.- 15 - Table of ContentsEffective January 1, 2015, new “pay or play” requirements applied to large employers with at least 50 full-time and full-time equivalent employeesin the prior calendar year (“Applicable Large Employers” or “ALEs”). ALEs who fail to offer “minimum essential coverage” satisfying minimum value andaffordability requirements may be subject to a penalty if a full-time employee obtains coverage from an Exchange and receives a subsidy or tax credit forsuch coverage. However, for 2015 only, certain ALEs with less than 100 full-time and full-time equivalent employees in 2014 will not be subject to pay orplay penalties, provided certain transition relief requirements are satisfied. While clients are responsible for employer pay or play health care mandates underthe CSA, the Insperity Group Health Plan qualifies as minimum essential coverage and is designed to satisfy the minimum value and affordabilityrequirements. Clients are not required to use the affordability safe harbor utilized by us.Information contained in the Congressional Record, which specifically references PEOs, indicates that any pay or play penalties should applyseparately to clients of a PEO and not at the PEO level. However, the Act and subsequently issued IRS guidance do not expressly address the issue of whetherthe pay or play penalties apply only at the client level or whether the penalties can be applied at the PEO level. At this time, we are unable to determine if payor play penalties may be assessed against a PEO for coverage provided to worksite employees under a PEO sponsored plan.In December 2015, the effective date of the rules imposing excise taxes on employers and insurers who offer excessive health benefits under so-called “Cadillac plans” was delayed until 2020. We anticipate taking appropriate steps to avoid, to the extent necessary and possible, benefits under ourgroup health plan from triggering such excise taxes, which our carrier may pass on to us in the form of increased premiums. At this time, we are unable todetermine the effect that the excise taxes will have on our ability to match pricing with any increased costs.401(k) Retirement Plans. Our 401(k) Retirement Plans are operated pursuant to guidance provided by the IRS under Revenue Procedure 2002-21and Revenue Procedure 2003-86, each of which provides guidance for the operation of defined contribution plans maintained by PEOs that benefit worksiteemployees. This guidance provides qualification standards for PEO plans which, if met, negate the inquiry of common law employer status for purposes ofthe exclusive benefit rule. All of Insperity’s 401(k) Retirement Plans have received determination letters from the IRS confirming the qualified status of theplans.Employment TaxesAs a co-employer, Insperity assumes responsibility and liability for the payment of federal and state employment taxes with respect to wages andsalaries paid to our worksite employees. There are essentially three types of federal employment tax obligations:•withholding of income tax requirements governed by Code Section 3401, et seq.•obligations under FICA, governed by Code Section 3101, et seq.•obligations under FUTA, governed by Code Section 3301, et seq.Under these Code sections, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portionof these taxes.Code Section 3401, which applies to federal income tax withholding requirements, contains an exception to the general common law test applied todetermine whether an entity is an “employer” for purposes of federal income tax withholding. Code Section 3401(d)(1) states that if the person for whomservices are rendered does not have control of the payment of wages, the “employer” for this purpose is the person having control of the payment ofwages. The Treasury regulations issued under Code Section 3401(d)(1) state that a third party can be deemed to be the employer of workers under thissection for income tax withholding purposes where the person for whom services are rendered does not have legal control of the payment of wages. Whileseveral courts have examined Code Section 3401(d)(1), its ultimate scope has not been delineated. Moreover, the IRS has to date relied extensively on thecommon law test of employment in determining liability for failure to comply with federal income tax withholding requirements.Accordingly, while we believe that we can assume the withholding obligations for worksite employees, in the event we fail to meet theseobligations, the client may be held ultimately liable for those obligations. While this interpretive issue has not to our knowledge discouraged clients fromenrolling with Insperity, there can be no assurance that a definitive adverse resolution of this issue would not do so in the future. These interpretiveuncertainties may also impact our ability to report employment taxes on our own account rather than the accounts of our clients.- 16 - Table of ContentsFor worksite employee wages for services performed on or after January 1, 2016, and subject to the adoption of applicable regulations, theprovisions of the SBEA clarify that a CPEO shall be treated as the employer under Subtitle C – Employment Taxes of the Code, and shall be responsible forreporting employment taxes on its own account rather than the accounts of CPEO clients. The IRS has stated that it intends to begin accepting applicationsfor certification under the SBEA on July 1, 2016. We intend to seek qualification as a CPEO.Unemployment TaxesWe record our state unemployment (“SUI”) tax expense based on taxable wages and tax rates assigned by each state. State unemployment tax ratesvary by state and are determined, in part, based on Insperity’s prior years’ compensation experience in each state. Certain rates are determined, in part, byeach client’s own compensation experience. In addition, states have the ability under law to increase unemployment tax rates, including retroactively, tocover deficiencies in the unemployment tax funds. Overall, state unemployment tax rates increased substantially from 2010 to 2012 due to U.S. economicconditions, but declined from 2013 to 2015 and are anticipated to further decline in 2016. Rate notices are typically provided by the states during, or priorto, the first quarter of each year; however, some notices are received later. Until we receive the final tax rate notices, we estimate our expected SUI rate inthose particular states.Employers in certain states are experiencing higher FUTA tax rates as a result of certain states not repaying their unemployment loans from thefederal government in a timely manner. We are obligated to pay the federal government at a higher rate in these situations. As such, we estimate theadditional tax owed in states that have had a history of not repaying their federal loans in a timely manner.State RegulationWhile some states do not explicitly regulate PEOs, 41 states have adopted provisions for licensing, registration, certification or recognition of PEOs,and several others are considering such regulation. Such laws vary from state to state but generally provide for monitoring the fiscal responsibility of PEOs,and in some cases codify and clarify the co-employment relationship for unemployment, workers’ compensation and other purposes under state law. Webelieve that we are in compliance with the material requirements in all 41 states. Regardless of whether a state has licensing, registration or certificationrequirements for PEOs, we must comply with a number of other state and local regulations that could impact our operations.Corporate Office EmployeesWe had approximately 2,400 corporate employees as of December 31, 2015. We believe our relations with our corporate employees are good. Noneof our corporate employees are covered by a collective bargaining agreement.Intellectual PropertyInsperity currently has registered trademarks, copyrights and other intellectual property. We believe that our trademarks as a whole are ofconsiderable importance to our business.ITEM 1A. RISK FACTORS.The statements in this section describe the known material risks to our business and should be considered carefully.Adverse Economic Conditions Could Negatively Affect Our Industry, Business and Results of OperationsThe small and medium-sized business market is sensitive to changes in economic activity levels as well as the credit markets. As a result, the demandfor the outsourced HR services we provide clients could be adversely impacted by weak economic conditions or difficulty obtaining credit. Current andprospective clients may respond to such conditions by reducing employment levels, compensation levels, employee benefit levels and outsourced HRservices. In addition, during periods of weak economic conditions, current clients may have difficulty meeting their financial obligations to us and mayselect alternative HR services at more competitive rates than we offer. Such developments could adversely impact our financial condition, results ofoperations and future growth rates.- 17 - Table of ContentsWe Assume Liability for Worksite Employee Payroll, Payroll Taxes and Benefits Costs and Are Responsible for Their Payment Regardless of theAmount Billed to or Paid by Our ClientsUnder the CSA, we become a co-employer of worksite employees and assume the obligations to pay the salaries, wages and related benefits costs andpayroll taxes of such worksite employees. We assume such obligations as a principal, not as an agent of the client. Our obligations include responsibilityfor:•payment of the salaries and wages for work performed by worksite employees, regardless of whether the client timely pays us the associatedservice fee•withholding and payment of federal and state payroll taxes with respect to wages and salaries reported by Insperity•providing benefits to worksite employees even if our costs to provide such benefits exceed the fees the client pays usIf a client does not pay us, or if the costs of benefits we provide to worksite employees exceed the fees a client pays us, our ultimate liability forworksite employee payroll and benefits costs could have a material adverse effect on our financial condition or results of operations. Increases in Health Insurance Costs or Inability to Secure Replacement Contracts on Competitive Terms Could Have a Material Adverse Effecton Our Financial Condition or Results of OperationsMaintaining health insurance plans that cover worksite employees is a significant part of our business. Our primary health insurance contractexpires on December 31, 2019, subject to cancellation by either party upon 180 days’ notice. In the event we are unable to secure replacement contracts oncompetitive terms, significant disruption to our business could occur.Health insurance costs are in part determined by our claims experience and comprise a significant portion of our direct costs. If we experience anincrease in the number or severity of claims, our health insurance costs could increase. Claim activity levels are impacted by a number of factors, including,but not limited to, macro-economic changes, proposed and enacted regulatory changes and medical outbreaks. Contractual arrangements with our clientslimit our ability to incorporate such increases into service fees, which could result in a delay before such increases could be reflected in service fees. As aresult, such increases could have a material adverse effect on our financial condition or results of operations. For additional information related to our healthinsurance costs, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical AccountingPolicies and Estimates – Benefits Costs.”Health Care Reform Could Affect Our Health Insurance Plan and Could Lead to a Significant Disruption in Our BusinessThe PPACA was signed into law on March 23, 2010. The PPACA was subsequently amended on March 30, 2010 by the Reconciliation Act. TheAct entails sweeping health care reforms with original staggered effective dates from 2010 through 2018, some of which were subsequently extended out asfar as 2020. Some provisions in the Act still require the issuance of additional guidance from HHS and the states.Beginning in 2014, a number of key provisions of the Act took effect, including the Exchanges, insurance market reforms and the imposition ofexcise taxes on the health insurance industry and reinsurance taxes on insurers and third-party administrators. Additionally, the pay or play penalties onApplicable Large Employers took effect in 2015, however there was a one-year delay until 2016 for ALEs with less than 100 full-time and full-timeequivalent employees in 2014, provided that certain transition relief requirements are satisfied. Collectively, these items have the potential to significantlychange the insurance marketplace for small and medium sized businesses and how employers provide insurance to employees. In addition, as a co-employerin the PEO relationship, we assume or share many of the employer-related responsibilities and assist our clients in complying with many employment-relatedgovernmental regulations. Generally, the Act and subsequently issued guidance by IRS and HHS have not addressed or in some instances are unclear as totheir application in the PEO relationship or whether such provisions should be applied at the PEO or client level.We are currently unable to determine the impact of the Act on our benefit plans, business model and future results of operations. In future periods,the changes may result in increased costs to us and could affect our ability to attract and retain clients. Additionally, contractual arrangements andcompetitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs. For additionalinformation related to the Act, please read Item 1. “Business – Industry Regulations – Patient Protection and Affordable Care Act.”- 18 - Table of ContentsIncreases in Workers’ Compensation Costs or Inability to Secure Replacement Coverage on Competitive Terms Could Lead to a SignificantDisruption to Our BusinessOur workers’ compensation coverage has been provided through an arrangement with ACE since 2007. Under our current arrangement with ACE,we bear the economic burden for the first $1 million layer of claims per occurrence and the economic burden for claims over $1 million, up to a maximumaggregate amount of $5 million per policy year for claims that exceed the first $1 million. ACE bears the burden for all claims in excess of these levels. TheACE Program is a fully insured policy whereby ACE has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy ourresponsibilities. For additional discussion of our policy with ACE, please read Item 7. “Management’s Discussion and Analysis of Financial Condition andResults of Operations – Critical Accounting Policies and Estimates – Workers’ Compensation Costs.”Workers’ compensation costs are a significant portion of our direct costs. If we were to experience an unexpected large increase in the number orseverity of claims, our workers’ compensation costs could increase, which could have a material adverse effect on our results of operations or financialcondition.The current workers’ compensation coverage with ACE expires on September 30, 2016 and may be extended until September 30, 2017 if our claimsdo not exceed certain thresholds and certain other program conditions are satisfied. In the event we are unable to secure replacement coverage oncompetitive terms, significant disruption to our business could occur.Our Ability to Adjust and Collect Service Fees for Increases in Unemployment Tax Rates May be LimitedWe record our SUI tax expense based on taxable wages and tax rates assigned by each state. SUI tax rates vary by state and are determined, in part,based on prior years’ compensation experience in each state. Prior to the receipt of final tax rate notices, we estimate our expected SUI tax rate in those statesfor which tax rate notices have not yet been received for purposes of pricing. In a period of adverse economic conditions state unemployment funds mayexperience a significant increase in the number of unemployment claims. Accordingly, SUI tax rates would likely increase substantially. Some states have theability under law to increase SUI tax rates retroactively to cover deficiencies in the unemployment fund.In addition, FUTA may be retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans. Employersin such states are experiencing higher FUTA tax rates as a result of not repaying their unemployment loans from the federal government in a timely manner.The Benefit Cost Ratio Add-On (“BCR”) is an additional tax on the FUTA wage base for employers in states that continue to have outstanding federalunemployment insurance loans beginning with the fifth year in which there is a balance due on the loan. States have the option to apply for a waiver beforeJuly 1st of the year in which the BCR is applicable. As of December 31, 2015 there were three states with outstanding unemployment loans and of those, allbut one, Connecticut, filed for and received a BCR waiver in 2015; however, there is no certainty the states will receive waivers in 2016. If waivers are notobtained in 2016, Insperity will be required to pay the BCR taxes.Generally, our contractual agreements allow us to incorporate such statutory tax increases into our service fees upon the effective date of the ratechange. However, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the clients’ contractscould be limited, resulting in a potential tax increase not being fully recovered. As a result, such increases could have a material adverse effect on ourfinancial condition or results of operations.Our Contracts for Our PEO HR Outsourcing Solutions May be Canceled on Short Notice. Our Inability to Renew Client Contracts or Attract NewClients Could Materially and Adversely Affect Our Financial Conditions or Results of OperationsOur standard CSA can generally be canceled by us or the client with 30 days’ notice. Accordingly, the short-term nature of the CSA makes usvulnerable to potential cancellations by existing PEO HR Outsourcing Solution clients, which could materially and adversely affect our financial conditionor results of operations. In addition, in the event we have a high proportion of terminating clients from our mid-market client base (which are generally undera two-year CSA), the financial impact of such an event could be significant due to the number of worksite employees involved and the time it takes to replacemid-market clients. Also, our results of operations are dependent in part upon our ability to retain or replace our clients upon the termination or cancellationof the CSA. Our client attrition rate was approximately 15% in 2015. There can be no assurance that the number of contract cancellations will continue atthese levels and such cancellations may increase in the future due to various factors, including but not limited to, economic conditions in the markets weoperate. Clients electing to purchase our services or electing an alternative solution often do so at the beginning of the calendar year. As a result, we typicallyexperience our largest concentration of new client additions and attrition in the first quarter of each year.- 19 - Table of ContentsCompetition and Other Developments in the HR Services Industry May Impact Our Growth and/or ProfitabilityThe human resources services industry, including the PEO industry, is highly fragmented. Many PEOs have limited operations and fewer than 1,000worksite employees, but there are several industry participants that are comparable to our size or larger. We also encounter competition from “fee for service”companies such as payroll processing firms, insurance companies, human resources consultants and human resources technology solutions as well as cloud-based self-service bundled human resources offerings. Our competitors include the PEO divisions of large business services companies, such as AutomaticData Processing, Inc. and Paychex, Inc., and other national PEOs such as TriNet Group, Inc. In many cases, these competitors offer a reduced service PEOoffering at a lower price than our PEO HR Outsourcing solutions. We expect that as the PEO industry grows and its regulatory framework becomes betterestablished, well organized competition with greater resources than we have may enter the PEO market, possibly including large “fee for service” companiescurrently providing a more limited range of services. In addition, competitors may be able to offer or develop new technology-based lower service modelsthat may require us to make substantial investments in order to effectively compete.In 2013, we began offering a lower priced reduced service level PEO offering referred to as Workforce Synchronization in response to certain mid-market client needs and the evolving PEO marketplace. As of December 2015, approximately 10% of our worksite employees were co-employed byWorkforce Synchronization clients. In the event we were to experience a significant increase in the number of clients using the Workforce Synchronizationoffering or increased pricing pressures in the PEO marketplace without corresponding reductions in operating costs, our operating margins may decline,which could have a material adverse impact on our financial condition or results of operations.We May Be Subject to Liabilities for Client and Employee ActionsA number of legal issues remain unresolved with respect to the co-employment arrangement between a PEO and its worksite employees, includingquestions concerning the ultimate liability for violations of employment and discrimination laws. Our CSA establishes the contractual division ofresponsibilities between Insperity and our clients for various personnel management matters, including compliance with and liability under variousgovernmental regulations.Because we act as a co-employer, we may be subject to liability for violations of various employment and discrimination laws despite thesecontractual provisions, even if we do not participate in such violations. Although the CSA generally provides that the client is to indemnify us for certainliabilities attributable to the client’s conduct, we may not be able to collect on such a contractual indemnification claim and thus may be responsible forsatisfying such liabilities to the extent that such liabilities are not covered or insured against under our insurance policies. In addition, worksite employeesmay be deemed to be our agents, which may subject us to liability for the actions of such worksite employees.Changes in Federal, State and Local Regulation or Our Inability to Obtain Licenses Under New Regulatory Frameworks Could Have a MaterialAdverse Effect on Our Results of Operations or Financial ConditionAs a major employer, our operations are affected by numerous federal, state and local laws and regulations relating to labor, tax, benefit, insuranceand employment matters. By entering into a co-employer relationship with employees assigned to work at client locations, we assume certain obligationsand responsibilities of an employer under these laws. However, many of these current laws (such as the Act, ERISA and federal and state employment taxlaws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and the definition of “employer” under theselaws is not uniform. While the SBEA is expected to provide clarification under federal employment tax laws for CPEOs, until further administrative guidanceis issued, including the requirements for CPEOs, we cannot be certain as to the benefit that this law will provide. In addition, many of the states in which weoperate have not addressed the PEO relationship for purposes of compliance with applicable state laws governing the employer/employee relationship. Anyadverse application of new or existing federal or state laws to the PEO relationship with our worksite employees and client companies could have a materialadverse effect on our results of operations or financial condition.While some states do not explicitly regulate PEOs, 41 states have passed laws that have recognition, licensing, certification or registrationrequirements for PEOs and several other states are considering such regulation. Such laws vary from state to state, but generally provide for monitoring thefiscal responsibility of PEOs, and in some cases codify and clarify the co-employment relationship for unemployment, workers’ compensation and otherpurposes under state law. In addition, the SBEA will provide certain benefits for companies that qualify as a CPEO. While we generally support licensingregulation because it serves to validate the PEO relationship, we may not be able to satisfy licensing requirements or other applicable regulations for allstates. In addition, there can be no assurance that we will be able to renew our licenses in all states or that we will be able to qualify as a CPEO following theimplementation of the SBEA.- 20 - Table of ContentsGeographic Market Concentration Makes Our Results of Operations Vulnerable to Regional Economic FactorsOur New York, California and Texas markets accounted for approximately 10%, 18% and 24% (including 12% in Houston), respectively, of ourworksite employees for the year ended December 31, 2015. Accordingly, while we have a goal of expanding in our current markets and into new markets, forthe foreseeable future, a significant portion of our revenues may be subject to economic factors specific to New York, California and Texas. A Determination that a Client is Liable for Employment Taxes Not Paid by a PEO May Discourage Clients from Contracting with Us in theFutureUnder the CSA, we assume sole responsibility and liability for paying federal employment taxes imposed under the Code with respect to wages andsalaries we pay our worksite employees. There are essentially three types of federal employment tax obligations:•income tax withholding requirements•FICA•FUTAUnder the Code, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of thesetaxes. Most states impose similar employment tax obligations on the employer. While the CSA provides that we have sole legal responsibility for makingthese tax contributions, the applicable state taxing authority or, prior to the implementation of the SBEA and the Company becoming a CPEO, the IRS couldconclude that such liability cannot be completely transferred to us. Accordingly, in the event that we fail to meet our tax withholding and paymentobligations, the client may be held jointly and severally liable for those obligations. While this interpretive issue has not, to our knowledge, discouragedclients from enrolling with Insperity, a definitive adverse resolution of this issue or a delay in the implementation of the SBEA may discourage clients fromenrolling in the future.Failure of Our Information Technology Systems, Including From Cyber Attacks and Data Breaches, Could Damage Our Reputation, MateriallyDisrupt Our Business Operations, and Increase Our Costs and Cause LossesMany of the HR services offerings we provide to clients are conducted through a technology infrastructure using both internally developed andpurchased commercial software, a wide variety of hardware infrastructure technologies, and a multi-carrier wide area network. The processing of payroll,benefits and other transactions is dependent upon this complex infrastructure some of which is provided by third party vendors. Hardware or applications wedevelop or procure from third party vendors may contain defects in design or other problems that could unexpectedly compromise the confidentiality,integrity or availability of data or our systems. Any delays or failures caused by network outages, software or hardware failures, or other data processingdisruptions, could result in our inability to timely process transactions. If such failures cause us to not meet client service expectations, we may lose existingclients and may have difficulty attracting new clients.In connection with our HR services offerings, we collect, use, transmit and store large amounts of personal and business information about ourworksite employees and clients, including payroll information, personal and business financial data, social security numbers, bank account numbers, taxinformation and other sensitive personal and business information. We are focused on ensuring that the technology infrastructure that we use safeguards andprotects personal and business information. We have programs in place to prevent, detect and respond to data security incidents, and we take steps to requirethat our third party vendors protect sensitive information. Nonetheless, attacks on information technology systems continue to grow in frequency andsophistication, and we and our third party vendors are sometimes targeted by unauthorized parties using malicious tactics, code and viruses. Because thetechniques used to obtain unauthorized access and disable or sabotage systems change frequently and may be difficult to detect for long periods of time, weand our third party vendors may be unable to anticipate these techniques or implement adequate preventive measures. As these threats continue to evolve, wemay be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate anysecurity vulnerabilities. While our technology infrastructure is designed to safeguard and protect personal and business information, we do not have theability to monitor the implementation of similar safeguards by our vendors, clients or worksite employees.Any cyber-attack, unauthorized intrusion, malicious software infiltration, network disruption, corruption of data, or theft of private or other sensitiveinformation, or inadvertent acts by our own employees, could result in the disclosure or misuse of confidential or proprietary information, and could have amaterial adverse effect on our business operations or that of- 21 - Table of Contentsour clients, result in liability or regulatory sanction, or cause a loss of confidence in our ability to serve clients. Although we believe that we maintain astringent program of information security and controls, the impact of a data security incident could have a material adverse effect on our business, results ofoperations and financial condition.We are also subject to various federal and state laws, rules and regulations relating to the collection, use, transmission and security of personal andbusiness information. Most states and the District of Columbia have enacted notification rules that may require notification to regulators, clients oremployees in the event of a privacy breach. It is possible that these federal and states laws may be interpreted and applied in a manner that is inconsistentwith our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could havea material adverse effect on our business. Complying with these various laws could cause us to incur substantial costs or require us to change our businesspractices in a manner adverse to our business. The future enactment of more restrictive laws, rules or regulations could have a material adverse impact on usthrough increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant liability.The Failure of Our Insurance Carriers or Financial Institutions Could Have a Material Adverse Effect on UsAs part of our PEO HR Outsourcing solutions, we contract with various insurance carriers to provide insurance coverage including health insurance,workers’ compensation insurance and employment practices liability insurance. In addition, we obtain insurance coverage for various commercial risks in ourbusiness such as property insurance, errors and omissions insurance, general liability insurance, fiduciary liability insurance, automobile liability insurance,and directors’ and officers’ liability insurance. The failure of any insurance carrier providing such coverage could leave us exposed to uninsured risk andcould have a material adverse effect on our business.In conjunction with providing services to clients, we rely on financial institutions to electronically transfer funds for the collection of ourcomprehensive service fee as well as the payment of wages and associated payroll tax withholdings. Failure by these financial institutions, for any reason, todeliver their services in a timely manner could result in material interruptions to our operations, impact client relations, and result in significant penalties orliabilities to us.New and Higher Federal, State and Local Taxes Could Have a Material and Adverse Impact on Our Financial Condition and Results ofOperationsIn times of economic slowdowns, states and municipalities in which we operate may experience reductions in tax revenues and correspondingbudget deficits. In response to the budget shortfalls, many states and municipalities have in the past and may in the future increase or enact new taxes onbusinesses operating within their tax jurisdiction, including business activity taxes and income taxes. In addition, federal, state and local taxing agenciesmay increase their audit activity in an effort to identify additional tax revenues. New tax assessments on our operations could result in increased costs. Ourability to adjust our service fees and incorporate additional tax assessments into our billing system could be limited. As a result, such higher taxes couldhave a material adverse impact on our financial condition or results of operations.Failure to Integrate or Realize the Expected Return on Our Acquisitions and Investments Could Have a Material Adverse Impact on OurFinancial Condition or Results of OperationsWe have adopted a strategy to market and sell additional products and services within and outside of traditional PEO HR Outsourcing solutions. Aspart of this strategy, periodically we make strategic long-term decisions to invest in and/or acquire new companies, business units or assets. Acquiring newbusinesses involves a number of risks such as over-valuation of the acquired companies, entering markets or businesses in which we have no prior experience,integrating the technology, operations, and personnel, diversion of management’s attention from other business concerns and litigation resulting from theactivities of the acquired company. The occurrence of one or more of these events could result in the loss of existing or prospective clients or employees, notachieving anticipated revenues or profitability, or impairment of acquired assets. Such developments could have a material impact to our financial condition,results of operations and future growth rates.In connection with our goodwill impairment assessments, we recorded impairment charges of $2.5 million in our Employment Screening reportingunit in 2014, $3.3 million in our Expense Management reporting unit in 2013 and $4.2 million in our Performance Management reporting unit in 2012. Inaddition, we recorded a $2.7 million impairment charge related to our minority investment in The Receivables Exchange in 2013. Based on marketconditions or changes in operating plans, the fair value of our other acquired businesses could decline, requiring us to record additional impairment chargesfor all or portions of the investments. Please read Note 5, “Goodwill and Other Intangible Assets” and Note 6, “Other Asset Impairments,“ to the ConsolidatedFinancial Statements for additional information.- 22 - Table of ContentsOur Business Could Be Disrupted as a Result of Actions of Certain StockholdersIn 2015, our largest stockholder made public statements critical of our performance, advocated that we make certain changes regarding our strategicplan, operating expenses, capital allocation, management and corporate governance, and suggested that we should pursue strategic alternatives. In March2015, prior to our 2015 annual meeting of stockholders, we entered into an agreement with this stockholder pursuant to which, among other things, weappointed three new directors nominated by the stockholder to our Board of Directors. Two then-current directors, who had decided not to seek re-electionwhen their terms expired, departed our Board of Directors following the 2015 annual meeting. In addition, this stockholder agreed to customary standstillrestrictions, which will expire in February 2016.If our largest or any of our other stockholders commences a proxy contest, further advocates for changes or engages in other similar activities, thenour business could be adversely affected because we may have difficulty attracting and retaining clients due to perceived uncertainties as to our futuredirection and negative public statements about our business; responding to proxy contests and other similar actions by stockholders is likely to result in usincurring substantial additional costs and significantly divert the attention of management and our employees; and, if individuals are elected to our Board ofDirectors with a specific agenda, the execution of our strategic plan may be disrupted or a new strategic plan altogether may be implemented.Any proxy contest in connection with our 2016 annual meeting of stockholders may be particularly disruptive because if two or more of thestockholder nominees are elected, then a majority of our Board of Directors would be comprised of directors who were nominated by stockholders and whoobtained their board seats in connection with an actual or threatened proxy contest. This outcome may constitute a change in control of the Company underour Incentive Plans. Further, if there is a newly constituted Board of Directors comprised of a majority of such directors, they may not support our currentstrategic plan, which may adversely affect our business while a new strategic plan is developed and implemented.We cannot predict, and no assurances can be given, as to the outcome or timing of any matters relating to the foregoing actions by stockholders orthe ultimate impact on our business, financial condition or results of operations. Further, any of these matters or any further actions by this or otherstockholders may impact and result in volatility of the price of our common stock, including if this stockholder were to exit its investment in our commonstock.ITEM 1B. UNRESOLVED STAFF COMMENTS.None. ITEM 2. PROPERTIES.We believe our current real estate and facilities are adequate for the purposes for which they are intended and provide for further expansion toaccommodate our long-term growth and expansion goals. We believe that short-term leased facilities are readily available if needed to accommodate near-term needs if they arise. We will continue to evaluate the need for additional facilities based on the extent of our product and service offerings, the rate ofclient growth, the geographic distribution of our client base and our long-term service delivery requirements.Corporate FacilitiesOur corporate headquarters is located in Kingwood, Texas, in a 327,000 square foot campus-style facility. This 33-acre company-owned officecampus includes approximately 12 acres of undeveloped land for future expansion. Development and support operations are located in the Kingwoodfacility.In December 2015, we began the construction of a 100,000 square foot office facility located on our corporate campus in Kingwood, Texas. The newfacility, which is expected to be completed in 2017, is estimated to cost approximately $25 million. We expect to fund the construction costs with cash onhand and cash from operations, as well as funds available under our credit facility. We expect to relocate personnel from our Houston service center to thisnew facility.We have hosting facilities, totaling approximately 2,000 square feet, located at two separate leased facilities. The hosting facilities house themajority of our business applications, telecommunications equipment and network equipment. The facilities are located in Bryan, Texas and TheWoodlands, Texas and are under lease until 2022 and 2019, respectively.- 23 - Table of ContentsService CentersWe currently have four regional service centers located in Atlanta, Dallas, Houston and Los Angeles.The Atlanta service center, which currently services approximately 33% of our worksite employee base, is located in a 40,500 square foot facilityunder lease until 2022.The Dallas service center, which currently services approximately 21% of our worksite employee base, is located in a 48,600 square foot facilityunder lease until 2016. In addition to the service center operations, the facility also contains sales operations.The Houston service center, which currently services approximately 20% of our worksite employee base, is located in a 60,600 square foot facilityunder lease until 2016. In addition to the service center operations, the facility also contains corporate support operations.The Los Angeles service center, which currently services approximately 26% of our worksite employee base, is located in a 38,000 square footfacility under lease until 2019.Sales OfficesAs of December 31, 2015, we had PEO HR Outsourcing solutions sales and service personnel in 47 facilities located in 26 sales markets throughoutthe United States. All of the facilities are leased and some are shared by multiple sales offices and/or client service personnel. As of December 31, 2015, wehad 52 PEO HR Outsourcing solutions sales offices in these 26 markets. To take advantage of economic efficiencies, multiple sales offices may share aphysical location. Each sales office is typically staffed by six to eight BPAs, a district sales manager and an office administrator. In addition, we have placedcertain client service personnel in a majority of our sales markets to provide high-quality, localized service to our clients in those major markets. We expectto continue placing various client service personnel in sales markets as a critical mass of clients is attained in each market.ITEM 3. LEGAL PROCEEDINGS.We are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to our business that we believe wouldnot have a material adverse effect on our financial condition or results of operations, except as discussed in Note 13 to the Consolidated FinancialStatements, “Commitments and Contingencies,” which is incorporated herein by reference.ITEM S-K 401 (b). EXECUTIVE OFFICERS OF THE REGISTRANT.The following table sets forth the names, ages (as of February 5, 2016) and positions of Insperity’s executive officers:Name Age PositionPaul J. Sarvadi 59 Chairman of the Board and Chief Executive OfficerRichard G. Rawson 67 PresidentA. Steve Arizpe 58 Executive Vice President of Client Services and Chief Operating OfficerJay E. Mincks 62 Executive Vice President of Sales and MarketingDouglas S. Sharp 54 Senior Vice President of Finance, Chief Financial Officer and TreasurerDaniel D. Herink 49 Senior Vice President of Legal, General Counsel and SecretaryPaul J. Sarvadi has served as Chairman of the Board and Chief Executive Officer since August 2003. Mr. Sarvadi co-founded Insperity in 1986 andserved as Vice President and Treasurer of Insperity from its inception in 1986 through April 1987, as Vice President from April 1987 through 1989 and asPresident and Chief Executive Officer from 1989 to August 2003. Prior to founding Insperity, Mr. Sarvadi started and operated several small businesses. Mr.Sarvadi has served as President of NAPEO and was a member of its Board of Directors for five years. Mr. Sarvadi was selected as the 2001 National Ernst &Young Entrepreneur Of The Year® for service industries. In 2004, he received the Conn Family Distinguished New Venture Leader Award from MaysBusiness School at Texas A&M University. In 2007, he was inducted into the Texas Business Hall of Fame.- 24 - Table of ContentsRichard G. Rawson is President of Insperity and most of its subsidiaries, a Class III director, and has been a director of Insperity since 1989. He hasbeen President since August 2003. Before being elected President, he served as Executive Vice President of Administration, Chief Financial Officer andTreasurer of the Company from February 1997 until August 2003. Prior to that, he served as Senior Vice President, Chief Financial Officer and Treasurer ofInsperity since 1989. Prior to joining Insperity in 1989, Mr. Rawson served as a Senior Financial Officer and Controller for several companies in themanufacturing and seismic data processing industries. Mr. Rawson has served NAPEO as Chairman of the Accounting Practices Committee and several otheroffices and became President in 1999-2000. Mr. Rawson has a Bachelor of Business Administration in finance from the University of Houston and currentlyserves as a board member for the C.T. Bauer College of Business.A. Steve Arizpe has served as Executive Vice President of Client Services and Chief Operating Officer since August 2003. He joined Insperity in1989 and has served in a variety of roles, including Houston Sales Manager, Regional Sales Manager and Vice President of Sales. Prior to joining Insperity,Mr. Arizpe served in sales and sales management roles for NCR Corporation and Clarke-American. He has also served as a director of the Texas Chapter ofNAPEO. Mr. Arizpe graduated from Texas A&M University in 1979, earning his degree in Business Management.Jay E. Mincks has served as Executive Vice President of Sales and Marketing since January 1999. Mr. Mincks served as Vice President of Sales andMarketing from February 1997 through January 1999. He joined Insperity in 1990 and has served in a variety of other roles, including Houston SalesManager and Regional Sales Manager for the Western United States. Prior to joining Insperity, Mr. Mincks served in a variety of positions, includingmanagement positions, in the sales and sales training fields with various large companies. He holds a business degree from the University of Houston.Douglas S. Sharp has served as Senior Vice President of Finance, Chief Financial Officer and Treasurer since May 2008. He served as Vice Presidentof Finance, Chief Financial Officer and Treasurer from August 2003 until May 2008. Mr. Sharp joined Insperity in January 2000 as Vice President of Financeand Controller. From July 1994 until he joined Insperity, he served as Chief Financial Officer for Rimkus Consulting Group, Inc. Prior to that, he served asController for a small publicly held company; as Controller for a software company; and as an Audit Manager for Ernst & Young LLP. Mr. Sharp has servedas a member of the Accounting Practices Committee of NAPEO. Mr. Sharp is also a certified public accountant. Daniel D. Herink has served as Senior Vice President of Legal, General Counsel and Secretary since May 2008. Mr. Herink joined Insperity in 2000as Assistant General Counsel and was promoted to Associate General Counsel in 2002. He was elected to his current position in May 2007. Mr. Herinkpreviously served as an attorney at Rodriguez, Colvin & Chaney, L.L.P. and McGinnis, Lochridge & Kilgore, L.L.P. He earned his Bachelor of Sciencedegree in business administration from the University of Nebraska and a Doctorate of Jurisprudence from The University of Texas School of Law, where hewas a member of the Texas Law Review and The Order of the Coif. Mr. Herink is also a certified public accountant.- 25 - Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES.Price Range of Common StockOur common stock is traded on the New York Stock Exchange under the symbol “NSP.” As of February 5, 2016, there were 358 holders of record ofour common stock. This number does not include stockholders for whom shares were held in “nominee” or “street name.” The following table sets forth thehigh and low sales prices for the common stock as reported on the New York Stock Exchange transactional tape. 2015 High Low Dividendsper Share First Quarter $55.42 $32.43 $0.19 Second Quarter 55.11 47.83 0.22 Third Quarter 52.95 41.77 0.22 Fourth Quarter 49.00 41.88 0.22 2014 First Quarter $36.23 $26.85 $0.17 Second Quarter 33.74 29.82 0.19 Third Quarter 33.47 27.29 0.19 Fourth Quarter 34.97 27.01 2.19(1) ____________________________________(1) Includes a $2.00 per share special dividendDividend PolicyDuring 2015 and 2014, we paid dividends of $21.2 million and $69.5 million, respectively, including a special cash dividend of $50.7 million paidin the fourth quarter of 2014. The payment of dividends is made at the discretion of our Board of Directors and depends upon our operating results, financialcondition, capital requirements, general business conditions and such other factors as our Board of Directors deems relevant.Issuer Purchases of Equity SecuritiesIn January 2016, we completed a modified Dutch auction tender offer whereby 3,013,531 shares of our common stock were repurchased and retiredfor $143.1 million, excluding approximately $1.1 million of transaction costs. The tender offer was funded with borrowings of $104.4 million under ourcredit facility and the remainder with cash on hand.The following table provides information about our purchases of Insperity common stock during the three months ended December 31, 2015:Period Total Number ofShares Purchased(1) Average PricePaid per Share Total Number of SharesPurchased as Part ofPublicly AnnouncedProgram(1) Maximum Number ofShares that may yet bePurchased under theProgram(1)10/01/2015 – 10/31/2015 — $— — 703,07311/01/2015 – 11/30/2015 178,741 43.75 178,741 524,33212/01/2015 – 12/31/2015 — — — 524,332Total 178,741 $43.75 178,741 524,332__________________________________(1) Our Board of Directors has authorized a program to repurchase shares of our outstanding common stock. During the three months ended December 31,2015, 178,741 shares were repurchased under the program and no shares were withheld to satisfy tax withholding obligations for the vesting of restrictedstock awards. Unless terminated early by resolution of the- 26 - Table of ContentsBoard of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program.Performance GraphThe following graph compares our cumulative total stockholder return since December 31, 2010, with the S&P Smallcap 600 Index and the S&P1500 Composite Human Resources and Employment Services Index. The graph assumes that the value of the investment in our common stock and eachindex (including reinvestment of dividends) was $100 on December 31, 2010. 12/10 12/11 12/12 12/13 12/14 12/15 Insperity, Inc. 100.00 88.53 120.37 136.48 138.55 200.38S&P Smallcap 600 100.00 101.02 117.51 166.05 175.61 172.14S&P 1500 Composite Human Resourcesand Employment Services 100.00 83.15 93.39 167.47 167.51 180.64 This graph shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwisesubject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act,regardless of any general incorporation language in such filing.- 27 - Table of ContentsITEM 6. SELECTED FINANCIAL DATA.The selected consolidated financial data set forth below should be read in conjunction with the Consolidated Financial Statements andaccompanying Notes and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Year ended December 31, 2015 2014 2013 2012 2011 (in thousands, except per share and statistical data) Income Statement Data: Revenues(1) $2,603,614 $2,357,788 $2,256,112 $2,158,824 $1,976,219 Gross profit 437,867 403,805 393,251 382,221 351,775 Operating income 65,699(2) 47,474(3) 56,223(4) 67,494(4) 57,314 Net income 39,39028,004 32,032(5) 40,402 30,470(6) Diluted net income per share of common stock 1.58 1.05(7) 1.25 1.56(7) 1.16 Adjusted net income(8) 54,519 36,734 42,289 48,668 40,124 Adjusted diluted net income per share ofcommon stock(8) 2.19 1.43 1.65 1.89 1.53 Adjusted EBITDA(8) 110,014 84,124 92,303 100,899 82,198 Balance Sheet Data: Working capital(11) $54,337 $66,742 $120,445 $108,495 $123,329 Total assets(11) 784,912 792,595 758,864 742,989 709,026 Total stockholders’ equity 172,455 204,096 253,272 240,905 245,207 Cash dividends per share 0.85 2.74(9) 0.68 1.66(9) 0.60 Statistical Data: Average number of worksite employees paidper month during period 145,830 130,718 127,517 125,650 116,839 Revenues per worksite employee per month(10) $1,488 $1,503 $1,474 $1,432 $1,410 Gross profit per worksite employee per month $250 $257 $257 $253 $251 Operating income per worksite employee permonth $38 $30 $37 $45 $41 ____________________________________(1) Gross billings of $15.806 billion, $14.187 billion, $13.462 billion, $12.992 billion and $11.700 billion, less worksite employee payroll cost of $13.202billion, $11.829 billion, $11.206 billion, $10.833 billion and $9.724 billion, respectively.(2) Includes non-cash impairment and other charges in the first and second quarters of 2015 of $9.8 million and $1.3 million, respectively, partially offset bya reduction of $0.6 million in the fourth quarter of 2015. Please read Note 6 to the Consolidated Financial Statements, “Other Asset Impairments,” foradditional information.(3) Includes a non-cash impairment charge in the second quarter of 2014 of $2.5 million. Please read Note 5 to the Consolidated Financial Statements,“Goodwill and Other Intangible Assets,” for additional information. Also includes a non-cash charge in the fourth quarter of 2014 of $1.2 million. Pleaseread Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.(4) Includes non-cash impairment charges of $3.3 million and $4.2 million in the fourth quarters of 2013 and 2012, respectively. Please read Note 5 to theConsolidated Financial Statements, “Goodwill and Other Intangible Assets,” for additional information.(5) Includes a non-cash impairment charge in the second quarter of 2013 of $2.7 million, please read Note 6 to the Consolidated Financial Statements,“Other Asset Impairments,” for additional information. Also includes a $2.0 million tax benefit in the fourth quarter of 2013 related to tax years 2009through 2012, please read Note 8 to the Consolidated Financial Statements, “Income Taxes,” for additional information.- 28 - Table of Contents(6) Includes the impact of a $4.4 million pre-tax loss related to the exchange of an aircraft, and a $3.1 million pre-tax loss related to a settlement with theState of California. (7) Includes the impact of dividends exceeding earnings under the two-class method, resulting in a $0.05 and $0.01 earnings per share decrease in 2014 and2012, respectively. Please read Note 11 to the Consolidated Financial Statements, “Net Income Per Share,” for additional information.(8) These are non-GAAP measures used by management to analyze the Company’s performance. Please read Item 7. “Management’s Discussion andAnalysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures tothe most directly comparable financial measures calculated and presented in accordance with GAAP.(9) Includes a $2.00 and $1.00 per share special dividend paid in the fourth quarters of 2014 and 2012, respectively.(10) Gross billings of $9,032, $9,044, $8,797, $8,617 and $8,345 per worksite employee per month, less payroll cost of $7,544, $7,541, $7,323, $7,185 and$6,935 per worksite employee per month, respectively.(11) Working capital and total assets have been adjusted for the years 2011 through 2014 to reflect the adoption of ASU No. 2015-17. Please read Item7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – NewAccounting Pronouncements.”- 29 - Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in thisannual report. Historical results are not necessarily indicative of trends in operating results for any future period.The statements contained in this annual report that are not historical facts are forward-looking statements that involve a number of risks anduncertainties. The actual results of the future events described in such forward-looking statements in this annual report could differ materially from thosestated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed inItem 1A. Risk Factors and the uncertainties set forth from time to time in our other public reports and filings and public statements.OverviewOur long-term strategy is to provide the best small and medium-sized businesses in the United States with our specialized human resources serviceoffering and to leverage our buying power and expertise to provide additional valuable services to clients. Our most comprehensive HR services offerings areprovided through our Workforce Optimization® and Workforce SynchronizationTM solutions (together, our PEO HR Outsourcing solutions), which encompassa broad range of human resources functions, including payroll and employment administration, employee benefits, workers’ compensation, governmentcompliance, performance management and training and development services. Our overall operating results can be measured in terms of revenues, payrollcosts, gross profit or operating income per worksite employee per month. We often use the average number of worksite employees paid during a period as ourunit of measurement in analyzing and discussing our results of operations.In addition to our PEO HR Outsourcing solutions, we offer a number of other business performance solutions, including Human CapitalManagement, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening,Financial and Expense Management Services, Retirement Services and Insurance Services, many of which are offered via desktop applications and cloud-based delivery models. These other products or services are offered separately, as a bundle, or along with our PEO HR Outsourcing solutions.We ended 2015 averaging 153,144 paid worksite employees in the fourth quarter, which represents a 12.0% increase over the fourth quarter of2014. Approximately 23% of our average paid worksite employees were in our mid-market sector for the years ended December 31, 2014 and 2015, which isgenerally defined as companies with 150 to 2,000 worksite employees. We expect the average number of paid worksite employees per month to be between155,900 and 157,300 in the first quarter of 2016.Our average gross profit per worksite employee per month was $250 in 2015 and $257 in 2014, which included a contribution to average grossprofit from our other products and services offerings of $17 per worksite employee per month in both 2015 and 2014.Adjusted operating expenses increased 2.1% in 2015 to $360.1 million. On a per worksite employee per month basis, adjusted operating expensesdecreased from $225 in 2014 to $206 in 2015. Our adjusted net income in 2015 was $54.5 million, a $17.8 million increase compared to 2014. Our adjusted EBITDA increased 30.8% over 2014to $110.0 million.We ended 2015 with working capital of $54.3 million. During 2015, we paid $21.2 million in dividends and repurchased shares of our commonstock at a cost of $67.1 million.RevenuesWe account for our revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, Revenue Recognition. Our PEO HROutsourcing solutions gross billings to clients include the payroll cost of each worksite employee at the client location and a markup computed as apercentage of each worksite employee’s payroll cost. We invoice the gross billings concurrently with each periodic payroll of our worksite employees.Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized ratably over the payrollperiod as worksite employees perform their service at the client worksite. This markup includes pricing components associated with our estimates of payrolltaxes, benefits and workers’ compensation costs, plus a separate component related to our HR services. We- 30 - Table of Contentsinclude revenues that have been recognized but not invoiced in unbilled accounts receivable on our Consolidated Balance Sheets.Our revenues are primarily dependent on the number of clients enrolled, the resulting number of worksite employees paid each period and thenumber of worksite employees enrolled in our benefit plans. Because our total markup is computed as a percentage of payroll cost, certain revenues are alsoaffected by the payroll cost of worksite employees, which may fluctuate based on the composition of the worksite employee base, inflationary effects onwage levels and differences in the local economies of our markets.Direct CostsThe primary direct costs associated with revenue-generating activities for our PEO HR Outsourcing solutions are:•employment-related taxes (“payroll taxes”)•costs of employee benefit plans•workers’ compensation costsPayroll taxes consist of the employer’s portion of Social Security and Medicare taxes under FICA, federal unemployment taxes and stateunemployment taxes. Payroll taxes are generally paid as a percentage of payroll cost. The federal unemployment tax rates are defined by federalregulations. State unemployment tax rates are subject to claim histories and vary from state to state.Employee benefits costs are comprised primarily of health insurance premiums and claims costs (including dental and pharmacy costs), but alsoinclude costs of other employee benefits such as life insurance, vision care, disability insurance, education assistance, adoption assistance, a flexiblespending account program and a work-life program.Workers’ compensation costs include administrative and risk charges paid to the insurance carrier, and claims costs, which are driven primarily bythe frequency and severity of claims.Gross ProfitOur gross profit per worksite employee is primarily determined by our ability to accurately estimate and control direct costs and our ability toincorporate changes in these costs into the gross billings charged to PEO HR Outsourcing solutions clients, which are subject to pricing arrangements that aretypically renewed annually. We use gross profit per worksite employee per month as our principal measurement of relative performance at the gross profitlevel.Operating Expenses•Salaries, wages and payroll taxes – Salaries, wages and payroll taxes are primarily a function of the number of corporate employees, their associatedaverage pay and any additional incentive compensation. Our corporate employees include client services, sales and marketing, benefits, legal, finance,information technology, administrative support personnel and those associated with our other products and services.•Stock-based compensation – Our stock-based compensation relates to the recognition of non-cash compensation expense over the vesting period ofrestricted stock and long-term incentive plan awards.•Commissions – Commissions expense consists primarily of amounts paid to sales managers and BPAs. Commissions are based on the number of newaccounts sold and a percentage of revenue generated by such personnel.•Advertising – Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets,including the Insperity Invitational™ presented by UnitedHealthcare® sponsorship.•General and administrative expenses – Our general and administrative expenses primarily include:•rent expenses related to our service centers and sales offices•outside professional service fees related to legal, consulting and accounting services•administrative costs, such as postage, printing and supplies•employee travel and training expenses•technology and facility repairs and maintenance costs- 31 - Table of Contents•Depreciation and amortization – Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, servicecenters, sales offices, technology infrastructure and that associated with our acquisitions.•Impairment charges and other – Impairment charges and other consist of non-cash expense associated with the decline in fair value of long-lived andintangible assets, including goodwill. Please read Note 1 “Accounting Policies,” Note 5 “Goodwill and Other Intangible Assets” and Note 6 “OtherAsset Impairments,” to the Consolidated Financial Statements for additional information.Income Taxes Our provision for income taxes typically differs from the U.S. statutory rate of 35%, due primarily to state income taxes, non-deductible expensesand various tax credits. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities usedfor financial reporting purposes and the amounts used for income tax purposes. Significant items resulting in deferred income taxes include prepaid assets,accruals for workers’ compensation expenses, stock-based compensation and depreciation. Changes in these items are reflected in our financial statementsthrough a deferred income tax provision.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which havebeen prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statementsrequires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and relateddisclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to health and workers’ compensationinsurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities. We basethese estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates.We believe the following accounting policies are critical and/or require significant judgments and estimates used in the preparation of ourConsolidated Financial Statements:•Benefits costs – We provide group health insurance coverage to our worksite employees through a national network of carriers including United,UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii and Tufts, all of which providefully insured policies or service contracts. In 2015, we terminated our relationship with Unity Health Plan.The health insurance contract with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we haveaccounted for this plan since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United plan,including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense in the ConsolidatedStatements of Operations. The estimated incurred claims are based upon: (i) the level of claims processed during the quarter; (ii) estimated completionrates based upon recent claim development patterns under the plan; and (iii) the number of participants in the plan, including both active and COBRAenrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participantdemographics and other factors are incorporated into the benefits costs.Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of areporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurredand we would accrue a liability for the excess costs on our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter areless than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums on ourConsolidated Balance Sheets. The terms of the arrangement with United require us to maintain an accumulated cash surplus in the plan of $9.0 million,which is reported as long-term prepaid insurance. As of December 31, 2015, Plan Costs were less than the premiums paid and owed to United by $2.2million. As this amount is less than the agreed-upon $9.0 million surplus maintenance level, the $6.8 million difference is included in accrued healthinsurance costs, a current liability, on our Consolidated Balance Sheets. In addition, the premiums owed to United at December 31, 2015, were $3.1million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.- 32 - Table of ContentsWe believe that recent claims activity is representative of incurred and paid trends during the reporting period. The estimated completion rate andannual trend used to compute incurred but not reported claims involves a significant level of judgment. Accordingly, an increase (or decrease) in thecompletion rate or annual trend used to estimate the incurred claims would result in an increase (or decrease) in benefits costs and net income woulddecrease (or increase) accordingly.The following table illustrates the sensitivity of changes in the completion rate and annual trend on our estimate of total benefit costs of $1.2 billion in2015:Change inCompletion Rate andAnnual Trend Change inBenefits Costs (in thousands) Change inNet Income (in thousands)(2.5)% $(14,108) $8,465(1.0)% (5,642) 3,3851.0% 5,642 (3,385)2.5% 14,108 (8,465)•Workers’ compensation costs – Since October 1, 2007, our workers’ compensation coverage has been provided through our arrangement withACE. Under the ACE Program, we bear the economic burden for the first $1 million layer of claims per occurrence, and effective October 1, 2010, wealso bear the economic burden for a maximum aggregate amount of $5 million per policy year for claim amounts that exceed the first $1 million. ACEbears the economic burden for all claims in excess of these levels. The ACE Program is a fully insured policy whereby ACE has the responsibility to payall claims incurred under the policy regardless of whether we satisfy our responsibilities. Our coverage from September 1, 2003 through September 30,2007 was provided through selected member insurance companies of American International Group, Inc.Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers’compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coveragewhereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting periodincludes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.We employ a third-party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees’ jobresponsibilities, the location of worksite employees, the historical frequency and severity of workers’ compensation claims, and an estimate of future costtrends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporatedinto our workers’ compensation claims cost estimates. During the years ended December 31, 2015 and 2014, we reduced accrued workers’ compensationcosts by $1.3 million and $2.9 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation costestimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payoutperiod (the average discount rate utilized in both 2015 and 2014 was 1.0%) and are accreted over the estimated claim payment period and included as acomponent of direct costs in our Consolidated Statements of Operations.Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims estimates and record an adjustment toworkers’ compensation costs in the period such determination is made. If we were to experience any significant changes in actuarial assumptions, ourloss development rates could increase (or decrease), which would result in an increase (or decrease) in workers’ compensation costs and a resultingdecrease (or increase) in net income reported in our Consolidated Statements of Operations.- 33 - Table of ContentsThe following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers’ compensation costs totaling $78.8million in 2015:Change in Loss DevelopmentRate Change in Workers’Compensation Costs (in thousands) Change inNet Income (in thousands)(5.0)% $(3,121) $1,873(2.5)% (1,561) 9362.5% 1,561 (936)5.0% 3,121 (1,873)At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be setaside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels andexpected workers’ compensation loss rates, as determined by the carrier. Monies funded into the program for incurred claims expected to be paid withinone year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in ourConsolidated Balance Sheets. In 2015, we received $5.3 million for the return of excess claim funds related to the workers’ compensation program, whichdecreased deposits. As of December 31, 2015, we had restricted cash of $37.4 million and deposits of $136.5 million. We have estimated and accrued$162.2 million in incurred workers’ compensation claim costs as of December 31, 2015. Our estimate of incurred claim costs expected to be paid withinone year are recorded as accrued workers’ compensation costs and included in short-term liabilities, while our estimate of incurred claim costs expectedto be paid beyond one year are included in long-term liabilities on our Consolidated Balance Sheets.•Contingent liabilities – We accrue and disclose contingent liabilities in our Consolidated Financial Statements in accordance with ASC 450-10,Contingencies. GAAP requires accrual of contingent liabilities that are considered probable to occur and that can be reasonably estimated. Forcontingent liabilities that are considered reasonably possible to occur, financial statement disclosure is required, including the range of possible loss if itcan be reasonably determined. From time to time we disclose in our financial statements issues that we believe are reasonably possible to occur, althoughwe cannot determine the range of possible loss in all cases. As issues develop, we evaluate the probability of future loss and the potential range of suchlosses. If such evaluation were to determine that a loss was probable and the loss could be reasonably estimated, we would be required to accrue ourestimated loss, which would reduce net income in the period that such determination was made.•Deferred taxes – We have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to berealized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for thevaluation allowance, our ability to realize our deferred tax assets could change from our current estimates. If we determine that we would be able torealize our deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase netincome in the period that such determination is made. Likewise, should we determine that we will not be able to realize all or part of our net deferred taxassets in the future, an adjustment to increase the valuation allowance would reduce net income in the period such determination is made.•Allowance for doubtful accounts – We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our clients to paytheir comprehensive service fees. We believe that the success of our business is heavily dependent on our ability to collect these comprehensive servicefees for several reasons, including:•the fact that we are at risk for the payment of our direct costs and worksite employee payroll costs regardless of whether our clients pay theircomprehensive service fees•the large volume and dollar amount of transactions we process•the periodic and recurring nature of payroll, upon which the comprehensive service fees are basedTo mitigate this risk, we have established very tight credit policies. We generally require our PEO HR Outsourcing solutions clients to pay theircomprehensive service fees no later than one day prior to the applicable payroll date. In addition, we generally maintain the right to terminate the CSAand associated worksite employees or to require prepayment, letters of credit or other collateral if a client’s financial position deteriorates or if the clientdoes not pay the comprehensive service fee. As a result of these efforts, losses related to client nonpayment have historically been low as a percentage ofrevenues. However, if our clients’ financial conditions were to deteriorate rapidly, resulting in nonpayment,- 34 - Table of Contentsour accounts receivable balances could grow and we could be required to provide for additional allowances, which would decrease net income in theperiod that such determination was made.•Property and equipment – Our property and equipment relate primarily to our facilities and related improvements, furniture and fixtures, computerhardware and software and capitalized software development costs. These costs are depreciated or amortized over the estimated useful lives of theassets. If we determine that the useful lives of these assets will be shorter than we currently estimate, our depreciation and amortization expense could beaccelerated, which would decrease net income in the periods of such a determination. In addition, we periodically evaluate these costs for impairment. Ifevents or circumstances were to indicate that any of our long-lived assets might be impaired, we would assess recoverability based on the estimatedundiscounted future cash flows to be generated from the applicable asset. In addition, we may record an impairment loss, which would reduce netincome, to the extent that the carrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate ofdiscounted future net cash flows from operating activities or upon disposal of the asset. Please read Note 1 to the Consolidated Financial Statements,“Accounting Policies,” for additional information.•Goodwill and other intangibles – Goodwill is tested for impairment on an annual basis and between annual tests in certain circumstances, and is writtendown when impaired. Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to beindefinite. Our purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful livesof the respective assets, which ranges from three to 10 years. Please read Note 5 to the Consolidated Financial Statements, “Goodwill and OtherIntangible Assets,” for additional information.New Accounting PronouncementsWe believe that we have implemented the accounting pronouncements with a material impact on our financial statements and do not believe thereare any new or pending pronouncements that will materially impact our financial position or results of operations. In May 2014, the Financial AccountingStandards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU No. 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts with customers and supersedes most current revenuerecognition guidance, including industry-specific guidance. Under ASU No. 2014-09, an entity recognizes revenue for the transfer of promised goods orservices to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. ASU No.2014-09 is effective for annual reporting periods ending after December 15, 2017, and early adoption is not permitted. Companies may use either a fullretrospective or a modified retrospective approach to adopt ASU No. 2014-09. We are currently evaluating the guidance and have not determined the impactthis standard may have on our Consolidated Financial Statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requirescompanies to present deferred income tax assets and deferred income tax liabilities as noncurrent in a classified balance sheet instead of the currentrequirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years beginningafter December 15, 2016, including interim periods within those fiscal years. Early application is permitted either prospectively or retrospectively. InDecember 2015 we adopted ASU No. 2015-17 retrospectively, resulting in a reclassification of a $6.3 million deferred tax asset from current to long term in2014.- 35 - Table of ContentsResults of OperationsYear Ended December 31, 2015 Compared to Year Ended December 31, 2014.The following table presents certain information related to our results of operations: Year ended December 31, 2015 2014 % Change (in thousands, except per share and statistical data)Revenues (gross billings of $15.806 billion and $14.187 billion, less worksite employee payrollcost of $13.202 billion and $11.829 billion, respectively) $2,603,614 $2,357,788 10.4 %Gross profit 437,867 403,805 8.4 %Operating expenses 372,168(1) 356,331(2) 4.4 %Operating income 65,699 47,474 38.4 %Other income (expense) (80) 153 (152.3)%Net income 39,390 28,004 40.7 %Diluted net income per share of common stock 1.58 1.05(3) 50.5 %Adjusted net income(4) 54,519 36,734 48.4 %Adjusted diluted net income per share of common stock(4) 2.19 1.43 53.1 %Adjusted EBITDA(4) 110,014 84,124 30.8 % Statistical Data: Average number of worksite employees paid per month 145,830 130,718 11.6 %Revenues per worksite employee per month(5) $1,488 $1,503 (1.0)%Gross profit per worksite employee per month 250 257 (2.7)%Operating expenses per worksite employee per month 212 227 (6.6)%Operating income per worksite employee per month 38 30 26.7 %Net income per worksite employee per month 23 18 27.8 %____________________________________(1) Includes non-cash impairment and other charges in the first and second quarters of 2015 of $9.8 million and $1.3 million, respectively, offset by areduction of $0.6 million in the fourth quarter of 2015. Please read Note 6 to the Consolidated Financial Statements, “Other Asset Impairments,” foradditional information.(2) Includes a non-cash impairment charge in the second quarter of 2014 of $2.5 million. Please read Note 5 to the Consolidated Financial Statements,“Goodwill and Other Intangible Assets,” for additional information. Also includes a non-cash charge in the fourth quarter of 2014 of $1.2 million. Pleaseread Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.(3) Includes the impact of dividends exceeding earnings under the two-class method, resulting in a $0.05 earnings per share decrease in 2014. Please readNote 11 to the Consolidated Financial Statements, “Net Income Per Share,” for additional information.(4) Please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” for areconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance withGAAP.(5) Gross billings of $9,032 and $9,044 per worksite employee per month, less payroll cost of $7,544 and $7,541 per worksite employee per month,respectively.RevenuesOur revenues, which represent gross billings net of worksite employee payroll cost, increased 10.4% in 2015 compared to 2014, but decreased 1.0%,or $15 on a per worksite employee per month basis compared to 2014. The revenue increase was primarily due to an 11.6% increase in the average number ofworksite employees paid per month, while the 1.0% decrease in revenues per worksite employee per month was primarily due to decreases in the benefits andservice fee pricing.- 36 - Table of ContentsWe provide our PEO HR Outsourcing solutions to small and medium-sized businesses in strategically selected markets throughout the United States.By region, our PEO HR Outsourcing solutions revenue change from 2014 and distribution for the years ended December 31, 2015 and 2014 were as follows: Year ended December 31, Year ended December 31, 2015 2014 % Change 2015 2014 (in thousands) (% of total revenue)Northeast $661,891 $601,526 10.0% 25.9% 26.0%Southeast 262,128 225,709 16.1% 10.3% 9.7%Central 394,649 334,669 17.9% 15.4% 14.5%Southwest 650,350 632,356 2.8% 25.5% 27.3%West 586,252 521,139 12.5% 22.9% 22.5% 2,555,270 2,315,399 10.4% 100.0% 100.0%Other revenue(1) 48,344 42,389 14.0% Total revenue $2,603,614 $2,357,788 10.4% ____________________________________(1) Comprised primarily of revenues generated by our other products and services offeringsThe percentage of total PEO HR Outsourcing solutions revenues in our significant markets include the following: Year ended December 31, 2015 2014Texas 23.7% 25.3%California 18.3% 17.8%New York 9.5% 9.7%Other 48.5% 47.2%Total 100.0% 100.0%Our growth in the number of worksite employees paid is affected by three primary sources: new client sales, client retention and the net change inexisting clients through worksite employee new hires and layoffs. During 2015, new client sales and client retention improved, while the net change inexisting clients remained consistent with 2014. As a result, our year-over-year growth in average worksite employees paid per month in 2015 was 11.6%compared to 2.5% in 2014.Gross ProfitGross profit was $437.9 million in 2015, an 8.4% increase over 2014. The average gross profit per worksite employee per month was $250 in 2015and $257 in 2014. Included in gross profit in both the 2015 and 2014 periods is a $17 per worksite employee per month contribution from our other productsand services offerings.Our pricing objectives attempt to achieve a level of revenue per worksite employee to match or exceed changes in primary direct costs and operatingexpenses. Our revenues per worksite employee per month decreased 1.0% to $1,488 in 2015 versus 2014 and our direct costs, which primarily include payrolltaxes, benefits and workers’ compensation expenses, decreased 0.6% to $1,238 per worksite employee per month. The primary direct cost componentschanged as follows:•Benefits costs – The cost of group health insurance and related employee benefits decreased $3 per worksite employee per month, but increased 1.4%, ona per covered employee basis compared to 2014. The percentage of worksite employees covered under our health insurance plan was 70.4% in 2015 and71.7% in 2014. Please read “—Critical Accounting Policies and Estimates – Benefits Costs” for a discussion of our accounting for health insurance costs.•Workers’ compensation costs – Workers’ compensation costs increased 14.7%, or $1 per worksite employee per month, compared to 2014, due primarilyto an 11.6% increase in the average number of worksite employees paid per month. As a- 37 - Table of Contentspercentage of non-bonus payroll cost, workers’ compensation costs increased to 0.68% in 2015 from 0.67% in 2014. During 2015, we recordedreductions in workers’ compensation costs of $1.3 million, or 0.01% of non-bonus payroll costs, for changes in estimated losses related to prior reportingperiods, compared to $2.9 million, or 0.03% of non-bonus payroll costs, in 2014. The 2015 and 2014 period costs include the impact of a 1.0% discountrate used to accrue workers’ compensation loss claims. Please read “—Critical Accounting Policies and Estimates – Workers’ Compensation Costs” for adiscussion of our accounting for workers’ compensation costs.•Payroll tax costs – Payroll taxes increased 10.3%, but decreased $6 on a per worksite employee per month basis, compared to 2014, due primarily to an11.6% increase in total payroll cost in 2015, offset in part by lower state unemployment tax rates. Payroll taxes as a percentage of payroll cost decreasedto 6.85% in 2015 compared to 6.93% in 2014.Operating ExpensesThe following table presents certain information related to our operating expenses: Year ended December 31, Year ended December 31, 2015 2014 % Change 2015 2014 % Change (in thousands) (per worksite employee per month)Salaries, wages and payroll taxes $211,060 $200,118 5.5 % $120 $127 (5.5)%Stock-based compensation 13,345 11,053 20.7 % 8 7 14.3 %Commissions 18,479 15,285 20.9 % 11 10 10.0 %Advertising 15,980 20,084 (20.4)% 9 13 (30.8)%General and administrative expenses 84,259 84,717 (0.5)% 47 54 (13.0)%Impairment charges and other 10,480 3,687 184.2 % 6 2 200.0 %Depreciation and amortization 18,565 21,387 (13.2)% 11 14 (21.4)%Total operating expenses $372,168 $356,331 4.4 % $212 $227 (6.6)%____________________________________Operating expenses were $372.2 million in 2015, a 4.4% increase over 2014. We recorded $10.5 million of impairment and other charges in 2015and a $3.7 million impairment charge in 2014. Please read Note 1 “Accounting Policies,” Note 5 “Goodwill and Other Intangible Assets,” and Note 6 “OtherAsset Impairments,” to the Consolidated Financial Statements for additional information. Operating expenses per worksite employee per month decreased to$212 in 2015 from $227 in 2014. The components of operating expenses changed as follows:•Salaries, wages and payroll taxes of corporate and sales staff increased 5.5%, but decreased $7 on a per worksite employee per month basis, compared to2014. The increase was primarily due to a 2.7% rise in headcount, including an 11.8% increase in BPAs, and increased incentive compensation,primarily attributable to a higher level of achievement on our 2015 annual incentive goals as compared to 2014.•Stock-based compensation increased 20.7%, or $1 per worksite employee per month, compared to 2014. This increase was primarily due to awards issuedunder our new Long-Term Incentive Program. Stock-based compensation expense represents amortization of restricted stock and long-term incentiveawards granted to employees and the annual stock grant made to non-employee directors. Please read Note 1 “Accounting Policies” and Note 10“Incentive Plans,” to the Consolidated Financial Statements for additional information.•Commissions expense increased 20.9%, or $1 per worksite employee per month, compared to 2014, primarily due to commissions associated with ourPEO HR Outsourcing solutions.•Advertising costs decreased 20.4%, or $4 per worksite employee per month, compared to 2014, primarily due to decreased spending on radio andtelevision advertising and sponsorships.•General and administrative expenses were flat, but decreased $7 per worksite employee per month, compared to 2014.•Depreciation and amortization expense decreased 13.2%, or $3 per worksite employee per month, compared to 2014, primarily due to the July 2015 saleof our aircraft, which eliminated the depreciation on those assets.- 38 - Table of ContentsIncome Tax ExpenseDuring 2015 we incurred federal and state income tax expense of $26.2 million on pre-tax income of $65.6 million. Our provision for income taxesdiffered from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses. Our effective income tax rate was 40.0% in2015 compared to 41.2% in 2014.Net IncomeNet income for 2015 was $39.4 million, or $1.58 per diluted share, compared to $28.0 million, or $1.05 per diluted share in 2014. On a per worksiteemployee per month basis, net income was $23 in 2015 compared to $18 in 2014. Diluted earnings per share in 2014 includes a $0.05 earnings per sharedecrease related to the accounting treatment under the two-class method of dividends exceeding net income. Please read Note 11 to the ConsolidatedFinancial Statements, “Net Income Per Share,” for additional information.- 39 - Table of ContentsYear Ended December 31, 2014 Compared to Year Ended December 31, 2013.The following table presents certain information related to our results of operations: Year ended December 31, 2014 2013 % Change (in thousands, except per share and statistical data)Revenues (gross billings of $14.187 billion and $13.462 billion, less worksiteemployee payroll cost of $11.829 billion and $11.206 billion, respectively) $2,357,788 $2,256,112 4.5 %Gross profit 403,805 393,251 2.7 %Operating expenses 356,331(1) 337,028(2) 5.7 %Operating income 47,474 56,223 (15.6)%Other income (expense) 153 (2,491)(3) (106.1)%Net income 28,004 32,032(4) (12.6)%Diluted net income per share of common stock 1.05(5) 1.25 (16.0)%Adjusted net income(6) 36,734 42,289 (13.1)%Adjusted diluted net income per share of common stock(6) 1.43 1.65 (13.3)%Adjusted EBITDA(6) 84,124 92,303 (8.9)% Statistical Data: Average number of worksite employees paid per month 130,718 127,517 2.5 %Revenues per worksite employee per month(7) $1,503 $1,474 2.0 %Gross profit per worksite employee per month 257 257 —Operating expenses per worksite employee per month 227 220 3.2 %Operating income per worksite employee per month 30 37 (18.9)%Net income per worksite employee per month 18 21 (14.3)%____________________________________(1) Includes a non-cash impairment charge in the second quarter of 2014 of $2.5 million. Please read Note 5 to the Consolidated Financial Statements,“Goodwill and Other Intangible Assets,” for additional information. Also includes a non-cash charge in the fourth quarter of 2014 of $1.2 million. Pleaseread Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.(2) Includes a non-cash impairment charge in the fourth quarter of 2013 of $3.3 million. Please read Note 5 to the Consolidated Financial Statements,“Goodwill and Other Intangible Assets,” for additional information.(3) Includes a non-cash impairment charge in the second quarter of 2013 of $2.7 million. Please read Note 6 to the Consolidated Financial Statements,“Other Asset Impairments,” for additional information.(4) Includes a $2.0 million tax benefit in the fourth quarter of 2013 related to tax years 2009 through 2012. Please read Note 8 to the Consolidated FinancialStatements, “Income Taxes,” for additional information.(5) Includes the impact of dividends exceeding earnings under the two-class method, resulting in a $0.05 earnings per share decrease in 2014. Please readNote 11 to the Consolidated Financial Statements, “Net Income Per Share,” for additional information.(6) Please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” foradditional information.(7) Gross billings of $9,044 and $8,797 per worksite employee per month, less payroll cost of $7,541 and $7,323 per worksite employee per month,respectively.- 40 - Table of ContentsRevenuesOur revenueswhich represent gross billings net of worksite employee payroll cost, increased 4.5% in 2014 compared to 2013, due to a 2.0%, or $29increase in revenues per worksite employee per month and a 2.5% increase in the average number of worksite employees paid per month. The 2.0% increasein revenues per worksite employee per month was primarily due to increases in the benefits and payroll tax pricing to offset increases in these direct costs.We provide our PEO HR Outsourcing solutions to small and medium-sized businesses in strategically selected markets throughout the United States.By region, our PEO HR Outsourcing solutions revenue change from 2013 and distribution for the years ended December 31, 2014 and 2013 were as follows: Year ended December 31, Year ended December 31, 2014 2013 % Change 2014 2013 (in thousands) (% of total revenue)Northeast $601,526 $577,280 4.2% 26.0% 26.0%Southeast 225,709 212,664 6.1% 9.7% 9.6%Central 334,669 329,110 1.7% 14.5% 14.8%Southwest 632,356 613,175 3.1% 27.3% 27.6%West 521,139 488,047 6.8% 22.5% 22.0% 2,315,399 2,220,276 4.3% 100.0% 100.0%Other revenue(1) 42,389 35,836 18.3% Total revenue $2,357,788 $2,256,112 4.5% ____________________________________(1) Comprised primarily of revenues generated by our other products and services offeringsThe percentage of total PEO HR Outsourcing solutions revenues in our significant markets include the following: Year ended December 31, 2014 2013Texas 25.3% 25.6%California 17.8% 17.5%New York 9.7% 9.5%Other 47.2% 47.4%Total 100.0% 100.0%Our growth in the number of worksite employees paid is affected by three primary sources: new client sales, client retention and the net change inexisting clients through worksite employee new hires and layoffs. During 2014, new client sales and the net change in existing clients improved, while clientretention was consistent with 2013. As a result, our year-over-year growth in average worksite employees paid per month in 2014 was 2.5% compared to1.5% in 2013.Gross ProfitGross profit was $403.8 million in 2014, a 2.7% increase over 2013. The average gross profit per worksite employee per month was $257 in both2014 and 2013. Included in gross profit in 2014 is a $17 per worksite employee per month contribution from our other products and services offeringscompared to $14 per worksite employee per month in the 2013 period.Our pricing objectives attempt to achieve a level of revenue per worksite employee to match or exceed changes in primary direct costs and operatingexpenses. Our revenues per worksite employee per month increased 2.0% to $1,503 in 2014 versus 2013, our direct costs, which primarily include payrolltaxes, benefits and workers’ compensation expenses, increased 2.4% to $1,246 per worksite employee per month. The primary direct cost componentschanged as follows:- 41 - Table of Contents•Benefits costs – The cost of group health insurance and related employee benefits increased $12 per worksite employee per month, or 2.4%, on a percovered employee basis compared to 2013. The percentage of worksite employees covered under our health insurance plan was 71.7% in 2014 and72.1% in 2013. Please read “—Critical Accounting Policies and Estimates – Benefits Costs” for a discussion of our accounting for health insurancecosts.•Workers’ compensation costs – Workers’ compensation costs increased 25.2%, or $8 per worksite employee per month, compared to 2013. As apercentage of non-bonus payroll cost, workers’ compensation costs increased to 0.67% in 2014 from 0.55% in 2013. During 2014, we recordedreductions in workers’ compensation costs of $2.9 million, or 0.03% of non-bonus payroll costs, for changes in estimated losses related to prior reportingperiods, compared to $9.3 million, or 0.09% of non-bonus payroll costs in 2013. The 2014 period costs include the impact of a 1.0% discount rate usedto accrue workers’ compensation loss claims, compared to a 0.8% discount rate used in the 2013 period. Please read “—Critical Accounting Policies andEstimates – Workers’ Compensation Costs” for a discussion of our accounting for workers’ compensation costs.•Payroll tax costs – Payroll taxes increased 4.0%, or $7 per worksite employee per month, compared to 2013, due primarily to a 5.6% increase in totalpayroll cost in 2014 offset by lower state unemployment tax rates. Payroll taxes as a percentage of payroll cost decreased to 6.93% in 2014 compared to7.04% in 2013.Operating ExpensesThe following table presents certain information related to our operating expenses: Year ended December 31, Year ended December 31, 2014 2013 % Change 2014 2013 % Change (in thousands) (per worksite employee per month)Salaries, wages and payroll taxes $200,118 $181,444 10.3 % $127 $119 6.7 %Stock-based compensation 11,053 11,103 (0.5)% 7 7 —Commissions 15,285 14,581 4.8 % 10 9 11.1 %Advertising 20,084 21,508 (6.6)% 13 14 (7.1)%General and administrative expenses 84,717 83,986 0.9 % 54 55 (1.8)%Impairment charges and other 3,687 3,342 10.3 % 2 2 —Depreciation and amortization 21,387 21,064 1.5 % 14 14 —Total operating expenses $356,331 $337,028 5.7 % $227 $220 3.2 %Operating expenses were $356.3 million in 2014, a 5.7% increase over 2013. We recorded $3.7 million of impairment charges in 2014 and a $3.3million impairment charge in 2013. Please read Note 1 “Accounting Policies” and Note 5 “Goodwill and Other Intangible Assets” to the ConsolidatedFinancial Statements for additional information. Operating expenses per worksite employee per month increased to $227 in 2014 from $220 in 2013. Thecomponents of operating expenses changed as follows:•Salaries, wages and payroll taxes of corporate and sales staff increased 10.3%, or $8 per worksite employee per month, compared to 2013, primarily dueto a 2.5% rise in headcount and increased incentive compensation. Our incentive compensation expense accounted for approximately one half of the10% year over year increase. The increase in incentive compensation expense during 2014 was the result of achieving our corporate incentive goalsduring the year; whereas our corporate incentive goals were not achieved during 2013.•Stock-based compensation decreased 0.5%, but remained flat on a per worksite employee per month basis compared to 2013. Stock-based compensationexpense represents amortization of restricted stock awards granted to employees and the annual stock grant made to non-employee directors. Please readNote 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.•Commissions expense increased 4.8%, or $1 per worksite employee per month, compared to 2013.•Advertising costs decreased 6.6%, or $1 per worksite employee per month, compared to 2013, primarily due to decreased spending on radio, print mediaand television advertising.- 42 - Table of Contents•General and administrative expenses were flat, but decreased $1 per worksite employee per month , compared to 2013.•Depreciation and amortization expense increased 1.5%, but remained flat on a per worksite employee per month basis, compared to 2013.Other Income (Expense)Other income was $0.2 million in 2014 compared to other expense of $2.5 million in 2013. Included in 2013 is a $2.7 million non-cash impairmentcharge related to our minority investment in The Receivables Exchange. Please read Note 6 to the Consolidated Financial Statements, “Other AssetImpairments,” for additional information.Income Tax ExpenseDuring 2014 we incurred federal and state income tax expense of $19.6 million on pre-tax income of $47.6 million. Our provision for income taxesdiffered from the U.S. statutory rate of 35% primarily due to state income taxes and non-deductible expenses. Our effective income tax rate was 41.2% in2014 compared to 40.4% in 2013.Net IncomeNet income for 2014 was $28.0 million, or $1.05 per diluted share, compared to $32.0 million, or $1.25 per diluted share in 2013. On a per worksiteemployee per month basis, net income was $18 in 2014 compared to $21 in 2013. Diluted earnings per share in 2014 includes a $0.05 earnings per sharedecrease related to the accounting treatment under the two-class method of dividends exceeding net income. Please read Note 11 to the ConsolidatedFinancial Statements, “Net Income Per Share,” for additional information.Non-GAAP Financial MeasuresNon-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by othercompanies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared inaccordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparableGAAP financial measures as provided in the tables below.Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our worksite employees. Bonus payrollcost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program. As a result, ourmanagement refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs. We include these non-GAAP financialmeasures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’compensation program.Following is a GAAP to non-GAAP reconciliation of non-bonus payroll costs: Year ended December 31, 2015 2014 2013 (in thousands, except perworksite employee)Payroll cost (GAAP) $13,202,564 $11,829,133 $11,205,652Less: bonus payroll cost 1,611,857 1,509,010 1,274,575Non-bonus payroll cost $11,590,707 $10,320,123 $9,931,077 Payroll cost per worksite employee (GAAP) $7,544 $7,541 $7,323Less: Bonus payroll cost per worksite employee 921 962 833Non-bonus payroll cost per worksite employee $6,623 $6,579 $6,490EBITDA represents net income computed in accordance with GAAP, plus interest expense, income tax expense and depreciation and amortizationexpense. Adjusted EBITDA represents EBITDA plus non-cash impairments, stockholder- 43 - Table of Contentsadvisory expenses and stock-based compensation. We believe EBITDA and adjusted EBITDA are often useful measures of our operating performance, as theyallow for additional analysis of our operating results separate from the impact of these items.Following is a GAAP to non-GAAP reconciliation of EBITDA and adjusted EBITDA: Year-ended December 31, 2015 2014 2013 2012 2011 (in thousands)Net income (GAAP) $39,390 $28,004 $32,032 $40,402 $30,470Income tax expense 26,229 19,623 21,700 27,888 20,305Interest expense 459 370 383 354 108Depreciation and amortization 18,565 21,387 21,064 18,250 15,218EBITDA 84,643 69,384 75,179 86,894 66,101Impairment charges and other 10,480 3,687 6,021 4,191 —Stock-based compensation 13,345 11,053 11,103 9,814 8,601Stockholder advisory expenses 1,546 — — — —Non-operational items — — — — 7,496Adjusted EBITDA $110,014 $84,124 $92,303 $100,899 $82,198Adjusted cash, cash equivalents and marketable securities excludes funds associated with federal and state income tax withholdings, employmenttaxes and other payroll deductions, as well as client prepayments. We believe adjusted cash, cash equivalents and marketable securities is a useful measure ofour available funds.Following is a GAAP to non-GAAP reconciliation of cash, cash equivalents and marketable securities: December 31, 2015 2014 (in thousands)Cash, cash equivalents and marketable securities (GAAP) $279,413$305,087Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions 185,719152,132Client prepayments 17,03787,887Adjusted cash, cash equivalents and marketable securities $76,657$65,068Adjusted operating expenses represent operating expenses excluding the impact of impairment and other charges related to the sale of two aircraftand stockholder advisory expenses in 2015, an impairment charge associated with our Employment Screening reporting unit in 2014 and an impairmentcharge associated with our Expense Management reporting unit in 2013. We believe adjusted operating expenses is a useful measure of our operating costs,as it allows for additional analysis of our operating expenses separate from the impact of these items.Following is a GAAP to non-GAAP reconciliation of operating expenses and adjusted operating expenses: Year-ended December 31, 2015 2014 2013 (in thousands)Operating expenses (GAAP) $372,168 $356,331 $337,028Less: Impairment charges and other 10,480 3,687 3,342Stockholder advisory expenses 1,546 — —Adjusted operating expenses $360,142 $352,644 $333,686Adjusted net income and adjusted diluted net income per share of common stock represent net income and diluted net income per share computed inaccordance with GAAP, excluding the impact of: (i) impairment and other charges of $10.5- 44 - Table of Contentsmillion related to the sale of two aircraft in 2015; (ii) a $2.5 million impairment charge associated with the Employment Screening reporting unit in 2014;(iii) a $1.2 million non-cash charge related to a revision to our office consolidation plans in 2014; (iv) a $3.3 million impairment charge associated with theExpense Management reporting unit in 2013; (v) a $2.7 million impairment charge related to The Receivables Exchange in 2013; (vi) a $2.0 million taxcredit relating to tax years 2009 - 2012 and recorded in 2013; (vii) a $4.2 million impairment charge associated with the Performance Management reportingunit in 2012; (viii) non-operational expenses of $4.4 million related to the exchange of an aircraft and $3.1 million related to the settlement of a dispute withthe Employment Development Department of the State of California in 2011; (ix) stock-based compensation expenses of $13.3 million in 2015, $11.1million in 2014, $11.1 million in 2013, $9.8 million in 2012 and $8.6 million in 2011; and (x) stockholder advisory expenses of $1.5 million in 2015. Underthe two-class earnings per share method, the undistributed losses resulting from dividends exceeding net income in 2014 and 2012 are not allocated toparticipating securities. Our management believes adjusted net income and adjusted diluted net income per share of common stock are useful measures of ouroperating performance, as they allow for additional analysis of our operating results separate from the impact of these items.Following is a GAAP to non-GAAP reconciliation of adjusted net income: Year-ended December 31, 2015 2014 2013 2012 2011 (in thousands)Net income (GAAP) $39,390 $28,004 $32,032 $40,402 $30,470Impairment charges and other, net of tax 6,129 2,317 5,620 2,460 —Stock-based compensation, net of tax 8,088 6,413 6,619 5,806 5,161Stockholder advisory expenses, net of tax 912 — — — —Non-operational items, net of tax — — — — 4,493Tax credit — — (1,982) — —Adjusted net income $54,519 $36,734 $42,289 $48,668 $40,124Following is a GAAP to non-GAAP reconciliation of adjusted diluted net income per share of common stock: Year-ended December 31, 2015 2014 2013 2012 2011 Diluted net income per share of common stock (GAAP) $1.58 $1.05 $1.25 $1.56 $1.16Impairment charges and other, net of tax 0.25 0.09 0.22 0.10 —Stock-based compensation, net of tax 0.32 0.24 0.26 0.22 0.20Stockholder advisory expenses, net of tax 0.04 — — — —Impact of dividends exceeding earnings — 0.05 — 0.01 —Non-operational items, net of tax — — — — 0.17Tax credit — — (0.08) — —Adjusted diluted net income per share of common stock $2.19 $1.43 $1.65 $1.89 $1.53Liquidity and Capital ResourcesWe periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans,potential acquisitions, debt service requirements and other operating cash needs. To meet short-term liquidity requirements, which are primarily the paymentof direct and operating expenses, we rely primarily on cash from operations. Longer-term projects or significant acquisitions may be financed with debt orequity. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capitalresources. We had $279.4 million in cash, cash equivalents and marketable securities at December 31, 2015, of which approximately $185.7 million waspayable in early January 2016 for withheld federal and state income taxes, employment taxes and other payroll deductions, and $17.0 million were clientprepayments that were payable in January 2016. At December 31, 2015, we had working capital of $54.3 million compared to $66.7 million at December 31,2014. The reduction in working capital reflects, in part, cash flow from operations, offset by share repurchases and dividends. We currently believe that ourcash on hand, marketable securities, cash flows from operations and availability under our revolving credit facility- 45 - Table of Contents(“credit facility”) will be adequate to meet our liquidity requirements for 2016. We intend to rely on these same sources, as well as public and private debt orequity financing, to meet our longer-term liquidity and capital needs.We have a credit facility with a syndicate of financial institutions. In February 2015, the credit facility was increased from $100 million to $125million and the expiration date was extended from September 2015 to February 2020. The credit facility, which may be increased to $150 million based onthe terms and subject to the conditions set forth in the agreement related to the facility, is available for working capital and general corporate purposes,including acquisitions, and was undrawn at December 31, 2015. At December 31, 2015, we had outstanding letters of credit totaling $0.6 million issuedunder the credit facility. In January 2016, we borrowed $104.4 million under the credit facility, which we used to fund a portion of the purchase price for ourmodified Dutch auction tender offer. Please read Item 9B. “Other Information,” Note 7 to the Consolidated Financial Statements, “Revolving Credit Facility”and Note 15 to the Consolidated Financial Statements, “Subsequent Events,” for additional information.Cash Flows from Operating Activities Our cash flows from operating activities in 2015 were $65.1 million. Our primary source of cash from operations is the comprehensive service feeand payroll funding we collect from our PEO HR Outsourcing solutions clients. Cash and cash equivalents, and thus our reported cash flows from operatingactivities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. Theseinclude the following:•Timing of client payments / payroll levels – We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients atleast one day prior to the payment of worksite employee payrolls and associated payroll taxes. Therefore, the last business day of a reporting period hasa substantial impact on our reporting of operating cash flows. For example, many worksite employees are paid on Fridays and at month-end; therefore,operating cash flows decrease in the reporting periods that end on a Friday. In the year ended December 31, 2015, the last business day of the reportingperiod ended on a Thursday, client prepayments were $17.0 million and accrued worksite employee payroll was $161.9 million. In the year endedDecember 31, 2014, which ended on a Wednesday, client prepayments were $87.9 million and accrued worksite employee payroll was $192.4 million.•Workers’ compensation plan funding – Under our workers’ compensation insurance arrangements, we make monthly payments to the carriers comprisedof premium costs and funds to be set aside for payment of future claims (“claim funds”). These pre-determined amounts are stipulated in our agreementswith the carriers and are based primarily on anticipated worksite employee payroll levels and workers’ compensation loss rates during the policy year.Changes in payroll levels from those that were anticipated in the arrangements can result in changes in the amount of the cash payments, which willimpact our reporting of operating cash flows. Our claim funds paid, based upon anticipated worksite employee payroll levels and workers’ compensationloss rates, were $54.2 million in 2015 and $58.3 million in 2014. However, our estimates of workers’ compensation loss costs were $64.5 million and$54.0 million in 2015 and 2014, respectively. During 2015, we received $5.3 million for the return of excess claim funds related to the workers’compensation program, which increased working capital. During 2014, we paid the insurance carrier an additional $7.2 million in claim funds for priorpolicy years, which resulted in a decrease to working capital.•Medical plan funding – Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of areporting quarter. Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changesto the funding rates, which are determined solely by United based primarily upon recent claim history and anticipated cost trends, also have a significantimpact on our operating cash flows. Since inception of the United plan, premiums paid and owed to United have exceeded Plan Costs, resulting in a $2.2million surplus, which is $6.8 million below our agreed-upon $9.0 million surplus maintenance level. The $6.8 million difference is therefore reflected asa current liability, and $9.0 million is reflected as a long-term asset on our Consolidated Balance Sheets at December 31, 2015. In addition, the premiumsowed to United at December 31, 2015, were $3.1 million, which is included in accrued health insurance costs, a current liability, on our ConsolidatedBalance Sheets.•Operating results – Our net income has a significant impact on our operating cash flows. Our net income increased 40.7% to $39.4 million in 2015 from$28.0 million in 2014. Please read “Results of Operations – Year Ended December 31, 2015 Compared to Year Ended December 31, 2014.”Cash Flows Used in Investing Activities- 46 - Table of ContentsNet cash flows from investing activities were $12.4 million during 2015. We invested $17.8 million in capital expenditures, primarily due toproperty and equipment purchases, offset by net proceeds of $17.9 million from the sale of marketable securities and $12.2 million related to the sale of ouraircraft.In December 2015 we began the construction of a 100,000 square foot office facility located on our corporate campus in Kingwood, Texas. The newfacility, which is expected to be completed in 2017, is estimated to cost $25 million. We expect to fund the construction costs with available cash on handand borrowings under our credit facility.Cash Flows Used in Financing ActivitiesOur cash flows used in financing activities were $84.4 million during 2015, primarily due to $67.1 million in share repurchases and $21.2 million individends paid.- 47 - Table of ContentsContractual Obligations and Commercial CommitmentsThe following table summarizes our contractual obligations and commercial commitments as ofDecember 31, 2015, and the effect they are expected to have on our liquidity and capital resources (in thousands): Less than More thanContractual obligations Total 1 Year 1-3 Years 3-5 Years 5 YearsNon-cancelable operating leases $48,458 $13,961 $20,619 $10,566 $3,312Purchase obligations(1) 35,961 20,554(2) 10,940 3,267 1,200Other long-term liabilities: Accrued workers’ compensation claim costs(3) 162,184 37,438 44,361 28,835 51,550Total contractual cash obligations $246,603 $71,953 $75,920 $42,668 $56,062____________________________________(1) The table includes purchase obligations associated with non-cancelable contracts individually greater than $100,000 and one year.(2) Includes $13 million related to the construction of a new facility on our corporate campus. For more information, please read Item 2. “Properties.”(3) Accrued workers’ compensation claim costs include the short and long-term amounts. For more information, please read, “– Critical Accounting Policiesand Estimates – Workers’ Compensation Costs.”Seasonality, Inflation and Quarterly FluctuationsOur quarterly earnings are impacted by the seasonal nature of our medical claims costs. Typically, medical claims costs tend to increase throughoutthe year with the fourth quarter being the period with the highest costs, which has a negative impact on our fourth quarter earnings. This trend is primarily theresult of many worksite employees’ medical plan deductibles being fully met by the fourth quarter, which increases our liability with respect to those claims.We have also experienced variability on a quarterly basis in medical claims costs based on the unpredictable nature of large claims. These historical trendsmay change and other seasonal trends may develop in the future. For further information related to our health insurance costs, please read Item 7.“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates - Benefits Costs.”We believe the effects of inflation have not had a significant impact on our results of operations or financial condition.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We are primarily exposed to market risks from fluctuations in interest rates and the effects of those fluctuations on the market values of our cashequivalent short-term investments and our available-for-sale marketable securities. In addition, borrowings under our credit facility bear interest at a variablemarket rate. As of December 31, 2015, we had not drawn on the credit facility. Please read Item 9B. “Other Information” and Note 7 to the ConsolidatedFinancial Statements, “Revolving Credit Facility,” for additional information. Our cash equivalent short-term investments consist primarily of overnightinvestments, which are not significantly exposed to interest rate risk, except to the extent that changes in interest rates will ultimately affect the amount ofinterest income earned on these investments. Our available-for-sale marketable securities are subject to interest rate risk because these securities generallyinclude a fixed interest rate. As a result, the market values of these securities are affected by changes in prevailing interest rates.We attempt to limit our exposure to interest rate risk primarily through diversification and low investment turnover. Our investment policy isdesigned to maximize after-tax interest income while preserving our principal investment. As a result, our marketable securities consist of tax-exempt shortand intermediate-term debt securities, which are primarily pre-refunded municipal bonds that are secured by escrow funds containing U.S. GovernmentSecurities.- 48 - Table of ContentsThe following table presents information about our available-for-sale marketable securities as of December 31, 2015 (dollars in thousands): PrincipalMaturities CouponInterest Rate EffectiveYield2016 $7,205 4.91% 0.45%2017 2,255 5.50% 0.76%2018 125 — 0.88%Total $9,585 4.99% 0.53%Fair Market Value $9,875 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.The information required by this Item 8 is contained in a separate section of this Annual Report. See “Index to Consolidated Financial Statements.”ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM 9A. CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and ProceduresIn accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with the participation ofmanagement, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end ofthe period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controlsand procedures were effective as of December 31, 2015.Design and Evaluation of Internal Control over Financial ReportingPursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we included a report of management’s assessment of the design and effectiveness of ourinternal controls as part of this Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Ernst & Young, LLP, our independent registeredpublic accounting firm, also audited our internal control over financial reporting. Management’s report and the independent registered public accountingfirm’s audit report are included in our 2015 Consolidated Financial Statements under the captions entitled “Management’s Report on Internal Control” and“Report of Independent Registered Public Accounting Firm,” and are incorporated herein by reference.There has been no change in our internal controls over financial reporting that occurred during the three months ended December 31, 2015, that hasmaterially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.ITEM 9B. OTHER INFORMATION.Recent DevelopmentIn January 2016, we completed a modified Dutch auction tender offer whereby 3,013,531 shares of our common stock were repurchased for $143.1million, excluding $1.1 million of transaction costs. The shares were then canceled and retired. The tender offer was funded with borrowings of $104.4million under our credit facility and the remainder with cash on hand.- 49 - Table of ContentsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.Some of the information required by this item is incorporated by reference to the information set forth under the captions “Election of Directors” and“Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement to be filed with the Securities and Exchange Commissionpursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this report (the “Insperity Proxy Statement”).Code of Business Conduct and EthicsOur Board of Directors adopted our Code of Business Conduct and Ethics (the “Code of Ethics”), which meets the requirements of Rule 303A.10 ofthe New York Stock Exchange Listed Company Manual and Item 406 of Regulation S-K. You can access our Code of Ethics on the Corporate Governancepage of our website at insperity.com. Changes in and waivers to the Code of Ethics for our directors, executive officers and certain senior financial officerswill be posted on our Internet website within five business days and maintained for at least 12 months.ITEM 11. EXECUTIVE COMPENSATION.The information required by this item is incorporated by reference to the information set forth under the captions “Director Compensation” and“Executive Compensation” in the Insperity Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.The information required by this item is incorporated by reference to the information set forth under the caption “Security Ownership of CertainBeneficial Owners and Management” in the Insperity Proxy Statement.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The information required by this item is incorporated by reference to the information set forth under the caption “Certain Relationships and RelatedTransactions” in the Insperity Proxy Statement.ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.The information required by this item is incorporated by reference to the information set forth under the caption “Ratification and Appointment ofIndependent Public Accountants – Fees of Ernst & Young LLP” and “—Finance, Risk Management and Audit Committee Pre-Approval Policy for Audit andNon-Audit Services” in the Insperity Proxy Statement.- 50 - Table of ContentsPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.(a) 1. Financial Statements of the CompanyThe Consolidated Financial Statements listed by the Registrant on the accompanying Index to Consolidated Financial Statements are filedas part of this Annual Report.(a) 2. Financial Statement SchedulesThe required information is included in the Consolidated Financial Statements or Notes thereto.(a) 3. List of Exhibits 3.1Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 (No. 33-96952)). 3.2Certificate of Ownership and Merger dated March 3, 2011 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q forthe quarter ended March 31, 2011). 3.3Amended and Restated Bylaws of Insperity, Inc. dated February 17, 2014 (incorporated by reference to Exhibit 3.1 to the Registrant’sCurrent Report on Form 8-K filed on February 18, 2014). 3.4Certificate of Designation of Series A Junior Participating Preferred Stock setting forth the terms of the Preferred Stock (included asExhibit A to the Rights Agreement). 4.1Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1(No. 33-96952)). 4.2Rights Agreement dated as of November 13, 2007 between Insperity, Inc. and Mellon Investor Services, LLC, as Rights Agent (the“Rights Agreement”) (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 16,2007). 4.3Form of Rights Certificate (included as Exhibit B to the Rights Agreement). 10.1†Insperity, Inc. 2001 Incentive Plan, as amended and restated (incorporated by reference to Appendix A to the Registrant’s definitiveproxy statement on Schedule 14A filed on March 18, 2009 (No. 1-13998)). 10.2†Form of Director Stock Option Agreement (Annual Grant) (incorporated by reference to Exhibit 10.11 to the Registrant’s Form 10-K forthe year ended December 31, 2004). 10.3†Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.12 to the Registrant’s Form 10-K for the year endedDecember 31, 2004). 10.4†Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter endedSeptember 30, 2012). 10.5†Form of Director Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarter endedSeptember 30, 2012). 10.6†Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for thequarter ended September 30, 2012). 10.7†Form of Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K filed on February 22, 2013). 10.8†Form of New Hire Employee Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s CurrentReport on Form 8-K filed on February 22, 2013). 10.9†Form of Named Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.4 to the Registrant’sCurrent Report on Form 8-K filed on February 22, 2013). 10.10†Form of Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report onForm 8-K filed on February 22, 2013). 10.11†Form of Employee Award Notice and Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form8-K filed on April 2, 2015). 10.12†Directors Compensation Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarter ended September30, 2012). 10.13†Amendment to the Directors Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form8-K filed on February 22, 2013).- 51 - Table of Contents 10.14†First Amendment and Appendix A to Directors Compensation Plan (incorporated by reference to Exhibit 10.2 to the Registrant’sCurrent Report on Form 8-K filed on February 25, 2015). 10.15†Board of Directors Compensation Arrangements (incorporated by reference to the Registrant’s Current Report on Form 8-K datedFebruary 7, 2005). 10.16Insperity, Inc. 2008 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statementon Form S-8 (No. 333-151275)). 10.17Insperity, Inc. 2012 Incentive Plan (incorporated by reference to the Registrant’s definitive proxy statement on Schedule 14A filed onMarch 29, 2012 (No. 1-13998)). 10.18First Amendment to the Insperity, Inc. 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Reporton Form 8-K filed on February 22, 2013). 10.19Second Amendment to Insperity, Inc. 2012 Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Reporton Form 8-K filed on February 25, 2015). 10.20Insperity, Inc. Long-Term Incentive Program (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-Kfiled on April 2, 2015). 10.21(+)Amendment to Various Agreements between United Healthcare Insurance Company and Insperity Holdings, Inc. (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarter ended June 30, 2005). 10.22Houston Service Center Operating Lease Amendment (incorporated by reference to Exhibit 10.27 to the Registrant’s Form 10-K for theyear ended December 31, 2004). 10.23(+)Amendment to Minimum Premium Financial Agreement, as amended and restated effective January 1, 2005, by and between InsperityHoldings, Inc., and UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q forthe quarter ended June 30, 2007). 10.23(+)Amendment to Minimum Premium Administrative Services Agreement, as amended and restated effective January 1, 2005, by andbetween Insperity Holdings, Inc., and UnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.3 to theRegistrant’s Form 10-Q for the quarter ended June 30, 2007). 10.24(+)Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2009, by and between Insperity Holdings, Inc.(fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 10-Q for the quarter ended March 31, 2013). 10.25(+)Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2013, by and between Insperity Holdings, Inc.and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarterended September 30, 2015). 10.26(+)Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2008, by and between InsperityHoldings, Inc. (fka Administaff of Texas, Inc.) and United Healthcare Insurance Company (incorporated by reference to Exhibit 10.2 tothe Registrant’s Form 10-Q for the quarter ended March 31, 2013). 10.27(+)Amendment to Minimum Premium Administrative Services Agreement, as amended effective January 1, 2013, by and between InsperityHoldings, Inc. and United Healthcare Insurance Company, effective as of January 1, 2015 (incorporated by reference to Exhibit 10.3 tothe Registrant’s Form 10-Q for the quarter ended September 30, 2015). 10.28(+)Letter Agreement, dated September 2, 2014, by and between Insperity Holdings, Inc. andUnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q for the quarter endedSeptember 30, 2014). 10.29(+)Letter Agreement, dated August 28, 2015, by and between Insperity Holdings, Inc. andUnitedHealthcare Insurance Company (incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q for the quarter endedSeptember 30, 2015). 10.30(+)Amendment to Minimum Premium Financial Agreement, as amended effective January 1, 2011, byand between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) and UnitedHealthcare InsuranceCompany, effective as of January 1, 2013 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q for the quarter endedSeptember 30, 2014). 10.31(+)Amendment to Minimum Premium Administrative Services Agreement, as amended effective January1, 2011, by and between Insperity Holdings, Inc. (fka Administaff of Texas, Inc.) andUnitedHealthcare Insurance Company, effective as of January 1, 2013(incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q for the quarter ended September 30, 2014). 10.32Exchange Agreement for Corporate Aircraft, dated August 30, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form10-Q for the quarter ended September 30, 2011).- 52 - Table of Contents 10.33Credit Agreement dated September 15, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-Kfiled on September 21, 2011). 10.34Amendment No. 1 to the Credit Agreement dated December 7, 2012 (incorporated by reference to Exhibit 10.32 to the Registrant’s Form10-K for the year ended December 31, 2012). 10.35Amendment No. 2 to the Credit Agreement dated December 1, 2014. 10.36Amendment No. 3 to the Credit Agreement dated February 6, 2015. 10.37Agreement, dated as of March 21, 2015, by and among Insperity, Inc. and Starboard Value LP and certain of its affiliates (incorporatedby reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on on March 31, 2015). 21.1*Subsidiaries of Insperity, Inc. 23.1*Consent of Independent Registered Public Accounting Firm. 24.1*Powers of Attorney. 31.1*Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2*Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1**Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2**Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS*XBRL Instance Document(1). 101.SCH*XBRL Taxonomy Schema Document. 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF*XBRL Extension Definition Linkbase Document. 101.LAB*XBRL Taxonomy Extension Label Linkbase Document. 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document. *Filed herewith. **Furnished with this report.____________________________________(1) Attached as exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) theConsolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013; (ii) the Consolidated Balance Sheets atDecember 31, 2015 and 2014; (iii) the Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and2013; (iv) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013; and (v) theConsolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.†Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.(+)Confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and ExchangeCommission.- 53 - Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Insperity, Inc. has duly caused this report to be signed inits behalf by the undersigned, thereunto duly authorized, on February 12, 2016. INSPERITY, INC. By:/s/ Douglas S. Sharp Douglas S. Sharp Senior Vice President of Finance Chief Financial Officer and Treasurer- 54 - Table of ContentsPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Insperity, Inc.in the capacities indicated on February 12, 2016: Signature Title /s/ Paul J. Sarvadi Chairman of the Board, Chief Executive OfficerPaul J. Sarvadi and Director (Principal Executive Officer) /s/ Richard G. Rawson President and DirectorRichard G. Rawson /s/ Douglas S. Sharp Senior Vice President of FinanceDouglas S. Sharp Chief Financial Officer and Treasurer (Principal Financial Officer) * DirectorMichael W. Brown * DirectorPeter A. Feld * DirectorEli Jones * DirectorCarol R. Kaufman * DirectorMichelle McKenna-Doyle * DirectorNorman R. Sorensen /s/ Austin P. Young DirectorAustin P. Young *By: /s/ Daniel D. Herink Daniel D. Herink, attorney-in-fact - 55 - Table of ContentsINSPERITY, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting FirmF-2 Management’s Report on Internal ControlF-3 Report of Independent Registered Public Accounting Firm on Internal Control over Financial ReportingF-4 Consolidated Balance Sheets as of December 31, 2015 and 2014F-5 Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013F-7 Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013F-8 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015, 2014 and 2013F-9 Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013F-10 Notes to Consolidated Financial StatementsF-12F-1 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersInsperity, Inc.We have audited the accompanying Consolidated Balance Sheets of Insperity, Inc. as of December 31, 2015 and 2014, and the related ConsolidatedStatements of Operations, Comprehensive Income, Stockholders’ Equity and Cash Flows for each of the three years in the period ended December 31, 2015.These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statementsbased on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Insperity, Inc. atDecember 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31,2015, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Insperity, Inc.’s internal controlover financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 12, 2016 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Houston, TexasFebruary 12, 2016F-2 Table of ContentsMANAGEMENT’S REPORT ON INTERNAL CONTROLThe Company has assessed the effectiveness of its internal control over financial reporting as of December 31, 2015, based on criteria established in InternalControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 framework). TheCompany’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. The effectiveness of theCompany’s internal control over financial reporting as of December 31, 2015 has been audited by the Company’s independent registered public accountingfirm, as stated in their report that is included herein.Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financialreporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparationof financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made onlyin accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because ofthe inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies and procedures may deteriorate.The Company’s assessment of the effectiveness of its internal control over financial reporting included testing and evaluating the design and operatingeffectiveness of its internal controls. In management’s opinion, the Company has maintained effective internal control over financial reporting as ofDecember 31, 2015, based on criteria established in the COSO 2013 framework./s/ Paul J. Sarvadi /s/ Douglas S. SharpPaul J. Sarvadi Douglas S. SharpChairman of the Board and Senior Vice President of FinanceChief Executive Officer Chief Financial Officer and TreasurerF-3 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersInsperity, Inc.We have audited Insperity, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Insperity,Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internalcontrol over financial reporting included in the accompanying Management’s Report on Internal Control. Our responsibility is to express an opinion on thecompany’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, Insperity, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on theCOSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated BalanceSheets of Insperity, Inc. as of December 31, 2015 and 2014, and the related Consolidated Statements of Operations, Comprehensive Income, Stockholders’Equity and Cash Flows for each of the three years in the period ended December 31, 2015 of Insperity, Inc. and our report dated February 12, 2016 expressedan unqualified opinion thereon. /s/ Ernst & Young LLP Houston, TexasFebruary 12, 2016F-4 Table of ContentsINSPERITY, INC.CONSOLIDATED BALANCE SHEETS(in thousands)ASSETS December 31, 2015 December 31, 2014Current assets: Cash and cash equivalents $269,538 $276,456Restricted cash 37,418 44,040Marketable securities 9,875 28,631Accounts receivable, net: Trade 7,691 12,010Unbilled 190,715 160,154Other 2,259 2,952Prepaid insurance 7,417 21,301Other current assets 17,135 17,649Total current assets 542,048 563,193 Property and equipment: Land 5,214 5,214Buildings and improvements 70,273 70,471Computer hardware and software 90,654 89,204Software development costs 45,762 41,314Furniture, fixtures and other 39,919 38,604Aircraft — 35,879 251,822 280,686Accumulated depreciation and amortization (190,063) (196,341)Total property and equipment, net 61,759 84,345 Other assets: Prepaid health insurance 9,000 9,000Deposits – health insurance 3,700 3,700Deposits – workers’ compensation 136,462 113,934Goodwill and other intangible assets, net 13,588 14,457Deferred income taxes, net 16,976 2,241Other assets 1,379 1,725Total other assets 181,105 145,057Total assets $784,912 $792,595F-5 Table of ContentsINSPERITY, INC.CONSOLIDATED BALANCE SHEETS (Continued)(in thousands)LIABILITIES AND STOCKHOLDERS’ EQUITY December 31, 2015 December 31, 2014Current liabilities: Accounts payable $5,381 $4,674Payroll taxes and other payroll deductions payable 205,393 176,341Accrued worksite employee payroll cost 161,917 192,396Accrued health insurance costs 13,643 18,329Accrued workers’ compensation costs 39,053 45,592Accrued corporate payroll and commissions 39,103 32,644Other accrued liabilities 20,250 22,444Income tax payable 2,971 4,031Total current liabilities 487,711 496,451 Noncurrent liabilities: Accrued workers’ compensation costs 124,746 92,048Total noncurrent liabilities 124,746 92,048 Commitments and contingencies Stockholders’ equity: Preferred stock, par value $0.01 per share: Shares authorized – 20,000 Shares issued and outstanding – none — —Common stock, par value $0.01 per share: Shares authorized – 60,000 Shares issued – 30,758 at December 31, 2015 and 2014 308 308Additional paid-in capital 144,701 137,769Treasury stock, at cost – 6,493 and 5,425 at December 31, 2015 and 2014, respectively (205,325) (148,465)Accumulated other comprehensive income, net of tax — 3Retained earnings 232,771 214,481Total stockholders’ equity 172,455 204,096Total liabilities and stockholders’ equity $784,912 $792,595 See accompanying notes.F-6 Table of ContentsINSPERITY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts) Year ended December 31, 2015 2014 2013Revenues (gross billings of $15.806 billion, $14.187 billion and $13.462 billion, less worksite employee payroll cost of $13.202 billion, $11.829 billion and $11.206 billion, respectively) $2,603,614 $2,357,788 $2,256,112Direct costs: Payroll taxes, benefits and workers’ compensation costs 2,165,747 1,953,983 1,862,861Gross profit 437,867 403,805 393,251 Operating expenses: Salaries, wages and payroll taxes 211,060 200,118 181,444Stock-based compensation 13,345 11,053 11,103Commissions 18,479 15,285 14,581Advertising 15,980 20,084 21,508General and administrative expenses 84,259 84,717 83,986Impairment charges and other 10,480 3,687 3,342Depreciation and amortization 18,565 21,387 21,064 372,168 356,331 337,028Operating income 65,699 47,474 56,223 Other income (expense): Interest, net 33 106 158Other, net (113) 47 (2,649) Income before income tax expense 65,619 47,627 53,732 Income tax expense 26,229 19,623 21,700 Net income $39,390 $28,004 $32,032 Less distributed and undistributed earnings allocated to participating securities (981) (2,002) (916) Net income allocated to common shares $38,409 $26,002 $31,116 Basic net income per share of common stock $1.58 $1.05 $1.25 Diluted net income per share of common stock $1.58 $1.05 $1.25 See accompanying notes.F-7 Table of ContentsINSPERITY, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Year ended December 31, 2015 2014 2013 Net income $39,390 $28,004 $32,032 Other comprehensive income: Unrealized gain (loss) on available-for-sale securities, net of tax (3) (26) 13 Comprehensive income $39,387 $27,978 $32,045See accompanying notes.F-8 Table of ContentsINSPERITY, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands) Common StockIssued AdditionalPaid-InCapital TreasuryStock Accumulated OtherComprehensiveIncome (Loss) RetainedEarnings Shares Amount TotalBalance at December 31, 2012 30,758 $308 $133,207 $(133,950) $16 $241,324 $240,905Purchase of treasury stock, at cost — — — (17,229) — — (17,229)Exercise of stock options — — (790) 2,238 — — 1,448Income tax benefit from stock-basedcompensation, net — — 1,259 — — — 1,259Stock-based compensation expense — — 1,798 9,305 — — 11,103Other — — 179 948 — — 1,127Dividends paid — — — — — (17,386) (17,386)Unrealized gain on marketable securities, netof tax — — — — 13 — 13Net income — — — — — 32,032 32,032Balance at December 31, 2013 30,758 $308 $135,653 $(138,688) $29 $255,970 $253,272Purchase of treasury stock, at cost — — — (20,769) — — (20,769)Exercise of stock options — — (180) 459 — — 279Income tax benefit from stock-basedcompensation, net — — 488 — — — 488Stock-based compensation expense — — 1,592 9,461 — — 11,053Other — — 216 1,072 — — 1,288Dividends paid — — — — — (69,493) (69,493)Unrealized loss on marketable securities, netof tax — — — — (26) — (26)Net income — — — — — 28,004 28,004Balance at December 31, 2014 30,758 $308 $137,769 $(148,465) $3 $214,481 $204,096Purchase of treasury stock, at cost — — — (67,113) — — (67,113)Exercise of stock options — — (3) 377 — — 374Income tax benefit from stock-basedcompensation, net — — 2,216 — — — 2,216Stock-based compensation expense — — 4,239 9,053 — 53 13,345Other — — 480 823 — — 1,303Dividends paid — — — — — (21,153) (21,153)Unrealized loss on marketable securities, netof tax — — — — (3) — (3)Net income — — — — — 39,390 39,390Balance at December 31, 2015 30,758 $308 $144,701 $(205,325) $— $232,771 $172,455See accompanying notes.F-9 Table of ContentsINSPERITY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year ended December 31, 2015 2014 2013Cash flows from operating activities: Net income $39,390 $28,004 $32,032Adjustments to reconcile net income to net cash provided by operatingactivities: Depreciation and amortization 18,565 21,387 21,064Impairment charges and other 10,480 3,687 6,021Amortization of marketable securities 836 1,891 2,119Stock-based compensation 13,345 11,053 11,103Deferred income taxes (14,733) (1,733) (2,288)Changes in operating assets and liabilities: Restricted cash 6,622 7,888 (4,779)Accounts receivable (25,549) 34,893 (19,623)Prepaid insurance 13,884 (10,663) 4,982Other current assets 514 (5,596) (2,402)Other assets (22,069) (32,013) (18,091)Accounts payable 707 1,996 (982)Payroll taxes and other payroll deductions payable 29,052 10,737 (12,930)Accrued worksite employee payroll expense (30,479) 18,595 23,731Accrued health insurance costs (4,686) 13,226 (8,839)Accrued workers’ compensation costs 26,159 15,805 7,815Accrued corporate payroll, commissions and other accrued liabilities 4,105 18,517 556Income taxes payable/receivable (1,060) 4,039 (4,825)Total adjustments 25,693 113,709 2,632Net cash provided by operating activities 65,083 141,713 34,664Cash flows from investing activities: Marketable securities: Purchases (10,558) (69,578) (54,756)Proceeds from maturities 10,593 28,494 15,201Proceeds from dispositions 17,869 56,880 8,026Property and equipment: Purchases (17,844) (19,124) (11,562)Proceeds from sale of aircraft 12,159 — —Proceeds from dispositions 153 122 57Net cash provided by (used in) investing activities 12,372 (3,206) (43,034)F-10 Table of ContentsINSPERITY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(in thousands) Year ended December 31, 2015 2014 2013Cash flows from financing activities: Purchase of treasury stock $(67,113) $(20,769) $(17,229)Dividends paid (21,153) (69,493) (17,386)Proceeds from the exercise of stock options 374 279 1,448Income tax benefit from stock-based compensation 2,216 889 1,621Other 1,303 1,288 1,127Net cash used in financing activities (84,373) (87,806) (30,419) Net increase (decrease) in cash and cash equivalents (6,918) 50,701 (38,789)Cash and cash equivalents at beginning of year 276,456 225,755 264,544Cash and cash equivalents at end of year $269,538 $276,456 $225,755 Supplemental disclosures: Cash paid for income taxes, net $39,806 $16,429 $27,191See accompanying notes.F-11 Table of ContentsINSPERITY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2015 1.Accounting PoliciesDescription of BusinessInsperity, Inc. (“Insperity” or “we”, “our”, and “us”) provides an array of human resources (“HR”) and business solutions designed to help improvebusiness performance. Since our formation in 1986, we have evolved from being solely a professional employer organization (“PEO”), an industry wepioneered, to our current position as a comprehensive business performance solutions provider. We were organized as a corporation in 1986 and haveprovided PEO services since inception.Our most comprehensive HR services offerings are provided through our Workforce Optimization® and Workforce SynchronizationTM solutions(together, our “PEO HR Outsourcing solutions”), which encompass a broad range of human resources functions, including payroll and employmentadministration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, alongwith our cloud-based human capital management platform, the Employee Service CenterSM (“ESC”).In addition to our PEO HR Outsourcing solutions, we offer a number of other business performance solutions, including Human CapitalManagement, Payroll Services, Time and Attendance, Performance Management, Organizational Planning, Recruiting Services, Employment Screening,Financial and Expense Management services, Retirement Services and Insurance Services, many of which are offered via desktop applications and cloud-based delivery models. These other products and services are offered separately, as a bundle, or along with our PEO HR Outsourcing solutions.We provide our PEO HR Outsourcing solutions by entering into a co-employment relationship with our clients, under which Insperity and its clientseach take responsibility for certain portions of the employer-employee relationship. Insperity and its clients designate each party’s responsibilities throughits Client Service Agreement (“CSA”), under which Insperity becomes the employer of the employees who work at the client’s location (“worksiteemployees”) for most administrative and regulatory purposes.As a co-employer of its worksite employees, we assume many of the rights and obligations associated with being an employer. We enter into anemployment agreement with each worksite employee, thereby maintaining a variety of employer rights, including the right to hire or terminate employees,the right to evaluate employee qualifications or performance, and the right to establish employee compensation levels. Typically, Insperity only exercisesthese rights in consultation with its clients or when necessary to ensure regulatory compliance. The responsibilities associated with our role as employerinclude the following obligations with regard to our worksite employees: (i) to compensate its worksite employees through wages and salaries; (ii) to pay theemployer portion of payroll-related taxes; (iii) to withhold and remit (where applicable) the employee portion of payroll-related taxes; (iv) to provideemployee benefit programs; and (v) to provide workers’ compensation insurance coverage.In addition to our assumption of employer status for our worksite employees, our PEO HR Outsourcing solutions also include other human resourcesfunctions for our clients to support the effective and efficient use of personnel in their business operations. To provide these functions, we maintain asignificant staff of professionals trained in a wide variety of human resources functions, including employee training, employee recruiting, employeeperformance management, employee compensation and employer liability management. These professionals interact and consult with clients on a dailybasis to help identify each client’s service requirements and to ensure that we are providing appropriate and timely personnel management services.Revenue and Direct Cost RecognitionWe account for our PEO HR Outsourcing solutions revenues in accordance with Accounting Standards Codification (“ASC”) 605-45, RevenueRecognition, Principal Agent Considerations. Our PEO HR Outsourcing solutions revenues are primarily derived from our gross billings, which are based on(i) the payroll cost of its worksite employees; and (ii) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrentlywith each periodic payroll of its worksite employees. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely ofmarkup, are recognized ratably over the payroll period as worksite employees perform their service at the client worksite.F-12 Table of ContentsRevenues that have been recognized but not invoiced are included in unbilled accounts receivable on our Consolidated Balance Sheets.In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associatedwith our worksite employees, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, ouroperating results are significantly impacted by our ability to accurately estimate, control and manage our direct costs relative to the revenues derived fromthe markup component of our gross billings.Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our worksite employees. Our direct costsassociated with our revenue generating activities are primarily comprised of all other costs related to our worksite employees, such as the employer portion ofpayroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs.Segment ReportingWe operate one reportable segment under ASC 280, Segment Reporting.Principles of ConsolidationThe Consolidated Financial Statements include the accounts of Insperity, Inc. and its wholly owned subsidiaries. Intercompany accounts andtransactions have been eliminated in consolidation.Use of EstimatesThe preparation of financial statements in conformity with United States Generally Accepted Accounting Principles requires management to makeestimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from thoseestimates.Concentrations of Credit RiskFinancial instruments that could potentially subject us to concentration of credit risk include accounts receivable and marketable securities.Cash, Cash Equivalents and Marketable SecuritiesWe invest our excess cash in federal government and municipal-based money market funds and debt instruments of U.S. municipalities. All highlyliquid investments with stated maturities of three months or less from date of purchase are classified as cash equivalents. Liquid investments with statedmaturities of greater than three months are classified as marketable securities in current assets.We account for marketable securities in accordance with ASC 320, Investments – Debt and Equity Securities. We determine the appropriateclassification of all marketable securities as held-to-maturity, available-for-sale or trading at the time of purchase, and re-evaluate such classification as ofeach balance sheet date. At December 31, 2015 and 2014, all of our investments in marketable securities were classified as available-for-sale, and as a result,were reported at fair value. Unrealized gains and losses are reported as a component of accumulated other comprehensive income (loss) in stockholders’equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts from the date of purchase to maturity. Suchamortization is included in interest income as an addition to or deduction from the coupon interest earned on the investments. We use the specificidentification method of determining the cost basis in computing realized gains and losses on the sale of our available-for-sale securities. Realized gains andlosses are included in other income.Fair Value of Financial InstrumentsThe carrying amounts of cash, cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-termmaturities of these instruments.F-13 Table of ContentsProperty and EquipmentProperty and equipment are recorded at cost and are depreciated over the estimated useful lives of the related assets using the straight-linemethod. The estimated useful lives of property and equipment for purposes of computing depreciation are as follows: Buildings and improvements 5-30 yearsComputer hardware and software 2-5 yearsSoftware development costs 3-5 yearsFurniture, fixtures and other 5-7 yearsAircraft 15-20 yearsSoftware development costs relate primarily to software coding, system interfaces and testing of our proprietary professional employer informationsystems and are accounted for in accordance with ASC 350-40, Internal Use Software. Capitalized software development costs are amortized using thestraight-line method over the estimated useful lives of the software, generally three years. We recognized $3.3 million, $4.1 million and $3.6 million inamortization of capitalized computer software costs in 2015, 2014 and 2013, respectively. Unamortized software development costs were $7.1 million and$6.0 million in 2015 and 2014, respectively.We account for our software products in accordance with ASC 985-20, Costs of Software to be Sold. This Topic establishes standards of financialaccounting and reporting for the costs of computer software to be sold, leased, or otherwise marketed as a separate product or as part of a product or process,whether internally developed and produced or purchased.We periodically evaluate our long-lived assets for impairment in accordance with ASC 360-10, Property, Plant, and Equipment. ASC 360-10requires that an impairment loss be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not berecoverable. If events or circumstances were to indicate that any of our long-lived assets might be impaired, we would assess recoverability based on theestimated undiscounted future cash flows to be generated from the applicable asset. In addition, we may record an impairment loss to the extent that thecarrying value of the asset exceeded the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows fromoperating activities or upon disposal of the asset. Due to a change in office consolidation plans, we recorded a $1.2 million non-cash charge related to officedesign fees in 2014.Goodwill and Other Intangible AssetsOur purchased intangible assets are carried at cost less accumulated amortization. Amortization is computed over the estimated useful lives of therespective assets, ranging from three to 10 years.Our goodwill and intangible assets are subject to the provisions of ASC 350, Intangibles – Goodwill and Other. Accordingly, we perform our annualgoodwill impairment testing as of December 31st of each calendar year or earlier if indicators of impairment exist on an interim basis. Step one of theimpairment testing involves a comparison of the estimated fair value of a reporting unit to the related carrying value. Fair value is estimated using adiscounted cash flow model. If the estimated fair value is less than its related carrying value, step two of the goodwill impairment test is completed, whichinvolves allocating the estimated fair value of the reporting unit to individual assets and liabilities. If the carrying value of goodwill is greater than theestimated fair value, an impairment exists, which results in a write-down of the goodwill to the estimated fair value. Furthermore, ASC 350 requires purchasedintangible assets other than goodwill to be amortized over their useful lives unless these lives are determined to be indefinite. Please read Note 5, “Goodwilland Other Intangible Assets,” for additional information.Health Insurance CostsWe provide group health insurance coverage to our worksite employees through a national network of carriers including UnitedHealthcare(“United”), UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield and Tufts, all of which provide fullyinsured policies or service contracts. In 2015, we terminated our relationship with Unity Health Plan.The policy with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for thisplan since its inception using a partially self-funded insurance accounting model.F-14 Table of ContentsAccordingly, we record the cost of the United portion of the plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the“Plan Costs”) as benefits expense in the Consolidated Statements of Operations. The estimated incurred claims are based upon: (i) the level of claimsprocessed during each quarter; (ii) estimated completion rates based upon recent claim development patterns under the plan; and (iii) the number ofparticipants in the plan, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claimtrends, plan design and migration, participant demographics and other factors are incorporated into the benefits costs.Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginningof a reporting quarter. If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurredand a liability for the excess costs would be accrued in our Consolidated Balance Sheets. On the other hand, if the Plan Costs for the reporting quarter are lessthan the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in ourConsolidated Balance Sheets. The terms of the arrangement require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reportedas long-term prepaid insurance. In addition, United requires a deposit equal to approximately one day of claims funding activity, which was $3.5 million asof December 31, 2015, and is reported as a long-term asset. As of December 31, 2015, Plan Costs were less than the net premiums paid and owed to United by$2.2 million. As this amount is less than the agreed-upon $9.0 million surplus maintenance level, the $6.8 million difference is included in accrued healthinsurance costs, a current liability, in our Consolidated Balance Sheets. In addition, the premiums owed to United at December 31, 2015, were $3.1 million,which is also included in accrued health insurance costs, a current liability in our Consolidated Balance Sheets.Workers’ Compensation CostsOur workers’ compensation coverage has been provided through an arrangement with the ACE Group of Companies (“the ACE Program”) since2007. The ACE Program is fully insured in that ACE has the responsibility to pay all claims incurred regardless of whether we satisfy our responsibilities.Under the ACE Program, we bear the economic burden for the first $1 million layer of claims per occurrence, and effective October 1, 2010, we also bear theeconomic burden for a maximum aggregate amount of $5 million per policy year for claim amounts that exceed the first $1 million. ACE bears the economicburden for all claims in excess of these levels.Because we bear the economic burden for claims up to the levels noted above, such claims, which are the primary component of our workers’compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage wherebyclaims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includesestimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.We employ a third party actuary to estimate our loss development rate, which is primarily based upon the nature of worksite employees’ jobresponsibilities, the location of worksite employees, the historical frequency and severity of workers compensation claims, and an estimate of future costtrends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated intoour workers’ compensation claims cost estimates. During the years ended December 31, 2015 and 2014, we reduced accrued workers’ compensation costs by$1.3 million and $2.9 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates arediscounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the averagediscount rate utilized in both 2015 and 2014 was 1.0%) and are accreted over the estimated claim payment period and included as a component of directcosts in our Consolidated Statements of Operations.F-15 Table of ContentsThe following table provides the activity and balances related to incurred but not reported workers’ compensation claims: Year ended December 31, 2015 2014 (in thousands)Beginning balance $136,088 $120,833Accrued claims 67,559 55,971Present value discount (3,095) (1,998)Paid claims (38,368) (38,718)Ending balance $162,184 $136,088 Current portion of accrued claims $37,438 $44,040Long-term portion of accrued claims 124,746 92,048 $162,184 $136,088The current portion of accrued workers’ compensation costs at December 31, 2015 and 2014 includes $1.6 million of workers’ compensationadministrative fees in both periods.As of December 31, the undiscounted accrued workers’ compensation costs were $172.3 million in 2015 and $145.8 million in 2014.At the beginning of each policy period, the insurance carrier establishes monthly funding requirements comprised of premium costs and funds to beset aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated worksite employee payroll levels andexpected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paidwithin one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in ourConsolidated Balance Sheets. In 2015, we received $5.3 million for the return of excess claim funds related to the workers’ compensation program, whichdecreased deposits. As of December 31, 2015, we had restricted cash of $37.4 million and deposits of $136.5 million.Our estimate of incurred claim costs expected to be paid within one year is included in short-term liabilities, while our estimate of incurred claimcosts expected to be paid beyond one year are included in long-term liabilities on our Consolidated Balance Sheets.Stock-Based CompensationAt December 31, 2015, we have two stock-based employee compensation plans under which we may issue awards. We account for these plans underthe recognition and measurement principles of ASC 718, Compensation – Stock Compensation, which requires all share-based payments to employees,including grants of employee stock options, to be recognized in the income statement based on their fair values.We generally make annual grants of restricted and unrestricted stock under our stock-based incentive compensation plans to our directors, officersand other management. Restricted stock grants to officers and other management vest over three to five years from the date of grant. Restricted stock grantsissued to directors upon their initial appointment to the board are one-third vested on each anniversary of the grant date. Annual stock grants issued todirectors are 100% vested on the grant date. Shares of restricted stock are based on fair value on date of grant and the associated expense, net of estimatedforfeitures, is recognized over the vesting period.In 2015, we adopted the Insperity Long-Term Incentive Program (the “LTIP”). The LTIP provides for performance based long-term compensationawards in the form of performance units to certain employees based on the achievement of pre-established performance goals. Each performance unitrepresents the right to receive one common share at a future date based on our performance against certain targets. Performance units have a vesting scheduleof three years. The fair value of each performance unit is the market price of our common stock on the date of grant. The compensation expense for suchawards is recognized on a straight line basis over the vesting term. Over the performance period the number of shares expected to be issued is adjusted upwardor downward based on the probability of achievement of the performance target.F-16 Table of ContentsCompany-Sponsored 401(k) Retirement PlansUnder our 401(k) retirement plan for corporate employees (the “Corporate Plan”), we matched 50% of eligible corporate employees’ contributions,up to 6% of the employees’ eligible compensation in 2015, 2014 and 2013. Under our separate 401(k) retirement plan for worksite employees (the “WorksiteEmployee Plan”), the match percentage for worksite employees ranges from 0% to 6%, as determined by each client company. Matching contributions underthe Corporate Plan and the Worksite Employee Plan are immediately vested. During 2015, 2014 and 2013, we made matching contributions to the Corporateand Worksite Employee Plans of $98.7 million, $81.5 million and $74.7 million, respectively. Of these contributions, $95.3 million, $78.4 million and$71.7 million were made under the Worksite Employee Plan on behalf of worksite employees. The remainder represents matching contributions made underthe Corporate Plan on behalf of corporate employees.AdvertisingWe expense all advertising costs as incurred.Income TaxesWe use the liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based ondifferences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws ineffect when the differences are expected to reverse.ReclassificationsCertain prior year amounts have been reclassified to conform to the 2015 presentation.New Accounting PronouncementsWe believe that we have implemented the accounting pronouncements with a material impact on our financial statements.In May 2014, the Financial Accounting Standards Board issued Accounting Standards (“FASB”) Update (“ASU”) No. 2014-09, Revenue fromContracts with Customers (Topic 606). ASU No. 2014-09 outlines a single comprehensive revenue recognition model for revenue arising from contracts withcustomers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under ASU No. 2014-09, an entity recognizesrevenue for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled inexchange for those goods or services. ASU No. 2014-09 is effective for annual reporting periods ending after December 15, 2017, and early adoption is notpermitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU No. 2014-09. We are currently evaluating theguidance and have not determined the impact this standard may have on our Consolidated Financial Statements.In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requirescompanies to present deferred income tax assets and deferred income tax liabilities, along with any valuation allowance, as noncurrent in a classified balancesheet instead of the current requirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effectivefor fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted either prospectively orretrospectively. In December 2015, we adopted ASU No. 2015-17 retrospectively, resulting in a reclassification of a $6.3 million deferred tax asset fromcurrent to long term in 2014.F-17 Table of Contents2.Cash, Cash Equivalents and Marketable Securities The following table summarizes our investments in cash equivalents and marketable securities held by investment managers and overnightinvestments: December 31, 2015 2014 (in thousands)Overnight holdings: Money market funds (cash equivalents) $247,720 $271,840Investment holdings: Money market funds (cash equivalents) 26,048 14,125Marketable securities 9,875 28,631 283,643 314,596Cash held in demand accounts 19,377 20,369Outstanding checks (23,607) (29,878)Total cash, cash equivalents and marketable securities $279,413 $305,087 Cash and cash equivalents $269,538 $276,456Marketable securities 9,875 28,631 $279,413 $305,087Our cash and overnight holdings fluctuate based on the timing of the client’s payroll processing cycle. Included in the cash balance as of December31, 2015 and December 31, 2014, are $185.7 million and $152.1 million, respectively, in withholdings associated with federal and state income taxes,employment taxes and other payroll deductions, as well as $17.0 million and $87.9 million, respectively, in client prepayments.We account for our financial assets in accordance with ASC 820, Fair Value Measurement. This standard defines fair value, establishes a frameworkfor measuring fair value and expands disclosures about fair value measurements. The fair value measurement disclosures are grouped into three levels basedon valuation factors:•Level 1 - quoted prices in active markets using identical assets•Level 2 - significant other observable inputs, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active,or other observable inputs•Level 3 - significant unobservable inputsThe following tables summarize the levels of fair value measurements of our financial assets: Fair Value Measurements (in thousands) December 31, 2015 Level 1 Level 2 Level 3Money market funds $273,768 $273,768 $— $—Municipal bonds 9,875 — 9,875 —Total $283,643 $273,768 $9,875 $—F-18 Table of Contents Fair Value Measurements (in thousands) December 31, 2014 Level 1 Level 2 Level 3Money market funds $285,965 $285,965 $— $—Municipal bonds 28,631 — 28,631 —Total $314,596 $285,965 $28,631 $—The municipal bond securities valued as Level 2 investments are primarily pre-refunded municipal bonds that are secured by escrow fundscontaining U.S. Government securities. Our valuation techniques used to measure fair value for these securities during the period consisted primarily of thirdparty pricing services that utilized actual market data such as trades of comparable bond issues, broker/dealer quotations for the same or similar investmentsin active markets and other observable inputs. The following is a summary of our available-for-sale marketable securities: AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair Value (in thousands) December 31, 2015 Municipal bonds $9,875 $3 $(3) $9,875 December 31, 2014 Municipal bonds $28,626 $16 $(11) $28,631As of December 31, 2015, the contractual maturities of our marketable securities were as follows: AmortizedCost EstimatedFair Value (in thousands)Less than one year $7,341 $7,341One to five years 2,534 2,534Total $9,875 $9,8753.Accounts ReceivableOur accounts receivable is primarily composed of trade receivables and unbilled receivables. Our trade receivables, which represent outstandinggross billings to clients, are reported net of allowance for doubtful accounts of $1.1 million and $1.2 million as of December 31, 2015 and 2014,respectively. We establish an allowance for doubtful accounts based on management’s assessment of the collectability of specific accounts and by making ageneral provision for other potentially uncollectible amounts.We make an accrual at the end of each accounting period for our obligations associated with the earned but unpaid wages of our worksite employeesand for the accrued gross billings associated with such wages. These accruals are included in accrued worksite employee payroll cost and unbilled accountsreceivable; however, these amounts are presented net in the Consolidated Statements of Operations. We generally require clients to pay invoices for servicefees no later than one day prior to the applicable payroll date. As such, we generally do not require collateral. Client prepayments directly attributable tounbilled accounts receivable have been netted against such receivables as the gross billings have been earned and the payroll cost has been incurred, thus wehave the legal right of offset for these amounts. Unbilled accounts receivable consisted of the following:F-19 Table of Contents December 31, 2015 2014 (in thousands)Accrued worksite employee payroll cost $161,917 $192,396Unbilled revenues 45,835 55,645Customer prepayments (17,037) (87,887)Unbilled accounts receivable $190,715 $160,1544.DepositsThe contractual arrangement with United for health insurance coverage requires us to maintain an accumulated cash surplus in the plan of $9.0million, which is reported as long-term prepaid health insurance. Please read Note 1, “Accounting Policies,” for a discussion of our accounting policies forhealth insurance costs.As of December 31, 2015, we had $3.7 million in health insurance long-term deposits. Please read Note 1, “Accounting Policies,” for a discussion ofour accounting policies for health insurance costs.As of December 31, 2015, we had $136.5 million in workers’ compensation long-term deposits. Please read Note 1, “Accounting Policies,” for adiscussion of our accounting policies for workers’ compensation costs.5.Goodwill and Other Intangible AssetsWe perform our annual asset impairment test as of December 31, the end of our calendar year. During the fourth quarters of 2015, 2014 and 2013, weperformed step one of the annual impairment test for each of our reporting units. We concluded that the estimated fair value of our Expense Management unitin 2013 was below its respective carrying value.Additionally, any time impairment indicators are identified, we perform an interim impairment test. During the second quarter of 2014, impairmentindicators were identified in our Employment Screening business, due to changes in management, the reporting unit’s financial results and the loss of certaincustomers.The declines in the estimated fair values of Employment Screening and Expense Management resulted primarily from lower projected revenuegrowth rates and profitability levels. Upon completion of step two of the goodwill impairment tests, we recognized goodwill and other intangible assetimpairments of $2.5 million in 2014 related to our Employment Screening business unit and $3.3 million in 2013 related to our Expense Managementreporting unit. The fair values of the reporting units were estimated using a discounted cash flow model. The material assumptions used in the modelincluded the weighted average cost of capital and long-term growth rates. We consider this a Level 3 fair value measure.F-20 Table of ContentsThe following table presents the gross carrying amount and accumulated amortization for each class of intangible assets and the gross carryingamount and accumulated impairment for goodwill: December 31, 2014 Twelve Months Ended December 31, 2015 December 31, 2015 Balance Impairment AmortizationExpense Balance (in thousands)Gross carrying amount: Trademarks $220 $— $— $220Customer relationships 6,392 — — 6,392Aggregate goodwill acquired: Goodwill 21,156 — 21,156Total $27,768 $— $— $27,768 Accumulated amortization: Trademarks $(62) $— $(39) $(101)Customer relationships (4,779) — (830) (5,609)Accumulated impairment: Goodwill (8,470) — — (8,470)Total $(13,311) $— $(869) $(14,180) Net carrying amount: Trademarks $158 $— $(39) $119Customer relationships 1,613 — (830) 783Goodwill 12,686 — — 12,686Total goodwill and other intangible assets $14,457 $— $(869) $13,588Our amortization expense related to purchased intangible assets other than goodwill was $0.9 million in 2015, $1.5 million in 2014 and $2.0million in 2013, and is estimated to be $0.5 million in 2016, $0.3 million in 2017, $36,000 in 2018, $12,000 in 2019 and $7,000 in 2020.6.Other Asset ImpairmentsIn the first quarter of 2015, we entered into a plan to sell our two aircraft, and as a result, we recorded impairment and other charges of $9.8 million,representing the difference between the carrying value and the estimated fair value of the assets as well as a provision for potential settlement of a Texas salesand use tax assessment. In July 2015, we received proceeds, net of selling costs, of $12.2 million for both aircraft and recorded an additional $1.3 millionimpairment charge in the second quarter of 2015. In the fourth quarter of 2015, we reduced our use tax accrual by $0.6 million due to a pending $0.2 millionsettlement of the Texas sales and use tax assessment. These net charges of $10.5 million are included in impairment charges and other on our ConsolidatedStatement of Operations.In 2011, we acquired a minority interest in The Receivables Exchange ("TRE"), an online marketplace for the sale of accounts receivable, for $2.8million. In the second quarter of 2013, TRE issued similar securities at per share amounts substantially below the per share book value of our investment.Accordingly, we valued the investment based on a similar security market transaction, which is a Level 2 valuation technique. This resulted in a non-cashimpairment charge of $2.7 million in 2013, which is included in other income (expense) in our Consolidated Statements of Operations. Due to federal incometax limitations on capital losses, no tax benefit associated with the impairment was recognized.F-21 Table of Contents7.Revolving Credit FacilityWe have a $125 million revolving credit facility (the “Facility”), which may be increased to $150 million based on the terms and subject to theconditions set forth in the agreement relating to the Facility (the “Credit Agreement”). The Facility is available for working capital and general corporatepurposes, including acquisitions, and issuances of letters of credit. Our obligations under the Facility are secured by 65% of the stock of our captiveinsurance subsidiary and are guaranteed by all of our domestic subsidiaries. At December 31, 2015, we had not drawn on the Facility. As of December 31,2015, we had an outstanding $0.6 million letter of credit issued under the Facility.The Facility matures on February 6, 2020. Borrowings under the Facility bear interest at an alternate base rate or LIBOR, at our option, plus anapplicable margin. Depending on our leverage ratio, the applicable margin varies (i) in the case of LIBOR loans, from 2.00% to 2.75% and (ii) in the case ofalternate base rate loans, from 0.00% to 0.75%. The alternate base rate is the highest of (i) the prime rate most recently published in The Wall Street Journal,(ii) the federal funds rate plus 0.50% and (iii) the 30-day LIBOR rate plus 2.00%. We also pay an unused commitment fee on the average daily unusedportion of the Facility at a rate of 0.25%. Interest expense and unused commitment fees are recorded in other income (expense).The Facility contains both affirmative and negative covenants that we believe are customary for arrangements of this nature. Covenants include, butare not limited to, limitations on our ability to incur additional indebtedness, sell material assets, retire, redeem or otherwise reacquire our capital stock,acquire the capital stock or assets of another business, make investments and pay dividends. In addition, the Credit Agreement requires us to comply withfinancial covenants limiting our total funded debt, minimum interest coverage ratio and maximum leverage ratio. In December 2014 and 2012, the CreditAgreement was amended to modify the interest coverage ratio covenant to exclude the impact of special dividends paid of $50.7 million and $25.7 million,respectively. We were in compliance with all financial covenants under the Credit Agreement at December 31, 2015.In January 2016, we borrowed $104.4 million under the Facility to fund a portion of the purchase price of our modified Dutch auction tender offer.Please read Note 15, “Subsequent Events,” for additional information.F-22 Table of Contents8.Income TaxesDeferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the net deferred tax assets and net deferred tax liabilities as reflected onthe Consolidated Balance Sheets are as follows: December 31, 2015 2014 (in thousands)Deferred tax liabilities: Prepaid assets $(3,952) $(9,291)Depreciation (1,741) (8,083)Software development costs (2,699) (2,252)Total deferred tax liabilities (8,392) (19,626) Deferred tax assets: Accrued incentive compensation 8,818 7,204Net operating loss carryforward 1,463 1,556Workers’ compensation accruals 7,586 6,308Accrued rent 1,229 1,058Stock-based compensation 4,553 3,615Intangibles 1,159 1,575Minority investment impairment 1,016 1,003Other 564 551Total deferred tax assets 26,388 22,870Valuation allowance (1,020) (1,003)Total net deferred tax assets 25,368 21,867 Net deferred tax assets $16,976 $2,241In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requirescompanies to present deferred income tax assets and deferred income tax liabilities as noncurrent in a classified balance sheet instead of the currentrequirement to separate deferred income tax liabilities and assets into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years beginningafter December 15, 2016, including interim periods within those fiscal years. Early application is permitted either prospectively or retrospectively. InDecember 2015 we adopted ASU No. 2015-17 retrospectively, resulting in a reclassification of a $6.3 million deferred tax asset from current to long term in2014.F-23 Table of ContentsThe components of income tax expense are as follows: Year ended December 31, 2015 2014 2013 (in thousands)Current income tax expense: Federal $35,221 $18,034 $20,476State 5,741 3,322 3,512Total current income tax expense 40,962 21,356 23,988Deferred income tax (benefit) expense: Federal (13,632) (1,764) (2,258)State (1,101) 31 (30)Total deferred income tax benefit (14,733) (1,733) (2,288)Total income tax expense $26,229 $19,623 $21,700As a result of nonqualified stock option exercises, disqualifying dispositions of certain employee incentive stock options and vesting of restrictedstock awards, we had a net income tax benefit of $2.2 million in 2015, $0.5 million in 2014 and $1.3 million in 2013. The excess income tax benefit isreported as a component of additional paid-in capital.The reconciliation of income tax expense computed at U.S. federal statutory tax rates to the reported income tax expense from continuing operationsis as follows: Year ended December 31, 2015 2014 2013 (in thousands)Expected income tax expense at 35% $22,967 $16,670 $18,806State income taxes, net of federal benefit 2,696 2,204 2,286Nondeductible expenses 1,669 1,939 1,993Section 199 benefits (627) (592) (2,531)Expense Management non-cash impairment — — 797Valuation allowance related to TRE impairment — — 938Research and development credit (530) (455) (534)Other, net 54 (143) (55)Reported total income tax expense $26,229 $19,623 $21,700We have developed customer facing software that is included as a component of the PEO HR Outsourcing solutions. In addition, we market bothsoftware products and cloud based offerings. Prior to 2013, we were not certain that these software offerings met the IRS “Qualified Production ActivitiesDeduction” requirements. As a result, no such tax deduction was taken on the annual tax returns filed with the IRS. However, in 2013, we engaged taxspecialists to conduct a study of our various software offerings to assess the qualifications with IRS guidelines. Based on this study, we concluded certain ofour software offerings met the IRS requirements, resulting in amendments to previously filed open year tax returns. Accordingly, in 2013 we recognized $2.0million in tax benefits for the years 2009 to 2012, and $0.5 million in tax benefits for the 2013 tax year.At December 31, 2015, we have net operating loss carryforwards totaling approximately $3.9 million that expire from 2022 to 2030 related to ouracquisition of ExpensAble.We recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2015, 2014 and 2013, we made noprovisions for interest or penalties related to uncertain tax positions. The tax years 2012 through 2014 remain open to examination by the Internal RevenueService of the United States. The tax years 2011 through 2014 remain open to examination by various state tax authorities.F-24 Table of Contents9.Stockholders’ EquityRepurchase ProgramOur Board of Directors (the “Board”) has authorized a program to repurchase shares of our outstanding common stock (“Repurchase Program”). Thepurchases are to be made from time to time in the open market or directly from stockholders at prevailing market prices based on market conditions or otherfactors. During 2014, we repurchased 580,804 shares under the Repurchase Program and 112,458 shares were withheld to satisfy minimum tax withholdingobligations for the vesting of restricted stock awards. In 2015, the Board authorized an increase of one million shares that may be repurchased under theRepurchase Program. We repurchased 1,244,433 shares under the Repurchase Program during 2015. In addition, 114,523 shares were withheld during 2015to satisfy minimum tax withholding obligations for the vesting of restricted stock awards, which are not subject to the Repurchase Program. At December 31,2015, we were authorized to repurchase an additional 524,332 shares under the Repurchase Program. Shares repurchased under the Repurchase Program andshares withheld to satisfy minimum tax withholding obligations for the vesting of restricted stock awards are recorded in treasury.DividendsThe Board declared quarterly dividends in 2015 and 2014 as follows: 2015 2014 (amounts per share) First quarter $0.19 $0.17 Second quarter 0.22 0.19 Third quarter 0.22 0.19 Fourth quarter 0.22 2.19(1) ____________________________________(1) Includes a $2.00 per share special dividendDuring 2015 and 2014, we paid a total of $21.2 million and $69.5 million, respectively in dividends. The dividends paid in 2014 includes a one-time special dividend of $50.7 million.Preferred StockAt December 31, 2015, 20 million shares of preferred stock were authorized, of which 600,000 shares were designated as Series A JuniorParticipating Preferred Stock that is reserved for issuance on exercise of preferred stock purchase rights under our Share Purchase Rights Plan (the “RightsPlan”). Each issued share of our common stock has one preferred stock purchase right attached to it. No preferred shares have been issued and the rights arenot currently exercisable. The Rights Plan expires on November 13, 2017.10.Incentive PlansThe Insperity, Inc. 2001 Incentive Plan, as amended, and the 2012 Incentive Plan, as amended, (collectively, the “Incentive Plans”) provide foroptions and other stock-based awards that have been and may be granted to eligible employees and non-employee directors of Insperity or itssubsidiaries. The 2012 Incentive Plan is currently the only plan under which new stock-based awards may be granted. The Incentive Plans are administeredby the Compensation Committee of the Board of Directors (the “Committee”). The Committee has the power to determine which eligible employees willreceive awards, the timing and manner of the grant of such awards, the exercise price of stock options (which may not be less than market value on the date ofgrant), the number of shares and all of the terms of the awards. The Board may at any time amend or terminate the Incentive Plans. However, no amendmentthat would impair the rights of any participant, with respect to outstanding grants, can be made without the participant’s prior consent. Stockholder approvalof amendments to the Incentive Plans is necessary only when required by applicable law or stock exchange rules. At December 31, 2015, 997,059 shares ofcommon stock were available for future grants under the 2012 Incentive Plan. The Incentive Plans permit stock options, including nonqualified stockoptions and options intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code, stock awards,phantom stock awards, stock appreciation rights, performance units, and other stock-based awards and cash awards, all of which may or may not be subject tothe achievement of one or more performanceF-25 Table of Contentsobjectives. The purposes of the Incentive Plans generally are to retain and attract persons of training, experience and ability to serve as employees ofInsperity and its subsidiaries and to serve as non-employee directors of Insperity, to encourage the sense of proprietorship of such persons and to stimulate theactive interest of such persons in the development and financial success of Insperity and its subsidiaries.On March 30, 2015, we adopted the Insperity, Inc. Long-Term Incentive Program under the Insperity, Inc. 2012 Incentive Plan. The LTIP providesfor performance-based long-term compensation awards in the form of performance units to certain employees based on the achievement of pre-establishedperformance goals. We granted performance units under the LTIP to our named executive officers and certain other officers in 2015.We recognized $13.3 million, $11.1 million and $11.1 million of compensation expense associated with the restricted stock and the LTIP awards in2015, 2014 and 2013, respectively. We recognized $5.3 million, $4.6 million and $4.5 million of tax benefits associated with stock-based compensation in2015, 2014 and 2013, respectively.Stock Option AwardsThe following is a summary of stock option award activity for 2015: Shares Weighted AverageExercise Price PerShare Weighted AverageRemainingContractual Life Aggregate IntrinsicValue (in thousands) (in years) (in thousands)Outstanding - December 31, 2014 43 $28.04 Granted — — Exercised (15) 25.14 Canceled — — Outstanding - December 31, 2015 28 29.56 4.4 $527Exercisable - December 31, 2015 28 29.56 4.4 $527The intrinsic value of options exercised during the year was $0.3 million in 2015, $0.3 million in 2014 and $1.5 million in 2013.Restricted Stock AwardsRestricted common shares, under equity plan accounting, are generally measured at fair value on the date of grant based on the number of sharesgranted, estimated forfeitures and the quoted price of the common stock. Such value is recognized as compensation expense over the corresponding vestingperiod, three to five years for our shares currently outstanding. The total fair value of shares vested during the years ended December 31, 2015, 2014, and2013 was $18.6 million, $10.8 million and $12.3 million, respectively. The weighted average grant date fair value of restricted stock awards during the yearsended December 31, 2015, 2014 and 2013 was $51.54, $28.22 and $29.25, respectively. As of December 31, 2015, unrecognized compensation expenseassociated with the unvested shares outstanding was $14.4 million and is expected to be recognized over a weighted average period of 23 months.The following is a summary of restricted stock award activity for 2015: Shares Weighted Average GrantDate Fair Value (in thousands) Non-vested - December 31, 2014 740 $28.84Granted 271 51.54Vested (368) 29.71Canceled/Forfeited (25) 36.68Non-vested - December 31, 2015 618 37.98F-26 Table of ContentsLong-Term Incentive Program AwardsEach performance unit represents the right to receive one common share at a future date based on our performance against specified targets.Performance units have a vesting schedule of three years. The fair value of each performance unit is the market price of one common share on the date ofgrant. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. Over the performance period, the number ofshares expected to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number ofshares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets. As ofDecember 31, 2015, the unrecognized compensation cost was $6.0 million.The following is a summary of LTIP award activity for 2015: Number of PerformanceUnits at Target Weighted Average Grant DateFair Value Maximum Shares Eligible toReceive Unvested at December 31, 2014 — $— —Granted 103,450 52.80 201,800Vested — — —Canceled (2,550) — —Unvested at December 31, 2015 100,900 52.80 201,800 Expected to vest 153,146 The expected payout assumes the issuance of 153,146 shares of common stock.Employee Stock Purchase PlanOur employee stock purchase plan (the “ESPP”) enables employees to purchase shares of Insperity stock at a 5% discount. The ESPP is a non-compensatory plan under generally accepted accounting principles of stock-based compensation. As a result, no compensation expense is recognized inconjunction with this plan. Approximately 24,000, 37,000 and 34,000 shares were issued from treasury under the ESPP during fiscal years 2015, 2014 and2013, respectively.11.Net Income Per ShareWe utilize the two-class method to compute net income per share. The two-class method allocates a portion of net income to participating securities,which includes unvested awards of share-based payments with non-forfeitable rights to receive dividends. Net income allocated to unvested share-basedpayments is excluded from net income allocated to common shares. Any undistributed losses resulting from dividends exceeding net income are notallocated to participating securities. We declared a special dividend of $2.00 per share in 2014. As a result, dividends exceeded earnings, which resulted indecreased earnings per share of $0.05 per share in 2014. Basic net income per share is computed by dividing net income allocated to common shares by theweighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income allocated tocommon shares by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options.The following table summarizes the net income allocated to common shares and the basic and diluted shares used in the net income per sharecomputations:F-27 Table of Contents Year ended December 31, 2015 2014 2013 (in thousands)Net income $39,390 $28,004 $32,032Less distributed and undistributed earnings allocated to participating securities (981) (2,002) (916)Net income allocated to common shares $38,409 $26,002 $31,116 Weighted average common shares outstanding 24,308 24,708 24,850Incremental shares from assumed conversions of common stock options 7 4 22Adjusted weighted average common shares outstanding 24,315 24,712 24,872 Potentially dilutive securities not included in weighted average sharecalculation due to anti-dilutive effect — 4 812.LeasesWe lease various office facilities, equipment and vehicles under operating lease arrangements, some of which contain rent escalation clauses. Mostof the leases contain purchase and/or renewal options at fair market and fair rental value, respectively. Rental expense relating to all operating leases was$13.6 million, $13.4 million and $13.9 million in 2015, 2014 and 2013, respectively. At December 31, 2015, future minimum rental payments undernoncancelable operating leases are as follows: OperatingLeases (in thousands)2016 $13,9612017 11,1962018 9,4232019 6,3662020 4,200Thereafter 3,312Total minimum lease payments $48,45813.Commitments and ContingenciesWe enter into fixed purchase and service obligations in the ordinary course of business. These arrangements primarily consist of, constructioncontract for the new facility, advertising commitments and service contracts. At December 31, 2015, future purchase and service obligations greater than$100,000 and one year were as follows (in thousands): 2016 $20,554(1) 2017 6,245 2018 4,695 2019 1,774 2020 1,493 Thereafter 1,200 Total obligations $35,961 ____________________________________(1) Includes $13 million related to the construction of a new facility on our corporate campus.F-28 Table of ContentsWorksite Employee 401(k) Retirement Plan Class Action LitigationIn December 2015, a class action lawsuit was filed against us and the Company’s third party discretionary trustee of the Worksite Employee Plan(the “Plan”) in the United States District Court for the Northern District of Georgia, Atlanta Division on behalf of participants in the Plan, which is theInsperity 401(k) retirement plan covering worksite employees. This suit generally alleges that the Company’s third party discretionary trustee of the Plan andInsperity breached their fiduciary duties to plan participants by selecting an Insperity subsidiary to serve as the recordkeeper for the Plan, by causingparticipants in the Plan to pay excessive recordkeeping fees to the Insperity subsidiary and by making imprudent investment choices. We believe theCompany has meritorious defenses and we intend to vigorously defend this litigation. As a result of uncertainty regarding the outcome of this matter, noprovision has been made in the accompanying consolidated financial statements.Other LitigationWe are a defendant in various lawsuits and claims arising in the normal course of business. Management believes it has valid defenses in these casesand is defending them vigorously. While the results of litigation cannot be predicted with certainty, except as set forth below, management believes the finaloutcome of such litigation will not have a material adverse effect on our financial position or results of operations.14.Quarterly Financial Data (Unaudited) Quarter ended March 31 June 30 Sept. 30 Dec. 31 (in thousands, except per share amounts) 2015 Revenues $699,479 $627,838 $626,286 $650,011 Gross profit 129,860 104,219 106,743 97,045 Operating income 23,520(1) 12,217(2) 19,936 10,026(3) Net income 13,787 7,314 11,950 6,339 Basic net income per share 0.54 0.29 0.48 0.26 Diluted net income per share 0.54 0.29 0.48 0.26 2014 Revenues $636,999 $564,621 $560,303 $595,865 Gross profit 106,176 95,453 100,817 101,359 Operating income 16,591 3,414(4) 14,460 13,009(5) Net income 9,564 1,891 8,385 8,164 Basic net income per share 0.37 0.07 0.33 0.27(6) Diluted net income per share 0.37 0.07 0.33 0.27(6) ____________________________________(1) Includes non-cash impairment and other charges in the first quarter of 2015 of $9.8 million. Please read Note 6, “Other Asset Impairments,” for additionalinformation.(2) Includes non-cash impairment and other charges in the second quarter of 2015 of $1.3 million. Please read Note 6, “Other Asset Impairments,” foradditional information.(3) Includes a reduction to non-cash impairment and other charges in the fourth quarter of 2015 of $0.6 million. Please read Note 6, “Other AssetImpairments,” for additional information.(4) Includes a non-cash impairment charge in the first quarter of 2014 of $2.5 million. Please read Note 5, “Goodwill and Other Intangible Assets,” foradditional information.(5) Includes a $1.2 million non-cash charge in the fourth quarter of 2014. Please read Note 1, “Accounting Policies,” for additional information.(6) Includes the impact of dividends exceeding earnings under the two-class method, resulting in a $0.05 earnings per share decrease in the fourth quarter of2014. Please read Note 11, “Net Income Per Share,” for additional information.F-29 Table of Contents15.Subsequent EventsIn December 2015, we commenced a modified Dutch auction tender offer to purchase up to $125 million in value of our common stock at a price notless than $43.50 per share and not more than $50.00 per share. In January 2016, we exercised our right to increase the size of the tender offer by up to 2.0% ofour outstanding common stock. The tender offer period expired on January 7, 2016 and on January 13, 2016, we purchased 3,013,531 shares of our commonstock at a per share price of $47.50 and an aggregate price of $143.1 million, excluding $1.1 million of transaction costs. The shares were immediatelycanceled and retired.The tender offer was funded through borrowings of $104.4 million under the Facility and the remainder with cash on hand.F-30 Exhibit 21.1SUBSIDIARIES OF INSPERITY, INC.•Insperity Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Insperity, Inc.•Insperity Enterprises, Inc., a Texas corporation and wholly owned subsidiary of Insperity Holdings, Inc.•Administaff Partnerships Holding, Inc., a Delaware corporation and wholly owned subsidiary of Insperity Holdings, Inc.•Insperity Captive Insurance Companies Limited, a Bermuda corporation and wholly owned subsidiary of Administaff Partnerships Holding, Inc.•Insperity Business Services, L.P., a Delaware limited partnership, with Insperity Holdings, Inc. being a 1% general partner and Administaff PartnershipsHolding, Inc. being a 99% limited partner.•Insperity Retirement Services, L.P., a Delaware limited partnership, with Insperity Holdings, Inc. being a 1% general partner and Administaff PartnershipsHolding, Inc. being a 99% limited partner.•Insperity Services, L.P., a Delaware limited partnership, with Insperity Holdings, Inc. being a 1% general partner and Administaff Partnerships Holding,Inc. being a 99% limited partner.•Administaff Partnerships Holding II, Inc., a Delaware corporation and wholly owned subsidiary of Insperity Services, L.P.•Insperity GP, Inc., a Delaware corporation and wholly owned subsidiary of Insperity Services, L.P.•Insperity Support Services, L.P., a Delaware limited partnership, with Insperity GP, Inc. being a 1% general partner and Administaff Partnerships HoldingII, Inc. being a 99% limited partner.•Administaff Companies, Inc., a Delaware corporation and wholly owned subsidiary of Insperity Holdings, Inc.•Administaff Partnerships Holding III, Inc., a Delaware corporation and wholly owned subsidiary of Administaff Companies, Inc.•Insperity PEO Services, L.P., a Delaware limited partnership, with Administaff Companies, Inc. being a 1% general partner and Administaff PartnershipsHolding III, Inc. being a 99% limited partner.•Insperity Insurance Services, L.L.C., a Delaware limited liability company and wholly owned subsidiary of Insperity PEO Services, L.P.•Insperity Employment Screening, L.L.C, a Delaware limited liability company and wholly owned subsidiary of Insperity Holdings, Inc.•Insperity Expense Management, Inc. a California corporation and wholly owned subsidiary of Insperity Holdings, Inc.•Insperity Payroll Services, L.L.C., a Delaware limited liability company and wholly owned subsidiary of Insperity Business Services, L.P. Exhibit 23.1Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S-8 No.333-181569) pertaining to the Insperity, Inc. 2012 Incentive Plan,(2)Registration Statements (Form S-8 No. 333-159007, 333-140602, 333-66344) pertaining to the Insperity, Inc. 2001 Incentive Plan,(3)Registration Statement (Form S-8 No. 333-151275) pertaining to the Insperity, Inc. 2008 Employee Stock Purchase Plan,(4)Registration Statement (Form S-8 No. 333-118790) pertaining to the Insperity, Inc. Directors Compensation Plan, and(5)Registration Statements (Form S-8 Nos. 333-85151, 333-66342) pertaining to the Insperity, Inc. Non-Qualified Stock Option Plan;of our reports dated February 12, 2016, with respect to the consolidated financial statements of Insperity, Inc. and the effectiveness of internal control overfinancial reporting of Insperity, Inc. included in this Annual Report (Form 10-K) of Insperity, Inc. for the year ended December 31, 2015. /s/Ernst & Young LLP Houston, Texas February 12, 2016 EXHIBIT 24.1 POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof. /s/ M. W. Brown January 20, 2016Michael W. Brown DatePOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Peter Feld January 20, 2016Peter Feld DatePOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Eli Jones January 21, 2016Eli Jones Date POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Carol R. Kaufman January 21, 2016Carol R. Kaufman DatePOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Michelle McKenna-Doyle January 29, 2016Michelle McKenna-Doyle DatePOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Norman Sorensen January 20, 2016Norman Sorensen Date POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, in my capacity as a director of Insperity, Inc., a Delaware corporation (the"Company") appoints PAUL J. SARVADI, DOUGLAS S. SHARP and DANIEL D. HERINK and each of them, severally, as my true and lawful attorney orattorneys-in-fact and agent or agents, each of whom shall be authorized to act with or without the other, with full power of substitution and resubstitution, toexecute, in my capacity as a director of the Company, and to file or cause to be filed, with the Securities and Exchange Commission, the Company's AnnualReport on Form 10-K for the year ended December 31, 2015 and any and all amendments thereto as said attorneys or any of them shall deem necessary orincidental in connection therewith, and all materials required by the Securities Exchange Act of 1934, as amended, with full power and authority to each ofsaid attorneys-in-fact and agents to do and perform in the name and on behalf of the undersigned, each and every act and thing whatsoever that is necessary,appropriate or advisable in connection with any or all the above-described matters and to all intents and purposes as the undersigned might or could do inperson, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them or their substitutes, may lawfully do or cause to be done byvirtue hereof./s/ Austin P. Young January 21, 2016Austin P. Young Date Exhibit 31.1 CERTIFICATION I, Paul J. Sarvadi, certify that: 1.I have reviewed this annual report on Form 10-K of Insperity, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 12, 2016 /s/ Paul J. Sarvadi Paul J. Sarvadi Chairman of the Board and Chief Executive Officer Exhibit 31.2 CERTIFICATION I, Douglas S. Sharp, certify that: 1.I have reviewed this annual report on Form 10-K of Insperity, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period coveredby this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.Date: February 12, 2016 /s/ Douglas S. Sharp Douglas S. Sharp Senior Vice President of Finance, Chief Financial Officer and Treasurer Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Insperity, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015, (the “Report”), asfiled with the Securities and Exchange Commission on the date hereof, I, Paul J. Sarvadi, Chairman of the Board and Chief Executive Officer of the Company,certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ Paul J. Sarvadi Paul J. Sarvadi Chairman of the Board and Chief Executive OfficerFebruary 12, 2016 Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Insperity, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2015, (the “Report”), asfiled with the Securities and Exchange Commission on the date hereof, I, Douglas S. Sharp, Senior Vice President of Finance, Chief Financial Officer andTreasurer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge,that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany./s/ Douglas S. Sharp Douglas S. SharpSenior Vice President of Finance,Chief Financial Officer and TreasurerFebruary 12, 2016
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