FULLTEXT DEL 2 AV 3
10-K – 2026-07-17 – payx-20260531.htm
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 2026 or 2025.
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 2026 and 2025, a qualitative analysis was performed for all reporting units. The qualitative assessment considered various financial, macroeconomic, industry, and reporting unit specific qualitative factors. Based on the results of our testing, no impairment loss was recognized in the results of operations for fiscal 2026 or 2025. 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 2026 or 2025 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 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 2026 or as of May 31, 2026.
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 time-based 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 fair value of performance-based stock awards that include a market condition is estimated based on a Monte Carlo simulation. The Monte Carlo simulation requires various assumptions as inputs including the expected volatility of the Paychex stock price and the stock prices of the companies that comprise the designated peer group. Stock price volatility of the Company and the designated peer group is estimated based on historical volatility, using stock prices over a period equal to the measurement period of the award.
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.
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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. The Company periodically reassesses its assumptions as well as its choice of valuation models. The Company will reconsider use of its valuation models 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.
Refer to Note F of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of our stock-based compensation plans.
Business combinations: We account for acquisitions in accordance with the guidance in Financial Accounting Standards Board ASC Topic 805, Business Combinations, using the acquisition method of accounting. We allocate the purchase price consideration associated with its acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. This allocation involves a number of assumptions, estimates, and judgments in determining fair value of the following:
• Intangible assets, including valuation methodology, estimations of future cash flows, discount rates, market segment growth rates, and our assumed market share, as well as the estimated useful life of intangible assets;
• Deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which are initially estimated as of the acquisition date;
• Goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed; and
• Pre-existing liabilities and legal claims, and contingent consideration, each as may be applicable.
Our assumptions and estimates are based upon comparable market data and information obtained from management and the management of the acquired companies. These assumptions and estimates are used to value assets acquired and liabilities assumed, and to allocate goodwill to the reporting units of the business that are expected to benefit from the business combination. Adjustments to the fair values of assets acquired and liabilities assumed may be recorded during the measurement period, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. We may engage valuation specialists to assist in the fair value measurement of assets acquired and liabilities assumed for each acquisition.
Income taxes: We account 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. We record a deferred tax asset related to the stock-based compensation costs recognized for certain stock-based awards. At the time of the exercise of non-qualified stock options or vesting of stock awards, we recognize any excess tax benefit within income taxes in the Consolidated Statements of Income and Comprehensive Income.
We maintain a reserve for uncertain tax positions. We evaluate tax positions taken or expected to be taken in a tax return for recognition in our consolidated financial statements. Prior to recording the related tax benefit in our consolidated financial statements, we must conclude that tax positions are more-likely-than-not to be sustained, assuming those positions will be examined by taxing authorities with full knowledge of all relevant information. The benefit recognized in our consolidated financial statements is the amount we expect to realize after examination by taxing authorities. If a tax position drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the more-likely-than-not standard has been met when developing the provision for income taxes and in determining the expected benefit. A change in the assessment of the more-likely-than-not standard could materially impact our results of operations or financial position. Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of our reserve for uncertain tax positions.
Ite m 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 long-term AFS
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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 corporate bonds; U.S. government agency securities; municipal bonds; and VRDNs when available in the market. 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 to three and one-quarter years.
During fiscal 2026, our primary short-term investment vehicles were U.S. government agency discount notes and bank demand deposit accounts. We have no exposure to high-risk or non-liquid investments. We have insignificant exposure to European investments.
During fiscal 2026, the average interest rate earned on our combined funds held for clients and corporate cash equivalents and investment portfolios was 3.6%, compared to 3.7% for fiscal 2025. When interest rates are falling, the full impact of lower interest rates will not immediately be reflected in net income due to the interaction of short- and long-term interest rate changes. During a falling interest rate environment, earnings will decrease from our short-term investments, and over time, will decrease from our longer-term AFS securities. Earnings from the AFS securities, which as of May 31, 2026 had an average duration of 3.1 years, would not reflect decreases in interest rates until the investments are sold or mature and the proceeds are reinvested at lower rates.
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2026 are shown below by expected maturity.
May 31, 2026
Amortized
Fair
In millions
cost
value
Maturity date:
Due in one year or less
$
912.6
$
906.9
Due after one year through three years
1,426.5
1,407.7
Due after three years through five years
599.1
595.8
Due after five years
1,602.7
1,578.0
Total
$
4,540.9
$
4,488.4
VRDNs, when held by us, 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, 2026, the Federal Funds rate was in the range of 3.50% to 3.75% and in the range of 4.25% to 4.50%, as of May 31, 2025. There continues to be uncertainty in the changing market and economic conditions, including the possibility of additional measures that could be taken by the U.S. President, the Federal Reserve and other government agencies related to the overall macroeconomic environment. We will continue to monitor the market and economic conditions.
Calculating the future effects of changing interest rates involves many factors. These factors include, but are not limited to:
• governmental action to address inflation and/or intervene to support financial markets;
• daily interest rate changes;
• seasonal variations in investment balances;
• actual duration of short-term and AFS securities;
• the proportion of taxable and tax-exempt investments;
• changes in tax-exempt municipal rates versus taxable investment rates, which are not synchronized or simultaneous; and
• 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 19 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 $4.5 million to $5.0 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.
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Our total investment portfolio (funds held for clients and corporate cash equivalents and investments) averaged approximately $7.4 billion for fiscal 2026. Our anticipated allocation is approximately 35% invested in short-term securities and VRDNs with an average duration of less than 30 days, and 65% invested in AFS securities with an average duration of two to three and one-quarter years.
The combined funds held for clients and corporate AFS securities reflected net unrealized losses of $52.5 million and $53.6 million as of May 31, 2026 and 2025, respectively. Refer to Note H of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional disclosures on fair value measurements.
During fiscal 2026, the net unrealized gain or loss on our investment portfolios ranged from a net unrealized gain of $7.3 million to a net unrealized loss of $77.4 million. During fiscal 2025, the net unrealized loss on our investment portfolios ranged from $41.8 million to $162.5 million. The net unrealized loss on our investment portfolios was approximately $69.9 million as of July 15, 2026.
As of May 31, 2026 and 2025, we had $4.5 billion and $3.8 billion, respectively, invested in AFS securities at fair value. The weighted-average yield-to-maturity was 3.7% and 3.3% as of May 31, 2026 and 2025, respectively. The weighted-average yield-to-maturity excludes AFS securities tied to short-term interest rates, such as VRDNs, when held. Assuming a hypothetical decrease in longer-term interest rates of 25 basis points, the resulting potential increase in fair value for our portfolio of AFS securities as of May 31, 2026, would be in a range of approximately $30.0 million to $35.0 million. Conversely, a corresponding increase in interest rates would result in a comparable decrease in fair value. This hypothetical decrease or increase in the fair value of the portfolio would be recorded as an adjustment to the portfolio’s recorded value, with an offsetting amount recorded in stockholders’ equity. These fluctuations in fair value would have no related or immediate impact on our results of operations unless any declines in fair value are due to credit related concerns 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, 2026 were not impaired as a result of the previously discussed reasons. While $3.0 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 $59.8 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, 2026 and 2025 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 our purchase of customer accounts receivable under non-recourse arrangements. There is also credit risk exposure relating to our trade accounts receivable. These credit risk exposures are diversified among multiple customer arrangements and all such arrangements are regularly reviewed for potential write-off. No single customer is material in respect to total accounts receivable, service revenue, or results of operations.
Market risk: 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 closely monitor market conditions and take appropriate measures, when necessary, to minimize potential risk exposure to our customer’s and our cash and investment balances.
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Ite m 8. Financial Statements and Supplementary Data
TABLE OF CONTENTS
Description
Page
Report on Management’s Assessment of Internal Control Over Financial Reporting
38
Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )
39
Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, 2026, 2025, and 2024
41
Consolidated Balance Sheets as of May 31, 2026 and 2025
42
Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2026, 2025, and 2024
43
Consolidated Statements of Cash Flows for the Years Ended May 31, 2026, 2025, and 2024
44
Notes to Consolidated Financial Statements
45
Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, 2026, 2025, and 2024
79
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REPO RT 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, 2026. 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, 2026.
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, 2026, 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/ Robert L. Schrader
Robert L. Schrader
Senior Vice President and Chief Financial Officer
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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, 2026 and 2025, 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, 2026, 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, 2026, 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, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2026 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, 2026, 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 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.
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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) Workers’ Compensation Insurance Reserves
As described in Note A to the consolidated financial statements, the Company offers workers’ compensation insurance to customers for the benefit of customer 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, 2026, the total liability for workers’ compensation insurance reserves is $237.7 million. In establishing the PEO 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 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.
The principal considerations for our determination that performing procedures relating to PEO workers’ compensation insurance reserves is a critical audit matter are (i) the significant judgment by management when developing the PEO workers’ compensation insurance reserves; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions and actuarial estimates related to the loss development factors; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
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 PEO 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 included, among others (i) testing the completeness and accuracy of the underlying data used in management’s estimate of the PEO workers’ compensation insurance reserves and (ii) the involvement of professionals with specialized skill and knowledge to assist in (a) developing an independent estimate of the PEO workers’ compensation insurance reserves and comparing the independent estimate to management’s estimate and (b) evaluating the appropriateness of management’s model and the reasonableness of management’s assumptions and actuarial estimates related to the loss development factors.
/s/ PricewaterhouseCoopers LLP
Victor, New York
July 17, 2026
We have served as the Company’s auditor since 2013.
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PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME AND CO MPREHENSIVE INCOME
In millions, except per share amounts
Year ended May 31,
2026
2025
2024
Revenue:
Management Solutions
$
4,867.9
$
4,067.1
$
3,866.4
PEO and Insurance Solutions
1,433.2
1,342.9
1,265.6
Total service revenue
6,301.1
5,410.0
5,132.0
Interest on funds held for clients
210.9
161.7
146.3
Total revenue
6,512.0
5,571.7
5,278.3
Expenses:
Cost of service revenue
1,674.5
1,540.4
1,479.3
Selling, general and administrative expenses
2,327.0
1,823.6
1,624.9
Total expenses
4,001.5
3,364.0
3,104.2
Operating income
2,510.5
2,207.7
2,174.1
Interest expense
( 269.5
)
( 105.4
)
( 37.3
)
Other income, net
69.9
73.6
81.2
Income before income taxes
2,310.9
2,175.9
2,218.0
Income taxes
550.8
518.6
527.6
Net income
$
1,760.1
$
1,657.3
$
1,690.4
Other comprehensive income/(loss), net of tax
3.8
91.4
14.8
Comprehensive income
$
1,763.9
$
1,748.7
$
1,705.2
Basic earnings per share
$
4.90
$
4.60
$
4.69
Diluted earnings per share
$
4.89
$
4.58
$
4.67
Weighted-average common shares outstanding
358.9
360.2
360.3
Weighted-average common shares outstanding, assuming
dilution
360.0
362.0
362.1
See Notes to Consolidated Financial Statements.
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PAYCHEX, INC.
CONSOLIDATED BAL ANCE SHEETS
In millions, except per share amounts
As of May 31,
2026
2025
Assets
Cash and cash equivalents
$
1,088.2
$
1,628.6
Restricted cash
52.8
47.9
Corporate investments
36.3
34.5
Interest receivable
36.1
27.9
Accounts receivable, net of allowance for credit losses
1,507.6
1,330.5
PEO unbilled receivables, net of advance collections
664.2
616.6
Prepaid income taxes
11.2
38.9
Prepaid expenses and other current assets
384.7
378.3
Current assets before funds held for clients
3,781.1
4,103.2
Funds held for clients
4,832.2
4,813.3
Total current assets
8,613.3
8,916.5
Property and equipment, net of accumulated depreciation
588.9
511.5
Operating lease right-of-use assets, net of accumulated amortization
63.9
63.8
Intangible assets, net of accumulated amortization
1,684.0
1,947.3
Goodwill
4,527.4
4,514.1
Long-term deferred costs
555.8
482.4
Other long-term assets
141.2
128.5
Total assets
$
16,174.5
$
16,564.1
Liabilities
Accounts payable
$
154.8
$
129.8
Accrued corporate compensation and related items
162.1
183.9
Accrued worksite employee compensation and related items
844.8
735.8
Short-term debt
—
18.6
Long-term debt, net, current portion
—
399.8
Accrued income taxes
87.8
—
Deferred revenue
69.4
69.4
Other current liabilities
637.1
552.0
Current liabilities before client fund obligations
1,956.0
2,089.3
Client fund obligations
4,884.6
4,867.0
Total current liabilities
6,840.6
6,956.3
Accrued income taxes
140.5
119.0
Deferred income taxes
543.3
444.7
Long-term debt, net of debt issuance costs
4,556.1
4,548.4
Operating lease liabilities
52.2
55.5
Other long-term liabilities
306.7
312.2
Total liabilities
12,439.4
12,436.1
Commitments and contingencies — Note Q
Stockholders’ equity
Common stock, $ 0.01 par value; Authorized: 600.0 shares;
Issued and outstanding: 355.6 shares as of May 31, 2026
and 360.5 shares as of May 31, 2025
3.6
3.6
Additional paid-in capital
1,975.6
1,901.1
Retained earnings
1,805.8
2,277.0
Accumulated other comprehensive loss
( 49.9
)
( 53.7
)
Total stockholders’ equity
3,735.1
4,128.0
Total liabilities and stockholders’ equity
$
16,174.5
$
16,564.1
See Notes to Consolidated Financial Statements.
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PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF ST OCKHOLDERS’ EQUITY
In millions, except per share amounts
Accumulated other comprehensive loss
Total
Net
accumulated
Additional
unrealized
Cash
Foreign
other
Common stock
paid-in
Retained
loss on AFS
flow
currency
comprehensive
Shares
Amount
capital
earnings
securities
hedges
translation
income/(loss)
Total
Balance as of May 31, 2023
360.5
$
3.6
$
1,626.4
$
2,023.1
$
( 130.3
)
$
—
$
( 29.6
)
$
( 159.9
)
$
3,493.2
Net income
—
—
—
1,690.4
—
—
—
—
1,690.4
Unrealized gains on securities, net of $ 2.6 million in tax expense
—
—
—
—
7.6
—
—
7.6
7.6
Reclassification adjustment for realized losses on securities, net of $ 0.7
million in tax benefit (1)
—
—
—
—
2.0
—
—
2.0
2.0
Dividends declared ($ 3.65 per share)
—
—
—
( 1,315.4
)
—
—
—
—
( 1,315.4
)
Repurchases of common shares (2)
( 1.5
)
( 0.0
)
( 6.2
)
( 163.0
)
—
—
—
—
( 169.2
)
Stock-based compensation
—
—
61.1
—
—
—
—
—
61.1
Foreign currency translation adjustment
—
—
—
—
—
—
5.2
5.2
5.2
Activity related to equity-based plans
1.1
0.0
48.2
( 22.1
)
—
—
—
—
26.1
Balance as of May 31, 2024
360.1
3.6
1,729.5
2,213.0
( 120.7
)
—
( 24.4
)
( 145.1
)
3,801.0
Net income
—
—
—
1,657.3
—
—
—
—
1,657.3
Unrealized gains/(losses), net of $ 26.4 million in tax expense
—
—
—
—
81.9
( 19.2
)
—
62.7
62.7
Reclassification adjustment to earnings, net of $ 0.1
million in tax benefit (1)
—
—
—
—
0.3
19.2
—
19.5
19.5
Dividends declared ($ 4.02 per share)
—
—
—
( 1,448.7
)
—
—
—
—
( 1,448.7
)
Repurchases of common shares (2)
( 0.8
)
( 0.0
)
( 4.0
)
( 100.5
)
—
—
—
—
( 104.5
)
Stock-based compensation
—
—
111.8
—
—
—
—
—
111.8
Fair value of awards included in transaction consideration
—
—
15.9
15.9
Foreign currency translation adjustment
—
—
—
—
—
—
9.2
9.2
9.2
Activity related to equity-based plans
1.2
0.0
47.9
( 44.1
)
—
—
—
—
3.8
Balance as of May 31, 2025
360.5
3.6
1,901.1
2,277.0
( 38.5
)
—
( 15.2
)
( 53.7
)
4,128.0
Net income
—
—
—
1,760.1
—
—
—
—
1,760.1
Unrealized gains, net of $ 2.4 million in tax expense
—
—
—
—
6.4
—
—
6.4
6.4
Reclassification adjustment to earnings, net of
$ 1.9 million in tax expense (1)
—
—
—
—
( 5.7
)
—
—
( 5.7
)
( 5.7
)
Dividends declared ($ 4.43 per share)
—
—
—
( 1,589.9
)
—
—
—
—
( 1,589.9
)
Repurchases of common shares (2)
( 5.6
)
( 0.0
)
( 27.0
)
( 584.0
)
—
—
—
—
( 611.0
)
Stock-based compensation
—
—
96.1
—
—
—
—
—
96.1
Foreign currency translation adjustment
—
—
—
—
—
—
3.1
3.1
3.1
Activity related to equity-based plans
0.7
0.0
5.4
( 57.4
)
—
—
—
—
( 52.0
)
Balance as of May 31, 2026
355.6
$
3.6
$
1,975.6
$
1,805.8
$
( 37.8
)
$
—
$
( 12.1
)
$
( 49.9
)
$
3,735.1
(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 maintained a program to repurchase up to $ 400.0 million of its common stock, with authorizations that expired on January 16, 2026 , at which time $ 9.4 million of unused repurchase authorization expired. On January 16, 2026, the Company's Board approved a program to repurchase up to an additional $ 1.0 billion of its common stock with no expiration date. The Company maintained a separate program to repurchase up to $ 400.0 million of its common stock which expired on January 31, 2024 . 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.
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Table of Contents
PAYCHEX, INC.
CONSOLIDATED STATEMENT S OF CASH FLOWS
In millions
Year ended May 31,
2026
2025
2024
Operating activities
Net income
$
1,760.1
$
1,657.3
$
1,690.4
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
442.6
209.5
176.5
Amortization of discounts and premiums on AFS securities, net
( 7.6
)
23.4
( 7.0
)
Amortization of deferred contract costs
249.2
236.5
231.7
Stock-based compensation costs
96.1
111.8
61.1
Provision of/(benefit from) deferred income taxes
103.7
( 15.8
)
( 29.8
)
Provision for credit losses
38.1
24.2
19.8
Net realized (gains)/losses on sales of AFS securities
( 7.6
)
0.4
2.6
Net realized losses on disposal of assets
6.2
3.7
32.8
Premium paid on cash flow hedges
—
( 19.2
)
—
Changes in operating assets and liabilities:
Interest receivable
( 8.2
)
( 3.8
)
1.1
Accounts receivable and PEO unbilled receivables, net
( 105.8
)
( 130.7
)
113.0
Prepaid expenses and other current assets
40.0
( 12.0
)
( 25.2
)
Accounts payable and other current liabilities
291.4
42.3
( 127.0
)
Deferred costs
( 342.5
)
( 246.5
)
( 244.9
)
Net change in other long-term assets and liabilities
3.9
21.9
6.1
Net change in operating lease right-of-use assets and liabilities
( 2.9
)
( 2.1
)
( 3.5
)
Net cash provided by operating activities
2,556.7
1,900.9
1,897.7
Investing activities
Purchases of AFS securities
( 12,226.2
)
( 14,302.9
)
( 6,868.5
)
Proceeds from sales and maturities of AFS securities
11,517.6
14,292.5
7,161.2
Net change in purchased receivables
( 166.1
)
( 157.3
)
( 153.8
)
Purchases of property and equipment
( 234.9
)
( 191.8
)
( 161.4
)
Acquisition of businesses, net of cash acquired
( 0.4
)
( 2,967.5
)
( 208.3
)
Purchases of other assets
( 42.4
)
( 29.8
)
( 30.1
)
Net cash used in investing activities
( 1,152.4
)
( 3,356.8
)
( 260.9
)
Financing activities
Net change in client fund obligations
17.6
( 290.7
)
( 425.3
)
Net proceeds from short-term borrowings
( 18.8
)
—
9.0
Payments on long-term borrowings
( 400.0
)
—
—
Proceeds from issuance of corporate bonds
—
4,180.9
—
Dividends paid
( 1,589.6
)
( 1,448.5
)
( 1,315.3
)
Repurchases of common shares
( 611.0
)
( 104.5
)
( 169.2
)
Debt issuance costs
—
( 47.8
)
—
Activity related to equity-based plans
( 52.0
)
3.8
26.1
Net cash (used in)/provided by financing activities
( 2,653.8
)
2,293.2
( 1,874.7
)
Net change in cash, restricted cash, and equivalents
( 1,249.5
)
837.3
( 237.9
)
Cash, restricted cash, and equivalents, beginning of fiscal year
2,734.3
1,897.0
2,134.9
Cash, restricted cash, and equivalents, end of fiscal year
$
1,484.8
$
2,734.3
$
1,897.0
Reconciliation of cash, restricted cash, and equivalents
Cash and cash equivalents
$
1,088.2
$
1,628.6
$
1,468.9
Restricted cash
52.8
47.9
47.8
Restricted cash and restricted cash equivalents included in funds held for clients
343.8
1,057.8
380.3
Total cash, restricted cash, and equivalents
$
1,484.8
$
2,734.3
$
1,897.0
See Notes to Consolidated Financial Statements.
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Table of Contents
PAYCHEX, INC.
NOTES TO CONSOLIDATED FIN ANCIAL 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 an industry-leading human capital management (“HCM”) company delivering a full suite of technology and advisory solutions in human resources (“HR”), employee benefit solutions, insurance and payroll for customers and their employees in the United States (“U.S.”) and parts of Europe. The Company also has operations in Canada, India, and Israel.
Paychex, a Delaware corporation formed i n 1979, reports as a single segment. Refer to Note R of this Item 8 for further discussion of the Company’s segment reporting for each of the fiscal years ended May 31, 2026 (“fiscal 2026”), May 31, 2025 (“fiscal 2025”), and May 31, 2024 (“fiscal 2024”) and as of May 31, 2026 and 2025.
The Company offers a full range of integrated HCM solutions covering the employee life cycle for businesses and their employees. Customers may choose from a breadth of solutions that also allow integration with some of the most popular HR, accounting, point-of-sale, and productivity applications on the market today. 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 customers through its proprietary, robust Paychex Flex ® platform, Paycor and the Company’s SurePayroll ® SaaS-based solutions. These 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 larger customers 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 service and software solutions 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 customers for the payment of worksite employee payrolls and associated payroll taxes. $ 217.7 million and $ 179.8 million collected from PEO customers are included in cash and cash equivalents on the Company’s Consolidated Balance Sheets as of May 31, 2026 and 2025 , 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.
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 as follows:
May 31,
May 31,
In millions
2026
2025
Trade receivables
$
238.5
$
205.4
Purchased receivables
1,309.5
1,151.1
Total accounts receivable, gross
1,548.0
1,356.5
Less: Allowance for credit losses
40.4
26.0
Accounts receivable, net of allowance for credit losses
$
1,507.6
$
1,330.5
45
Table of Contents
Trade receivables are for services provided to customers in the normal course of business and purchased receivables are acquired from the Company's customers under non-recourse arrangements.
The Company is exposed to credit losses through the sale of its solutions and support services, payment of customer obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has multiple programs in place to assess and continuously monitor each customer’s ability to pay for these solutions and support services. Credit monitoring programs include, but are not limited to, new customer credit reviews, establishing appropriate credit limits, monitoring of credit distressed customers, and early electronic wire and collection procedures. The Company also considers contract terms and conditions, customer 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.
Allowance for credit losses activity related to accounts receivables are as follows:
Year ended May 31,
In millions
2026
2025
2024
Balance, beginning of period
$
26.0
$
21.3
$
20.5
Provision for credit losses
38.1
24.2
19.8
Write-offs and recoveries
( 23.7
)
( 19.5
)
( 19.0
)
Balance, end of period
$
40.4
$
26.0
$
21.3
No single customer had a material impact on total accounts receivable as of May 31, 2026 or 2025 . No single customer had a material impact on service revenue or results of operations for the fiscal years ended May 31, 2026, 2025 and 2024 .
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 customers, are recorded as PEO unbilled receivables, net of advance collections on the Company’s Consolidated Balance Sheets. As of May 31, 2026 and 2025, advance collections were $ 1.1 million and $ 1.8 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. Deposits at these institutions may, at times, exceed federally insured limits (e.g., FDIC coverage). The Company monitors the creditworthiness of these institutions and has not experienced any losses during fiscal 2026, fiscal 2025 or fiscal 2024 . All the Company’s deliverable securities are held in custody with certain of the aforementioned financial institutions, in accordance with standard custody arrangements. Non-deliverable securities are primarily time deposits and money market funds.
46
Table of Contents
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
10 to 35 years or the remaining life, whichever is shorter
Data processing equipment
3 to 5 years
Furniture, fixtures, and equipment
2 to 7 years
Leasehold improvements
10 years or the life of the lease, whichever is shorter
Software
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 2026, fiscal 2025 and fiscal 2024 , 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 values. 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 2026, fiscal 2025, or fiscal 2024. Subsequent to the latest review, there have been no events or circumstances that indicate any potential impairment of the Company’s goodwill balance.
Finite-lived intangible assets are reported net of accumulated amortization on the Consolidated Balance Sheets. Amortization is based on the estimated useful lives of asset using either an accelerated method or straight-line method. The estimated useful lives of amortizable assets are generally as follows:
Category
Amortizable life
Customer lists
3 to 12 years
Acquired developed software
5 to 7 years
Other intangibles:
Finite-lived trade names and trademarks
3 to 15 years
Naming rights
Over remaining term of underlying agreement
In addition, the Company has an intangible asset with an indefinite useful life, which 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 the carrying value may not be recoverable. The Company has determined, using qualitative assessments, there is no impairment of this intangible asset for fiscal 2026, fiscal 2025, or fiscal 2024 .
47
Table of Contents
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 group may not be recoverable. The recoverability of asset groups 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 group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. The Company has determined that there was no impairment of long-lived assets for fiscal 2026, fiscal 2025, or fiscal 2024 .
Derivative Instruments: At inception, a derivative asset is recorded for the fair value of the premiums paid. Changes to the fair value of these cash flow hedges are temporarily reported in Accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets and reclassified to earnings as the hedged item affects earnings. The Company formally assesses, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure. Interest rate swaption contracts (“Swaption Contracts”), qualifying as cash flow hedges of interest payments, were used to hedge a portion of the Company's long-term fixed rate debt in fiscal 2025. Refer to Note M Short-term Financing for additional information on the Company's Swaption Contracts.
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 the Consolidated Statements of Stockholders’ Equity as a component of accumulated other comprehensive income/(loss), net of tax. The Company did no t have any material realized gains or losses resulting from foreign exchange transactions during fiscal 2026, fiscal 2025, or fiscal 2024 .
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 customers, 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, a fixed amount per processing period plus a fee per employee or transaction processed, or fee per employee per month or per processing period. Insurance Solutions revenues are recognized when commissions are earned on premiums billed and collected. Fees earned for the purchase of customer's accounts receivable under non-recourse arrangements are based on a percentage of funding amounts as specified in the customer contract. These fees are then recognized over the average collection period of 40 to 55 days for customers in the temporary staffing agency market and approximately 5 to 15 days for other customers. 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 customers. 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 Company's 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 and 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.
48
Table of Contents
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 customer 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 customer 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 customers are capitalized and amortized using either an accelerated method over an eight-year life or straight-line method over a six-year life to closely align with the pattern of customer attrition over the estimated life of the customer relationship. The Company regularly reviews its deferred costs for potential impairment and did no t recognize an impairment loss during fiscal 2026, fiscal 2025, or fiscal 2024 .
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 customers for the benefit of customer 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 2026 and fiscal 2025 , the Company has an aggregate maximum liability of $ 1.0 million for claims exceeding $ 1.0 million, and once met, the maximum individual claims liability is $ 1.0 million.
As of May 31, 2026 and 2025, the Company had recorded current liabilities of $ 80.7 million and $ 80.4 million , respectively, and long-term liabilities of $ 157.0 million and $ 156.4 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 reserve 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 durin g both fiscal 2026 and fiscal 2025. Amounts accrued related to the health insurance and dental and vision plan reserves were $ 64.3 million and $ 48.2 million as of May 31, 2026 and 2025, respectively. These amounts are included in other current liabilities on the Consolidated Balance Sheets.
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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 2026, fiscal 2025, or fiscal 2024 .
Leases: The Company accounts for its leases under ASC Topic 842, "Leases". 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 with a term greater than one year, the Company evaluates whether it should be classified as an operating or a finance lease. Currently, all the Company’s leases have been classified as operating leases. Upon modification of a contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.
The Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:
• periods covered by an option to extend the lease if the Company is reasonably certain to exercise the extension option; and
• periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option.
Leases may also include options to terminate the arrangement or options to purchase the underlying lease property. The Company does not separate lease and non-lease components of 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.
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, on 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 no t recognize an impairment loss during fiscal 2026, fiscal 2025 or fiscal 2024.
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. For stock options, the Company estimates the fair value of grants using a Black-Scholes option pricing model. This model requires various assumptions as inputs including the 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.
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The fair value of time-based stock awards is determined based on the stock price. 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 fair value of performance-based stock awards that include a market condition is estimated based on a Monte Carlo simulation. The Monte Carlo simulation requires various assumptions as inputs including the expected volatility of the Paychex stock price and the stock prices of the companies that comprise the designated peer group. Stock price volatility of the Company and the designated peer group is estimated based on historical volatility, using stock prices over a period equal to the measurement period of the award.
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.
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. The Company periodically reassesses its assumptions as well as its choice of valuation models. The Company will reconsider use of its valuation models 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.
Refer to Note F of this Item 8 for further discussion of the Company’s stock-based compensation plans.
Income taxes: The Company accounts for deferred taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.
The Company also maintains a reserve for uncertain tax positions. The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in its consolidated financial statements. Prior to recording the related tax benefit in the consolidated financial statements, the Company must conclude that tax positions will be more-likely-than-not to be sustained, assuming those positions will be examined by taxing authorities with full knowledge of all relevant information. The benefit recognized in the consolidated financial statements is the amount the Company expects to realize after examination by taxing authorities. If a tax position drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the more-likely-than-not standard has been met when developing the provision for income taxes and in determining the expected benefit. A change in the assessment of the more-likely-than-not standard could materially impact the Company’s results of operations or financial position. Refer to Note L of this Item 8 for further discussion of the Company’s reserve for uncertain tax positions.
Business combinations: The Company accounts for acquisitions in accordance with the guidance in Financial Accounting Standards Board ("FASB") ASC Topic 805, Business Combinations ("ASC 805"), using the acquisition method of accounting. The Company allocates the purchase price consideration associated with its acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. This allocation involves a number of assumptions, estimates, and judgments in determining fair value of the following:
• Intangible assets, including valuation methodology, estimations of future cash flows, discount rates, market segment growth rates, and our assumed market share, as well as the estimated useful life of intangible assets;
• Deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which are initially estimated as of the acquisition date;
• Goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed; and
• Pre-existing liabilities and legal claims, and contingent consideration, each as may be applicable.
The Company's assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. These assumptions and estimates are used to value assets acquired and liabilities assumed, and to allocate goodwill to the reporting units of the business that are expected to benefit from the business combination. Adjustments to the fair values of assets acquired and liabilities assumed may be recorded during the measurement
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period, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. The Company may engage a valuation specialist to assist in the fair value measurement of assets acquired and liabilities assumed for each acquisition.
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 for the Company's Annual Report on Form 10-K for fiscal 2026, the Company adopted Accounting Standard Update ("ASU") No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” using a retrospective application approach. The requirements of this ASU are disclosure-related and do no t have an impact on the Company’s financial condition, results of operations, or cash flows. The ASU requires additional detail in the income tax rate reconciliation, including quantitative thresholds for reconciling items, and mandates disaggregation of income taxes paid among federal, state, and foreign jurisdictions, with further breakdowns for significant individual jurisdictions. Refer to Note L of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding income taxes.
Recently issued accounting pronouncements: In November 2024, the FASB issued ASU No. 2024-03 “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU No. 2024-03 as amended by subsequent ASUs on the topic requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027. Entities are permitted to apply either the prospective or retrospective transition methods. This ASU is applicable to the Company’s Annual Report on Form 10-K for the fiscal year ending May 31, 2028, and subsequent interim periods, with early application permitted. The requirements of this ASU are disclosure-related and will not have an impact on the Company’s financial condition, results of operations, or cash flows. The Company is currently evaluating the impact of adopting this ASU on its disclosures.
In July 2025, the FASB issued ASU No. 2025-05 “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets,” which introduces a practical expedient for the application of the current expected credit loss model to current accounts receivable and contract assets. The practical expedient permits an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset. This ASU is effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. The transition method is prospective. The Company will adopt this guidance in its fiscal year beginning June 1, 2026, and will elect the practical expedient. The adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
In September 2025, the FASB issued ASU No. 2025-06 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” This ASU updates the cost capitalization threshold for internal-use software development costs by removing all references to software project development stages and providing new guidance on how to evaluate whether the probable-to-complete recognition threshold has been met. This ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods. This ASU is applicable to the Company’s fiscal year beginning June 1, 2028, with early application permitted. The transition method may be prospective, modified, or retrospective. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.
In November 2025, the FASB issued ASU No. 2025-08 “Financial Instruments – Credit Losses (Topic 326): Purchased Loans.” This ASU expands the population of acquired financial assets subject to the gross-up approach under Topic 326 whereby loans purchased without credit deterioration and deemed seasoned are recognized at their purchase price plus an allowance for expected credit losses. Purchased seasoned loans include all loans that are acquired in a business combination and loans acquired in an asset acquisition if purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within those annual reporting periods. This ASU is applicable to the Company’s fiscal year beginning June 1, 2027, with early application permitted. The transition method is prospective. The Company does not currently purchase financial assets within the scope of the ASU. Accordingly, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.
Note B — Service Revenue
Service revenue is primarily attributable to fees for providing services to the Company’s customers and is recognized when control of the contracted services is transferred to its customers, 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
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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. Customers 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 customer 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 customers.
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 customers’ employees, offers health insurance coverage to customer 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:
Year ended May 31,
In millions
2026
2025
2024
Payroll wages and payroll taxes
$
32,197.0
$
29,280.0
$
27,381.5
State unemployment insurance (included in payroll wages and payroll taxes)
$
179.4
$
167.4
$
151.8
Guaranteed cost benefit plans
$
752.3
$
681.6
$
660.3
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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 generally 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 two years to four years .
Changes in deferred revenue related to material rights that exceed one year were as follows:
Year ended May 31,
In millions
2026
2025
Balance, beginning of period
$
92.4
$
74.9
Deferred revenue acquired
—
19.0
Deferral of revenue
54.1
39.0
Recognition of unearned revenue
( 55.1
)
( 40.5
)
Balance, end of period
$
91.4
$
92.4
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, 2026, the Company expects to recognize $ 45.8 million of deferred revenue related to material rights during its fiscal year ending May 31, 2027 and $ 45.6 million of deferred revenue t hereafter .
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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 customer 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 customer 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 no t recognize an impairment loss during fiscal 2026, fiscal 2025, or fiscal 2024.
Changes in deferred costs to obtain and fulfill contracts were as follows:
Costs to fulfill contracts:
Year ended May 31,
In millions
2026
2025
Balance, beginning of period
$
87.0
$
76.6
Capitalization of costs
83.0
37.8
Amortization
( 34.1
)
( 27.4
)
Balance, end of period
$
135.9
$
87.0
Costs to obtain contracts:
Year ended May 31,
In millions
2026
2025
Balance, beginning of period
$
609.0
$
609.4
Capitalization of costs
259.5
208.7
Amortization
( 215.1
)
( 209.1
)
Balance, end of period
$
653.4
$
609.0
Note C — Basic and Diluted Earnings Per Share
Basic and diluted earnings per share were calculated as follows:
Year ended May 31,
In millions, except per share amounts
2026
2025
2024
Basic earnings per share:
Net income
$
1,760.1
$
1,657.3
$
1,690.4
Weighted-average common shares outstanding
358.9
360.2
360.3
Basic earnings per share
$
4.90
$
4.60
$
4.69
Diluted earnings per share:
Net income
$
1,760.1
$
1,657.3
$
1,690.4
Weighted-average common shares outstanding
358.9
360.2
360.3
Dilutive effect of common share equivalents
1.1
1.8
1.8
Weighted-average common shares outstanding, assuming dilution
360.0
362.0
362.1
Diluted earnings per share
$
4.89
$
4.58
$
4.67
Weighted-average anti-dilutive common share equivalents
1.3
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.
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Note D — Business Combinations
The Company accounts for acquisitions in accordance with the guidance in FASB ASC 805, Business Combinations. This guidance requires disclosure of consideration transferred, including any contingent consideration, assets acquired, and liabilities assumed to be measured at their fair values as of the acquisition date. This guidance further provides that: (1) acquisition costs will generally be expensed as incurred, (2) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (3) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of the purchase price over the fair values of the net assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill.
Paycor HCM, Inc.
On April 14, 2025, the Company completed its acquisition of Paycor HCM, Inc. (“Paycor”) for total purchase consideration of approximately $ 4.1 billion, of which $ 4.06 billion was paid in cash and $ 25.1 million was paid in the form of replacement awards. To finance the purchase consideration, Paychex issued a $ 4.2 billion aggregate principal amount of fixed-rate corporate bonds. Refer to Note N for further details on the issued fixed rate corporate bonds. Paycor is a leading Software-as-a-Service (“SaaS”) provider of HCM solutions for small and medium-sized businesses across all 50 states within the U.S.
Each unvested award of time-based restricted stock units ("RSUs") and restricted stock awards ("RSAs") granted under the Paycor 2021 Omnibus Incentive Plan held by employees at the Director and above level was replaced with either Paychex RSUs or Paychex RSAs subject to the original vesting conditions. These replaced awards represent $ 15.9 million of the $ 25.1 million of fair value attributable to pre-combination services. Refer to Note F for further details on the replaced RSUs and RSAs. For unvested RSUs held by employees below the level of Director or each unvested phantom award held by Serbia-based Paycor employees at any level, these awards were converted into a cash award for the right to receive $ 22.50 in cash per share, subject to the original vesting conditions. These cash awards represent $ 9.2 million of the $ 25.1 million of fair value attributable to pre-combination services.
The amount of Paycor revenue and net loss included in the Company’s condensed Consolidated Statements of Income and Comprehensive Income from the acquisition date through May 31, 2025, was $ 92.5 million and $ 75.9 million, r espectively. Paycor's financial results during fiscal 2025 include acquisition-related costs of $ 84.5 million, net of tax. Refer to Note R for additional discussion on these acquisition-related costs.
Acquisition-related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions. The Company recognized $ 304.2 million of acquisition-related costs, including $ 242.0 million related to amortization for step-up basis intangible assets, during fiscal 2026, and $ 49.2 million during fiscal 2025. These costs are shown as part of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
The transaction aims to enhance the Company’s capabilities in the upmarket segment and expand its suite of AI-driven HCM solutions.
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Purchase Consideration and Allocation
The Company accounted for the Paycor acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805. The assets acquired and liabilities assumed in the acquisition of Paycor were recorded at their respective fair values as of the acquisition date. Estimates of fair value represent management’s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of certain assets and liabilities. The purchase price allocation as of the acquisition date was subject to change as additional information about the fair values of assets acquired and liabilities assumed became available. Measurement period adjustments were finalized within one year from the acquisition date.
The following table summarizes the components of the purchase consideration:
In millions, except per share amounts
Number of shares of Paycor common stock outstanding (1)
180.5
Cash consideration (per share of common stock)
$
22.50
Total cash consideration
$
4,060.6
Fair value of Paycor equity awards replaced by Paychex for pre-combination services (2)
$
25.1
Total equity consideration
$
25.1
Total purchase consideration
$
4,085.7
(1) Represents outstanding shares of Paycor common stock as of April 11, 2025.
(2) Represents the fair value of Paycor's stock-based compensation awards attributable to pre-combination services. ASC 805 requires that the fair value of replacements awards attributable to pre-combination service be included in consideration transferred.
Purchase Price Allocation
During fiscal 2026, the Company adjusted its purchase price allocation, which increased goodwill $ 4.2 million, primarily resulting from the write-down of a building by $ 4.9 million, net of deferred taxes of $ 1.9 million as a result of an updated valuation, offset by a reduction due to a change in deferred tax liability of $ 3.9 million primarily related to return-to-provision adjustments from the predecessor's final tax return. The impact of these changes on previously reported earnings was not material.
In millions
Total purchase price
$
4,085.7
Assets Acquired
Cash and cash equivalents
$
168.8
Restricted cash
0.0
Interest receivable
0.7
Accounts receivable
26.5
Prepaid income taxes
1.0
Prepaid expenses and other current assets
28.7
Funds held for clients
1,288.2
Property and equipment
27.6
Operating lease right-of-use assets
14.1
Intangible assets
1,776.5
Other long-term assets
1.9
Total assets
$
3,334.0
Liabilities Assumed
Current liabilities
$
137.4
Client funds obligation
1,288.9
Deferred income taxes
339.3
Other long-term liabilities
74.5
Total Liabilities
$
1,840.1
Fair value of purchase consideration
4,085.7
Less: fair value of net assets
1,493.9
Goodwill
$
2,591.8
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The Company finalized the purchase price allocation for the acquisition of Paycor as of March 31, 2026. Customer relationships were the most significant of the acquired identifiable intangible assets. The fair value of the customer relationship intangible asset was estimated using a multi-period excess earnings method. The cash flow projections for the acquired Paycor customer relationships reflected significant judgments and assumptions including the revenue growth rate, customer attrition rate, and discount rate. The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed (the useful life). The final fair values allocated to the identifiable intangible assets and their final estimated useful lives are as follows:
In millions
Identifiable Intangible Assets
Estimated
useful life (years)
Estimated
fair value
Developed technology
7 years
$
367.0
Customer relationships
12 years
1,118.0
Trade name and trademarks
15 years
234.0
Naming rights
13.4 years (1)
57.5
Total
$
1,776.5
(1) Naming rights are amortized over the remaining term of the underlying contract.
The goodwill is attributable primarily to the expected revenue synergies expected from combining the operations of both entities, and intangible assets that do not qualify for separate recognition, including assembled workforce acquired through the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
Unaudited Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations are provided for illustrative purposes only and present the estimated unaudited pro forma combined results of Paychex and Paycor for years ended May 31, 2025 and 2024, as if the acquisition had occurred on June 1, 2023:
Year ended May,
In millions
2025
2024
Revenues
$
6,206.7
$
5,933.2
Net income
$
1,580.2
$
1,405.4
The supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Paychex and Paycor. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the Paycor Acquisition been completed on June 1, 2023, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Paychex and Paycor.
The unaudited supplemental pro forma financial information reflects primarily pro forma adjustments related to removal of seller's amortization of cost to obtain and fulfill contracts, elimination of seller's stock-based compensation expense offset by compensation expense related to replacement awards and settlement of seller awards, amortization expense for step-up in fair value estimates of intangible assets, and interest expense and deferred financing cost amortization related to the fixed rate-corporate bonds issued to finance the Paycor Acquisition. The unaudited supplemental pro forma financial information includes transaction charges associated with the Paycor Acquisition. There are no material, nonrecurring pro forma adjustments directly attributable to the Paycor Acquisition included in the reported pro forma revenue and loss from continuing operations before income taxes.
Paycor’s fiscal year end was June 30 th . Since Paycor and the Company had different fiscal year end dates, the unaudited pro forma operating results were prepared based on comparable periods. The pro forma financial information does not purport to be indicative of the results that would have been obtained had the transactions been completed as of June 1, 2023, for the periods presented and are not intended to be a projection of future results or trends.
Alterna Capital Solutions LLC
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Effective July 31, 2023, substantially all of the net assets of Alterna Capital Solutions LLC (“Alterna”), were acquired by a wholly owned subsidiary of the Company. Alterna purchases outstanding accounts receivable of their customers under non-recourse arrangements. This acquisition allows the Company to increase and diversify its portfolio of solutions and support serving small- to medium-sized businesses. The acquisition consideration was comprised of a base purchase price of $ 95.1 million plus immediate settlement of debt totaling $ 128.9 million, net of $ 15.7 million in cash and restricted cash acquired. Accounts receivable balances acquired, net of allowance for doubtful accounts, and less amounts due to customers related to funding arrangements, totaled $ 146.1 million. Management determined that intangible assets related to the customer list were $ 18.9 million to be amortized utilizing an accelerated method of amortization over a weighted average of 8 years. Goodwill in the amount of $ 46.7 million was recorded as a result of the acquisition, which is tax-deductible. The Company finalized the purchase price allocation for the acquisition of Alterna as of November 30, 2023. The financial results of Alterna are included in the Company’s consolidated financial statements from its respective date of acquisition. This acquisition was not material to the Company’s results of operations, financial position, or cash flows.
Note E — Other Income, Net
Other income, net, consisted of the following items:
Year ended May 31,
In millions
2026
2025
2024
Interest income on corporate investments
$
63.4
$
72.8
$
82.7
Other
6.5
0.8
( 1.5
)
Other income, net
$
69.9
$
73.6
$
81.2
Note F — Stock-Based Compensation Plans
The Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15, 2020 (the “2002 Plan”), authorizes grants of u p to 46.5 million shares of the Company’s common stock. As of May 31, 2026, there were 11.2 million shares available for future grants under the 2002 Plan. The Company issues new shares of common stock to satisfy stock option exercises, issuances under the Company’s employee stock purchase plan, and stock awards.
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 $ 96.1 million , $ 111.8 million , and $ 61.1 million for fiscal years 2026, 2025, and 2024, respectively. Related income tax benefits recognized were $ 17.5 million , $ 17.7 million , and $ 12.7 million for the respective fiscal years.
As of May 31, 2026, the total unrecognized compensation cost related to all unvested stock-based awards was $ 119.6 million and is expected to be recognized over a weighted-average period of 2.5 years.
Stock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified number of shares of the Company’s common stock at an exercise price per share equal to the closing market price of the Company’s common stock on the date of grant. All stock options have a contractual life of ten years from the date of grant and vest one-third per annum for executives and after one year for outside directors. Vesting is generally achieved with active employment or participation as a member of the Board on the date of vesting.
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The following table summarizes stock option activity for fiscal 2026:
Weighted-
Weighted-
average
Shares
average
remaining
Aggregate
subject
exercise price
contractual
intrinsic
In millions, except per share amounts
to options (1)
per share
term (years)
value (2)
Outstanding as of May 31, 2025
3.0
$
84.33
Granted
0.3
$
139.25
Exercised
( 0.5
)
$
60.85
Forfeited
( 0.0
)
$
135.10
Outstanding as of May 31, 2026
2.8
$
93.76
4.4
$
40.8
Exercisable as of May 31, 2026
2.2
$
84.85
3.5
$
40.8
(1) Includes the activity related to long-term incentive plan stock options granted in July 2016, which vested in fiscal 2021.
(2) Total shares valued at the market price of the underlying stock as of May 31, 2026 less the exercise price.
Other information pertaining to stock option grants is as follows:
Year ended May 31,
In millions, except per share amounts
2026
2025
2024
Weighted-average grant-date fair value per share of stock options granted
$
33.50
$
27.54
$
27.21
Total intrinsic value of stock options exercised
$
37.8
$
42.0
$
40.3
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 are as follows:
Year ended May 31,
2026
2025
2024
Risk-free interest rate
4.4
%
4.2
%
4.1
%
Dividend yield
3.0
%
3.2
%
3.1
%
Volatility factor
0.26
0.25
0.25
Expected option life in years
6.6
6.5
6.6
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.
Restricted Stock Units and Restricted Stock Awards: 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. Prior to fiscal 2023, the Company also granted RSAs to certain executives and outside directors. All shares underlying RSAs are restricted in that they are not transferable until they vest. If the recipient does not vest in the awards, due to leaving Paychex, all shares or units, and any dividends accrued thereon, when applicable, will be forfeited and returned to the Company.
Time-Based RSUs and RSAs: Time-based RSUs and RSAs granted to executives vest one-third per annum over three years . Time-based RSUs and RSAs granted to non-executive employees vest on a graded basis over a four - or five-year period. Time-based RSUs and RSAs 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.
Paycor Replacement Awards: In connection with the acquisition of Paycor, the Company exchanged certain unvested Paycor employee equity awards for Paychex RSUs or RSAs based on an exchange ratio of approximately 1 to 0.15 calculated in accordance with the Merger Agreement (the "Replacement Awards"). The fair value of the Replacement Awards wa s $ 105.2 million as of the date of acquisition, of which $ 15.9 million was related to pre-combination expense and was included in the purchase price. The remaining portion of $ 89.3 m illion relates to post-combination expense, of whic h $ 39.1 m illion was expensed
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due to the acceleration of awards as of May 31, 2025. As of May 31, 2026, the total unrecognized compensation cost related to the Replacement Awards was ap proximately $ 15.2 million and is expected to be recognized over a weighted-average period of 1.2 years. Refer to Not e D of this Item 8 for further information related to the Company’s acquisition of Paycor.
The following table summarizes time-based RSU and RSA activity for fiscal 2026:
Weighted-
average
Total
grant-date
RSUs and
fair value
In millions, except per share amounts
RSUs
RSAs
RSAs
per share
Nonvested as of May 31, 2025
1.5
0.1
1.6
$
123.30
Granted
0.6
—
0.6
$
127.21
Vested
( 0.7
)
( 0.1
)
( 0.8
)
$
123.58
Forfeited
( 0.2
)
( 0.0
)
( 0.2
)
$
127.60
Nonvested as of May 31, 2026
1.2
( 0.0
)
1.2
$
124.36
Other information pertaining to time-based RSUs and RSAs is as follows:
Year ended May 31,
In millions, except per share amounts
2026
2025
2024
Weighted-average grant-date fair value per share of RSUs/RSAs granted
$
127.21
$
116.67
$
114.95
Total fair value of RSUs/RSAs vested
$
101.6
$
54.7
$
60.1
The grant date fair value of time-based RSUs and RSAs 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 and RSAs may, or may not, earn dividends or dividend equivalents depending on the terms of the specific grant.
Performance-Based RSUs and RSAs: Performance-based RSUs granted in fiscal 2026 and fiscal 2025 primarily include awards that have a three-year performance period, after which the number of underlying RSUs earned will be determined based on achievement against pre-established performance targets and a market-based condition. Performance-based RSUs and RSAs granted prior to fiscal 2025 had a two-year performance period, after which the number of underlying RSUs and RSAs earned were determined based on achievement against pre-established performance targets and were then subject to a one-year service period. Performance-based RSUs and RSAs do not earn dividends or dividend equivalents during the performance period.
The following table summarizes performance-based RSU and RSA activity for fiscal 2026:
Weighted-
average
Total
grant-date
RSUs and
fair value
In millions, except per share amounts
RSUs
RSAs
RSAs
per share
Nonvested as of May 31, 2025
0.3
—
0.3
$
118.49
Granted
0.1
—
0.1
$
139.40
Vested
( 0.1
)
—
( 0.1
)
$
108.26
Forfeited
( 0.0
)
—
( 0.0
)
$
130.10
Nonvested as of May 31, 2026
0.3
—
0.3
$
128.64
Other information pertaining to performance-based RSUs and RSAs is as follows:
Year ended May 31,
In millions, except per share amounts
2026
2025
2024
Weighted-average grant-date fair value per share of RSUs/RSAs granted
$
139.40
$
125.17
$
114.23
Total fair value of RSUs/RSAs vested
$
11.2
$
14.6
$
0.4
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Monte Carlo simulation fair value assumptions: T he fair value of performance-based RSUs, that include a market condition, was estimated at the date of grant using a Monte Carlo simulation. The weighted-average assumptions used for valuation are as follows:
Year ended May 31,
2026
2025
Risk-free interest rate
3.9
%
4.2
%
Dividend yield
3.1
%
3.3
%
Volatility factor
0.23
0.24
Measurement period in years
2.9
2.9
Risk-free interest rates are yields based on the U.S. Treasury Constant Maturity Treasury Yield Curve as of the grant date, based on the award measurement period. The estimated volatility factor is estimated based on historical volatility, using stock prices over a period equal to the measurement period. The measurement period is based on the remaining term from the date of grant to the end of the performance period.
The fair value of performance-based RSUs and RSAs with a performance condition and no market condition 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.
Non-compensatory employee benefit plan: The Company offers a qualified Employee Stock Purchase Plan (“ESPP”) to all U.S. 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 2026, 2025, and 2024 the discount was set at 5 % of the market price. 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 2026, 2025, or 2024 related to the plan.
Note G — Funds Held for Clients and Corporate Investments
Funds held for clients and corporate investments are as follows:
May 31, 2026
Gross
Gross
Amortized
unrealized
unrealized
Fair
In millions
cost
gains
losses
value
Type of issue:
Funds held for clients' money market securities and other
restricted cash equivalents
$
343.8
$
—
$
—
$
343.8
AFS securities:
Asset-backed securities
106.5
0.4
( 0.1
)
106.8
Corporate bonds
2,349.9
5.5
( 18.8
)
2,336.6
Municipal bonds
851.9
0.4
( 21.1
)
831.2
U.S. government agency and treasury securities
1,232.6
1.0
( 19.8
)
1,213.8
Total AFS securities
4,540.9
7.3
( 59.8
)
4,488.4
Other
32.3
4.6
( 0.6
)
36.3
Total funds held for clients and corporate investments
$
4,917.0
$
11.9
$
( 60.4
)
$
4,868.5
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May 31, 2025
Gross
Gross
Amortized
unrealized
unrealized
Fair
In millions
cost
gains
losses
value
Type of issue:
Funds held for clients' money market securities and other
restricted cash equivalents
$
1,057.8
$
—
$
—
$
1,057.8
AFS securities:
Asset-backed securities
158.3
0.9
( 0.0
)
159.2
Corporate bonds
1,640.3
10.7
( 7.0
)
1,644.0
Municipal bonds
1,017.3
0.5
( 44.3
)
973.5
U.S. government agency and treasury securities
993.2
2.3
( 16.7
)
978.8
Total AFS securities
3,809.1
14.4
( 68.0
)
3,755.5
Other
33.1
2.3
( 0.9
)
34.5
Total funds held for clients and corporate investments
$
4,900.0
$
16.7
$
( 68.9
)
$
4,847.8
Included in funds held for clients’ money market securities and other restricted cash equivalents as of May 31, 2026 were bank demand deposit accounts, and money market funds.
Included in asset-backed securities as of May 31, 2026 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, 2026.
Included in corporate bonds as of May 31, 2026 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 3, 2026 through April 17, 2036 .
Included in municipal bonds as of May 31, 2026 were general obligation bonds and revenue bonds and primarily carry credit ratings of AA or better and have maturities ranging from June 1, 2026 through December 1, 2032 .
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:
May 31,
In millions
2026
2025
Funds held for clients
$
4,832.2
$
4,813.3
Corporate investments
36.3
34.5
Total funds held for clients and corporate investments
$
4,868.5
$
4,847.8
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.
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The Company’s AFS securities reflected net unrealized losses of $ 52.5 million and $ 53.6 million as of May 31, 2026 and May 31, 2025. Included in the net unrealized losses as of May 31, 2026 and May 31, 2025 were 664 and 600 AFS securities in an unrealized loss position, representing approximately 60 % and 50 % of the total securities held, respectively. AFS securities in an unrealized loss position for which a credit loss has not been recognized were as follows:
May 31, 2026
Securities in an unrealized
loss position for less than
twelve months
Securities in an unrealized
loss position for more than
twelve months
Total
Gross
Gross
Gross
unrealized
Fair
unrealized
Fair
unrealized
Fair
In millions
losses
value
losses
value
losses
value
Type of issue:
Asset-backed securities
$
( 0.1
)
$
21.7
$
—
$
—
$
( 0.1
)
$
21.7
Corporate bonds
( 16.3
)
1,148.8
( 2.5
)
128.0
( 18.8
)
1,276.8
Municipal bonds
( 1.7
)
69.0
( 19.4
)
713.2
( 21.1
)
782.2
U.S. government agency and treasury securities
( 13.4
)
610.7
( 6.4
)
337.3
( 19.8
)
948.0
Total
$
( 31.5
)
$
1,850.2
$
( 28.3
)
$
1,178.5
$
( 59.8
)
$
3,028.7
May 31, 2025
Securities in an unrealized
loss position for less than
twelve months
Securities in an unrealized
loss position for more than
twelve months
Total
Gross
Gross
Gross
unrealized
Fair
unrealized
Fair
unrealized
Fair
In millions
losses
value
losses
value
losses
value
Type of issue:
Asset-backed securities
$
( 0.0
)
$
16.4
$
( 0.0
)
$
2.8
$
( 0.0
)
19.2
Corporate bonds
( 0.1
)
83.2
( 6.9
)
236.7
( 7.0
)
319.9
Municipal bonds
( 2.2
)
48.5
( 42.1
)
880.1
( 44.3
)
928.6
U.S. government agency and treasury securities
( 0.7
)
152.0
( 16.0
)
531.8
( 16.7
)
683.8
Total
$
( 3.0
)
$
300.1
$
( 65.0
)
$
1,651.4
$
( 68.0
)
$
1,951.5
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, 2026 that had gross unrealized losses of $ 59.8 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, 2026 and 2025 held an AA rating or better. The Company does not intend to sell these investments until the recovery of their amortized cost basis or maturity and further believes that it is not more-likely-than-not that it will be required to sell these investments prior to that time. The Company’s assessment that an investment is not impaired due to credit risk or other valuation concerns could change in the future due to new developments 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:
Year ended May 31,
In millions
2026
2025
2024
Gross realized gains
$
7.6
$
0.0
$
—
Gross realized losses
( 0.0
)
( 0.4
)
( 2.6
)
Net realized (losses)/gains
$
7.6
$
( 0.4
)
$
( 2.6
)
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Table of Contents
The amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2026 are shown below by expected maturity.
May 31, 2026
Amortized
Fair
In millions
cost
value
Maturity date:
Due in one year or less
$
912.6
$
906.9
Due after one year through three years
1,426.5
1,407.7
Due after three years through five years
599.1
595.8
Due after five years
1,602.7
1,578.0
Total
$
4,540.9
$
4,488.4
Variable rate demand notes (“VRDNs”) are primarily categorized as due after five years in the table above as the contractual maturities on these securities are typically 20 to 30 years . Although these securities are issued as long-term securities, they are priced and traded as short-term instruments because of the liquidity provided through the tender feature.
Note H — Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows:
• Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date.
• Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following:
o quoted prices for similar, but not identical, instruments in active markets;
o quoted prices for identical or similar instruments in markets that are not active;
o inputs other than quoted prices that are observable for the instrument; or
o inputs that are derived principally from or corroborated by observable market data by correlation or other means.
• Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.
The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, net of allowance for 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.
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Table of Contents
The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:
May 31, 2026
Quoted
Significant
prices in
other
Significant
Carrying
active
observable
unobservable
value
markets
inputs
inputs
In millions
(Fair value)
(Level 1)
(Level 2)
(Level 3)
Assets:
Restricted and unrestricted cash equivalents:
Money market securities
$
25.3
$
25.3
$
—
$
—
Total restricted and unrestricted cash equivalents
$
25.3
$
25.3
$
—
$
—
AFS securities:
Asset-backed securities
$
106.8
$
—
$
106.8
$
—
Corporate bonds
2,336.6
—
2,336.6
—
Municipal bonds
831.2
—
831.2
—
U.S. government agency and treasury securities
1,213.8
—
1,213.8
—
Total AFS securities
$
4,488.4
$
—
$
4,488.4
$
—
Other
$
36.3
$
36.3
$
—
$
—
Liabilities:
Other long-term liabilities
$
36.3
$
36.3
$
—
$
—
May 31, 2025
Quoted
Significant
prices in
other
Significant
Carrying
active
observable
unobservable
value
markets
inputs
inputs
In millions
(Fair value)
(Level 1)
(Level 2)
(Level 3)
Assets:
Restricted and unrestricted cash equivalents:
Corporate bonds
$
4.7
$
—
$
4.7
$
—
Municipal bonds
0.4
—
0.4
—
U.S. government agency and treasury securities
615.5
—
615.5
—
Money market securities
42.8
42.8
—
—
Total restricted and unrestricted cash equivalents
$
663.4
$
42.8
$
620.6
$
—
AFS securities:
Asset-backed securities
$
159.2
$
—
$
159.2
$
—
Corporate bonds
1,644.0
—
1,644.0
—
Municipal bonds
973.5
—
973.5
—
U.S. government agency and treasury securities
978.8
—
978.8
—
Total AFS securities
$
3,755.5
$
—
$
3,755.5
$
—
Other
$
34.5
$
34.5
$
—
$
—
Liabilities:
Other long-term liabilities
$
34.5
$
34.5
$
—
$
—
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Table of Contents
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 corporate bonds, municipal bonds, and U.S. government agency and treasury securities with original maturities of 90 days or less 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. The amortized cost and fair value of these borrowings were as follows:
May 31, 2026
May 31, 2025
Amortized
Fair
Amortized
Fair
In millions
cost
value
cost
value
Senior Notes, Series A
$
—
$
—
$
399.8
$
398.3
Senior Notes, Series B
399.5
397.4
399.3
395.5
5-Year Fixed Rate Bonds
1,487.9
1,504.9
1,484.8
1,505.1
7-Year Fixed Rate Bonds
1,485.2
1,504.3
1,482.7
1,504.9
10-Year Fixed Rate Bonds
1,183.5
1,194.2
1,181.6
1,201.9
Total long-term borrowings, net of debt issuance costs
$
4,556.1
$
4,600.8
$
4,948.2
$
5,005.7
The Company’s Senior Notes, Series A were not traded in active markets and matured on March 13, 2026. The Company’s Senior Notes, Series B borrowings are also not traded in active markets. As a result, the fair value of the Senior Notes was 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 Company's fixed-rate corporate bonds ("Corporate Bonds") are not traded in active markets. The fair value of Corporate Bonds was estimated using a market approach employing Level 2 valuation inputs obtained from an independent pricing service. The Company reviews the values generated by the independent pricing service for reasonableness and has not adjusted the prices obtained because it believes that they are appropriately valued.
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.
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Table of Contents
Note I — 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 twelve years , with contractual terms expiring from 2026 to 2038 . 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
2026
2025
Operating lease ROU assets, net of accumulated amortization
$
63.9
$
63.8
Operating lease liabilities, current (1)
22.0
22.5
Operating lease liabilities, non-current
52.2
55.5
Weighted average remaining lease term (in years)
5.1
4.0
Weighted average discount rate
4.13
%
3.73
%
(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:
Year ended May 31,
In millions
2026
2025
2024
Fixed payment operating lease expense
$
19.8
$
27.7
$
28.7
Variable payment operating lease expense
4.1
4.8
5.8
Short-term lease expense
0.0
0.0
0.0
During the fiscal fourth quarter ended May 31, 2024 , the Company focused on cost optimization initiatives, including further reductions to the Company's geographic footprint. As part of this initiative the Company ceased the use of certain leased property and accelerated the amortization of certain ROU assets, resulting in an additional $ 9.7 million of expense. This expense is included in cost of service revenue and 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.
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Supplemental cash flow information related to the Company’s leases were as follows:
Year ended May 31,
In millions
2026
2025
2024
Cash paid for amounts included in the measurement of lease liabilities
$
23.7
$
24.9
$
20.9
Amortization of ROU assets
16.0
14.0
25.8
ROU assets obtained in exchange for new operating lease liabilities
21.6
32.0
7.2
Lease incentives received in the form of tenant allowances and free rent
0.4
0.6
0.8
Future lease payments are as follows:
May 31,
In millions
2026
2027
$
21.4
2028
17.1
2029
14.7
2030
11.1
2031
7.4
Thereafter
11.7
Total future lease payments
83.4
Less: imputed interest
9.2
Total operating lease liabilities
$
74.2
Current portion
$
22.0
Non-current portion
$
52.2
As of May 31, 2026 , the Company has entered into one lease agreement that had not yet commenced for a term of 7.58 years. This lease will require lease payments over the term of approximately $ 14.5 million.
Note J — Property and Equipment, Net of Accumulated Depreciation
The components of property and equipment, at cost, consisted of the following:
May 31,
in millions
2026
2025
Land and improvements
$
10.9
$
13.0
Buildings and improvements
151.5
152.3
Data processing equipment
252.9
242.8
Software (1)
1,322.5
1,129.7
Furniture, fixtures, and equipment
72.9
69.8
Leasehold improvements
59.6
51.6
Construction in progress (1)
45.5
67.5
Total property and equipment, gross
1,915.8
1,726.7
Less: Accumulated depreciation
1,326.9
1,215.2
Property and equipment, net of accumulated depreciation
$
588.9
$
511.5
(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 $ 143.1 million , $ 118.8 million , and $ 127.5 million for fiscal 2026, 2025, and 2024, respectively.
During the fourth quarter of fiscal 2024, the Company reprioritized certain technology investments and disposed of certain leasehold improvements, furniture, and fixtures associated with abandoned leased properties and recorded losses on disposal of $ 17.1 million and $ 4.1 million, respectively. The losses are included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income.
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Note K — Goodwill and Intangible Assets, Net of Accumulated Amortization
Goodwill and changes in goodwill as of and for the years ended May 31, 2026 and May 31, 2025 were as follows:
May 31,
In millions
2026
2025
Balance, beginning of fiscal year
$
4,514.1
$
1,882.7
Changes during the period:
Goodwill acquired
10.2
2,626.5
Currency translation adjustment
3.1
4.9
Balance, end of fiscal year
$
4,527.4
$
4,514.1
Acquired goodwill for fiscal 2026 primarily relates to purchase accounting adjustments made during the measurement period for Paycor. Acquired goodwill for fiscal 2025 primarily relates to the Company's acquisition of Paycor. Refer to Note D for more information related to the Company's acquisitions.
The Company had certain intangible assets on its Consolidated Balance Sheets. The components of intangible assets, at cost, consisted of the following:
May 31,
In millions
2026
2025
Customer lists
$
1,835.5
$
1,797.9
Acquired developed software
408.5
410.5
Other intangible assets
315.0
314.7
Total intangible assets, gross
2,559.0
2,523.1
Less: Accumulated amortization
875.0
575.8
Intangible assets, net of accumulated amortization
$
1,684.0
$
1,947.3
During fiscal 2026, the Company acquired customer lists with a weighted-average amortization period of 8.0 years.
Amortization expense relating to intangible assets was $ 299.5 million, $ 90.7 million, and $ 49.0 million for fiscal 2026, 2025, and 2024, respectively.
The Company did no t recognize an impairment loss as it relates to its goodwill or intangible assets during fiscal 2026, 2025, or 2024.
The estimated amortization expense for the next five fiscal years relating to intangible asset balances is as follows:
In millions
Estimated
amortization
Year ending May 31,
expense
2027
$
277.7
2028
258.5
2029
228.3
2030
198.5
2031
181.1
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Note L — Income Taxes
The components of deferred tax assets and liabilities are as follows:
May 31,
In millions
2026
2025
Deferred tax assets:
Compensation and employee benefit liabilities
$
71.5
$
69.2
Other current liabilities
27.2
15.8
Tax credit carry forward
0.8
10.4
Stock-based compensation
16.2
24.4
Unrealized losses on AFS securities
13.1
13.6
Capitalization of research and development
26.9
133.4
Leases
16.0
15.6
Net operating loss (“NOL”) carry forwards
15.9
28.9
Tax benefit of uncertain tax positions
20.4
18.3
Gross deferred tax assets
208.0
329.6
Deferred tax liabilities:
Deferred contract costs
173.3
149.7
Capitalized software
177.0
167.7
Goodwill, intangible assets, and fixed assets
374.4
431.8
Operating lease right-of-use assets
14.0
12.7
Other
6.7
6.6
Gross deferred tax liabilities
745.4
768.5
Net deferred tax liability
$
( 537.4
)
$
( 438.9
)
On July 4, 2025, the One Big Beautiful Bill Act ("The Act") was enacted into law. The most significant provisions applicable to the Company relate to accelerated tax deductions for qualified property and research expenditures as reflected in the deferred tax table above. There was no material impact on the Company's effective tax rate as a result of The Act.
The deferred tax asset related to NOL carry forwards is comprised of $ 2.1 million of federal NOL carry forwards, $ 8.4 million of state NOL carry forwards, and $ 5.4 million of foreign NOL carry forwards. The federal NOL carry forwards were acquired through various acquisitions. Certain federal NOL carry forwards have indefinite lives, while others expire between the fiscal years ending May 31, 2028 and May 31, 2037 . The state NOL carry forwards expire between the fiscal years ending May 31, 2027 through May 31, 2045 .
The components of the provision for income taxes are as follows:
Year ended May 31,
In millions
2026
2025
2024
Current:
Federal
$
324.4
$
418.8
$
433.5
State
122.9
118.4
117.4
Non-U.S.
( 0.2
)
( 2.8
)
6.5
Total current
447.1
534.4
557.4
Deferred:
Federal
101.4
( 9.9
)
( 18.6
)
State
2.3
( 2.7
)
( 4.6
)
Non-U.S.
0.0
( 3.2
)
( 6.6
)
Total deferred
103.7
( 15.8
)
( 29.8
)
Income taxes
$
550.8
$
518.6
$
527.6
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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,
2026
2025 (2)
2024 (2)
dollars in millions
Amount
%
Amount
%
Amount
%
Federal statutory tax rate
$
485.3
21.0
%
$
456.9
21.0
%
$
465.8
21.0
%
Increase/(decrease) resulting from:
State income taxes, net of federal tax benefit (1)
98.5
4.3
%
92.2
4.2
%
91.2
4.1
%
Foreign tax effects
0.1
0.0
%
( 0.7
)
0.0
%
0.2
0.0
%
Tax credits
( 30.7
)
( 1.3
)
%
( 20.1
)
( 0.9
)
%
( 18.4
)
( 0.9
)
%
Nontaxable or nondeductible items
( 0.2
)
0.0
%
2.9
0.1
%
( 8.7
)
( 0.4
)
%
Changes in unrecognized tax benefits
( 3.9
)
( 0.2
)
%
( 5.3
)
( 0.2
)
%
( 1.0
)
( 0.0
)
%
Other adjustments
1.7
0.0
%
( 7.3
)
( 0.4
)
%
( 1.5
)
( 0.0
)
%
Effective income tax rate
$
550.8
23.8
%
$
518.6
23.8
%
$
527.6
23.8
%
(1) State taxes in California, New York State, New York City, and New Jersey made up the majority (greater than 50%) of the tax effect in this category.
(2) Disclosures for 2025 and 2024 were adjusted for retrospective application of ASU 2023-09. Refer to Note A for further information on the adoption of ASU 2023-09.
The effective income tax rates in all periods were impacted by recognition of net discrete tax benefits related to employee stock-based compensation payments.
The following is income taxes paid, net of refunds by significant jurisdiction:
Year ended May 31,
2026
2025
2024
Federal
$
205.0
$
406.0
$
439.0
State
California
26.3
*
*
Other
79.0
*
*
Total State
105.3
106.4
100.5
Foreign
*
*
*
Total income tax payments, net of refunds
$
310.3
$
512.4
539.5
* Jurisdiction below threshold for period presentation.
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 the Company's foreign operations in Europe, Canada, India, and Israel. The Company maintains a reserve for uncertain tax positions. As of May 31, 2026, the reserve for uncertain tax positions, including interest and net of benefits, was $ 120.6 million, of which $ 120.1 million was included in long-term liabilities and $ 0.5 million was netted in the deferred tax on the Consolidated Balance Sheets. As of May 31, 2025, the total reserve for uncertain tax positions, including interest and net of federal benefits, was $ 108.6 million , of which $ 100.6 million was included in long-term liabilities and $ 8.0 million was netted in deferred tax on the Consolidated Balance Sheets.
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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:
Year ended May 31,
In millions
2026
2025
2024
Balance as of beginning of fiscal year
$
106.0
$
87.2
$
72.0
Additions for tax positions of the current year
16.1
20.1
20.6
Additions for tax positions of prior years
1.2
9.8
0.8
Reductions for tax positions of prior years
( 8.3
)
( 5.5
)
( 3.8
)
Settlements with tax authorities
—
( 0.0
)
( 0.3
)
Expiration of the statute of limitations
( 3.6
)
( 5.6
)
( 2.1
)
Balance as of end of fiscal year
$
111.4
$
106.0
$
87.2
The reserve as of May 31, 2026 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 $ 120.6 million as of May 31, 2026 adequately covers open tax years and uncertain tax positions up to and including fiscal 2026 for major taxing jurisdictions. As of May 31, 2026 and 2025, the $ 120.1 million and $ 100.6 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, 2020, and 2023 are currently under audit by the IRS. With limited exception, state income tax audits by taxing authorities are closed through fiscal 2022, primarily due to expiration of the statute of limitations.
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 2026, 2025, and 2024 was immaterial to the Company’s results of operations.
Note M — Short-term Financing
The Company maintains committed and unsecured credit facilities and irrevocable letters of credit as part of its normal and recurring business operations. The purpose of these credit facilities is to meet short-term funding requirements, finance working capital needs, and for general corporate purposes. The Company typically borrows on an overnight or short-term basis on its credit facilities.
Effective January 23, 2026, the Company entered into amendments of its $ 750.0 million, five-year , unsecured, revolving credit facility (the "2017 JPM Credit Facility") and its $ 1.0 billion, five-year , unsecured, revolving credit facility (the "2019 JPM Credit Facility") with a syndicate of lenders for which JP Morgan Chase Bank, N.A. ("JPM") acts as administrative agent. The amendments to these credit facilities, among other things, increase the aggregate amount of principal available under the 2017 Credit Facility from $ 750 million to $ 1.0 billion and extend its maturity date from September 17, 2026 to January 23, 2031 , and amend certain interest provisions and covenants under both credit facilities. In connection with these amendments, Paychex terminated its three-year , $ 250 million, unsecured, revolving credit facility for which PNC Bank, N.A. ("PNC") acted as administrative agent (the "2020 PNC Credit Facility"). As of the date of its termination, there were no outstanding loans under the PNC Bank, N.A. Credit Facility.
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Table of Contents
Details of the Company’s credit facilities as of May 31, 2026 are as follows:
Maximum Amount Available
Amount Outstanding
May 31,
May 31,
$ in millions
Expiration Date
2026
2025
2026
2025
Credit facilities:
2019 JPM Credit Facility
April 12, 2029
$
1,000.0
$
1,000.0
$
—
$
—
2017 JPM Credit Facility
January 23, 2031
1,000.0
—
—
—
2017 JPM Credit Facility
January 23, 2026
—
750.0
—
—
2020 PNC Credit Facility (weighted-average interest rate of 3.87 % as of May 31, 2025)
January 23, 2026
—
250.0
—
18.6
Total
$
2,000.0
$
2,000.0
$
—
$
18.6
Upon the expiration date of any credit facility, any borrowings outstanding under that facility will mature and be payable.
Interest rates on each of the Company’s credit facilities can be based upon (1) an alternate base rate that is established by the lending institution at the highest of several publicly available interest rates, plus an applicable interest rate margin, or (2) at our election, the Securitized Overnight Financing Rate (“SOFR”) o r 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.
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, 2026.
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.
Bridge Loan Commitment: On January 7, 2025, the Company and a Company subsidiary, Paychex of New York, LLC, entered into a bridge loan commitment with JPM, pursuant to which JPM committed to provide a 364-day senior unsecured credit facility of up to $ 3.5 billion for the acquisition of Paycor, including related fees and expenses. The Company incurred $ 14.9 million in debt financing fees, including structuring and commitment fees, which were capitalized as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets and were recognized as interest expense on a straight-line basis. On April 10, 2025, the Company obtained alternative financing through the issuance of its Corporate Bonds, effectively canceling the bridge loan commitment. Refer to Note N for further discussion of the Corporate Bonds issued.
Interest Rate Swaption Contracts: On January 31, 2025, the Company executed three Swaption Contracts with JPM. The Swaption Contracts qualified as cash flow hedges, had an aggregate notional amount of $ 3.0 billion, and were utilized to manage exposure to fluctuations in benchmark interest rates associated with the issuance of the Corporate Bonds to fund the acquisition of Paycor. At inception, the Company recorded Swaption Contract assets related to paid premiums of $ 19.2 million. Upon issuing the Corporate Bonds, the Company elected not to exercise the Swaption Contracts, and wrote-off the hedge asset when it expired.
Letters of credit: The Company had irrevocable standby letters of credit outstanding totaling $ 176.5 million and $ 165.0 million as of May 31, 2026 and May 31, 2025 , respectively, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between June 1, 2026 and May 26, 2027 . No amounts were outstanding on these letters of credit during fiscal 2026 or fiscal 2025, or as of May 31, 2026 and May 31, 2025, respectively. Subsequent to May 31, 2026 , ten letters of credit which expired were renewed for one year terms.
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Table of Contents
Note N — Long-term Financing
Long-term debt, at amortized cost, consisted of the following as of:
Effective
May 31,
In millions
interest rate
2026
2025
Senior Notes Series A, fixed rate 4.07 % - due March 13, 2026
4.12 %
$
-
$
400.0
Senior Notes Series B, fixed rate 4.25 % - due March 13, 2029
4.30 %
400.0
400.0
5-year Corporate Bonds, fixed rate 5.10 % - due April 15, 2030
5.35 %
1,500.0
1,500.0
7-year Corporate Bonds, fixed rate 5.35 % - due April 15, 2032
5.57 %
1,500.0
1,500.0
10-year Corporate Bonds, fixed rate 5.60 % - due April 15, 2035
5.84 %
1,200.0
1,200.0
Total long-term debt
4,600.0
5,000.0
Less: current portion, net of debt issuance costs
-
( 399.8
)
Less: unamortized discount and debt issuance costs
( 43.9
)
( 51.8
)
Long-term debt, net
$
4,556.1
$
4,548.4
The Senior Notes, Series A and Senior Notes, Series B (collectively the “Notes”), and Corporate Bonds are senior unsecured obligations, with interest paid semi-annually in arrears. The effective interest rate for the Notes and Corporate Bonds includes the interest on the debt and amortization of debt discount and debt issuance costs.
The Notes are issued pursuant to the Note Purchase and Guarantee Agreement (the “Agreement”) and may be prepaid, all or in part, at any time by the Company subject to certain conditions as described in the Agreement. 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 Corporate Bonds are issued pursuant to an indenture dated as of April 10, 2025, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of April 10, 2025, by and between the Company and the Trustee.
During fiscal 2026, the Company repaid its long-term private placement debt Senior Note, Series A for $ 400.0 million, which matured on March 13, 2026 .
The Agreement and Corporate Bonds contain 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, 2026 .
Note O — Supplemental Cash Flow Information
Cash
Income taxes paid were $ 310.3 million, $ 512.4 million, and $ 539.5 million for fiscal 2026, fiscal 2025, and fiscal 2024, respectively. Refer to Note L of this Item 8 for further discussion on cash paid for income taxes.
Interest expense paid was $ 267.6 million, $ 37.5 million, and $ 36.2 million for fiscal 2026, fiscal 2025, and fiscal 2024, respectively.
Non-Cash
In fiscal 2025, there was non-cash consideration of $ 15.9 million for pre-acquisition stock-based compensation and $ 9.2 million for deferred compensation related to the Company's acquisition of Paycor, and $ 11.6 million for the fair value of contingent consideration related to an earn-out for an immaterial acquisition. See Note D for further discussion of the Company's acquisition of Paycor.
Refer to Note I of this Item 8 for supplemental cash flow information pertaining to the Company's leasing activities.
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Table of Contents
Note P — Employee Benefit Plans
401(k) plan: The Company maintains a contributory savings plan that qualifies under section 401(k) of the Internal Revenue Code. The Paychex, Inc. 401(k) Incentive Retirement Plan (the “Plan”) allows all employees to immediately participate in the salary deferral portion of the Plan, contributing up to a maximum of 50 % of their salary, subject to Internal Revenue Service limitations. Employees who have completed one year of service and a minimum of 1,000 hours worked are eligible to receive a Company matching contribution, when such contribution is in effect. Through December 31, 2025, the Company provided 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 %. Effective January 1, 2026, the Company provides a matching contribution of 100 % of the first 4 % of eligible pay that an employee contributes to the Plan. Company contributions to the Plan for fiscal 2026, 2025, and 2024 were $ 40.8 million , $ 37.0 million , and $ 37.5 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 of its 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 part icipant retires from any active employment, or a designated specific date. The amounts accrued under these plans were $ 36.3 million and $ 34.5 million as of May 31, 2026 and 2025, respectively, and are reflected in other long-term liabilities on the accompanying Consolidated Balance Sheets.
Note Q — Commitments and Contingencies
Other commitments: As of May 31, 2026, the Company had outstanding commitments under existing workers’ compensation insurance agreements and other legally binding contractual arrangements with minimum future payment obligations of approximately $ 898.4 million. The Company also enters into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase approximately $ 13.5 million of capital assets. These minimum future payment obligations relate to the following fiscal years:
Payments due by period
In millions
2027
2028
2029
2030
2031
Thereafter
Workers' compensation estimated obligations
$
80.7
$
42.5
$
27.3
$
18.5
$
12.8
$
55.9
Purchase obligations
$
359.6
$
138.8
$
67.7
$
22.4
$
10.8
$
61.4
In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with customers. Historically, there have been no material losses related to such guarantees. The Company has also entered into indemnification agreements with its officers, directors, and non-officer fiduciaries of our pooled employer plan retirement offering, 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, medical, and workers' compensation 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, 2026.
In addition to its purchased primary insurance policies, the Company utilizes its captive insurance company to provide insurance coverage for certain risks where commercial coverage is limited, unavailable, or not economically practical. Such coverage includes employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism. The captive also supplements the Company's third-party insurance programs by funding certain deductibles, self-insured retentions, and providing excess coverage.
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Table of Contents
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.
Note R — Segment Reporting
The Company has determined that it operates as a single operating segment at the consolidated level. Operating segments for the Company are determined based on the information used by the chief operating decision maker ("CODM") in assessing performance and allocating resources. The Company's Chief Executive Officer is the CODM and reviews the Company's financial information on a consolidated basis. Accordingly, the CODM primarily uses consolidated net income as the measure of segment profit or loss and to assess performance and allocate resources, primarily through the annual budgeting and forecasting process. B udget-to-actual variances are reviewed regularly , with consideration given to the impact of certain expenses that are not considered part of the Company's core business operations.
Total revenue, net income, and significant expenses used by the CODM for the purpose of allocating resources and evaluating the Company's financial performance were as follows:
Year ended May 31,
In millions
2026
2025
2024
Total revenue
$
6,512.0
$
5,571.7
$
5,278.3
Core business operations:
Compensation-related expenses
2,091.9
1,853.0
1,810.4
PEO direct insurance costs
563.2
520.1
471.3
Depreciation and amortization
200.6
168.8
176.5
Other segment items (1)
841.6