Redefining
HR in a
Digital World
ANNUAL REPORT | 2023
A Growth Company Driven by
Purpose and Technology
Fiscal 2023 was another successful year of growth and innovation at Paychex. As I committed to you last
October when I became CEO, we have remained focused on the company’s purpose — to help businesses
succeed. Today, we are a technology-driven growth company that is leading the human capital management
(HCM) industry with digital HR technology and advisory solutions that set us apart from the competition.
We have positioned ourselves as a trusted advisor to small and mid-sized businesses as they navigate the
complexity of today’s workforce.
Thanks to the efforts of our more than 16,000 global employees, we achieved record results and are well
positioned for the future. We surpassed $5 billion in revenue, grew adjusted diluted earnings per share (EPS)1
13%, and delivered $1.2 billion in dividends — an 18% increase over FY22 — while continuing to invest in the
growth of our industry-leading businesses.
We continue to help clients simplify their complex HR tasks with our leading digital HR technology and advisory
solutions. This year, our HR solutions and professional employer organization (PEO) grew to serve approximately
2.2 million worksite employees. Our world-class employee benefits offerings also prepare U.S. businesses to
take advantage of the recent SECURE 2.0 Act retirement legislation.
We were our clients’ trusted advisor throughout the COVID-19 pandemic, and they rewarded us with
their loyalty. Thanks to our support, tens of thousands of businesses have filed for tax credits through our
Employee Retention Tax Credit (ERTC) Service.
As we delivered for you and our clients, we also contributed to our communities, building on our reputation
as one of the world’s most admired, ethical, and innovative companies. This year, the Paychex Foundation
funded organizations that support employee well-being — from mental health to physical health, financial
health, and professional skills development. Our employees also
helped us deliver record donations to their local United Way
organizations, and we are continually recognized as a best place to
work for women and diversity.
FY23 was a particularly strong year for Paychex. Our industry-leading
digital HR technology and advisory solutions, vast data assets,
and dedicated employees have made us a leader in our large and
attractive markets — a position we intend to grow in the years ahead.
On behalf of myself and our employees, thank you for your
investment and confidence in Paychex.
John B. Gibson, President and Chief Executive Officer
1 Adjusted diluted EPS is a non-GAAP financial measure. Refer to our fiscal 2023 Annual Report on Form 10-K for further information.
Paychex Annual Report 2023 | 1
$5.0 Billion
Total Revenue
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Total Revenue
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Poly. (Total Revenue)
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2008
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75%
of Net Income Paid to
Shareholders
$5.3+ Billion
Total Returned to
Shareholders3 FY19—FY23
$751 Billion
Total Financial Transactions
Processed for Clients
* For the fiscal year ended May 31.
2 Adjusted operating income is a non-GAAP financial measure that excludes certain one-time costs in fiscal 2021.
3 Dividends and share repurchases.
2 | Redefining HR in a Digital World
$0$2$4$6200820112014201720202023($Billions)*,2
Record Results for Our Clients
and Shareholders
We delivered record results in FY23, demonstrating the success of our investments in digital HR technology and
advisory solutions as well as the dedication of our employees throughout the U.S., Northern Europe, and India.
Total revenue grew 9% year-over-year to a record $5.0 billion, with a market cap of approximately $40 billion as
of May 31, 2023. Adjusted diluted earnings per share also rose 13% to $4.27. We increased our quarterly dividend
by 13% in May 2023, and paid shareholders $1.2 billion during the fiscal year — 75% of our net income. Our
operating margin was 41%, an expansion of 70 basis points over the prior year.
Digital HR Technology Leader
We are well-established as a digital HR technology and advisory
solutions company. Management Solutions revenue increased
8% in FY23 to $3.7 billion and approximately 56% of our total
service revenue was generated from sources beyond payroll,
such as HR solutions, retirement, insurance solutions, and our
professional employer organization (PEO). PEO and Insurance
Solutions revenue grew 6% to $1.2 billion in revenue, while the
number of worksite employees served by our HR solutions and
PEO grew by 10% to 2.2 million.
Trusted Advisor to Our Clients
We helped our clients survive during the COVID-19 pandemic
and thrive as economic conditions improved in FY23. Our client
base has continued growing to approximately 740,000 small to
mid-sized businesses.
Effective and Efficient Operations
Our operational leadership is demonstrated by the continuous
growth of our client base and HCM-industry-best margin of 41%,
derived from $2.0 billion in operating income for FY23 —
a greater than 10% increase from the previous fiscal year.
The Best Years of Paychex Are Yet To Come
Through our leadership in delivering digital HR technology and
advisory solutions, and exceptional client experiences, we will
be able to capitalize on our sizeable total market opportunity.
Paychex Annual Report 2023 | 3
Digital HR Leadership in the HCM Industry
As the economy moves into the post-COVID era, 95% of HR leaders plan to make investments in
HR technology, 76% say they intend to use artificial intelligence (AI), and roughly half plan to retain hybrid
work arrangements in the next 12 months.4
Paychex has anticipated these needs, having steadily increased our investment in digital technology.5
We continue to drive innovation in our growth platforms, leading the smart adoption of AI, data analytics,
software integrations, wearable solutions, voice recognition, and personalization through our
Paychex Flex® digital HR platform.
Growing Adoption
of Paychex Flex5
58%
Increase in HR
Interactions FY21 – FY23
32 Million
Monthly User
Sessions FY23
3 Million
Hired Through
Paychex Flex FY23
Award-Winning Digital HR Solutions
Paychex Retention Insights
Recognized for its innovation and impact on retaining top talent, Paychex Retention
Insights is our proprietary predictive analytics model. It offers Paychex Flex clients
a live, interactive report that identifies risk factors to help predict which of their
employees may resign. Clients have seen a 15% to 20% reduction in turnover
compared to clients that did not use the report.6
Integrated Hiring and Onboarding
Our hiring and onboarding solutions are helping clients fill open positions faster than
the general market through an integrated digital journey, from recruiting to screening,
tracking, and onboarding. Three out of four clients have shortened their hiring cycle,
reporting a time savings of 26% on average — equivalent to cutting two weeks from a
two-month process.5
I can integrate a one-stop shop of payroll, our HR system, and also
our benefit carriers to create a huge efficiency.”
— Morgan Branum, Director — Organizational Development, HR, Compliance, FreeFlight Systems
4 Paychex Pulse of HR Report, 2023.
5 Statistics on file.
6 Among clients that used Paychex Retention Insights between January 2022 and October 2022 and clients that
did not access the live report or employee report during the same timeframe.
4 | Redefining HR in a Digital World
Mason Marketing, a Paychex customer
The Client Impact of Data-Driven Insights
Since Paychex was founded in 1971, we’ve made it easy for clients to use their
own employment data to make informed decisions about their businesses.
Perhaps the most impactful ongoing example of our commitment to provide
data-driven insights is our Employee Retention Tax Credit (ERTC) Service.
When the ERTC was enacted in March 2020, our risk management team
developed a method to help provide the data businesses needed to apply for
the credits. We reached out to our clients as well as businesses in general to help
them apply for the tax credits and refunds they so desperately needed.
Since then, we’ve helped tens of thousands of clients file for retroactive tax
credits. Many of those businesses may have remained open in part due to
our support, and their overall positive contribution to their employees and
communities has had a notable, positive effect on the national economy.
Paychex stays on top of things and advocates for me, the
client, in a way that allowed me to realize I had the ability to
access those (ERTC) funds.”
— Alan Schneider, President, Sweetwater Car Wash
Paychex Annual Report 2023 | 5
68%
of businesses
with in-house
HR are likely
to outsource
HR functions.7
Connecting HR Technology With
Human Experience
Not only did we deliver great results in FY23, we also did it the right way — the
Paychex way — putting our clients at the center of all we do. Whether times are
tough, or business is booming, we provide our clients with digital HR technology and
advisory solutions to help them succeed.
As running a business and managing employees have become more complex,
we’ve simplified how we deliver HR, payroll, and benefits solutions to our clients.
We’re bringing together our digital HR technology and advisory solutions, data
analytics, and tailored service to create purpose-built experiences around our
clients’ changing priorities.
Our technology makes it easier for clients to hire, manage, and pay employees.
It generates data about their business and employees that our dedicated HR
professionals can use to help create specific HR action plans, conduct training, and
connect clients with other members of our support team. Our HR professionals also
work with our compliance specialists to help clients keep up with employment laws
and regulations that could affect their business.
The greatest example of creating exemplary client experiences may be our
professional employer organization (PEO). Paychex HR PEO offers the knowledge
of Paychex HR professionals who can leverage insights uncovered by our
technology. They can also make a personal connection with clients to help meet
their specific challenges, from finding and keeping employees to developing
them and more affordably offering Fortune 500-level benefits, such as a 401(k)
retirement plan or health insurance.
Being able to know that an HR specialist … can work with us on
employee manuals and updates, and have an alert come out to
us automatically if there is a change … that was great.”
— Kevin Hull, CFO, TYR Tactical
7 2023 Paychex Brand Research.
6 | Redefining HR in a Digital World
Our Commitment to Clients, Employees,
and Community
In addition to meeting our commitment to you, our shareholder, we also delivered
in FY23 for our clients, employees, and the communities where we live and work.
Clients. We continue to support them no matter what their business type,
size, or stage of development, during recessions, natural disasters, and the
recent pandemic. When they’re struggling, we help them stay resilient so they
can succeed.
Employees. By offering competitive compensation, benefits, training, and
development opportunities, we keep our employees engaged. This leads to
improved job performance and client service, which helps improve our bottom line,
our value to shareholders, and our ability to support our communities.
Community. The Paychex Foundation supported the important work of national
wellness organizations in FY23 by providing $1 million grants, totaling $4 million,
to Mental Health America, Feeding America, Junior Achievement, and the National
Urban League, while our employees gave $1.2 million, including our matching
corporate contribution, to their local United Way organizations.
We’re also working to improve the natural environment by tracking and reducing
carbon emissions as part of our plan to achieve net-zero greenhouse gas
emissions by 2050. Diversity, equity, and inclusion (DEI) is another major focus
with initiatives from our board and employee groups. Read our 2023 Environmental
Social and Governance Report at go.paychex.com/esg for complete details.
Paychex Annual Report 2023 | 7
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, 2023
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
Securities registered pursuant to Section 12(g) of the Act: None
NASDAQ Global Select Market
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. ‘
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. Í
Accelerated Filer ‘ Non-accelerated Filer ‘
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ‘
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No Í
As of November 30, 2022, 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 $31,621,134,084 based on the closing price reported for such
date on the NASDAQ Global Select Market.
As of June 30, 2023, 360,545,780 shares of the registrant’s common stock, $0.01 par value, were outstanding.
Portions of the registrant’s definitive proxy statement to be issued in connection with its Annual Meeting of Stockholders to be
held on or about October 12, 2023, to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through
14, inclusive.
Documents Incorporated by Reference
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PAYCHEX, INC.
INDEX TO FORM 10-K
For the fiscal year ended May 31, 2023
Description
Page
1
2
12
19
19
20
20
21
22
23
36
39
78
78
78
79
79
80
81
81
81
82
85
86
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
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PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by management of Paychex, Inc. and its wholly owned
subsidiaries (“Paychex,” the “Company,” “we,” “our,” or “us”) may constitute “forward-looking
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 “expect,” “estimate,” “intend,” “intent,” “outlook,” “will,” “would,” “projections,” “strategy,”
“mission,” “anticipate,” “believe,” “could,” “may,” “target,” “potential,” “purpose,” “design,” 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:
(cid:129) our ability to keep pace with changes in technology or provide timely enhancements to our
solutions and support;
(cid:129) software defects, undetected errors, and development delays for our solutions;
(cid:129) the possibility of cyberattacks, security vulnerabilities or Internet disruptions, including data
security and privacy leaks and data loss and business interruptions;
(cid:129) the possibility of failure of our business continuity plan during a catastrophic event;
(cid:129) the failure of third-party service providers to perform their functions;
(cid:129) the possibility that we may be exposed to additional risks related to our co-employment
relationship with our professional employer organization (“PEO”) business;
(cid:129) changes in health insurance and workers’ compensation insurance rates and underlying claim
trends;
(cid:129) risks related to acquisitions and the integration of the businesses we acquire;
(cid:129) our clients’ failure to reimburse us for payments made by us on their behalf;
(cid:129) the effect of changes in government regulations mandating the amount of tax withheld or the
timing of remittances;
(cid:129) our failure to comply with covenants in our debt agreements;
(cid:129) changes in governmental regulations and policies;
(cid:129) our ability to comply with U.S. and foreign laws and regulations;
(cid:129) our compliance with data privacy laws and regulations;
(cid:129) our failure to protect our intellectual property rights;
(cid:129) potential outcomes related to pending or future litigation matters;
1
(cid:129) the impact of macroeconomic factors on the U.S. and global economy, and in particular on our
small- and medium-sized business clients;
(cid:129) volatility in the political and economic environment, including rising inflation;
(cid:129) changes in the availability and retention of qualified people; and
(cid:129) 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, 2023 is
available and accessible on our Paychex Investor Relations portal 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
portal.
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 provider of human capital management (“HCM”) solutions for human resources
(“HR”), payroll, benefits, and insurance for small- to medium-sized businesses and their employees
across the U.S. and parts of Europe. We offer a comprehensive portfolio of HCM technology and HR
advisory solutions that help our clients navigate the evolving challenges of HR.
Paychex was 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, 2023, we served approximately 740,000 payroll and PEO clients.
For any organization, a key function is effective 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 applications. We specialize in helping small- to
medium-sized businesses who do not have the resources or expertise to adapt to the constantly
evolving environment.
Paychex offers a wide range of solutions – including HR outsourcing, HCM technology, payroll
processing, retirement and insurance solutions – 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, coupled with human expertise, to make complex HR,
payroll, and benefits issues simple for our clients. The key features of our solutions are:
(cid:129) Comprehensive cloud-based platform optimized to meet the HR and payroll needs of small- and
medium-sized organizations;
(cid:129) Streamlined workforce management that combines technology with flexible support options;
(cid:129) Modern, mobile, and intuitive user experience and self-service capabilities;
(cid:129) Scalable and customizable platform that allows clients the ability to add services as they grow;
(cid:129) Software as a service, or “SaaS”, delivery model that reduces total cost of ownership for our
clients; and
(cid:129) Expertise in HR and payroll with our technology backed by over 250 compliance experts and
approximately 700 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.
Company Strategy
Our strategy is to be the leading provider of HCM solutions for HR, payroll, benefits, and insurance
by being an essential partner to small- and medium-sized businesses. We believe that successfully
executing this strategy 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 innovative
technology and HR advisory solutions. Key elements of our strategy include:
(cid:129) Providing industry-leading, integrated technology. We continue to invest significantly in our
proprietary, award-winning Paychex Flex® platform and mobility applications to maximize
efficiency and functionality for our clients and their employees.
(cid:129) Delivering superior client experiences. Our flexible and technology-enabled service model
allows us to provide a personalized experience for our clients and their employees. We continue
to invest in artificial intelligence (“AI”) and self-service capabilities to allow clients and their
employees easy, intuitive, and flexible service how, when, and where they want it.
(cid:129) Expanding our leadership in HR. We have a comprehensive suite of value-added HR
solutions for our clients and their employees. Our solutions include industry leading HR
technology with comprehensive HR outsourcing delivered by approximately 700 HR business
professionals. Our unique combination of industry leading HR technology and HR advisory
solutions sets us apart in the industry.
(cid:129) Growing our client base. We believe we operate in a significantly under-penetrated and
growing market, with untapped potential to expand within our current target markets. We have
made substantial investments 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 increasing
our market share across all our solutions.
(cid:129) Engaging in strategic acquisitions. We utilize acquisitions, when appropriate, as a means to
expand our portfolio, enter new markets or increase our scale. We will continue to evaluate and
monitor potential acquisitions and target acquisitions that are in alignment with our overall
strategy.
Our Solutions
Our solutions bring together payroll and HCM software with HR and compliance expertise, along
with flexible, personalized, and technology-enabled support capabilities. Clients have the option of
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doing payroll online using our SaaS technology, outsourcing to our payroll specialists, or using a
combination of these methods. Payroll is 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 support options allows us to meet our clients’ needs how, when, and where they want.
We closely monitor the evolving challenges and needs of small- and medium-sized businesses,
and proactively aid our clients in navigating macroeconomic challenges, legislative changes, and other
complexities they face. In the fiscal year ended May 31, 2023 (“fiscal 2023”), top challenges for
employers were macroeconomic pressures including inflation and interest rates, maintaining sufficient
staffing levels, providing appropriate employee development, keeping technology current, and ensuring
legal and regulatory compliance.
We provide a unique blend of innovative technology solutions, backed by our extensive
compliance and HR expertise, that help customers more effectively hire, engage, train, and retain top
talent in this challenging workforce environment. As businesses operate in a tight labor market, having
an online portal for employee self-service that is intuitive and easy-to-use helps increase employee
retention and efficiency for our customers. We continue to invest in our technology, enhancing our
solutions to continuously improve the customer and employee experiences from hiring and onboarding
through employee retention.
HCM Technology: Paychex Flex is our proprietary HCM SaaS platform that provides seamless
workforce management throughout the employee life cycle from recruiting and hiring to retirement
through 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 customize solutions 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 the HCM suite, which allows full functionality of all application components, regardless of
device or screen size. We believe our Paychex mobile solutions 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.
HR and Compliance Expertise: Paychex supports its HCM software solutions with 50+ years of
experience. We have approximately 700 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 have over 250 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, we leverage embedded AI to assist our clients. Our Paychex Flex Intelligence
Engine allows individual preference on learning style—via written how-to-documents, tutorial-style video
vignettes, or a guided interactive tour. The Paychex Flex Intelligence Engine also includes the Flex
Assistant, a customer service chatbot that can answer questions across thousands of topics and provides
access to over 1,200 instructional resources. At any time, a live Paychex agent is just a click away, with
the entire chat conversation available in real-time to provide a more personalized service experience. The
Flex Assistant consistently handles nearly two-thirds of questions that would otherwise reach a payroll/
HR functionary or a customer service representative, with high satisfaction scores.
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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 select the best solution that meets their needs. 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. We believe client
retention is a useful indicator of client satisfaction with our solutions and support. For fiscal 2023, client
retention was in the range of 82% to 83% 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 support 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 solutions. Both solutions allow users to process payroll when they want, how they want,
and on any device (desktop, tablet, and mobile phone).
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, and
certain PEO 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
it easy to find plans with the features and affordability to meet the client’s needs. Our retirement
services solutions offer many plan design options to meet the client’s requirements, as well as
investment options.
Description of Solutions
Within our HCM solutions we offer a comprehensive portfolio of HCM technology and HR advisory
solutions that allow our clients to meet their diverse HR and payroll needs. Clients can select solutions
on an á la carte basis or as part of various solution 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 solutions is comprised of the following:
Management Solutions:
(cid:129) Payroll processing solutions: Our payroll processing solutions include the calculation,
preparation, and delivery of employee payroll checks; production of internal accounting records
and management reports; preparation of federal, state, and local payroll tax returns; and
collection and remittance of clients’ payroll obligations.
(cid:129) Payroll tax administration solutions: Payroll tax administration solutions provide for accurate
preparation and timely filing of quarterly and year-end tax returns, as well as the electronic transfer
of funds to the applicable federal, state, and local tax or regulatory agencies. In 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
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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.
(cid:129) Employee payment solutions: Our employee payment solutions 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 solution 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.
(cid:129) Regulatory compliance solutions: We offer new-hire reporting solutions, 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 solution provides deductions from employees’ pay, forwards payments
to third-party agencies, including those that require electronic payments, and tracks the
obligations to fulfillment. These solutions 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.
(cid:129) HR solutions: Our ASO offers businesses a combined package that includes payroll,
employer compliance, HR and employee benefits administration, risk management outsourcing,
and both virtual and on-site availability of a professionally trained HR representative, among
other services. Paychex HR Essentials is a lower touch solution that provides support to our
clients over the phone or online to help manage employee-related topics.
(cid:129) Retirement solutions administration: Our retirement solutions line offers a variety of options
to employers, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with
safe harbor provisions, owner-only 401(k) plans, Pooled Employer Plans, profit sharing plans,
and money purchase plans. These solutions 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 include relationships with financial advisors.
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(cid:129) HR administration solutions: We offer cloud-based HR administration software solutions for
employee benefits management and administration, time and attendance reporting, recruiting,
and onboarding. These services include:
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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 businesses 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 solution that manages the employee-benefit enrollment
process for both open-enrollment and life events.
Time and attendance solutions, 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 solutions that streamline, simplify, and drive
the applicant workflow and onboarding process for companies of all sizes.
(cid:129) Other HR solutions and support: 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 unemployment insurance
solutions, which provide clients with prompt processing for all claims, appeals, determinations,
change statements, and requests for separation documents.
(cid:129) Business services: We offer various business solutions for small- to medium-sized businesses.
Our wholly owned subsidiary, Paychex Advance, LLC, provides a portfolio of solutions to the
temporary staffing industry, including payroll funding (via the purchase of accounts receivable)
and outsourcing services, which include payroll processing, invoicing, and tax preparation.
Employee Retention Tax Credit Service, which proactively helps businesses retroactively identify
tax credits available under the COVID-19 Cares Act, based on wages already paid, and file
amended returns to claim the credit. In addition, through partnerships with third-party providers,
we provide clients opportunities for solutions such as payment processing services, financial
programs, and a small-business loan resource center.
PEO and Insurance Solutions:
(cid:129) PEO solutions: Our licensed PEO subsidiaries offer businesses a combined package that
includes payroll, employer compliance, HR and employee benefits administration, risk
management outsourcing, and both virtual and 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
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rewards of certain workers’ compensation insurance and certain health insurance offerings. We
are certified under the Small Business Efficiency Act to provide PEO solutions. We 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 during the COVID-19 pandemic and other economic concerns.
(cid:129) 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, cybersecurity
protection, commercial auto, and health and benefits coverage, including health, dental, vision,
and life. Our insurance solutions 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
and regional insurance carriers, our professional insurance agents have access to a wide
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.
Sales and Marketing
We market and sell our solutions and support 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 solutions. 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 twenty employee space, sales in
areas without a direct sales force presence, and sales of various ancillary solutions.
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.
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 2025. 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
solutions and support, and offers information about our core lines of business: human resources
(www.paychex.com/human-resources), payroll (www.paychex.com/payroll), benefits
(www.paychex.com/employee-benefits), and insurance (www.paychex.com/business-insurance).
Paychex also builds on its reputation as an expert in the HCM industry by providing education and
assistance primarily to businesses and the CPA community. We provide free webinars, podcasts, white
papers, and other information on our website to inform businesses on the impact of regulatory change
as well as HR and business best practices. Paychex WORX, available at www.paychex.com/worx, is a
digital destination for insightful resources useful for businesses at every stage, 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.
We also track current regulatory issues that impact the business community and provide
regulatory updates. We issue small business trend reports through our Paychex | IHS Markit Small
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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.
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 in
the U.S., there are approximately 8 million employer firms in our target markets.
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 solutions 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
areas. We believe that our leading-edge technology and mobility applications, combined with
personalized support provided by industry professionals and our technology-enabled solution
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
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. In fiscal 2023, we
were a signatory to the CEO Action for Diversity & Inclusion pledge, the single largest business-led
initiative to advance DE&I in the workplace. We also created a new DE&I leadership position to ensure
that our efforts in building and sustaining a diverse culture of inclusion are realized.
For detailed information regarding our human capital activities, we encourage investors to visit our
Corporate Responsibility website page at https://www.paychex.com/corporate/corporate-responsibility.
We have also made our Environmental, Social and Governance (“ESG”) report available on our
website. The information contained on our website and in our ESG report is not and should not be
viewed as being incorporated by reference into this Form 10-K.
Our Employees: As of May 31, 2023, we employed approximately 16,600 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.
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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
Accountability
Respect
Innovation
Service
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 2023 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 15 times, and consecutively since 2012.
In addition, we were also recognized by Forbes as a Best Employer for Diversity for 2023.
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 been recognized as one of the
top training organizations in the world with a 2023 Training APEX Award presented by Training
magazine. Paychex ranked number five on the prestigious list for the second year. This is also the
Company’s 22nd consecutive appearance on the list that identifies organizations that excel at training
and employee development.
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
children of employees, and financial education. We are also committed to rewarding employees with
comprehensive and competitive benefits and well-being package which includes 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 2023, compensation-related expenses
accounted for approximately 60% 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, experience better job performance, and can live their lives
more fully outside of work. Our well-being program is a robust program focusing on the physical,
emotional, community, career, and financial health of our employees.
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
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members. Our employees’ financial well-being is equally important, so we have developed programs
for financial education and support. We 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.
In recognizing the ever-growing diversity of our workplace, we annually celebrate Paychex Culture
Day. This is an additional paid day off for employees to celebrate and recognize a holiday that is
significant to them. This is just one of the many ways we celebrate our unique heritages, and it reflects
our Company’s commitment to DE&I and flexibility.
Employee Engagement: We regularly ask our employees to share their views on working at
Paychex through company-wide engagement surveys. 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 businesses 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 year-end bonus payments, additional year-end
services, and the preparation and delivery of end-of year reporting requirements.
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 Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and other SEC filings, as well as any amendments to such reports filed or furnished pursuant
to 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 2023 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.
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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 solutions and support.
The market for our solutions 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 solutions and introduce new solutions in order to keep pace with solutions offered by our
competitors, including the successful utilization of artificial intelligence and machine learning solutions;
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 across internet and mobile
platforms as well as in physical locations may adversely impact our 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.
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 solutions 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 solutions
and errors or delays caused by our solutions 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,
12
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 engage in payment-related fraud or by
more frequently attempting to gain access to our systems through phishing or other means.
Furthermore, security industry experts and government officials have warned about the risks of
hackers and cyberattacks targeting IT products and businesses. Because techniques used to obtain
unauthorized access or sabotage systems change frequently and often are not recognized until
launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures.
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,
retirement account information, payroll information, system and network passwords, and other
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 cyberattack 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 solutions 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
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, either internally or externally, 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
13
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. The speed to closure of significant cybersecurity
incidents may be influenced by the cooperation of governmental or law enforcement agencies. 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, litigation, regulatory
investigation and penalties, loss of clients’ business, unfavorable impact to business reputation, and
there could be a material adverse effect on our business and results of operations.
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 or act of war, 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, floods, snowstorms, and rainstorms and has been successful. However,
these past 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.
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. 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
material interruptions to our operations, impact client relations, and result in significant penalties or
liabilities to us.
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
flux and change 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.
14
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, if at all. 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 solutions and support, 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
customers if our service levels drop during or following the integration process. In addition, an
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, interest costs and debt service requirements for any debt 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.
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.
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.
15
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., 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, employee benefit plan
administration services, and PEO 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. The addition of complex 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 SECURE
Act 2.0, data privacy regulations, and anti-money laundering rules. The growth of our international
operations 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 areas of
payment networks, health care reform and retirement plans 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.
We are required to comply with regulations administered by multi-national bodies and
governmental agencies worldwide including, but not limited to, the economic sanctions and embargo
programs administered by the Office of Foreign Assets Control (“OFAC”), and the Foreign Corrupt
Practices Act (“FCPA”). OFAC places restrictions on the sale or export of certain products and services
to certain countries and persons. 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.
16
Our reputation, results of operations, or financial condition may be adversely
impacted if we fail to comply with data privacy laws and regulations.
Our solutions require the storage and transmission of proprietary and confidential information of
our clients and their employees, including personal or identifying information, as well as geolocation
and biometric data. Certain solutions are enhanced with the use of artificial intelligence and machine
learning. Our solutions are subject to various complex government laws and regulations on the federal,
state, and local levels, including those governing personal privacy, as well as ethical considerations. 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 Privacy Act, as amended. Our European
operations 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 to safeguard proprietary, confidential, and
personal or 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.
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.
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
exploit our intellectual property for their own and others’ advantage. Competitors may also
misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our
technology and solutions. 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.
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.
17
General Risk Factors
Our business, results of operations, and financial condition may be impacted by
macroeconomic and/or political factors of the U.S. and global economy and such
impact could be materially adverse.
We and our clients are subject to the impacts related to inflationary pressure, the recent instability
of the banking environment, and other macroeconomic and/or political events. Banking volatility may
subject us and our clients to losses on uninsured funds and may make equity or debt financing more
difficult to obtain, and additional equity or debt financing might not be available on reasonable terms, if
at all. Additionally, our business is substantially dependent on our clients’ continued use of our
solutions and support, 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 solutions and support 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 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. Additionally,
instability in the banking environment may adversely affect our business. These conditions may impact
our business due to lower transaction volumes or an increase in the number of clients going out of
business. Further, rising inflation may negatively impact our business, raise costs and reduce
profitability. 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 and inflationary pressure. The interest we earn on funds
held for clients and corporate investments may decrease as a result of a decline in funds available to
invest or 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
the highest credit ratings. Historically, we have periodically borrowed against available 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
18
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 and diverse personnel 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 solutions and support, which may have a
material adverse effect on our business.
We are committed to good corporate citizenship, which is reflected in our company culture and
core values. Disclosure of our corporate governance practices including our ESG initiatives, may draw
negative publicity from stakeholders.
Negative publicity relating to events or activities attributed to us, our policies, 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.
Item 2. Properties
We owned and leased the following properties as of May 31, 2023:
Square feet
Owned facilities:
Rochester, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other U.S. locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
832,000
30,000
Total owned facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
862,000
Leased facilities:
Rochester, New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other U.S. locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
90,000
957,000
144,000
Total leased facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191,000
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
centers, fulfillment centers and sales functions. Our international locations primarily house our
European operations in Denmark and Germany and a location in India houses information technology,
service, and sales support functions.
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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 P 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.
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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, 2023, there were 8,698 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 3,317 participants in the Paychex, Inc. Qualified Employee Stock Purchase Plan
and 4,032 participants in the Paychex, Inc. Employee Stock Ownership Plan.
In July 2021, our Board approved a program to repurchase up to $400.0 million of our common
stock with authorization that expires on January 31, 2024. The purpose of this program is to manage
common stock dilution. There were no shares repurchased during fiscal 2023 and $327.1 million
remains available for share repurchases in total under the program.
The following graph shows a five-year comparison of the total cumulative returns of investing $100
on May 31, 2018, in Paychex common stock, the S&P 500 Index, and a Peer Group Index. 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
2018
2019
2020
2021
2022
2023
Fiscal Year Ending May 31
Paychex
S&P 500
Peer Group
May 31,
2018
2019
2020
2021
2022
2023
Paychex . . . . . . . . . . . . . . . . . . . . . $100.00
S&P 500 . . . . . . . . . . . . . . . . . . . . . $100.00
Peer Group . . . . . . . . . . . . . . . . . . . $100.00
$135.05
$103.77
$117.55
$117.46
$117.08
$131.60
$169.33
$164.26
$169.26
$212.24
$163.75
$158.04
$184.89
$168.48
$160.00
21
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 Compensation and Leadership 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 not adjusted for fiscal 2023.
Our Peer Group for fiscal 2023 is comprised of the following companies:
Automatic Data Processing, Inc. (direct competitor) Global Payments Inc.
Bread Financial Holdings, Inc.
Broadridge Financial Solutions, Inc.
Equifax, Inc.
Fiserv, Inc.
FleetCor Technologies, Inc.
Gartner, Inc.
H&R Block, Inc.
Intuit Inc.
Moody’s Corporation
TransUnion
Verisk Analytics, Inc.
The Western Union Company
Item 6. [Reserved]
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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, 2023 (“fiscal 2023” or the “fiscal year”), as
compared to our fiscal year ended May 31, 2022 (“fiscal 2022”), and our financial condition as of
May 31, 2023. A detailed review of our fiscal 2022 performance compared to our fiscal year ended
May 31, 2021 performance and our financial condition as of May 31, 2022 is set forth in Part II, Item 7
of our Annual Report on Form 10-K (“Form 10-K”) for fiscal 2022. 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 provider of integrated human capital management (“HCM”) solutions for human
resources (“HR”), payroll, benefits, and insurance for small- to medium-sized businesses and their
employees across the United States (“U.S.”) and parts of Europe. We offer a comprehensive portfolio of
HCM technology and HR advisory solutions that help our clients address the evolving challenges of HR.
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 support team handle everything for them, or process payroll themselves
utilizing our proprietary, robust Paychex Flex® and SurePayroll® SaaS-based solutions. 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 service and software solutions that will meet the needs of
their business.
Our portfolio of technology, HR advisory, and employee benefits-related solutions is disaggregated
into two categories, (1) Management Solutions and (2) professional employer organization (“PEO”) and
Insurance Solutions, as discussed in Part I, 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 U.S. and parts of Europe. Our
strategy focuses on providing industry-leading, integrated technology; delivering superior customer
experiences; expanding our leadership in HR; growing our client bases; and engaging in strategic
acquisitions. We believe that successfully executing this strategy will lead to strong, long-term financial
performance.
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 that
investing in our solutions, people, and digital capabilities will position us to capitalize on opportunities
for long-term growth.
We closely monitor the evolving challenges and needs of small- and mid-sized businesses, and
proactively aid our clients in navigating these challenges. Through our unique blend of innovative
technology solutions, backed by our extensive compliance and HR expertise, we help clients more
effectively hire, engage, train, and retain top talent in this challenging workforce environment. 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 solutions and support
delivery, resulting in high levels of client satisfaction and retention.
23
Fiscal 2023 Business Highlights
Highlights compared to fiscal 2022 are as follows:
In millions, except per share amounts
Fiscal Year
2023
2022
Change(3)
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,907.3
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,007.1
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,033.1
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
Adjusted net income(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,548.4
4.30
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.27
. . . . . . . . . . . . . . . . . . . . . . . . . $
Adjusted diluted earnings per share(1)
Dividends paid to stockholders(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,175.0
$4,554.0
$4,611.7
$1,840.0
$1,392.8
$1,367.8
3.84
$
3.77
$
$ 999.6
8%
9%
10%
12%
13%
12%
13%
18%
(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 75% of net income for fiscal 2023 compared to approximately
72% of net income for fiscal 2022.
(3) Percentage changes are calculated based on unrounded numbers.
For further analysis of our results of operations for fiscal years 2023 and 2022, and our financial
position as of May 31, 2023, 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 approximately 740,000 and greater than 730,000 clients as
of May 31, 2023 and 2022, respectively. Client retention remained high in the range of 82% to 83% of
our beginning client base for fiscal 2023, compared to approximately 84% for fiscal 2022.
While our HR solution 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
selected HR solution offerings:
As of May 31,
2023
2022
Change(1)
Paychex HR Solutions and PEO client worksite employees . . . . . . 2,168,000
71,000
Paychex HR Solutions and PEO clients . . . . . . . . . . . . . . . . . . . . . .
203,000
Health and benefits services applicants . . . . . . . . . . . . . . . . . . . . . .
113,000
Retirement services plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,977,000
66,000
210,000
104,000
10%
8%
(3)%
9%
(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.
Our fiscal 2023 technology enhancements to our Paychex Flex platform were designed to improve the
client and employee experiences from hiring and onboarding through employee retention.
We have further strengthened 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 (www.paychex.com) 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
24
insurance coverage. Both this website and www.paychex.com/worx have sections dedicated to the
topic of health care reform.
Results of Operations
Summary of Results of Operations for Fiscal Years:
In millions, except per share amounts
2023
2022
Change(1)
Revenue:
Management Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,730.5
1,176.8
PEO and Insurance Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,442.7
1,111.3
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income/(expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,907.3
99.8
5,007.1
2,974.0
2,033.1
15.1
2,048.2
490.9
4,554.0
57.7
4,611.7
2,771.7
1,840.0
(15.4)
1,824.6
431.8
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.0%
23.7%
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
$1,392.8
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.30
$
3.84
8%
6%
8%
73%
9%
7%
10%
n/m
12%
14%
12%
12%
(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:
(cid:129) Management Solutions revenue: $3.7 billion for fiscal 2023, reflecting an increase of 8%:
o
o
Increase in the number of clients and clients’ employees for HCM and worksite
employees for HR Solutions;
Higher revenue per client resulting from pricing realization and product attachment,
including increased demand for HR Solutions, retirement, and time and attendance
solutions; and
o
Continued growth in HCM ancillary services.
(cid:129) PEO and Insurance Solutions revenue: $1.2 billion for fiscal 2023, reflecting an increase of
6%:
o Growth in the number of average PEO worksite employees and increases in average
wages per worksite employee;
o
Higher state unemployment insurance revenue and health insurance premiums; and
o Growth in ancillary services.
(cid:129) Interest on funds held for clients: $99.8 million for fiscal 2023, reflecting an increase of 73%:
o
o
Higher average interest rates, and
Higher average investment balances, partially offset by
25
o
Realized losses on investment sales as we repositioned a portion of our long-term
investment portfolio.
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, 2023, 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,
2022
2023
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,392.7
1,470.9
Corporate cash equivalents and investments . . . . . . . . . . . . . . . . . . .
$4,354.8
1,303.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,863.6
$5,658.1
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.5%
3.3%
1.3%
0.2%
2.7%
1.1%
Total net realized (losses)/gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(9.8)
$
0.2
$ in millions
As of May 31,
2023
2022
Net unrealized losses on available-for-sale (“AFS”) securities(1)
Federal Funds rate(2)
Total fair value of AFS securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,604.6
3.3
. . . . . . . . . . . .
Weighted-average duration of AFS securities in years(3)
2.9%
Weighted-average yield-to-maturity of AFS securities(3) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . $ (175.3)
5.25%
$ (136.3)
1.00%
$4,029.2
3.2
1.9%
(1) The net unrealized loss on our investment portfolios was approximately $198.8 million as of July 12, 2023.
(2) The Federal Funds rate was in the range of 5.00% to 5.25% as of May 31, 2023 and in the range of 0.75% to 1.00% as of
May 31, 2022.
(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
2023
2022
Change(1)
Compensation-related expenses . . . . . . . . . . . . . . . . . . . . . . $1,782.6
416.8
PEO insurance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
176.6
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
598.0
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,632.2
405.2
191.8
542.5
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,974.0
$2,771.7
9%
3%
(8)%
10%
7%
(1) Percentage changes are calculated based on unrounded numbers.
26
The changes in total expenses as compared to the prior year were primarily driven by the following
factors:
(cid:129) Compensation-related expenses: $1.8 billion for fiscal 2023, reflecting a 9% increase:
o
Higher compensation costs due to increases in headcount and average wage rates.
(cid:129) Depreciation and amortization: $176.6 million for fiscal 2023, reflecting a decrease of 8%:
o
Lower amortization expense on intangible assets which use accelerated amortization
methods.
(cid:129) Other expenses: $598.0 million in fiscal 2023, reflecting a 10% increase:
o
Continued investment in product development, technology, and marketing.
Operating income: Fiscal 2023 operating income was $2.0 billion, an increase of 10%
compared to fiscal 2022, as a result of revenue growth outpacing expense increases as previously
discussed. Operating margin (operating income as a percentage of total revenue) was as follows:
Fiscal Year
2023
2022
Operating Margin (operating income as a percentage of total revenue) . . . . . . . . 40.6% 39.9%
Other income/(expense): Other income/(expense) increased $30.5 million to $15.1 million in
fiscal 2023 as a result of higher average interest rates earned on our corporate investments.
Income taxes: Our effective income tax rate was 24.0% and 23.7% for fiscal years 2023 and
2022, respectively. Both periods include the recognition of excess tax benefits related to employee
stock-based compensation payments. The prior year was also impacted by the recording of a tax
benefit related to prior years’ research and development expenses incurred in the production of
customer-facing software. Refer to Note K 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 $1.6 billion and $1.4 billion for
fiscal 2023 and fiscal 2022, respectively. Diluted earnings per share was $4.30 per diluted share for
fiscal 2023 and $3.84 per diluted share for fiscal 2022. 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 $1.5 billion and $1.4 billion for fiscal 2023 and fiscal 2022, respectively,
reflecting an increase of 13%. Adjusted diluted earnings per share(1) was $4.27 per diluted share and
$3.77 per diluted share for fiscal 2023 and fiscal 2022, respectively, reflecting an increase of 13%.
(1) 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 net income and diluted earnings per share.
27
Non-GAAP Financial Measures: Adjusted net income, adjusted diluted earnings per share, and
earnings before interest, taxes, depreciation, and amortization (“EBITDA”) are summarized as follows:
$ in millions
2023
2022
Change(1)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
Non-GAAP adjustments:
$1,392.8
12%
Excess tax benefit related to employee stock-based
compensation payments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit derived from research and development costs (3) . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8.9)
—
(8.9)
(18.9)
(6.1)
(25.0)
Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,548.4
$1,367.8
Diluted earnings per share(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-GAAP adjustments:
4.30
$
3.84
Excess tax benefit related to employee stock-based
compensation payments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit derived from research and development costs (3) . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.02)
—
(0.02)
(0.05)
(0.02)
(0.07)
Adjusted diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.27
$
3.77
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
Non-GAAP adjustments:
$1,392.8
Interest (income)/expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expense . . . . . . . . . . . . . . . . . . . . . .
Total non-GAAP adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12.4)
490.9
176.6
655.1
33.7
431.8
191.8
657.3
13%
12%
13%
12%
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,212.4
$2,050.1
8%
(1) Percentage changes are calculated based on unrounded numbers.
(2) 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.
(3) Non-recurring tax benefit derived from prior years’ research and development costs incurred in the production of customer-
facing software.
(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.
In addition to reporting net income and diluted earnings per share, which are U.S. GAAP
measures, we present adjusted net income, adjusted diluted earnings per share, and EBITDA, which
are non-GAAP measures. We believe these additional measures are indicators of our core business
operations performance period over period. Adjusted net income, adjusted diluted earnings per share,
and 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 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.
28
Liquidity and Capital Resources
Our financial position as of May 31, 2023 remained strong with cash, restricted cash, and total
corporate investments of $1.6 billion. Total short-term and long-term borrowings, net of debt issuance
costs, were $808.4 million as of May 31, 2023. Our primary source of cash is our ongoing operations.
Cash flows from operations were $1.7 billion for fiscal 2023. Our positive cash flows for fiscal 2023
allowed us to support our business and pay dividends of approximately $1.2 billion. We currently
anticipate that cash, restricted cash, and total corporate investments as of May 31, 2023, 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, 2023 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.
Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this 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, 2023
Outstanding
Amount
Available
Amount
JP Morgan Chase Bank, N.A. (“JPM”)
JPM
PNC Bank, National Association (“PNC”)
July 31, 2024 $1,000.0
September 17, 2026 $ 750.0
February 6, 2026 $ 250.0
$ —
—
10.2
$1,000.0
750.0
239.8
Total Lines of Credit Outstanding and
Available
$10.2
$1,989.8
Amounts outstanding under the PNC credit facility as of May 31, 2023 remain outstanding as of
the date of this report.
Details of borrowings under each credit facility during the fiscal years ended 2023 and 2022 were
as follows:
$ in millions
Year ended May 31, 2023
Credit Facility
$750 Million
JPM
$250 Million
PNC
$1 Billion
JPM
Number of days borrowed . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount borrowed . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average amount borrowed . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . .
—
$ —
$ —
—
$ —
$ —
365
$10.6
$10.0
—%
—%
4.81%
29
$ in millions
Year ended May 31, 2022
Credit Facility
$750 Million
JPM
$250 Million
PNC
$1 Billion
JPM
Number of days borrowed . . . . . . . . . . . . . . . . . . . . . . . . .
Maximum amount borrowed . . . . . . . . . . . . . . . . . . . . . . .
Weighted-average amount borrowed . . . . . . . . . . . . . . . .
Weighted-average interest rate . . . . . . . . . . . . . . . . . . . . .
—
$ —
$ —
—
$ —
$ —
365
$106.5
$ 8.5
—%
—%
1.36%
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.
On February 3, 2023, we and Paychex Advance LLC, a Paychex subsidiary and New York limited
liability company, entered into Amendment No. 2 (the “Amendment”) to the $250 million, three-year,
unsecured, revolving credit facility established on February 6, 2020 (the “2020 Credit Facility”) for
which PNC Bank, N.A. acts as administrative agent.
The Amendment, among other things, extended the maturity date of the 2020 Credit Facility from
February 6, 2023 to February 6, 2026 at which time all borrowings thereunder will terminate. Except for
extending the maturity date and making ministerial changes to the 2020 Credit Facility, the Amendment
did not change the existing terms of the 2020 Credit Facility.
Subsequent to May 31, 2023, there were no additional overnight borrowings under our PNC and
JPM credit facilities.
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 determine 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, 2023, we had irrevocable standby letters of credit available
totaling $141.7 million, required to secure commitments for certain insurance policies. The letters of
credit expire at various dates between June 9, 2023 and May 25, 2024. No amounts were outstanding
on these letters of credit during fiscal 2023 or fiscal 2022, or as of May 31, 2023 and May 31, 2022.
Subsequent to May 31, 2023, letters of credit expiring on June 9, 2023, June 15, 2023, and June 26,
2023 were renewed for one year terms.
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 is 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%
4.14%
Fixed
4.25%
4.31%
Fixed
Semi-annual, in arrears
March 13, 2029
Unsecured
Refer to Note M of the Notes to Consolidated Financial Statements contained in Item 8 of this
Form 10-K for further discussion on our long-term financing.
30
Other commitments: The Company has various long-term contractual obligations as of May 31,
2023, which include:
(cid:129) operating leases for $81.7 million;
(cid:129) purchase obligations for $228.9 million;
(cid:129) workers’ compensation estimated obligations for $195.8 million; and
(cid:129) long-term Senior Notes debt obligations for $800.0 million, plus interest payments of
150.8 million.
Refer to Notes A, H, M, and P 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, including interest and net of federal benefits, was
approximately $69.4 million as of May 31, 2023. Refer to Note K 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.
We are a limited partner in three venture capital fund arrangements and have committed to
contribute a maximum amount of $30.0 million for investment in equity and debt securities of start-up
entities primarily in the financial technology sector. As of May 31, 2023, we have contributed
$22.2 million of the total funding commitment. The timing of future contributions to be made to these
venture capital funds cannot be specifically or reasonably determined. Our investments in these
venture capital funds are not considered part of our ongoing operations, are accounted for under the
equity method, and represented less than one percent of our total assets as of May 31, 2023.
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,
2023. 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 retention through our captive insurance company.
Operating, Investing, and Financing Cash Flow Activities
In millions
Year ended May 31,
2022
2023
Change
Net cash provided by operating activities . . . . . . . . . . . . . . $1,699.4
218.5
Net cash provided by/(used in) investing activities . . . . . .
(711.4)
Net cash used in financing activities . . . . . . . . . . . . . . . . . .
$ 1,505.5
(1,420.9)
(979.3)
$ 193.9
1,639.4
267.9
Net change in cash, restricted cash, and equivalents . . . . $1,206.5
$ (894.7)
$2,101.2
Cash dividends per common share . . . . . . . . . . . . . . . . . . . $
3.26
$
2.77
31
The changes in our cash flows for fiscal 2023 and fiscal 2022 were primarily the result of the
following key drivers:
Operating Cash Flow Activities
(cid:129) Higher net income attributable to the reasons discussed in the “Results of Operations” section of
this Item 7;
(cid:129) Changes in funding for temporary staffing clients, offset by
(cid:129) Change in accrued income taxes as a result of the impacts of higher cumulative quarterly tax
payments and higher income tax expense related to higher taxable income and effective tax
rates over the prior year.
Investing Cash Flow Activities
(cid:129) Increase in the net proceeds from the sales of AFS securities;
(cid:129) Increase in proceeds received from the sales of buildings and furniture and fixtures; and
(cid:129) Decrease in cash payments for the acquisitions of businesses.
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 2023 and fiscal 2022 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
(cid:129) Increase in cash inflows from changes in client fund obligations due to the timing of collections
and remittances of client funds; and
(cid:129) Decrease in cash payments for repurchases of common shares. There were no shares
repurchased during fiscal 2023 compared to 1.2 million for $145.2 million during fiscal year 2022;
offset by
(cid:129) Increase in dividends paid of $175.4 million compared to the prior year period due to an increase
in our aggregate annual dividends from $2.77 per share to $3.26 per share. The payment of
future dividends is dependent on our future earnings and cash flow and is subject to the
discretion of our Board; and
(cid:129) Change in cash activity related to equity-based plans primarily due to a decrease in the number
of stock options exercised during fiscal 2023 when compared with fiscal 2022.
The client fund obligations liability will also vary based on the timing of collecting client funds and
the related required remittance of funds to applicable tax or regulatory agencies for payroll tax
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.
Other
Recently issued accounting pronouncements: Refer to Note A of the Notes to Consolidated
Financial Statements contained in Item 8 of this Form 10-K for a discussion of recently issued
accounting pronouncements.
32
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: 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
when control of the contracted services is transferred to our clients, in an amount that reflects the
consideration we expect to receive in exchange for such services. 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 41 to 44 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
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. We 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,
33
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, 2023 or May 31, 2022.
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’ job responsibilities, the historical frequency and severity of workers’
compensation claims, and an estimate of future cost 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.
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 accepted actuarial methods and assumptions, 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. 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 2023 or 2022.
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 a reporting unit. We
perform our annual impairment testing in our fiscal fourth quarter. During fiscal 2023, a qualitative
analysis was performed for all reporting units. During fiscal 2022, a qualitative assessment was
performed for our Paychex, Inc., excluding Purchased Receivables, reporting unit, and a quantitative
assessment was performed on the Purchased Receivable reporting unit 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 our testing, no impairment loss was recognized in
34
the results of operations for fiscal 2023 or 2022. 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 2023 or 2022 as a result of the qualitative
analyses performed.
Impairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite
lives and operating lease right-of-use (“ROU”) 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 2023 or as
of May 31, 2023.
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 E 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.
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 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. 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.
35
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 K 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 are 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;
corporate bonds; U.S. government agency securities; and VRDNs. 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 2023, our primary short-term investment vehicles were bank demand deposit
accounts, VRDNs and U.S. government agency discount notes. 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 2023, the average interest rate earned on our combined funds held for clients and
corporate cash equivalents and investment portfolios was 2.7%, compared to 1.1% for fiscal 2022.
When interest rates are rising, the full impact of higher interest rates will not immediately be reflected in
net income due to the interaction of short- and long-term interest rate changes. During a rising interest
rate environment, earnings will increase from our short-term investments, and over time, will increase
from our longer-term AFS securities. Earnings from the AFS securities, which as of May 31, 2023 had
an average duration of 3.3 years, would not reflect increases in interest rates until the investments are
sold or mature and the proceeds are reinvested at higher rates.
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2023
are shown below by expected maturity.
In millions
Maturity date:
May 31, 2023
Amortized
cost
Fair
value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186.4
829.4
Due after one year through three years . . . . . . . . . . . . . . . . . . . . . . . .
1,953.7
Due after three years through five years . . . . . . . . . . . . . . . . . . . . . . .
810.4
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 184.1
789.6
1,843.5
787.4
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,779.9
$3,604.6
36
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.
As of May 31, 2023 and 2022, the Federal Funds rate was in the range of 5.00% to 5.25% and in
the range of 0.75% to 1.00%, respectively. 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 concerns over inflation risk and the
failure of financial institutions. We continue to monitor market conditions and take appropriate
measures to manage our investment portfolios.
Calculating the future effects of changing interest rates involves many factors. These factors
include, but are not limited to:
(cid:129) governmental action to address inflation;
(cid:129) daily interest rate changes;
(cid:129) seasonal variations in investment balances;
(cid:129) actual duration of short-term and AFS securities;
(cid:129) the proportion of taxable and tax-exempt investments;
(cid:129) changes in tax-exempt municipal rates versus taxable investment rates, which are not
synchronized or simultaneous; and
(cid:129) 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 $4.0 million to $4.5 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 $5.9 billion for fiscal 2023. 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 losses of $175.3 million and $136.3 million as of May 31, 2023 and 2022, respectively.
Refer to Note G of the Notes to Consolidated Financial Statements contained in Item 8 of this Form
10-K for additional disclosures on fair value measurements.
During fiscal 2023, the net unrealized loss on our investment portfolios ranged from $126.5 million
to $263.6 million. During fiscal 2022, the net unrealized loss or gain on our investment portfolios
ranged from a $156.3 million net unrealized loss to a $89.2 million net unrealized gain. The net
unrealized loss on our investment portfolios was approximately $198.8 million as of July 12, 2023.
As of May 31, 2023 and 2022, we had $3.6 billion and $4.0 billion, respectively, invested in AFS
securities at fair value. The weighted-average yield-to-maturity was 2.9% and 1.9% as of May 31, 2023
and 2022, respectively. 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, 2023, 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
37
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.
We are also exposed to interest rate risk through the use of our credit facilities as outlined in
Liquidity and Capital Resources section of this Form 10-K. If interest rates were to increase, or we
increase the frequency or amounts borrowed under these credit facilities, we could experience
additional interest expense and a corresponding decrease in earnings.
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, 2023 were not impaired as a
result of the previously discussed reasons. While $2.7 billion 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 $179.4 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, 2023 and 2022 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
among 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.
Market risk: The U.S. banking market has recently experienced increased volatility as a result of
several highly publicized distressed or closed banks, the most significant of these being Silicon Valley
Bank. We have an ongoing monitoring system for financial institutions we conduct business with and
maintain cash balances at large well-capitalized (as defined by their regulators) financial institutions.
We continue to closely monitor this situation and take appropriate measures, when necessary, to
minimize potential risk exposure to our clients’ and our cash and investment balances. We have not
realized any losses as a result of this increased market volatility.
38
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 (PCAOB ID 238)
. . . . . . . . . . . . . . . . .
Consolidated Statements of Income and Comprehensive Income for the Years Ended
May 31, 2023, 2022, and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of May 31, 2023 and 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2023, 2022,
and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the Years Ended May 31, 2023, 2022, and 2021 . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, 2023, 2022,
Page
40
41
44
45
46
47
48
and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78
39
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, 2023. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control — Integrated
Framework” (2013). Based on our assessment, management determined that the Company
maintained effective internal control over financial reporting as of May 31, 2023.
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, 2023, 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/
John B. Gibson
John B. Gibson
President and Chief Executive Officer
/s/ Efrain Rivera
Efrain Rivera
Senior Vice President and Chief Financial
Officer
40
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, 2023 and 2022, 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, 2023, 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, 2023,
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, 2023 and 2022, and the results of its
operations and its cash flows for each of the three years in the period ended May 31, 2023 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, 2023, based on criteria established in Internal Control — Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for
maintaining effective internal control over financial reporting, and for its assessment of the
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.
Definition and Limitations of Internal Control over Financial Reporting
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
41
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the
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, 2023, the total liability for workers’
compensation insurance reserves is $195.8 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’ job responsibilities, the historical frequency and severity of workers’
compensation claims, and an estimate of future cost trends. 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 was significant judgment used
by management in determining the workers’ compensation insurance 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 factors and other
factors such as the historical 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 knowledges.
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’
compensation insurance reserves, including controls over the development of management’s
assumptions and actuarial estimates related to the loss development factors. These procedures also
42
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 14, 2023
We have served as the Company’s auditor since 2013.
43
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
In millions, except per share amounts
PAYCHEX, INC.
Year ended May 31,
Revenue:
2023
2022
2021
Management Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,730.5
1,176.8
PEO and Insurance Solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,442.7
1,111.3
$3,023.4
974.1
Total service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,907.3
99.8
4,554.0
57.7
3,997.5
59.3
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,007.1
4,611.7
4,056.8
Expenses:
Cost of service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
1,453.0
1,521.0
1,356.3
1,415.4
1,271.2
1,324.9
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,974.0
2,771.7
2,596.1
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income/(expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,033.1
15.1
2,048.2
490.9
1,840.0
(15.4)
1,824.6
431.8
1,460.7
(26.5)
1,434.2
336.7
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
$1,392.8
$1,097.5
Other comprehensive loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . . .
(26.0)
(185.7)
(4.7)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,531.3
$1,207.1
$1,092.8
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted-average common shares outstanding . . . . . . . . . . . . .
Weighted-average common shares outstanding,
4.32
4.30
360.4
$
$
3.86
3.84
360.6
$
$
3.05
3.03
359.9
assuming dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
362.3
363.1
362.1
See Notes to Consolidated Financial Statements.
44
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
In millions, except per share amounts
As of May 31,
2023
2022
Assets
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PEO unbilled receivables, net of advance collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,222.0
49.8
373.4
24.4
873.3
528.5
48.1
289.8
Current assets before funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,409.3
4,118.8
7,528.1
—
3.8
396.3
61.5
187.4
1,834.0
470.1
65.2
$ 370.0
50.3
853.9
22.3
723.8
572.1
34.0
272.3
2,898.7
3,682.9
6,581.6
25.5
5.0
401.3
78.7
224.6
1,831.5
433.3
53.7
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,546.4
$9,635.2
Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued corporate compensation and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued worksite employee compensation and related items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84.7
209.9
763.9
10.2
47.3
395.4
1,511.4
4,294.0
5,805.4
83.0
112.1
798.2
57.3
197.2
$ 105.7
225.4
683.4
8.7
38.4
388.4
1,450.0
3,819.2
5,269.2
58.1
165.5
797.7
74.8
184.7
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,053.2
6,550.0
Commitments and contingencies — Note P
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding:
360.5 shares as of May 31, 2023 and 359.9 shares as of May 31, 2022 . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6
1,626.4
2,023.1
(159.9)
3.6
1,545.9
1,669.6
(133.9)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,493.2
3,085.2
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,546.4
$9,635.2
See Notes to Consolidated Financial Statements.
45
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
In millions, except per share amounts
Common stock
Shares Amount
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income/(loss)
Balance as of May 31, 2020 . . . . . . . . . . . . . . . 358.8
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) . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared ($2.52 per share)
. . . . . . . .
Repurchases of common shares(2) . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
. . . . . .
Foreign currency translation adjustment
Activity related to equity-based plans . . . . . . . . .
—
—
(1.7)
—
—
2.7
Balance as of May 31, 2021 . . . . . . . . . . . . . . . 359.8
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unrealized losses on securities, net of
$53.1 million in tax benefit . . . . . . . . . . . . . . . .
—
Reclassification adjustment for realized
gains on securities, net of $0.1 million in
tax expense(1) . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . .
Dividends declared ($2.77 per share)
Repurchases of common shares(2) . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
. . . . . .
Activity related to equity-based plans . . . . . . . . .
—
—
(1.2)
—
—
1.3
Balance as of May 31, 2022 . . . . . . . . . . . . . . . 359.9
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Unrealized losses on securities, net of
$12.2 million in tax benefit . . . . . . . . . . . . . . . .
—
Reclassification adjustment for realized
losses on securities, net of $2.5 million in
tax benefit(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends declared ($3.26 per share)
. . . . . . . .
Repurchases of common shares(2) . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment
. . . . . .
Activity related to equity-based plans . . . . . . . . .
—
—
—
—
—
0.6
$3.6
—
$1,289.9 $ 1,431.4
— 1,097.5
$ 56.5
—
Total
$ 2,781.4
1,097.5
—
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
—
3.6
—
—
—
—
—
—
—
0.0
—
—
(14.7)
(14.7)
—
—
(3.1)
52.5
—
107.4
—
(908.7)
(152.6)
—
—
(21.7)
1,446.7
1,445.9
— 1,392.8
(0.9)
—
—
—
10.9
—
51.8
—
(0.9)
(908.7)
(155.7)
52.5
10.9
85.7
2,948.0
1,392.8
—
—
(162.3)
(162.3)
—
—
— (1,000.1)
(140.0)
—
—
(29.0)
(5.2)
52.8
—
51.6
(0.1)
—
—
—
(23.3)
—
1,545.9
1,669.6
— 1,557.3
(133.9)
—
(0.1)
(1,000.1)
(145.2)
52.8
(23.3)
22.6
3,085.2
1,557.3
—
—
(36.6)
(36.6)
—
—
— (1,175.5)
—
—
—
62.6
—
—
(28.3)
17.9
7.4
—
—
—
3.2
—
7.4
(1,175.5)
—
62.6
3.2
(10.4)
Balance as of May 31, 2023 . . . . . . . . . . . . . . . 360.5
$3.6
$1,626.4 $ 2,023.1
$(159.9)
$ 3,493.2
(1) Reclassification adjustments out of accumulated other comprehensive income/(loss) for realized (losses)/gains, net of tax,
on the sale of available-for-sale (“AFS”) securities are reflected in interest on funds held for clients and other income/
(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
January 31, 2024. The Company maintained a separate program to repurchase up to $400.0 million of its common stock
through May 31, 2022, which was repurchased before the program expired. The purpose of these programs is to manage
common stock dilution. All shares of common stock repurchased were retired.
See Notes to Consolidated Financial Statements.
46
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In millions
Year ended May 31,
2023
2022
2021
Operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,557.3
Adjustments to reconcile net income to net cash provided by operating
$ 1,392.8
$ 1,097.5
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of premiums and discounts on AFS securities, net
. . . . . .
Amortization of deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Benefit from)/provision for deferred income taxes . . . . . . . . . . . . . . . . . .
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized losses/(gains) on sales of AFS 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 . . . . . .
176.6
18.2
219.1
62.6
(44.0)
17.7
9.8
(2.1)
(123.6)
(17.8)
67.4
(269.4)
31.9
(4.3)
191.8
28.9
202.1
52.8
2.3
10.5
(0.2)
2.1
(277.0)
(7.7)
151.8
(267.1)
26.3
(3.9)
192.0
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)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . .
1,699.4
1,505.5
1,260.3
Investing activities
Purchases of AFS securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales and maturities of AFS securities . . . . . . . . . . . . . . . .
Purchases of property and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . .
Acquisition of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . .
Purchases of other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,585.3)
14,943.2
(143.0)
16.7
(2.7)
(10.4)
(17,807.7)
16,554.9
(133.8)
1.2
(24.9)
(10.6)
(6,089.7)
5,771.9
(118.4)
3.8
(19.5)
(8.7)
Net cash provided by/(used in) investing activities . . . . . . . . . . . . . . . .
218.5
(1,420.9)
(460.6)
Financing activities
Net change in client fund obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchases of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration paid for acquisitions . . . . . . . . . . . . . . . . . . . . . . .
Activity related to equity-based plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
474.8
2.0
(1,175.0)
—
(2.8)
(10.4)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(711.4)
143.2
1.3
(999.6)
(145.2)
(1.6)
22.6
(979.3)
340.0
2.3
(908.7)
(155.7)
—
85.7
(636.4)
Net change in cash, restricted cash, and equivalents . . . . . . . . . . . . . .
. . . . . . . .
Cash, restricted cash, and equivalents, beginning of fiscal year
1,206.5
928.4
(894.7)
1,823.1
163.3
1,659.8
Cash, restricted cash, and equivalents, end of fiscal year . . . . . . . . . . $ 2,134.9
Reconciliation of cash, restricted cash, and equivalents
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,222.0
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49.8
Restricted cash and restricted cash equivalents included in funds
held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
863.1
$
$
928.4
$ 1,823.1
370.0
75.8
482.6
$
995.2
88.3
739.6
Total cash, restricted cash, and equivalents . . . . . . . . . . . . . . . . . . . . . . $ 2,134.9
$
928.4
$ 1,823.1
See Notes to Consolidated Financial Statements.
47
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 provider of integrated human capital management (“HCM”)
solutions for human resources (“HR”), payroll, benefits, and insurance for small- to medium-sized
businesses in the United States (“U.S.”) and parts of Europe. The Company also has operations in
India.
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, 2023 (“fiscal 2023”),
May 31, 2022 (“fiscal 2022”), and May 31, 2021 (“fiscal 2021”). Long-lived assets in Europe were
approximately 6% of total long-lived assets of the Company as of May 31, 2023 and 2022. Long-lived
assets in India were less than 1% of total long-lived assets of the Company as of May 31, 2023 and
2022.
Within Paychex’s HCM solutions, the Company offers a comprehensive portfolio of HCM
technology and HR advisory solutions that help our clients address the evolving challenges of HR.
Clients may choose to have our support teams handle everything for them, or select services on an á
la carte basis or as part of various solution 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 solutions. Both
solutions 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.
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 the
Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been
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.
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
employee payrolls and associated payroll taxes. $291.3 million and $89.7 million collected from PEO
clients are included in cash and cash equivalents on the Company’s Consolidated Balance Sheets as
of May 31, 2023 and 2022, 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 to secure
commitments for certain workers’ compensation insurance policies.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Accounts receivable, net of allowance for credit losses: Accounts receivable balances are
shown on the Consolidated Balance Sheets net of the allowance for credit losses of $20.5 million and
$18.2 million as of May 31, 2023 and 2022, 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 $287.0 million and $123.2 million as
of May 31, 2023 and 2022, respectively. Purchased receivables were $606.8 million and $618.8 million
as of May 31, 2023 and 2022, respectively.
The Company is exposed to credit losses through the sale of its solutions and support, 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 solutions
and support. 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 credit losses 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
credit losses and accounts written off were not material for the fiscal years ended May 31, 2023, 2022
and 2021, respectively. No single client had a material impact on total accounts receivable as of
May 31, 2023 or 2022. No single client had a material impact on service revenue or results of
operations for the fiscal years ended May 31, 2023, 2022 and 2021.
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 federal and 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,
2023 and 2022, advance collections were $12.5 million and $2.6 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 or loss 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
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 income/(expense), net, respectively.
Concentrations: Substantially all the Company’s deposited cash is maintained at large well-
capitalized (as defined by their regulators) financial institutions. These deposits may exceed the
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.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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
Software
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
3 to 12 years
Normal and recurring repairs and maintenance costs are charged to expense as incurred. The
Company reviews the carrying value of property and equipment for impairment when events or
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
useful lives, which are generally 3 to 5 years. Software developed as part of the Company’s main
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. During fiscal 2023 and fiscal 2021, a qualitative analysis was performed on all reporting units
to determine if it is more-likely-than-not that the fair value of the reporting units had declined below
their carrying value. During fiscal 2022, a qualitative assessment was performed for our Paychex, Inc.,
excluding Purchased Receivables, reporting unit, and a quantitative assessment was performed on the
Purchased Receivable reporting unit. 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 2023,
2022, or 2021. Subsequent to the latest review, there have been no events or circumstances that
indicate any potential impairment of the Company’s goodwill balance.
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, using qualitative assessments, there is
no impairment of intangible assets with indefinite useful lives for fiscal 2023, 2022, or 2021.
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Impairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite
lives and operating lease right-of-use (“ROU”) assets, are reviewed for impairment when events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
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. The Company has determined that there was no impairment of long-lived assets for fiscal
2023, 2022, or 2021.
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 income/(loss), net of tax. The Company did not have any material
realized gains or losses resulting from foreign exchange transactions during fiscal 2023, 2022, or 2021.
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
when control of the contracted services is transferred to the Company’s clients, in an amount that
reflects the consideration it expects to receive in exchange for such services. 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 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 41 to 44 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 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.
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 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.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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 has
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 2023,
2022, or 2021.
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 solutions, 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
administrative expenses represent labor-related costs, including amortization of deferred sales
commissions and bonuses, corporate asset depreciation and amortization, marketing, and other
general and administrative expenses incurred by the Company.
PEO insurance reserves: As part of its PEO solution, 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
include estimates of certain expenses associated with processing and settling these claims. In
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
trends. Each reporting period, changes in actuarial assumptions resulting from changes in actual
claims experience and other trends are incorporated into the Company’s workers’ compensation claims
cost estimates. For fiscal 2023 and 2022, the Company has an aggregate maximum liability of
$2.0 million for claims exceeding $1.0 million, and once met, the maximum individual claims liability is
$1.0 million.
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
As of May 31, 2023 and 2022, the Company had recorded current liabilities of $64.3 million and
$64.1 million, respectively, and long-term liabilities of $131.5 million and $125.6 million, respectively,
on its Consolidated Balance Sheets for workers’ compensation insurance reserves. The amounts were
recorded in the other current liabilities and other long-term liabilities sections, respectively, of the
Consolidated Balance Sheets.
With respect to 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 $0.5 million under its
policies during both fiscal 2023 and fiscal 2022. Amounts accrued related to the health insurance and
dental and vision plan reserves were $47.0 million and $46.2 million as of May 31, 2023 and 2022,
respectively. These amounts are included in other 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 accepted actuarial methods and assumptions. These reserves are
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 2023, 2022, or 2021.
Leases: The Company accounts for its leases under Accounting Standards Updates (“ASUs”)
No. 2016-02. 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:
(cid:129) periods covered by an option to extend the lease if the Company is reasonably certain to
exercise the extension option; and
(cid:129) 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
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.
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
As an implicit discount rate is typically not 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.
An 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 ROU 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 2023, fiscal
2022 or fiscal 2021.
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.
54
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 E 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 K 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: Effective June 1, 2022, the Company
adopted ASU No. 2021-10 “Government Assistance (Topic 832): Disclosures by Business Entities
about Government Assistance,” which did not have a material impact on its consolidated financial
statements.
Recently issued accounting pronouncements:
In October 2021, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2021-08 “Business Combinations (Topic 805): Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU clarifies that an
acquirer of a business should recognize and measure contract assets and contract liabilities in a
business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers.
ASU No. 2021-08 is effective for public business entities for fiscal years, including interim periods
within those fiscal years, beginning after December 15, 2022, with early application permitted. This
ASU is applicable to the Company’s fiscal year beginning June 1, 2023, and the impact of its adoption
on the Company’s consolidated financial statements will depend on the contract assets and liabilities
acquired in business combinations after that date.
Other recent authoritative guidance issued by the FASB (including technical corrections to the
FASB ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange
Commission (“SEC”) did not or is not expected to have a material impact on the Company’s
consolidated financial statements.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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 integrated HCM and HR
outsourcing solutions. Clients can select services on an á la carte basis or as part of various solution
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 HCM and HR outsourcing solutions. 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 millions
Year ended May 31,
2022
2021
2023
Payroll wages and payroll taxes . . . . . . . . . . . . . . . . . . . $26,025.3
State unemployment insurance (included in
payroll wages and payroll taxes)
. . . . . . . . . . . . . . . . $
Guaranteed cost benefit plans . . . . . . . . . . . . . . . . . . . . $
138.2
656.3
$24,209.3
$20,706.1
$
$
139.1
641.4
$
$
119.0
586.4
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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,
cybersecurity, and health and benefits coverage, including health, dental, vision, and life. Insurance
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.
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.
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,
2023
2022
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 48.9
42.1
Deferral of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(29.0)
Recognition of unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40.2
35.0
(26.3)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62.0
$ 48.9
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, 2023, the
Company expects to recognize $26.6 million of deferred revenue related to material rights during its
fiscal year ending May 31, 2024 and $35.4 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 2023, 2022, or 2021.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Changes in deferred costs to obtain and fulfill contracts were as follows:
Costs to fulfill contracts:
In millions
Year ended May 31,
2023
2022
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 72.3
28.9
Capitalization of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(25.9)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 69.3
28.0
(25.0)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75.3
$ 72.3
Costs to obtain contracts:
In millions
Year ended May 31,
2022
2023
Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 550.2
240.5
Capitalization of costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(193.2)
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 488.2
239.1
(177.1)
Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 597.5
$ 550.2
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,
2022
2021
2023
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
360.4
Weighted-average common shares outstanding . . . . . . . . . . . . . . . . . . .
$1,392.8
360.6
$1,097.5
359.9
Basic earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.32
$
3.86
$
3.05
Diluted earnings per share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,557.3
360.4
Weighted-average common shares outstanding . . . . . . . . . . . . . . . . . . .
1.9
Dilutive effect of common share equivalents . . . . . . . . . . . . . . . . . . . . . . .
$1,392.8
360.6
2.5
$1,097.5
359.9
2.2
Weighted-average common shares outstanding, assuming dilution . . . .
362.3
363.1
362.1
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4.30
$
3.84
$
3.03
Weighted-average anti-dilutive common share equivalents . . . . . . . . .
0.7
0.2
0.6
Weighted-average common share equivalents that had an anti-dilutive impact are excluded from
the computation of diluted earnings per share.
58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note D — Other Income/(Expense), Net
Other income/(expense), net, consisted of the following items:
In millions
Year ended May 31,
2022
2021
2023
Interest income on corporate investments . . . . . . . . . . . . . . . . . . . . $ 49.1
(36.7)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.7
Other income/(expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.1
$ 2.9
(36.6)
18.3
$ 2.3
(35.8)
7.0
$(15.4)
$(26.5)
Note E — 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 46.5 million shares of the Company’s common stock.
As of May 31, 2023, there were 14.2 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 $62.6 million, $52.8 million, and $52.5 million for fiscal
years 2023, 2022, and 2021, respectively. Related income tax benefits recognized were $12.1 million,
$9.8 million, and $8.6 million for the respective fiscal years.
As of May 31, 2023, the total unrecognized compensation cost related to all unvested stock-based
awards was $97.5 million and is expected to be recognized over a weighted-average period of 2.7
years.
Black-Scholes fair value assumptions: The fair value of 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
Year ended May 31,
2022
2021
2023
3.2%
2.6%
0.27
6.6
1.2%
2.9%
0.23
6.6
0.5%
3.2%
0.29
6.1
granted (per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.58
$17.47
$13.52
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 of Directors
(the “Board”). The Company issues new shares of common stock to satisfy stock option exercises.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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.
The following table summarizes stock option activity for fiscal 2023:
In millions, except per share amounts
Outstanding as of May 31, 2022 . . .
Granted . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of May 31, 2023 . . .
Exercisable as of May 31, 2023 . . . .
Shares
subject
to options
Weighted-
average
exercise price
per share
Weighted-
average
remaining
contractual term
(years)
Aggregate
intrinsic
value(1)
3.3
0.3
(0.2)
(0.1)
3.3
2.7
$ 70.68
$114.65
$ 68.87
$115.00
$ 74.09
$ 66.94
5.3
4.6
$108.4
$102.2
(1) Total shares valued at the market price of the underlying stock as of May 31, 2023 less the exercise price.
Other information pertaining to stock option grants is as follows:
In millions
Year ended May 31,
2022
2021
2023
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . $10.3
Total grant-date fair value of stock options vested . . . . . . . . . . . . . . . $ 7.1
$44.3
$ 6.4
$58.5
$ 6.0
Restricted Stock Units (“RSUs”): The Board grants RSUs to certain executive and
non-executive employees and outside directors. An RSU is an agreement to issue shares at the time of
vesting with no associated exercise cost for the recipient. 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 executives vest one-third per annum over three
years. Time-based RSUs granted to non-executives, during fiscal 2023, vest on a graded basis over a
four- or five-year period. Time-based RSUs granted to non-executives, prior to fiscal 2023, vest
one-fifth per annum over five years. Time-based RSUs 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 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.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The following table summarizes RSU activity for fiscal 2023:
In millions, except per share amounts
Time-Based
RSUs
Weighted-average
grant-date
fair value per
share
Performance-
based RSUs
Weighted-average
grant-date
fair value per
share
Nonvested as of May 31, 2022 . . .
Granted (1)
. . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . .
1.3
0.6
(0.4)
(0.1)
Nonvested as of May 31, 2023 . . .
1.4
$ 80.60
$127.75
$ 73.88
$ 99.79
$102.13
0.1
0.1
(0.1)
(0.0)
0.1
$ 92.33
$108.31
$ 80.59
$108.86
$107.88
(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,
2022
2023
2021
Weighted-average grant-date fair value per share of RSUs
granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127.75
Weighted-average remaining vesting period (years)(1) . . . . .
1.5
Total intrinsic value of RSUs vested . . . . . . . . . . . . . . . . . . . $ 58.2
Aggregate intrinsic value of nonvested RSUs(2)
. . . . . . . . . . $ 141.8
Total grant-date fair value of RSUs vested . . . . . . . . . . . . . . $ 32.7
$109.81
1.5
$ 54.7
$ 165.2
$ 30.0
$67.92
1.6
$ 32.6
$152.7
$ 25.6
Performance-based RSUs(3):
Weighted-average grant-date fair value per share of RSUs
granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $108.31
1.8
7.8
. . . . . . . . . . $ 15.7
5.4
Weighted-average remaining vesting period (years)(1) . . . . .
Total intrinsic value of RSUs vested . . . . . . . . . . . . . . . . . . . $
Aggregate intrinsic value of nonvested RSUs(2)
Total grant-date fair value of RSUs vested . . . . . . . . . . . . . . $
$ —
$103.59
1.0
1.1
— $ —
$ 6.2
— $ —
$
$ 14.7
$
(1) Weighting is based on the number of unvested share units vesting in each future vesting tranche.
(2) Based on the market price of the underlying common stock as of May 31, 2023, 2022 and 2021.
(3) No performance-based RSUs were granted during fiscal 2021.
Restricted stock awards: The Board approved grants of restricted stock awards to the
Company’s executives and outside directors prior to fiscal 2023. 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.
61
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 2023:
In millions, except per share amounts
Time-based
shares
Weighted-average
grant-date
fair value
per share
Performance-
based
shares
Weighted-average
grant-date
fair value
per share
Nonvested as of May 31, 2022 . . .
Vested . . . . . . . . . . . . . . . . . . . .
Nonvested as of May 31, 2023 . . .
0.1
(0.0)
0.1
$93.15
$91.18
$95.10
0.1
(0.0)
0.1
$ 92.45
$ 80.59
$107.40
No time-based or performance-based restricted stock awards were granted during fiscal 2023.
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,
2023
2022
2021
Weighted-average grant-date fair value per share of
time-based shares granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $114.21
$73.93
Total grant-date fair value of time-based restricted stock
vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.3
$
3.8
$ 3.0
Weighted-average grant-date fair value per share of
performance-based shares granted . . . . . . . . . . . . . . . . . . . . . . . $ — $103.97
$65.17
Total grant-date fair value of performance-based
restricted stock vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.7
$
7.2
$ 8.4
Long-term Incentive Plan (“LTIP”):
In July 2016, the Board approved an LTIP award
comprised of both performance-based non-qualified stock options and performance-based restricted
stock awards. 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 were based on achievement against pre-established targets for fiscal 2020,
which vested in fiscal 2021.
The following table summarizes LTIP performance-based stock option activity for fiscal 2023:
In millions, except per share amounts
Outstanding as of May 31, 2022 . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of May 31, 2023 . . . . .
Exercisable as of May 31, 2023 . . . . . .
Shares
subject
to options
Weighted-average
exercise price
per share
Weighted-average
remaining
contractual
term (years)
Aggregate
intrinsic
value(1)
0.4
(0.0)
0.4
0.4
$60.52
$60.84
$60.51
$60.51
3.1
3.1
$19.4
$19.4
(1) Shares valued at the market price of the underlying stock as of May 31, 2023 less the exercise price.
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Other information pertaining to LTIP performance-based stock options is as follows:
In millions
Year ended May 31,
2022
2021
2023
Total intrinsic value of stock options exercised . . . . . . . . . . . . . . . . . . . $0.7
$26.3
Total grant-date fair value of stock options vested . . . . . . . . . . . . . . . . $ — $ — $ 8.0
$16.0
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 2023, 2022, and 2021 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 2023, 2022, or 2021 related to the plan.
Note F — Funds Held for Clients and Corporate Investments
Funds held for clients and corporate investments are as follows:
In millions
May 31, 2023
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 863.1
AFS securities:
Asset-backed securities . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
treasury securities . . . . . . . . . . . . . . . . . . .
Variable rate demand notes . . . . . . . . . . . . .
88.1
1,468.3
1,091.3
788.1
344.1
Total AFS securities . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,779.9
30.1
Total funds held for clients and corporate
$ —
$ — $ 863.1
—
3.7
0.1
0.3
—
4.1
1.1
(1.4)
(31.1)
(105.3)
(41.6)
—
(179.4)
(2.9)
86.7
1,440.9
986.1
746.8
344.1
3,604.6
28.3
investments . . . . . . . . . . . . . . . . . . . . . . . . . $4,673.1
$5.2
$(182.3)
$4,496.0
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
In millions
May 31, 2022
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 482.6
AFS securities:
Asset-backed securities . . . . . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . . . . . .
U.S. government agency and
treasury securities . . . . . . . . . . . . . . . . . . .
Variable rate demand notes . . . . . . . . . . . . .
Total AFS securities . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total funds held for clients and corporate
68.5
699.3
1,577.6
574.5
1,245.6
4,165.5
30.4
$ —
$ — $ 482.6
0.0
1.8
0.6
0.3
—
2.7
1.8
(1.3)
(19.0)
(92.4)
(26.3)
—
(139.0)
(2.2)
67.2
682.1
1,485.8
548.5
1,245.6
4,029.2
30.0
investments . . . . . . . . . . . . . . . . . . . . . . . . . $4,678.5
$4.5
$(141.2)
$4,541.8
Included in funds held for clients’ money market securities and other restricted cash equivalents as
of May 31, 2023 were bank demand deposit accounts and money market funds.
Included in asset-backed securities as of May 31, 2023 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, 2023.
Included in corporate bonds as of May 31, 2023 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, 2023 through August 16, 2029.
Included in municipal bonds as of May 31, 2023 were general obligation bonds and revenue bonds
carrying credit ratings of AA or better and have maturities ranging from August 1, 2023 through
December 1, 2030.
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,
2023
2022
Funds held for clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,118.8
373.4
Corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.8
Long-term corporate investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,682.9
853.9
5.0
Total funds held for clients and corporate investments . . . . . . . . . . $4,496.0
$4,541.8
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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 losses of $175.3 million and $136.3 million
as of May 31, 2023 and May 31, 2022. Included in the net unrealized losses as of May 31, 2023 and
May 31, 2022 were 967 and 817 AFS securities in an unrealized loss position, representing
approximately 88% and 64% 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:
Securities in an unrealized
loss position for less than
twelve months
May 31, 2023
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
$ (0.1)
(5.9)
(5.9)
$ 54.2
652.0
86.7
$ (1.3)
(25.2)
(99.4)
$
23.3
382.7
889.0
$ (1.4)
(31.1)
(105.3)
$
77.5
1,034.7
975.7
(3.3)
199.6
(38.3)
457.9
(41.6)
657.5
In millions
Type of issue:
Asset-backed securities . . . .
Corporate bonds . . . . . . . . . .
Municipal bonds . . . . . . . . . .
U.S. government agency
and treasury securities . . .
Total . . . . . . . . . . . . . . . . . . . .
$(15.2)
$992.5
$(164.2)
$1,752.9
$(179.4)
$2,745.4
May 31, 2022
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
$ (0.9)
(17.5)
(81.9)
$
48.5
425.4
1,171.5
$ (0.3)
(1.5)
(10.6)
$ 5.7
16.7
86.6
$ (1.2)
(19.0)
(92.5)
$
54.2
442.1
1,258.1
(15.9)
414.2
(10.4)
91.7
(26.3)
505.9
In millions
Type of issue:
Asset-backed securities . . .
Corporate bonds . . . . . . . . .
Municipal bonds . . . . . . . . .
U.S. government agency
and treasury securities . .
Total . . . . . . . . . . . . . . . . . . .
$(116.2)
$2,059.6
$(22.8)
$200.7
$(139.0)
$2,260.3
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, 2023 that had gross unrealized losses of $179.4 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. A substantial portion of the securities in an unrealized loss position as
of May 31, 2023 and 2022 held an AA rating or better. The Company does not intend to sell these
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
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 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,
2022
2023
2021
Gross realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.1
(9.9)
Gross realized losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.2
0.0
Net realized (losses)/gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(9.8)
$0.2
$1.2
—
$1.2
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2023
are shown below by expected maturity.
In millions
Maturity date:
May 31, 2023
Amortized
cost
Fair
value
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186.4
829.4
Due after one year through three years . . . . . . . . . . . . . . . . . . . . . . . .
1,953.7
Due after three years through five years . . . . . . . . . . . . . . . . . . . . . . .
810.4
Due after five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 184.1
789.6
1,843.5
787.4
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,779.9
$3,604.6
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 G — 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:
(cid:129) Level 1 valuations are based on quoted prices in active markets for identical instruments that the
Company can access at the measurement date.
(cid:129) 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.
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
(cid:129) 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 credit losses, 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.
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as
follows:
May 31, 2023
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 . . . . . . . . . . . . . . .
$
$
43.8
$43.8
43.8
$43.8
AFS securities:
Asset-backed securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .
U.S. government agency and treasury
securities . . . . . . . . . . . . . . . . . . . . . .
VRDNs . . . . . . . . . . . . . . . . . . . . . . . . . .
$
86.7
1,440.9
986.1
746.8
344.1
$ —
—
—
—
—
$
$
—
—
$
86.7
1,440.9
986.1
746.8
344.1
Total AFS securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Other long-term liabilities . . . . . . . . . . . . . . .
$3,604.6
28.3
$
$ —
$28.3
$3,604.6
—
$
$ —
$ —
$ —
—
—
—
—
$ —
$ —
$
28.3
$28.3
$
—
$ —
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
May 31, 2022
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:
Commercial paper
. . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . .
VRDNs . . . . . . . . . . . . . . . . . . . . . . . . . .
Money market securities . . . . . . . . . . .
$
5.2
187.9
10.0
16.1
$ —
—
—
16.1
$
5.2
187.9
10.0
—
$ —
—
—
—
Total restricted and unrestricted
cash equivalents . . . . . . . . . . . . . . .
$ 219.2
$16.1
$ 203.1
$ —
AFS securities:
Asset-backed securities . . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . . . . . . .
Municipal bonds . . . . . . . . . . . . . . . . . .
U.S. government agency and
treasury securities . . . . . . . . . . . . . . .
VRDNs . . . . . . . . . . . . . . . . . . . . . . . . . .
Total AFS securities . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Other long-term liabilities . . . . . . . . . . . . . . .
$
67.2
682.1
1,485.8
548.5
1,245.6
$4,029.2
30.0
$
$ —
—
—
—
—
$ —
$30.0
$
67.2
682.1
1,485.8
548.5
1,245.6
$4,029.2
—
$
$ —
—
—
—
—
$ —
$ —
$
29.9
$29.9
$
—
$ —
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. Cash equivalents
also include commercial paper, time deposits, and VRDNs which are considered Level 2 investments
as they are valued based on similar, but not identical, instruments in active markets. AFS securities,
including asset-backed securities, corporate bonds, municipal bonds, U.S. government agency
securities, and VRDNs, when held by the Company, are included in Level 2 and are valued utilizing
inputs obtained from an independent pricing service. To determine the fair value of the 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, issuer spreads, 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.
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,
2023 and May 31, 2022, the fair value of long-term borrowings, net of debt issuance costs was
$392.4 million and $404.1 million for the Senior Notes, Series A, respectively, and $390.9 million and
$402.5 million for the Senior Notes, Series B, respectively.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The Company’s long-term borrowings are not traded in active markets, and as a result, its fair values
were estimated using a market approach employing Level 2 valuation inputs, including 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 H — Leases
The Company’s lease portfolio consists primarily of operating leases for office space and has
remaining terms from less than one year up to ten years, with contractual terms expiring from 2023 to
2032. 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 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:
May 31,
$ in millions
2023
2022
Operating lease right-of-use assets, net of accumulated amortization . . . . . . . $61.5
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.3
Operating lease liabilities, current(1)
57.3
Operating lease liabilities, non-current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average remaining lease term (in years) . . . . . . . . . . . . . . . . . . . . . .
4.7
Weighted average discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78.7
25.1
74.8
5.1
2.21% 1.94%
(1) The current portion of operating lease liabilities is reported in the other current liabilities line item on the Company’s
Consolidated Balance Sheets.
The components of lease expense were as follows:
In millions
Year ended May 31,
2022
2021
2023
Fixed payment operating lease expense . . . . . . . . . . . . . . . . . . . . . . $20.8
6.2
Variable payment operating lease expense . . . . . . . . . . . . . . . . . . . .
0.0
Short-term lease expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27.2
6.9
—
$34.6
8.3
0.1
During the three months ended August 31, 2020, the Company ceased the use of certain leased
property and accelerated the amortization of operating lease ROU 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
2022
2023
Cash paid for amounts included in the measurement of lease liabilities . . . $21.7 $32.4 $32.2
Amortization of ROU assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6 22.7 29.2
1.3 15.8 26.8
ROU assets obtained in exchange for new operating lease liabilities . . . . .
0.8
9.1
0.8
Lease incentives received in the form of tenant allowances and free rent . . .
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Future lease payments are as follows:
In millions
May 31, 2023
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: imputed interest
Total operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.8
19.5
13.6
9.9
7.8
9.1
81.7
4.1
$77.6
$20.3
$57.3
As of May 31, 2023, the Company has entered into one lease agreement that has not yet
commenced for a term of five years. This lease will require lease payments over the term of
approximately $1.3 million.
Note I — Property and Equipment, Net of Accumulated Depreciation
The components of property and equipment, at cost, consisted of the following:
In millions
May 31,
2023
2022
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Data processing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software (1)
Furniture, fixtures, and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress (1)
9.0
130.5
214.5
927.3
77.2
67.3
51.7
$
10.3
157.1
217.4
832.1
97.7
91.7
50.7
1,477.5
Total property and equipment, gross . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,081.2
Property and equipment, net of accumulated depreciation . . . . . . . $ 396.3
1,457.0
1,055.7
$ 401.3
(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 $128.4 million, $133.7 million, and $123.4 million for fiscal 2023, 2022,
and 2021, respectively.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note J — Goodwill and Intangible Assets, Net of Accumulated Amortization
Goodwill and changes in goodwill as of and for the years ended May 31, 2023 and May 31, 2022
were as follows:
In millions
May 31,
2023
2022
Balance, beginning of fiscal year
Changes during the period:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,831.5
$1,820.7
Goodwill acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustment
2.5
(0.0)
27.7
(16.9)
Balance, end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,834.0
$1,831.5
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,
2023
2022
Client lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $638.2
23.0
Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$637.4
23.0
Total intangible assets, gross . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
661.2
473.8
660.4
435.8
Intangible assets, net of accumulated amortization . . . . . . . . . . . . . . . . $187.4
$224.6
During fiscal 2023, the Company acquired customer lists with a weighted-average amortization
period of 8.0 years.
Amortization expense relating to intangible assets was $48.2 million, $58.1 million, and
$68.6 million for fiscal 2023, 2022, and 2021, respectively.
The Company did not recognize an impairment loss as it relates to its goodwill or intangible assets
during fiscal 2023, 2022, or 2021.
The estimated amortization expense for the next five fiscal years relating to intangible asset
balances is as follows:
In millions
Year ending May 31,
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated amortization
expense
$45.0
39.8
35.6
29.3
26.2
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note K — Income Taxes
The components of deferred tax assets and liabilities are as follows:
In millions
Deferred tax assets:
May 31,
2023
2022
Compensation and employee benefit liabilities . . . . . . . . . . . . . . . . . . $ 52.4
17.3
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
Tax credit carry forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.8
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43.4
Unrealized losses on available-for-sale securities . . . . . . . . . . . . . . . .
54.1
Capitalization of research and development
. . . . . . . . . . . . . . . . . . . .
15.9
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.1
Net operating loss (“NOL”) carry forwards . . . . . . . . . . . . . . . . . . . . . .
13.6
Tax benefit of uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
216.8
Deferred tax liabilities:
Deferred contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
151.3
56.5
2.4
99.1
13.7
5.7
328.7
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(111.9)
$ 56.8
21.3
0.2
12.9
33.6
—
20.5
5.6
9.9
160.8
141.9
50.8
8.1
103.5
17.7
4.3
326.3
$(165.5)
The deferred tax asset related to NOL carry forwards is comprised of $0.3 million of federal NOL
carry forwards, $4.4 million of state NOL carry forwards, and $0.4 million of foreign NOL carry
forwards. The federal NOL carry forwards were acquired through various acquisitions and expire
between the fiscal years ending May 31, 2028 and May 31, 2030. The state NOL carry forwards expire
between the fiscal years ending May 31, 2024 through May 31, 2042.
The components of the provision for income taxes are as follows:
In millions
Current:
Year ended May 31,
2022
2021
2023
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $418.1
117.1
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.3)
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
534.9
$326.0
104.5
(1.0)
429.5
$271.5
85.9
0.3
357.7
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(34.2)
(7.4)
(2.4)
(44.0)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $490.9
0.9
0.9
0.5
2.3
$431.8
(12.9)
(7.6)
(0.5)
(21.0)
$336.7
72
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,
2022
2021
2023
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
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.2% 4.6% 4.3%
(0.2)% (0.2)% (0.3)%
(0.4)% (0.9)% (1.2)%
(0.7)% (1.1)% (0.6)%
0.1% 0.3% 0.3%
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0% 23.7% 23.5%
The effective income tax rates in all periods were impacted by recognition of net discrete tax
benefits related to employee stock-based compensation payments.
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, 2023 and 2022, the total reserve for uncertain tax positions,
including interest and net of federal benefits, was $69.4 million and $48.2 million, respectively, and was
included in long-term liabilities on the Consolidated Balance Sheets.
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
2023
Balance as of beginning of fiscal year . . . . . . . . . . . . . . . . . . . . . . $50.2
20.6
4.6
(2.1)
(0.4)
(0.9)
Balance as of end of fiscal year . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72.0
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 . . . . . . . . . . . . . . . . . . . . .
Year ended May 31,
2022
$22.4
11.1
20.6
(1.8)
(0.4)
(1.7)
2021
$ 26.2
5.5
9.2
—
(15.2)
(3.3)
$50.2
$ 22.4
The reserve as of May 31, 2023 substantially relates to the Company’s uncertain tax positions for
certain U.S. federal and state income tax matters. The Company believes the reserve for uncertain tax
positions, including interest and net of federal benefits, of $69.4 million as of May 31, 2023 adequately
covers open tax years and uncertain tax positions up to and including fiscal 2023 for major taxing
jurisdictions. As of May 31, 2023 and 2022, the entire $69.4 million and $48.2 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. Fiscal years
2018 and 2020 are currently under audit by the IRS. With limited exception, state income tax audits by
taxing authorities are closed through fiscal 2014, primarily due to expiration of the statute of limitations.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The Company continues to follow its policy of recognizing interest and penalties accrued on tax
positions as a component of income taxes on the Consolidated Statements of Income and
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 2023, 2022, and 2021 was immaterial to the Company’s results of operations.
Note L — 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 as of May 31, 2023 are as follows:
Maximum
Amount
Available
Amount
Outstanding
May 31,
2023
2022
$1,000.0
$ 750.0
$ — $ —
—
—
$ in millions
Expiration Date
July 31, 2024
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . September 17, 2026
Credit facilities:
JP Morgan Chase Bank, N.A. (“JPM”)(1) . . . . . . . . . .
JPM (1)
PNC Bank, National Association (“PNC”) (weighted-
average interest rate of 5.83 % at May 31, 2023
and 2.34% at May 31, 2022)
. . . . . . . . . . . . . . . . .
February 6, 2026
$ 250.0
10.2
8.7
Outstanding short-term financing(2)
. . . . . . . . . . .
$10.2
$8.7
(1) JPM acts as the administrative agent for this syndicated credit facility.
(2) The total amount available under these credit facilities as of May 31, 2023 was approximately $2.0 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, 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 facility. The commitment fee is determined on a
sliding-scale basis based upon the Company’s consolidated leverage ratio.
On February 3, 2023, Paychex Advance LLC, a Paychex subsidiary and New York limited liability
company, and Paychex entered into Amendment No. 2 (the “Amendment”) to the $250 million, three-
year, unsecured, revolving credit facility established on February 6, 2020 (the “2020 Credit Facility”) for
which PNC Bank, N.A. acts as administrative agent.
The Amendment, among other things, extended the maturity date of the 2020 Credit Facility from
February 6, 2023 to February 6, 2026 at which time all borrowings thereunder will terminate. Except for
extending the maturity date and making ministerial changes to the 2020 Credit Facility, the Amendment
did not change the existing terms of the 2020 Credit Facility.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
On September 17, 2021, the Company amended its $500.0 million credit facility with JPM to
increase the credit facility’s maximum borrowing capacity to $750.0 million, extend the term through
September 17, 2026 with the option to extend for two additional one-year periods, and amend interest
rate provisions to phase out the use of LIBOR. In addition, the Company amended its $1.0 billion credit
facility with JPM. The amendment phases out the use of LIBOR and adopts other administrative
changes to maintain consistency with the Company’s other credit facilities.
Obligations under the credit 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, 2023.
Certain lenders under these credit facilities, and their respective affiliates, have performed, and
may in the future perform for the Company, various commercial banking, investment banking,
underwriting, and other financial advisory services, for which they have received, and will continue to
receive in the future, customary fees and expenses.
Letters of credit: The Company had irrevocable standby letters of credit outstanding totaling
$141.7 million and $140.2 million as of May 31, 2023 and May 31, 2022, respectively, required to
secure commitments for certain insurance policies. The letters of credit expire at various dates
between June 9, 2023 and May 25, 2024. No amounts were outstanding on these letters of credit
during fiscal 2023 or fiscal 2022, or as of May 31, 2023 and May 31, 2022, respectively. Subsequent to
May 31, 2023, letters of credit expiring on June 9, 2023, June 15, 2023, and June 26, 2023 were
renewed for one year terms.
Note M — Long-term Financing
Long-term debt, at amortized cost, consisted of the following as of:
In millions
May 31,
2023
2022
Senior Notes, Series A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400.0
400.0
Senior Notes, Series B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
800.0
Total long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.8)
Less: Debt issuance costs, net of accumulated amortization . . . . . . . . . . . .
Long-term borrowings, net of debt issuance costs . . . . . . . . . . . . . . . . . $798.2
$400.0
400.0
800.0
(2.3)
$797.7
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 2023 and fiscal 2022 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%
4.14%
Fixed
4.25%
4.31%
Fixed
Semi-annual, in arrears
March 13, 2029
Unsecured
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
The effective interest rates for each note series includes the interest on the note and amortization
of debt issuance costs.
Payment of all amounts due with respect to the Notes and performance under the Agreement is
guaranteed by the Company, Paychex of New York LLC, and certain other subsidiaries of the
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, 2023.
Note N — Supplemental Cash Flow Information
Income taxes paid were $525.8 million, $397.7 million, and $421.4 million for fiscal 2023, 2022,
and 2021, respectively.
Interest expense paid was $35.7 million, $35.5 million, and $34.9 million for fiscal 2023, 2022, and
2021, respectively.
Refer to Note H of this Item 8 for supplemental cash flow information pertaining to the Company’s
leasing activities.
Note O — 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 2023, 2022, and 2021
were $36.6 million, $35.6 million, and $19.2 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.
Distributions are paid at one of the following dates selected by the participant: the participant’s
termination date, the date the participant retires from any active employment, or a designated specific
date. The amounts accrued under these plans were $28.3 million and $29.9 million as of May 31, 2023
and 2022, respectively, and are reflected in other long-term liabilities on the accompanying
Consolidated Balance Sheets.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
PAYCHEX, INC.
Note P — 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, 2023, the Company had outstanding commitments under
existing workers’ compensation insurance agreements and legally binding contractual arrangements
with minimum future payment obligations of approximately $424.7 million. The Company also enters
into various purchase commitments with vendors in the ordinary course of business and had
outstanding commitments to purchase approximately $11.8 million of capital assets. These minimum
future payment obligations relate to the following fiscal years:
In millions
2024
2025
2026
2027
2028
Thereafter
Workers’ compensation estimated
obligations . . . . . . . . . . . . . . . . . . . $ 64.3
Purchase obligations . . . . . . . . . . . . $151.6
$37.9
$50.9
$23.0
$24.5
$15.6
$ 1.5
$11.6
$ 0.2
$43.4
$ 0.2
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, 2023. 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.
77
Schedule II — Valuation and Qualifying Accounts
PAYCHEX, INC.
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
FOR THE YEAR ENDED MAY 31,
(In millions)
Description
2023
Allowance for credit losses . . . . . . . . . .
2022
Allowance for credit losses . . . . . . . . . .
2021
Allowance for credit losses . . . . . . . . . .
Balance as of
beginning
of fiscal year
Additions
charged to
expenses
Additions to/
(deductions from)
other accounts
Costs and
deductions(1)
Balance as
of end
of fiscal year
$18.2
$17.7
$16.0
$10.5
$12.5
$11.5
$—
$—
$—
$15.4
$20.5
$ 8.3
$18.2
$ 8.0
$16.0
(1) 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, 2023, 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, 2023. 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, 2023, that materially affected, or are reasonably likely
to materially affect, the Company’s internal control over financial reporting.
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.
78
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, 2023, 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
John B. Gibson . . . . . . . . . . . . . . .
57
Efrain Rivera . . . . . . . . . . . . . . . . .
66
Mark A. Bottini . . . . . . . . . . . . . . . .
62
Michael E. Gioja . . . . . . . . . . . . . .
65
Mr. Gibson has served as President and CEO of the
Company since October 2022. Prior to serving as
President and CEO, Mr. Gibson was promoted to the role
of President and Chief Operating Officer in December
2021, leading the daily operations of the company,
including sales, service, marketing, and management.
Mr. Gibson joined Paychex as Senior Vice President of
Service in May 2013, bringing with him more than 20
years of experience in HR solutions, technology, and
business services. Prior to Paychex, Mr. Gibson served in
senior executive positions at HR outsourcing and
technology companies, including Ameritech (now AT&T)
and Convergys, where he served as president of the HR
management division providing comprehensive global HR
solutions to clients in 68 countries.
Mr. Rivera joined Paychex in June 2011 and now serves
as Senior Vice President and Chief Financial Officer.
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.
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 of Information, Technology, Product
Management, and Development and Vice President of
79
Name
Age
Position and business experience
Elizabeth Roaldsen . . . . . . . . . . . .
51
Karen E. Saunders McClendon . .
57
Stephanie L. Schaeffer . . . . . . . . .
53
Robert L. Schrader . . . . . . . . . . . .
51
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. Roaldsen joined the Company in May 2023 as Senior
Vice President of Operations and Customer Experience.
Prior to joining the Company, she served as Managing
Director, head of enterprise business services, and
wholesale banking at HSBC from 2021 through 2023.
Previously, Ms. Roaldsen served in various roles of
increasing responsibility at State Street Corporation from
2010 to 2021, most recently as Executive Vice President
Head of Global Operations and Asset Servicing.
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 January 2006. 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, Finance and
Investor Relations in January 2023. He joined the
Company in December 2014 and previously held roles as
Vice President and Controller, Senior Director of
Financial Planning and Analysis and Director of Internal
Audit. Prior to joining Paychex, he served as a Chief
Financial Officer for Unither Manufacturing, LLC, and held
various senior management positions during his 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.
The additional information required by this item is set forth in the Company’s Definitive Proxy
Statement for its 2023 Annual Meeting of Stockholders, anticipated to be held on or about October 12,
2023, in the sections “PROPOSAL 1: ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,”
“CORPORATE GOVERNANCE,” and “CODE OF BUSINESS ETHICS AND CONDUCT” and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is set forth in the Company’s Definitive Proxy Statement for
its 2023 Annual Meeting of Stockholders, anticipated to be held on or about October 12, 2023, in the
sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER
80
COMPENSATION,” “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, 2023,”
“THE COMPENSATION AND LEADERSHIP COMMITTEE REPORT” and the sub-heading
“Compensation and Leadership 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 2023 Annual Meeting of Stockholders, anticipated to be held on or about October 12,
2023, 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 incentive stock options, restricted stock, 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 E
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.
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, 2023:
In millions, except per share amounts
Number of
securities to be
issued upon
exercise of
outstanding
options
Weighted-
average
exercise
price of
outstanding
options
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans(1)
Equity compensation plans approved by security holders . . . .
3.8
$72.52
14.2
(1)
Includes shares available for future issuance through equity award grants under our 2002 Plan. Refer to Note E 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 2023 Annual Meeting of Stockholders, anticipated to be held on or about October 12, 2023, 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 2023 Annual Meeting of Stockholders, anticipated to be held on or about October 12, 2023, under
the section “PROPOSAL 4: RATIFICATION OF THE SELECTION OF OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by reference.
81
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 39.
2.
Financial Statement Schedules
Financial statement schedules required to be filed by Item 8 of this Form 10-K include Schedule
II — Valuation and Qualifying Accounts. See Financial Statements and Supplementary Data
Table of Contents at page 39. 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,
2005) Form of Non-Qualified Stock Option Award Agreement (Officer), incorporated
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.
#
#
#
#
#
82
#
#
#
#
(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 effective 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 effective 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.
83
(10.20) 2017 Credit Agreement, dated as of September 17, 2021, by and among Paychex of New
York, the Company, the lender parties thereto, JPMorgan Chase Bank, N.A., as
administrative agent, and others, as amended by Amendment No. 1 as of November 21,
2018, Amendment No. 2 as of July 31, 2019, and Amendment No. 3 as of September 17,
2021, incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K filed
with the Commission on September 20, 2021.
(10.21) 2019 Credit Agreement, dated as of July 31, 2019, by and among Paychex of New York,
the Company, the lender parties thereto, JPMorgan Chase Bank, N.A., as administrative
agent, and others, as amended by Amendment No. 1 as of September 17, 2021,
incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the
Commission on September 20, 2021.
(10.22) 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.
(10.23) Amendment No. 2 to Credit Agreement, dated as of February 3, 2023, by and among the
Company, the parent, the lender parties thereto, PNC Bank, N.A. as administrative agent
and others, incorporated herein by reference from Exhibit 10.1 to the Company’s Form
8-K filed with the Commission on February 7, 2023.
(10.24) Form of Pooled Plan Provider Indemnification Agreement, incorporated herein by
reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on
February 23, 2021.
#
(10.25) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020), incorporated herein by reference from Exhibit 10.23 to the Company’s Form 10-K
filed with the Commission on July 16, 2021.
(10.26) Amendment No. 1 to Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
effective October 15, 2020), dated July 14, 2022, incorporated herein by reference from
Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on December 22,
2022.
#
(10.27) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020) Amended Form of Restricted Stock Unit Award Agreement (Board), incorporated
herein by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the
Commission on September 29, 2022.
#
(10.28) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020) Amended Form of Restricted Stock Unit Award Agreement (Officer), incorporated
herein by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the
Commission on September 29, 2022.
#
#
#
(10.29) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020) Amended Form of Restricted Stock Unit Award Agreement (Senior Management),
incorporated herein by reference to Exhibit 10.3 to the Company’s Form 10-Q filed with
the Commission on September 29, 2022.
(10.30) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020) Amended Form of Restricted Stock Unit Award Agreement (Management),
incorporated herein by reference to Exhibit 10.4 to the Company’s Form 10-Q filed with
the Commission on September 29, 2022.
(10.31) Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 15,
2020) Amended Form of Restricted Stock Unit Award Agreement (Special Award),
incorporated herein by reference to Exhibit 10.5 to the Company’s Form 10-Q filed with
the Commission on September 29, 2022.
84
#
(10.32)
#
(10.33)
#
(10.34)
#
(10.35)
(21.1)
(23.1)
(24.1)
(31.1)
(31.2)
(32.1)
(32.2)
Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective
October 15, 2020) Amended Form of 2022-2024 Performance Restricted Stock Unit
Award Agreement, incorporated herein by reference to Exhibit 10.6 to the Company’s
Form 10-Q filed with the Commission on September 29, 2022.
Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective
October 15, 2020) Amended Form of Non-Qualified Stock Option Award Agreement
(Board), incorporated herein by reference to Exhibit 10.7 to the Company’s Form 10-Q
filed with the Commission on September 29, 2022.
Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective
October 15, 2020) Amended Form of Non-Qualified Stock Option Award Agreement
(Board), incorporated herein by reference to Exhibit 10.8 to the Company’s Form 10-Q
filed with the Commission on September 29, 2022.
Amendment to Award Agreements of Martin Mucci under the Amended and Restated
2002 Stock Incentive Plan (as amended and restated effective October 15, 2020), dated
as of October 14, 2022, incorporated by reference to Exhibit 10.2 to the Company’s
Form 10-Q filed with the Commission on December 22, 2022.
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.
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Cover Page Interactive Data File (embedded within the Inline XBRL document).
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Exhibit filed or furnished with this report.
# Management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
85
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 14, 2023.
SIGNATURES
PAYCHEX, INC.
By: /s/ John B. Gibson
John B. Gibson
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 14, 2023.
/s/ John B. Gibson
John B. Gibson, President, Chief Executive Officer, and Director
(Principal Executive Officer)
/s/ Efrain Rivera
Efrain Rivera, Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Robert L. Schrader
Robert L. Schrader, Vice President, Finance and Investor Relations
(Principal Accounting Officer)
Martin Mucci*, Director
Thomas F. Bonadio*, Director
Joseph G. Doody*, Director
David J.S. Flaschen*, Director
B. Thomas Golisano*, Director
Pamela A. Joseph*, Director
Theresa M. Payton*, Director
Kevin A. Price*, Director
Joseph M. Tucci*, Director
Joseph M. Velli*, Director
Kara Wilson*, Director
*By: /s/ John B. Gibson
John B. Gibson, as Attorney-in-Fact
86
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PAYCHEX, INC.
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
In millions, except per share amounts
Year ended May 31,
Results of operations
Revenue:
2023
2022
2021
2020
2019 (1)
Service revenue . . . . . . . . . . . . . . . . . . . . . . $ 4,907.3 $ 4,554.0 $ 3,997.5 $ 3,953.6 $ 3,691.9
Interest on funds held for clients . . . . . . . . .
99.8
57.7
59.3
86.9
80.6
Total revenue . . . . . . . . . . . . . . . . . . . . . . . .
5,007.1
4,611.7
4,056.8
4,040.5
3,772.5
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . .
2,974.0
2,771.7
2,596.1
2,580.0
2,401.2
Operating income . . . . . . . . . . . . . . . . . . . . . . .
2,033.1
1,840.0
1,460.7
1,460.5
1,371.3
Other income/(expense), net . . . . . . . . . . . . . .
15.1
(15.4)
(26.5)
(23.4)
(3.3)
Income before income taxes . . . . . . . . . . . . . . $ 2,048.2 $ 1,824.6 $ 1,434.2 $ 1,437.1 $ 1,368.0
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,557.3 $ 1,392.8 $ 1,097.5 $ 1,098.1 $ 1,034.4
Basic earnings per share . . . . . . . . . . . . . . . . . $
Diluted earnings per share . . . . . . . . . . . . . . . . $
4.32 $
4.30 $
3.86 $
3.84 $
3.05 $
3.03 $
3.06 $
3.04 $
2.88
2.86
Weighted-average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . .
360.4
360.6
359.9
358.5
359.2
Weighted-average common shares
outstanding, assuming dilution . . . . . . . . . .
362.3
363.1
362.1
361.0
361.8
Cash dividends per common share . . . . . . . . . $
3.26 $
2.77 $
2.52 $
2.48 $
2.30
Selected financial data
Purchases of property and equipment
. . . . . . $
126.3 $
132.6 $
114.6 $
127.0 $
123.8
Cash, restricted cash, and total corporate
investments . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,649.0 $ 1,304.7 $ 1,127.3 $ 1,013.7 $
779.9
Total debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
808.4 $
806.4 $
804.7 $
801.9 $
796.4
Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . $ 3,493.2 $ 3,085.2 $ 2,948.0 $ 2,781.4 $ 2,619.5
Return on stockholders’ equity . . . . . . . . . . . .
48%
46%
38%
41%
42%
(1)
In fiscal 2019, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with
Customers.” As a result, amounts have been adjusted to reflect the adoption of the new standard.
2018 (1)
2017 (1)
2016
2015
2014
2013
$3,314.2 $3,102.4
$2,905.8
$2,697.5
$2,478.2
$2,285.2
63.5
50.6
46.1
42.1
40.7
41.0
3,377.7
3,153.0
2,086.2
1,899.1
2,951.9
1,805.3
2,739.6
1,686.0
1,291.5
1,253.9
1,146.6
1,053.6
8.6
5.2
4.5
6.4
2,518.9
1,536.2
982.7
5.4
2,326.2
1,421.4
904.8
6.6
$1,300.1 $1,259.1
$1,151.1
$1,060.0
$ 988.1
$ 911.4
$ 994.1 $ 826.3
$ 756.8
$ 674.9
$ 627.5
$ 569.0
$
$
2.77 $
2.75 $
2.30
2.28
$
$
2.10
2.09
$
$
1.86
1.85
$
$
1.72
1.71
$
$
1.56
1.56
359.0
359.8
360.7
362.9
364.5
363.8
361.5
362.6
362.5
364.6
366.1
364.7
$
2.06 $
1.84
$
1.68
$
1.52
$
1.40
$
1.31
$ 154.0 $
94.3
$
97.7
$ 102.8
$
84.1
$
98.7
$ 719.7 $ 777.4
$ 793.2
$ 936.4
$ 936.8
$ 874.6
$
— $
— $
— $
— $
— $
—
$2,356.8 $2,227.2
$1,911.7
$1,785.5
$1,777.0
$1,773.7
44%
39%
40%
36%
35%
34%
[THIS PAGE INTENTIONALLY LEFT BLANK]
STOCKHOLDER INFORMATION
Annual Meeting
The annual meeting of stockholders will be held
virtually Thursday, October 12, 2023 at
10:00 a.m. and may be accessed online at the
following website:
www.virtualshareholdermeeting.com/PAYX2023.
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
300 Willowbrook Office Park Suite 300
Fairport, NY 14450
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
level and continuation of future dividends are
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 and Chief Financial
Officer.
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, Inc. financial materials can be
accessed at https://www.paychex.com/investors
Locations
Information about our locations throughout the
U.S. and parts of Europe can be accessed at
http://locations.paychex.com
BOARD OF DIRECTORS*
• Martin Mucci
(cid:129) Pamela A. Joseph
Chairman of the Board of Paychex, Inc.
CEO and Executive Chair of Xplor Technologies
(cid:129) Thomas F. Bonadio
(cid:129) Theresa M. Payton
Founder and Chairman of The Bonadio Group
Founder & CEO of Fortalice Solutions
(cid:129) Joseph G. Doody
Former Vice Chairman of Staples, Inc.
(cid:129) David J. S. Flaschen
Investor and Advisor
(cid:129) John B. Gibson
(cid:129) Kevin A. Price
Founder and President of KAP Holdings, LLC
d/b/a PartScriptionTM
(cid:129) Joseph M. Tucci
Co-Founder and Chairman of Bridge Growth Partners, LLC
(cid:129) Joseph M. Velli
President and Chief Executive Officer of Paychex, Inc.
Retired Financial Services and Technology Executive
(cid:129) B. Thomas Golisano
Founder of Paychex, Inc.
(cid:129) Kara Wilson
Senior Advisor at KKR & Co. Inc.
EXECUTIVE LEADERSHIP TEAM*
(cid:129) John B. Gibson
President and Chief Executive Officer
(cid:129) Efrain Rivera
Senior Vice President and Chief Financial Officer
(cid:129) Mark A. Bottini
Senior Vice President, Sales
(cid:129) Michael E. Gioja
Senior Vice President, Information Technology
and Product Development
(cid:129) Liz Roaldsen
Senior Vice President, Operations and Customer
Experience
(cid:129) Kate Boatman
Vice President, Digital Sales
(cid:129) Neal Collins
Vice President, Corporate Development and Managing
Director, Mergers and Acquisitions
(cid:129) Ted Jordan
Vice President, Service
(cid:129) Maureen Lally
Vice President, Marketing
(cid:129) Michael Majors
Vice President, Human Resource Services Sales
(cid:129) Karen E. Saunders McClendon
Vice President and Chief Human Resources Officer
(cid:129) Stephanie L. Schaeffer
Vice President, Chief Legal & Ethics Officer, and Secretary
(cid:129) Bradley Schaufenbuel
Vice President and Chief Information Security Officer
(cid:129) Robert L. Schrader
Vice President, Finance and Investor Relations
(cid:129) John Connors
Vice President, Software Development
(cid:129) Chris DeSalvo
(cid:129) Christopher Simmons
Vice President and Treasurer
(cid:129) Terry Sukalski
Vice President, Service Excellence and Operations
Vice President, PEO and Insurance
(cid:129) Frank Fiorille
Vice President, Risk, Compliance, and Data Analytics
(cid:129) Tom Hammond
Vice President, Corporate Strategy and Product
Management
(cid:129) Michael Jeffrey
Vice President, HCM Solutions Sales – SMB & MMS
* as of May 31, 2023
(cid:129) Norman (Mick) Whittemore
Vice President, Information Technology, Enterprise
Operations
(cid:129) Jeff Williams
Vice President, Enterprise and HRO Services
Board of Directors
Our board fulfills its oversight responsibilities to the shareholders and the investment
community through audit, compensation and leadership, corporate development advisory,
executive, investment, and nominating and ESG committees.
Pictured from left to right: David J. S. Flaschen Director, Joseph G. Doody Director, Pamela A. Joseph Director, Kevin A. Price
Director, Martin Mucci Chairman of the Board, B. Thomas Golisano Founder and Director, John B. Gibson Director, President, and
Chief Executive Officer, Kara Wilson Director, Thomas F. Bonadio Director, Theresa M. Payton Director, Joseph M. Tucci Director,
Joseph M. Velli Director
Paychex Annual Report 2023
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