Paychex (PAYX) 10-K risk factor changes: FY2015 vs FY2014

As a service provider, we have a responsibility to our clients to help them understand their increased obligations under [removed: such regulations.][added: the federal and state regulations facing employers under the Act.]

There is no guarantee that solutions we have developed to help clients navigate health care legislation will [added: continue to] be readily accepted by clients, which could have a material adverse impact on our insurance services business.

Refer to the discussion on the next page regarding changes in health insurance and workers' compensation insurance rates and underlying [removed: claims] [added: claim] trends for discussion of health care reform as it impacts our PEO.

Our future success will depend on our ability to enhance capabilities and increase the performance of our internal [removed: use] systems, particularly our systems that meet our clients’ requirements.

The insurance costs are impacted by [removed: claims] [added: claim] experience and are a significant portion of our PEO costs.

If we experience a sudden or unexpected increase in [removed: claims] [added: claim] activity, our costs could increase.

Increases in costs not incorporated into service fees timely or [removed: fully,] [added: fully] could have a material adverse effect on our results of operations.

A change in regulations either decreasing the amount of taxes to be withheld or allowing less time to remit taxes to applicable tax or regulatory agencies could adversely impact [removed: this] interest income.

If all of these financial and economic circumstances were to remain in effect for an extended period of time, there could be a material adverse effect on our results of [removed: operations.][added: operations and financial condition.]

The complexity of federal and state regulations facing employers has continued to increase, over time, including the enactment of the Act.

Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews the operating results of Paychex, Inc. and its wholly owned subsidiaries (“Paychex,” “we,” “our,” or “us”) for each of the three fiscal years ended May 31, [removed: 2014] [added: 2015] (“fiscal [removed: 2014”),] [added: 2015”),] May 31, [removed: 2013] [added: 2014] (“fiscal [removed: 2013”),] [added: 2014”),] and May 31, [removed: 2012] [added: 2013] (“fiscal [removed: 2012”),] [added: 2013”),] and our financial condition as of May 31, [removed: 2014.][added: 2015.]

We are a leading provider of [removed: integrated] payroll, human resource, insurance, and benefits outsourcing solutions for small- to medium-sized businesses.

[removed: Our payroll services and Human Resource Services (“HRS”)] [added: We] offer a [added: comprehensive] portfolio of [added: human capital management (“HCM”)] services and products that allow our clients to meet their diverse payroll and human resource needs.

Our payroll [removed: services are] [added: processing services,] the foundation of our service [removed: portfolio and] [added: model,] include:

We support [removed: small-market] [added: small-business] companies through our core [removed: payroll] [added: payroll, utilizing our robust Paychex FlexSM platform,] and our software-as-a-service (“SaaS”) [removed: SurePayroll, Inc. (“SurePayroll”) product lines.][added: SurePayroll® products.]

Mid-market companies typically have more sophisticated payroll and benefits needs, and are primarily serviced through our [removed: Major Market Services (“MMS”).][added: Paychex Flex Enterprise solution set, which offers an integrated suite of HCM solutions tied together by the Paychex Flex platform, or through our traditional mid-market platform.]

| • | [added: comprehensive human resource outsourcing through] Paychex HR Services, under which we offer Paychex HR Solutions, our administrative services organization (“ASO”), and Paychex PEO, our professional employer organization [removed: (“PEO”). We also offer Paychex HR Essentials, an ASO product that provides support to our clients over the phone or online to help manage employee-related topics;] [added: (“PEO”);] |

| • | online HR administration services, including time and [removed: attendance and] [added: attendance,] benefit [removed: enrollment;] [added: enrollment, recruiting] and [added: onboarding; and] |

We continue to [removed: focus on driving] [added: drive] growth in clients, revenue, and profits.

Looking to the future, we [removed: continue to focus on] [added: believe that] investing in our products, people, and service [removed: capabilities, positioning ourselves] [added: capabilities will position us] to capitalize on opportunities for long-term growth.

Our financial results for fiscal [removed: 2014] [added: 2015] reflected sustained growth in our business.

Payroll service revenue continued to [removed: advance with] [added: experience steady] growth of 4% for fiscal [removed: 2014] [added: 2015] as compared with fiscal [removed: 2013.][added: 2014, driven by growth in revenue per check and clients.]

[added: We achieved a milestone of $1 billion of] HRS revenue [removed: achieved double-digit growth, primarily due to] [added: for fiscal 2015, as strong] demand for our [added: comprehensive] human resource outsourcing [removed: solutions.][added: solutions drove double-digit growth.]

[removed: Our service execution] [added: For fiscal 2015, payroll services client retention] was [removed: strong as we achieved] [added: at a] record [removed: levels] [added: level in excess] of [removed: client retention, at approximately] 82% of [removed: the] [added: our] beginning of the year client base.

Our financial results continue to be impacted by the interest rate environment as interest rates available on [removed: high quality] [added: high-quality] financial instruments remain [removed: low.][added: low, but steady.]

Our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.0% for [removed: both] fiscal [removed: 2014 and fiscal 2013,] [added: years 2015, 2014,] and [removed: 1.1% for fiscal 2012.][added: 2013.]

Highlights of our financial results for fiscal [removed: 2014,] [added: 2015,] compared to fiscal [removed: 2013,] [added: 2014,] are as follows:

| ◦ | Payroll service revenue increased 4% to [removed: $1.6] [added: $1.7] billion. |

| • | Interest on funds held for clients [removed: decreased 1%] [added: increased 3%] to [removed: $40.7] [added: $42.1] million. |

[removed: | • | Net income and diluted earnings per share increased 10% to $627.5 million and $1.71 per share, respectively.] The growth [removed: rate] [added: rates] for [removed: net income and diluted earnings per share was positively] [added: fiscal 2014 were] impacted by [removed: comparison to] the [removed: prior year, which reflected] settlement of a state income tax [removed: matter. This settlement] [added: matter, which] reduced diluted earnings per share by approximately $0.04 per share for fiscal 2013. [removed: |]

| • | Dividends of [removed: $510.6] [added: $551.8] million were paid to stockholders, representing [removed: 81%] [added: 82%] of net income. |

[removed: Non-GAAP] [added: Refer to further discussion under "Non-GAAP] Financial [removed: Measure][added: Measure" discussion that follows.]

[added: Non-GAAP Financial Measure:] In addition to reporting operating income, a [removed: United States (“U.S.”)] [added: U.S.] generally accepted accounting principle (“GAAP”) measure, we present operating income, net of certain items, which is a non-GAAP measure.

Our client base totaled approximately [removed: 580,000] [added: 590,000] clients as of May 31, [removed: 2014,] [added: 2015,] compared to approximately [removed: 570,000] [added: 580,000] clients as of May 31, [removed: 2013,] [added: 2014,] and approximately [removed: 567,000] [added: 570,000] clients as of May 31, [removed: 2012.][added: 2013.]

Our client base increased approximately 2% for fiscal [added: 2015 and fiscal] 2014, [removed: compared to] [added: up from growth of] approximately 1% for [removed: both] fiscal [removed: 2013 and fiscal 2012.][added: 2013.]

[removed: For fiscal 2014, payroll services client] [added: Client] retention [removed: was at a] [added: reached] record [removed: level] [added: levels for both years and was in excess] of [added: 82% of the beginning of the year client base for fiscal 2015 and was] approximately 82% of [removed: our] [added: the] beginning of the year client [removed: base.][added: base for fiscal 2014.]

[removed: Our ancillary services provide] [added: While HRS provides] services to employers and employees beyond payroll, [removed: but] [added: they] effectively leverage payroll processing data and, therefore, are beneficial to our operating margin.

The following [removed: statistics demonstrate] [added: table illustrates] the growth in selected HRS [removed: ancillary] service offerings:

| | | Balance at May 31, [removed: 2014] [added: 2015] | | | Growth rates for fiscal year | | | | | | | |

| | | [removed: 2014] [added: 2015] | | | [removed: 2013] [added: 2014] | | | [removed: 2012] [added: 2013] | | | | |

| Paychex HR Services client [added: worksite] employees [removed: served] | | [removed: 766,000] [added: 858,000] | | | [removed: 14] | [added: 12 |] % | | [removed: 9] [added: 766,000] | [removed: %] | | [removed: 8] | [added: 14 |] % | [added: | 672,000 | | |]

| Paychex HR Services clients | | [removed: 28,000] [added: 31,000] | | | [removed: 13] [added: 11] | % | | [removed: 10] [added: 13] | % | | [removed: 8] [added: 10] | % |

| Health and benefits services applicants | | [removed: 134,000] [added: 142,000] | | | [removed: 3] | [added: 6 |] % | | [removed: 8] [added: 134,000] | [removed: %] | | [removed: 23] | [added: 3 |] % | [added: | 131,000 | | |]

| Retirement services plans | | [removed: 65,000] [added: 70,000] | | | [removed: 5] [added: 6] | % | | [removed: 4] [added: 5] | % | | 4 | % |

We continue to position ourselves to capitalize on the opportunities arising from the shift to SaaS solutions as we [removed: invest heavily] [added: increase our investment] in product development relating to our SaaS capabilities and mobile applications.

In fiscal [removed: 2014,] [added: 2015,] we broadened our portfolio of value-added services, offering the following new [removed: accounting] [added: or upgraded payroll] and [removed: finance] [added: human resource] services:

[removed: The Paychex Insurance Agency, Inc. website, www.paychexinsurance.com, helps small business owners navigate the area of insurance coverage and both] [added: Both] this website and www.paychex.com have sections dedicated to the topic of health care reform.

Our financial position as of May 31, [removed: 2014] [added: 2015] remained strong with cash and total corporate investments of [removed: $936.8] [added: $936.4] million and no debt.

We invest predominately in municipal bonds including general obligation bonds, pre-refunded bonds that are secured by a [removed: U.S.] [added: United States (“U.S.”)] government escrow, and essential services revenue bonds.

During fiscal [removed: 2014,] [added: 2015,] our primary short-term investment vehicles were high quality variable rate demand notes (“VRDNs”) and bank demand deposit accounts.

Our SaaS solution through Paychex Flex Enterprise integrates payroll processing with human resource management, employee benefits administration, time and labor management, and applicant tracking and onboarding solutions.

We offer a suite of complementary Human Resource Services (“HRS”) products including:

Our mission is to be the leading provider of payroll, human resource, and employee benefits services for small- and mid-sized companies by being an essential partner with America's businesses.

We believe success in this mission will lead to strong long-term financial performance.

Our strategy focuses on flexible, convenient service; industry-leading, integrated technology; solid sales execution; providing a comprehensive suite of value-added HCM services; continued service penetration; and engaging in strategic acquisitions.

Our sales execution was strong as we achieved significant growth in new annualized revenue.

For the third year in a row, we achieved record levels of client retention, ending fiscal 2015 in excess of 82% of the beginning of the year client base.

| • | Total service revenue increased 9% to $2.7 billion. |

| ◦ | HRS revenue increased 18% to $1.0 billion. |

| • | Total revenue increased 9% to $2.7 billion. |

| • | Operating income increased 7% to $1.1 billion. |

| • | Net income and diluted earnings per share each increased 8% to $674.9 million and $1.85 per share, respectively. |

| • | We introduced Paychex Flex, a solution that includes our leading-edge, cloud-based platform and mobility applications, with a multi-tiered service offering, which streamlines workforce management through innovative technology and flexible choice of service. This provides a unique blend of both service and software that we believe differentiates us from our competitors. The comprehensive, cloud-based Paychex Flex platform offers powerful capabilities in a simple user experience that is adaptive to the needs of users across the HCM spectrum – recruiters and recruits, HR and payroll stakeholders, benefits administrators, employees, contractors, financial advisors, and accounting partners. All Paychex services, including payroll, time and attendance, HR, benefits, training, and performance management, are accessible on a single cloud-based platform with Paychex Single Sign-On. The mobile apps within Paychex Flex give employers access to the fullest set of employee data available on-the-go, in addition to plan-level views of retirement, health, and benefit accounts. Likewise, employees receive visibility into a wide set of personal and benefits data and functionality, including the industry’s broadest set of retirement self-service features. |

| • | We also expanded our mobile applications by introducing mobile applications for our Paychex Accounting Online® services, time and attendance, and our expense management solution. The Paychex Accounting Online mobile application allows users to access their Paychex Accounting Online account from their iPad®, iPhone®, and iPod Touch® in order to keep track of their business finances anywhere and anytime. Paychex Time provides a mobile time punch app that offers the quickest mobile punch possible. The mobile interface for expense management provides clients and their employees with anytime, anywhere accessibility to view, review, and analyze expense reports, upload receipt images, and check on the status of an expense report. |

| • | We acquired nettime solutions, LLC, a leading cloud-based time and attendance solutions provider. This small- business acquisition pairs Paychex’s exceptional customer service with the SaaS time and attendance technology of a market leader. |

| • | We released the newest version of our applicant tracking system, myStaffingPro®, which has expanded mobility and new features. These new features are designed to enhance the candidate experience by reducing data entry, improving completion rates, and providing the ability to create candidate differentiators. The improved candidate experience helps our clients increase their applicant pools and they can also utilize enhanced tools to screen applicants. |

| • | Our full-service Paychex Employer Shared Responsibility (“ESR”) services are experiencing strong market acceptance. The Affordable Care Act (“ACA”) sets forth specific coverage and reporting requirements that employers must meet. Paychex ESR services help clients navigate the complexities of those requirements, avoid steep fines and penalties, and reduce ACA-related administrative work. |

The Paychex Insurance Agency, Inc. website, www.paychexinsurance.com, helps small-business owners navigate the area of insurance coverage.

Our anticipated HRS revenue growth for fiscal 2016 reflects the impact of the minimum premium plan offering within our PEO being in place for a full year in fiscal 2015.

Interest on funds held for clients for fiscal 2016 is expected to be relatively flat.

| Funds held for clients | | $ | 4,080.0 | | | $ | 3,968.7 | | | $ | 3,811.9 | |

| Corporate investments | | 1,011.5 | | | | 973.8 | | | | 834.7 | | |

| Total | | $ | 5,091.5 | | | $ | 4,942.5 | | | $ | 4,646.6 | |

In addition, fiscal 2014 revenue benefited from an increase in checks per payroll.

Growth in checks per payroll was flat for fiscal 2015.

This growth was positively impacted by the minimum premium plan health insurance offering for our PEO clients and their employees, which was introduced in the second half of fiscal 2014.

This product offering contributed six percentage points of the fiscal 2015 growth in HRS revenue compared to three percentage points for fiscal 2014.

The most significant of these contributors are as follows:

| • | Paychex HR Services revenue, our largest HRS revenue stream at slightly less than one-half of HRS revenue for fiscal 2015, was positively impacted by an 11% growth in clients and a 12% growth in client worksite employees. For fiscal 2014, Paychex HR Services revenue benefited from a 13% increase in clients and a 14% increase in client worksite employees. During both fiscal 2015 and fiscal 2014, the PEO experienced strong demand contributing to the increase in the growth rate for Paychex HR Services revenue. |

| • | Insurance services revenue growth for both fiscal 2015 and fiscal 2014 reflected increases in premiums and clients for workers' compensation insurance services and in the number of health and benefits applicants. In fiscal 2015, insurance services revenue benefited from the introduction of our full service product aimed at assisting clients with health care reform requirements, which has gained market acceptance. |

Interest on funds held for clients: Interest on funds held for clients increased 3% for fiscal 2015 after decreasing 1% for fiscal 2014.

For fiscal 2015, the increase was primarily due to an increase in average investment balances, while average interest rates earned were flat.

Both fiscal 2015 and fiscal 2014 were impacted by costs relating to the new minimum premium plan health insurance offering within our PEO, which contributed three percentage points of the increase in total expenses for fiscal 2015 and two percentage points for fiscal 2014.

For fiscal 2015, compensation-related expenses increased due to higher sales headcount and variable costs resulting from strong sales execution, along with higher employee-benefit-related costs, primarily medical expenses.

Other expenses increased due to costs relating to the new minimum premium plan health care offering in the PEO.

In addition, continued investment in product development and supporting technology impacted other expense growth for both fiscal 2015 and fiscal 2014.

| In millions | | 2015 | | | | Change | | | 2014 | | | | Change | | | 2013 | | |

Operating income, net of certain items, as a percentage of service revenue was approximately 38% for each of the fiscal years 2015, 2014, and 2013.

Operating income, net of certain items, for fiscal 2015 and fiscal 2014 was impacted by the growth in the minimum premium plan within the PEO.

This product offering is a lower-margin product.

Our SaaS solution through our MMS platform provides human resource management, employee benefits management, time and attendance systems, online expense reporting, and applicant tracking.

Our HRS products include:

Our primary goal is to support the success of our clients and their businesses through innovative technology solutions and outstanding personal service.

Our business strategy is focused on strong long-term financial performance by providing high-quality, timely, accurate, and affordable services; growing our client base; increasing utilization of our ancillary services; leveraging our technology through our service organization; and expanding our product offerings.

Revenue per check, client base, and checks per payroll continued to show improvement.

Checks per payroll increased 1.4% for fiscal 2014 and 1.6% for fiscal 2013.

With the introduction of a new health insurance offering within our PEO during fiscal 2014, we began classifying PEO direct costs related to certain benefit plans where the Company retains risk as operating expenses rather than a reduction in service revenue.

This change, referred to as the "PEO direct cost adjustment" throughout this discussion, had no impact on operating income.

Refer to the Results of Operations section of this Item 7 and Note O to the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for further details on the impact to service revenue, total revenue, and operating expenses.

In evaluating HRS revenue, we historically have considered the PEO revenue net of these direct costs.

| • | Total service revenue increased 8% to $2.5 billion (6% growth excluding the PEO direct cost adjustment). |

| ◦ | HRS revenue increased 18% to $878.9 million (12% excluding the PEO direct cost adjustment). |

| • | Total revenue increased 8% to $2.5 billion (6% excluding the PEO direct costs adjustment). |

| • | Operating income increased 9% to $982.7 million, and operating income, net of certain items, increased 9% to $942.0 million. Refer to the “Non-GAAP Financial Measure” discussion below for further information on operating income, net of certain items. |

| • | |

The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

Our Paychex Next Generation suite of innovative products and services includes a SaaS platform that combines the latest technology with superior customer service to provide human resource administrators a streamlined and integrated approach to workforce management.

With this, all Paychex services, including payroll, time and attendance, HR, benefits, training, and performance management, are accessible on a single cloud-based platform with Paychex Single Sign-On.

We believe continued investment in our technology is a key building block for future success.

| • | Paychex Accounting Online is a cloud-based accounting service that is being created and delivered via a strategic partnership and investment in Kashoo, a leading provider of cloud accounting services. This SaaS solution complements our industry-leading payroll and HR Solutions by expanding our suite of services for new businesses and entrepreneurs. This is a revenue sharing arrangement with Kashoo. |

| • | Biz2Credit is a leading online credit resource for small businesses we partnered with to offer the Paychex Small Business Loan Resource Center. This is an online resource that gives business owners access to more than 1,200 lenders offering a variety of loan options that fit their specific financing needs. This partnership underscores our commitment to help small businesses succeed by giving them access to funds they need to start, grow, and manage their business. We earn a referral fee from this partnership. |

| • | Paychex Payment Processing Services is a full suite of payment processing solutions, including credit and debit card processing, mobile and online payment services, and point-of-sale solutions, designed to meet the evolving needs of today’s small businesses. This service is being offered in partnership with Elavon, a leading global payments provider. This is a revenue sharing arrangement with Elavon. |

We introduced our new comprehensive solutions to help employers and employees with certain mandates under U.S. health care reform legislation.

These offerings include Paychex Employer Shared Responsibility Service designed to make it easier for business owners to determine if the Employer Shared Responsibility (“ESR”) provision applies to them, and what actions they may need to take.

We also offer our new ESR Complete Analysis and Monitoring Services for those clients that want a more robust solution.

The Paychex Benefit Account product allows employers to offer Flexible Savings Accounts, Health Savings Accounts, and Health Reimbursement Accounts on a single platform with one debit card for their flexibility.

The new health care reform section on our website is designed to provide answers, information, and solutions that employers need to prepare for and take action on health care reform.

We focused on product expansion in new markets and geographies by increasing our presence in Germany and expanding into South America.

We completed a business acquisition of a small payroll provider in Germany.

While not material to our consolidated financial results, this acquisition will increase our revenue and client base in Germany and help us gain a greater share of the payroll market in that country.

In South America, we are utilizing a joint venture arrangement in Brazil.

Brazil is a significant market with a growing economy, approximately five million small businesses, and, with recent regulatory changes, a significant opportunity for outsourcing payroll and human resource services.

The decision to expand into Brazil and further expand in Germany represents our focus on growth, specifically targeting product expansion through new markets and geographies.

HRS revenue and total service revenue growth reflect the change to classify certain PEO direct costs as operating expenses and not as a reduction in service revenue.

Interest on funds held for clients for fiscal 2015 is expected to be relatively flat, as it continues to be impacted by the low interest rate environment, with funds reinvested at lower yields.

In the next twelve months, approximately 15% of this portfolio will mature, and it is currently anticipated that these proceeds will be reinvested at an interest rate of approximately 1.6%.

Investment income is expected to benefit from ongoing investment of cash generated from operations.

| | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Revenue: | | | | | | | | | | | | | | | | | | |

We limit the amounts that can be invested in any single issuer and invest [added: primarily] in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes.

During fiscal [removed: 2014,] [added: 2015,] our primary short-term investment vehicles were [removed: VRDNs and] bank demand deposit [removed: accounts.][added: accounts and VRDNs.]

During fiscal [removed: 2014,] [added: 2015,] the average interest rate earned on our combined funds held for clients and corporate investment portfolios was 1.0%, [removed: compared with 1.0%] [added: comparable the average interest rate earned] for fiscal [removed: 2013] [added: 2014] and [removed: 1.1% for] fiscal [removed: 2012.][added: 2013.]

When interest rates are [removed: falling,] [added: rising,] the full impact of [removed: lower] [added: higher] interest rates will not immediately be reflected in net income due to the interaction of short- and long-term interest rate changes.

During a [removed: falling] [added: rising] interest rate environment, [removed: the decreases in interest rates decrease] earnings [added: increase] from our short-term investments, and over time [removed: decrease] [added: increase] earnings from our longer-term available-for-sale securities.

Earnings from the available-for-sale securities, which as of May 31, [removed: 2014] [added: 2015] had an average duration of [removed: 3.0] [added: 3.2] years, would not reflect [removed: decreases] [added: increases] in interest rates until the investments are sold or mature and the proceeds are reinvested at [removed: lower] [added: higher] rates.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of May 31, [removed: 2014] [added: 2015] are shown below by contractual maturity.

| Due in one year or less | | $ | [removed: 392.0] [added: 345.8] | | | $ | [removed: 394.3] [added: 347.8] | |

| Due after one year through three years | | [removed: 759.8] [added: 726.3] | | | | [removed: 776.0] [added: 734.3] | | |

| Due after three years through five years | | [removed: 764.1] [added: 800.9] | | | | [removed: 774.3] [added: 802.0] | | |

| Due after five years | | [removed: 1,441.0] [added: 1,709.0] | | | | [removed: 1,446.8] [added: 1,711.5] | | |

The Federal Funds rate remained at a range of zero to 0.25% throughout fiscal years [added: 2015,] 2014, [removed: 2013,] and [removed: 2012.][added: 2013.]

Under normal financial market conditions, the impact to earnings from a 25-basis-point change in short-term interest rates would be approximately [removed: $4.5] [added: $3.5 million to $4.0] million, after taxes, for a twelve-month period.

Our total investment portfolio (funds held for clients and corporate investments) averaged approximately [removed: $4.8] [added: $5.1] billion for fiscal [removed: 2014.][added: 2015.]

The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized gain of [removed: $34.5] [added: $13.6] million as of May 31, [removed: 2014,] [added: 2015,] compared with an unrealized gain of [removed: $34.7] [added: $34.5] million as of May 31, [removed: 2013.][added: 2014.]

Refer to Note F of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for additional disclosures on fair [removed: value.][added: value measurements.]

During fiscal [removed: 2013,] [added: 2015,] the net unrealized gain on our investment portfolios ranged from [removed: $34.7] [added: $9.5] million to [removed: $64.1] [added: $55.9] million.

The net unrealized gain on our investment portfolios was approximately [removed: $26.9] [added: $20.9] million as of July 16, [removed: 2014.][added: 2015.]

As of May 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] we had [removed: $3.4] [added: $3.6] billion and [removed: $3.7] [added: $3.4] billion, respectively, invested in available-for-sale securities at fair value.

The weighted-average yield-to-maturity was 1.6% [removed: and 1.8%] as of May 31, [removed: 2014] [added: 2015] and [removed: 2013,] [added: 2014,] respectively.

Assuming a hypothetical [removed: decrease] [added: increase] in [removed: both short-term and] longer-term interest rates of 25 basis points, the resulting potential [removed: increase] [added: decrease] in fair value for our portfolio of available-for-sale securities as of May 31, [removed: 2014,] [added: 2015,] would be [removed: approximately] [added: in the range of] $20.0 [added: million to $25.0] million.

Conversely, a corresponding [removed: increase] [added: decrease] in interest rates would result in a comparable [removed: decrease] [added: increase] in fair value.

Credit risk: We are exposed to credit risk in connection with these investments through the possible inability of [added: the] borrowers to meet the terms of their bonds.

We believe that the investments we held as of May 31, [removed: 2014] [added: 2015] were not other-than-temporarily impaired.

While [removed: $395.2] [added: $923.0] million of our available-for-sale 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 unrealized [removed: loss] [added: losses] of [removed: $3.0] [added: $7.5] million was due to changes in interest rates and was not due to increased credit risk or other valuation concerns.

[removed: Substantially all] [added: A substantial portion] of [removed: the] [added: these] securities in an unrealized loss position as of May 31, [removed: 2014] [added: 2015] and [removed: 2013] [added: 2014] held an AA rating or better.

We do not [removed: currently] 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.

We have no exposure to high-risk or illiquid investments.

| | | May 31, 2015 | | | | | | |

| Total | | $ | 3,582.0 | | | $ | 3,595.6 | |

We have no exposure to high-risk or illiquid investments such as auction rate securities, sub-prime mortgage securities, asset-backed securities or asset-backed commercial paper, collateralized debt obligations, enhanced cash or cash plus mutual funds, or structured investment vehicles (SIVs).

In the next twelve months, approximately 15% of our available-for-sale portfolio will mature, and it is currently anticipated that these proceeds will be reinvested at a lower average interest rate of approximately 1.6%.

| | | May 31, 2014 | | | | | | |

| Total | | $ | 3,356.9 | | | $ | 3,391.4 | |

[removed: We] [added: Incorporated in Delaware in 1979, we] are a leading provider of [removed: integrated] payroll, human resource, insurance, and benefits outsourcing solutions for small- to medium-sized businesses.

As of May 31, [removed: 2014,] [added: 2015,] we serviced approximately [removed: 580,000] [added: 590,000] payroll clients.

We maintain our corporate headquarters in Rochester, New York, and [removed: have more than 100 offices.][added: serve clients throughout the U.S. and Germany.]

We offer a comprehensive portfolio of [added: HCM] services and products that allow our clients to meet their diverse payroll and human resource needs.

The integration of [added: flexible] service [added: options] and [added: leading-edge] technology allows us to meet our clients' diverse needs by providing them [added: with] information and products when, where, and how they want it.

Our mobile apps are available for [removed: iPad®] [added: iOS®] and AndroidTM tablets and smartphones, and allow our clients and their employees to have full access to our products, offering diverse capabilities for both the employer and employee.

[removed: Our payroll service includes] [added: Payroll processing services include] the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of [removed: federal, state, and local] payroll tax returns; and collection and remittance of clients’ payroll obligations.

Our core payroll clients can opt for our full-service customer service model through our branch operations or use Paychex [removed: Online,] [added: Online Payroll®,] our secure Internet [removed: portal, which offers a suite of self-service, interactive services twenty-four hours a day, seven days a week.][added: portal.]

[removed: In addition, our] [added: Our] SurePayroll SaaS solution offers [removed: "do-it-yourself,"] [added: “do-it-yourself,”] self-service and mobile applications for small business.

[removed: MMS] [added: Mid-market] clients also have the option to select from a number of á la carte payroll and human resource ancillary [removed: services.][added: services and can opt for our comprehensive human resource and payroll outsourcing solutions, Paychex HR Services.]

[added: | • |] Employee payment services: Our employee payment services provide an employer with the option of paying their employees by direct deposit, payroll debit card, a check drawn on a Paychex account (Readychex®), or a check drawn on the employer’s account and electronically signed by us. [added: For each of the first three methods, we electronically collect net payroll from the clients’ bank accounts, typically one business day before payday, and provide payment to the employees on payday. Our Readychex service provides a cost-effective solution that offers the benefit of convenient, one-step payroll account reconciliation for employers. |]

[removed: PIA] [added: We] also [removed: offers] [added: offer] new comprehensive solutions to help employers and employees with certain mandates under U.S. health care reform legislation.

A section on this website is designed to provide answers, information, and solutions that employers [removed: need] [added: can use] to prepare for and take action [removed: on] [added: to comply with] health care reform.

[added: | • |] Other human resource services and products: We offer the outsourcing of plan administration under section 125 of the Internal Revenue Code, allowing employees to use pre-tax dollars to pay for certain health insurance benefits and health and dependent care expenses not covered by insurance. [added: All required implementation, administration, compliance, claims processing and reimbursement, and coverage tests are provided with these services. We offer state unemployment insurance services, which provide clients with prompt processing for all claims, appeals, determinations, change statements, and requests for separation documents. Other HRS products include employee handbooks, management manuals, and personnel and required regulatory forms. These products are designed to simplify clients’ office processes and enhance their employee benefits programs. |]

[added: Accounting and Financial Services:] We offer various accounting and [removed: finance] [added: financial] services to small- to medium-sized businesses.

[removed: The accounting and finance] [added: These] services are in their infancy, but offer additional value-added [removed: services that] [added: benefits for] small-business [removed: owners need.][added: owners.]

We market [added: and sell] our services primarily through our direct sales force based in the metropolitan markets we [removed: serve, with sales representatives specializing within our portfolio of services.][added: serve.]

We utilize a virtual sales force to service geographical areas where we may not have a local [removed: presence.][added: presence or for products for which we do not have a local sales force.]

We sell [removed: ancillary services and] [added: HRS] products to both new clients and our existing client base.

Within [removed: payroll,] [added: payroll] we differentiate the markets we serve between [removed: the small business market] [added: small-business] and mid-market companies.

Within retirement [removed: services,] [added: services] we [removed: expanded our sales efforts by creating] [added: have] a dedicated, wholesale sales force focused solely on enhancing our relationships with financial advisors.

In addition to our direct selling and marketing efforts, we utilize [added: other indirect sales channels such as our] relationships with existing clients, certified public accountants (“CPAs”), and banks for new client referrals.

[removed: For over ten years, we] [added: We] have [removed: had] a [added: long-standing] partnership with the American Institute of Certified Public Accountants (“AICPA”) as the preferred payroll provider for its AICPA Business SolutionsTM Program.

[removed: In addition, we have a] [added: Our] dedicated business development group [removed: to drive] [added: drives] sales [removed: in the banking] [added: through banking, national association,] and franchise channels.

[removed: Our website, which is available at www.paychex.com, includes online payroll sales presentations and service and product information and is] [added: It also serves as] a cost-efficient tool that serves as a source of leads and new sales, while complementing the efforts of our direct sales force.

[removed: In addition,] Advantage Payroll Services Inc. (“Advantage”), a wholly owned subsidiary of Paychex, Inc., has license agreements with independently owned associate offices (“Associates”), which are responsible for selling and marketing Advantage [removed: payroll services] [added: Payroll Services®] and performing certain operational functions, while Paychex and Advantage provide all centralized back-office payroll processing and payroll tax administration services.

We provide free webinars, white papers, and other information on our website to aid existing and prospective clients with the [removed: impact] [added: impacts] of regulatory [removed: changes.][added: change.]

Our [removed: newly redesigned] Paychex Accountant Knowledge Center is a free online resource available through our website that brings valuable information and time-saving online tools to accounting professionals.

The [removed: BuildMyBiz] [added: BuildMyBiz®] website, which is available at www.BuildMyBiz.com, provides tools and resources for starting, growing, and managing a business.

A section of both the Paychex website, www.paychex.com, and our insurance services website, www.paychexinsurance.com, is designated to the topic of health care reform to provide answers, information, and solutions that employers need to prepare for and take action relating to the Patient Protection and Affordable Care Act of 2010 (“PPACA”) and the Health Care and Education Reconciliation Act of [removed: 2010 (together] [added: 2010, together] with the PPACA, the [removed: “Act”).][added: (“Act”).]

[removed: Industry data] [added: Our internal database source] indicates [added: that] there are approximately [removed: 12] [added: 10] million [added: addressable] businesses in the geographic markets that we currently serve within the U.S. Of those businesses, greater than 99% have fewer than 100 employees and [removed: are] [added: comprise] our primary customers and target market.

For [added: the] fiscal [removed: 2014,] [added: year ended May 31, 2015 (“fiscal 2015”),] client retention reached record levels, rising to [removed: approximately] [added: over] 82% of our beginning [added: of the year] client base.

We have one primary national competitor and we also compete with other national, regional, local, and online service providers, all of which we believe have significantly [removed: smaller client bases] [added: fewer clients] than us.

[removed: Our Human Resource Services] [added: HRS products] also compete with a variety of providers of human resource services, such as retirement services companies, insurance companies, and human resources and benefits consulting firms.

We believe that our excellent customer service, together with our leading-edge [removed: technology,] [added: technology and mobility applications,] distinguishes us from our competitors.

The ever-changing mandates of federal, state, and local tax and regulatory agencies require us to regularly update [removed: the] [added: our] proprietary software [removed: we utilize] to provide payroll and human resource services to our clients.

As of May 31, [removed: 2014,] [added: 2015,] we employed approximately [removed: 12,700] [added: 13,000] people.

Our Form 10-Ks, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other SEC filings, as well as any amendments to such reports and filings, are made available, free of charge, on our [removed: website.][added: website as soon as reasonably practicable after such reports have been filed with or furnished to the SEC.]

Also, copies of our Annual Report to Stockholders and Proxy Statement, to be issued in connection with our [removed: 2014] [added: 2015] Annual Meeting of Stockholders, will be made available, free of charge, upon written request submitted to Paychex, Inc., c/o Corporate Secretary, 911 Panorama Trail South, Rochester, New York 14625-2396.

Our mission is to be the leading provider of payroll, human resource and employee benefit services for small- to medium-sized businesses by being an essential partner with America’s businesses.

We believe that success in this mission will lead to strong, long-term financial performance.

Our strategy focuses on the following:

- flexible, convenient service;

- industry-leading, integrated technology;

- solid sales execution;

- comprehensive suite of value-added human capital management (“HCM”) services;

- continued service penetration; and

- strategic acquisitions.

Clients can select services on an á la carte basis or as part of various product bundles.

Our payroll-related ancillary services and Human Resource Service (“HRS”) offerings often leverage the information gathered in the base payroll processing service, allowing us to provide comprehensive outsourcing services covering the HCM spectrum.

We also offer professional employer organization (“PEO”) services and provide insurance offerings through the Paychex Insurance Agency, Inc. (“PIA”) that allow employers to expand their employee benefit offerings at an affordable cost.

Paychex FlexSM is our HCM software-as-a-service (“SaaS”) platform through which we provide an integrated product suite that covers the employee life cycle from recruiting and hiring to retirement.

Paychex Flex streamlines workforce management through innovative technology and flexible choice of service.

The platform uses a single cloud-based platform, with single client and employee records, and single sign-on, including self-service options and mobility applications.

The HCM product suite integrates recruiting and applicant tracking, employee onboarding, payroll, employee benefits and human resource administration, time and attendance, performance management, and retirement services.

Paychex Flex also provides technology-enabled service, with options that include self-service, a 24/7 dedicated service center, individual payroll specialist, and integrated service via the multi-product service center.

In addition, large clients can utilize a relationship manager for more personalized service.

This flexible platform services our small-business clients, mid-market clients, and our PEO business.

Paychex Flex allows for device independence, providing a consistent experience regardless of device.

Small-Business Clients

For our small-business clients, which we define as typically less than 50 employees, Paychex aides the client in reducing the complexity and risk of running their own payroll, while ensuring greater accuracy with up-to-date tax rates and regulatory information.

We simplify their payroll with a combination of our dynamic products and customer service for a quick and easy pay day.

Small-business payroll is provided via our core payroll, utilizing our robust Paychex Flex processing platform, or SurePayroll® products.

Paychex Online Payroll offers a suite of self-service and interactive services twenty-four hours a day, seven days a week.

Both service models offer payroll processing, employee access online, general ledger service to provide payroll information to the client’s general ledger accounting software, and access to our industry-leading, web-based report center and robust report writer.

Our small-business clients also benefit from our time and attendance products, which allow them to accurately and efficiently manage the gathering and recording of employee hours worked.

Other Paychex solutions, such as our comprehensive human resource outsourcing solutions are also available for our small-business clients.

Mid-Market Clients

Our mid-market clients are defined as typically more than 50 employees and have more complex payroll and employee benefit needs.

These clients are serviced through our Paychex Flex Enterprise solution set, which offers an integrated suite of HCM solutions tied together by the Paychex Flex platform, or through our traditional mid-market platform.

Clients using Paychex Flex Enterprise are offered a SaaS solution that integrates payroll processing with human resource management, employee benefits administration, time and labor management, applicant tracking and onboarding solutions.

Paychex Flex Enterprise allows our mid-market clients to choose the services and software they need to meet the complexity of the business and have them integrated through one HCM solution.

Description of Services

Payroll processing: For both our small-business and mid-market clients, payroll processing is the backbone of our portfolio of HCM services.

Along with payroll processing, clients can also select from the following payroll-related ancillary services:

| • | Payroll tax administration services: Our payroll tax administration services provide accurate preparation and timely filing of quarterly and year-end tax returns, as well as the electronic transfer of funds to the applicable tax or regulatory agencies (federal, state, and local). In connection with these services, we electronically collect payroll taxes from clients’ bank accounts, typically on payday, prepare and file the applicable tax returns, and remit taxes to the applicable tax or regulatory agencies on the respective due dates. These taxes are typically paid between one and 30 days after receipt of collections from clients, with some items extending to 90 days. We handle regulatory correspondence, amendments, and penalty and interest disputes, and we are subject to cash penalties imposed by tax or regulatory agencies for late filings and late or under payment of taxes. |

| • | Regulatory compliance services: We offer new-hire reporting services, which enable clients to comply with federal and state requirements to report information on newly hired employees. This information aids the government in enforcing child support orders and minimizes fraudulent unemployment and workers’ compensation insurance claims. Our garnishment processing service provides deductions from employees’ pay, forwards payments to third-party agencies, including those that require electronic payments, and tracks the obligations to fulfillment. These services enable employers to comply with legal requirements and reduce the risk of penalties. |

Human Resource Services: We offer complementary services for outsourcing of various human resource functions to our payroll clients.

In addition, some of these services can be provided to clients who do not opt for payroll processing.

Our company was formed as a Delaware corporation in 1979.

We are focused on achieving strong, long-term financial performance by:

| | |

| --- | --- |

| • | providing high-quality, timely, accurate, and affordable comprehensive integrated payroll and human resource services; |

| • | delivering these services utilizing a well-trained and responsive work force through a network of local and corporate offices servicing more than 100 of the largest markets in the U.S., as well as in Germany and Brazil; |

| • | growing our client base, primarily through the efforts of our direct sales force, along with other marketing channels such as accountants, banks, national associations and franchise organizations, and search engine marketing; |

| • | continually improving client service, through leveraging our leading-edge technology, to maximize client retention; |

| • | capitalizing on the growth opportunities within our existing client base and from new clients by increasing utilization of our payroll and human resource services and products; |

| • | investing in our business through expansion of our service and product offerings to continually add value for our clients; and |

| • | supplementing our growth through strategic acquisitions when appropriate opportunities arise. |

These include:

| • | payroll processing; |

| • | payroll tax administration services; |

| • | employee payment services; |

| • | regulatory compliance services (new-hire reporting and garnishment processing); |

| • | Paychex HR Services; |

| • | retirement services administration; |

| • | insurance services; |

| • | online HR administration services, including time and attendance and benefit enrollment; and |

| • | other human resource services and products. |

In the fiscal year ended May 31, 2014 ("fiscal 2014"), we also introduced additional value-added services that aid clients with certain accounting and finance needs.

By offering additional services that leverage the information gathered in the base payroll processing service, we are able to provide comprehensive outsourcing services that allow employers to expand their employee benefits offerings at an affordable cost.

At Paychex, innovative technology meets superior customer service.

Our software-as-a-service ("SaaS") solutions, operating in the cloud, allow us to offer such versatility.

We offer an industry-leading, web-based report center and robust report writer.

This provides a one-stop shop for standard or on-demand reporting needs, ad-hoc and customized reporting, data-extract templates, and more.

We are integrating our leading-edge technology and mobility platform with our world class customer service through the Paychex Next Generation suite of innovative products.

This technology creates an integrated workforce management tool for our clients by bringing together the services those clients need, including our payroll products and various human resource and employee benefit management services.

Payroll

Payroll processing is a key aspect of our service portfolio.

Our payroll services support the small business market through our core payroll and SurePayroll, Inc. ("SurePayroll") products.

These services include Paychex Online Payroll®, Internet Time Sheet, Paychex Online Reports, and General Ledger Reporting Service.

Using these services, clients can communicate payroll information, access current and historical payroll information, and transfer payroll information calculated by us to their general ledger accounting software, eliminating manual entries and improving the accuracy of bookkeeping.

Mid-market companies typically have more sophisticated payroll and benefits needs, and are primarily serviced through our Major Market Services ("MMS") payroll product.

We offer a SaaS solution, through a single, web-based portal, to meet the payroll and human resource administrative needs of our MMS clients.

This allows our mid-market payroll product to be integrated with various Internet-based services offered to assist clients with their administrative human resource and payroll needs through every step of the employee life cycle.

Ancillary services particularly beneficial to our MMS clients include the following:

| • | Paychex HR Online, our Internet-based human resource management system, offers powerful tools for managing employee benefits, personnel information, and critical human resource compliance and reporting needs. In addition, its self-service features allow for better communication between management and employees. |

| • | BeneTrac, our employee benefits management and administration system, provides our clients a simple, accurate, and cost-effective solution for streamlined benefits management. |

These include disputes or potential disputes related to breach of contract, [added: tort,] breach of fiduciary duty, employment-related claims, tax claims, and other matters.

For the fiscal year ended May 31, [removed: 2014][added: 2015]

As of November 30, [removed: 2013,] [added: 2014,] the last business day of the most recently completed second fiscal quarter, shares held by non-affiliates of the registrant had an aggregate market value of [removed: $14,236,029,018] [added: $15,395,911,785] based on the closing price reported for such date on the NASDAQ Global Select Market.

As of June 30, [removed: 2014, 363,099,317] [added: 2015, 361,206,331] shares of the registrant’s common stock, $.01 par value, were outstanding.

Portions of the registrant’s definitive proxy statement to be issued in connection with its Annual Meeting of Stockholders to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

Risk Factors [removed: 8][added: 7]

Unresolved Staff Comments [removed: 10][added: 9]

Properties [removed: 11][added: 10]

Legal Proceedings [removed: 11][added: 10]

Mine Safety Disclosures [removed: 11][added: 10]

Selected Financial Data [removed: 14][added: 13]

Management’s Discussion and Analysis of Financial Condition and Results of Operations [removed: 14][added: 13]

Quantitative and Qualitative Disclosures About Market Risk [removed: 28][added: 27]

Financial Statements and Supplementary Data [removed: 30][added: 29]

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure [removed: 59][added: 58]

Controls and Procedures [removed: 59][added: 58]

Other Information [removed: 60][added: 59]

Directors, Executive Officers and Corporate Governance [removed: 60][added: 59]

Executive Compensation [removed: 61][added: 60]

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters [removed: 61][added: 60]

Certain Relationships and Related Transactions, and Director Independence [removed: 62][added: 60]

Principal Accounting Fees and Services [removed: 62][added: 60]

Exhibits and Financial Statement Schedules [removed: 62][added: 61]

| | Signatures | [removed: 65] [added: 63] | |

| • | changes in health insurance and workers’ compensation rates and underlying [removed: claims] [added: claim] trends; |

The information provided in this Form 10-K is based upon the facts and circumstances known at this time, and any forward-looking [removed: statement] [added: statements] made by us in this Form 10-K [removed: speaks] [added: speak] only as of the date on which [removed: it is] [added: they are] made.

Except as required by law, we undertake no obligation to update these forward-looking statements after the date of filing [removed: of] this Form 10-K with the SEC to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

10-K 1 payx-053115x10k.htm 10-K

For the fiscal year ended May 31, 2015

10-K 1 payx-053114x10k.htm 10-K

We owned and leased the following properties as of May 31, [removed: 2014:][added: 2015:]

| Other U.S. locations | [removed: 2,024,000] [added: 2,032,000] | |

| Total leased facilities | [removed: 2,241,000] [added: 2,249,000] | |

Facilities outside of Rochester, New York are at various locations throughout the U.S. and [removed: Germany and] house our regional, branch, and sales offices and data processing centers.

| International locations | 28,000 | |

Our international locations are primarily in Germany and house our German branch and sales locations.

| | | |

| Germany | 28,000 | |

As of June 30, [removed: 2014,] [added: 2015,] there were [removed: 15,333] [added: 13,351] holders of record of our common stock, which includes registered holders and participants in the Paychex, Inc. Dividend Reinvestment and Stock Purchase Plan.

There were also [removed: 6,997] [added: 6,948] participants in the Paychex, Inc. Employee Stock Purchase Plan and [removed: 5,261] [added: 5,043] participants in the Paychex, Inc. Employee Stock Ownership Plan.

The high and low sale prices for our common stock as reported on the NASDAQ Global Select Market and dividends for fiscal [removed: 2014] [added: 2015] and [added: the] fiscal [removed: 2013] [added: year ended May 31, 2014 (“fiscal 2014”)] are as follows:

| | | Fiscal [removed: 2014] [added: 2015] | | | | | | Fiscal [removed: 2013 |] [added: 2014] | | | | |

| | | Sales prices | | | | Cash dividends declared per share | | Sales prices | | | | Cash dividends declared per share [removed: (1)] | [removed: |]

| | | High | | Low | | | High | | Low | | | | [removed: |]

| First quarter | | [removed: $40.84 |] [added: $42.66] | [removed: $35.75] | [added: $40.10] | [removed: $0.35] | [added: $0.38] | [removed: $33.44] | [added: $40.84] | [removed: $29.12] | [added: $35.75] | [removed: $0.32] | [added: $0.35] |

| Second quarter | | [removed: $44.01 |] [added: $48.20] | [removed: $36.80] | [added: $41.59] | [removed: $0.35] | [added: $0.38] | [removed: $34.70] | [added: $44.01] | [removed: $31.27] | [added: $36.80] | [removed: $0.33] | [added: $0.35] |

| Third quarter | | [removed: $45.95 |] [added: $50.19] | [removed: $39.86] | [added: $44.52] | [removed: $0.35] | [added: $0.38] | [removed: $34.06] | [added: $45.95] | [removed: $30.55] | [added: $39.86] | [removed: $0.66] | [added: $0.35] |

| Fourth quarter | | [removed: $43.56 |] [added: $51.72] | [removed: $39.80] | [added: $48.00] | [removed: $0.35] | [added: $0.38] | [removed: $38.66] | [added: $43.56] | [removed: $32.73] | [added: $39.80] | [removed: —] | [added: $0.35] |

The closing price of our common stock as of May [removed: 30, 2014,] [added: 29, 2015,] as reported on the NASDAQ Global Select Market, was [removed: $41.11] [added: $49.41] per share.

In [removed: October 2012, our] [added: May 2014, the] Board approved a program to repurchase up to $350 million of [removed: our] [added: its] common [removed: stock,] [added: stock] with authorization expiring on May 31, [removed: 2014.][added: 2017.]

Shares of stock repurchased during the three months ended May 31, [removed: 2014] [added: 2015] were [added: purchased pursuant to the program and were] retired.

The following table provides information relating to our repurchase of common stock during the three months ended May 31, [removed: 2014:][added: 2015:]

The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, [removed: 2009,] [added: 2010,] in Paychex common stock, the S&P 500 Index, and a Peer Group Index.

Our Peer Group is a group of companies with comparable revenue and net income, who are in a comparable industry, or who are direct competitors of Paychex (as detailed on the [removed: next] [added: following] page).

[removed: ][added: ]

| May 31, | | [removed: 2009 | |] 2010 | | 2011 | | 2012 | | 2013 | | 2014 | [added: | 2015 |]

| March 1, 2015 - March 31, 2015 | | — | | | $ | — | | | $ | 279,566,285 | |

| April 1, 2015 - April 30, 2015 | | 1,718,724 | | | $ | 49.18 | | | $ | 195,038,017 | |

| May 1, 2015 - May 31, 2015 | | 560,458 | | | $ | 48.95 | | | $ | 167,604,108 | |

| Total for the period | | 2,279,182 | | | $ | 49.12 | | | $ | 167,604,108 | |

| | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | |

| Paychex | | $100.00 | | $118.03 | | $114.27 | | $147.67 | | $168.69 | | $209.61 |

| S&P 500 | | $100.00 | | $125.95 | | $125.43 | | $159.64 | | $192.28 | | $214.98 |

| Peer Group | | $100.00 | | $135.03 | | $127.75 | | $169.40 | | $210.42 | | $271.24 |

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | |

| --- | --- |

| (1) | In fiscal 2013, the dividends that would typically have been paid in February 2013 and May 2013 were accelerated and paid in December 2012. |

In May 2014, the Board approved a new program to repurchase up to $350 million of its common stock with authorization expiring on May 31, 2017.

All shares of stock repurchased during the three months ended May 31, 2014 were purchased pursuant to the program.

| March 1, 2014 - March 31, 2014 | | — | | | $ | — | | | $ | 147,044,948 | |

| April 1, 2014 - April 30, 2014 | | 844,015 | | | $ | 41.08 | | | $ | 112,369,489 | |

| May 1, 2014 - May 31, 2014 | | 300,000 | | | $ | 40.37 | | | $ | 100,257,468 | |

| Total for the period | | 1,144,015 | | | $ | 40.90 | | | $ | 100,257,468 | |

| Paychex | | $100.00 | | $108.99 | | $128.64 | | $124.54 | | $160.94 | | $183.86 |

| S&P 500 | | $100.00 | | $120.99 | | $152.39 | | $151.76 | | $193.15 | | $232.64 |

| Peer Group | | $100.00 | | $105.30 | | $142.18 | | $134.51 | | $178.37 | | $221.56 |

| In millions, except per share amounts Year ended May 31, | | [added: 2015 | | | |] 2014 (1) | | | | 2013 (2) | | | | 2012 | | | | 2011 | | | [removed: | 2010 (3) | | |]

| Service revenue | | $ | [removed: 2,478.2] [added: 2,697.5] | | | $ | [removed: 2,285.2] [added: 2,478.2] | | | $ | [removed: 2,186.2] [added: 2,285.2] | | | $ | [removed: 2,036.2] [added: 2,186.2] | | | $ | [removed: 1,945.8] [added: 2,036.2] | |

| Interest on funds held for clients | | [removed: 40.7] [added: 42.1] | | | | [removed: 41.0] [added: 40.7] | | | | [removed: 43.6] [added: 41.0] | | | | [removed: 48.1] [added: 43.6] | | | | [removed: 55.0] [added: 48.1] | | |

| Total revenue | | $ | [removed: 2,518.9] [added: 2,739.6] | | | $ | [removed: 2,326.2] [added: 2,518.9] | | | $ | [removed: 2,229.8] [added: 2,326.2] | | | $ | [removed: 2,084.3] [added: 2,229.8] | | | $ | [removed: 2,000.8] [added: 2,084.3] | |

| Operating income | | $ | [removed: 982.7] [added: 1,053.6] | | | $ | [removed: 904.8] [added: 982.7] | | | $ | [removed: 853.9] [added: 904.8] | | | $ | [removed: 786.4] [added: 853.9] | | | $ | [removed: 724.8] [added: 786.4] | |

| Net income | | $ | [removed: 627.5] [added: 674.9] | | | $ | [removed: 569.0] [added: 627.5] | | | $ | [removed: 548.0] [added: 569.0] | | | $ | [removed: 515.3] [added: 548.0] | | | $ | [removed: 477.0] [added: 515.3] | |

| Diluted earnings per share | | $ | [removed: 1.71] [added: 1.85] | | | $ | [removed: 1.56] [added: 1.71] | | | $ | [removed: 1.51] [added: 1.56] | | | $ | [removed: 1.42] [added: 1.51] | | | $ | [removed: 1.32] [added: 1.42] | |

| Cash dividends per common share | | $ | [removed: 1.40] [added: 1.52] | | | $ | [removed: 1.31] [added: 1.40] | | | $ | [removed: 1.27] [added: 1.31] | | | $ | [removed: 1.24] [added: 1.27] | | | $ | 1.24 | |

| Purchases of property and equipment | | $ | [removed: 84.1] [added: 102.8] | | | $ | [removed: 98.7] [added: 84.1] | | | $ | [removed: 89.6] [added: 98.7] | | | $ | [removed: 100.5] [added: 89.6] | | | $ | [removed: 61.3] [added: 100.5] | |

| Cash and total corporate investments | | $ | [removed: 936.8] [added: 936.4] | | | $ | [removed: 874.6] [added: 936.8] | | | $ | [removed: 790.0] [added: 874.6] | | | $ | [removed: 671.3] [added: 790.0] | | | $ | [removed: 656.9] [added: 671.3] | |

| Total assets | | $ | [removed: 6,370.1] [added: 6,482.5] | | | $ | [removed: 6,163.7] [added: 6,370.1] | | | $ | [removed: 6,479.6] [added: 6,163.7] | | | $ | [removed: 5,393.8] [added: 6,479.6] | | | $ | [removed: 5,226.3] [added: 5,393.8] | |

| Stockholders’ equity | | $ | [removed: 1,777.0] [added: 1,785.5] | | | $ | [removed: 1,773.7] [added: 1,777.0] | | | $ | [removed: 1,604.5] [added: 1,773.7] | | | $ | [removed: 1,496.2] [added: 1,604.5] | | | $ | [removed: 1,402.0] [added: 1,496.2] | |

| Return on stockholders’ equity | | [removed: 35] [added: 36] | | % | | [removed: 34] [added: 35] | | % | | 34 | | % | | [removed: 35] [added: 34] | | % | | [removed: 34] [added: 35] | | % |

| (1) | With the introduction of a new health care offering within the PEO, the Company began to recognize certain PEO direct costs as operating expenses rather than as a reduction in service revenue. In the table above, this impacted service revenue and total revenue, but had no impact on operating income. [removed: Refer to the Results of Operations section of Item 7 of this Form 10-K and Note O of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for further details on the impact to service revenue, total revenue, and operating expenses.] |

| | |

| --- | --- |

| (3) | Includes an expense charge of $18.7 million to increase the Rapid Payroll litigation reserve. |

| Report on Management’s Assessment of Internal Control Over Financial Reporting | [removed: 31] [added: 30] | |

| Reports of Independent Registered Public Accounting Firms | [removed: 32] [added: 31] | |

| Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, [added: 2015,] 2014, [removed: 2013,] and [removed: 2012] [added: 2013] | [removed: 34] [added: 33] | |

| Consolidated Balance Sheets as of May 31, [removed: 2014] [added: 2015] and [removed: 2013] [added: 2014] | [removed: 35] [added: 34] | |

| Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, [added: 2015,] 2014, [removed: 2013,] and [removed: 2012] [added: 2013] | [removed: 36] [added: 35] | |

| Consolidated Statements of Cash Flows for the Years Ended May 31, [added: 2015,] 2014, [removed: 2013,] and [removed: 2012] [added: 2013] | [removed: 37] [added: 36] | |

| Notes to Consolidated Financial Statements | [removed: 38] [added: 37] | |

| Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, [added: 2015,] 2014, [removed: 2013,] and [removed: 2012] [added: 2013] | [removed: 59] [added: 58] | |

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, [removed: 2014.][added: 2015.]

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” [removed: (1992).][added: (2013).]

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, [removed: 2014.][added: 2015.]

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, [removed: 2014,] [added: 2015,] 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.

To the Board of Directors and [removed: Stockholders] [added: Shareholders] of Paychex, Inc.

In our opinion, the accompanying consolidated balance [removed: sheet as of May 31, 2014] [added: sheets] and the related consolidated statements of income and comprehensive income, of stockholders’ equity, and of cash flows [removed: for the year then ended] present fairly, in all material respects, the financial position of Paychex, Inc. and its subsidiaries [removed: as of] [added: at] May 31, [added: 2015 and May 31,] 2014, and the results of their operations and their cash flows for [added: each of] the [removed: year then] [added: two years in the period] ended [added: May 31, 2015] in conformity with accounting principles generally accepted in the United States of America.

In addition, in our opinion, the financial statement schedule listed in the [added: accompanying] index appearing under Item 8 for the year ended May 31, [removed: 2014] [added: 2015] presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, [removed: 2014,] [added: 2015,] based on criteria established in Internal Control - Integrated Framework [removed: (1992)] [added: (2013)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Our responsibility is to express opinions on these financial statements, on the financial statement [removed: schedule,] [added: schedule] and on the Company's internal control over financial reporting based on our integrated [removed: audit.][added: audits.]

Those standards require that we plan and perform the [removed: audit] [added: audits] to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.

Our [removed: audit] [added: audits] of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

Our [removed: audit] [added: audits] also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our [removed: opinions.][added: opinion.]

We have audited the accompanying consolidated [removed: balance sheet of Paychex, Inc. as of May 31, 2013, and the related consolidated] statements of income and comprehensive income, stockholders’ equity, and cash flows [removed: for each] of [removed: the two years in] [added: Paychex, Inc. for] the [removed: period] [added: year] ended May 31, 2013.

Our [removed: audits] [added: audit] also included the financial statement [removed: schedules] [added: schedule] listed in the Index at Item 15(a) for the [removed: years] [added: year] ended May 31, [removed: 2013 and 2012.][added: 2013.]

These financial statements and [removed: schedules] [added: schedule] are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements and [removed: schedules] [added: schedule] based on our [removed: audits.][added: audit.]

We believe that our audits provide a reasonable basis for our [removed: opinion.][added: opinions.]

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated [removed: financial position of Paychex, Inc. at May 31, 2013, and the consolidated] results of [removed: its] [added: the] operations and [removed: its] cash flows [removed: for each] of [removed: the two years in] [added: Paychex, Inc. for] the [removed: period] [added: year] ended May 31, 2013, in conformity with U.S. generally accepted accounting principles.

Also, in our opinion, the related financial statement [removed: schedules] [added: schedule] for the [removed: years] [added: year] ended May 31, [removed: 2013 and 2012,] [added: 2013,] when considered in relation to the basic financial statements taken as a whole, [removed: present] [added: presents] fairly in all material respects the information set forth therein.

| Year ended May 31, | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Service revenue | | $ | [removed: 2,478.2] [added: 2,697.5] | | | $ | [removed: 2,285.2] [added: 2,478.2] | | | $ | [removed: 2,186.2] [added: 2,285.2] | |

| Interest on funds held for clients | | [removed: 40.7] [added: 42.1] | | | | [removed: 41.0] [added: 40.7] | | | | [removed: 43.6] [added: 41.0] | | |

| Total revenue | | [removed: 2,518.9] [added: 2,739.6] | | | | [removed: 2,326.2] [added: 2,518.9] | | | | [removed: 2,229.8] [added: 2,326.2] | | |

| Operating expenses | | [removed: 732.5] [added: 808.0] | | | | [removed: 671.3] [added: 732.5] | | | | [removed: 670.1] [added: 671.3] | | |

| Selling, general and administrative expenses | | [removed: 803.7] [added: 878.0] | | | | [removed: 750.1] [added: 803.7] | | | | [removed: 705.8] [added: 750.1] | | |

| Total expenses | | [removed: 1,536.2] [added: 1,686.0] | | | | [removed: 1,421.4] [added: 1,536.2] | | | | [removed: 1,375.9] [added: 1,421.4] | | |

| Operating income | | [removed: 982.7] [added: 1,053.6] | | | | [removed: 904.8] [added: 982.7] | | | | [removed: 853.9] [added: 904.8] | | |

| Investment income, net | | [removed: 5.4] [added: 6.4] | | | | [removed: 6.6] [added: 5.4] | | | | [removed: 6.4] [added: 6.6] | | |

| Income before income taxes | | [removed: 988.1] [added: 1,060.0] | | | | [removed: 911.4] [added: 988.1] | | | | [removed: 860.3] [added: 911.4] | | |

| Income taxes | | [removed: 360.6] [added: 385.1] | | | | [removed: 342.4] [added: 360.6] | | | | [removed: 312.3] [added: 342.4] | | |

| Net income | | $ | [removed: 627.5] [added: 674.9] | | | $ | [removed: 569.0] [added: 627.5] | | | $ | [removed: 548.0] [added: 569.0] | |

July 21, 2015

| Repurchases of common shares | | (3.9 | ) | | | | | | (7.2 | | ) | | (175.2 | | ) | | | | | | (182.4 | | ) |

| Stock-based award transactions | | 2.1 | | | | | | | 61.4 | | | | (11.1 | | ) | | | | | | 50.3 | | |

| Balance as of May 31, 2015 | | 361.2 | | | $ | 3.6 | | | $ | 880.1 | | | $ | 894.3 | | | $ | 7.5 | | | $ | 1,785.5 | |

| Year ended May 31, | | 2015 | | | | 2014 | | | | 2013 | | |

| Net income | | $ | 674.9 | | | $ | 627.5 | | | $ | 569.0 | |

In addition, the Company has an equity method investment for a joint-venture in Brazil and a minority investment in a Canadian entity, neither of which is significant.

Service revenue is comprised primarily of the fees earned on our portfolio of human capital management (“HCM”) services, which include payroll processing and complementary human resource management and administration services.

Revenue recognition: Revenues are primarily attributable to fees for providing services as well as investment income earned on funds held for clients.

These amounts are included in current liabilities on the Consolidated Balance Sheet.

Recently adopted accounting pronouncements: In November 2014, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-17, “Business Combinations (Topic 805) - Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force).” This guidance provides the option for an acquired entity to apply pushdown accounting in its separately issued financial statements when a change-in-control event occurs.

This guidance was effective for change-in-control events after November 18, 2014.

Recently issued accounting pronouncements: In May 2015, the FASB issued ASU No. 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts.” This guidance requires insurance entities to disclose for annual reporting periods incurred and paid claims development information by accident year, after reinsurance, for the number of years for which claims typically remain open.

Disclosures should also include quantitative information about claim frequency and a qualitative description of methodologies used for determining claim frequency information.

This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early and retrospective application is permitted.

In May 2015, the FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) (a consensus of the FASB Emerging Issues Task Force).” This guidance removes the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient and removes certain related disclosure requirements.

This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early adoption is permitted.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This guidance clarifies the accounting treatment for fees paid in cloud computing arrangements, including the determination of whether a cloud computing arrangement includes a software license.

This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early adoption is permitted.

The Company is currently evaluating this guidance, but does not anticipate it will have a material impact to its consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” This Guidance requires debt issuance costs to be presented in the balance sheet as a reduction of the related debt liability rather than an asset.

This guidance is effective for annual reporting periods, including interim periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early adoption is permitted for financial statements not previously issued.

The Company does not anticipate this guidance will have a material impact to its consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02 “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” This guidance focuses on a reporting company’s consolidation evaluation to determine whether they should consolidate certain legal entities.

This guidance is effective for annual periods beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early adoption is permitted, including adoption in an interim period.

The Company is currently evaluating this guidance, but does not anticipate it will have a material impact to its consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01 “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20)-Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This guidance eliminates from GAAP the concept of extraordinary items and is effective for annual reporting periods, including interim reporting periods, beginning after December 15, 2015, and is applicable to the Company's fiscal year beginning June 1, 2016.

Early adoption is permitted.

The Company does not anticipate it will have a material impact to its consolidated financial statements.

The Company is currently evaluating this guidance, but does not anticipate it will have a material impact to its consolidated financial statements.

Early application of the guidance is permitted for annual reporting periods beginning after December 31, 2016.

| Net income | | $ | 674.9 | | | $ | 627.5 | | | $ | 569.0 | |

| Net income | | $ | 674.9 | | | $ | 627.5 | | | $ | 569.0 | |

| Weighted-average common shares outstanding | | 362.9 | | | | 364.5 | | | | 363.8 | | |

During fiscal 2014, the Company repurchased 6.2 million shares for $249.7 million under a previous Board-approved program to repurchase up to $350.0 million of its common stock which expired on May 31, 2014.

PricewaterhouseCoopers LLP

July 22, 2014

| Deferred revenue | | 6.9 | | | | 5.2 | | |

| Balance as of May 31, 2011 | | 362.1 | | | $ | 3.6 | | | $ | 535.6 | | | $ | 919.5 | | | $ | 37.5 | | | $ | 1,496.2 | |

| Stock-based award transactions | | 0.5 | | | | | | | 2.4 | | | | (4.9 | | ) | | | | | | (2.5 | | ) |

Service revenue is comprised primarily of the payroll and Human Resource Services (“HRS”) portfolios of services and products.

The Company’s business is largely homogeneous and, as a result, goodwill is associated with one reporting unit.

Recently adopted accounting pronouncements: Effective June 1, 2013, the Company adopted Accounting Standards Update (“ASU”) 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment,” issued by the Financial Accounting Standards Board (“FASB”).

This updated guidance allows companies the option to first assess qualitative factors to determine if it is more-likely-than-not that an indefinite-lived intangible asset might be impaired and whether it is necessary to perform the quantitative impairment test.

Effective June 1, 2013, the Company adopted ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” This authoritative guidance requires the reporting of the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income.

There are no changes to the components that are recognized in net income or other comprehensive income.

Early application of the guidance is not permitted.

In May 2014, the Company announced that its Board of Directors (the “Board”) approved a new program to repurchase up to $350 million of the Company's common stock with authorization expiring on May 31, 2017.

| | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

Grants of non-qualified stock options to officers beginning in July 2010 vest 25% per annum.

Grants to members of the Board beginning in October 2010 vest after one year.

The Company had granted stock options to virtually all non-management employees with at least ninety days of service, with the last broad-based grant in October 2006.

As of May 31, 2014, 0.4 million shares remain outstanding on this grant.

| Outstanding as of May 31, 2013 | | 8.0 | | | $ | 34.17 | | | | | | | |

| Granted | | 0.9 | | | $ | 38.52 | | | | | | | |

| Exercised | | (3.4 | ) | | $ | 35.51 | | | | | | | |

| Forfeited | | — | | | $ | 29.26 | | | | | | | |

| Expired | | (0.1 | ) | | $ | 38.11 | | | | | | | |

| Exercisable as of May 31, 2014 | | 3.4 | | | $ | 33.87 | | | 3.6 | | $ | 24.7 | |

| Outstanding as of May 31, 2013 | | 2.7 | | | $ | 30.95 | | | | | | | |

| Exercised | | — | | | $ | — | | | | | | | |

| Exercisable as of May 31, 2014 | | — | | | $ | — | | | 0.0 | | $ | — | |

| | |

| --- | --- |

| (1) | Performance stock options granted assuming achievement of performance goals at target. Actual amount of shares to be earned may differ from this amount. |

| Nonvested as of May 31, 2013 | | 1.6 | | | $ | 26.29 | | | | | | | |

For restricted stock awards granted to officers prior to July 2010, the shares vest upon the fifth anniversary of the grant date provided the recipient is still an employee of the Company on that date.

These awards have a provision for the acceleration of vesting based on achievement of performance targets established by the Board.

If the established targets are met for a fiscal year, up to one-third of the award may vest.

If all the targets are met for three consecutive years, the award will be fully vested.

For grants to outside directors prior to October 2010, the shares vested on the third anniversary of the grant date.

| Granted | | 0.1 | | | $ | 38.53 | |

Performance shares: Beginning in July 2010, the Board approved grants of restricted performance shares to officers.

| Nonvested as of May 31, 2013 | | 0.4 | | | $ | 27.89 | |

Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that as of May 31, [removed: 2014,] [added: 2015,] the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting: The Company also carried out an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended May 31, [removed: 2014.][added: 2015.]

Based on such evaluation, there have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recently completed fiscal quarter ended May 31, [removed: 2014,] [added: 2015,] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The following table shows the executive officers of the Company as of May 31, [removed: 2014,] [added: 2015,] and information regarding their positions and business experience.

| Martin Mucci | | [removed: 54] [added: 55] | | Mr. Mucci has served as President and Chief Executive Officer of the Company since September 2010. Mr. Mucci joined the Company in 2002 as Senior Vice President, Operations. Prior to joining Paychex, he held senior level positions with Frontier Telephone of Rochester, a telecommunications company, during his 20-year career. Mr. Mucci [removed: is] [added: was] a director of Cbeyond, Inc. [added: until it was purchased by Birch Communications in July 2014.] He is a member of the Upstate New York [added: Regional] Advisory Board of the Federal Reserve Bank of New York and is a Trustee Emeritus of St. John Fisher College. He also serves as a director of the Company and is chairman of the Executive Committee. |

| Efrain Rivera | | [removed: 57] [added: 58] | | Mr. Rivera joined Paychex in June 2011 as Senior Vice President, Chief Financial Officer, and Treasurer. Prior to joining the Company, Mr. Rivera served as Vice President of Finance and Administration for Houghton College since 2009. He previously served for over twenty years with Bausch & Lomb Incorporated, a world leader in the development, manufacture, and marketing of eye health products, most recently as Corporate Vice President and Chief Financial Officer from 2007 to 2009. |

| Mark A. Bottini | | [removed: 53] [added: 54] | | Mr. Bottini joined Paychex in October 2011 as Senior Vice President of Sales. From 2008 to 2011, Mr. Bottini served as Vice President of Sales for Ricoh, North America, a provider of advanced office technology and innovative document imaging products, services, and software. He assumed his most recent position with Ricoh when Ricoh acquired IKON Office Solutions, Inc. During his nearly 20 years with IKON, Mr. Bottini served in a variety of sales leadership and field management roles. |

| John B. Gibson | | [removed: 48] [added: 49] | | Mr. Gibson joined Paychex in May 2013 as Senior Vice President of Service. Prior to joining the Company, Mr. Gibson served as President and Chief Executive Officer for AlphaStaff, a national provider of human resource outsourcing services to small and medium-sized businesses. Prior to joining AlphaStaff in 2010, Mr. Gibson was President of the HR Management Division of Convergys, a global leader in technology, outsourcing, and business services. From 2004 to 2007, he served as Senior Vice President of Global Operations and Client Services of Convergys. |

| Michael E. Gioja | | [removed: 56] [added: 57] | | Mr. Gioja was named Senior Vice President of Information Technology, Product Management, and Development in July 2011. Mr. Gioja has been with the Company since November 2008 as Vice President of Product Management, subsequently adding development and information technology to his responsibilities. Previously, he was Chief Information Officer and Executive Vice President of Products and Services for Workstream, Inc., a provider of on-demand enterprise talent management solutions and services. |

| Stephanie L. Schaeffer | | [removed: 44] [added: 45] | | Ms. Schaeffer was named Vice President and Chief Legal Officer in January 2006. In 2011, she was appointed Corporate Secretary. She joined Paychex in 2000 as Corporate Counsel and was promoted to Director of Legal Affairs in 2004. In her current role, she is responsible for overseeing all of the Company's legal functions, including litigation, corporate governance, and regulatory matters. |

| Jennifer Vossler | | [removed: 51] [added: 52] | | Ms. Vossler joined the Company in May 2009 as Vice President and Controller. Prior to joining the Company, she served as Vice President and Corporate Controller, and held various executive and senior management positions during her eleven years at Bausch & Lomb Incorporated. Previously in her career, she held leadership roles with a global facilities management outsourcing company and a public accounting firm. |

| Laurie L. Zaucha | | [removed: 49] [added: 50] | | Ms. Zaucha joined the Company in March 2011 and was named Vice President of Human Resources and Organizational Development. Prior to joining the Company, she served as Senior Vice President of Human Resources for Paetec Holding Corp., a Fortune 1000 telecommunications company, from 2007 to 2011. From 2003 to 2007, she held various executive positions at Bausch & Lomb Incorporated. |

The additional information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2014] [added: 2015] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] in the sections “PROPOSAL 1 — ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,” “CORPORATE GOVERNANCE,” “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.

| Kevin N. Hill | | 55 | | Mr. Hill was named Vice President of Insurance and Human Resource Solutions Services in October 2011. He joined Paychex in April 2008 as Vice President of Insurance Operations, and took on the role of Vice President of Insurance Sales and Operations in 2010. Mr. Hill also serves as President of Paychex Insurance Agency, Inc., and has executive leadership responsibility for BeneTrac. In July 2011, he also took on leadership of the PEO and the HR Services operations organizations. Prior to joining Paychex, Mr. Hill was President and Chief Operating Officer of Excellus BlueCross BlueShield. Mr. Hill held various executive positions during his ten years with Excellus BlueCross BlueShield. |

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2014] [added: 2015] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” and “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, [removed: 2014,”] [added: 2015,”] and is incorporated herein by reference.

The information required by this item is set forth below and in the Company’s Definitive Proxy Statement for its [removed: 2014] [added: 2015] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] under the section “BENEFICIAL OWNERSHIP OF PAYCHEX COMMON STOCK,” and [added: under “Equity Compensation Plan Information” within “PROPOSAL 3 - TO APPROVE AND AMEND THE PAYCHEX, INC. 2002 STOCK INCENTIVE PLAN, INCLUDING AN INCREASE IN THE SHARES AVAILABLE UNDER THE PLAN,” and] is incorporated herein by reference.

The Company maintains equity compensation plans in the form of stock incentive plans.

Under the Paychex, Inc. 2002 Stock Incentive Plan, as amended and restated (the “2002 Plan”), non-qualified or incentive stock options, restricted stock, restricted stock units, performance shares, and performance stock options have been awarded to employees and the Board.

The 2002 Plan was adopted on July 7, 2010 by the Board and became effective upon stockholder approval at the Company’s Annual Meeting of Stockholders held on October 13, 2010.

Refer to Note D of the Notes to Consolidated Financial Statements, contained in Item 8 of this Form 10-K, for more information on the Company’s stock incentive plans.

The following table details information on securities authorized for issuance under the Company’s stock incentive plans as of May 31, 2014:

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| --- | --- | --- | --- | --- | --- | --- |

| In millions, except per share amounts | | Number of securities to be issued upon exercise of outstanding options | | Weighted-average exercise price of outstanding options | | Number of securities remaining available for future issuance under equity compensation plans |

| Equity compensation plans approved by security holders (1) | | 8.2 | | $33.06 | | 20.2 |

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| --- | --- |

| (1) | Amounts include performance stock options granted, assuming achievement of performance goals at target. Actual amount of shares to be earned may differ from the target amount. |

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2014] [added: 2015] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] under the sub-headings “Board Meetings and Committees” and “Policy on Transactions with Related Persons” within the section “CORPORATE GOVERNANCE,” and is incorporated herein by reference.

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2014] [added: 2015] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 15, 2014,] [added: 14, 2015,] under the section “PROPOSAL [removed: 3] [added: 5] — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by reference.

| 1. | | Financial Statements See Financial Statements and Supplementary Data Table of Contents at page [removed: 30.] [added: 29.] | | |

| | | Financial statement schedules required to be filed by Item 8 of this Form 10-K include Schedule II — Valuation and Qualifying Accounts. See Financial Statements and Supplementary Data Table of Contents at page [removed: 30.] [added: 29.] All other schedules are omitted as the required matter is not present, the amounts are not significant, or the information is shown in the financial statements or the notes thereto. | | |

| # | | [removed: (10.3)] [added: (10.4)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) [added: Form of] Restricted Stock [added: Unit] Award Agreement, incorporated herein by reference from Exhibit [removed: 10.1] [added: 10(n)] to the Company’s Form [removed: 8-K] [added: 10-K] filed with the Commission on July [removed: 16,] [added: 18,] 2008. |

| # | | [removed: (10.4)] [added: (10.3)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Award Agreement, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on July 16, 2008. |

| # | | [removed: (10.5)] [added: (10.7)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Restricted Stock [removed: Unit] Award [removed: Agreement,] [added: Agreement (Officer),] incorporated herein by reference from Exhibit [removed: 10(n)] [added: 10.18] to the Company’s Form 10-K filed with the Commission on July [removed: 18, 2008.] [added: 16, 2010.] |

| # | | [removed: (10.6)] [added: (10.5)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Agreement for Directors, incorporated herein by reference from Exhibit 10(q) to the Company’s Form 10-K filed with the Commission on July 18, 2008. |

| # | | [removed: (10.7)] [added: (10.8)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of [removed: Restricted] [added: Non-Qualified] Stock [added: Option] Award Agreement (Officer), incorporated herein by reference from Exhibit [removed: 10.16] [added: 10.19] to the Company’s Form 10-K filed with the Commission on July [removed: 20, 2009.] [added: 16, 2010.] |

| # | | [removed: (10.8)] [added: (10.6)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) 2009 Non-Qualified Stock Option Award Agreement (Special Grant), incorporated herein by reference from Exhibit 10.17 to the Company’s Form 10-K filed with the Commission on July 20, 2009. |

| # | | (10.9) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of [removed: Restricted Stock] [added: Officer Performance Incentive] Award Agreement [removed: (Officer),] [added: (Long Term),] incorporated herein by reference from Exhibit [removed: 10.18] [added: 10.20] to the Company’s Form 10-K filed with the Commission on July 16, 2010. |

| # | | (10.10) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 12, 2005)] [added: 13, 2010)] Form of Non-Qualified Stock Option Award Agreement [removed: (Officer),] [added: (Board),] incorporated herein by reference from Exhibit [removed: 10.19] [added: 10.20] to the Company’s Form 10-K filed with the Commission on July [removed: 16, 2010.] [added: 15, 2011.] |

| # | | (10.11) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 12, 2005)] [added: 13, 2010)] Form of [removed: Officer Performance Incentive] [added: Restricted Stock] Award Agreement [removed: (Long Term),] [added: (Board),] incorporated herein by reference from Exhibit [removed: 10.20] [added: 10.21] to the Company’s Form 10-K filed with the Commission on July [removed: 16, 2010.] [added: 15, 2011.] |

| # | | [removed: (10.12)] [added: (10.13)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Non-Qualified Stock Option Award Agreement [removed: (Board),] [added: (Officer) Long Term Incentive Program (“LTIP”),] incorporated herein by reference from Exhibit [removed: 10.20] [added: 10.23] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.13)] [added: (10.12)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Restricted Stock [added: Unit (Special Retention)] Award [removed: Agreement (Board),] [added: Agreement,] incorporated herein by reference from Exhibit [removed: 10.21] [added: 10.22] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | (10.14) | | Paychex, Inc. [removed: 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Restricted Stock Unit (Special Retention) Award Agreement,] [added: Change In Control Plan,] incorporated herein by reference from Exhibit [removed: 10.22] [added: 10.24] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | (10.15) | | Paychex, Inc. [removed: 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010)] Form of [removed: Non-Qualified Stock Option] [added: Performance] Award [removed: Agreement (Officer) Long Term] Incentive [removed: Program (“LTIP”),] [added: Program,] incorporated herein by reference from Exhibit [removed: 10.23] [added: 10.25] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.16)] [added: (10.17)] | | Paychex, Inc. [removed: Change In Control] [added: Board Deferred Compensation] Plan, incorporated herein by reference from Exhibit [removed: 10.24] [added: 10.29] to the Company’s Form 10-K filed with the Commission on July [removed: 15, 2011.] [added: 20, 2009.] |

| # | | [removed: (10.17)] [added: (10.18)] | | Paychex, Inc. [removed: Form of Performance Award Incentive Program,] [added: Employee Deferred Compensation Plan,] incorporated herein by reference from Exhibit [removed: 10.25] [added: 10.30] to the Company’s Form 10-K filed with the Commission on July [removed: 15, 2011.] [added: 20, 2009.] |

| # | | [removed: (10.18)] [added: (10.16)] | | Form of Indemnity Agreement for Directors and Officers, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on March 28, 2012. |

| [removed: #] | | (10.19) | | [added: Stock Purchase Plan Engagement Agreement between] Paychex, Inc. [removed: Board Deferred Compensation Plan,] [added: and JP Morgan Securities LLC, dated as of March 26, 2013,] incorporated herein by reference from Exhibit [removed: 10.29] [added: 10.1] to the Company’s Form [removed: 10-K] [added: 8-K] filed with the Commission on [removed: July 20, 2009.] [added: March 29, 2013.] |

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July [removed: 22, 2014.][added: 21, 2015.]

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July [removed: 22, 2014.][added: 21, 2015.]

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| # | | (10.20) | | Paychex, Inc. Employee Deferred Compensation Plan, incorporated herein by reference from Exhibit 10.30 to the Company’s Form 10-K filed with the Commission on July 20, 2009. |

| | | (10.21) | | Stock Purchase Plan Engagement Agreement between Paychex, Inc. and JP Morgan Securities LLC, dated as of March 26, 2013, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on March 29, 2013. |