The Changing World of Work, Made Simple
Annual Report | 2021
Contents
President and CEO, Martin Mucci
A Message to Our Shareholders 4
Fiscal 2021 Results
Making a Powerful Financial Statement 8
The Power of Paychex
Strength in Technology Leveraged by
Experienced HR Professionals 9
The Voice of the Customer
Preparing Businesses to Thrive 14
AAn Advocate for Business
Sharing the Benefits of Our Expertise 15
WWhat It Means To Be Paychex
Board of Directors 16
Paychex by the Numbers Inside Back Cover
Access this report online
at payx.me/report
Paychex Annual Report 2021 3
A Message to Our Shareholders
$4.1 Billion
Total Revenue
$900M
Dividends Paid
Martin Mucci, President and CEO
As Paychex emerges from one of the most challenging periods in our 50-year history, I’m
proud that we were able to generate positive growth for both service revenue and adjusted
diluted earnings per share despite the pandemic environment. Even with almost 15,000
employees working remotely, we succeeded by staying true to our principles — listening
to clients, anticipating their needs, and supporting them with innovative technology and
personalized service.
We exemplified those principles by helping many
than $65 billion in PPP loans — 9% of the total amount
of our clients stay open throughout the COVID-19
paid to businesses across the U.S. — and supported
pandemic. Thanks to the hard work of our functional
their applications for forgiveness, making the process
teams working together, we created a COVID-19
much easier for them. We have also supported our
Help Center with webinars, estimators, and other
clients in receiving $3 billion in employee retention
information vital to keeping businesses healthy.
and paid sick leave credits. And our dedicated
On the day the Paycheck Protection Program (PPP)
opened, we were prepared with a PPP report for our
clients that business owners used to secure more
compliance team continues to provide real-time
regulatory information to help our clients succeed
through this difficult, unprecedented period.
4 President and CEO, Martin Mucci
Paychex Flex, our human capital management
(HCM) solution, meets clients and their employees
where they need us — with device-independent
technology, and with support through self-service,
our Paychex Flex Assistant chatbot, Siri®, Google®
Assistant, text notifications, and other ways to save
time and simplify administration. Clients also have
the choice to interact with our knowledgeable
experts through traditional channels, such
as email, chat or phone, with 24/7 U.S.-based
support.
We provide our clients’ employees with the same
cutting-edge technology to give them easy and
secure mobile access to their pay, retirement plans
— such as our first-to-market Pooled Employer
Plan (PEP) — insurance, time and attendance, and
W-2s, to name a few. This helps our clients save
time and improves employee well-being in the
workplace, which can lead to improvements
in morale, retention and productivity — and
ultimately to better business performance.
Providing HR advice for specific
situations and individual needs
As the post-pandemic future of work continues to
evolve, the need for HR advice is more important
now than ever before.
We have more than 650 HR professionals across
the country who can offer our HR solutions
and Paychex PEO clients expert HR advice and
guidance based on their specific situations. Our
HR professionals handled more than 40,000
HR matters last year, helping clients manage
employees, make the most of their HR technology,
and navigate relevant employment laws and the
unique requirements of the pandemic including
remote work issues and vaccine policies.
Behind the scenes, our dedicated compliance
team monitors those laws and regulations to help
us inform clients of changes that may affect
their business.
Paychex 5
Paychex Flex® time and attendance options are fully
integrated with our all-in-one service platform
Our initiatives are paying dividends
We are proud that what Paychex has
accomplished during our last fiscal year
has had a positive effect on our clients
and the U.S. economy.
In addition, Paychex is among only a few
companies that grew margins in the middle of a
pandemic and then increased them the following
year. Our total revenue grew to a record
$4.1 billion and our shareholders received
$900 million in dividends, while total service
revenue increased 1%. Adjusted diluted earnings
per share rose 1% to $3.04. And our adjusted
operating margin (excluding one-time costs
related to certain cost-savings initiatives) was
36.8%, an expansion of 70 basis points over the
prior year.
The power of Paychex
technology and people
As our industry and the future of work continue
to evolve, we remain committed to driving HR
innovation to prepare our clients to thrive in
the post-pandemic marketplace. While some
companies have attempted to achieve this goal
with technology alone, experience has shown us
that it also takes the power of people to get the
job done.
Our unique combination of innovative technology
and service are designed to meet the evolving
needs of employers and their employees.
Enabling the future of work today
Awards and admiration for a job well done
As the economy adjusts for a post-pandemic world,
This fiscal year, I’m also proud of how well our people
many businesses are dealing with HR issues. We
and technology handled the transition to a new
listened when our clients told us they needed
way to work. With 95% of our employees working
complete views of their employee data and better
remotely, we not only maintained our standards for
ways to make business decisions based on that data.
excellence, we also exceeded them, increasing our
In response, we continually enhance our HR offerings
sales performance and reaching record levels of
with relevant, timely additions, such as enhanced
client retention and satisfaction.
analytics for pay equity and diversity, and artificial
intelligence and machine learning technologies to
create a new predictive analytics report. Using the
dashboard, clients will be able to quickly assess
For the 13th year, Paychex was named one of the
World’s Most Ethical Companies® by the Ethisphere®
Institute. Each year, our cross-functional team
impactful data points and consider which employees
updates and enhances our ethics program and
may be at higher risk for turnover — an incredibly
training to continuously improve our already
valuable insight to have during a tight labor market.
strict standards.
A commitment to corporate social
responsibility (CSR)
We’re also listening to our clients and stakeholders
in the communities where we live, work, and provide
service when it comes to our shared focus on CSR,
environmental responsibility, and diversity, equity, and
inclusion (DEI).
Our award-winning Corporate Responsibility
Highlights Report, Putting Good to Work, details
our commitment to these ideals. And I’m excited
to announce that Paychex completed Carbon
Disclosure Project reporting this year for the first
time. In addition, we’re reporting greenhouse gas
Fortune® magazine once again named us one of the
World’s Most Admired Companies. We also received
a silver Stevie® Award for the performance of our
sales and customer service teams, and we ranked
number one for vendor satisfaction and user
experience in the Annual HR Systems Survey – Voice
of the Customer Report by Sapient Insights Group.
This May, Paychex earned a second consecutive
HR Tech award, this time for the strength of our
innovative technology and service during the
COVID-19 pandemic, with Paychex Flex winning Best
Small and Medium Business (SMB)-focused Solution
in the Core HR/Workforce category.
emissions for all our owned U.S. locations.
Celebrating a golden anniversary
Also significant to our CSR efforts, we expanded the
assets of the Paychex Charitable Foundation to help
fund initiatives that support economic development
in the communities where we have operations, while
also enhancing the quality of life for those who work
and live in those communities.
For example, during the COVID-19 pandemic, the
Foundation has given more than $1.5 million to the
United Way in addition to the contributions of our
employees. This gift supports the efforts of nonprofits
delivering crucial services as well as builds on the
existing support that Paychex provides to human
service organizations through the United Way
each year.
This year marks the 50th anniversary of Paychex.
From the day we provided payroll services to our first
client in 1971, to the critical care we gave our clients
during the COVID-19 pandemic, we’ve continued to
build on our legacy of technology-enabled service
to simplify HR, payroll, retirement, and insurance
services for our clients and give them the freedom
to succeed in their business.
Paychex now pays 1 in every 12 U.S. private sector
employees1; we’re the country’s largest 401(k)
recordkeeper by number of plans2; we have a top 25
insurance agency3; and we’re one of the country’s
largest providers of HR outsourcing for small and
medium-sized businesses, supporting 1.7 million
worksite employees.1
Paychex 6
It’s amazing to think that a company that once had
operating margin, and increased investment
a single client and employee achieved a market
in our marketing lead generation and product
cap of $36 billion as of May 31, 2021. A $1,000
development has us well-positioned for another
investment made when Paychex went public in
year of strong financial performance in fiscal 2022.
1983 would be worth $1 million today, and since
then we’ve paid shareholders approximately
We thank our clients, employees, and investors
$10 billion in dividends.
Building businesses to thrive
The inaugural Paychex Business Conference was
held virtually in June of this year, bringing together
who have been a part of our success for 50 years.
I’m proud of how far we’ve come, and I’m excited
to share the technology and service insights and
innovations that will take us well into the next 50
years and beyond.
7,000 clients, business owners, HR managers,
and others who want to build a better workplace,
Sincerely,
increase productivity, and thrive in 2021
and beyond.
Martin Mucci
President and CEO
The conference featured experts, insights,
resources, and solutions ranging from HR
influencer Cy Wakeman’s inspiring opening
session and the powerful keynote from Shark
Tank’s Daymond John to discussions of unique
tools to source and hire better talent as well as the
benefits and technologies to keep them engaged.
Most importantly, in a year where Paychex
again raised the bar on our performance, our
conference was an excellent way to thank clients
for their loyalty with information they could use
right away to improve their business.
Looking forward to what’s new
and what’s next
As businesses across the country return to the
office, our employees are coming back with new
flexibility in their schedules, having proven they
could perform at historic levels of efficiency and
productivity. I believe this will give us a competitive
advantage in recruiting and retaining top talent to
help our clients navigate the new business climate.
The future looks bright for Paychex. The
combination of our sales momentum, client-
base growth and satisfaction, industry-leading
1 Data on file
2 PLANSPONSOR magazine, 2021
3 Business Insurance magazine, 2021
Paychex 7
Making a Powerful Financial Statement
In a challenging year for many businesses, our fiscal 2021 results made a powerful statement
that points to an improved economic climate in the year to come. Paychex achieved revenue
of $4.1 billion with a market capitalization of $36 billion as of May 31, 2021. We grew our payroll
client base by 4% year-over-year, while the number of worksite employees we serve through
our HR solutions and professional employer organization (PEO) grew by 18% to 1.7 million.
This strengthens our position as a leading provider of HR outsourcing, payroll, retirement,
employee benefits, and insurance services.
Supporting clients with our resilience
Protection Program (PPP) loan applications, helping
Our strong fiscal 2021 results were due to our
resilient business model and the ability of our
employees to stay true to our guiding principles:
listening to clients, anticipating their needs, and
supporting them with innovative technology and
dedicated personalized service.
more than 500,000 businesses apply for the funding
necessary to stay in business.1
Prepared to thrive
After a year that redefined financial success as simply
survival, we’re prepared to help our clients thrive
again. As the business environment improves in FY22,
With 95% of our employees working remotely, we
we see outstanding financial opportunities to deliver
achieved record-high levels of client retention and
significant growth, operating profit performance, and
satisfaction. Our teams supported clients with new
financial results for our investors.
product releases and simplified complex Paycheck
Total Revenue ($Millions)*
2017
2018
2019
2020
2021
$3,153
$3,378
$3,773
$4,041
$4,057
Adjusted Operating Income ($Millions)*,2
2017
2018
2019
2020
2021
$1,254
$1,324
$1,371
$1,461
$1,493
*For the fiscal year ended May 31
1 Data on file
2 Adjusted operating income is a non-GAAP measure that excludes certain one-time costs in FY18 and FY21
8 Fiscal 2021 Results
Strength in Technology Leveraged by
Experienced HR Professionals
Our innovative technology and experienced HR and compliance professionals are a powerful
combination that uniquely positions Paychex as a market leader. In fiscal 2021, we continued
to invest in our products to provide Paychex clients with the tools and technology required to
support both onsite and distributed workforces.
HR Conversations and HR Connect
Paycheck Protection Program (PPP) tools
Within Paychex Flex, HR Conversations makes it
easier for clients’ employees and supervisors to
Our PPP loan and forgiveness tools helped
eligible clients receive $65 billion in loans and
digitally collaborate and communicate, keeping them
aligned on the employees’ job activities. At the same
reimbursements they needed to stay in business.
While our State Compliance Tool informed clients
time, HR Connect allows employees to ask questions,
of state laws, executive orders, advisories, and
submit requests, report incidents, and more — in real
processes they needed to follow.
time from any device — making it easier for HR to
manage their daily tasks.
Time and attendance
Businesses of all sizes across a variety of industries
value our time and attendance solutions for onsite
and remote workers. Paychex remains the only
provider to offer a truly hands-free experience
through our biometric iris-recognition technology.
We also offer punch-in and time entry through the
web, table kiosk applications with optional facial
verification, the Paychex Flex five-star mobile app,
and Apple Watch®.
Pooled Employer Plan (PEP)
We were one of the first to market with our latest
innovation in retirement savings. Our PEP introduces
client efficiencies, reduces client administration
requirements, and makes it easier to offer, manage,
and enroll employees in only four clicks.
Compliance experts
Currently, 56% of HR leaders reported it was a
challenge to keep up and comply with regulations.1
Our dedicated team of compliance experts
proactively monitors developments and stays in
1 Paychex, 2021 Pulse of HR Report: Leading in a New Era
The Power of Paychex 9
contact with federal, state, and local tax agencies and
Environmental leadership
regulators, so we can help keep our clients aware of
how fast-changing laws and regulations could affect
their business.
The power of technology supported
by HR expertise
Whether our HR solutions and professional
employer organization (PEO) clients have their own
HR department or they’re a team of one, they value
the HR advice and guidance available from our
Paychex HR professionals. Each client is assigned
Other CSR milestones we achieved in FY21 include
our first ever carbon disclosure report, where
we reported on greenhouse gas emissions from
Paychex-owned offices. In FY22, we are working with
our landlords to provide a comprehensive report of
all Paychex offices nationwide. We also created a
formal environmental policy and environmental
management system, and we completed our first
environmental risk review, which was reviewed
by our board of directors.
one of our 650 experienced HR professionals trained
Pay parity review
to provide more than best practices. They know their
clients and can provide recommendations to help
them solve their specific HR issues, maximize the
value of Paychex Flex technology, make the most
of Paychex solutions, and navigate changing
workplace dynamics.
Corporate social responsibility (CSR)
CSR and environmental, social, and governance
(ESG) reporting have risen in importance as more
investors, employers, and employees have focused
on companies’ environmental policies, corporate
philanthropy, employee wellness, and efforts to
improve diversity, equity, and inclusion (DEI).
Dedicated to the importance of CSR
Paychex took early initiatives at the forefront of
the CSR movement when we created a steering
committee in 2018 with officer-level representation
across the company. They continue to meet regularly
to discuss ways to drive our CSR program forward.
One of the world’s most ethical companies
That commitment is why Paychex was named one
of the World’s Most Ethical Companies® in FY21
for the 13th year. Our team reviews best practices;
updates our ethics program, policies, and
procedures; and takes steps to improve our program
each year to meet the exacting expectations of
ethics professionals.
We completed a new pay parity review based on
gender and race where Paychex far exceeded
typical results in our market. This coming year, we’re
expanding oversite to include DEI.
Employee wellness in the workplace
The COVID-19 pandemic has shined a spotlight on
employee wellness. There is a direct link between
addressing employees’ emotional, financial, physical,
and social needs and improving attendance and
performance in the workplace.
With many employees dealing with depression,
anxiety, and general uncertainty, our Benefits and
Well-being team helped provide relief in FY21 through
effective employee wellness programs. Employees
use our Employee Assistance Program (EAP), which
includes a concierge service to help reduce stress.
Tools and services such as those we offer through
meQuilibrium® are also popular, and our culture
addresses wellness by helping ensure employees
have a say in their job.
Paychex Foundation
Charitable giving has always been important to the
Paychex culture. Our foundation has contributed
millions over the years to support not-for-profit
organizations in the communities where we live and
work. In fiscal 2021, we made significant corporate
contributions to our foundation. This has increased
the foundation’s total assets to approximately
$10 million overall, adding to our ability to have a
positive effect on causes close to our employees
and management.
10 The Power of Paychex
The Power of Paychex 11
Payroll and HR made brilliantly simple
The next phase of our talent dashboard includes
In the complex new world of work, our cloud-
based Human Capital Management (HCM) solution,
Paychex Flex, makes payroll and HR simple — in
some seriously smart ways. Our technology makes it
easier for clients to invest in employee development,
offer and manage world-class benefits, comply
with changing regulations, and support employees’
mental, physical, and financial well-being to build
better business results.
All-in-one HCM
Paychex Flex brings together outsourced HR
administration — including our professional employer
organization (PEO) — employee onboarding, payroll,
time and attendance, benefits administration,
and retirement services into a single, easy-to-use
technology and service platform.
It gives our clients a choice of how and when they
want to interact with us, whether online, using the
Paychex Flex Assistant chatbot, or through email or
phone, with U.S.-based client service employees.
No matter the method, our technology and service
professionals are entirely in sync and committed to
delivering an unmatched customer experience.
The power to work and grow
from anywhere
Paychex Flex works with any device, from desktop
artificial intelligence and machine learning
technologies to create a new predictive analytics
report. Using the dashboard, clients can quickly
assess important data points to help identify which
employees may be at higher risk for turnover so they
can take steps to keep them onboard.
Paychex Flex also supports recruiting and retention
through our fully integrated recruiting and applicant
tracking module and our partnership and integration
with Indeed®, the world’s largest job site.
And we were the first payroll provider with a real-time
payments option. Paychex clients can process payroll
and fund direct deposit in 15 seconds or less, giving
our clients’ employees near-instant access to their
pay when they need it most.
Reducing labor costs
Managing cash flow and labor expenses continues
to be important as the economy ramps up. The new
Paychex Flex Labor Cost Hub gives clients a current,
holistic view of total job costing and labor distribution
expenses, driving greater insights to help them
manage their workforce.
Compliance tools and reporting
Paychex Flex also generates hundreds of standard
reports, with the option for clients to customize their
own reporting to their specific needs. The difficulty
to mobile, for business owners and HR professionals
of keeping up with changing laws and regulations
in the office and working remotely. It delivers more
makes our reporting capabilities key to helping clients
than 30 self-service capabilities for employees,
meet their compliance responsibilities.
managers, and administrators. In addition, it brings
together modules customized for HR, payroll, time
Information Technology (IT)
and attendance, 401(k) administration, outsourced
Paychex manages a hybrid architecture of secure on-
HR with a PEO, and more. Together, this all-in-one
premises data centers and public cloud computing
solution helps our clients manage their employees
services from Amazon Web Services®, Google
and grow their business.
Increasing recruiting and retention while
reducing turnover
As our clients navigate today’s tight labor market,
they’re asking for help hiring and retaining employees
while improving career pathing and development to
help reduce turnover.
12 The Power of Paychex
CloudTM, and Microsoft® Azure. We’re one of the
largest and most robust private cloud container
platforms in the U.S., storing and serving our solutions
from more than 50,000 containers.
In FY21, we have many applications in the cloud
with several more in development, including new
time-off and candidate management apps. We’ve
also developed artificial intelligence and machine
learning enabled reports that will provide access to
data points to assist clients in identifying employees
who may be at higher risk for turnover and offer
suggestions to help improve retention.
Expanding the ecosystem of
partners with APIs
All of our internal applications are API-first. The
Paychex open API platform makes it simple for us
and third parties to create an integration. We use
an iPaaS solution for internal builds that allows for
quick implementation and the use of more than 100
integrations — and growing.
Employee-focused technology
Paychex is tech-forward for our employees as
well. When the time came to transition most of our
employees to work remotely, our business continuity
plan helped ensure we were prepared.
Thanks to the hard work of our IT professionals,
we were able to set up 15,000 employees to work
Strong security practices
We also maintain strong control and cyber security
practices. Periodically, Paychex internal auditors and
external accounting and auditing firms review our
operations and business practices for compliance
with corporate policies and procedures that specify
the controls required to safeguard the confidentiality
of information. We’re proud that Paychex has
achieved SSAE 18, SOC 1, and SOC 2 attestations for
our Paychex Flex and SurePayroll® platforms, with
unqualified audit opinions issued by KPMG.
outside of the office in only 5 days and support them
continuously — all while maintaining our outstanding
level of client service.
Enterprise Security
Our Enterprise Security organization takes protecting
our clients’ data seriously. We continue to invest in
our award-winning security capabilities, including
personnel security and physical security; system
security, access control, and monitoring; data
backup and business continuity management;
and vulnerability and intrusion detection.
Cyber fusion center
Paychex is one of only a few companies nationally
to build a state-of-the-art cyber fusion center that
combines proactive cyber threat intelligence and
threat hunting with a security operations center
(SOC). Our team monitors the threat environment
24/7/365 and analyzes more than 3 billion data points
for security risks each day to rapidly identify and
respond to cyber security threats.
The Power of Paychex 13
Preparing Businesses To Thrive
As part of our focus on helping businesses weather the COVID-19 pandemic, we tapped our
expertise in HR, payroll, benefits, and regulatory compliance to provide businesses with the
information and tools necessary to take positive steps as the economy begins to improve. Clients,
analysts, and influential organizations took notice — and we’ve been humbled by their response.
Paychex Business Conference
Analysts like what they see in Paychex
Our first-ever virtual business conference brought
Industry research analysts who evaluate and
together 7,000 Paychex clients, business owners,
recommend SaaS solutions and technologies agree
and HR managers to hear from industry-renowned
that Paychex HR technology and service enable
HR experts and Paychex product leaders. Attendees
businesses to succeed in the new world of work.
received insights, resources, and solutions to build a
better workplace, increase productivity, and prepare
to thrive in 2021 and beyond.
Awards and accolades
“Paychex has quality developed its
(Paychex) Flex technology into a
digitally focused platform offering
that spans the employee journey and
punches above its weight in HCM
technology maturity.”
– Pete Tiliakos, HR technology and services
research director, NelsonHall
Client reviews are in
Paychex Flex was number one in both user
experience and vendor satisfaction scores in the
Annual HR Systems Survey – Voice of the Customer
Report from Sapient Insights Group. It also received
4.3 out of 5 stars from more than 1,200 client reviews
in G2. You can see the satisfaction in their reviews and
testimonials.
“None of us are payroll experts. Paychex
is a big company with all the right tools
that acts like a small company when it
comes to customer service. We made a
switch to Paychex, and we never looked
back. It was the smartest thing we
ever did.”
– Pat Iannatti, director of HR, StratasCorp
14 The Voice of the Customer
Sharing the Benefits of Our Expertise
With 50 years of experience providing businesses with technology and service solutions,
Paychex has become an expert resource for information on topics ranging from HR, payroll,
and benefits to regulatory compliance.
We share important information for businesses of
Paychex Business Series
all sizes and stages of growth through our Paychex
WORX resource center. And when businesses
needed help finding funding and complying with
regulations relating to the COVID-19 pandemic, we
came through with the knowledge to help them stay
in business.
COVID-19 Help Center and tools
We created our COVID-19 Help Center to support
businesses with their finances, employee
management, and operations. Throughout FY21,
it was a lifeline for businesses looking to apply for
PPP loans and loan forgiveness, receiving 1.1 million
unique page views.
We’ve also been conducting qualitative research
with the goal of supporting our clients and other
businesses as they begin their transition from
Hosted by business influencer Gene Marks, our
business podcast includes interviews of small
business owners and other experts about today’s
top business issues.
Actionable webinars
In FY21, many business owners and HR managers
had questions about PPP loans and changing
regulations. We increased our output of webinars
by 279% to anticipate and help solve their issues
— covering topics such as PPP loan forgiveness,
employee mental health, and vaccination policies in
the workplace.
The response was impressive. Webinar registrations
rose 1,166% and our webinars attracted more than
134,000 attendees, an increase of 1,280% from FY20.
surviving to thriving. Some recent research topics
Election 2020 event
have included:
• COVID-19 vaccination policies
• Employee mental health in the workplace
• Small business insights for rebuilding
and recovery
Podcast series featuring
business influencers
Our HR Leadership and Paychex Business Series
podcasts cover the current events and topics
affecting businesses today, featuring interviews with
successful small business owners and experts in
human resources.
Paychex HR Leadership Series
Our HR podcast includes engaging conversations
and insights from leading HR influencers as well as
from Paychex HR experts.
On December 15, 2020, we held a live event
discussing the outcome of the 2020 elections. Host
Gene Marks interviewed guests from ABC News
and MSNBC as they provided a national perspective
on the election’s effect on the challenges facing
businesses and employees, from the stimulus plan
to the economy, taxes, health care, and retirement.
Accounting professionals
and channel support
Paychex has a nearly two-decade relationship as
an AICPA/CPA.com preferred provider. Accounting
professionals are our number one referral source.
We’ve earned their trust by providing educational
webinars available for Continuing Professional
Education (CPE) credit as well as other resources,
such as the Accountant Knowledge Center. And we
also provide in-depth support to our financial advisor,
franchise, and national account partners.
An Advocate for Business 15
Board of Directors
Our board fulfills its oversight responsibilities to the shareholders and the investment community
through audit, governance and compensation, corporate development advisory, investment,
and executive committees.
Pictured from left to right: David J. S. Flaschen Director, Pamela A. Joseph Director, Joseph G. Doody Director, Kevin A. Price
Director, Martin Mucci President and Chief Executive Officer, B. Thomas Golisano Founder and Chairman of the Board, Joseph M.
Tucci Director, Kara Wilson Director, Joseph M. Velli Director, Thomas F. Bonadio Director
16 What It Means To Be Paychex
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2021
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From
to
Commission file number 0-11330
Paychex, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
911 Panorama Trail South
Rochester, NY
(Address of principal executive offices)
16-1124166
(I.R.S. Employer
Identification No.)
14625-2396
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (585) 385-6666
Title of each class
Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 par value
PAYX
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if
the registrant
is a well-known seasoned issuer, as defined in Rule 405 of
the
Securities Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate 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 of 1934 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 filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be
submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes Í No ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Í
Smaller Reporting Company ‘
Emerging Growth Company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ‘
Accelerated Filer ‘ Non-accelerated Filer ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the Sarbanes-Oxley Act
the effectiveness of
(15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Í
the registrant
is a shell company (as defined in Rule 12b-2 of
Indicate by check mark whether
reporting under Section 404(b) of
its internal control over
financial
the
Act). Yes ‘ No Í
As of November 30, 2020, the last business day of the most recently completed second fiscal quarter, shares held by
non-affiliates of the registrant had an aggregate market value of $29,976,304,817 based on the closing price reported for
such date on the NASDAQ Global Select Market.
As of June 30, 2021, 359,830,185 shares of the registrant’s common stock, $0.01 par value, were outstanding.
Documents Incorporated by Reference
Portions of
to be issued in connection with its Annual Meeting of
Stockholders to be held on or about October 14, 2021, to the extent not set forth herein, are incorporated by reference into
Part III, Items 10 through 14, inclusive.
the registrant’s definitive proxy statement
PAYCHEX, INC.
INDEX TO FORM 10-K
For the fiscal year ended May 31, 2021
Description
Page
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PART I
Cautionary Note Regarding Forward-Looking Statements
. . . . . . . . . . . . . . . . . . . . . . .
Item 1
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4
PART II
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Reserved]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8
Changes in and Disagreements with Accountants on Accounting and Financial
Item 9
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . .
PART III
Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13 Certain Relationships and Related Transactions, and Director Independence . . . . . . . .
Item 14 Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15 Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
“us,”
“our,”
“Paychex,” or
Certain written and oral statements made by management of Paychex, Inc. and its wholly owned
the “Company”) may constitute “forward-looking
subsidiaries (“we,”
statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private
Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words
and phrases as “we expect,” “expected to,” “estimates,” “estimated,” “intend,” “overview,” “outlook,”
“guidance,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected,” “projected to
be,” “anticipates,” “anticipated,” “we believe,” “believes,” “could be,” “targeting,” and other similar words
or phrases. Examples of forward-looking statements include, among others, statements we make
regarding operating performance, events, or developments that we expect or anticipate will occur in the
future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share
growth, or similar projections.
Forward-looking statements are neither historical facts nor assurances of future performance.
Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future
of our business, future plans and strategies, projections, anticipated events and trends, the economy,
and other future conditions. Because forward-looking statements relate to the future, they are subject
to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of
which are outside our control. Our actual results and financial condition may differ materially from those
indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any
of these forward-looking statements. Important factors that could cause our actual results and financial
condition to differ materially from those indicated in the forward-looking statements include, among
others, the following:
• our ability to keep pace with changes in technology and to provide timely enhancements to our
products and services;
• software defects, undetected errors, or development delays for our products;
• the possibility of cyberattacks, security vulnerabilities and Internet disruptions,
including
breaches of data security and privacy leaks, data loss and business interruptions;
• the possibility of failure of our operating facilities, computer systems, or communication systems
during a catastrophic event;
• the failure of third-party service providers to perform their functions;
• the possibility that we may be subject
to additional risks related to our co-employment
relationship with our professional employer organization (“PEO”);
• changes in health insurance and workers’ compensation insurance rates and underlying claim
trends;
• risks related to acquisitions and the integration of the businesses we acquire;
• our clients’ failure to reimburse us for payments made by us on their behalf;
• the effect of changes in government regulations mandating the amount of tax withheld or the
timing of remittances;
• our failure to comply with covenants in our debt agreements;
• changes in governmental regulations and policies;
• our ability to comply with U.S. and foreign laws and regulations;
• our compliance with data privacy laws and regulations;
• our failure to protect our intellectual property rights;
• potential outcomes related to pending or future litigation matters;
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• the impact of the COVID-19 pandemic on the U.S. and global economy, and in particular on our
small- and medium-sized business clients;
• volatility in the political and economic environment;
• changes in the availability of qualified people, including management, technical, compliance and
sales personnel; and
• the possible effects of negative publicity on our reputation and the value of our brand.
Any of these factors, as well as such other factors as discussed in Part I, Item 1A, “Risk Factors”
and throughout Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of this Annual Report on Form 10-K (“Form 10-K”), and in our periodic filings
with the Securities and Exchange Commission (the “SEC”), could cause our actual results to differ
materially from our anticipated results. The information provided in this Form 10-K is based upon the
facts and circumstances known as of the date of this report, and any forward-looking statements made
by us in this Form 10-K speak only as of the date on which they are made. Except as required by law,
we undertake no obligation to update these forward-looking statements after the date of filing this
Form 10-K with the SEC to reflect events or circumstances after such date, or to reflect the occurrence
of unanticipated events.
Our investor presentation regarding the financial results for the fiscal year ended May 31, 2021 is
available and accessible on our Paychex Investor Relations page at https://investor.paychex.com.
Information available on our website is not a part of, and is not incorporated into, this Form 10-K. We
intend to make future investor presentations available exclusively on our Paychex Investor Relations
page.
Item 1. Business
Unless we state otherwise or the context otherwise requires, the terms “Paychex,” “we,” “us,” “our”
and the “Company” refer to Paychex, Inc., a Delaware corporation, and its consolidated subsidiaries.
Overview
We are a leading human resource (“HR”) software and services company, offering HR, payroll,
benefits, and insurance services for small- to medium-sized businesses. Our purpose is to allow our
customers the freedom to succeed. The workplace is evolving, and we lead the way by making
complex HR, payroll, and benefits simple for our clients.
Paychex incorporated in Delaware in 1979 and has a fiscal year that ends May 31st. We maintain
our corporate headquarters in Rochester, New York, and serve clients throughout the U.S. and parts of
Europe. As of May 31, 2021, we served greater than 710,000 payroll and PEO clients.
For any organization, a key function is effective human capital management (“HCM”), which
requires both resources and expertise. Organizations are faced with complex and ever-changing
requirements, including diverse and complicated federal, state, and local regulations across multiple
jurisdictions. In addition, the workplace is rapidly changing as employees increasingly become mobile,
work remotely, and expect a user experience similar to consumer-oriented Internet applications. We
focus on helping small- to medium-sized businesses who do not have the resources or expertise to
adapt to the constantly evolving environment. The COVID-19 pandemic has further accelerated certain
trends toward remote work, consumer-oriented user experience, and increased regulatory complexity
which required us to pivot and adapt quickly to these changes.
Paychex offers a wide range of services and products – including a fully outsourced HR solution,
payroll processing, retirement services, and insurance – allowing us to customize our offering to the
client’s business, whether it is small or large, simple, or complex. We believe that we have the breadth
of solutions to cover the spectrum of the employee life cycle, but we also allow integration with some of
the most popular HR, accounting, point-of-sale, and productivity applications on the market today.
2
Our comprehensive solutions allow our clients to manage their workforces effectively from hire to
retire. We provide leading-edge HCM technology solutions, coupled with human expertise, to make
complex HR, payroll, and benefits issues simple for our clients. The key features of our solutions are:
• Comprehensive cloud-based platform optimized to meet the payroll and HR needs of small- and
medium-sized organizations;
• Streamlined workforce management that combines technology with flexible service options;
• Modern, mobile, and intuitive user experience and self-service capabilities that significantly
increase employee engagement;
• Scalable and customizable platform that allows clients the ability to add services as they grow;
• Software as a service, or “SaaS”, delivery model that reduces total cost of ownership for our
clients; and
• 50 years of expertise in HR and payroll with our technology backed by over 200 compliance
experts and 650 HR business professionals.
We market our solutions through our direct and virtual sales forces which are supported by various
corporate lead generation and marketing initiatives. Over 50% of our revenues are gained from our
services beyond payroll processing. We focus on providing an industry-leading client experience and
continue to see improving client satisfaction scores and retention.
Company Strategy
Our mission is to be the leading provider of HR, payroll, benefits, and insurance solutions by being
an essential partner to small- and medium-sized businesses across the U.S. and parts of Europe. We
believe that success in this mission will lead to strong, long-term financial performance. We intend to
strengthen and extend our position as a leading provider through continued investments in both our
technology and service offerings. Key elements of our strategy include:
• Providing industry-leading, integrated technology. We continue to invest significantly in our
award-winning Paychex Flex® platform and mobility applications to increase efficiency and
functionality for our clients and their employees.
• Increasing client satisfaction. Our flexible service model and technology-enabled service
allows us to provide a personalized service experience for our clients and their employees. We
continue to invest in artificial intelligence and machine learning and self-service capabilities to
allow clients and their employees easy, intuitive, and flexible service how, when, and where they
want it.
• Expanding our leadership in HR. We have a comprehensive suite of value-added HR
solutions for our clients and their employees. After several strategic PEO acquisitions over the
past several years, we are the second largest provider of PEO services in the U.S. With over
650 HR business professionals, we have extensive expertise that we believe sets us apart in the
industry.
• Growing our client base. We believe there is significant potential to grow within our current
target markets. We have invested significantly in new demand generation and sales tools and
expanding certain areas of our sales force. We continue to focus on sales productivity with the
intent of expanding our market share across all our product lines.
• Engaging in strategic acquisitions.
In the past, we utilized acquisitions as a means to
expand our portfolio, enter new markets or increase our scale. We continue to evaluate and
monitor potential acquisitions and will utilize this when the acquisitions are in alignment with our
overall strategy.
3
Our Solutions
Our solutions bring together payroll and HCM software with flexible, personalized, and technology-
enabled service capabilities. Clients have the option of doing payroll online using our SaaS technology,
outsourcing to our payroll specialists, or using a combination of
is then
integrated with HCM software modules for clients who have more complex HR needs. We also provide
comprehensive HR outsourcing through our administrative services organization (“ASO”) and PEO
solutions. The integration of leading-edge technology and flexible service options allows us to meet our
clients’ needs how, when, and where they want.
those solutions. Payroll
As the global economy continues to evolve, whether due to legislative changes, the COVID-19
pandemic, or other factors, we are committed to supporting our clients to help them navigate these
challenges. Developments in fiscal 2021 designed to meet the evolving needs of employers and
employees during the COVID-19 pandemic included:
• The COVID-19 Help Center: Paychex brought a multifaceted response to the COVID-19
pandemic and delivers resources and services to help our clients respond and adapt. The
COVID-19 Help Center on our website continues to provide support throughout every stage of
the pandemic.
• Portfolio of Paycheck Protection Program (“PPP”) tools, which include the ability for employers to
easily navigate the complexities of the PPP and Employee Retention Tax Credit.
• Employee health and safety offerings, including COVID-19 leave tracking, COVID-19 screening,
and health attestation solutions.
• Enhanced Onboarding Self-Service experience, which simplifies the user experience for entering
and reviewing new-hire information and includes the ability to invite employees to complete
onboarding and documentation digitally.
HCM Technology: Paychex Flex is our proprietary HCM SaaS platform that unites HR, payroll,
time and attendance, and benefits processes to maximize efficiency and savings. Paychex Flex helps
clients manage the employee life cycle from recruiting and hiring to retirement, providing an integrated
suite of solutions including recruiting, onboarding, HR, time and attendance and employee benefits. It
utilizes a single cloud-based platform, with single client and employee records. Clients can select the
modules they need and easily add on services as they grow. In addition, Paychex Flex presents
function-focused analytics throughout the platform, providing HR leaders with data to make more
informed business decisions. Paychex Flex uses a device-independent design throughout our HCM
suite, which allows full functionality of all application components, regardless of device or screen size.
We believe our Paychex mobile applications add greater value and convenience for our clients and
their employees by allowing them instant access on their mobile device, and we have experienced
strong growth in mobile and self-service usage over the past year.
We continue to invest in Paychex Flex, making significant enhancements designed to simplify the
In fiscal 2021, product development focused on new products geared toward
complexity of HR.
increasing digital
technology for our clients allowing them to function
efficiently with a distributed workforce. Our fiscal 2021 product development included enhancements
to:
transformation and use of
Data analytics and live reports
Online employee onboarding tool
HR Connect
Performance management features
Mobility and self-service tools
Voice recognition
HR and Compliance Expertise: Paychex supports its HCM software solutions with 50 years of
experience. We have over 650 HR business professionals who are dedicated to our clients and have
the experience and training to provide HR best practices and advice. Our HR business partners are
available to provide our ASO and PEO clients with specific guidance on HR issues. In addition, we
4
have over 200 compliance professionals who are in real-time contact with tax agencies and regulators
to understand upcoming or newly enacted laws and regulations and advocate for our clients’
interests. The contributions of
these compliance experts are intended to ensure that our HCM
solutions are updated timely to adhere to regulations and to help our clients stay in compliance.
Technology-Enabled Client Service: Paychex Flex also provides technology-enabled service
with options that include self-service, a 24/7 dedicated service center, an individual payroll specialist,
and integrated service via a multi-product service center. In addition, medium-sized clients can utilize a
relationship manager for more personalized service. This flexible platform services our small- to
medium-sized clients and a portion of our PEO business.
Within Paychex Flex there is embedded technology to assist clients. The Paychex Flex
Intelligence Engine includes the Flex Assistant, a customer service chatbot that can answer over 340
commonly asked questions and offer access to 800 instructional resources. Our Paychex Flex
Intelligence Engine allows clients to elect their preference for learning – via written how-to-documents,
tutorial-style video vignettes, or a guided interactive tour. At any time, a live Paychex agent is just a
click away, with the entire chat conversation available real-time to provide a better, more personalized
service experience.
The platform embeds self-service capabilities that empower client employees to manage their HR
and benefits information from any location, on any device. These self-service capabilities allow for
greater access and convenience for client employees and greater productivity for clients.
Our Clients
Paychex has HR solutions to fit
the needs of any small- to medium-sized business,
from
do-it-yourself payroll to comprehensive HR outsourcing. The target market for our integrated HCM
solutions is small- to medium-sized businesses. Within this space, we serve a diverse client base
operating in a broad range of industries throughout the U.S. and parts of Europe. The flexibility and
scalability of our solutions allow our clients to define the solution that best meets their needs and to
grow within the Paychex Flex platform. We utilize service agreements and arrangements with clients
that generally do not contain specified contract periods and may be terminated by either party with
30-days notice of termination. For the fiscal year ended May 31, 2021 (“fiscal 2021”), client retention
was at record levels of approximately 85% of our beginning client base.
We support our small-business clients, reducing the complexity and risk of running their own
payroll, while ensuring greater accuracy with up-to-date tax rates and regulatory information. We
simplify their payroll with a combination of our solutions and customer service options for a quick and
easy payday. Clients may choose to have our service team handle everything for them, or process
payroll themselves utilizing our proprietary, robust SaaS Paychex Flex platform and our SurePayroll®
SaaS-based products. Both products allow users to process payroll when they want, how they want,
and on any device (desktop, tablet, and mobile phone).
Our medium-sized clients generally have more complex payroll and employee benefit needs,
increasing regulations, we believe the need for HR outsourcing
though with the environment of
services has been moving down-market. Any of our clients on Paychex Flex can opt
for the
integrated suite of HCM solutions, which allows clients to choose the services and software that will
meet the needs of their business.
While Paychex Flex is our primary SaaS-based platform utilized by the majority of our clients for
their HCM needs, there are some clients that use other platforms, including SurePayroll clients, certain
PEO clients, and some smaller tenured clients.
Both our small- and medium-sized clients can choose one of our comprehensive HR outsourcing
services, which include ASO and PEO solutions, and participate in our benefits offerings, which include
our insurance and retirement services. Our insurance services simplify the insurance process to make
5
it easy to find plans with the features and affordability to meet the client’s needs. Our retirement
services product line offers many plan design options to meet the client’s requirements, as well as
investment options.
Description of Services
Within our HCM solutions we offer a comprehensive portfolio of services and products that allow
our clients to meet their diverse HR and payroll needs. Clients can select services on an á la carte
basis or as part of various product bundles. Our offerings often leverage the information gathered in
our base payroll processing service, allowing us to provide comprehensive outsourcing services
covering the HCM spectrum.
Our portfolio of services is comprised of the following:
Management Solutions:
• Payroll processing services: Our payroll processing services include the calculation,
preparation, and delivery of employee payroll checks; production of internal accounting records
and management reports; preparation of
tax returns; and
collection and remittance of clients’ payroll obligations.
federal, state, and local payroll
funds to the applicable federal, state, and local
• Payroll tax administration services: Payroll tax administration services provide for accurate
preparation and timely filing of quarterly and year-end tax returns, as well as the electronic
In
transfer of
connection with these services, we electronically collect payroll
taxes from clients’ bank
accounts, typically on payday, prepare and file the applicable tax returns, and remit taxes to the
applicable tax or regulatory agencies on the respective due dates. These taxes are typically paid
between one and 30 days after receipt of collections from clients, with some items extending up
to 90 days. We handle regulatory correspondence, amendments, and penalty and interest
disputes.
tax or regulatory agencies.
• Employee payment services: Our employee payment services provide an employer the
option of paying their employees by direct deposit, payroll debit card, a check drawn on a
Paychex account (Readychex®), or a check drawn on the employer’s account and electronically
signed by us. For each of the first three methods, we electronically collect net payroll from the
clients’ bank accounts, typically one business day before payday, and provide payment to the
employees on payday. Our Readychex service provides a cost-effective solution that offers the
benefit of convenient, one-step payroll account reconciliation for employers.
We also allow employers to opt for more flexible pay options. Same day ACH functionality is also
available for clients using direct deposit, allowing employers the flexibility to pay employees via
direct deposit on the same day they initiate payroll. In addition, we are giving business owners
the ability to leverage real-time payments to process payroll and deliver net pay to their
employees immediately for time worked. Pay-on-demand functionality enables an employee to
request access to a portion of earned pay before the scheduled pay date, which is deposited into
a traditional bank account or a third-party account.
• Regulatory compliance services: We offer new-hire reporting services, which enable clients
to comply with federal and state requirements to report information on newly hired employees.
This information aids the government in enforcing child support orders and minimizes fraudulent
unemployment and workers’ compensation insurance claims. Our garnishment processing
service provides deductions from employees’ pay, forwards payments to third-party agencies,
including those that require electronic payments, and tracks the obligations to fulfillment. These
services enable employers to comply with legal requirements and reduce the risk of penalties.
We also offer comprehensive solutions to help employers and employees with certain mandates
under the Affordable Care Act (“ACA”), which sets forth specific coverage and reporting
requirements that employers must meet.
6
• HR Solutions (ASO): Our ASO offers businesses a combined package that includes payroll,
employer compliance, HR and employee benefits administration, risk management outsourcing,
and the on-site availability of a professionally trained HR representative, among other services.
Paychex HR Essentials is an ASO product that provides support to our clients over the phone or
online to help manage employee-related topics.
• Retirement services administration: Our retirement services product line offers a variety of
options to clients, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with
safe harbor provisions, owner-only 401(k) plans, profit sharing plans, and money purchase
plans. These services provide plan implementation, ongoing compliance with government
regulations, employee and employer
reporting, participant and employer online access,
electronic funds transfer, and other administrative services. Auto enrollment is an optional plan
feature that allows employers to automatically enroll employees in their company’s 401(k) plan
and increase overall plan participation. Clients may choose from a group of pre-defined fund
selections or customize their investment options within their plan. We are the largest 401(k)
recordkeeper for small businesses in the U.S. Our large-market retirement services clients
include relationships with financial advisors. In January 2021, we were among the first in the
retirement industry to sponsor and maintain a Pooled Employer Plan (“PEP”) to help businesses
provide a cost-effective retirement plan option for their eligible employees.
• HR administration services: We offer cloud-based HR administration software for employee
recruiting, and
time and attendance solutions,
benefits management and administration,
onboarding. These services include:
o
o
o
o
o
Paychex HR Online offers powerful tools for managing employee personnel information,
performance management, HR compliance and reporting. Our Learning Management
solution complements our performance management
tool. When combined with our
workflow and approval engine, we offer clients the flexibility to capture ongoing
performance feedback, recommend and enroll employees in specific training courses,
and leverage automated workflows to track progress and approve compensation changes
tied to performance.
Digital communication solutions,
including Paychex Flex HR Connect and HR
Conversations, which helps strengthen connections and keep workers engaged no
matter their work location. Paychex Flex HR Connect provides the ability to digitally
submit questions, requests, and incident reports directly to HR through an easy-to-use
workflow. HR Conversations enables managers and HR leaders
to initiate
communications with employees, and enhancements to performance assessments allow
for 360-degree feedback digitally within the tool.
Benefits administration software that manages the employee-benefit enrollment process
for both open-enrollment and life events.
Time and attendance products, including our integrated Paychex Flex Time software,
provide timekeeping, scheduling, and workforce analytics. The InVisionTM IRIS Time
Clock, a biometric clock that scans the iris, provides fast and accurate time capture.
Paychex Flex Time also works with wearable technology to allow for employees to clock
in and out using their smartwatch.
Applicant tracking suite provides technology that streamlines, simplifies, and drives the
applicant workflow and onboarding process for companies of all sizes.
• Other HR services and products: We offer the outsourcing of plan administration under
section 125 of the Internal Revenue Code, allowing employees to use pre-tax dollars to pay for
certain health insurance benefits and health and dependent care expenses not covered by
insurance. All required implementation, administration, compliance, claims processing and
reimbursement, and coverage tests are provided with these services. We offer state
7
unemployment insurance services, which provide clients with prompt processing for all claims,
appeals, determinations, change statements, and requests for separation documents.
• Business services: We offer various business services for small-
to medium-sized
businesses. Our wholly owned subsidiary, Paychex Advance, LLC, provides a portfolio of
funding (via the purchase of
services to the temporary staffing industry,
accounts receivable) and outsourcing services, which include payroll processing, invoicing, and
tax preparation. Paychex Promise, a subscription-based service, offers protection against payroll
interruptions and solutions to address routine challenges of running a successful business. The
primary offering is payroll protection, which extends the collection of payroll funds from a client’s
bank account by seven days without interruption of service or charges for insufficient funds. In
addition, through partnerships with third-party providers, we provide clients opportunities for
services such as payment processing services, financial fitness programs, and a small-business
loan resource center.
including payroll
PEO and Insurance Solutions:
• PEO solutions: Our licensed PEO subsidiaries offer businesses a combined package that
risk
includes payroll, employer compliance, HR and employee benefits administration,
management outsourcing, and the on-site availability of a professionally trained HR
representative, among other services. What differentiates our PEO solutions from our ASO
solutions is that we serve as a co-employer of our clients’ employees and assume the risks and
rewards of certain workers’ compensation insurance and certain health insurance offerings. We
are certified under the Small Business Efficiency Act to provide PEO solutions. In fiscal 2021, we
began to offer the PEO Protection Plus Package, which helps business owners protect their
bottom line from unforeseen costs, including cyberattacks and employee lawsuits, as exposure
to these risks rapidly increased due to the COVID-19 pandemic.
• Insurance solutions: Our
licensed insurance agency, Paychex Insurance Agency,
Inc.,
provides insurance through a variety of carriers, allowing employers to expand their employee
benefit and corporate offerings at an affordable cost. Insurance offerings include property and
casualty coverage such as workers’ compensation, business-owner policies, cyber security
protection, commercial auto, and health and benefits coverage, including health, dental, vision,
and life. Our insurance services simplify the insurance process to make it easy to find plans with
the features and affordability to meet the client’s needs. With access to numerous top national
insurance agents have access to a wide
and regional
selection of plans from which they can best match the insurance needs of small businesses.
Additionally, clients have the option to integrate their insurance plans with Paychex payroll
processing for easy, accurate plan administration.
insurance carriers, our professional
Sales and Marketing
We market and sell our services primarily through our direct sales force based in the markets we
serve. Our direct sales force includes sales representatives who have defined geographical territories
and specialize within our portfolio of services. Our sales representatives are also supported by
marketing, advertising, public relations, trade shows, and telemarketing programs. Our virtual sales
force manages inbound sales leads for the under ten employee space, sales in areas without a direct
sales force presence, and sales of various ancillary services. During fiscal 2021, in response to the
COVID-19 pandemic, our entire field sales force pivoted to working in a virtual environment.
In addition to our direct selling and marketing efforts, we utilize other indirect sales channels such
as our relationships with existing clients, certified public accountants (“CPAs”), and banks for new
client
referrals. More than 50% of our new small-market payroll clients (excluding business
acquisitions) come from these referral sources. Our dedicated business development group drives
sales through banking, national associations, and franchise channels. We also utilize digital marketing
as a means to market our services.
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We have a long-standing partnership with the American Institute of Certified Public Accountants
(“AICPA”) as the preferred payroll provider for its AICPA Business SolutionsTM Program. Our current
partnership agreement with the AICPA is in place through September 2023. We also partner with
numerous state CPA society organizations.
Our website is available at www.paychex.com. It is a cost-efficient channel that serves as a source
of leads and new sales, while complementing the efforts of our direct and virtual sales forces. The
website allows us to market to existing and prospective clients that want to learn more about our
products and services and offers information about our core lines of business: human resources
benefits
(www.paychex.com/human-resources),
(www.paychex.com/employee-benefits), and insurance (www.paychex.com/business-insurance).
(www.paychex.com/payroll),
payroll
Paychex also builds on its reputation as an expert in the HCM industry by providing education and
assistance primarily to clients and the CPA community. We provide free webinars, white papers, and
other information on our website to inform existing and prospective clients on the impact of regulatory
change as well as HR and business best practices. Paychex WORX, available at www.paychex.com/
worx,
from
entrepreneur to enterprise. Paychex WORX highlights our expertise and ability to help businesses of
all sizes with a wide range of HR and financial information for current clients and prospects alike.
is a digital destination for insightful resources useful
for businesses at every stage,
impact
regulatory issues that
We also track current
the business community and provide
regulatory updates. We issue small business trend reports through our Paychex | IHS Markit Small
Business Employment Watch. Our Paychex Accountant Knowledge Center is a free online resource
available through our website that brings valuable information and time-saving online tools to
accounting professionals. Through Paychex Flex, AccountantHQ offers access to authorized client
payroll and HR data and key account contacts, along with an extensive accountant resource library.
AccountantHQ drives efficiency by putting accountants in the best position possible to easily access
critical client payroll and HR data, as well as powerful reporting tools,
including our PPP loan
forgiveness estimator.
Markets and Competition
We remain focused on servicing small- to medium-sized businesses based upon the growth
potential that we believe exists in the markets we serve. Our internal database source indicates that
there are approximately 8 million employer firms in the target markets that we currently serve in the
U.S.
The market for HCM services is highly competitive and fragmented. We have one primary national
competitor and we also compete with other national, international, regional, local, and online service
providers. In addition to traditional payroll processing and HR service providers, we compete with
in-house payroll and HR systems and departments. Payroll and HR systems and software are sold by
many vendors. Our products also compete with a variety of providers of HR services, such as
retirement services companies, insurance companies, HR and benefits consulting firms, and national
and regional PEOs.
Competition in the payroll processing and HR services industry is primarily based on service
responsiveness, product quality and reputation, including ease of use and accessibility of technology,
breadth of service and product offerings, and price. We believe we are competitive in each of these
leading-edge technology and mobility applications, combined with
areas. We believe that our
technology-enabled service
personalized service provided by industry professionals and our
capabilities, distinguishes us from our competitors.
Software Maintenance and Development
The ever-changing mandates of federal, state, and local tax and regulatory agencies require us to
regularly update our proprietary software to provide payroll and HR services to our clients. We are
9
continually engaged in developing enhancements to and maintaining our various software platforms to
meet the changing requirements of our clients and the marketplace. We continue to enhance our SaaS
solutions and mobility applications to offer our users an integrated and unified experience. Continued
enhancement of the client and client employee experience is important to our future success.
Human Capital
We believe our ability to attract and retain qualified employees in all areas of our business is
critical to our future success and growth. We strive to foster a diverse, equitable, and inclusive (“DE&I”)
workplace; attract, retain, and develop talented employees; and keep them safe.
For detailed information regarding our HCM activities, we encourage investors to visit our
Corporate Responsibility website page at https://www.paychex.com/corporate/corporate-responsibility.
We have also made our Corporate Social Responsibility (“CSR”) report for fiscal 2020 available on our
website. The information contained on our website and in our CSR report is not and should not be
viewed as being incorporated by reference into this Form 10-K.
Our Employees: As of May 31, 2021, we employed approximately 15,000 people, primarily in
the U.S. and on a full-time basis. None of our employees were covered by collective bargaining
agreements. We have not experienced a strike or similar work stoppage, and we consider our relations
with our employees to be good.
Paychex Culture: Our core cultural values (“Paychex Values”) are designed to guide decision
making aligned to the expectations of clients, stockholders, regulators, employees, and the multiple
communities in which we operate and to reflect our continuing commitment to DE&I. The Paychex
Values are:
Integrity
Partnership
Service
Accountability
Innovation
Respect
Each of these values guide our decision-making process and are critical to our ongoing success.
All employees are required to verify their understanding and observance of these values during our
annual “Right Way” training, review these values with management during periodic performance
discussions, and are further encouraged to attend ongoing training during the year. Volunteer “Culture
Champions” throughout the Company also help promote these values daily. We encourage employee
feedback through our employee engagement surveys, as described below. This approach empowers
our employees and allows us to make a positive impact in the communities we work and serve. As a
result of our commitment to these principles, in 2021 we were recognized by Ethisphere, a global
leader in defining and advancing the standards of ethical business practices, as one of the World’s
Most Ethical Companies. We have achieved this recognition 13 times, and consecutively since 2012.
Talent Acquisition and Development: We compete for talent along with our direct competitors
and other companies in the geographic areas we serve. We invest significant resources to attract and
retain top talent. Our Talent Acquisition Team, in conjunction with certain third-party partners, have
developed comprehensive processes to identify and recruit accomplished professionals.
Once hired, our world-class Training Department provides functional training for payroll and HCM
specialists and sales associates and also offers personal training, professional development, and
leadership-development programs. As a result of our efforts, we have earned the distinction of being
named to Training Magazine’s list of the Top 100 Training Organizations 20 consecutive times. Most
recently, we ranked No. 7 on the 2021 list in addition to being recognized as a 2021 Best Practice
award winner for our Culture Shaping initiative.
Comprehensive Compensation and Benefits: We are committed to providing a fair wage and
a total rewards package that allows our employees to be their best in every area of their lives. We
regularly review employee salaries to ensure we are competitive in the industry and offer financial
benefits such as a 401(k) plan, employee stock purchase plan, tuition assistance, scholarships for
10
children of employees, and financial education. We are also committed to rewarding employees with
comprehensive and competitive wellness benefits and well-being programs which include medical,
prescription, dental, and vision insurance, short- and long-term disability, Employee Assistance
Program, paid family leave, and a variety of well-being programs. For fiscal 2021, compensation-
related expenses accounted for approximately 59% of our total expenses.
Employee Well-being Initiatives:
In addition to providing a comprehensive compensation and
benefits package, we are committed to providing a safe and healthy workplace for our employees.
Healthier employees are at lower risk of injury from workplace related exposures, perform work more
safely with lower rates of absenteeism, and experience better job performance. Our well-being
program is a robust and comprehensive program focusing on the physical, emotional, community,
career, and financial health of our employees. We have been recognized on multiple occasions with
the Gold or Platinum designation as a “Best Employer for Worksite Wellbeing” by the Business Group
on Health.
Our award-winning well-being initiatives offer a wide variety of services, tools, and resources that
can help employees achieve their health goals using a holistic approach. In addition, we sponsor onsite
health screenings, Red Cross blood donation events,
flu vaccination clinics, vaping and tobacco
cessation, weight management, resiliency training, meditation and yoga classes, and a variety of other
programs. Similar to our Culture Champions, we also promote the use of “Well-Being Champions”—
Paychex employees who serve as a liaison between the Employee Well-Being Program and their team
members. Our employees’ financial well-being is equally important, so we have developed programs
for financial education and support. We also maintain procedures for events such as fires, severe
weather, medical emergencies, and active shooters, as well as other important information related to
general workforce safety.
Employee Engagement: Each year we ask our employees to share their views on working at
Paychex through a company-wide engagement survey. Facilitated internally by our Human Resources
Organizational Development Team, the survey methodology is periodically updated to reflect currents
trends and issues including company direction and strategy, DE&I,
individual development,
collaboration, and our Paychex Values. A third-party administers the survey in order to maintain
confidentiality of responses. We use the survey responses to help inform management and assist in
developing programs and policies that will maintain and promote Paychex Values.
Intellectual Property
We own or license and use a number of trademarks, trade names, copyrights, service marks,
trade secrets, computer programs and software, and other intellectual property rights. Collectively, our
intellectual property rights are material to the conduct of our business. Where it is determined to be
appropriate, we take measures to protect our intellectual property rights, including, but not limited to,
confidentiality/non-disclosure agreements or policies with employees, vendors, and others; license
agreements with licensees and licensors of intellectual property; and registration of certain trademarks.
We believe that the “Paychex” name, trademark, and logo are of material importance to us.
Seasonality
There is no significant seasonality to our business. However, during our third fiscal quarter, which
ends in February, the number of new payroll clients, new retirement services clients, and new worksite
employees associated with our ASO and PEO businesses tends to be higher than during the rest of
the fiscal year, primarily because many new clients prefer to start using our services at the beginning of
a calendar year. In addition, calendar year-end transaction processing and client funds activity are
traditionally higher during our third fiscal quarter due to clients paying year-end bonuses, clients
requesting additional year-end services, and the preparation and delivery of end-of year reporting
requirements.
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Available Information
We are subject to the informational and reporting requirements of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Therefore, we file periodic reports, proxy statements, and
other information with the SEC. The SEC maintains a website (www.sec.gov) that includes our reports,
proxy statements, and other information.
Our corporate website, www.paychex.com, provides materials for investors and information about
our services. Our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
to
other SEC filings, as well as any amendments to such reports filed or furnished pursuant
Section 13(a) or 15(d) of the Exchange Act, are made available, free of charge, on our website as soon
as reasonably practicable after such reports have been filed with or furnished to the SEC. The
information on our website is not incorporated by reference into our Form 10-K. Also, copies of our
Annual Report to Stockholders and Proxy Statement, to be issued in connection with our 2021 Annual
Meeting of Stockholders, will be made available, free of charge, upon written request submitted to
Paychex, Inc., c/o Corporate Secretary, 911 Panorama Trail South, Rochester, New York 14625-2396.
Item 1A. Risk Factors
Our future results of operations are subject to risks and uncertainties that could cause actual
results to differ materially from historical and current results, and from our projections. The following
risk factors represent our current view of some of the most important risks facing our business and are
important to understanding our business. These are not the only risks we face. Additional factors not
presently known to us or that we currently deem to be immaterial also may adversely affect, possibly to
a material extent, our business, cash flows, financial condition, or results of operations in future
periods. In addition, refer to the cautionary note regarding forward-looking statements at the beginning
of Part I of this Form 10-K.
Business and Operational Risks
We may not be able to keep pace with changes in technology or provide timely
enhancements to our products and services.
The market for our products is characterized by rapid technological advancements, changes in
customer requirements, frequent new product introductions and enhancements, and changing industry
standards. To maintain our growth strategy, we must adapt and respond to technological advances
and technological requirements of our clients. Our future success will depend on our ability to: enhance
our current products and introduce new products in order to keep pace with products offered by our
competitors; enhance capabilities and increase the performance of our internal systems, particularly
our systems that meet our clients’ requirements; and adapt
to technological advancements and
changing industry standards. We continue to make significant investments related to the development
of new technology. If our systems become outdated, it may negatively impact our ability to meet
performance expectations related to quality,
time to market, cost and innovation relative to our
competitors. The failure to provide a more efficient and user-friendly customer-facing digital experience
locations may adversely impact our
across internet and mobile platforms as well as in physical
business and operating results. There can be no assurance that our efforts to update and integrate
systems will be successful. If we do not integrate and update our systems in a timely manner, or if our
investments in technology fail to provide the expected results, there could be a material adverse effect
to our business and results of operations. The failure to continually develop enhancements and use of
technologies such as robotics and other workflow automation tools, natural language processing, and
artificial intelligence/machine learning may impact our ability to increase the efficiency of and reduce
costs associated with operational risk management and compliance activities.
12
We may experience software defects, undetected errors, and development delays,
which could damage our relationship with clients, decrease our potential profitability
and expose us to liability.
Our products rely on software and computing systems that can encounter development delays,
and the underlying software may contain undetected errors, viruses or defects. Defects in our products
and errors or delays caused by our products could result in additional development costs, diversion of
technical and other resources from our other development efforts, loss of credibility with current or
potential clients, harm to our reputation and exposure to liability. In addition, we rely on technologies
and software supplied by third parties that may also contain undetected errors, viruses or defects that
could have a material adverse effect on our business, financial condition, results of operations and
cash flows.
We could be subject to reduced revenues, increased costs, liability claims, or harm to
our competitive position as a result of cyberattacks, security vulnerabilities or Internet
disruptions.
We rely upon information technology (“IT”) networks, cloud-based platforms, and systems to
process, transmit, and store electronic information, and to support a variety of business processes,
some of which are provided by third-party vendors. Cyberattacks and security threats are a risk to our
business and reputation. A cyberattack, unauthorized intrusion, malicious software infiltration, network
disruption or outage, corruption of data, or theft of personal or other sensitive information, could have a
material adverse effect on our business operations or that of our clients, result in liability or regulatory
sanction, or cause harm to our business and reputation and result in a loss in confidence in our ability
to serve clients all of which could have a material adverse effect on our business. The rapid speed of
disruptive innovations involving cyberattacks, security vulnerabilities and Internet disruptions enabled
by new and emerging technologies may outpace our organization’s ability to compete and/or manage
the risk appropriately. In addition, cybercriminals may seek to exploit the disruptions caused by the
COVID-19 pandemic by attempting to engage in payment-related fraud or by more frequently
attempting to gain access to our systems through phishing or other means that may be more
successful when employees are working remotely.
information, payroll
Data Security and Privacy Leaks: We collect, use, and retain increasingly large amounts of
personal information about our clients, employees of our clients, and our employees, including: bank
account, credit card, and social security numbers, tax return information, health care information,
information, system and network passwords, and other
retirement account
sensitive personal and business information. At the same time, the continued occurrence of high-profile
cyber and ransomware attacks and data breaches provides evidence of an external environment
increasingly hostile to information security. We may be particularly targeted for cyber-attack because of
the amount and type of personal and business information that we collect, use, and retain.
Vulnerabilities, threats, and more sophisticated and targeted computer crimes pose a risk to the
security of our systems and networks, and the confidentiality, availability, and integrity of our data.
Furthermore, if any of our products contains a software vulnerability, the vulnerability may be exploited
to obtain access to our data or our clients’ data.
Our service platforms enable our clients to store and process personal data on premises or,
increasingly, in a cloud-based environment that we host. The security of our IT infrastructure is an
important consideration in our customers’ purchasing decisions. Because the techniques used to
obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are
increasingly more complex and sophisticated and may be difficult to detect for long periods of time, we
may be unable or fail to anticipate these techniques or implement adequate or timely preventative or
responsive measures. As cyber threats continue to evolve, we are focused on ensuring that our
operating environments safeguard and protect personal and business information. We may be required
to invest significant additional resources to comply with evolving cybersecurity regulations and to
modify and enhance our information security and controls, and to investigate and remediate any
13
security vulnerabilities. While we have security systems and IT infrastructure in place designed to
detect and protect against unauthorized access to such information, if our security measures are
breached, our business could be substantially harmed, and we could incur significant liabilities. Any
such breach or unauthorized access could negatively affect our ability to attract new clients, cause
existing clients to terminate their agreements with us, result in reputational damage, and subject us to
lawsuits, regulatory fines, or other actions or liabilities which could materially and adversely affect our
business and operating results. Third-parties,
including vendors that provide services for our
operations, could also be a source of security risk to us in the event of a failure of their own security
systems and infrastructure.
Data Loss and Business Interruption: If our systems are disrupted or fail for any reason, including
Internet or systems failure, or if our systems are infiltrated by unauthorized persons, both the Company
and our clients could experience data loss, financial loss, harm to reputation, or significant business
interruption. Hardware, applications and services, including cloud-based services, that we develop or
procure from third-party vendors may contain defects in design or other problems that could
compromise the integrity and availability of our services. Any delays or failures caused by network
outages, software or hardware failures, or other data processing disruptions, could result in our inability
to provide services in a timely fashion or at all. We may be required to incur significant costs to protect
against damage caused by disruptions or security breaches in the future. Such events may expose us
to unexpected liability,
loss of clients’ business,
unfavorable impact
to business reputation, and there could be a material adverse effect on our
business and results of operations.
litigation, regulatory investigation and penalties,
In the event of a catastrophe, our business continuity plan may fail, which could result
in the loss of client data and adversely interrupt operations.
Our operations are dependent on our ability to protect our infrastructure against damage from
catastrophe or natural disaster, unauthorized security breach, power loss, telecommunications failure,
terrorist attack, public health emergency, pandemic, or other events that could have a significant
disruptive effect on our operations. Climate-related weather disasters, including hurricanes, flooding,
snowstorms, and severe rainstorms, could also threaten the business continuity of our operations. We
have a business continuity plan in place in the event of system failure due to any of these events. Our
business continuity plan has been tested in the past by circumstances of severe weather, including
hurricanes,
these past
floods, snowstorms, and rain storms and has been successful. However,
successes are not an indicator of success in the future. If the business continuity plan is unsuccessful
in a disaster recovery scenario, we could potentially lose client data or experience material adverse
interruptions to our operations or delivery of services to our clients.
We may be adversely impacted by any failure of third-party service providers to
perform their functions.
As part of providing services to clients, we rely on a number of third-party service providers. These
service providers include, but are not limited to, couriers used to deliver client payroll checks, banks
used to electronically transfer funds from clients to their employees, and information technology
vendors servicing cloud-based platforms we use. Failure by these service providers, for any reason, to
deliver their services in a timely manner and in compliance with applicable laws and regulations could
result
in significant
in material
penalties or liabilities to us.
impact client relations, and result
interruptions to our operations,
We may be exposed to additional risks related to our co-employment relationship
within our PEO business.
Many federal and state laws that apply to the employer-employee relationship do not specifically
address the obligations and responsibilities of
the “co-employment” relationship within our PEO
business. State and federal positions regarding co-employment relationships are in a constant state of
14
flux and changed with varying degrees of impact on our operations. We cannot predict when changes
will occur or forecast whether any future changes will be favorable or unfavorable to our operations.
There is a possibility that we may be subject to liability for violations of employment or discrimination
laws by our clients and acts or omissions of client employees, who may be deemed to be our agents,
even if we do not participate in any such acts or violations. Although our agreements with clients
provide that they will indemnify us for any liability attributable to their own or their employees’ conduct,
we may not be able to effectively enforce or collect such contractual obligations. In addition, we could
be subject to liabilities with respect to our employee benefit plans if it were determined that we are not
the “employer” under any applicable state or federal laws. Incurring additional liabilities related to our
PEO business may adversely affect our results of operations.
We may be adversely impacted by changes in health insurance and workers’
compensation rates and underlying claims trends.
Within our PEO business, we maintain health and workers’ compensation insurance covering
worksite employees. The insurance costs are impacted by claims experience and are a significant
portion of our PEO costs. If we experience a sudden or unexpected increase in claims activity, our
costs could increase. In addition, in the event of expiration or cancellation of existing contracts, we may
not be able to secure replacement contracts on competitive terms. Also, as a co-employer in the PEO,
we assume or share many of the employer-related responsibilities associated with health care reform,
which may result in increased costs. Increases in costs not incorporated into service fees timely or fully
could have a material adverse effect on our results of operations. Incorporating cost increases into
service fees could also impact our ability to attract and retain clients.
We made and may continue to make acquisitions that involve numerous risks and
uncertainties.
Acquisitions subject us to risks, including increased debt, assumption of unforeseen liabilities, and
difficulties in integrating operations. Successful
integration involves many challenges, including the
difficulty of developing and marketing new products and services, our exposure to unforeseen liabilities
of acquired companies, and the loss of key employees of an acquired business. The integration and
conversion of our acquired operations or other future acquisitions, if any, could result in increased
operating costs if the anticipated synergies of operating these businesses as one are not achieved, a
loss of strategic opportunities if management is distracted by the integration process, and a loss of
In addition, an
customers if our service levels drop during or following the integration process.
acquisition could adversely impact cash flows and/or operating results, and dilute stockholder interests,
for many reasons, including charges to our income to reflect the impairment of acquired intangible
assets including goodwill,
incurred in
connection with an acquisition, and any issuance of securities in connection with an acquisition or new
business venture that dilutes or lessens the rights of our current stockholders. If the integration of any
or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact
on our operating results and stock price.
interest costs and debt service requirements for any debt
Financial Risks
Our clients could have insufficient funds to cover payments we made on their behalf,
resulting in financial loss to us.
As part of our payroll processing service, we are authorized by our clients to transfer money from
their accounts to fund amounts owed to their employees and various taxing authorities. It is possible
that we could be held liable for such amounts in the event the client has insufficient funds to cover
them. We have in the past, and may in the future, make payments on our clients’ behalf for which we
may not be reimbursed, resulting in loss to us. If a significant number of our clients are unable to cover
payments we make on their behalf, our results of operations will be materially adversely impacted.
15
Our interest earned on funds held for clients may be impacted by changes in
government regulations mandating the amount of
tax withheld or timing of
remittance.
We receive interest income from investing client funds collected but not yet remitted to applicable
tax or regulatory agencies or to client employees. A change in regulations either decreasing the
amount of taxes to be withheld or allowing less time to remit taxes to applicable tax or regulatory
agencies could adversely impact interest income.
Certain of our debt agreements contain covenants that may constrain the operation of
our business, and our failure to comply with these covenants could have a material
adverse effect on our financial condition.
The Note Purchase and Guarantee Agreement (the “Agreement”) that we entered into in January
2019 in connection with our acquisition of Oasis Outsourcing Group Holdings, L.P. (“Oasis”), contains
covenants which may restrict our
flexibility to operate our business. These covenants include
restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general
nature of our business and our subsidiaries (taken as a whole), certain merger transactions, certain
sales of assets and other matters, all subject to certain exceptions. The Agreement also contains
financial covenants, which are reviewed for compliance on a quarterly basis, that require us not to
exceed a maximum leverage ratio of 3.5:1.0 and a minimum interest coverage ratio of 2.0:1.0. In
addition, certain of our indebtedness may not exceed 20% of our consolidated stockholders’ equity. If
we do not comply with these covenants, it could result in material adverse effects on our operating
results and our financial condition.
Legal, Regulatory and Political Risks
Our business, services, and financial condition may be adversely impacted by changes
in government regulations and policies.
Many of our services, particularly payroll
tax administration services and employee benefit plan
administration services, are designed according to government regulations that often change. Changes
in regulations could affect the extent and type of benefits employers are required, or may choose, to
provide employees or the amount and type of taxes employers and employees are required to pay.
Such changes could reduce or eliminate the need for some of our services and substantially decrease
our revenue. Added requirements could also increase our cost of doing business.
Our business and reputation may be adversely impacted if we fail to comply with U.S.
and foreign laws and regulations.
Our services are subject to various laws and regulations, including, but not limited to, the ACA and
anti-money laundering rules. The growth of our international operations via acquisition also subjects us
to additional risks, such as compliance with foreign laws and regulations. The enactment of new laws
and regulations, modifications of existing laws and regulations, or
the adverse application or
interpretation of new or existing laws or regulations can adversely affect our business. Failure to
update our services to comply with modified or new legislation in the area of health care reform as well
as failure to educate and assist our clients regarding this legislation could adversely impact our
business reputation and negatively impact our client base. Failure to comply with anti-money
laundering laws and regulations, which require us to develop and implement risk-based anti-money
laundering programs, and maintain transaction records, could result in civil and criminal penalties and
adversely impact our business reputation.
In addition, there has been and may continue to be a significant number of new laws and
regulations promulgated by federal, state, local, and foreign governments following the outbreak of the
COVID-19 pandemic. We have expended additional resources and incurred additional costs in
addressing regulatory requirements applicable to us and our clients. These regulations may be
16
unclear, difficult to interpret or in conflict with other applicable regulations. Failure to comply with laws
and regulations could result in the imposition of consent orders or civil and criminal penalties, including
fines, which could damage our reputation and have an adverse effect on our results of operations or
financial condition.
As a U.S. company, we are required to comply with the economic sanctions and embargo
programs administered by the Office of Foreign Assets Control and similar multi-national bodies and
governmental agencies worldwide, and the Foreign Corrupt Practices Act (“FCPA”). A violation of a
sanction or embargo program, or of
the FCPA, or similar laws prohibiting certain payments to
governmental officials, could subject us, and individual employees, to a regulatory enforcement action
as well as significant civil and criminal penalties which could adversely impact our business and
operations.
Our reputation, results of operations, or financial condition may be adversely
impacted if we fail to comply with data privacy laws and regulations.
Our services require the storage and transmission of proprietary and confidential information of
our clients and their employees, including personal or identifying information, as well as their financial
and payroll data. Our applications are subject to various complex government laws and regulations on
the federal, state, and local levels, including those governing personal privacy. In the U.S., we are
subject to rules and regulations promulgated under the authority of the Federal Trade Commission, the
Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the
ACA, federal and state labor and employment laws, and state data breach notification and data privacy
laws, such as the California Consumer Protection Act. In the European Union, we are subject to the
European Union’s General Data Privacy Regulation. Failure to comply with such laws and regulations
could result in the imposition of consent orders or civil and criminal penalties, including fines, which
could damage our reputation and have an adverse effect on our results of operations or financial
condition. We could be subject to litigation or reputational risk if we or our third-party providers fail to
utilize data practices sufficient
identifying
information. The regulatory framework for privacy issues is rapidly evolving and future enactment of
more restrictive laws, rules, or regulations and/or future enforcement actions or investigations could
have a materially adverse impact on us through increased costs or restrictions on our business and
noncompliance could result in regulatory penalties and significant legal liability.
to safeguard proprietary, confidential, or personal or
Failure to protect our intellectual property rights may harm our competitive position
and litigation to protect our intellectual property rights or defend against third-party
allegations of infringement may be costly.
intellectual property for
Despite our efforts to protect our intellectual property and proprietary information, we may be
unable to do so effectively in all cases. Our intellectual property could be wrongfully acquired as a
result of a cyberattack or other wrongful conduct by employees or third-parties. To the extent that our
intellectual property is not protected effectively by trademarks, copyrights, patents, or other means,
other parties with knowledge of our intellectual property, including former employees, may seek to
their own and others’ advantage. Competitors may also
exploit our
misappropriate our
intellectual property rights or duplicate our
technology and products. Any significant impairment or misappropriation of our intellectual property or
proprietary information could harm our business and our brand and may adversely affect our ability to
compete. Third parties may claim that we are infringing on their intellectual property rights. To the
extent we seek to enforce or must defend our intellectual property rights with litigation, we could incur
significant expenses and/or be required to pay substantial damages. We may also be obligated to
indemnify our customers or vendors in connection with claims or litigation. The litigation to enforce or
defend our intellectual property rights could be costly and time-consuming.
trademarks, copyrights or other
17
We are involved in litigation from time to time arising from the operation of our
business and, as such, we could incur substantial judgments, fines, legal fees, or other
costs.
We are sometimes the subject of complaints or litigation from customers, employees, or other
third-parties for various actions. From time to time, we are involved in litigation involving claims related
to, among other things, breach of contract, tortious conduct, and employment and labor law matters.
The damages sought against us in some of these litigation proceedings could be substantial. Although
we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly
exceed our insurance coverage limits or if our insurance policies do not cover a claim, this could have
a material adverse effect on our business, financial condition, results of operations, and cash flows.
General Risk Factors
Our business, results of operations, and financial condition may continue to be
impacted by the outbreak of COVID-19 and such impact could be materially adverse.
The global spread of COVID-19 created significant volatility, uncertainty and economic disruption.
The restrictions imposed to prevent the spread of COVID-19 disrupted economic activity, resulting in
reduced commercial and consumer confidence and spending, increased unemployment, closure or
restricted operating conditions for businesses, volatility in the global capital markets, instability in the
credit and financial markets, labor shortages, regulatory relief for impacted consumers, disruption in
industry operations. While economic
supply chains, and restrictions on many hospitality and travel
conditions have begun improving as vaccine distribution has accelerated in the United States, there
can be no assurance that the economic recovery will occur or offset the uncertainty and instability
triggered by the pandemic.
We are subject to the impacts related to the COVID-19 pandemic for so long as our clients are
exposed to those heightened risks and uncertainties. Our business is substantially dependent on our
clients’ continued use of our solutions and services, and our results of operations will decline if our
clients are no longer willing or able to use them. Our clients are sensitive to negative changes in
economic conditions. If they cease operations or file for bankruptcy protection, we may not be paid for
services we already provided, and our client base will shrink, which will lower our revenue. If under
financial pressure, our clients may determine that they are no longer willing to pay for the services and
solutions we provide, which would reduce our revenue. Our clients may decrease their workforce,
which would decrease their demand for our services. Because of spending constraints on our clients
and competition in the industry, we may face pricing pressure on our services and face challenges in
onboarding new clients, which would reduce revenue and ultimately impact our results of operations.
Furthermore, if the third-party service providers we rely on are unable to perform their services for us
and our clients, our operations could be materially disrupted, and we could face significant penalties or
liabilities.
We may be adversely impacted by volatility in the political and economic environment.
Trade, monetary and fiscal policies, and political and economic conditions may substantially
change, and credit markets may experience periods of constriction and variability. These conditions
may impact our business due to lower transaction volumes or an increase in the number of clients
going out of business. Current or potential clients may decide to reduce their spending on payroll and
other outsourcing services. In addition, new business formation may be affected by an inability to
obtain credit.
We invest our funds held for clients in high quality, investment-grade marketable available-for-sale
(“AFS”) securities, money markets, and other cash equivalents. We also invest our corporate funds in
short- to intermediate-term instruments. Funds held for clients and corporate investments are subject
to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated during
periods of unusual financial market volatility. The interest we earn on funds held for clients and
18
corporate investments may decrease as a result of a decline in funds available to invest and lower
interest rates. In addition, during periods of volatility in the credit markets, certain types of investments
may not be available to us or may become too risky for us to invest in, further reducing the interest we
may earn on client funds. If we are unable to reinvest our AFS securities when they mature, our
interest income earned and investment portfolio would be reduced. If we sell AFS securities to satisfy
short-term funding requirements, we may recognize losses, which would further reduce the interest
income earned on funds held for clients and corporate investments.
Constriction in the credit markets may impact the availability of financing, even to borrowers with
ratings. Historically, we have periodically borrowed against available credit
the highest credit
arrangements to meet short-term liquidity needs. However, should we require additional short-term
liquidity during days of large outflows of client funds, a credit constriction may limit our ability to access
those funds or the flexibility to obtain them at interest rates that would be acceptable to us. Growth in
services for funding payrolls of our clients in the temporary staffing industry may be constricted if
access to financing becomes limited. In addition, our ability to grow through significant acquisitions
may be limited. See also “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.” If all of
these financial and economic circumstances were to remain in effect for an extended period of time,
there could be a material adverse effect on our results of operations and financial condition.
We may not be able to attract and retain qualified people, which could impact the
quality of our services and customer satisfaction.
Our success, growth, and financial results depend in part on our continuing ability to attract, retain,
and motivate highly qualified people at all levels, including management, technical, compliance, and
sales personnel. Competition for these individuals can be intense, and we may not be able to retain our
key people, or attract, assimilate, or retain other highly-qualified individuals in the future, which could
harm our future success.
In the event we receive negative publicity, our reputation and the value of our brand
could be harmed, and clients may not use our products and services, which may have a
material adverse effect on our business.
Negative publicity relating to events or activities attributed to us, our corporate employees, or
others associated with us, whether or not justified, may tarnish our reputation and reduce the value of
our brand. If we are unable to maintain quality HCM and employee benefit-related solutions and PEO
and insurance solutions, our reputation with our clients may be harmed and the value of our brand may
diminish. In addition, if our brand is negatively impacted, it may have a material adverse effect on our
business, including challenges retaining clients or attracting new clients and recruiting talent and
retaining employees.
Item 1B. Unresolved Staff Comments
None.
19
Item 2. Properties
We owned and leased the following properties as of May 31, 2021:
Square feet
Owned facilities:
Rochester, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,012,000
30,000
Other U.S. locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13,000
International locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total owned facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,055,000
Leased facilities:
Rochester, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,000
Other U.S. locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,541,000
92,000
International locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total leased facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723,000
Our facilities in Rochester, New York house various distribution, processing, and technology
functions, certain ancillary functions, a telemarketing unit, and other back-office functions. Facilities
outside of Rochester, New York are in various locations throughout the U.S. and house our service
locations primarily house our
centers,
European operations in Denmark and Germany and a location in India houses information technology,
service, and sales support functions.
fulfillment centers and sales functions. Our international
During fiscal 2021,
the Company substantially completed cost-saving initiatives, including an
acceleration of our long-term strategy to reduce our geographic footprint. As such, the Company
ceased the use of certain leased properties. We believe that adequate, suitable lease space will
continue to be available to meet our needs.
Item 3. Legal Proceedings
We are subject to various claims and legal matters that arise in the normal course of our business.
Refer to Note Q of the Notes to Consolidated Financial Statements contained in Item 8 of this Form
10-K for further discussion of our legal proceedings, if any.
Item 4. Mine Safety Disclosures
Not applicable.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Our common stock trades on the NASDAQ Global Select Market under the symbol “PAYX”.
Dividends have historically been paid on our common stock in August, November, February, and May.
The level and continuation of future dividends are dependent on our future earnings and cash flows
and are subject to the discretion of our Board of Directors (the “Board”).
As of June 30, 2021, there were 10,611 holders of record of our common stock, which includes
registered holders and participants in the Paychex, Inc. Dividend Reinvestment and Stock Purchase
Plan. There were also 3,733 participants in the Paychex, Inc. Qualified Employee Stock Purchase Plan
and 4,177 participants in the Paychex, Inc. Employee Stock Ownership Plan.
In May 2019, our Board approved a program to repurchase up to $400.0 million of our common
stock with authorization expiring in May 2022. All shares repurchased during fiscal 2021 were retired
and were as follows:
In millions, except per share amount
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Second quarter
Third quarter
. . . . . . . . . . . . . . . . . . . . . . . . . .
March 1 to March 31, 2021 . . . . . . . . . . . . . . .
April 1 to April 30, 2021 . . . . . . . . . . . . . . . . . .
May 1 to May 31, 2021 . . . . . . . . . . . . . . . . . .
Fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
number
of shares
purchased
Average price
paid per share
Total
dollars
Approximate dollar
value of shares that
may yet be
purchased under
the program
0.4
—
0.5
—
—
0.8
1.7
$74.70
$ —
$90.38
$ —
$ —
$98.83
$90.83
$ 28.8
—
47.2
—
—
79.7
$155.7
$199.3
$199.3
$152.1
$152.1
$152.1
$ 72.4
In July 2021, our Board authorized an additional program allowing us to repurchase up to
$400.0 million of our common stock which expires on January 31, 2024.
21
The following graph shows a five-year comparison of the total cumulative returns of investing $100
on May 31, 2016, in Paychex common stock, the S&P 500 Index, and two Peer Group Indexes. All
comparisons of stock price performance shown assume reinvestment of dividends. We are a
participant in the S&P 500 Index, a market group of companies with a larger than average market
capitalization. Our Peer Group is a group of companies with comparable revenue and net income, who
are in a comparable industry, or who are direct competitors of Paychex (as detailed below).
STOCK PRICE PERFORMANCE GRAPH
$300
$250
$200
$150
$100
$50
$0
2016
2017
2018
2019
2020
2021
Fiscal Year Ending May 31
Paychex, Inc.
S&P 500
New Peer Group
Old Peer Group
May 31,
2016
2017
2018
2019
2020
2021
Paychex . . . . . . . . . . . . . . . . . . . . . $100.00
S&P 500 . . . . . . . . . . . . . . . . . . . . . $100.00
Peer Group — old . . . . . . . . . . . . . $100.00
Peer Group — new . . . . . . . . . . . . $100.00
$112.73
$117.47
$118.33
$116.29
$128.98
$134.36
$150.41
$145.72
$174.18
$139.45
$176.65
$169.82
$151.49
$157.35
$194.66
$190.66
$218.39
$220.79
$254.29
$246.04
There can be no assurance that our stock performance will continue with the same or similar
trends depicted in the graph above. We neither make nor endorse any predictions as to future stock
performance.
The Governance & Compensation Committee of our Board annually reviews and approves the
selection of Peer Group companies, adjusting the group from year to year based upon our business
and changes in the Peer Group companies’ business or the comparability of their metrics. The Peer
Group may also be adjusted in the event of mergers, acquisitions, or other significant economic
changes. The Peer Group was adjusted for fiscal 2021. The Dun & Bradstreet Corporation, TD
AMERITRADE Holding Corporation, Total Systems Services, Inc. and Worldpay, Inc. were removed
and replaced with FleetCor Technologies, Inc., Sabre Corporation, TransUnion and Verisk Analytics,
Inc., as they are more closely aligned with the Paychex business. Both the old and new peer groups
are presented for this year of transition.
22
Our new Peer Group for fiscal 2021 is comprised of the following companies:
Alliance Data Systems Corporation
Automatic Data Processing, Inc. (direct competitor)
Broadridge Financial Solutions, Inc.
Equifax, Inc.
Fiserv, Inc.
FleetCor Technologies, Inc.
Global Payments Inc.
H&R Block, Inc.
IHS Markit, Ltd.
Intuit Inc.
Moody’s Corporation
Sabre Corporation
TransUnion
Verisk Analytics, Inc.
The Western Union Company
Item 6. [Reserved]
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews
the operating results of Paychex, Inc. and its wholly owned subsidiaries (“Paychex,” the “Company,”
“we,” “our,” or “us”) for our fiscal year ended May 31, 2021 (“fiscal 2021” or the “fiscal year”), as
compared to our fiscal year ended May 31, 2020 (“fiscal 2020”), and our financial condition as of
May 31, 2021. A detailed review of our fiscal 2020 performance compared to our fiscal year ended
May 31, 2019 performance and our financial condition as of May 31, 2020 is set forth in Part II, Item 7
of our Annual Report on Form 10-K (“Form 10-K”) for fiscal 2020. This review should be read in
conjunction with the accompanying consolidated financial statements and the related Notes to
Consolidated Financial Statements contained in Item 8 of this Form 10-K and the “Risk Factors”
discussed in Item 1A of this Form 10-K. Forward-looking statements in this review are qualified by the
cautionary statement under the heading “Cautionary Note Regarding Forward-Looking Statements”
contained at the beginning of Part I of this Form 10-K.
Overview
We are a leading human resource (“HR”) software and services company, offering HR, payroll,
benefits, and insurance services for small- to medium-sized businesses. Within our human capital
management (“HCM”) solutions, we offer a comprehensive portfolio of services and products that allow
our clients to meet their diverse HR and payroll needs.
We support our small-business clients, reducing the complexity and risk of running their own
payroll, while ensuring greater accuracy with up-to-date tax rates and regulatory information. Clients
may choose to have our service team handle everything for them, or process payroll themselves
robust software-as-a-service (“SaaS”) Paychex Flex® platform and our
utilizing our proprietary,
SurePayroll® SaaS-based products. Our medium-sized clients generally have more complex payroll
and employee benefit needs, though with the environment of increasing regulations, we believe the
need for HR outsourcing services has been moving down-market. Any of our clients on Paychex Flex
can opt for the integrated suite of HCM solutions, which allows clients to choose the services and
software that will meet the needs of their business.
Our portfolio of HCM and employee benefit-related services is disaggregated into two categories,
(1) Management Solutions and (2) Professional Employer Organization (“PEO”) and Insurance
Solutions, as discussed in Part 1, Item 1 of this Form 10-K.
Our mission is to be the leading provider of HR, payroll, benefits, and insurance solutions by being
an essential partner to small- and medium-sized businesses across the United States (“U.S.”) and
parts of Europe. We believe that success in this mission will
long-term financial
performance. Our strategy focuses on providing industry-leading, integrated technology; increasing
client satisfaction; expanding our leadership in HR; growing our client base; and engaging in strategic
acquisitions.
lead to strong,
We continue to focus on driving growth in the number of clients, revenue per client, total revenue,
and profits, while providing industry-leading service and technology solutions to our clients and their
employees. We maintain industry-leading margins by managing our personnel costs and expenses
while continuing to invest
in our business, particularly in sales and marketing and leading-edge
technology. We believe these investments are critical to our success. Looking to the future, we believe
investing in our products, people, and service capabilities will position us to capitalize on
that
opportunities for long-term growth.
A key component of our service delivery strategy is to be a proactive partner with our clients and
to develop and release integrated solutions within Paychex Flex to meet their current and future needs.
Our ongoing investments in our platforms have prepared us well for the demands of the current
business and regulatory environments, allowing us to adapt while maintaining strong service delivery,
resulting in high levels of client satisfaction and retention.
24
Fiscal 2021 Business Highlights
Highlights compared to fiscal 2020 are as follows:
In millions, except per share amounts
Fiscal Year
2021
2020
Change(3)
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,997.5
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,056.8
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,460.7
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
Adjusted net income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,102.4
3.03
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.04
. . . . . . . . . . . . . . . . . . . . . . . . . $
Adjusted diluted earnings per share(1)
Dividends paid to stockholders(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 908.7
$3,953.6
$4,040.5
$1,460.5
$1,098.1
$1,083.2
3.04
$
3.00
$
$ 889.4
1%
—%
—%
—%
2%
—%
1%
2%
(1) Adjusted net income and adjusted diluted earnings per share are not U.S. generally accepted accounting principle (“GAAP”)
measures. Refer to the “Non-GAAP Financial Measures” section of this Item 7 for a discussion of non-GAAP measures and
a reconciliation to the U.S. GAAP measures of net income and diluted earnings per share.
(2) Dividends paid to stockholders represented approximately 83% of net income for fiscal 2021 compared to approximately
81% of net income for fiscal 2020.
(3) Percentage changes are calculated based on unrounded numbers.
For further analysis of our results of operations for fiscal years 2021 and 2020, and our financial
position as of May 31, 2021, refer to the tables and analysis in the “Results of Operations” and
“Liquidity and Capital Resources” sections of this Item 7.
Business Outlook
Our payroll and PEO client base was greater than 710,000 and 680,000 clients as of May 31,
2021 and May 31, 2020, respectively. Client retention was at record levels of approximately 85% of the
beginning client base for fiscal 2021, compared to over 83% for fiscal 2020.
While our HR product offerings provide services to employers and employees beyond payroll, they
effectively leverage payroll processing data. These services are included as part of the integrated HCM
solution within Paychex Flex or provided through the PEO platform. The following table illustrates the
growth in selected HR product offerings:
$ in billions
As of May 31,
2021
2020
Change(1)
Paychex HR Solutions and PEO client worksite employees . . .
Paychex HR Solutions and PEO clients . . . . . . . . . . . . . . . . . . . .
Health and benefits services applicants . . . . . . . . . . . . . . . . . . . .
Retirement services plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset value of retirement services participants’ funds . . . . . . . . $
1,680,000
62,000
205,000
96,000
42.0
1,428,000
55,000
182,000
91,000
32.3
$
18%
12%
13%
5%
30%
(1) Percentage changes are calculated based on unrounded numbers.
We continue to make investments in technology a priority as companies look to leverage
technology solutions to maintain operations, stay connected to employees, and increase productivity.
In fiscal 2021, we enhanced our solutions to support businesses as they navigate the federal stimulus
programs and engage in digital transformation. We have continued to evolve our products to help
business leaders find, hire, and retain employees quickly and effectively with an eye on driving
engagement and managing labor costs. Our fiscal 2021 technology and solution developments provide
a unique combination of data,
the evolving needs of
employers and employees, and include:
technology, and service designed to meet
25
• Portfolio of Paycheck Protection Program (“PPP”) tools, which include the ability for employers to
easily navigate the complexities of the PPP and Employee Retention Tax Credit (“ERTC”). This
portfolio contains resources to help small businesses navigate complex regulations and evaluate
business decisions during this challenging time as well as tools for PPP loan applications,
including access to small business loan providers, and signature-ready PPP loan forgiveness
applications. We have continued to update these tools in near real-time throughout
the
COVID-19 pandemic in response to changes in regulations.
• Employee health and safety offerings, including a COVID-19 leave tracking tool to identify
employee-submitted issues, a COVID-19 screening tool to give employers a way to initiate
employee COVID-19 screenings and track test results within a single platform, and health
attestation solutions which enable employers to customize and digitally distribute a health
attestation form to employees daily, securely store responses in real-time, and view advanced
analytics for individuals or the entire workforce.
• Digital communication solutions, including Paychex Flex HR Connect and HR Conversations,
which helps strengthen connections and keep workers engaged no matter their work location.
Paychex Flex HR Connect provides the ability to digitally submit questions, requests, and
incidents directly to HR through an easy-to-use workflow. HR Conversations enables managers,
employees, and HR staff
to initiate communications with employees and enhancements to
performance assessments allow for 360-degree feedback digitally within the tool.
• Pooled Employer Plan, which provides business owners with a plan option that relieves the
compliance and administration burdens of a traditional 401(k) plan, giving their employees
access to a retirement plan benefit and allowing them to prepare for their future.
• Clover® Integration, which streamlines payroll and time and attendance management
for
business owners using the popular Clover platform from Fiserv. With Paychex Flex available in
the Clover App Market, business owners can more efficiently manage the essential tasks of
payroll, staffing, time tracking, and scheduling all within a single application to help save time,
increase accuracy, and reduce cost.
• Paychex Flex Labor Cost Hub, which gives customers and CPAs a holistic, real-time view of
total payroll labor job costing and labor distribution in one place, enabling them to see how much
they are spending on a significant operational expense—their workforce.
• Enhanced Onboarding Self-Service experience, which simplifies the user experience for entering
and reviewing new-hire information and includes the ability to invite employees to complete
onboarding and documentation digitally.
• Enhancements to data analytics and Live Reports throughout the Platform. For example, the
Diversity and Equal Pay Live Report builds upon a recently released Equal Employment
Opportunity-1 compliance solution and gives administrators the ability to analyze their pay and
diversity data via a simple, customizable report. With improved access to this critical data,
businesses are better positioned to uncover opportunities to create a more diverse and equitable
workforce, while also meeting compliance requirements.
• PEO Protection Plus Package reduces risks for business owners by offering insurance coverage
related to cyberattacks and employee lawsuits. By offering both Cyber Liability and Employment
Practices Liability Insurance coverage as part of our PEO solution, and by leveraging the group
plan model of our PEO, the coverage is significantly more affordable to businesses.
We continue to strengthen our position in the industry by serving as a source of education and
information to clients, businesses of all sizes, and other interested parties. We provide free webinars,
white papers, and other information on our website to aid existing and prospective clients with the
impact of regulatory changes. The Paychex Insurance Agency, Inc. website, www.paychex.com/group-
health-insurance, helps small-business owners navigate the area of insurance coverage. Both this
website and www.paychex.com/worx have sections dedicated to the topic of health care reform.
26
COVID-19 Update
As the global COVID-19 pandemic has continued to evolve, our priority has been, and continues
to be, the health and safety of our employees. A portion of our workforce that initially transitioned to
work remotely has voluntarily returned to the office. As vaccination levels continue to increase and
masking and social distancing guidelines further relax, we look forward to welcoming more of our
employees back to their office locations. We currently anticipate a general return to the office in
September 2021, with a greater level of flexibility in response to the feedback our employees have
shared with us.
As our clients continue to manage through the COVID-19 pandemic, we remain committed to
helping them adapt and thrive, not only through the uncertainties of the COVID-19 pandemic, but the
transition to the future business environment. We have brought a multifaceted response to the
pandemic and delivered resources and services to help our clients respond and adapt. The COVID-19
Help Center on our website continues to provide support throughout every stage of the pandemic.
Since the Help Center’s launch in March 2020, it has been viewed by over a half million visitors. On
June 5, 2020, the PPP Flexibility Act was signed into law, relaxing the original requirements for how
businesses could use PPP loans and continue to qualify for forgiveness. Within days of the bill
passing, we introduced a PPP Loan Forgiveness Estimator and Forgiveness Report in our cloud-based
HR suite, Paychex Flex, to simplify the application process for customers and provide them the
accurate information needed to satisfy the new forgiveness requirements. As of May 31, 2021,
Paychex customers have secured $65 billion in PPP relief funds and $2.5 billion in combined employee
retention tax credits and paid leave credits. As the global economy continues to evolve, whether due to
legislative changes, the pandemic, or other factors, we are committed to supporting our clients to help
them navigate these challenges. Our blend of technology and service provides valuable tools and
resources to assist our clients and their employees during this critical time and beyond.
The effects of the COVID-19 pandemic impacted our results and year-over-year comparisons,
however, our client base continued to grow with sales performance and client retention that was at
record levels. Our strong balance sheet and operational flexibility have allowed us to successfully
manage through the ongoing impacts of the COVID-19 pandemic to date while protecting our cash flow
and liquidity. In addition, during the first half of this fiscal year, we substantially completed cost-saving
initiatives, including an acceleration of our long-term strategy to reduce our geographic footprint and
headcount optimization. We ended this year with strong momentum having navigated through a fiscal
year of unprecedented challenge and the uncertain environment of the COVID-19 pandemic. We are
well-positioned with a broad portfolio of innovative technology and products along with our unparalleled
expertise to meet the continuing needs of businesses and help them succeed and thrive as they begin
to bring employees back to work and adjust to the changes of how, where, and when work gets done.
We continue to evaluate the nature and extent of changes to the market and economic conditions
related to the COVID-19 pandemic and will assess the potential impact on our business and financial
position. Despite improving macroeconomic conditions and the emergence of vaccines, surges in
COVID-19 cases, including variants of the strain, such as those recently experienced in Europe and
the U.S., may cause people to self-quarantine or governments to shut down nonessential businesses
again. We expect that the pandemic will continue to have an effect on our results, although the
magnitude, duration, and full effects of the pandemic on our future results of operations or cash flows
are not possible to predict at this time.
For further information on the risks posed to our business from the COVID-19 pandemic, refer to
Item 1A of this Form 10-K.
27
Results of Operations
Summary of Results of Operations for Fiscal Years:
In millions, except per share amounts
2021
2020
Change(1)
Revenue:
Management Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,023.4
974.1
PEO and Insurance Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,963.0
990.6
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,997.5
59.3
4,056.8
2,596.1
1,460.7
(26.5)
1,434.2
336.7
3,953.6
86.9
4,040.5
2,580.0
1,460.5
(23.4)
1,437.1
339.0
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.5%
23.6%
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
$1,098.1
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.03
$
3.04
2%
(2)%
1%
(32)%
—%
1%
—%
n/m
—%
(1)%
—%
—%
(1) Percentage changes are calculated based on unrounded numbers.
n/m – not meaningful
The changes in revenue as compared to the prior year period were primarily driven by the
following factors:
• Management Solutions revenue: $3.0 billion for fiscal 2021, reflecting an increase of 2%:
O
O
O
Payroll client base growth of approximately 4%, due to solid sales performance and
record client retention, and
Increased penetration of our suite of solutions,
including HR Solutions, Retirement
Services, and Time and Attendance, and growth in ancillary products and services due to
higher transaction volumes, offset by
Decline in check volumes experienced during the first three quarters of our fiscal year
from an overall reduction in the number of clients processing payrolls due to lower
employment levels during the pandemic.
• PEO and Insurance Solutions revenue: $974.1 million for fiscal 2021, reflecting a decrease
of 2%:
O
O
O
Decrease in the number of worksite employees at our clients in the first three quarters,
offset by growth in the fourth quarter, and
Lower workers’ compensation premiums driven by reduced wages and softening of
market rates, offset by
Increase in the number of health and benefit clients.
• Interest on funds held for clients: $59.3 million for fiscal 2021, reflecting a decrease of 32%:
O
O
Lower average interest rates, due to historically low federal funds rates, and
Lower realized gains, which primarily resulted from our decision to strategically reposition
our client fund portfolio at the end of fiscal 2020 to enhance liquidity in response to the
economic uncertainties caused by COVID-19.
O
Average investment balances were consistent.
28
We invest in highly liquid, investment-grade fixed income securities and do not utilize derivative
instruments to manage interest rate risk. As of May 31, 2021, we had no exposure to high-risk or
non-liquid investments. Details regarding our combined funds held for clients and corporate cash
equivalents and investment portfolios are as follows:
$ in millions
Average investment balances:
Year ended May 31,
2020
2021
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,941.9
1,043.3
Corporate cash equivalents and investments . . . . . . . . . . . . . . . . . . .
$3,931.3
870.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,985.2
$4,802.0
Average interest rates earned (exclusive of net realized gains/(losses)):
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate cash equivalents and investments . . . . . . . . . . . . . . . . . . .
Combined funds held for clients and corporate cash equivalents and
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.5%
0.2%
1.2%
1.2
1.9%
1.4%
1.8%
$
11.3
$ in millions
As of May 31,
2021
2020
Net unrealized gains on AFS securities(1) . . . . . . . . . . . . . . . . . . . . . . . . . $
Federal Funds rate(2)
Total fair value of AFS securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,020.2
3.3
Weighted-average duration of AFS securities in years(3)
. . . . . . . . . . . .
1.9%
Weighted-average yield-to-maturity of AFS securities(3) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79.3
0.25%
$ 100.0
0.25%
$2,757.2
2.9
2.1%
(1) The net unrealized gain on our investment portfolios was approximately $77.4 million as of July 14, 2021.
(2) The Federal Funds rate was in the range of 0.00% to 0.25% as of both May 31, 2021 and May 31, 2020.
(3) These items exclude the impact of variable rate demand notes (“VRDNs”), as they are tied to short-term interest rates.
Refer to the “Market Risk Factors” section contained in Item 7A of this Form 10-K for more
information on changing interest rates.
Total expenses: The following table summarizes total combined cost of service revenue and
selling, general and administrative expenses for fiscal years:
In millions
2021
2020
Change(1)
Compensation-related expenses . . . . . . . . . . . . . . . . . . . . . $ 1,521.8
352.1
PEO insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192.0
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . .
32.2
Cost-saving initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
498.0
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,480.8
334.7
209.7
—
554.8
3%
5%
(8)%
n/m
(10)%
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,596.1
$ 2,580.0
1%
(1) Percentage changes are calculated based on unrounded numbers.
The changes in total expenses as compared to the prior year period were primarily driven by the
following factors:
• Compensation-related expenses: $1.5 billion for fiscal 2021, reflecting a 3% increase:
O
Higher performance-based compensation due to stronger than anticipated performance
in fiscal 2021 and unusually low performance-based compensation in 2020 due to the
COVID-19 pandemic, offset by
29
O
Lower wage-related costs due to lower headcount. As of May 31, 2021, we had
approximately 15,000 employees as compared to approximately 15,800 employees at
May 31, 2020.
• PEO insurance costs: $352.1 million in fiscal 2021, reflecting a 5% increase:
O
Increase in workers’ compensation costs and claims estimates and expansion of health
insurance offerings to more clients.
• Depreciation and amortization: $192.0 million in fiscal 2021, reflecting an 8% decrease:
O
Lower amortization driven by
methodologies.
intangible assets amortized using accelerated
• Cost-saving initiatives: $32.2 million in fiscal 2021:
O
Acceleration of our long-term strategy to reduce our geographic footprint and headcount
optimization. These initiatives will provide us ongoing savings in rent,
facilities
maintenance, and wage-related expenses.
• Other expenses: $498.0 million in fiscal 2021, reflecting a 10% decrease:
O
Lower discretionary and facilities spend due to office closures and restrictions due to the
pandemic.
Operating income: Fiscal 2021 operating income was $1.5 billion and comparable to fiscal 2020.
Adjusted operating income(1) of $1.5 billion, which excludes the impact of one-time costs, reflects an
increase of 2% and higher adjusted operating margin(1). Operating margin and adjusted operating
margin are as follows:
Fiscal Year
2021
2020
Operating Margin (operating income as a percentage of total revenue) . . . . . . . . 36.0% 36.1%
Adjusted operating margin (operating income, adjusted for one-time
items, as a percentage of total revenue) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.8% 36.1%
Fluctuations in these metrics were attributable to the factors previously discussed.
Income taxes: Our effective income tax rate was 23.5% and 23.6% for fiscal years 2021 and
2020, respectively. The effective income tax rates in both periods were impacted by the recognition of
net discrete tax benefits related to the volume of stock option exercises and the associated employee
stock-based compensation payments. Refer to Note L of
the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K for additional disclosures on income taxes.
Net income and diluted earnings per share: Net income was $1.1 billion for both fiscal 2021
and fiscal 2020. Diluted earnings per share was $3.03 per diluted share for fiscal 2021 and $3.04 per
diluted share for fiscal 2020. Refer to Note C of the Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K for information on dilutive shares outstanding.
Adjusted net income(1) was $1.1 billion for both fiscal 2021 and fiscal 2020, reflecting an increase
of 2%. Adjusted diluted earnings per share(1) was $3.04 per diluted share and $3.00 per diluted share
for fiscal 2021 and fiscal 2020 respectively, reflecting an increase of 1%.
(1) Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted diluted earnings per share are not
U.S. GAAP measures. Refer to the “Non-GAAP Financial Measures” section below for a discussion of these non-GAAP
measures and a reconciliation to the most comparable GAAP measure of operating income, net income, and diluted
earnings per share.
30
Non-GAAP Financial Measures: Adjusted operating income, adjusted net income, adjusted
diluted earnings per share, EBITDA, and adjusted EBITDA are summarized as follows:
$ in millions
2021
2020
Change(1)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,460.7
Non-GAAP adjustments:
$1,460.5
—%
Cost-saving initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32.2
32.2
—
—
Adjusted operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,492.9
$1,460.5
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
Non-GAAP adjustments:
$1,098.1
Excess tax benefit related to employee stock-based
compensation payments(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost-saving initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(19.4)
24.3
4.9
(14.9)
—
(14.9)
Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,102.4
$1,083.2
Diluted earnings per share(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-GAAP adjustments:
3.03
$
3.04
Excess tax benefit related to employee stock-based
compensation payments(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost-saving initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.05)
0.07
0.01
(0.04)
—
(0.04)
Adjusted diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.04
$
3.00
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
Non-GAAP adjustments:
$1,098.1
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33.5
336.7
192.0
562.2
26.5
339.0
209.7
575.2
2%
—%
2%
—%
1%
—%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost-saving initiatives(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,659.7
32.2
1,673.3
(1)%
—
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,691.9
$1,673.3
1%
(1) Percentage changes are calculated based on unrounded numbers.
(2) One-time costs and corresponding tax benefit recognized related to the acceleration of cost-saving initiatives, including the
long-term strategy to reduce our geographic footprint and headcount optimization. These events are not expected to recur.
(3) Net tax windfall benefits related to employee stock-based compensation payments recognized in income taxes. This item is
subject to volatility and will vary based on employee decisions on exercising employee stock options and fluctuations in our
stock price, neither of which is within the control of management.
(4) The calculation of
the impact of non-GAAP adjustments on diluted earnings per share is performed on each line
independently. The table may not add down by +/- $0.01 due to rounding.
31
In addition to reporting operating income, net income, and diluted earnings per share, which are
U.S. GAAP measures, we present adjusted operating income, adjusted operating margin, adjusted net
income, adjusted diluted earnings per share, earnings before interest,
taxes, depreciation, and
amortization (“EBITDA”), and adjusted EBITDA, which are non-GAAP measures. We believe these
additional measures are indicators of our core business operations performance period over period.
Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings
per share, EBITDA, and adjusted EBITDA, are not calculated through the application of U.S. GAAP
and are not required forms of disclosure by the Securities and Exchange Commission (“SEC”). As
such, they should not be considered a substitute for the U.S. GAAP measures of operating income, net
income, and diluted earnings per share, and, therefore, they should not be used in isolation but in
conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results
that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP
measure used by other companies.
Liquidity and Capital Resources
Our financial position as of May 31, 2021 remained strong with cash, restricted cash, and total
corporate investments of $1.1 billion. Total short-term and long-term borrowings, net of debt issuance
costs, were $804.7 million as of May 31, 2021. Our primary source of cash is generated by our ongoing
operations. Cash flows from operations were $1.3 billion for fiscal 2021. Our positive cash flows for
fiscal 2021 allowed us to support our business and pay dividends of approximately $909.0 million. We
currently anticipate that cash, restricted cash, and total corporate investments as of May 31, 2021,
along with projected operating cash flows and available short-term financing, will support our business
operations, capital purchases, share repurchases, and dividend payments for the foreseeable future.
We believe that our investments in an unrealized loss position as of May 31, 2021 were not
impaired due to increased credit risk or other valuation concerns, nor has any event occurred
subsequent to that date to indicate any change in our assessment.
Financing
Short-term financing: We maintain committed and unsecured credit facilities and irrevocable
letters of credit as part of our normal and recurring business operations. The purpose of these credit
facilities is to meet short-term funding requirements, finance working capital needs, and for general
corporate purposes. We typically borrow on an overnight or short-term basis on our credit facilities.
the Notes to Consolidated Financial Statements contained in Item 8 of this
Refer to Note M of
Form 10-K for further discussion on our credit facilities.
Details of our credit facilities are as follows:
$ in millions
Credit facilities:
Expiration Date
Maximum
Amount
Available
May 31, 2021
Outstanding
Amount
Available
Amount
JP Morgan Chase Bank, N.A. (“JPM”)
JPM
PNC Bank, National Association (“PNC”)
July 31, 2024 $1,000.0
August 17, 2022 $ 500.0
February 6, 2023 $ 250.0
Total Lines of Credit Outstanding and Available
$ —
—
7.4
$7.4
$1,000.0
500.0
242.6
$1,742.6
Amounts outstanding under the PNC credit facility as of May 31, 2021 remain outstanding as of
the date of this report.
32
Details of borrowings under each credit facility during the fiscal years ended 2021 and 2020 were
as follows:
$ in millions
Year ended May 31, 2021
Credit Facility
$500 Million
JPM
$250 Million
PNC
$1 Billion
JPM
Number of days borrowed . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount borrowed . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average amount borrowed . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . .
4
$217.5
$147.0
—
$ —
$ —
365
$246.9
$ 11.1
3.25%
—%
1.12%
$ in millions
Year ended May 31, 2020
Credit Facility
$500 Million
JPM
$250 Million
PNC
$1 Billion
JPM
Number of days borrowed . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount borrowed . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average amount borrowed . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . .
17
$694.0
$343.2
29
$450.0
$307.8
362
$246.0
$ 54.2
5.06%
3.30%
2.50%
Short-term borrowings are primarily used for the settlement of client fund obligations, rather than
liquidating previously collected client funds that have been invested in AFS securities allocated to our
long-term portfolio.
We expect to have access to the amounts available under our current credit facilities to meet our
ongoing financial needs. However, if we experience reductions in our operating cash flows due to any
of the risk factors outlined in, but not limited to, Item 1A in this Form 10-K and other SEC filings, we
may need to adjust our capital, operating, and other discretionary spending to realign our working
capital requirements with the capital resources available to us. Furthermore, if we determined the need
for additional short-term liquidity, there is no assurance that such financing, if pursued and obtained,
would be adequate or on terms acceptable to us.
Letters of credit: As of May 31, 2021, we had irrevocable standby letters of credit available
totaling $180.4 million, required to secure commitments for certain insurance policies. The letters of
credit expire at various dates between June 2021 and July 2022. No amounts were outstanding on
these letters of credit during fiscal 2021 or as of May 31, 2021. Subsequent to May 31, 2021, letters of
credit expiring in June 2021 were renewed through June 2022.
Long-term financing: We have borrowed $800.0 million through the issuance of long-term
private placement debt (“Senior Notes”). Certain information related to the Senior Notes are as follows:
Senior Notes
Series A
Senior Notes
Series B
Stated interest rate . . . . . . . . . . . . . . . . . .
Effective interest rate . . . . . . . . . . . . . . . .
Interest rate type . . . . . . . . . . . . . . . . . . . .
Interest payment dates . . . . . . . . . . . . . . . Semi-annual, in arrears
Principal payment dates . . . . . . . . . . . . . .
Note type . . . . . . . . . . . . . . . . . . . . . . . . . .
March 13, 2026
Unsecured
4.07%
4.15%
Fixed
4.25%
4.31%
Fixed
Semi-annual, in arrears
March 13, 2029
Unsecured
Refer to Note N of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K for further discussion on our long-term financing.
33
Other commitments: The Company has various long-term contractual obligations as of May 31,
2021, which include:
• operating leases for $127.4 million;
• purchase obligations for $162.7 million;
• workers’ compensation estimated obligations for $183.1 million; and
• long-term Senior Notes debt obligations for $800.0 million, plus interest payments of
$217.5 million.
Refer to Notes I, N, and Q of the Notes to Consolidated Financial Statements contained in Item 8
of this Form 10-K for more information on these areas.
The liability for uncertain tax positions,
federal benefits, was
approximately $20.4 million as of May 31, 2021. Refer to Note L of the Notes to Consolidated Financial
Statements contained in Item 8 of this Form 10-K for more information on income taxes. We are not
able to reasonably estimate the timing of future cash flows related to this liability.
including interest and net of
We are involved in two limited partnership agreements and committed to contribute a maximum
amount of $20.0 million to venture capital funds in the financial technology sector. As of May 31, 2021,
we have contributed approximately $12.0 million of the total funding commitment. The timing of future
contributions to be made to these venture capital
reasonably
funds are not considered part of our ongoing
determined. Our
operations, are accounted for under the equity method, and represented less than one percent of our
total assets as of May 31, 2021.
funds cannot be specifically or
investments in venture capital
In the normal course of business, we make representations and warranties that guarantee the
performance of services under service arrangements with clients. Historically, there have been no
material losses related to such guarantees. We have also entered into indemnification agreements with
our officers and directors, which require us to defend and, if necessary, indemnify these individuals for
certain pending or future legal claims as they relate to their services provided to us.
We currently self-insure the deductible portion of various insured exposures under certain
corporate and PEO employee health and medical benefit plans. Our estimated loss exposure under
these insurance arrangements is recorded in other current liabilities on our Consolidated Balance
Sheets. Historically, the amounts accrued have not been material and were not material as of May 31,
2021. We also maintain corporate insurance coverage in addition to our purchased primary insurance
policies for gap coverage for employment practices liability, errors and omissions, warranty liability,
theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-
insured retentions through our captive insurance company.
Operating, Investing, and Financing Cash Flow Activities
In millions
Year ended May 31,
2020
Change
2021
Net cash provided by operating activities . . . . . . . . . . . . . $1,260.3
(460.6)
Net cash (used in)/provided by investing activities . . . . . .
(636.4)
Net cash used in financing activities . . . . . . . . . . . . . . . . .
$ 1,440.9
771.9
(1,488.2)
$ (180.6)
(1,232.5)
851.8
Net change in cash, restricted cash, and equivalents . . . $ 163.3
Cash dividends per common share . . . . . . . . . . . . . . . . . . $
2.52
$
$
724.6
$ (561.3)
2.48
34
The changes in our cash flows for fiscal 2021 and fiscal 2020 were primarily the result of the
following key drivers:
Operating Cash Flow Activities
Cash provided by operating activities decreased $180.6 million.
• Increases in purchased receivable balances in fiscal 2021 due to our clients’ continued recovery
from the COVID-19 pandemic and growth in our business; and
• Timing of estimated income tax payments. Payments normally due in fiscal 2020 were deferred
until fiscal 2021 under the Coronavirus Aid, Relief, and Economic Security Act; offset by,
• Increases in accrued worksite employee compensation as PEO clients’ employees returned to
work; and
• Increases in accrued corporate compensation due to higher performance-based compensation
in fiscal 2021.
Investing Cash Flow Activities
Cash used in investing activities increased $1.2 billion.
• Increases in Client Fund Assets as clients continue to recover from the COVID-19 pandemic;
• At
the end of
fiscal 2020, we increased our liquidity by selling AFS securities due to the
uncertainties of the COVID-19 pandemic and its impact on the market and our business. As
economic conditions improved throughout fiscal 2021, we started to opportunistically reposition
back into AFS securities, and
• Reduced availability of targeted high quality VRDNs in the market led to fewer AFS securities
held and more cash equivalent balances during fiscal 2021.
Fluctuations in the net purchases and sales/maturities of AFS securities are also due to timing
within the client funds portfolio and market conditions. Specific timing items impacting cash flows for
fiscal 2021 and fiscal 2020 are discussed further in the financing cash flows discussion of net changes
in client fund obligations. Amounts will vary based upon the timing of collection from clients, and the
related remittance to applicable tax or regulatory agencies for payroll tax administration services and to
employees of clients utilizing employee payment services.
Discussion of interest rates and related risks is included in the “Market Risk Factors” section
contained in Item 7A of this Form 10-K.
Financing Cash Flow Activities
Cash used in financing activities decreased $851.8 million.
• Increases in client fund obligations in fiscal 2021 was due to our clients’ continued recovery from
the COVID-19 pandemic and the timing of the Federal holiday. Funds collected on Friday
May 28, 2021 were not remitted to client employees or tax and regulatory agencies until June
2021;
• Cash flows from equity-based plans increased largely due to higher proceeds from the exercise
or vesting of stock awards. 2.7 million shares of our common stock were exercised or vested in
fiscal 2021 compared to 1.5 million shares in fiscal 2020;
• During fiscal 2021 and fiscal 2020, we repurchased 1.7 million shares and 2.0 million shares,
respectively. As of May 31, 2021, $72.4 million remains available under the common stock
repurchase program. Refer to Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities contained in Item 5 of this Form 10-K for
further discussion on our common stock repurchase programs, and
35
• Dividend payments increased in fiscal 2021 due to a 6% increase in our dividend rate beginning
in May 2021. The payment of future dividends is dependent on our future earnings and cash
flows and is subject to the discretion of our Board.
The client fund obligations liability will also vary based on the timing of collecting client funds and
tax
the related required remittance of
administration services and to employees of clients utilizing employee payment services. Collections
from clients are typically remitted from one to 30 days after receipt, with some items extending to 90
days.
funds to applicable tax or regulatory agencies for payroll
Other
Recently issued accounting pronouncements: Refer to Note A of the Notes to Consolidated
this Form 10-K for a discussion of recently issued
Financial Statements contained in Item 8 of
accounting pronouncements.
Critical Accounting Policies and Estimates
Note A of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K
discusses the significant accounting policies of Paychex. Our discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial statements, which have
been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires
us to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities,
revenue, and expenses. On an ongoing basis, we evaluate the accounting policies and estimates used
to prepare the consolidated financial statements. We base our estimates on historical experience,
future expectations, and assumptions believed to be reasonable under current
facts and
circumstances. Actual amounts and results could differ from these estimates. Certain accounting
policies that are deemed critical to our results of operations or financial position are discussed below.
Revenue recognition: Service revenue is recognized in the period services are rendered and
earned under service arrangements with clients where service fees are fixed or determinable and
collectability is reasonably assured. Our service revenue is largely attributable to processing services
where the fee is based on a fixed amount per processing period or a fixed amount per processing
period plus a fee per employee or transaction processed. Insurance Solutions revenues are recognized
when commissions are earned on premiums billed and collected. Fees earned for funding payrolls of
our clients in the temporary staffing industry via the purchase of accounts receivable are based on a
percentage of funding amounts as specified in the client contract. These fees are then recognized over
the average collection period of 35 to 45 days. The revenue earned from delivery service for the
distribution of certain client payroll checks and reports is included in service revenue, and the costs for
the delivery are included in cost of service revenue on the Consolidated Statements of Income and
Comprehensive Income.
We receive advance payments for set-up fees from our clients. Advance payments received for
certain of our service offerings for set-up fees are considered a material right. Therefore, we defer the
revenue associated with these advance payments, recognizing the revenue and related expenses over
the expected period to which the material right exists.
PEO Solutions revenue is included in service revenue and is reported net of certain pass-through
costs billed and incurred, which include payroll wages, payroll taxes, including federal and state
unemployment insurance, and certain health insurance benefit premiums, primarily costs related to our
guaranteed cost benefit plans. Direct costs related to workers’ compensation and certain benefit plans
where we retain risk are recognized as cost of service revenue rather than as a reduction in service
revenue.
Interest on funds held for clients is earned primarily on funds that are collected from clients before
due dates for payroll tax administration services and for employee payment services and invested until
remittance to the applicable tax or regulatory agencies or client employees. These collections from
36
clients are typically remitted from one to 30 days after receipt, with some items extending to 90 days.
The interest earned on these funds is included in total revenue on the Consolidated Statements of
Income and Comprehensive Income because the collecting, holding, and remitting of these funds are
components of providing these services.
Assets Recognized from the Costs to Obtain and Fulfill Contracts: We recognize an asset
for the incremental costs of obtaining a contract with a client if it is expected that the economic benefit
and amortization period will be longer than one year. Incremental costs of obtaining a contract include
only those costs that are directly related to the acquisition of new contracts and that would not have
been incurred if the contract had not been obtained. We do not incur incremental costs to obtain a
contract renewal. The Company determined that certain sales commissions and bonuses, including
related fringe benefits, meet the capitalization criteria under Accounting Standards Codification (“ASC”)
Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”). We
also recognize an asset for the costs to fulfill a contract with a client if the costs are specifically
identifiable, generate or enhance resources used to satisfy future performance obligations, and are
expected to be recovered. We determined that substantially all costs related to implementation
activities are administrative in nature and meet the capitalization criteria under ASC 340-40. These
capitalized costs to fulfill a contract principally relate to upfront direct costs that are expected to be
recovered and enhance our ability to satisfy future performance obligations.
The assets related to both costs to obtain and costs to fulfill contracts with clients are capitalized
and amortized using an accelerated method over an eight-year life to closely align with the pattern of
client attrition over the estimated life of the client relationship. We regularly review our deferred costs
for potential
impairment and did not recognize an impairment loss during the fiscal years ended
May 31, 2021 or May 31, 2020.
PEO insurance reserves: As part of our PEO solution, we offer workers’ compensation
insurance and health insurance to clients for the benefit of client employees. Workers’ compensation
insurance is primarily provided under fully insured high deductible workers’ compensation insurance
policies. Workers’ compensation insurance reserves are established to provide for the estimated costs
of paying claims up to per occurrence liability limits. These reserves include estimates of certain
expenses associated with processing and settling these claims. In establishing the PEO workers’
compensation insurance reserves, we use an independent actuarial estimate of undiscounted future
cash payments that would be made to settle claims. The determination of estimated ultimate losses by
our independent actuary are based on accepted actuarial methods and assumptions. The estimated
ultimate losses are primarily based upon loss development factors, and other factors such as the
nature of employees’
frequency and severity of workers’
compensation claims, and an estimate of
trends. Each reporting period, changes in
future cost
actuarial assumptions resulting from changes in actual claims experience and other trends are
incorporated into our workers’ compensation claims cost estimates.
job responsibilities,
the historical
With respect to our PEO health insurance, we offer various health insurance plans that take the
form of either fully insured guaranteed cost plans or fully insured insurance arrangements where we
retain risk. A reserve for insurance arrangements where we retain risk is established to provide for the
payment of claims in accordance with our service contract with the carrier. The claims liability includes
estimates for reported losses, plus amounts for those claims incurred but not reported, and estimates
of certain expenses associated with processing and settling the claims.
Estimating the ultimate cost of future claims is an uncertain and complex process based upon
historical loss experience and independent actuarial loss projections, and is subject to change due to
multiple factors, including economic trends, changes in legal liability law, and damage awards, all of
which could materially impact
the reserves as reported in the consolidated financial statements.
Accordingly, final claim settlements may vary from the present estimates, particularly with workers’
compensation insurance where those payments may not occur until well into the future. We regularly
review the adequacy of our estimated insurance reserves. Adjustments to previously established
reserves are reflected in the results of operations for the period in which the adjustment is identified.
37
Such adjustments could possibly be significant, reflecting any combination of new and adverse or
favorable trends. Adjustments to previously established reserves were not material for fiscal 2021 or
2020.
Goodwill and other intangible assets: Goodwill
is not amortized, but instead is tested for
impairment on an annual basis and between annual tests if an event occurs or circumstances change
in a way to indicate that there has been a potential decline in the fair value of the reporting unit. We
perform our annual impairment testing in our fiscal fourth quarter. A qualitative analysis was performed
for all reporting units in fiscal 2021 and 2020, to determine if it is more-likely-than-not that the fair value
of the reporting units had declined below its carrying value. The qualitative assessment considered
various financial, macroeconomic, industry, and reporting unit specific qualitative factors. Based on the
results of our testing, no impairment loss was recognized in the results of operations for fiscal 2021 or
2020. Subsequent to the latest review, there have been no events or circumstances that indicate any
potential impairment of the Company’s goodwill balance.
We also test intangible assets with indefinite useful lives for potential impairment on an annual
basis and between annual tests if events or changes in circumstances change in a way that indicate
that the carrying value may not be recoverable. We have determined that there is no impairment of
intangible assets with indefinite useful lives for fiscal 2021 or 2020.
Impairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite
lives and operating lease right-of-use assets, are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for
the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
We have determined that there is no impairment of long-lived assets for fiscal 2021 or 2020.
Stock-based compensation costs: All stock-based awards to employees are recognized as
compensation costs in our consolidated financial statements based on their fair values measured as of
the date of grant. We estimate the fair value of stock option grants using a Black-Scholes option pricing
model. This model requires various assumptions as inputs including expected volatility of the Paychex
stock price and expected option life. Volatility is estimated based on a combination of historical volatility
using stock prices over a period equal
to the expected option life and implied market volatility.
Expected option life is estimated based on historical exercise behavior. We periodically reassess our
assumptions as well as our choice of valuation model. We will reconsider use of this model if additional
information becomes available in the future indicating that another model would provide a more
accurate estimate of fair value, or if characteristics of future grants would warrant such a change.
The fair value of stock awards is determined based on the stock price at the date of grant. For
grants that do not accrue dividends or dividend equivalents, the fair value is the stock price reduced by
the present value of estimated dividends over the vesting period or performance period.
We estimate forfeitures and only record compensation costs for those awards that are expected to
vest. Our assumptions for forfeitures were determined based on type of award and historical
experience. Forfeiture assumptions are adjusted at the point in time a significant change is identified,
with any adjustment recorded in the period of change, and the final adjustment at the end of the
requisite service period to equal actual forfeitures.
The assumptions of volatility, expected option life, and forfeitures all require significant judgment
and are subject to change in the future due to factors such as employee exercise behavior, stock price
trends, and changes to type or provisions of stock-based awards. Any material change in one or more
of these assumptions could have a material impact on the estimated fair value of a future award.
Refer to Note F of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K for further discussion of our stock-based compensation plans.
38
tax returns. Under
Income taxes: We account for deferred taxes by recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the consolidated
financial statements or
this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to
reverse. We record a deferred tax asset related to the stock-based compensation costs recognized for
certain stock-based awards. At the time of the exercise of non-qualified stock options or vesting of
stock awards, we recognize any excess tax benefit within income taxes in the Consolidated
Statements of Income and Comprehensive Income.
We maintain a reserve for uncertain tax positions. We evaluate tax positions taken or expected to
be taken in a tax return for recognition in our consolidated financial statements. Prior to recording the
related tax benefit in our consolidated financial statements, we must conclude that tax positions will be
more-likely-than-not to be sustained, assuming those positions will be examined by taxing authorities
with full knowledge of all relevant information. The benefit recognized in our consolidated financial
statements is the amount we expect to realize after examination by taxing authorities. If a tax position
drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions,
judgment, and the use of estimates are required in determining if the more-likely-than-not standard has
been met when developing the provision for income taxes and in determining the expected benefit. A
change in the assessment of the more-likely-than-not standard could materially impact our results of
operations or financial position. Refer to Note L of the Notes to Consolidated Financial Statements
contained in Item 8 of this Form 10-K for further discussion of our reserve for uncertain tax positions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Factors
Changes in interest rates and interest rate risk: Funds held for clients are primarily comprised
of short-term funds and AFS securities. Corporate investments are primarily comprised of AFS
securities. As a result of our investing activities, we are exposed to changes in interest rates that may
materially affect our results of operations and financial position. Changes in interest rates will impact
the earnings potential of future investments and will cause fluctuations in the fair value of our longer-
term AFS securities. We follow an investment strategy of protecting principal and optimizing liquidity. A
substantial portion of our portfolios is invested in high credit quality securities with ratings of AA or
higher, and A-1/P-1 ratings on short-term securities. We invest predominately in municipal bonds –
including general obligation bonds and revenue bonds; U.S. government agency and treasury
securities; and corporate bonds. We limit the amounts that can be invested in any single issuer and
invest primarily in short- to intermediate-term instruments whose fair value is less sensitive to interest
rate changes. We manage the AFS securities to a benchmark duration of two and one-half to three and
three-quarters years.
During fiscal 2021, our primary short-term investment vehicles were bank demand deposit
accounts and VRDNs. We have no exposure to high-risk or non-liquid investments. We have
insignificant exposure to European investments. We have not and do not utilize derivative financial
instruments to manage our interest rate risk.
During fiscal 2021, the average interest rate earned on our combined funds held for clients and
corporate cash equivalents and investment portfolios was 1.2%, compared to 1.8% for fiscal 2020.
When interest rates are falling, the full impact of lower interest rates will not immediately be reflected in
net income due to the interaction of short- and long-term interest rate changes. During a falling interest
rate environment, earnings decrease from our short-term investments, and over time, earnings will
decrease from our longer-term AFS securities. Earnings from the AFS securities, which as of May 31,
2021 had an average duration of 3.3 years, would not reflect decreases in interest rates until the
investments are sold or mature and the proceeds are reinvested at lower rates.
39
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2021
are shown below by expected maturity.
In millions
Maturity date:
May 31, 2021
Amortized
cost
Fair
value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 335.7
731.6
Due after one year through three years . . . . . . . . . . . . . . . . . . . . . . . .
970.6
Due after three years through five years . . . . . . . . . . . . . . . . . . . . . . .
903.0
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 338.6
759.0
1,008.3
914.3
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,940.9
$3,020.2
VRDNs are primarily categorized as due after five years in the table above as the contractual
maturities on these securities are typically 20 to 30 years. Although these securities are issued as long-
term securities, they are priced and traded as short-term instruments because of the liquidity provided
through the tender feature.
The Federal Reserve reduced the Federal Funds rate a total of 225 basis points during fiscal
2020, of which 150 basis points was in response to the COVID-19 pandemic. As of May 31, 2021 and
May 31, 2020, the Federal Funds rate was in the range of 0.00% to 0.25% There continues to be
uncertainty in the changing market and economic conditions, including the possibility of additional
measures that could be taken by the Federal Reserve and other government agencies, related to the
COVID-19 pandemic. We will continue to monitor market conditions.
Calculating the future effects of changing interest rates involves many factors. These factors
include, but are not limited to:
• governmental action resulting from the COVID-19 pandemic;
• daily interest rate changes;
• seasonal variations in investment balances;
• actual duration of short-term and AFS securities;
• the proportion of taxable and tax-exempt investments;
• changes in tax-exempt municipal
synchronized or simultaneous; and
rates versus taxable investment
rates, which are not
• financial market volatility and the resulting effect on benchmark and other indexing interest rates.
Subject to these factors and under normal financial market conditions, a 25-basis-point change in
taxable interest rates generally affects our tax-exempt interest rates by approximately 17 basis points.
Under normal financial market conditions, the impact to earnings from a 25-basis-point change in
short-term interest rates would be approximately $3.0 million to $3.5 million, after taxes, for a twelve-
month period. Such a basis point change may or may not be tied to changes in the Federal Funds rate.
Our
total
investment portfolio (funds held for clients and corporate cash equivalents and
investments) averaged approximately $5.0 billion for
fiscal 2021. Our anticipated allocation is
approximately 40% invested in short-term securities and VRDNs with an average duration of less than
30 days, and 60% invested in available-for-sale securities with an average duration of two and one-half
to three and three-quarters years.
The combined funds held for clients and corporate available-for-sale securities reflected net
unrealized gains of $79.3 million and $100.0 million as of May 31, 2021 and May 31, 2020,
respectively. Refer to Note H of the Notes to Consolidated Financial Statements contained in Item 8 of
this Form 10-K for additional disclosures on fair value measurements.
40
During fiscal 2021, the net unrealized gain on our investment portfolios ranged from $62.7 million
to $121.9 million. During fiscal 2020, the net unrealized gain or loss on our investment portfolios
ranged from an unrealized gain of $106.3 million to an unrealized loss of $27.0 million. The net
unrealized gain on our investment portfolios was approximately $77.4 million as of July 14, 2021.
As of May 31, 2021 and 2020, we had $3.0 billion and $2.8 billion, respectively, invested in AFS
securities at fair value. The weighted-average yield-to-maturity was 1.9% as of May 31, 2021 and 2.1%
as of May 31, 2020. The weighted-average yield-to-maturity excludes AFS securities tied to short-term
interest rates, such as VRDNs. Assuming a hypothetical
increase in longer-term interest rates of
25 basis points, the resulting potential decrease in fair value for our portfolio of AFS securities as of
May 31, 2021, would be approximately $25.0 million. Conversely, a corresponding decrease in interest
rates would result in a comparable increase in fair value. This hypothetical increase or decrease in the
fair value of the portfolio would be recorded as an adjustment to the portfolio’s recorded value, with an
offsetting amount recorded in stockholders’ equity. These fluctuations in fair value would have no
related or immediate impact on our results of operations unless any declines in fair value were
considered to be other-than-temporary and an impairment loss recognized.
Credit risk: We are exposed to credit risk in connection with these investments through the
possible inability of the borrowers to meet the terms of their bonds. We regularly review our investment
portfolios to determine if any investment is impaired due to increased credit risk or other valuation
concerns and we believe that the investments we held as of May 31, 2021 were not impaired as a
result of the previously discussed reasons. While $419.9 million of our AFS securities had fair values
that were below amortized cost, we believe that it is probable that the principal and interest will be
collected in accordance with the contractual terms, and that the gross unrealized losses of $4.0 million
were due to changes in interest rates and were not due to increased credit risk or other valuation
concerns. Most of the AFS securities in an unrealized loss position as of May 31, 2021 and 2020 held
an AA rating or better. We do not intend to sell these investments until the recovery of their amortized
cost basis or maturity, and further believe that it is not more-likely-than-not that we will be required to
sell these investments prior to that time. Our assessment that an investment is not impaired due to
increased credit risk or other valuation concerns could change in the future due to new developments,
including changes in our strategies or assumptions related to any particular investment.
We have some credit risk exposure relating to the purchase of accounts receivable as a means of
providing payroll funding to clients in the temporary staffing industry. There is also credit risk exposure
relating to the Company’s trade accounts receivable. These credit risk exposures are diversified
amongst multiple client arrangements, and all such arrangements are regularly reviewed for potential
write-off. No single client is material in respect to total accounts receivable, service revenue, or results
of operations.
41
Item 8. Financial Statements and Supplementary Data
Description
TABLE OF CONTENTS
Report on Management’s Assessment of Internal Control Over Financial Reporting . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income and Comprehensive Income for the Years Ended
May 31, 2021, 2020, and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of May 31, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2021,
Page
43
44
47
48
2020, and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49
Consolidated Statements of Cash Flows for the Years Ended May 31, 2021, 2020,
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, 2021,
50
51
2020, and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84
42
REPORT ON MANAGEMENT’S ASSESSMENT OF
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Paychex, Inc. (the “Company”) is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company’s internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the financial statements for external purposes in accordance
with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting
as of May 31, 2021. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control — Integrated
the Company
Framework”
maintained effective internal control over financial reporting as of May 31, 2021.
(2013). Based on our assessment, management determined that
The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, is
appointed by the Company’s Audit Committee. PricewaterhouseCoopers LLP has audited the
Consolidated Financial Statements included in this Annual Report on Form 10-K and the effectiveness
of the Company’s internal control over financial reporting as of May 31, 2021, and as a part of their
integrated audit, has issued their report, included herein, on the effectiveness of the Company’s
internal control over financial reporting.
/s/ Martin Mucci
/s/ Efrain Rivera
Martin Mucci
President and Chief Executive Officer
Efrain Rivera
Senior Vice President, Chief Financial
Officer, and Treasurer
43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Paychex, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Paychex,
Inc. and its
subsidiaries (the “Company”) as of May 31, 2021 and 2020, and the related consolidated statements of
income and comprehensive income, of stockholders’ equity, and of cash flows for each of the three
years in the period ended May 31, 2021, including the related notes and financial statement schedule
listed in the accompanying index (collectively referred to as the “consolidated financial statements”).
We also have audited the Company’s internal control over financial reporting as of May 31, 2021,
based on criteria established in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of May 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended May 31, 2021 in
conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of May 31, 2021, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note A to the consolidated financial statements, the Company changed the
manner in which it accounts for leases on June 1, 2019.
Basis for Opinions
The Company’s management
is responsible for these consolidated financial statements,
its assessment of
reporting, and for
for
the
financial
maintaining effective internal control over
effectiveness of internal control over financial reporting, included in the accompanying Report on
Management’s Assessment of
Internal Control Over Financial Reporting. Our responsibility is to
express opinions on the Company’s consolidated financial statements and on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements.
Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
44
Definition and Limitations of Internal Control over Financial Reporting
financial
reporting includes those policies and procedures that
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
(i) pertain to the
control over
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely 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 of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of
the consolidated financial statements that was communicated or required to be communicated to the
audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Professional Employer Organization (PEO) Insurance Reserves — Workers’ Compensation Insurance
Reserves
As described in Note A to the consolidated financial statements, the Company offers workers’
compensation insurance to clients for
the benefit of client employees. Workers’ compensation
insurance is primarily provided under fully insured high deductible workers’ compensation insurance
policies. Workers’ compensation insurance reserves are established to provide for the estimated costs
of paying claims up to per occurrence liability limits. As of May 31, 2021, the total liability for workers’
compensation insurance reserves is $183.1 million.
In establishing the workers’ compensation
insurance reserves, management uses an independent actuarial estimate of undiscounted future cash
payments that would be made to settle the claims. The determination of estimated ultimate losses by
the Company’s actuary are based on accepted actuarial methods and assumptions. The estimated
ultimate losses are primarily based upon loss development factors, and other factors such as the
nature of employees’
frequency and severity of workers’
compensation claims, and an estimate of future cost trends.
job responsibilities,
the historical
judgment by management
The principal considerations for our determination that performing procedures relating to PEO
insurance reserves — workers’ compensation insurance reserves is a critical audit matter are (i) there
in determining the workers’ compensation insurance
was significant
reserves, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing
our procedures and evaluating management’s assumptions and actuarial estimates related to the loss
development
frequency and severity of workers’
compensation claims and an estimate of future cost trends, and (ii) the audit effort included the
involvement of professionals with specialized skill and knowledge.
factors and other factors such as the historical
45
Addressing the matter
involved performing procedures and evaluating audit evidence in
connection with forming our overall opinion on the consolidated financial statements. These
procedures included testing the effectiveness of controls relating to the Company’s workers’
the development of management’s
compensation insurance reserves,
including controls over
factors. These
assumptions and actuarial estimates related to the estimated loss development
procedures also included, among others (i) the involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate of the workers’ compensation insurance
reserves and (ii) comparison of this independent estimate to management’s estimate to evaluate the
reasonableness of management’s estimate. Developing an independent estimate involved (i) testing
the completeness and accuracy of data provided by management and (ii) evaluating management’s
model, assumptions and actuarial estimates related to the loss development factors and other factors
such as the historical frequency and severity of workers’ compensation claims and an estimate of
future cost trends.
/s/ PricewaterhouseCoopers LLP
Rochester, New York
July 16, 2021
We have served as the Company’s auditor since 2013.
46
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
In millions, except per share amounts
PAYCHEX, INC.
Year ended May 31,
Revenue:
2021
2020
2019
Management Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,023.4
974.1
PEO and Insurance Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,963.0
990.6
$ 2,877.7
814.2
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . .
3,997.5
59.3
3,953.6
86.9
3,691.9
80.6
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,056.8
4,040.5
3,772.5
Expenses:
Cost of service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . .
1,271.2
1,324.9
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,434.2
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
336.7
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,097.5
1,460.7
(26.5)
2,596.1
1,280.8
1,299.2
2,580.0
1,460.5
(23.4)
1,437.1
339.0
1,177.8
1,223.4
2,401.2
1,371.3
(3.3)
1,368.0
333.6
$ 1,098.1
$ 1,034.4
Other comprehensive (loss)/income, net of tax . . . . . . . . . . . . . . . .
(4.7)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,092.8
56.4
36.3
$ 1,154.5
$ 1,070.7
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted-average common shares outstanding . . . . . . . . . . . .
Weighted-average common shares outstanding,
3.05
3.03
359.9
$
$
assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362.1
3.06
3.04
358.5
361.0
$
$
2.88
2.86
359.2
361.8
See Notes to Consolidated Financial Statements.
47
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
In millions, except per share amounts
As of May 31,
2021
2020
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 995.2
51.3
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.7
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.4
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
578.3
Accounts receivable, net of allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . .
450.9
PEO unbilled receivables, net of advance collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33.5
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
249.2
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets before funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,419.5
3,750.0
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,169.5
37.0
Long-term restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1
Long-term corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
395.8
Property and equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . .
103.0
Operating lease right-of-use assets, net of accumulated amortization . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
275.8
1,820.7
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
384.1
Long-term deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34.2
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,227.2
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued corporate compensation and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued worksite employee compensation and related items . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities before client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings, net of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
89.0
209.7
586.4
7.4
—
37.9
336.8
1,267.2
3,671.0
4,938.2
25.8
218.0
797.3
92.4
207.5
6,279.2
Commitments and contingencies — Note Q
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding:
359.8 shares as of May 31, 2021 and 358.8 shares as of May 31, 2020 . . . . . . . . . . . . .
3.6
1,446.7
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,445.9
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51.8
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,948.0
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,227.2
$ 905.2
49.8
27.2
26.2
384.1
380.0
16.8
244.8
2,034.1
3,430.5
5,464.6
21.3
10.2
407.4
114.8
330.6
1,791.1
372.5
38.2
$ 8,550.7
$
79.4
131.7
512.4
5.1
50.5
39.2
277.6
1,095.9
3,331.0
4,426.9
33.5
240.8
796.8
96.9
174.4
5,769.3
3.6
1,289.9
1,431.4
56.5
2,781.4
$ 8,550.7
See Notes to Consolidated Financial Statements.
48
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
In millions
Common stock
Shares Amount
359.0
—
$ 3.6
—
Additional
paid-in
capital
Retained
earnings
$ 1,126.8 $ 1,262.6
— 1,034.4
Accumulated
other
comprehensive
(loss)/income
$ (36.2)
—
Total
$ 2,356.8
1,034.4
44.0
44.0
—
—
—
—
(7.7)
—
0.1
—
—
(826.8)
(56.9)
46.2
(7.7)
29.5
2,619.5
1,098.1
68.9
68.9
(8.5)
—
—
—
(4.0)
—
56.5
—
(8.5)
(889.4)
(171.9)
47.4
(4.0)
21.3
2,781.4
1,097.5
—
—
—
—
—
(1.4)
46.2
—
34.7
1,206.3
(826.8)
(55.5)
—
—
(5.2)
1,409.5
— 1,098.1
—
—
—
—
—
(3.7)
47.4
—
39.9
1,289.9
(889.4)
(168.2)
—
—
(18.6)
1,431.4
— 1,097.5
—
—
—
—
(14.7)
(14.7)
(0.9)
(0.9)
Balance as of May 31, 2018 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on securities, net of
$14.2 million in tax expense . . . . . . . . . . . .
Reclassification adjustment for realized
gains on securities, net of $- million in tax
expense(1)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($2.30 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares(2)
. . . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . .
Activity related to equity-based plans . . . . . .
Balance as of May 31, 2019 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on securities, net of
$22.6 million in tax expense . . . . . . . . . . . .
Reclassification adjustment for realized
gains on securities, net of $2.8 million in
tax expense(1)
. . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($2.48 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares(2)
. . . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . .
Activity related to equity-based plans . . . . . .
Balance as of May 31, 2020 . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized losses on securities, net of
$4.8 million in tax benefit
. . . . . . . . . . . . . .
Reclassification adjustment for realized
gains on securities, net of $0.3 million in
tax expense(1)
. . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($2.52 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares(2)
. . . . . . . .
Stock-based compensation . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . .
Activity related to equity-based plans . . . . . .
Balance as of May 31, 2021 . . . . . . . . . . . . .
—
—
—
(0.7)
—
—
1.0
359.3
—
—
—
—
(2.0)
—
—
1.5
358.8
—
—
—
—
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
3.6
—
—
—
—
(1.7)
—
—
2.7
359.8
—
—
—
—
—
$ 3.6
—
(3.1)
52.5
—
107.4
(908.7)
(152.6)
—
—
(21.7)
$ 1,446.7 $ 1,445.9
—
—
—
10.9
—
$ 51.8
(908.7)
(155.7)
52.5
10.9
85.7
$ 2,948.0
(1) Reclassification adjustments out of accumulated other comprehensive income for realized gains, net of tax, on the sale of
available-for-sale (“AFS”) securities are reflected in interest on funds held for clients and other expense, net on the
Consolidated Statements of Income and Comprehensive Income.
(2) The Company maintains a program to repurchase up to $400.0 million of its common stock, with authorization expiring on
May 31, 2022. The purpose of this program is to manage common stock dilution. All shares of common stock repurchased
were retired.
See Notes to Consolidated Financial Statements.
49
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
Year ended May 31,
2021
2020
2019
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,097.5
Adjustments to reconcile net income to net cash provided by operating
$ 1,098.1
$ 1,034.4
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums and discounts on available-for-sale
securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Benefit)/provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . .
Provision for allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . .
Net realized gains on sales of available-for-sale securities . . . . . . . . . . .
Changes in operating assets and liabilities:
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable and PEO unbilled receivables, net . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and other current liabilities . . . . . . . . . . . . . . . . . . . . . .
Deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in other long-term assets and liabilities . . . . . . . . . . . . . . . . .
Net change in operating lease right-of-use assets and liabilities . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities
Purchases of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of available-for-sale securities . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in)/provided by investing activities . . . . . . . . . . . . . . . .
192.0
209.7
181.5
49.0
180.2
46.2
4.7
3.3
—
4.8
(117.2)
1.0
77.5
(188.5)
(5.4)
—
1,271.5
40.8
186.1
47.4
(4.0)
7.8
(11.3)
1.2
55.1
(1.6)
(4.9)
(196.6)
12.7
0.4
1,440.9
(25,218.1)
26,132.9
(127.0)
(6.1)
(9.8)
771.9
(35,145.8)
34,638.8
(123.8)
(992.2)
(5.3)
(1,628.3)
35.8
191.4
52.5
(21.0)
8.0
(1.2)
1.8
(272.9)
(15.8)
169.0
(208.0)
32.1
(0.9)
1,260.3
(6,089.7)
5,771.9
(114.6)
(19.5)
(8.7)
(460.6)
Financing activities
340.0
Net change in client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3
Net proceeds from short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Proceeds from borrowings to fund acquisition . . . . . . . . . . . . . . . . . . . . . . .
(908.7)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(155.7)
Repurchases of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85.7
Activity related to equity-based plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(636.4)
Net change in cash, restricted cash, and equivalents . . . . . . . . . . . . . .
163.3
Cash, restricted cash, and equivalents, beginning of fiscal year
1,659.8
. . . . . . . .
Cash, restricted cash, and equivalents, end of fiscal year . . . . . . . . . . $ 1,823.1
(453.3)
5.1
—
(889.4)
(171.9)
21.3
(1,488.2)
724.6
935.2
$ 1,659.8
Reconciliation of cash, restricted cash, and equivalents
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash and restricted cash equivalents included in funds
995.2
88.3
$
905.2
71.1
held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
739.6
Total cash, restricted cash, and equivalents . . . . . . . . . . . . . . . . . . . . . . $ 1,823.1
683.5
$ 1,659.8
(950.6)
—
796.3
(826.8)
(56.9)
29.5
(1,008.5)
(1,365.3)
2,300.5
935.2
673.6
57.1
204.5
935.2
$
$
$
See Notes to Consolidated Financial Statements.
50
PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A — Description of Business, Basis of Presentation, and Significant Accounting
Policies
Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively, the
“Company” or “Paychex”) is a leading human resource (“HR”) software and services company, offering
integrated human capital management (“HCM”) solutions for HR, payroll, benefits, and insurance
services for small- to medium-sized businesses in the United States (“U.S.”). The Company also has
operations in parts of Europe.
Paychex, a Delaware corporation formed in 1979, reports as one segment. Substantially all of the
Company’s revenue is generated within the U.S. Approximately one percent of the Company’s total
revenue was generated within Europe for each of the fiscal years ended May 31, 2021 (“fiscal 2021”),
May 31, 2020 (“fiscal 2020”), and May 31, 2019 (“fiscal 2019”). Long-lived assets in Europe were
approximately 7% and 5% of total long-lived assets of the Company as of May 31, 2021 and May 31,
2020, respectively.
Within Paychex’s HCM solutions, Paychex offers a comprehensive portfolio of services and
products that allow its clients to meet their diverse HR and payroll needs. Clients can select services
on an á la carte basis or as part of various product bundles. Paychex’s offerings often leverage the
information gathered in its base payroll processing service, allowing the Company to provide
comprehensive outsourcing services covering the HCM spectrum.
Paychex supports its small business clients utilizing its proprietary, robust, software-as-a-service
(“SaaS”) Paychex Flex® platform and the Company’s SurePayroll® SaaS-based products. Both
products allow users to process payroll when they want, how they want, and on any type of device
(desktop, tablet, and mobile phone). Paychex’s medium-sized clients generally have more complex
payroll and employee benefit needs and can opt for an integrated suite of HCM solutions, which allows
them to choose the services and software that will meet the needs of their businesses. In the current
environment of increasing regulations, the Company believes the needs for HR outsourcing solutions
have been moving down-market.
Total revenue is comprised of service revenue and interest on funds held for clients. Service
revenue is comprised primarily of the fees earned on the portfolio of HCM services, which include
payroll processing, complementary HR management and administration services, professional
employer organization (“PEO”) solutions, and insurance agency commissions. Refer to Note B of this
Item 8 for further discussion of the Company’s service revenue.
Basis of presentation: The consolidated financial statements include the accounts of Paychex,
intercompany accounts and transactions have been
Inc., and its wholly owned subsidiaries. All
eliminated in consolidation. Certain disclosures are reported as zero balances due to rounding.
Reclassifications: Certain prior year amounts have been reclassified to conform to the current
period presentation. These reclassifications had no effect on reported consolidated earnings.
Subsequent Events: On July 7, 2021, our Board of Directors (the “Board”) voted to authorize a
program to repurchase up to $400 million of Paychex common stock with authorization expiring on
January 31, 2024. This repurchase program is in addition to the existing program with authorization
expiring on May 31, 2022. On July 8, 2021, Paychex announced that its Board declared a regular
quarterly dividend of $0.66 per share payable August 26, 2021 to stockholders of record as of
August 2, 2021.
Cash and cash equivalents: Cash and cash equivalents consist of available cash, money
market securities, and other investments with a maturity of 90 days or less at acquisition. Cash and
cash equivalents include funds collected from the Company’s PEO clients for the payment of worksite
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
employee payrolls and associated payroll taxes. Funds of $150.5 million and $136.4 million collected
from PEO clients are included in cash and cash equivalents on the Company’s Consolidated Balance
Sheets as of May 31, 2021 and May 31, 2020, respectively.
Restricted cash and restricted cash equivalents: Restricted cash and restricted cash
equivalents are recorded at fair value, and consist of cash and cash equivalents, primarily money
market securities, included in funds held for clients and cash that is restricted in use for payment of
workers’ compensation claims.
Accounts receivable, net of allowance for doubtful accounts: Accounts receivable balances
the allowance for doubtful accounts of
are shown on the Consolidated Balance Sheets net of
$16.0 million and $12.5 million as of May 31, 2021 and May 31, 2020, respectively. These balances
include trade receivables for services provided to clients and purchased receivables related to payroll
funding arrangements with clients in the temporary staffing industry. Trade receivables were
$98.4 million and $84.7 million as of May 31, 2021 and May 31, 2020, respectively. Purchased
receivables were $495.9 million and $311.9 million as of May 31, 2021 and May 31, 2020, respectively.
The Company is exposed to credit
losses through the sale of services, payment of client
obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has
multiple programs in place to assess and continuously monitor each client’s ability to pay for these
products and services. Credit monitoring programs include, but are not limited to, new client credit
reviews, establishing appropriate credit
limits, monitoring of credit distressed clients, and early
electronic wire and collection procedures. The Company also considers contract terms and conditions,
client business type or strategy and may require collateralized asset support or prepayment to mitigate
credit risk.
Accounts receivable are written off and charged against the allowance for doubtful accounts when
the Company has exhausted all collection efforts without success. The Company estimates its
allowance for credit losses based on historical loss activity adjusted for current economic conditions
and reasonable and supportable forecast factors, when applicable. The provision for the allowance for
doubtful accounts and accounts written off were not material for the fiscal year ended May 31, 2021
and May 31, 2020, respectively. No single client had a material impact on total accounts receivable,
service revenue, or results of operations for the fiscal year ended May 31, 2021 or May 31, 2020.
PEO unbilled receivables, net of advance collections: The Company recognizes a liability for
worksite employee gross wages and related payroll tax liabilities at the end of the period in which the
worksite employee performs work, and where it assumes, under applicable state regulations, the
obligation for the payment of payroll and payroll tax liabilities. The estimated payroll and payroll tax
liabilities are recorded in accrued worksite employee compensation and related items on the
Company’s Consolidated Balance Sheets. The associated unbilled receivables, including estimated
revenues, offset by advance collections from clients, are recorded as PEO unbilled receivables, net of
advance collections on the Company’s Consolidated Balance Sheets. As of May 31, 2021 and May 31,
2020, advance collections included in PEO unbilled receivables, net of advance collections were
$2.5 million and $6.1 million, respectively.
Funds held for clients and corporate investments: Marketable securities included in funds
held for clients and corporate investments consist primarily of securities classified as AFS and are
recorded at fair value obtained from an independent pricing service. The funds held for clients portfolio
also includes cash and cash equivalents such as money market securities. Unrealized gains and
losses, net of applicable income taxes, are reported as other comprehensive income in the
Consolidated Statements of Income and Comprehensive Income. Realized gains and losses on the
sale of AFS securities are determined by specific identification of the cost basis of each security. On
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
the Consolidated Statements of Income and Comprehensive Income, realized gains and losses from
the funds held for clients portfolio and corporate investments portfolio are included in interest on funds
held for clients and other expense, net, respectively.
Concentrations: Substantially all the Company’s deposited cash is maintained at large well-
institutions. These deposits may exceed the
capitalized (as defined by their regulators) financial
amount of any insurance provided. All the Company’s deliverable securities, primarily municipal bond
securities, are held in custody with certain of the aforementioned financial institutions, for which that
institution bears the risk of custodial loss. Non-deliverable securities are primarily time deposits and
money market funds.
Property and equipment, net of accumulated depreciation: Property and equipment is stated
at cost, less accumulated depreciation. Depreciation is based on the estimated useful lives of property
and equipment using the straight-line method. The estimated useful lives of depreciable assets are
generally as follows:
Category
Depreciable life
Buildings and improvements
Data processing equipment
Furniture, fixtures, and equipment
Leasehold improvements
10 to 35 years or the remaining life, whichever is shorter
3 to 4 years
2 to 7 years
10 years or the life of the lease, whichever is shorter
Normal and recurring repairs and maintenance costs are charged to expense as incurred. The
for impairment when events or
Company reviews the carrying value of property and equipment
changes in circumstances indicate that the carrying value of such assets may not be recoverable.
Software development and enhancements: Expenditures for software purchases and software
developed for internal use are capitalized and depreciated on a straight-line basis over the estimated
lives, which are generally 3 to 5 years. Software developed as part of the Company’s main
useful
processing platform is depreciated over 12 years. For software developed for internal use, certain
costs are capitalized,
including external direct costs of materials and services associated with
developing or obtaining the software, and payroll and payroll-related costs for employees who are
directly associated with internal-use software projects. Capitalization of these costs ceases no later
than the point at which the project is substantially complete and ready for its intended use. Costs
associated with preliminary project stage activities,
training, maintenance, and other post-
implementation stage activities are expensed as incurred. The carrying value of software and
development costs is reviewed for impairment when events or changes in circumstances indicate that
the carrying value of such assets may not be recoverable.
Goodwill and other intangible assets, net of accumulated amortization: Goodwill
is not
amortized, but instead is tested for impairment on an annual basis and between annual tests if an
event occurs or circumstances change in a way to indicate that there has been a potential decline in
the fair value of a reporting unit. The Company performs its annual impairment testing in its fiscal fourth
quarter. A qualitative analysis was performed for all reporting units in fiscal 2021, 2020, and 2019 to
determine if it is more-likely-than-not that the fair value of the reporting units had declined below their
carrying value. The qualitative assessment considered various financial, macroeconomic, industry, and
reporting unit specific qualitative factors. Based on the results of the Company’s testing, no impairment
loss was recognized in the results of operations for fiscal 2021, 2020, or 2019. Subsequent to the latest
review, there have been no events or circumstances that indicate any potential
impairment of the
Company’s goodwill balance.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Intangible assets are comprised primarily of client
list acquisitions and are reported net of
accumulated amortization on the Consolidated Balance Sheets. Intangible assets are amortized over
periods generally ranging from 3 to 12 years. Certain client lists use an accelerated method, while
other intangible assets use the straight-line method of amortization. In addition, the Company has
intangible assets with indefinite useful lives, which are tested for impairment on an annual basis and
between annual tests if an event occurs or circumstances change in a way to indicate that the carrying
value may not be recoverable. The Company has determined there is no impairment of intangible
assets with indefinite useful lives for fiscal 2021, 2020, or 2019.
Impairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite lives
and operating lease right-of-use assets, are reviewed for impairment when events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the
carrying amount of
the asset. The Company has
the asset exceeds the estimated fair value of
determined that there was no impairment of long-lived assets for fiscal 2021, 2020, or 2019.
Foreign Currency: The financial statements of the Company’s foreign subsidiaries have been
translated into U.S. dollars. Assets and liabilities are translated into U.S. dollars at period-end
exchange rates. Income and expenses are translated at the average exchange rate for the reporting
period. The resulting non-cash foreign currency translation adjustments, representing unrealized gains
or losses, are included in Consolidated Statements of Stockholders’ Equity as a component of
accumulated other comprehensive (loss)/income, net of tax. The Company did not have any material
realized gains or losses resulting from foreign exchange transactions during fiscal 2021, 2020, or 2019.
Revenue recognition: Revenues are primarily attributable to fees for providing services as well
as investment income earned on funds held for clients. Fees associated with services are recognized
in the period services are rendered and earned under service arrangements with clients where service
fees are fixed or determinable and collectability is reasonably assured. The Company’s service
revenue is largely attributable to processing services where the fee is based on a fixed amount per
processing period or a fixed amount per processing period plus a fee per employee or transaction
processed. Insurance Solutions revenues are recognized when commissions are earned on premiums
billed and collected. Fees earned for funding payrolls of our clients in the temporary staffing agency via
the purchase of accounts receivable are based on a percentage of funding amounts as specified in the
client contract. These fees are then recognized over the average collection period of 35 to 45 days.
The revenue earned from delivery service for the distribution of certain client payroll checks and
reports is included in service revenue, and the costs for the delivery are included in cost of service
revenue on the Consolidated Statements of Income and Comprehensive Income.
The Company receives advance payments for set-up fees from its clients. Advance payments
received for certain of the Company’s service offerings for set-up fees are considered a material right.
Therefore, the Company defers the revenue associated with these advance payments, recognizing the
revenue and related expenses over the expected period to which the material right exists.
PEO Solutions revenue is included in service revenue and is reported net of certain pass-through
costs billed and incurred, which include payroll wages, payroll taxes, including federal and state
unemployment insurance, and certain health insurance benefit premiums, primarily costs related to the
Company’s guaranteed cost benefit plans. Direct costs related to workers’ compensation and certain
benefit plans where the Company retains risk are recognized as cost of service revenue rather than as
a reduction in service revenue. Refer to Note B of this Item 8 for further discussion of the PEO pass-
through costs.
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Interest on funds held for clients is earned primarily on funds that are collected from clients before
due dates for payroll tax administration services and for employee payment services and invested until
remittance to the applicable tax or regulatory agencies or client employees. The interest earned on
these funds is included in total
Income and
Comprehensive Income because the collecting, holding, and remitting of these funds are components
of providing these services.
revenue on the Consolidated Statements of
Assets Recognized from the Costs to Obtain and Fulfill Contracts: The Company
recognizes an asset for the incremental costs of obtaining a contract with a client if it is expected that
the economic benefit and amortization period will be longer than one year. Incremental costs of
obtaining a contract include only those costs that are directly related to the acquisition of new contracts
and that would not have been incurred if the contract had not been obtained. The Company does not
incur incremental costs to obtain a contract renewal. The Company determined that certain sales
commissions and bonuses, including related fringe benefits, meet the capitalization criteria under
Accounting Standards Codification (“ASC”) Subtopic 340-40, “Other Assets and Deferred Costs:
Contracts with Customers” (“ASC 340-40”). The Company also recognizes an asset for the costs to
fulfill a contract with a client if the costs are specifically identifiable, generate or enhance resources
used to satisfy future performance obligations, and are expected to be recovered. The Company
determined that substantially all costs related to implementation activities are administrative in nature
and meet the capitalization criteria under ASC 340-40. These capitalized costs to fulfill a contract
principally relate to upfront direct costs that are expected to be recovered and enhance the Company’s
ability to satisfy future performance obligations.
The assets related to both costs to obtain and costs to fulfill contracts with clients are capitalized
and amortized using an accelerated method over an eight-year life to closely align with the pattern of
client attrition over the estimated life of the client relationship. The Company regularly reviews its
deferred costs for potential impairment and did not recognize an impairment loss during fiscal 2021,
2020, or 2019.
Cost of service revenue: The Company’s costs and expenses applicable to total service
revenue represent direct costs associated with providing HR, payroll, benefits, and insurance services.
This includes labor-related costs, direct costs related to certain PEO offerings, postage and delivery
costs,
facility costs, professional services, and depreciation and amortization of property and
equipment, including internally developed software.
Selling, general and administrative expenses: The Company’s selling, general and
including amortization of deferred sales
administrative expenses represent
commissions and bonuses, corporate asset depreciation and amortization, marketing, and other
general and administrative expenses incurred by the Company.
labor-related costs,
the PEO solution,
PEO insurance reserves: As part of
the Company offers workers’
compensation insurance and health insurance to clients for the benefit of client employees. Workers’
compensation insurance is primarily provided under
fully insured high deductible workers’
compensation insurance policies. Workers’ compensation insurance reserves are established to
provide for the estimated costs of paying claims up to per occurrence liability limits. These reserves
In
include estimates of certain expenses associated with processing and settling these claims.
establishing the PEO workers’ compensation insurance reserves, the Company uses an independent
actuarial estimate of undiscounted future cash payments that would be made to settle claims. The
determination of estimated ultimate losses by the Company’s independent actuary are based on
accepted actuarial methods and assumptions. The estimated ultimate losses are primarily based upon
loss development factors, and other factors such as the nature of employees’ job responsibilities, the
historical frequency and severity of workers’ compensation claims, and an estimate of future cost
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
trends. Each reporting period, changes in actuarial assumptions resulting from changes in actual
claims experience and other trends are incorporated into our workers’ compensation claims cost
estimates.
The Company’s maximum individual claims liability under
its PEO workers’ compensation
insurance policies was $1.0 million for both fiscal 2021 and fiscal 2020. As of May 31, 2021 and
liabilities of $65.3 million and $72.3 million,
May 31, 2020,
respectively, and long-term liabilities of $117.8 million and $101.3 million,
respectively, on its
Consolidated Balance Sheets for workers’ compensation insurance reserves.
the Company had recorded current
With respect to the PEO health insurance, the Company offers various health insurance plans that
take the form of either fully insured guaranteed cost plans or fully insured insurance arrangements
where the Company retains risk. A reserve for insurance arrangements where the Company retains
risk is established to provide for the payment of claims in accordance with the Company’s service
contract with the carrier. The claims liability includes estimates for reported losses, plus amounts for
those claims incurred but not reported, and estimates of certain expenses associated with processing
and settling the claims. The Company’s maximum individual claims liability was $0.3 million under its
policies during both fiscal 2021 and fiscal 2020. Amounts accrued related to the health insurance and
dental and vision plan reserves were $43.9 million and $36.7 million as of May 31, 2021 and May 31,
2020, respectively. These amounts are included in current liabilities on the Consolidated Balance
Sheets.
Estimating the ultimate cost of future claims is an uncertain and complex process based upon
historical loss experience and independent actuarial loss projections, and is subject to change due to
multiple factors, including economic trends, changes in legal liability law, and damage awards, all of
which could materially impact
the reserves as reported in the consolidated financial statements.
Accordingly, final claim settlements may vary from the present estimates, particularly with workers’
compensation insurance where those payments may not occur until well into the future. The Company
regularly reviews the adequacy of
its estimated insurance reserves. Adjustments to previously
established reserves are reflected in the results of operations for the period in which the adjustment is
identified. Such adjustments could be significant, reflecting any combination of new and adverse or
favorable trends. Adjustments to previously established reserves were not material for fiscal 2021,
2020, or 2019.
Leases: The Company adopted the requirements of ASU No. 2016-02 on June 1, 2019. At
contract inception, the Company determines if the new contractual arrangement is a lease or contains
a leasing arrangement. If a contract contains a lease whose term is greater than one year, the
Company evaluates whether it should be classified as an operating or a finance lease. Currently, all
the Company’s leases have been classified as operating leases. Upon modification of a contract, the
Company will reassess to determine if a contract is or contains a leasing arrangement.
The Company records lease liabilities based on the future estimated cash payments discounted
over the lease term, defined as the non-cancellable time period of the lease, together with all the
following:
• periods covered by an option to extend the lease if the Company is reasonably certain to
exercise the extension option; and
• periods covered by an option to terminate the lease if the Company is reasonably certain not to
exercise the termination option.
Leases may also include options to terminate the arrangement or options to purchase the
underlying lease property. The Company does not separate lease and non-lease components of
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
contracts. Lease components provide the Company with the right to use an identified asset, which
consist of the Company’s real estate properties and office equipment. Non-lease components consist
primarily of maintenance services.
rate is typically not
As an implicit discount
readily determinable in the Company’s lease
agreements,
the Company uses its estimated secured incremental borrowing rate based on the
information available at the lease commencement date in determining the present value of future lease
payments. The incremental borrowing rate is determined using a portfolio approach utilizing publicly
available information related to our unsecured borrowing rates. For certain leases with original terms of
12 months or less, the Company recognizes lease expense as incurred and does not recognize any
lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other
current liabilities and operating lease liabilities, respectively, in the Company’s Consolidated Balance
Sheets.
A right-of-use (“ROU”) asset is measured as the amount of the lease liability with adjustments, if
applicable, for lease incentives, initial direct costs incurred by the Company, and lease prepayments
made prior to or at lease commencement. ROU assets are classified as operating lease right-of-use
assets, net of accumulated amortization, on the Company’s Consolidated Balance Sheets. The
Company evaluates the carrying value of ROU assets if there are indicators of potential impairment
and performs the analysis concurrent with the review of the recoverability of the related asset group. If
the carrying value of the asset group is determined to not be fully recoverable and is in excess of its
estimated fair value, the Company will record an impairment loss in its Consolidated Statements of
Income and Comprehensive Income. The Company did not recognize an impairment loss during fiscal
2021 or fiscal 2020.
Fixed lease expense payments are recognized on a straight-line basis over the lease term.
Variable lease payments vary because of changes in facts or circumstances occurring after the
commencement date, other than the passage of time, and are often due to changes in an external
market rate or the value of an index (e.g. Consumer Price Index). Variable lease payments are
expensed as incurred in the Company’s Consolidated Statements of Income and Comprehensive
Income.
Stock-based compensation costs: All stock-based awards to employees are recognized as
compensation costs in the consolidated financial statements based on their fair values measured as of
the date of grant. The Company estimates the fair value of stock option grants using a Black-Scholes
option pricing model. This model requires various assumptions as inputs including expected volatility of
the Paychex stock price and expected option life. Volatility is estimated based on a combination of
historical volatility, using stock prices over a period equal to the expected option life, and implied
market volatility. Expected option life is estimated based on historical exercise behavior. The Company
periodically reassesses its assumptions as well as its choice of valuation model. The Company will
reconsider use of this model if additional information becomes available in the future indicating that
another model would provide a more accurate estimate of fair value or if characteristics of future grants
would warrant such a change.
The fair value of stock awards is determined based on the stock price at the date of grant. For
grants that do not accrue dividends or dividend equivalents, the fair value is the stock price reduced by
the present value of estimated dividends over the vesting period or performance period.
The Company’s policy is to estimate forfeitures and only record compensation costs for those
awards that are expected to vest. The assumptions for forfeitures are determined based on type of
award and historical experience. Forfeiture assumptions are adjusted at the point in time a significant
change is identified, with any adjustment recorded in the period of change, and the final adjustment at
the end of the requisite service period to equal actual forfeitures.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The assumptions of volatility, expected option life, and forfeitures all require significant judgment
and are subject to change in the future due to factors such as employee exercise behavior, stock price
trends, and changes to type or provisions of stock-based awards. Any material change in one or more
of these assumptions could have an impact on the estimated fair value of a future award.
Refer to Note F of this Item 8 for further discussion of the Company’s stock-based compensation
plans.
Income taxes: The Company accounts for deferred taxes by recognizing deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement and tax basis of assets and
liabilities, using enacted tax rates in effect for the fiscal year in which the differences are expected to
reverse.
The Company also maintains a reserve for uncertain tax positions. The Company evaluates tax
positions taken or expected to be taken in a tax return for recognition in its consolidated financial
statements. Prior to recording the related tax benefit in the consolidated financial statements, the
Company must conclude that tax positions will be more-likely-than-not to be sustained, assuming those
positions will be examined by taxing authorities with full knowledge of all relevant information. The
benefit recognized in the consolidated financial statements is the amount the Company expects to
realize after examination by taxing authorities. If a tax position drops below the more-likely-than-not
standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates
are required in determining if the more-likely-than-not standard has been met when developing the
provision for income taxes and in determining the expected benefit. A change in the assessment of the
more-likely-than-not standard could materially impact the Company’s results of operations or financial
position. Refer to Note L of this Item 8 for further discussion of the Company’s reserve for uncertain tax
positions.
Use of estimates: The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates, judgments, and assumptions
that affect reported amounts of assets, liabilities, revenue, and expenses during the reporting period.
Actual amounts and results could differ from these estimates.
Recently adopted accounting pronouncements:
following Accounting Standards Updates (“ASUs”), none of which had a material
consolidated financial statements:
In June 2020, the Company adopted the
impact on its
• ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting;”
• ASU No. 2019-08, “Compensation — Stock Compensation (Topic 718) and Revenue from
(Topic 606): Codification Improvements — Share-Based
Contracts with Customers
Consideration Payable to a Customer;”
• ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments — Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments;”
• ASU No. 2018-18, “Collaborative Arrangements (Topic 808): Clarifying the Interaction between
Topic 808 and Topic 606;”
• ASU No. 2018-15, “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract (a consensus of the Financial Accounting Standards
Board (“FASB”) Emerging Issues Task Force);”
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
• ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to
the Disclosure Requirements for Fair Value Measurement;”
• ASU No. 2017-04, “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairments;” and
• ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments,” as amended by subsequent ASUs on the topic, using a
modified retrospective transition method.
Recently issued accounting pronouncements:
the FASB issued ASU
No. 2020-08, “Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and
Other Costs.” The amendments in ASU No. 2020-08 clarify that an entity should reevaluate whether a
callable debt security is within the scope of the Accounting Standards Codification (“ASC”) paragraph
310-20-35-33 for each reporting period. This guidance is effective for public business entities for fiscal
years beginning after December 15, 2020, and for interim periods within those fiscal years. This
guidance is applicable to the Company’s fiscal year beginning June 1, 2021. The adoption of this
guidance will not have a material impact on the Company’s consolidated financial statements.
In October 2020,
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying
the Accounting for Income Taxes.” ASU No. 2019-12 is intended to simplify various aspects related to
accounting for income taxes, eliminates certain exceptions to the general principles in the ASC Topic
740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an
interim period, and clarifies certain aspects of the current guidance to promote consistent application.
This guidance is effective for public business entities for fiscal years beginning after December 15,
2020, and for interim periods within those fiscal years, with early adoption permitted. This guidance is
applicable to the Company’s fiscal year beginning June 1, 2021. The adoption of this guidance will not
have a material impact on the Company’s consolidated financial statements.
Other recent authoritative guidance issued by the FASB (including technical corrections to the
FASB ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not
expected to have a material impact on the Company’s consolidated financial statements.
Note B — Service Revenue
Service revenue is primarily attributable to fees for providing services to the Company’s clients
and is recognized when control of the contracted services is transferred to its clients, in an amount that
reflects the consideration it expects to receive in exchange for such services. Insurance Solutions
revenue is commissions earned on premiums collected and remitted to insurance carriers. The
Company’s contracts generally do not contain specified contract periods and may be terminated by
either party with 30-days notice of termination. Sales and other applicable non-payroll related taxes are
excluded from service revenue.
Based upon similar operational and economic characteristics, the Company’s service revenue is
disaggregated by Management Solutions and PEO and Insurance Solutions as reported in the
Company’s Consolidated Statements of Income and Comprehensive Income. The Company believes
these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and
cash flows are affected by economic factors.
Management Solutions Revenue
Management Solutions revenue is primarily derived from the Company’s payroll processing, payroll-
related ancillary services, and HR outsourcing solutions. Clients can select services on an á la carte basis
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
or as part of various product bundles. The Company’s offerings often leverage the information gathered
in its base payroll processing service, allowing it to provide comprehensive outsourcing services covering
the HCM spectrum. Management Solutions revenue is generally recognized over time as services are
performed and the customer simultaneously receives and controls the benefits from these services.
Revenue earned from delivery service for the distribution of certain client payroll checks and
reports is also included in Management Solutions revenue in the Company’s Consolidated Statements
of Income and Comprehensive Income. Delivery service revenue is recognized at a point in time
following the delivery of payroll checks, reports, quarter-end packages, and tax returns to the
Company’s clients.
PEO and Insurance Solutions Revenue
PEO solutions are sold through the Company’s registered and licensed subsidiaries and offer
businesses a combined package of services that includes payroll, employer compliance, HR and
employee benefits administration, risk management outsourcing, and the on-site availability of a
professionally trained HR representative, among other services. The Company serves as a
co-employer of its clients’ employees, offers health insurance coverage to client employees, and
assumes the risks and rewards of workers’ compensation insurance and certain health insurance
offerings. PEO Solutions revenue is recognized over time as the services are performed and the
customer simultaneously receives and controls the benefits from these services. PEO Solutions
revenue is reported net of certain pass-through costs billed and incurred, which include payroll wages,
payroll taxes, including federal and state unemployment insurance, and health insurance premiums on
guaranteed cost benefit plans. For workers’ compensation and health insurance plans where the
Company retains risk, revenues and costs are recorded on a gross basis.
PEO pass-through costs netted within the PEO and Insurance Solutions revenue are as follows:
In billions
Year ended May 31,
2020
2019
2021
Payroll wages and payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.6
$ 20.5
$ 14.5
In millions
State unemployment insurance (included in payroll wages
and payroll taxes)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $119.0
Guaranteed cost benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . $586.4
$ 85.7
$647.0
$ 82.3
$451.8
Insurance solutions are sold through the Company’s licensed insurance agency, Paychex
Insurance Agency, Inc., which provides insurance through a variety of carriers, allowing companies to
expand their employee benefit offerings at an affordable cost. Insurance offerings include property and
casualty coverage such as workers’ compensation, business-owner policies, commercial auto, cyber
Insurance
security, and health and benefits coverage,
Solutions revenue reflects commissions earned on remitted insurance services premiums billed and is
recognized over time as services are performed and the customer simultaneously receives and
controls the benefits from these services.
including health, dental, vision, and life.
Contract Balances
The timing of revenue recognition for Management Solutions and PEO and Insurance Solutions is
consistent with the invoicing of clients as they both occur during the respective client payroll period for
which the services are provided. Therefore, the Company does not recognize a contract asset or
liability resulting from the timing of revenue recognition and invoicing.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Payments received for certain of the Company’s service offerings for set-up fees are considered a
material right. Therefore, the Company defers revenue associated with these performance obligations,
which exceed one year, and subsequently recognizes them as future services are provided, over
approximately three years to four years.
Changes in deferred revenue related to material rights that exceed one year were as follows:
In millions
Year ended May 31,
2021
2020
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42.6
23.5
Deferral of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25.9)
Recognition of unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45.7
24.7
(27.8)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40.2
$ 42.6
Deferred revenue related to material rights is reported in the deferred revenue and other long-term
liabilities line items on the Company’s Consolidated Balance Sheets. As of May 31, 2021,
the
Company expects to recognize $20.3 million of deferred revenue related to material rights during its
fiscal year ending May 31, 2022 and $19.9 million of deferred revenue thereafter.
Assets Recognized from the Costs to Obtain and Fulfill Contracts
The Company recognizes an asset for the incremental costs of obtaining a contract with a client if
it is expected that the economic benefit and amortization period will be longer than one year. The
Company also recognizes an asset for the costs to fulfill a contract with a client if the costs are
specifically identifiable, generate or enhance resources used to satisfy future performance obligations,
and are expected to be recovered.
Deferred costs to obtain and fulfill contracts are reported in the prepaid expenses and other
current assets and long-term deferred costs line items on the Company’s Consolidated Balance
Sheets. Amortization expense related to costs to obtain and fulfill a contract are included in cost of
service revenue and selling, general and administrative expenses in the Company’s Consolidated
Statements of Income and Comprehensive Income. Refer to Note A of this Item 8 for additional
disclosures on our policies for assets recognized from the costs to obtain and fulfill contracts.
The Company regularly reviews its deferred costs for potential impairment and did not recognize
an impairment loss during fiscal 2021, 2020, or 2019.
Changes in deferred costs to obtain and fulfill contracts were as follows:
Costs to fulfill contracts:
In millions
Year ended May 31,
2021
2020
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67.3
26.2
Capitalization of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(24.2)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 66.1
24.9
(23.7)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69.3
$ 67.3
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Costs to obtain contracts:
In millions
Year ended May 31,
2020
2021
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 473.6
181.8
Capitalization of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(167.2)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 464.3
171.7
(162.4)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 488.2
$ 473.6
Note C — Basic and Diluted Earnings Per Share
Basic and diluted earnings per share were calculated as follows:
In millions, except per share amounts
Basic earnings per share:
Year ended May 31,
2020
2019
2021
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
359.9
Weighted-average common shares outstanding . . . . . . . . . . . . . . . . . . .
$1,098.1
358.5
$1,034.4
359.2
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.05
$
3.06
$
2.88
Diluted earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
359.9
Weighted-average common shares outstanding . . . . . . . . . . . . . . . . . . .
2.2
Dilutive effect of common share equivalents . . . . . . . . . . . . . . . . . . . . . . .
$1,098.1
358.5
2.5
$1,034.4
359.2
2.6
Weighted-average common shares outstanding, assuming dilution . . . .
362.1
361.0
361.8
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.03
$
3.04
$
2.86
Weighted-average anti-dilutive common share equivalents . . . . . . . . .
0.6
0.7
0.4
Weighted-average common share equivalents that had an anti-dilutive impact are excluded from
the computation of diluted earnings per share.
Note D — Business Combinations
Effective December 20, 2018, the Company acquired Oasis. Upon closing, Oasis became a wholly
owned subsidiary of the Company. Oasis is an industry leader in providing HR outsourcing services.
The purchase price was $992.2 million, net of $262.3 million in cash acquired, including $132.1 million
of restricted cash.
The results of operations for Oasis have been included in the Company’s Consolidated
Statements of Income and Comprehensive Income since the date of acquisition. During fiscal 2019,
Oasis contributed $163.7 million of total revenues and $5.1 million of operating income, including the
impact of certain one-time charges related to the acquisition and integration of the Oasis business, in
the Company’s consolidated results of operations. The Company incurred $5.3 million of acquisition
and integration costs associated with Oasis during fiscal 2019, which was included within selling,
general and administrative expenses in the Company’s Consolidated Statements of
Income and
Comprehensive Income.
Pro Forma Financial Results (Unaudited): The following table summarizes the Company’s
the acquisition of Oasis had been
unaudited pro forma operating results for fiscal 2019 as if
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
consummated as of June 1, 2017. The following pro forma information does not include the impact of
any costs incurred to integrate Oasis’ operations:
In millions
Year ended
May 31, 2019
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,958.0
$1,021.7
The unaudited pro forma operating results have been calculated after applying the Company’s
accounting policies and include the acquisition of Oasis adjusted, net of tax, for depreciation and
amortization expense resulting from the determination of fair values of the acquired property and
equipment and amortizable intangible assets, the inclusion of interest expense related to borrowings
used to fund the acquisition, the amortization of debt issuance costs related to the permanent financing
of debt, the elimination of interest income related to available cash used for the acquisition, and the
elimination of Oasis’ interest expense related to debt not assumed in the acquisition. Since the pro
forma financial results assume the acquisition was consummated on June 1, 2017, the unaudited pro
forma operating results for fiscal 2019 excluded $2.7 million ($2.0 million, net of tax) of costs incurred
by the Company related to the acquisition of Oasis.
The pro forma financial information does not purport to be indicative of the results that would have
been obtained had the transactions been completed as of June 1, 2017 for the period presented and
are not intended to be a projection of future results or trends.
Note E — Other Expense, Net
Other expense, net, consisted of the following items:
In millions
Year ended May 31,
2020
2019
2021
Interest income on corporate investments . . . . . . . . . . . . . . . . . . . . $ 2.3
(35.8)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 12.3
(38.8)
3.1
$ 13.3
(17.6)
1.0
Other expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(26.5)
$(23.4)
$ (3.3)
Note F — Stock-Based Compensation Plans
The Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15,
2020 (the “2002 Plan”), authorizes grants of up to 44.1 million shares of the Company’s common stock.
As of May 31, 2021, there were 16.4 million shares available for future grants under the 2002 Plan.
All stock-based awards to employees are recognized as compensation costs in the consolidated
financial statements based on their fair values measured as of the date of grant. These costs are
recognized as an expense in the Consolidated Statements of Income and Comprehensive Income on a
straight-line basis over the requisite service period and an increase in additional paid-in capital.
Stock-based compensation expense was $52.5 million, $47.4 million, and $46.2 million for fiscal
years 2021, 2020, and 2019, respectively. Related income tax benefits recognized were $8.6 million,
$9.0 million, and $8.9 million for the respective fiscal years.
As of May 31, 2021, the total unrecognized compensation cost related to all unvested stock-based
awards was $72.2 million and is expected to be recognized over a weighted-average period of
2.8 years.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Black-Scholes fair value assumptions: The fair value of stock option grants and performance-
based stock option grants was estimated at the date of grant using a Black-Scholes option pricing
model. The weighted-average assumptions used for valuation under the Black-Scholes option pricing
model are as follows:
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant-date fair value of stock options
2021
Year ended May 31,
2020
Stock options
2019
0.5%
3.2%
0.29
6.1
2.0%
3.3%
0.18
6.2
2.9%
3.5%
0.18
6.1
granted (per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13.52
$9.86
$8.87
Year ended May 31, 2019
Performance-based
stock options
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected option life in years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average grant-date fair value of stock options granted (per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9%
3.5%
0.18
6.5
$9.02
No performance-based stock options were granted during fiscal 2021 or fiscal 2020.
Risk-free interest rates are yields for zero coupon U.S. Treasury notes maturing approximately at
the end of the expected option life. The estimated volatility factor is based on a combination of
historical volatility, using stock prices over a period equal to the expected option life, and implied
market volatility. The expected option life is based on historical exercise behavior.
Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a
specified number of shares of Paychex common stock at an exercise price per share equal to the
closing market price of the common stock on the date of grant. All stock options have a contractual life
of ten years from the date of the grant and a vesting schedule as established by the Board. The
Company issues new shares of common stock to satisfy stock option exercises. Stock option grants to
executives and outside directors are typically approved by the Board in July. Grants of stock options to
executives vest one-third per annum. Grants to members of the Board vest after one year. Vesting is
generally achieved on these dates with active employment or participation as a member of the Board
on the date of vesting.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The following table summarizes stock option activity for fiscal 2021:
In millions, except per share amounts
Outstanding as of May 31, 2020 . . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of May 31, 2021 . . .
Exercisable as of May 31, 2021 . . . .
Shares
subject
to options
Weighted-
average
exercise price
per share
Weighted-
average
remaining
contractual term
(years)
Aggregate
intrinsic
value(1)
4.4
0.7
(1.4)
(0.1)
—
3.6
2.4
$55.02
$73.55
$42.66
$78.69
$36.79
$62.89
$56.25
6.2
5.0
$136.8
$108.0
(1) Total shares valued at the market price of the underlying stock as of May 31, 2021 less the exercise price.
Other information pertaining to stock option grants is as follows:
In millions
Year ended May 31,
2020
2019
2021
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . $58.5
Total grant-date fair value of stock options vested . . . . . . . . . . . . . . . $ 6.0
$22.0
$ 5.0
$25.7
$ 4.3
Restricted Stock Units (“RSUs”): The Board grants RSUs to certain executive and
non-executive employees. An RSU is an agreement to issue shares at the time of vesting with no
associated exercise cost for the employee. For each unit granted, the holder will receive one share of
Paychex common stock at the time of vesting. If the recipient does not vest in the shares due to
leaving Paychex, all shares or units of RSUs, and any dividends accrued thereon, when applicable, will
be forfeited and returned to the Company.
Time-based RSUs: Time-based RSUs granted to non-executives vest one-fifth per annum over
five years, while those granted to executives vest one-third per annum over three years. Vesting is
generally achieved on these dates with active employment. The fair value of time-based RSUs is equal
to the closing market price of the underlying common stock as of the date of grant, adjusted for the
present value of expected dividends over the vesting period. Time-based RSUs may, or may not, earn
dividend equivalents depending on the terms of the specific grant.
Performance-based RSUs: Performance-based RSUs primarily have a two year performance
period, after which the number of underlying RSUs earned will be determined based on achievement
against pre-established performance targets. The RSUs earned are then subject to a one year service
period. Performance-based RSUs do not earn dividend equivalents during the performance period.
The fair value of the RSUs is equal to the closing market price of the underlying common stock as of
the date of grant, adjusted for the present value of expected dividends over the performance period.
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The following table summarizes RSU activity for fiscal 2021:
In millions, except per share amounts
Nonvested as of May 31, 2020 . . . . . . .
Granted (1)
. . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . .
Nonvested as of May 31, 2021 . . . . . . .
Time-based
RSUs
1.4
0.7
(0.5)
(0.1)
Weighted-average
grant-date
fair value per
share
$61.60
$67.92
$57.10
$64.40
Performance-
based RSUs
0.1
—
—
—
Weighted-
average
grant-date
fair value per
share
$80.59
$ —
$ —
$ —
1.5
$65.64
0.1
$80.59
(1) For performance-based RSUs, granted number assumes achievement of performance goals at target. Actual number of
shares to be earned may differ from this amount.
Other information pertaining to RSUs is as follows:
In millions, except per share amounts
Time-based RSUs:
Year ended May 31,
2020
2019
2021
Weighted-average grant-date fair value per share
of RSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $67.92
3.0
Weighted-average remaining vesting period (years) . . . . . . .
Total intrinsic value of RSUs vested . . . . . . . . . . . . . . . . . . . . $ 32.6
Aggregate intrinsic value of nonvested RSUs (1) . . . . . . . . . . $152.7
Total grant-date fair value of RSUs vested . . . . . . . . . . . . . . $ 25.6
$73.28
2.9
$ 40.0
$ 99.9
$ 23.6
$62.20
2.9
$ 1.2
$127.0
$ 0.8
Performance-based RSUs(2):
Weighted-average grant-date fair value per share
of RSUs granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $80.59
2.1
$ —
Weighted-average remaining vesting period (years) . . . . . . .
—
Total intrinsic value of RSUs vested . . . . . . . . . . . . . . . . . . . . $ — $ — $ —
Aggregate intrinsic value of nonvested RSUs (1) . . . . . . . . . . $ 6.2
$ —
Total grant-date fair value of RSUs vested . . . . . . . . . . . . . . $ — $ — $ —
$ 4.4
1.1
(1) Based on the market price of the underlying common stock as of May 31, 2021, 2020 and 2019.
(2) No performance-based RSUs were granted during fiscal 2021 or fiscal 2019.
Restricted stock awards: The Board approves grants of
restricted stock awards to the
Company’s executives and outside directors. All shares underlying awards of restricted stock are
restricted in that they are not transferable until they vest. Recipients of the restricted stock earn
dividends, which are paid to the recipient at the time the awards vest. If the recipient does not vest in
the shares due to leaving Paychex, all shares of restricted stock, and the dividends accrued thereon,
when applicable, will be forfeited and returned to the Company.
Time-based restricted stock awards: Time-based restricted stock awards granted to executives
vest one-third per annum. Time-based restricted stock awards granted to outside directors vest on the
one year anniversary of the grant date. Vesting is generally achieved on these dates with active
employment or participation as a member of the Board on the date of vesting. The fair value of time-
based restricted stock awards is equal to the closing market price of the underlying common stock as
of the date of grant.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Performance-based restricted stock awards: Performance-based restricted stock awards
primarily have a two year performance period, after which the number of shares earned will be
determined based on achievement against pre-established performance targets. The restricted shares
earned are then subject to a one year service period. Performance-based shares do not earn dividend
equivalents during the performance period. The fair value of performance-based shares is equal to the
closing market price of the underlying common stock as of the date of grant, adjusted for the present
value of expected dividends over the performance period.
The following table summarizes time-based and performance-based restricted stock award activity
for fiscal 2021:
In millions, except per share amounts
Nonvested as of May 31, 2020 . . .
Granted (1)
. . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . .
Nonvested as of May 31, 2021 . . .
Time-based
shares
0.1
0.1
(0.1)
—
Weighted-average
grant-date
fair value
per share
$73.20
$73.93
$70.11
$76.45
Performance-
based shares
0.3
—
(0.2)
—
Weighted-average
grant-date
fair value
per share
$61.97
$65.17
$54.28
$72.31
0.1
$74.60
0.1
$69.28
(1) For performance-based shares, granted number assumes achievement of performance goals at target. Actual number of
shares to be earned may differ from this amount.
Other information pertaining to time-based and performance-based restricted stock awards is as
follows:
In millions, except per share amounts
Year ended May 31,
2020
2019
2021
Weighted-average grant-date fair value per share of
time-based shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $73.93
$84.46
$69.80
Total grant-date fair value of time-based restricted stock
vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.0
$ 3.2
$ 3.0
Weighted-average grant-date fair value per share of
performance-based shares granted . . . . . . . . . . . . . . . . . . . . . . $65.17
$80.59
$65.17
Total grant-date fair value of performance-based
restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.4
$ 5.8
$ 5.3
Long-term Incentive Plan (“LTIP”): The Company has two long-term incentive performance-
based stock awards under its LTIP. In July 2011, the Board approved a special award of performance-
based non-qualified stock options. Subsequent grants of this award were made upon the hire of new
executives. Under this award, stock options were granted to executives with vesting dependent on
achievement against
long-term strategic and financial objectives. Total stock options earned and
vested were based on achievement against pre-established targets for the fiscal year ended May 31,
2016 (“fiscal 2016”). The performance period was completed in fiscal 2016. Although the performance
period was completed and the stock options were earned and vested, some stock options remained
outstanding as of May 31, 2020; there are no stock options outstanding as of May 31, 2021.
In July 2016,
the Board approved an LTIP award comprised of both performance-based
non-qualified stock options and performance-based restricted stock. This award was granted to
executives down to the vice president level with vesting dependent on achievement against long-term
strategic and financial objectives. Total stock options and restricted shares earned are based on
achievement against pre-established targets for fiscal 2020.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The following table summarizes LTIP performance-based stock option activity for fiscal 2021:
In millions, except per share amounts
Shares
subject
to options
Weighted-average
exercise price
per share
Weighted-average
remaining
contractual
term (years)
Aggregate
intrinsic
value(1)
Outstanding as of May 31, 2020 . . . . .
Granted(2)
. . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . .
Outstanding as of May 31, 2021 . . . . .
Exercisable as of May 31, 2021 . . . . . .
1.3
0.2
(0.8)
0.7
0.7
$56.13
$60.92
$53.34
$60.71
$60.71
5.0
5.0
$27.8
$27.8
(1) Shares valued at the market price of the underlying stock as of May 31, 2021 less the exercise price.
(2) Shares issued above target achievement level upon final performance measurement.
Other information pertaining to LTIP performance-based stock options is as follows:
In millions
Year ended May 31,
2020
2021
2019
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . . $26.3
$23.0
$8.2
No performance-based stock options vested in fiscal years 2020 or 2019.
LTIP performance-based restricted stock do not earn dividend equivalents during the performance
period. The fair value of LTIP performance-based restricted stock is equal to the closing market price
of the underlying common stock as of the date of grant, adjusted for the present value of expected
dividends over the performance period. If the recipient leaves Paychex prior to the vesting date for any
reason,
the shares of performance-based restricted stock will be forfeited and returned to the
Company.
The following table summarizes LTIP performance-based restricted stock activity for fiscal 2021:
In millions, except per share amounts
Nonvested as of May 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted
shares
0.1
—
(0.1)
Weighted-average
grant date
fair value
per share
$53.97
$53.97
$53.97
Nonvested as of May 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .
—
$ —
Non-compensatory employee benefit plan: The Company offers a qualified Employee Stock
Purchase Plan (“ESPP”) to all employees. The Company’s common stock can be purchased through a
payroll deduction at a discount to the market price. The qualified ESPP allows for a discount of up to
15% based on the sole discretion of the committee established to administer the plan. For offering
periods during fiscal years 2021, 2020, and 2019 the discount was set at 5% of the market price.
Transactions under the non-qualified ESPP occurred directly through the Company’s transfer agent
and no brokerage fees were charged to employees. Transactions under the qualified ESPP occur
through the Company’s third-party stock plan administrator. The plans have been deemed
non-compensatory and therefore, no stock-based compensation costs have been recognized for fiscal
years 2021, 2020, or 2019 related to the plan.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note G — Funds Held for Clients and Corporate Investments
Funds held for clients and corporate investments are as follows:
In millions
May 31, 2021
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Type of issue:
Funds held for clients’ money market
securities and other restricted cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 739.6
AFS securities:
Asset-backed securities . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
86.5
635.8
1,669.0
treasury securities . . . . . . . . . . . . . . . . .
549.6
Total AFS securities . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,940.9
26.4
Total funds held for clients and corporate
$ —
$ —
$ 739.6
1.4
28.8
33.0
20.1
83.3
7.7
—
(0.2)
(2.3)
(1.5)
(4.0)
(0.1)
87.9
664.4
1,699.7
568.2
3,020.2
34.0
investments . . . . . . . . . . . . . . . . . . . . . . . . . $3,706.9
$91.0
$(4.1)
$3,793.8
In millions
May 31, 2020
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Type of issue:
Funds held for clients’ money market
securities and other restricted cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 683.5
AFS securities:
Asset-backed securities . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
68.0
649.6
1,373.8
treasury securities . . . . . . . . . . . . . . . . .
565.8
Total AFS securities . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,657.2
25.4
Total funds held for clients and corporate
$ —
$ —
$ 683.5
1.7
34.1
37.4
28.5
101.7
2.2
—
(0.1)
(1.6)
—
(1.7)
(0.4)
69.7
683.6
1,409.6
594.3
2,757.2
27.2
investments . . . . . . . . . . . . . . . . . . . . . . . . . $3,366.1
$103.9
$(2.1)
$3,467.9
Included in funds held for clients’ money market securities and other restricted cash equivalents as
of May 31, 2021 were bank demand deposit accounts and money market funds.
Included in asset-backed securities as of May 31, 2021 were investment-grade securities primarily
collateralized by fixed-rate auto loans and credit card receivables and all have credit ratings of AAA.
The primary risk associated with these securities is the collection of
the underlying receivables.
Collateral on these asset-backed securities has performed as expected through May 31, 2021.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Included in corporate bonds as of May 31, 2021 were investment-grade securities covering a wide
range of issuers, industries, and sectors and primarily carry credit ratings of A or better and having
maturities ranging from June 1, 2021 through May 12, 2028.
Included in municipal bonds as of May 31, 2021 were general obligation bonds and revenue bonds
primarily carrying credit ratings of AA or better and have maturities ranging from June 1, 2021 through
August 1, 2028.
A substantial portion of our portfolios are invested in high credit quality securities with ratings of
AA or higher, and A-1/P-1 ratings on short-term securities.
The classification of funds held for clients and corporate investments on the Consolidated Balance
Sheets is as follows:
In millions
May 31,
2021
2020
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,750.0
36.7
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.1
Total funds held for clients and corporate investments . . . . . . . . . . $3,793.8
$3,430.5
27.2
10.2
$3,467.9
Funds held for clients’ money market securities and other restricted cash equivalents is collected
from clients before due dates for payroll tax administration services and employee payment services
and is invested until remitted to the applicable tax or regulatory agencies or client employees. Based
upon the Company’s intent and its contractual obligation to clients,
these funds are considered
restricted until they are remitted to fund these client obligations.
The Company’s AFS securities reflected net unrealized gains of $79.3 million and $100.0 million
as of May 31, 2021 and May 31, 2020 respectively. Included in net unrealized gains as of May 31,
2021 and May 31, 2020 were 137 and 19 AFS securities in an unrealized loss position, representing
approximately 11% and 2% of the total securities held, respectively. AFS securities in an unrealized
loss position for which a credit loss has not been recognized were as follows:
May 31, 2021
Securities in an unrealized
loss position for less than
twelve months
Securities in an unrealized
loss position for more than
twelve months
Total
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
Gross
unrealized
losses
Fair
value
$ —
(0.2)
(2.3)
(1.5)
$(4.0)
$ 7.1
22.0
288.2
102.6
$419.9
$—
—
—
—
$—
$—
—
—
—
$—
$ —
(0.2)
(2.3)
(1.5)
$(4.0)
$ 7.1
22.0
288.2
102.6
$419.9
In millions
Type of issue:
Asset-backed securities . . . .
Corporate bonds . . . . . . . . . .
Municipal bonds . . . . . . . . . .
U.S. government agency and
treasury securities . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Securities in an unrealized
loss position for less than
twelve months
Gross
unrealized
losses
Fair
value
May 31, 2020
Securities in an unrealized
loss position for more than
twelve months
Gross
unrealized
losses
In millions
Type of issue:
Corporate bonds . . . . . . . . . . .
Municipal bonds . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
$(0.1)
(1.6)
$(1.7)
$ 6.5
60.3
$66.8
$—
—
$—
Total
Gross
unrealized
losses
Fair
value
$(0.1)
(1.6)
$(1.7)
$ 6.5
60.3
$66.8
Fair
value
$—
—
$—
The Company regularly reviews its investment portfolios to determine if any investment is impaired
due to changes in credit risk or other potential valuation concerns. The Company believes the
investments held as of May 31, 2021 that had gross unrealized losses of $4.0 million were not impaired
due to credit risk or other valuation concerns and was not required to record a credit loss or an
allowance for credit losses on its AFS securities. The Company believes it is probable that the principal
and interest will be collected in accordance with contractual terms and that the unrealized losses on
these securities were due to changes in interest rates and were not due to increased credit risk or
other valuation concerns. Most of the securities in an unrealized loss position as of May 31, 2021 and
May 31, 2020 held an AA rating or better. The Company does not intend to sell these investments until
the recovery of their amortized cost basis or maturity and further believes that it is not more-likely-
than-not that it will be required to sell these investments prior to that time. The Company’s assessment
that an investment is not impaired due to credit risk or other valuation concerns could change in the
future due to new developments, including developments related to the COVID-19 pandemic, or
changes in the Company’s strategies or assumptions related to any particular investment.
Realized gains and losses from the sale of AFS securities were as follows:
In millions
Year ended May 31,
2020
2019
2021
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.2
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.2
$11.6
(0.3)
$ 0.6
(0.6)
$11.3
$ —
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2021
are shown below by expected maturity.
In millions
Maturity date:
May 31, 2021
Amortized
cost
Fair value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 335.7
731.6
Due after one year through three years . . . . . . . . . . . . . . . . . . . . . .
970.6
Due after three years through five years . . . . . . . . . . . . . . . . . . . . . .
903.0
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,940.9
Total
$ 338.6
759.0
1,008.3
914.3
$3,020.2
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Variable rate demand notes (“VRDNs”) are primarily categorized as due after five years in the
table above as the contractual maturities on these securities are typically 20 to 30 years. Although
these securities are issued as long-term securities,
they are priced and traded as short-term
instruments because of the liquidity provided through the tender feature.
Note H — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market participants at the measurement date.
The accounting standards related to fair value measurements include a hierarchy for information and
valuations used in measuring fair value that is broken down into three levels based on reliability, as
follows:
• Level 1 valuations are based on quoted prices in active markets for identical instruments that the
Company can access at the measurement date.
• Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are
observable for the instrument, either directly or indirectly, for substantially the full term of the
asset or liability including the following:
O quoted prices for similar, but not identical, instruments in active markets;
O quoted prices for identical or similar instruments in markets that are not active;
O inputs other than quoted prices that are observable for the instrument; or
O inputs that are derived principally from or corroborated by observable market data by
correlation or other means.
• Level 3 valuations are based on information that is unobservable and significant to the overall
fair value measurement.
The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents,
accounts receivable, net of allowance for doubtful accounts, PEO unbilled receivables, net of advance
collections, accounts payable and short-term borrowings, when used by the Company, approximate
fair value due to the short maturities of these instruments. Marketable securities included in funds held
for clients and corporate investments consist primarily of securities classified as AFS and are recorded
at fair value on a recurring basis.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as
follows:
May 31, 2021
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Carrying
value
(Fair value)
In millions
Assets:
Restricted and unrestricted cash
equivalents:
$ —
$ —
$ —
—
—
—
$ —
$ —
Money market securities . . . . . . . . . . .
Total restricted and unrestricted
cash equivalents . . . . . . . . . . . . . . .
$
$
2.9
$ 2.9
2.9
$ 2.9
$
$
—
—
AFS securities:
Asset-backed securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .
U.S. government agency and
$
87.9
664.4
1,699.7
$ —
—
—
$
87.9
664.4
1,699.7
treasury securities . . . . . . . . . . . . . . .
568.2
—
568.2
Total AFS securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Other long-term liabilities . . . . . . . . . . . . . . .
In millions
Assets:
Restricted and unrestricted cash
equivalents:
$3,020.2
34.0
$
$ —
$34.0
$3,020.2
—
$
$
32.6
$32.6
$
—
$ —
May 31, 2020
Quoted
prices in
active
markets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Carrying
value
(Fair value)
Money market securities . . . . . . . . . . .
Total restricted and unrestricted
cash equivalents . . . . . . . . . . . . . . .
$
$
43.5
$43.5
43.5
$43.5
AFS securities:
Asset-backed securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .
U.S. government agency and
treasury securities . . . . . . . . . . . . . . .
Total AFS securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Other long-term liabilities . . . . . . . . . . . . . . .
$
69.7
683.6
1,409.6
594.3
$2,757.2
27.2
$
$ —
—
—
—
$ —
$27.2
$
$
—
—
$
69.7
683.6
1,409.6
594.3
$2,757.2
—
$
$ —
$ —
$ —
—
—
—
$ —
$ —
$
26.8
$26.8
$
—
$ —
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
In determining the fair value of its assets and liabilities, the Company predominately uses the
market approach. Money market securities, which are cash equivalents, are considered Level 1
investments as they are valued based on quoted market prices in active markets. AFS securities,
including asset-backed securities, corporate bonds, municipal bonds, U.S. government agency and
treasury securities, and VRDNs, when held by the Company, are included in Level 2 and are valued
the
utilizing inputs obtained from an independent pricing service. To determine the fair value of
Company’s Level 2 AFS securities, the independent pricing service uses a variety of inputs, including
benchmark yields, reported trades, non-binding broker/dealer quotes,
two-sided
markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment
information. The Company has not adjusted the prices obtained from the independent pricing service
because it believes that they are appropriately valued.
issuer spreads,
Assets included as other are mutual fund investments, consisting of participants’ eligible deferral
contributions under the Company’s non-qualified and unfunded deferred compensation plans. The
related liability is reported as other long-term liabilities. The mutual funds are considered Level 1
investments as they are valued based on quoted market prices in active markets.
The Company’s long-term borrowings are accounted for on a historical cost basis. As of May 31,
2021 and May 31, 2020, the fair value of long-term borrowings, net of debt issuance costs was
$450.2 million and $441.9 million for the Senior Notes, Series A, respectively, and $457.7 million and
$448.7 million for the Senior Notes, Series B, respectively.
The Company’s long-term borrowings are not traded in active markets, and as a result, its fair
including
values were estimated using a market approach employing Level 2 valuation inputs,
borrowing rates the Company believes are currently available based on loans with similar terms and
maturities.
The preceding methods described may produce a fair value calculation that may not be indicative
of net realizable value or reflective of future fair values. Furthermore, although the Company believes
its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result
in a different fair value measurement at the reporting date.
Note I: Leases
The Company’s lease portfolio consists primarily of operating leases for office space and
equipment and has remaining terms from less than one year up to ten years, with contractual terms
expiring from 2021 to 2031. Lease contracts may include one or more renewal options that allow the
Company to extend the lease term, typically from one year to five years per each renewal option. The
exercise of lease options is generally at the discretion of the Company. None of the Company’s leases
contain residual value guarantees, substantial restrictions, or covenants.
Supplemental balance sheet information related to the Company’s leases were as follows:
$ in millions
May 31,
2021
2020
Operating lease right-of-use assets, net of accumulated amortization . . . . . $103.0
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.9
Operating lease liabilities, current(1)
92.4
Operating lease liabilities, non-current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average remaining lease term (in years) . . . . . . . . . . . . . . . . . . . .
5.2
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$114.8
37.2
96.9
4.6
1.81% 2.06%
(1) The current portion of operating lease liabilities is reported in the other current liabilities line item on the Company’s
Consolidated Balance Sheets.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The components of lease expense were as follows:
In millions
Year ended May 31,
2021
2020
Fixed payment operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable payment operating lease expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.6
8.3
0.1
$38.2
8.6
0.2
Fixed payment lease expense was $34.6 million, $38.2 million, and $42.9 million for fiscal years
2021, 2020, and 2019, respectively.
During the three months ended August 31, 2020, the Company ceased the use of certain leased
property and accelerated the amortization of operating lease right-of-use assets, resulting in an
additional $24.4 million of expense. The accelerated amortization expense recognized subsequent to
August 31, 2020 is immaterial. This expense was included in selling, general and administrative
expenses on the Consolidated Statements of Income and Comprehensive Income. The related lease
liabilities will be satisfied under the original terms of the lease arrangements, unless buy-outs can be
negotiated.
Supplemental cash flow information related to the Company’s leases were as follows:
In millions
Year ended May 31,
2021
2020
Cash paid for amounts included in the measurement of lease liabilities . . . .
Amortization of ROU assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ROU assets obtained in exchange for new operating lease liabilities . . . . . .
. . .
Lease incentives received in the form of tenant allowances and free rent
$32.2
29.2
26.8
0.8
$41.6
34.4
21.5
6.1
Lease incentives received in the form of
tenant allowances and free rent was $0.8 million,
$6.1 million, and $3.5 million for fiscal years 2021, 2020, and 2019, respectively.
Future lease payments are as follows:
In millions
May 31, 2021
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Imputed interest
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 31.5
25.4
21.5
18.2
11.4
19.4
127.4
6.1
$121.3
$ 28.9
Non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92.4
As of May 31, 2021, the Company has entered into four lease agreements that have not yet
commenced for terms up to ten years. These leases will require lease payments over their terms of
approximately $13.9 million.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note J — Property and Equipment, Net of Accumulated Depreciation
The components of property and equipment, at cost, consisted of the following:
In millions
May 31,
2021
2020
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software (1)
Furniture, fixtures, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.3
158.3
211.4
748.3
99.8
83.5
50.3
$
10.8
166.5
222.4
690.9
116.3
110.6
47.1
Total property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . .
1,361.9
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
966.1
Property and equipment, net of accumulated depreciation . . . . . . . $ 395.8
1,364.6
957.2
$ 407.4
(1) Software includes both purchased software and costs capitalized related to internally developed software placed in service.
Capitalized costs related to internally developed software that has not yet been placed in service is included in construction
in progress.
Depreciation expense was $123.4 million, $127.8 million, and $125.7 million for fiscal 2021, 2020,
and 2019, respectively. During the three months ended August 31, 2020, the Company disposed of
certain furniture and fixtures associated with abandoned leased property and recorded a loss on
disposal of $5.1 million. The loss was included in selling, general and administrative expenses on the
Consolidated Statements of Income and Comprehensive Income.
Note K — Goodwill and Intangible Assets, Net of Accumulated Amortization
Goodwill and changes in goodwill as of and for the years ended May 31, 2021 and May 31, 2020
were as follows:
In millions
May 31,
2021
2020
Balance, beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,791.1
Changes during the period:
$1,782.6
Goodwill acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition accounting adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment
19.6
—
10.0
4.1
4.5
(0.1)
Balance, end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,820.7
$1,791.1
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The Company had certain intangible assets on its Consolidated Balance Sheets. The components
of intangible assets, at cost, consisted of the following:
In millions
May 31,
2021
2020
Client lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $632.3
24.1
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total intangible assets, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
656.4
Less: Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
380.6
Intangible assets, net of accumulated amortization . . . . . . . . . . . . . . . . $275.8
$618.4
23.3
641.7
311.1
$330.6
During fiscal 2021, the Company acquired customer lists with a weighted-average amortization of
8.9 years.
Amortization expense relating to intangible assets was $68.6 million, $81.9 million, and
$55.8 million for fiscal 2021, 2020, and 2019, respectively.
The Company did not recognize an impairment loss as it relates to its goodwill or intangible assets
during fiscal 2021, 2020, or 2019.
The estimated amortization expense for the next five fiscal years relating to intangible asset
balances is as follows:
In millions
Year ending May 31,
Estimated amortization
expense
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$61.7
57.0
54.1
51.5
30.1
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note L — Income Taxes
The components of deferred tax assets and liabilities are as follows:
In millions
Deferred tax assets:
May 31,
2021
2020
Compensation and employee benefit liabilities . . . . . . . . . . . . . . . . . . $ 53.0
19.8
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Tax credit carry forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.0
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.0
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.6
Net operating loss (“NOL”) carry forwards . . . . . . . . . . . . . . . . . . . . . .
5.3
Tax benefit of uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126.9
Deferred tax liabilities:
Deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue not subject to current taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains on available-for-sale securities . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127.5
49.0
8.9
111.3
26.1
1.9
20.2
344.9
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(218.0)
$ 37.6
8.0
0.2
16.8
34.2
9.7
7.0
0.5
114.0
122.8
45.7
11.4
117.4
29.3
3.7
24.5
354.8
$(240.8)
The deferred tax asset related to NOL carry forward is comprised of $2.2 million of federal NOL
carry forwards and $5.4 million of state NOL carry forwards. The federal NOL carry forwards were
acquired through various acquisitions and expire between the fiscal years ending May 31, 2022 and
May 31, 2037. The state NOL carry forwards expire between the fiscal years ending May 31, 2022
through May 31, 2040.
The components of the provision for income taxes are as follows:
In millions
Current:
Year ended May 31,
2020
2019
2021
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $271.8
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
85.9
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
357.7
$265.5
77.5
$258.2
70.7
343.0
328.9
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21.0)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $336.7
(13.4)
(7.6)
(0.5)
(3.5)
(4.0)
0.7
4.0
4.7
$339.0
$333.6
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is
as follows:
Year ended May 31,
2020
2019
2021
Federal statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0% 21.0% 21.0%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit
. . . . . . . . . . . . . . . . . .
Tax-exempt municipal bond interest . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option windfall benefit
Other items, including adoption of ASC 606 . . . . . . . . . . . . . . . . . . .
4.3% 3.9% 4.3%
(0.3)% (0.4)% (0.5)%
(1.3)% (0.8)% (0.5)%
(0.2)% (0.1)% 0.1%
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5% 23.6% 24.4%
The effective income tax rates in all periods were impacted by recognition of net discrete tax
benefits related to employee stock-based compensation payments. In fiscal 2019, the effective income
tax rate included discrete tax expense for changes in tax reserves and the revaluation of deferred tax
balances for legislative updates.
Uncertain income tax positions: The Company is subject to U.S. federal income tax, numerous
local and state tax jurisdictions within the U.S., and taxes in Europe. The Company maintains a reserve
for uncertain tax positions. As of May 31, 2021 and May 31, 2020, the total reserve for uncertain tax
positions,
federal benefits, was $20.4 million and $26.5 million,
respectively, and was included in long-term liabilities on the Consolidated Balance Sheets.
including interest and net of
A reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax
benefits, not including interest or other potential offsetting effects, is as follows:
In millions
Balance as of beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . $ 26.2
5.5
9.2
—
(15.2)
(3.3)
Balance as of end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22.4
Additions for tax positions of the current year . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . .
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of the statute of limitations . . . . . . . . . . . . . . . . . . . . .
2021
Year ended May 31,
2020
$22.1
4.1
1.2
(0.6)
—
(0.6)
2019
$14.9
3.8
5.2
—
(1.2)
(0.6)
$26.2
$22.1
The reserve as of May 31, 2021 substantially relates to the Company’s uncertain tax positions for
certain state income tax matters. The Company believes the reserve for uncertain tax positions,
including interest and net of federal benefits, of $20.4 million as of May 31, 2021 adequately covers
open tax years and uncertain tax positions up to and including fiscal 2021 for major taxing jurisdictions.
As of May 31, 2021 and May 31, 2020, the entire $20.4 million and $26.5 million, respectively, of
unrecognized tax benefits, including interest and net of federal benefit, if recognized, would impact the
Company’s effective income tax rate.
The Company has concluded all U.S. federal income tax matters through fiscal 2017. With limited
exception, state income tax audits by taxing authorities are closed through fiscal 2014, primarily due to
expiration of the statute of limitations.
The Company continues to follow its policy of recognizing interest and penalties accrued on tax
Income and
income taxes on the Consolidated Statements of
positions as a component of
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Comprehensive Income. The amount of accrued interest and penalties associated with the Company’s
tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties
recognized for fiscal years 2021, 2020, and 2019 was immaterial
to the Company’s results of
operations.
Note M — Short-term Financing
The Company maintains committed and unsecured credit facilities and irrevocable letters of credit
as part of its normal and recurring business operations. The purpose of these credit facilities is to meet
short-term funding requirements, finance working capital needs, and for general corporate purposes.
The Company typically borrows on an overnight or short-term basis on its credit facilities.
Details of the Company’s credit facilities are as follows:
$ in millions
Expiration Date
Maximum
Amount
Available
Amount
Outstanding
May 31,
2021
2020
Credit facilities:
. . . . . . . . . . . . .
JP Morgan Chase Bank, N.A. (“JPM”)(1)
JPM(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PNC Bank, National Association (“PNC”) (weighted-
average interest rate of 1.16% at May 31, 2021(2)
Outstanding short-term financing(3) . . . . . . . . . . . . . . .
(1) JPM acts as the administrative agent for this syndicated credit facility.
July 31, 2024
August 17, 2022
$1,000.0
$ 500.0
$ — $ —
—
—
. . . February 6, 2023
$ 250.0
7.4
5.1
$7.4
$5.1
(2) This agreement replaced the Company’s predecessor four year unsecured $150.0 million credit facility dated March 17,
2016, which was terminated on February 6, 2020.
(3) The total amount available under these credit facilities as of May 31, 2021 was approximately $1.7 billion. Amounts under
the PNC credit facility remain outstanding as of the date of this report.
Upon the expiration date of any credit facility, any borrowings outstanding under that facility will
mature and be payable.
Interest rates on each of the Company’s credit facilities can be based upon (1) an alternate base
rate that is established by the lending institution at the highest of several publicly available interest
rates, plus an applicable interest rate margin, or (2) at our election, the adjusted London Interbank
Offered Rate (“LIBOR”) or an alternate interest rate as determined by the administrative agent, plus an
applicable interest rate margin. The Company is also required to pay a commitment fee, ranging from
0.05% to 0.15%, related to the unutilized portion of each credit
fee is
determined on a sliding-scale basis based upon the Company’s consolidated leverage ratio.
facility. The commitment
the credit
Obligations under
facilities are guaranteed by the Company and certain of
its
subsidiaries. The credit facilities contain financial and operational covenants with which the Company
must maintain compliance. The Company’s ability to borrow under the credit facilities may be restricted
in the event of certain covenant breaches or events of default. In addition, the terms of the credit
facilities could restrict the Company’s ability to engage in certain business transactions. The Company
was in compliance with all these covenants as of May 31, 2021.
Certain lenders under these credit facilities, and their respective affiliates, have performed, and
investment banking,
may in the future perform for the Company, various commercial banking,
underwriting, and other financial advisory services, for which they have received, and will continue to
receive in the future, customary fees and expenses.
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Letters of credit: The Company had irrevocable standby letters of credit outstanding totaling
$180.4 million and $147.9 million as of May 31, 2021 and May 31, 2020, respectively, required to
secure commitments for certain insurance policies. The letters of credit expire at various dates
between June 26, 2021 and July 15, 2022. No amounts were outstanding on these letters of credit
during fiscal 2021 or fiscal 2020, or as of May 31, 2021 and May 31, 2020. Subsequent to May 31,
2021, a $41.2 million letter of credit was cancelled, and letters of credit expiring on June 26, 2021 were
renewed through June 26, 2022.
Note N — Long-term Financing
Long-term debt, at amortized cost, consisted of the following as of:
In millions
May 31,
2021
2020
Senior Notes, Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400.0
400.0
Senior Notes, Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
800.0
Less: Debt issuance costs, net of accumulated amortization . . . . . . . . . . . .
(2.7)
Long-term borrowings, net of debt issuance costs . . . . . . . . . . . . . . . . . $797.3
$400.0
400.0
800.0
(3.2)
$796.8
Certain information related to the Senior Notes, Series A and Senior Notes, Series B (collectively
the “Notes”) issued pursuant to the Note Purchase and Guarantee Agreement (the “Agreement”) for
fiscal 2021 and fiscal 2020 are as follows:
Senior Notes
Series A
Senior Notes
Series B
Stated interest rate . . . . . . . . . . . . . . . . . .
Effective interest rate . . . . . . . . . . . . . . . .
Interest rate type . . . . . . . . . . . . . . . . . . . .
Interest payment dates . . . . . . . . . . . . . . . Semi-annual, in arrears
Principal payment dates . . . . . . . . . . . . . .
Note type . . . . . . . . . . . . . . . . . . . . . . . . . .
March 13, 2026
Unsecured
4.07%
4.15%
Fixed
4.25%
4.31%
Fixed
Semi-annual, in arrears
March 13, 2029
Unsecured
The effective interest rates for each note series includes the interest on the note and amortization
of debt issuance costs.
Proceeds from the Notes were used to pay off $800.0 million in short-term borrowings under the
Company’s JPM credit facilities used to temporarily finance the acquisition of Oasis in fiscal 2019.
Payment of all amounts due with respect to the Notes and performance under the Agreement is
the
guaranteed by the Company, Paychex of New York LLC, and certain other subsidiaries of
Company. The Company may, at its option, prepay at any time all, or any part of, the Notes, subject to
certain conditions as described in the Agreement.
The Agreement contains customary representations, warranties, affirmative and negative
covenants, including financial covenants that are usual and customary for such arrangements. The
Company was in compliance with all these covenants as of May 31, 2021.
Note O — Supplemental Cash Flow Information
Income taxes paid were $421.4 million, $298.8 million, and $317.9 million for fiscal 2021, 2020,
and 2019, respectively.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Interest expense paid was $34.9 million, $38.0 million, and $10.4 million for fiscal 2021, 2020, and
2019, respectively.
Note P — Employee Benefit Plans
401(k) plan: The Company maintains a contributory savings plan that qualifies under
section 401(k) of the Internal Revenue Code. The Paychex, Inc. 401(k) Incentive Retirement Plan (the
“Plan”) allows all employees to immediately participate in the salary deferral portion of the Plan,
contributing up to a maximum of 50% of their salary, subject to Internal Revenue Service limitations.
Employees who have completed one year of service and a minimum of 1,000 hours worked are eligible
to receive a Company matching contribution, when such contribution is in effect. The Company
provides a matching contribution of 100% of the first 3% and 50% on the next 2% of eligible pay for a
total matching contribution of 4%. The Company temporarily suspended its matching contribution
effective July 31, 2020 through December 31, 2020. The Company’s matching contribution was
reinstated on January 1, 2021 at the percentages in effect at the time of the temporary suspension.
Company contributions to the Plan for fiscal 2021, 2020, and 2019 were $19.2 million, $30.1 million,
and $29.3 million, respectively.
The Plan is 100% participant directed. Plan participants can fully diversify their portfolios by
choosing from any or all investment fund choices in the Plan. Transfers in and out of investment funds,
including the Paychex, Inc. Employee Stock Ownership Plan Stock Fund, are not restricted, except for
certain restricted trading periods for individuals designated as insiders as specified in the Company’s
Insider Trading Policy. The Company matching contribution, when in effect, follows the same fund
elections as the employee compensation deferrals.
Deferred compensation plans: The Company and certain subsidiaries offer non-qualified and
unfunded deferred compensation plans to a select group of key employees, executive officers, and
outside directors. Eligible employees are provided with the opportunity to defer up to 50% of their
annual base salary and bonus and outside directors may defer 100% of
their Board cash
compensation. Gains and losses are credited based on the participant’s election of a variety of
investment choices. The Company does not match any participant deferral or guarantee its return.
the participant’s
Distributions are paid at one of
termination date, the date the participant retires from any active employment, or a designated specific
date. The amounts accrued under these plans were $32.6 million and $26.8 million as of May 31, 2021
and May 31, 2020, respectively, and are reflected in other long-term liabilities on the accompanying
Consolidated Balance Sheets.
the following dates selected by the participant:
Note Q — Commitments and Contingencies
Contingencies: The Company is subject to various claims and legal matters that arise in the
normal course of its business. These include disputes or potential disputes related to breach of
contract, tort, employment-related claims, tax claims, statutory, and other matters.
The Company’s management currently believes that resolution of any outstanding legal matters
will not have a material adverse effect on the Company’s financial position or results of operations.
However, legal matters are subject to inherent uncertainties and there exists the possibility that the
ultimate resolution of these matters could have a material adverse impact on the Company’s financial
position and the results of operations in the period in which any such effect is recorded.
Other commitments: As of May 31, 2021, the Company had outstanding commitments under
existing workers’ compensation insurance agreements and legally binding contractual arrangements
with minimum future payment obligations of approximately $345.8 million. The Company also enters
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
into various purchase commitments with vendors in the ordinary course of business and had
outstanding commitments to purchase approximately $7.0 million of capital assets. These minimum
future payment obligations relate to the following fiscal years:
In millions
2022
2023
2024
2025
2026
Thereafter
Workers’ compensation estimated
obligations . . . . . . . . . . . . . . . . . . . . . $65.3
91.0
Purchase obligations . . . . . . . . . . . . . . .
$36.0
46.2
$21.3
17.5
$13.2
8.0
$9.5
—
$37.8
—
Payments due by period
In the normal course of business,
the Company makes representations and warranties that
guarantee the performance of services under service arrangements with clients. Historically, there
have been no material
losses related to such guarantees. The Company has also entered into
indemnification agreements with its officers and directors, which require the Company to defend and, if
necessary, indemnify these individuals for certain pending or future claims as they relate to their
services provided to the Company.
The Company currently self-insures the deductible portion of various insured exposures under
certain corporate employee and PEO employee health and medical benefit plans. The Company’s
estimated loss exposure under these insurance arrangements is recorded in other current liabilities on
the Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were
not material as of May 31, 2021. The Company also maintains insurance coverage in addition to its
purchased primary insurance policies for gap coverage for employment practices liability, errors and
omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity
for deductibles and self-insured retentions through its captive insurance company.
83
Schedule II — Valuation and Qualifying Accounts
PAYCHEX, INC.
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED MAY 31,
(In millions)
Description
2021
Allowance for expected credit
losses . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for client fund losses . . . . . . .
2020
Allowance for expected credit
losses . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for client fund losses . . . . . . .
2019
Allowance for expected credit
losses . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for client fund losses . . . . . . .
Balance as of
beginning
of fiscal year
Additions
charged to
expenses
Additions to/
(deductions from)
other accounts(1)
Costs and
deductions(2)
Balance as
of end
of fiscal year
$12.5
$ —
$ 7.5
$ 2.7
$ 7.0
$ 2.4
$8.0
$3.5
$7.8
$5.2
$3.3
$3.7
$ —
$ —
$ 3.0
$(3.0)
$ 0.7
$ —
$4.5
$3.5
$5.8
$4.9
$3.5
$3.4
$16.0
$ —
$12.5
$ —
$ 7.5
$ 2.7
(1) Amounts related to business acquisitions in fiscal 2019 and the reclassification of the reserve for client fund losses in fiscal
2020.
(2) Uncollectible amounts written off, net of recoveries, and other adjustments.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures: Disclosure controls and procedures are designed with
the objective of ensuring that information required to be disclosed in the Company’s reports filed under
the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the
time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also
designed with the objective of ensuring that such information is accumulated and communicated to the
Company’s management, including the Company’s principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: As of the
end of the period covered by this report, the Company carried out an evaluation, under the supervision
and with the participation of the Company’s principal executive officer and principal financial officer, of
the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of
the Exchange Act. Based on such evaluation, the Company’s principal executive officer and principal
financial officer have concluded that as of May 31, 2021, the end of the period covered by this report,
the Company’s disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting: The Company also carried out an
evaluation of the internal control over financial reporting to determine whether any changes occurred
during the fiscal quarter ended May 31, 2021. Based on such evaluation, there have been no changes
in the Company’s internal control over financial reporting that occurred during the Company’s most
recently completed fiscal quarter ended May 31, 2021, that materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
84
Internal Control Over Financial Reporting: The Report on Management’s Assessment of
Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting
Firm are included in Part II, Item 8 of this Form 10-K.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table shows the executive officers of
the Company as of May 31, 2021, and
information regarding their positions and business experience. Such executive officers hold principal
policy-making powers at the Company.
Name
Age
Position and business experience
Martin Mucci . . . . . . . . . . . . . . . . . .
61
Efrain Rivera . . . . . . . . . . . . . . . . .
64
Mark A. Bottini
. . . . . . . . . . . . . . . .
60
Mr. Mucci has served as President and Chief Executive
the Company since September 2010.
Officer of
Mr. Mucci joined the Company in 2002 as Senior Vice
President, Operations. Prior to joining Paychex, he held
senior level positions with Frontier Communications of
including
Rochester, a telecommunications company,
President of Telephone Operations and Chief Executive
Officer of Frontier Telephone of Rochester, during his
20-year career. Mr. Mucci also serves as a director of
NCR Corporation. Mr. Mucci was a director of Cbeyond,
Inc. until it was purchased by Birch Communications in
July 2014. He is a Trustee Emeritus of St. John Fisher
College. He also serves as a director of the Company
and is chairman of the Executive Committee.
Mr. Rivera joined Paychex in June 2011 as Senior Vice
President, Chief Financial Officer, and Treasurer. Prior
to joining the Company, Mr. Rivera served as Vice
President of Finance and Administration for Houghton
College from 2009 to 2011. He previously served for
over twenty years with Bausch & Lomb Incorporated, a
world leader in the development, manufacture, and
marketing of eye health products, most recently as
Corporate Vice President and Chief Financial Officer
from 2007 to 2009.
Mr. Bottini
joined Paychex in October 2011 as Senior
Vice President of Sales. From 2008 to 2011, Mr. Bottini
served as Vice President of Sales for Ricoh, North
America, a provider of advanced office technology and
innovative document imaging products, services, and
software. He assumed his most recent position with
Ricoh when Ricoh acquired IKON Office Solutions, Inc.
During his nearly 20 years with IKON, Mr. Bottini served
in a variety of sales leadership and field management
roles.
85
Name
Age
Position and business experience
John B. Gibson . . . . . . . . . . . . . . .
55
Michael E. Gioja . . . . . . . . . . . . . . .
63
Karen E. Saunders McClendon . .
55
Stephanie L. Schaeffer . . . . . . . . .
51
Robert L. Schrader
. . . . . . . . . . . .
49
of
to
of
small-
services
outsourcing
Information,
Technology,
Mr. Gibson joined Paychex in May 2013 as Senior Vice
President of Service. Prior to joining the Company,
Mr. Gibson served as President and Chief Executive
Officer for AlphaStaff, a national provider of human
resource
and
medium-sized businesses. Prior to joining AlphaStaff in
2010, Mr. Gibson was President
the HR
Management Division of Convergys, a global leader in
technology, outsourcing, and business services. From
2004 to 2007, he served as Senior Vice President of
Global Operations and Client Services of Convergys.
Mr. Gioja was named Senior Vice President of
Information Technology and Product Development
in
July 2011. Mr. Gioja has been with the Company since
November 2008 and previously served as Senior Vice
President
Product
Management, and Development and Vice President of
Product Management. Previously, he was Chief
Information Officer and Executive Vice President of
Products and Services for Workstream, Inc., a provider
of on-demand enterprise talent management solutions
and services.
Ms. Saunders McClendon joined the Company in April
2021 as Vice President and Chief Human Resources
Officer. Prior to joining the Company, she served as
Vice President of Human Resources for Comcast Cable
from 2013 to 2021. From 2009 to 2013, she served as
Vice President of Human Resources for Aramark.
Ms. Schaeffer was named Vice President and Chief
Legal Officer
In 2011, she was
appointed Corporate Secretary. She joined Paychex in
2000 as Corporate Counsel and was promoted to
Director of Legal Affairs in 2004. In her current role, she
is responsible for overseeing all the Company’s legal
functions,
including litigation, corporate governance,
and regulatory matters.
Mr. Schrader was named Vice President and Controller
in July 2019. He joined the Company in December 2014
and previously held roles as Senior Director of Financial
Planning and Analysis and Director of Internal Audit.
Prior to joining Paychex, he served as a Chief Financial
for Unither Manufacturing, LLC, and held
Officer
senior management positions during his
various
ten-year career at Bausch & Lomb,
including Vice
President of Finance and Controller of Global Quality
and Operations. Previously in his career, he held
leadership roles with a public accounting firm.
in January 2006.
The additional
information required by this item is set forth in the Company’s Definitive Proxy
Statement for its 2021 Annual Meeting of Stockholders, anticipated to be held on or about October 14,
in the sections “MANAGEMENT PROPOSAL 1: ELECTION OF DIRECTORS FOR A
2021,
ONE-YEAR TERM,” “CORPORATE GOVERNANCE,” “DELINQUENT SECTION 16(a) REPORTS,”
and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.
86
Item 11. Executive Compensation
The information required by this item is set forth in the Company’s Definitive Proxy Statement for
its 2021 Annual Meeting of Stockholders, anticipated to be held on or about October 14, 2021, in the
sections “COMPENSATION DISCUSSION AND ANALYSIS,”
“NAMED EXECUTIVE OFFICER
COMPENSATION,” “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED May 31, 2021,”
“THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT” and the sub-heading
“Governance and Compensation Committee Interlocks and Insider Participation” within the section
“CORPORATE GOVERNANCE” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information required by this item is set forth below and in the Company’s Definitive Proxy
Statement for its 2021 Annual Meeting of Stockholders, anticipated to be held on or about October 14,
2021, under the section “BENEFICIAL OWNERSHIP OF PAYCHEX COMMON STOCK,” and is
incorporated herein by reference.
The Company maintains equity compensation plans in the form of stock incentive plans. Under the
Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15, 2020 (the
“2002 Plan”), non-qualified or
restricted stock units,
performance shares, and performance stock options have been awarded to employees and the Board.
The 2002 Plan was adopted on July 9, 2020 by the Board and became effective upon stockholder
approval at the Company’s Annual Meeting of Stockholders held on October 15, 2020. Refer to Note F
of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for more
information on the Company’s stock incentive plans.
incentive stock options,
restricted stock,
The following table details information on securities authorized for issuance upon the exercise of
outstanding options under the Company’s equity compensation plans as of May 31, 2021:
In millions, except per share amounts
Number of
securities to be
issued upon
exercise of
outstanding
options(1)
Weighted-
average
exercise
price of
outstanding
options
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans(2)
Equity compensation plans approved by security holders . . . .
4.3
$62.54
16.4
(1) Amounts include performance stock options granted, assuming achievement of performance goals at target. Actual number
of shares to be earned may differ from the target amount.
(2)
Includes shares available for future issuance through grants of restricted stock units and restricted stock awards under our
2002 Plan. Refer to Note F of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for
more information on the Company’s stock incentive plans.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is set forth in the Company’s Definitive Proxy Statement for
its 2021 Annual Meeting of Stockholders, anticipated to be held on or about October 14, 2021, under
the sub-headings “Board Meetings and Committees,” “Policy on Transactions with Related Persons,”
and “Transactions with Related Persons” within the section “CORPORATE GOVERNANCE,” and is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item is set forth in the Company’s Definitive Proxy Statement for
its 2021 Annual Meeting of Stockholders, anticipated to be held on or about October 14, 2021, under
the section “MANAGEMENT PROPOSAL 3: RATIFICATION OF THE SELECTION OF OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by
reference.
87
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)
1.
Financial Statements, Financial Statement Schedules, and Exhibits
Financial Statements
See Financial Statements and Supplementary Data Table of Contents at page 42.
2.
Financial Statement Schedules
this Form 10-K include
Financial statement schedules required to be filed by Item 8 of
Schedule II — Valuation and Qualifying Accounts. See Financial Statements and Supplementary
Data Table of Contents at page 42. All other schedules are omitted as the required matter is not
present, the amounts are not significant, or the information is shown in the financial statements
or the notes thereto.
3.
Exhibits
(2.1) Stock Purchase Agreement by and among Oasis Outsourcing Acquisition Corporation,
Oasis Outsourcing Group Holdings, L.P., and Paychex North America Inc., incorporated
herein by reference from Exhibit 2.1 to the Company’s Form 10-Q filed with the
Commission on December 21, 2018.
(3)(a) Restated Certificate of Incorporation, incorporated herein by reference from Exhibit 3(a) to
the Company’s Form 10-K filed with the Commission on July 20, 2004.
(3.1) Amended and Restated By-Laws of Paychex, Inc., as of May 1, 2020, incorporated herein
by reference from Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on
May 5, 2020.
(4.1) Form of 4.07% Senior Notes, Series A, of Paychex of New York LLC, due March 13,
2026, incorporated herein by reference from Exhibit 4.1 to the Company’s Form 8-K filed
with the Commission on January 11, 2019.
(4.2) Form of 4.25% Senior Notes, Series B, of Paychex of New York LLC, due March 13,
2029, incorporated herein by reference from Exhibit 4.2 to the Company’s Form 8-K filed
with the Commission on January 11, 2019.
(4.3) Description of Registrant’s Securities, incorporated herein by reference from Exhibit 4.3 to
the Company’s Form 10-K filed with the Commission on July 24, 2019.
(10.1) Paychex, Inc. 2015 Qualified Employee Stock Purchase Plan, incorporated herein by
reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-8,
No. 333-207594.
(10.2) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015), incorporated herein by reference from Exhibit 4.3 to the Company’s Registration
Statement on Form S-8, No. 333-207592.
(10.3) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12,
incorporated
2005) Form of Non-Qualified Stock Option Award Agreement (Officer),
herein by reference from Exhibit 10.19 to the Company’s Form 10-K filed with the
Commission on July 16, 2010.
(10.4) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13,
2010) Form of Non-Qualified Stock Option Award Agreement (Board), incorporated herein
by reference from Exhibit 10.20 to the Company’s Form 10-K filed with the Commission
on July 15, 2011.
(10.5) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Form of Non-Qualified Stock Option and Restricted Stock Award Agreement LTIP,
incorporated herein by reference from Exhibit 10.14 to the Company’s Form 10-K filed
with the Commission on July 22, 2016.
88
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
#
(10.6) Paychex, Inc. Change In Control Plan, incorporated herein by reference from Exhibit
10.24 to the Company’s Form 10-K filed with the Commission on July 15, 2011.
(10.7) Paychex, Inc. Form of Performance Award Incentive Program, incorporated herein by
reference from Exhibit 10.25 to the Company’s Form 10-K filed with the Commission on
July 15, 2011.
(10.8) Form of Indemnity Agreement for Directors and Officers, incorporated herein by reference
from Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on March 28,
2012.
(10.9) Paychex, Inc. Board Deferred Compensation Plan, incorporated herein by reference from
Exhibit 10.29 to the Company’s Form 10-K filed with the Commission on July 20, 2009.
(10.10) Paychex, Inc. Employee Deferred Compensation Plan, incorporated herein by reference
from Exhibit 10.30 to the Company’s Form 10-K filed with the Commission on July 20,
2009.
(10.11) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated October 14, 2015)
Form of Non-Qualified Stock Option Award Agreement, incorporated herein by reference
from Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on July 21,
2017.
(10.12) Paychex Inc. 2002 Stock Incentive Plan (as amended and restated October 14, 2015)
Form of Officer Performance Incentive Award Agreement (Long-Term),
incorporated
herein by reference from Exhibit 10.19 to the Company’s Form 10-K filed with the
Commission on July 21, 2017.
(10.13) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Amendment to Award Agreements, incorporated herein by reference from Exhibit
10.2 to the Company’s Form 8-K filed with the Commission on September 8, 2017.
(10.14) Note Purchase and Guarantee Agreement, dated as of January 9, 2019, by and among
the Company, the Parent, and the respective purchasers thereto, incorporated herein by
reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on
January 11, 2019.
(10.15) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Amended Form of Restricted Stock Unit Award Agreement, incorporated herein by
reference from Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on
October 4, 2019.
(10.16) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Amended Form of Restricted Stock Unit Award Agreement (Officer), incorporated
herein by reference from Exhibit 10.2 to the Company’s Form 10-Q filed with the
Commission on October 4, 2019.
(10.17) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Amended Form of 2019-2021 Performance Incentive Award Agreement,
incorporated herein by reference from Exhibit 10.3 to the Company’s Form 10-Q filed with
the Commission on October 4, 2019.
(10.18) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Amended Form of Non-Qualified Stock Option Award Agreement, incorporated
herein by reference from Exhibit 10.4 to the Company’s Form 10-Q filed with the
Commission on October 4, 2019.
(10.19) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14,
2015) Master Restricted Stock Unit Award Agreement, incorporated herein by reference
from Exhibit 10.5 to the Company’s Form 10-Q filed with the Commission on October 4,
2019.
(10.20) Five-Year Credit Agreement, dated as of July 31, 2019, by and among the Company, the
Parent, and the lender parties hereto, incorporated herein by reference from Exhibit 10.1
to the Company’s Form 8-K filed with the Commission on August 1, 2019.
89
(10.21)
Three-Year Credit Agreement, dated as of February 6, 2020, by and among Paychex
Advance LLC, Paychex Inc., and the lender party thereto,
incorporate herein by
reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on
February 11, 2020.
(10.22)
incorporated herein by
Form of Pooled Plan Provider Indemnification Agreement,
reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on
February 23, 2021.
* #
(10.23)
Paychex,
October 15, 2020).
Inc. 2002 Stock Incentive Plan (as amended and restated effective
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(21.1)
(23.1)
(24.1)
(31.1)
(31.2)
(32.1)
(32.2)
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers
LLP.
Power of Attorney.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
101.INS XBRL instance document.
101.SCH XBRL taxonomy extension schema document.
101.CAL XBRL taxonomy extension calculation linkbase document.
101.LAB XBRL taxonomy label linkbase document.
101.PRE XBRL taxonomy extension presentation linkbase document.
101.DEF XBRL taxonomy extension definition linkbase document.
104
Cover Page Interactive Data File – the cover page interactive data file does not appear
in the Interactive Data File because its XBRL tags are embedded within the Inline
XBRL document.
* Exhibit filed with this report.
# Management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
90
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on July 16, 2021.
SIGNATURES
PAYCHEX, INC.
By: /s/ Martin Mucci
Martin Mucci
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities indicated on July 16,
2021.
/s/ Martin Mucci
Martin Mucci, President and
Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ Efrain Rivera
Efrain Rivera, Senior Vice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)
/s/ Robert L. Schrader
Robert L. Schrader, Vice President and Controller
(Principal Accounting Officer)
B. Thomas Golisano*, Chairman of the Board
Thomas F. Bonadio*, Director
Joseph G. Doody*, Director
David J.S. Flaschen*, Director
Pamela A. Joseph*, Director
Kevin A. Price*, Director
Joseph M. Tucci*, Director
Joseph Velli*, Director
Kara Wilson*, Director
*By: /s/ Martin Mucci
Martin Mucci, as Attorney-in-Fact
91
PAYCHEX, INC.
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
In millions, except per share amounts
Year ended May 31,
Results of operations
Revenue:
2021
2020
2019(1)
2018(1)
2017(1)
Service revenue . . . . . . . . . . . . . . . . . . . . $3,997.5
$3,953.6
$3,691.9
$3,314.2
$3,102.4
Interest on funds held for clients . . . . . . .
59.3
86.9
80.6
63.5
50.6
Total revenue . . . . . . . . . . . . . . . . . . . . . .
4,056.8
Total expenses . . . . . . . . . . . . . . . . . . . . . . .
2,596.1
4,040.5
2,580.0
3,772.5
2,401.2
3,377.7
2,086.2
3,153.0
1,899.1
Operating income . . . . . . . . . . . . . . . . . . . . .
1,460.7
1,460.5
1,371.3
1,291.5
1,253.9
Other (expense)/income, net . . . . . . . . . . . .
(26.5)
(23.4)
(3.3)
8.6
5.2
Income before income taxes . . . . . . . . . . . . $1,434.2
$1,437.1
$1,368.0
$1,300.1
$1,259.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $1,097.5
$1,098.1
$1,034.4
$ 994.1
$ 826.3
Basic earnings per share . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . $
3.05
3.03
$
$
3.06
3.04
$
$
2.88
2.86
$
$
2.77
2.75
$
$
2.30
2.28
Weighted-average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . .
359.9
358.5
359.2
359.0
359.8
Weighted-average common shares
outstanding, assuming dilution . . . . . . . .
362.1
361.0
361.8
361.5
Cash dividends per common share . . . . . . $
2.52
$
2.48
$
2.30
$
2.06
Selected financial data
Purchases of property and equipment
. . . . $ 114.6
$ 127.0
$ 123.8
$ 154.0
362.6
1.84
94.3
$
$
Cash, restricted cash, and total corporate
investments . . . . . . . . . . . . . . . . . . . . . . . . $1,127.3
$1,013.7
$ 779.9
$ 719.7
$ 777.4
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 804.7
$ 801.9
$ 796.4
$
— $
—
Stockholders’ equity . . . . . . . . . . . . . . . . . . . $2,948.0
$2,781.4
$2,619.5
$2,356.8
$2,227.2
Return on stockholders’ equity . . . . . . . . . .
38%
41%
42%
44%
39%
(1)
In fiscal 2019,
Customers.” As a result, amounts have been adjusted to reflect the adoption of the new standard.
the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with
2016
2015
2014
2013
2012
2011
$2,905.8
$2,697.5
$2,478.2
$2,285.2
$2,186.2
$2,036.2
46.1
42.1
40.7
41.0
43.6
48.1
2,951.9
1,805.3
2,739.6
1,686.0
1,146.6
1,053.6
4.5
6.4
2,518.9
1,536.2
982.7
5.4
2,326.2
1,421.4
904.8
6.6
2,229.8
1,375.9
853.9
6.4
2,084.3
1,297.9
786.4
5.8
$1,151.1
$1,060.0
$ 988.1
$ 911.4
$ 860.3
$ 792.2
$ 756.8
$ 674.9
$ 627.5
$ 569.0
$ 548.0
$ 515.3
$
$
$
$
2.10
2.09
$
$
1.86
1.85
$
$
1.72
1.71
$
$
1.56
1.56
$
$
1.51
1.51
$
$
1.42
1.42
360.7
362.9
364.5
363.8
362.4
361.8
362.5
364.6
1.68
$
1.52
97.7
$ 102.8
366.1
1.40
84.1
$
$
364.7
1.31
98.7
$
$
$
$
363.0
362.4
1.27
$
1.24
89.6
$ 100.5
$ 793.2
$ 936.4
$ 936.8
$ 874.6
$ 790.0
$ 671.3
$
— $
— $
— $
— $
— $
—
$1,911.7
$1,785.5
$1,777.0
$1,773.7
$1,604.5
$1,496.2
40%
36%
35%
34%
34%
35%
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STOCKHOLDER INFORMATION
Annual Meeting
The annual meeting of stockholders will be held
virtually Thursday, October
at
10:00 a.m. and may be accessed online at the
following website:
www.virtualshareholdermeeting.com/PAYX2021.
2021
14,
Direct Reinvestment and Stock Purchase
Plan
Stockholders can elect to have some, or all, of
their dividends reinvested, and can make
additional investments in common stock through
American Stock Transfer & Trust Co.
Common Stock
Independent Auditors
The Company’s common stock trades on The
Nasdaq Global Select Market under the symbol
PAYX.
PricewaterhouseCoopers LLP
1200 Bausch & Lomb Place
Rochester, New York 14604-2705
Dividends
Investor Relations
The Company has paid a cash dividend each
quarter since 1988. Dividends are normally paid
in August, November, February, and May. The
future dividends are
level and continuation of
dependent on the Company’s future earnings
and cash flow and are subject to the discretion
of the Board of Directors.
Members of
the financial community and the
media should direct inquiries to Efrain Rivera,
Senior Vice President, Chief Financial Officer,
and Treasurer.
For more information about Paychex Investor
Relations, please contact:
Transfer Agent and Registrar
Please send inquiries, certificates for transfer,
address changes, and dividend reinvestment
and stock purchase requests to:
Paychex Investor Relations
911 Panorama Trail South
Rochester, NY 14625-2396
or call 1-800-828-4411
American Stock Transfer & Trust Co.
6201 15th Avenue
Brooklyn, NY 11219
1-800-937-5449
Paychex,
can be
accessed at https://www.paychex.com/investors
financial materials
Inc.
Locations
Information about our locations throughout the
U.S. and parts of Europe can be accessed at
http://locations.paychex.com
[THIS PAGE INTENTIONALLY LEFT BLANK]
• B. Thomas Golisano
BOARD OF DIRECTORS*
• Martin Mucci
Founder and Chairman of the Board of
Paychex, Inc.
President and Chief Executive Officer of
Paychex, Inc.
• Thomas F. Bonadio
• Joseph M. Tucci
Founder and Senior Counsel of The Bonadio
Group
Co-Founder, Co-Chief Executive Officer, and
Co-Chairman of GTY Technology Holdings, Inc.
• Joseph G. Doody
Former Vice Chairman of Staples, Inc.
• David J. S. Flaschen
Investor and Advisor
• Pamela A. Joseph
Executive Chair of Xplor Technologies
• Joseph M. Velli
Retired Financial Services and Technology
Executive
• Kara Wilson
Senior Advisor at KKR & Co., Inc.
EXECUTIVE LEADERSHIP TEAM*
• Martin Mucci
President and Chief Executive Officer
• Tom Hammond
Vice President, Corporate Strategy and Product
Management
• Efrain Rivera
Senior Vice President, Chief Financial Officer,
and Treasurer
• Michael J. Jeffrey
Vice President, Major Market Sales
• Mark A. Bottini
Senior Vice President, Sales
• John B. Gibson
Senior Vice President, Service
• Theodore J. Jordan, Jr.
Vice President, Service
• Maureen Lally
Vice President, Marketing
• Michael E. Gioja
• Karen E. Saunders McClendon
Senior Vice President, Information Technology
and Product Development
Vice President and Chief Human Resources
Officer
• Teresa Carroll
• Stephanie L. Schaeffer
Vice President, Professional Employer
Organization
Vice President, Chief Legal & Ethics Officer,
and Secretary
• Neal Collins
Vice President, Corporate Development
• Bradley Schaufenbuel
Vice President and Chief Information Security
Officer
• John Connors
• Robert L. Schrader
Vice President, Software Development
Vice President and Controller
• Christopher DeSalvo
Vice President, Service Excellence and
Operations
• Tamara Duncan
Vice President, Small and Mid-sized
Business (SMB) Sales
• Terry Sukalski
Vice President, Human Resource Services Sales
• Jennifer R. Vossler
Vice President and Assistant Treasurer
• Frank Fiorille
Vice President, Risk, Compliance, and
Data Analytics
• Norman (Mick) Whittemore
Vice President, Information Technology,
Enterprise Operations
* as of May 31, 2021
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Paychex by the Numbers
Fiscal 2021
Client growth
710,000+ payroll clients (+4% year-over-year increase)1
Human resources
1.7 million worksite employees supported (+18%)1
Payroll
1 in every 12 U.S. private sector employees paid1
Retirement
1st in 401(k) recordkeeping (96,000 plans)2
Insurance
22nd largest insurance agency in the U.S.3
Paychex Flex® All-in-One HR Technology Platform1
• 95 million mobile sessions
• 22 million check stub views
• 151 million time-punches
• 4 million employee retirement sessions
• 5-star mobile app
1 Data on file
2 Largest 401(k) recordkeeper by number of plans, PLANSPONSOR magazine, 2021
3 Top 100 Brokers of U.S. Business, Business Insurance magazine, 2021
What It Means To Be Paychex
facebook.com/paychex
twitter.com/paychex
linkedin.com/company/paychex
payx.me/report