Item 1. Business

CORPORATE BACKGROUND

General

ADP was founded in 1949 on an innovative idea: to help business owners focus on core business activities by relieving them of certain non-core tasks such as payroll. Automatic Data Processing, Inc. was incorporated in the State of Delaware in June 1961 and completed its initial public offering in September 1961. A pioneer in business process outsourcing, today we are one of the world’s leading providers of cloud-based human capital management (“HCM”) solutions to employers, offering solutions to businesses of all sizes, whether they have simple or complex needs. We serve over 740,000 clients in more than 110 countries and territories. Our common stock is listed on the NASDAQ Global Select Market® under the symbol “ADP.”

When we refer to “we,” “us,” “our,” “ADP,” or the “Company” in this Annual Report on Form 10-K, we mean Automatic Data Processing, Inc. and its consolidated subsidiaries.

Available Information

Our corporate website, www.adp.com, provides materials for investors and information about our solutions and services. ADP’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports, and the Proxy Statements for our Annual Meetings of Stockholders are made available, free of charge, on our corporate website as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (“SEC”), and are also available on the SEC’s website at www.sec.gov. The content on any website referenced in this filing is not incorporated by reference into this filing unless expressly noted otherwise.

BUSINESS OVERVIEW

ADP’s Mission and Strategy

ADP’s mission is to power organizations with insightful solutions for clients and their employees, as digital technology, globalization and new business models reshape the way people work. As the world of work evolves, our technology, expertise and data insights deliver measurable results, peace-of-mind and an enabled, productive workforce. Our leading technology and commitment to service excellence is at the core of our relationship with each one of our clients, whether it's a small, mid-sized or large organization operating in one or multiple countries around the world. We are constantly innovating to help our clients leverage HCM solutions in order to streamline and simplify their human resources (“HR”) processes, drive better business results and manage their most important investment – their people.

Our business strategy is based on the following three strategic pillars, which are designed to position ADP as the global market leader in HCM technology and services:

•	Grow a complete suite of cloud-based HCM solutions;

•	Grow and scale our market-leading HR Outsourcing (“HRO”) solutions by leveraging our platforms and processes; and

•	Leverage our global presence to offer clients HCM solutions where ever they do business.

Reportable Segments

ADP’s two reportable business segments are Employer Services and Professional Employer Organization (“PEO”) Services. For financial data by segment and by geographic area, see Note 15 to the “Consolidated Financial Statements” contained in this Annual Report on Form 10-K.

Employer Services. Our Employer Services segment serves clients ranging from single-employee small businesses to large enterprises with tens of thousands of employees around the world, offering a comprehensive range of HRO and technology-based HCM solutions, including our strategic, cloud-based platforms. These solutions address critical client needs and include:

•	Payroll Services

•	Benefits Administration

•	Talent Management

•	HR Management

•	Time and Attendance Management

•	Insurance Services

•	Retirement Services

•	Compliance Services

Professional Employer Organization Services. ADP’s PEO business, called ADP TotalSource®, serves more than 12,000 clients with comprehensive employment administration outsourcing solutions through a relationship in which employees who work for a client (referred to as “worksite employees”) are co-employed by us and the client. ADP TotalSource is the largest PEO in the United States based on the number of worksite employees, serving more than 530,000 worksite employees in all 50 states, and operates as a Certified Professional Employer Organization under the United States Internal Revenue Code.

PRODUCTS AND SERVICES

Employer Services’ Products and Services

Human Capital Management. In order to serve the unique needs of diverse types of businesses and workforce models, ADP provides a range of solutions which businesses of all types and sizes can use to activate talent and lead organizational change as they recruit, pay, manage, and retain their workforce. We serve more than 630,000 clients via ADP’s cloud-based strategic software as a service (“SaaS”) offerings, which reduce complexity through simplicity, scale and flexibility. As a leader in the growing HR Outsourcing market, we offer seamless solutions that enable our clients to outsource their HR, time and attendance, payroll, benefits administration and talent management functions to ADP.

Through innovative offerings like the ADP® DataCloud we provide clients with in-depth, workforce and business insights driven by big data. Through the ADP DataCloud, we also provide clients with a workforce intelligence engine that enables critical HR decisions that power workforce and business productivity, performance and alignment. For example, ADP’s Pay Equity Explorer combines analytics and benchmarking to help employers gain a better understanding of potential gender or race pay gaps and provide them with real, aggregated and anonymized market data to understand how their compensation for a particular job compares to other employers.

Our innovative payment offerings support employers’ need for flexible payment solutions due to macro trends, including the rise of the contingent workforce or “gig economy,” that are reshaping the employment landscape. Wisely by ADP™ is our latest advancement in the future of pay. Following our acquisition of Global Cash Card, we launched the Wisely Pay by ADP payroll card, a network-branded payroll card and digital account that enables employers to disburse payroll to their employees, and enables employees to access their payroll funds immediately, including via a network member bank or an ATM, make purchases or pay bills, load additional funds onto the card, such as tax refunds and military pensions, and transfer funds to a bank account in the United States. We also launched Wisely Direct by ADP, a network-branded general purpose reloadable card and digital account, that offers similar features and functionality as Wisely Pay by ADP but is offered directly to consumers. Our digital card offerings are true banking alternatives that feature innovative services such as savings, digital wallet and other financial management features.

Through our acquisition of WorkMarket®, a cloud-based workforce management solutions provider, ADP became the first HCM provider with robust freelancer management functionality and reporting insights, enabling clients to effectively manage their extended workforce.

In addition, our mobile applications enable businesses to process their payroll, and give approximately 17 million of our clients’ employees and freelancers convenient access to their payroll and HR information through a variety of mobile device platforms, around the world and in more than 27 languages. ADP has also opened access for developers and system integrators to certain of our platforms’ Application Programming Interface libraries through the ADP Marketplace. With ADP Marketplace, clients can integrate employee data from ADP core services across their other business systems, providers or platforms. This access enables the exchange of client data housed in ADP's databases, and creates a unified HCM ecosystem for clients informed by a single, comprehensive repository of their workforce data.

Integrated HCM Solutions. Our premier suite of HCM products offers complete solutions that assist employers of all types and sizes in all stages of the employment cycle, from recruitment to retirement:

•

RUN Powered by ADP® is used by more than 570,000 small businesses in the United States. It combines a software platform for managing small business payroll, HR management and tax compliance administration, with 24/7 service and support from our team of small business experts. RUN Powered by ADP also integrates with other ADP solutions, such as time and attendance management, workers’ compensation insurance premium payment plans, and retirement plan administration systems.

•	ADP Workforce Now® is a flexible HCM solution used by more than 60,000 mid-sized and large businesses in North America to manage their employees. More businesses use ADP Workforce Now than any other HCM solution designed for both mid-sized and large businesses.

•	ADP Vantage HCM® is a solution for large enterprises in the United States. It offers a comprehensive set of HCM capabilities within a single solution that unifies the five major areas of HCM: HR management, benefits administration, payroll services, time and attendance management, and talent management.

•

ADP GlobalView® HCM is a solution for multinational organizations of all sizes. As an integrated and flexible infrastructure supported by a team of experts, ADP GlobalView HCM allows companies of all sizes – from those with small and mid-sized operations to the largest multinational corporations – to standardize their HCM strategies globally (including payroll, HR, talent, time and labor, and benefits management) and adapt to changing local needs, while helping to drive overall organizational agility and engagement.

•	Outside the United States, ADP offers comprehensive HCM solutions on local, country-specific platforms. These suites of services offer various combinations of payroll services, HR management, time and attendance management, talent management and benefits management, depending on the country in which the solution is provided.

Payroll Services. ADP pays approximately 26 million (approximately 1 out of every 6) workers in the United States, and approximately 14 million workers outside the United States. ADP provides flexible payroll services to employers of all sizes, including the preparation of employee paychecks, pay statements, supporting journals, summaries, and management reports. ADP provides employers with a wide range of payroll options, including entering their payroll data online with an Internet-based solution, using a mobile device or outsourcing their entire payroll process to ADP. ADP also enables its clients to connect their major enterprise resource planning (“ERP”) applications with ADP’s payroll services. Employers can choose a variety of payroll payment options including ADP’s electronic wage payment and, in the United States, payroll card solutions and digital accounts. On behalf of our clients in the United States, ADP prepares and files federal, state and local payroll tax returns and quarterly and annual Social Security, Medicare, and federal, state and local income tax withholding reports, and prepares and files similar reports internationally. In addition, as part of our global payroll services, ADP supplies year-end regulatory and legislative tax statements and other forms to our clients’ employees. For clients in the United States who choose to process payroll in-house, ADP also offers our Compliance Solutions described below.

Benefits Administration. In the United States, ADP provides flexible solutions for employee benefits administration. These options include health and welfare administration, leave administration services, insurance carrier enrollment services, employee communication services, and dependent verification services. In addition, ADP benefits administration solutions offer employers an efficient cloud-based eligibility and enrollment system that provides their employees with tools, communications, and other resources they need to understand their benefits options and make informed choices.

Talent Management. ADP’s Talent Management solutions simplify and improve the talent acquisition, management, and activation process from recruitment to ongoing employee engagement and development. ADP’s talent acquisition solutions help employers recruit, screen and on-board talent quickly and cost effectively. Employers can also meet their hiring needs by outsourcing their internal recruitment function to ADP. ADP’s talent management solutions provide performance, learning, succession and compensation management tools that help employers align goals to outcomes, while enabling managers to identify and mitigate potential retention risks. ADP’s talent activation solutions include tools, such as ADP’s StandOut® and Compass™ solutions, which provide team leaders with data and insights to drive employee engagement and leadership development, which in turn help clients drive employee performance while reliably measuring the impact in relation to business outcomes.

Human Resources Management. Commonly referred to as Human Resource Information Systems, ADP’s Human Resources Management Solutions provide employers with a single system of record to support the entry, validation, maintenance, and reporting of data required for effective HR management, including employee names, addresses, job types, salary grades, employment history, and educational background. ADP’s Human Resources Management Solutions can also be combined with ADP’s Talent Management Solutions and other HCM offerings.

Time and Attendance Management. ADP offers multiple options for employers of all sizes to collect employee time and attendance information, including electronic timesheets, badge cards, biometric and touch-screen time clocks, telephone/interactive voice response, and mobile smartphones and tablets. ADP’s time and attendance tracking tools simplify employee scheduling and automate the calculation and reporting of hours worked, helping employers consistently enforce leave and attendance policies, control overtime, and manage compliance with wage and hour regulations.

Insurance Services. ADP’s Insurance Services business, in conjunction with our licensed insurance agency, Automatic Data Processing Insurance Agency, Inc., facilitates access in the United States to workers’ compensation and group health insurance for small and mid-sized clients through a variety of insurance carriers. ADP’s automated Pay-by-Pay® premium payment program calculates and collects workers’ compensation premium payments each pay period simplifying this task for employers.

Retirement Services. ADP Retirement Services helps employers in the United States administer various types of retirement plans, such as 401(k) (including “safe harbor” 401(k) and Roth 401(k)), profit sharing (including new comparability), SIMPLE IRA, SEP IRA, and executive deferred compensation plans. ADP Retirement Services offers a full service 401(k) plan program which provides recordkeeping and administrative services, combined with an investment platform offered through ADP Broker-Dealer, Inc. that gives our clients’ employees access to a wide range of non-proprietary investment options and online tools to monitor the performance of their investments. In addition, ADP Retirement Services offers investment management services to retirement plans through ADP Strategic Plan Services, LLC, a registered investment adviser under the Investment Advisers Act of 1940 (the “Advisers Act”). ADP Retirement Services also offers trustee services through a third party.

Compliance Services. ADP’s Compliance Services provides industry-leading expertise in payment compliance and employment-related tax matters that complement the payroll, HR and ERP systems of its clients.

ADP SmartCompliance. In the United States, ADP SmartCompliance® integrates client data delivered from ADP's integrated HCM platforms or third-party payroll, HR and financial systems into a single, cloud-based solution. ADP’s specialized teams use the data to work with clients to help them manage changing regulatory landscapes and improve business processes. ADP SmartCompliance includes service capabilities for several HCM-related compliance processes, including employment tax, wage payments, tax credits, health compliance, wage garnishments, employment verifications, and unemployment claims.

ADP SmartCompliance Employment Tax. As part of ADP’s full service employment tax services in the United States, ADP prepares and files employment tax returns on our clients’ behalf and, in connection with these services, collects employment taxes from clients and remits these taxes, as appropriate, to more than 7,100 federal, state, and local tax agencies. In our fiscal year ended June 30, 2018, ADP in the United States processed and delivered approximately 64 million employee year-end tax statements, and moved more than $1.85 trillion in client funds to taxing and other agencies and to our clients’ employees and other payees.

ADP SmartCompliance Wage Payments. In the United States, ADP offers compliant pay solutions for the modern workforce, including electronic payroll disbursement options such as payroll cards, digital accounts and direct deposit, as well as traditional payroll check offerings, that can be integrated with clients’ ERP and payroll systems.

ADP SmartCompliance - Other ADP Solutions. Our other ADP SmartCompliance solutions include:

•	Tax Credits. ADP helps clients in the United States take advantage of tax credit and incentive opportunities as they hire new employees.

•	Health Compliance. ADP helps businesses manage crucial employer-related elements of the U.S. Patient Protection and Affordable Care Act (the "Affordable Care Act").

•	Wage Garnishments. ADP offers an integrated solution to help our clients manage the wage garnishment process through integration with their payroll systems.

•	Employment Verification. ADP offers an automated solution to securely verify employment and income.

•	Unemployment Claims. ADP offers a single-source solution to help manage the entire unemployment claims process in the United States.

Professional Employer Organization Services’ Products and Services

ADP TotalSource, ADP’s PEO business, offers small and mid-sized businesses a comprehensive HR outsourcing solution through a co-employment model. In 2017, ADP TotalSource became one of the first PEOs certified by the Internal Revenue Service as meeting the requirements to operate as a Certified Professional Employer Organization under the Internal Revenue Code. As a PEO, ADP TotalSource provides complete HR management services while the client continues to direct the day-to-day job-related duties of the employees. ADP TotalSource combines key HR management and employee benefits functions, including HR administration, employee benefits, and employer liability management, into a single-source solution:

HR Administration. ADP TotalSource offers a variety of comprehensive HR administration services, such as:

•	employee recruitment

•	payroll and tax administration

•	time and attendance management

•	benefits administration

•	employee training and development

•	online HR management tools

•	employee leave administration

Employee Benefits. Through the co-employment model, ADP TotalSource provides eligible worksite employees with access to:

•	group health, dental and vision coverage

•	a 401(k) retirement savings plan

•	health savings accounts

•	flexible spending accounts

•	group term life and disability coverage

•	an employee assistance program

Employer Liability Management. ADP TotalSource helps clients manage and limit employment-related risks and related costs by providing:

•	a workers’ compensation program

•	unemployment claims management

•	safety compliance guidance and access to safety training

•	access to employment practices liability insurance

•	guidance on compliance with U.S. federal, state and local employment laws and regulations

The scale of ADP TotalSource allows us to deliver a variety of benefits and services with efficiency and value typically out of reach to small and mid-sized businesses. ADP TotalSource serves approximately 12,000 clients and more than 530,000 worksite employees in all 50 states.

MARKETS AND SALES

Employer Services’ HCM solutions are offered in more than 110 countries and territories. The most material markets for our HCM solutions are the United States, Canada and Europe. In each market, we have both country-specific solutions and multi-country solutions, for employers of all sizes and complexities. The major components of our HCM offerings throughout these geographies are payroll, HR outsourcing and time and attendance management. In addition, we offer wage and tax collection and remittance services in the United States, Canada, the United Kingdom, the Netherlands, France, Australia, India, and China. PEO Services offers services exclusively in the United States.

We market our solutions primarily through our direct sales force. Employer Services also markets its solutions through indirect sales channels, such as marketing relationships with certified public accountants and banks, among others. None of ADP’s major business groups has a single homogeneous client base or market. While concentrations of clients exist in specific industries, no one client, industry or industry group is material to ADP’s overall revenues. ADP enjoys a leadership position in each of its major service offerings and does not believe any major service or major business unit of ADP is subject to unique market risk.

COMPETITION

The industries in which ADP operates are highly competitive. ADP knows of no reliable statistics by which it can determine the number of its competitors, but it believes that it is one of the largest providers of HCM solutions in the world. Employer Services competes with other business outsourcing companies, companies providing ERP services, providers of cloud-based HCM solutions and financial institutions. PEO Services competes with other PEOs providing similar services, as well as business outsourcing companies, companies providing ERP services and providers of cloud-based HCM solutions. Other competitive factors include a company’s in-house function, whereby a company installs and operates its own HCM system.

Competition for business outsourcing solutions is primarily based on product and service quality, reputation, ease of use and accessibility of technology, breadth of offerings, and price. We believe that ADP is competitive in each of these areas and that our leading-edge technology, together with our commitment to service excellence, distinguishes us from our competitors.

INDUSTRY REGULATION

Our business is subject to a wide range of complex U.S. and foreign laws and regulations. In addition, many of our solutions are designed to assist clients with their compliance with certain U.S. and foreign laws and regulations that apply to them. We have, and continue to enhance, compliance programs and policies to monitor and address the legal and regulatory requirements applicable to our operations and client solutions, including dedicated compliance personnel and training programs.

As one of the world’s largest providers of HCM solutions, our systems contain a significant amount of sensitive data related to clients, employees of our clients, vendors and our employees. We are, therefore, subject to compliance obligations under federal, state and foreign privacy, data protection and cybersecurity-related laws, including federal, state and foreign security breach notification laws with respect to both our own employee data and client employee data. The changing nature of these laws in the United States, Europe and elsewhere, including the adoption by the European Union (the “EU”) of the General Data Protection Regulation (the "GDPR"), will impact our processing of personal information of our employees and on behalf of our clients. The GDPR, which became effective in May 2018, imposes stricter and more comprehensive requirements on us as both a data controller and data processor. As part of our overall data protection compliance program, including with respect to data protection laws in the EU, in February 2018 we obtained approval from all 28 EU Data Protection Authorities to implement Binding Corporate Rules (“BCRs”). Compliance with our BCRs will permit us to process and transfer personal data across borders in accordance with GDPR and other data protection laws in the EU. In addition, in the United States, the Health Insurance Portability and Accountability Act of 1996 applies to our insurance services businesses and ADP TotalSource.

As part of our payroll and payroll tax management services, we move client funds to taxing authorities, our clients’ employees, and other payees via electronic transfer, direct deposit, prepaid access and ADPCheck. Some elements of our U.S. money transmission activities, including our electronic payment and prepaid access (payroll pay card) offerings, are subject to certain licensing requirements. In addition, our U.S. prepaid access offering is subject to the anti-money laundering and reporting provisions of The Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2000 (the “BSA”). Elements of our money transmission activities outside of the United States are subject to similar licensing and anti-money laundering and reporting laws and requirements in the countries in which we provide such services. Our employee screening and selection services business offers background checking services that are subject to the Fair Credit Reporting Act. ADP TotalSource is subject to various state licensing requirements and maintains certifications with the Internal Revenue Service. Because ADP TotalSource is a co-employer with respect to its clients’ worksite employees, we may be subject to limited obligations and responsibilities of an employer under federal and state tax, insurance and employment laws. In April 2017, we formed a registered investment adviser that provides certain investment management and advisory services to retirement plan administrators under a heightened “fiduciary” standard and is regulated by the SEC and the U.S. Department of Labor.

In addition, many of our businesses offer solutions that assist our clients in complying with certain U.S. and foreign laws and regulations that apply to them. Although these laws and regulations apply to our clients and not to ADP, changes in such laws or regulations may affect our operations, products and services. For example, our payroll services are designed to facilitate compliance with state laws and regulations applicable to the payment of wages. In addition, our HCM solutions help clients manage their compliance with certain requirements of the Affordable Care Act in the United States. Similarly, our Tax Credit Services business, which helps clients in the United States take advantage of tax credit opportunities in connection with the hiring of new employees and certain other activities, is based on federal, state, or local tax laws and regulations allowing for tax credits, which are subject to renewal, amendment or rescission.

The foregoing description does not include an exhaustive list of the laws and regulations governing or impacting our business. See the discussion contained in the “Risk Factors” section in Part I, Item 1A of this Annual Report on Form 10-K for information regarding changes in laws and regulations that could have a materially adverse effect on our reputation, results of operations or financial condition or have other adverse consequences.

CLIENTS AND CLIENT CONTRACTS

ADP provides its services to more than 740,000 clients. In fiscal 2018, no single client or group of affiliated clients accounted for revenues in excess of 2% of ADP’s annual consolidated revenues.

ADP is continuously in the process of performing implementation services for new clients. Depending on the service agreement and/or the size of the client, the installation or conversion period for new clients can vary from a short period of time for a small Employer Services client (as little as 24 hours) to a longer period for a large Employer Services client with multiple deliverables (generally six to nine months). In some cases, the period may exceed two years for a large, multi-country GlobalView client or other large, complicated implementation. Although we monitor sales that have not yet been installed, we do not view this metric as material to an understanding of our overall business in light of the recurring nature of our business. This metric is not a reported number, but it is used by management as a planning tool to allocate resources needed to install services, and as a means of assessing our performance against the expectations of our clients. In addition, some of our products and services are sold under longer term contracts with initial terms ranging from two to seven years. However, this anticipated future revenue under contract is not a significant portion of ADP’s expected future revenue, is not a meaningful indicator of our future performance and is not material to management's estimate of ADP’s future revenue.

Our business is typically characterized by long-term client relationships that result in recurring revenue. Our services are provided under written price quotations or service agreements having varying terms and conditions. No one price quotation or service agreement is material to ADP. ADP’s client retention is estimated at approximately 10 years in Employer Services, and approximately 7 years in PEO Services, and has not varied significantly from period to period.

PRODUCT DEVELOPMENT

ADP continually upgrades, enhances, and expands its solutions and services. In general, new solutions and services supplement rather than replace our existing solutions and services and, given our recurring revenue model, do not have a material and immediate effect on ADP's revenues. ADP believes that our strategic solutions and services have significant remaining life cycles.

SYSTEMS DEVELOPMENT AND PROGRAMMING

During the fiscal years ended June 30, 2018, 2017, and 2016, ADP invested approximately $1 billion, $859 million, and $818 million, respectively, from continuing operations, in systems development and programming, which includes expenses for activities such as client migrations to our new strategic platforms, the development of new products and maintenance of our existing technologies, including purchases of new software and software licenses.

LICENSES

ADP is the licensee under a number of agreements for computer programs and databases. ADP’s business is not dependent upon a single license or group of licenses. Third-party licenses, patents, trademarks, and franchises are not material to ADP’s business as a whole.

NUMBER OF EMPLOYEES

ADP employed approximately 57,000 persons as of June 30, 2018.