Paychex (PAYX) 10-K risk factor changes: FY2016 vs FY2015

Our clients and our business could be adversely impacted by health care reform: The [removed: Act] [added: ACA] was enacted in March 2010 and entails sweeping health care reforms with staggered effective dates from 2010 through 2018.

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

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

[removed: If we experience a problem with the functioning of key systems] [added: A privacy] or [removed: a] [added: IT] security breach [removed: of our systems, the resulting disruptions] could have a material adverse effect on our business.

Vulnerabilities, threats, and more sophisticated and targeted computer [removed: crime] [added: crimes] pose a risk to the security of our systems and networks, and the confidentiality, availability, and integrity of our data.

[removed: We] [added: While we] have security systems and [removed: information technology] [added: IT] infrastructure in place designed to detect and protect against unauthorized access to such [removed: information.][added: information, if our security measures are breached, our business could be substantially harmed and we could incur significant liabilities.]

[added: Data Loss and Business Interruption:] If our systems are disrupted or fail for any reason, or if our systems are infiltrated by unauthorized persons, both the Company and our clients could experience data loss, financial loss, harm to reputation, or significant business interruption.

Historically, we have [removed: rarely] [added: periodically] borrowed against available credit arrangements to meet [added: short-term] liquidity needs.

Cyber-attacks and security vulnerabilities could lead to reduced revenues, increased costs, liability claims, or harm to our competitive position: We rely upon information technology (“IT”) networks, cloud-based platforms, and systems to process, transmit, and store electronic information, and to support a variety of business processes.

Cyber-attacks and security threats are a risk to our business and reputation.

Data Security and Privacy Leaks: We collect, use, and retain increasingly large amounts of personal information about our clients, employees of our clients, and our employees, including: bank account numbers, credit card numbers, social security numbers, tax return information, health care information, retirement account information, payroll information, system and network passwords, and other sensitive personal and business information.

At the same time, the continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security.

Our service platforms enable our clients to store and process personal data on premise or, increasingly, in a cloud-based environment that we host.

The security of our IT infrastructure is an important consideration in our customers purchasing decisions.

As cyber threats continue to evolve, we are focused on ensuring that our operating environments safeguard and protect personal and business information.

Any such breach or unauthorized access could negatively affect our ability to attract new clients, cause existing clients to terminate their agreements with us, result in reputational damage and subject us to lawsuits, regulatory fines, or other actions or liabilities which could materially and adversely affect our business and operating results.

Growth in services for funding payrolls of our clients in the temporary staffing industry may be constricted if access to financing becomes limited.

We may not be able to attract and retain qualified people, which could impact the quality of our services and customer satisfaction.

Our success, growth and financial results depend in part on our continuing ability to attract, retain and motivate highly qualified people at all levels, including management, technical, compliance and sales personnel.

Competition for these individuals can be intense, and we may not be able to retain our key people, or attract, assimilate or retain other highly-qualified individuals in the future, which could harm our future success.

Many provisions of the Act require the issuance of additional guidance from the U.S. Departments of Labor and Health & Human Services, the Internal Revenue Service (the “IRS”), and the States.

Our business and reputation may be affected by security breaches and other disruptions to our information technology infrastructure, which could compromise Company and personal customer information: We rely upon information technology networks and systems to process, transmit, and store electronic information, and to support a variety of business processes.

We also collect, use, and retain large amounts of personal information about our clients and their employees that is critical to the accurate and timely provision of services to our clients.

This information includes bank account numbers, credit card numbers, tax return information, social security numbers, health care information, retirement account information, payroll information, and Paychex system passwords.

In addition, we also collect and maintain personal information on our employees in the ordinary course of our business.

As many of our services are web-based and mobile-application-based, the amount of data we store for our users on our servers has been increasing.

However, there is no guarantee that our systems and processes are adequate to protect against all security breaches.

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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: 2015] [added: 2016] (“fiscal [removed: 2015”),] [added: 2016”),] May 31, [removed: 2014] [added: 2015] (“fiscal [removed: 2014”),] [added: 2015”),] and May 31, [removed: 2013] [added: 2014] (“fiscal [removed: 2013”),] [added: 2014”),] and our financial condition as of May 31, [removed: 2015.][added: 2016.]

We are a leading provider of [added: integrated human capital management (“HCM”) solutions for] payroll, human [removed: resource, insurance,] [added: resource (‘HR”), retirement,] and [removed: benefits outsourcing solutions] [added: insurance services] for small- to medium-sized businesses.

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

| [removed: •] | [added: · | |] payroll processing; |

| [removed: •] | [added: · | |] payroll tax administration services; |

| [removed: •] | [added: · | |] employee payment services; and |

| [removed: •] | [added: · | |] regulatory compliance services (new-hire reporting and garnishment processing). |

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

| [removed: •] | [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 (“PEO”); |

| [removed: •] | [added: · | |] retirement services administration; |

| [removed: •] | [added: · | |] insurance services; |

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

| [removed: •] | [added: · | |] other human resource services and products. |

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

Our financial results for fiscal [removed: 2015] [added: 2016] reflected sustained growth in our business.

Payroll service revenue continued to experience steady growth of 4% for fiscal [removed: 2015] [added: 2016] as compared with fiscal [removed: 2014,] [added: 2015,] driven by growth in [added: client base and] revenue per [removed: check and clients.][added: check.]

[removed: For the third year in a row, we achieved record levels of client retention, ending fiscal 2015] [added: Client retention was] in excess of 82% of the beginning of the year client [removed: base.][added: base for fiscal 2016, consistent with fiscal 2015, which reflected a record high.]

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

Our combined funds held for clients and corporate investment portfolios earned an average rate of return of [added: 1.1% for fiscal 2016, compared to] 1.0% for fiscal years [removed: 2015, 2014,] [added: 2015] and [removed: 2013.][added: 2014.]

Highlights of our financial results for fiscal [removed: 2015,] [added: 2016,] compared to fiscal [removed: 2014,] [added: 2015,] are as follows:

| [removed: •] | [added: · | |] Total service revenue increased [removed: 9%] [added: 8%] to [removed: $2.7] [added: $2.9] billion. |

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

| [removed: ◦] | [added: o | |] HRS revenue increased [removed: 18%] [added: 13%] to [removed: $1.0] [added: $1.2] billion. |

| [removed: •] | [added: · | |] Interest on funds held for clients increased [removed: 3%] [added: 9%] to [removed: $42.1] [added: $46.1] million. |

| [removed: •] | [added: · | |] Total revenue increased [removed: 9%] [added: 8%] to [removed: $2.7] [added: $3.0] billion. |

| [removed: •] | [added: · | |] Operating income increased [removed: 7%] [added: 9%] to $1.1 billion. |

[removed: | • |] Net income and [removed: diluted] earnings per [removed: share each] [added: share: Net income] increased [added: 12% to $756.8 million for fiscal 2016 and] 8% to $674.9 million [removed: and $1.85 per share, respectively. |][added: for fiscal 2015.]

| [removed: •] | [added: · | |] Dividends of [removed: $551.8] [added: $606.5] million were paid to stockholders, representing [removed: 82%] [added: 80%] of net income. |

Our [added: payroll] client base totaled approximately [removed: 590,000] [added: 605,000] clients as of May 31, [removed: 2015,] [added: 2016,] compared to approximately [removed: 580,000] [added: 590,000] clients as of May 31, [removed: 2014,] [added: 2015,] and approximately [removed: 570,000] [added: 580,000] clients as of May 31, [removed: 2013.][added: 2014.]

[removed: Our client base increased approximately 2% for] [added: For] fiscal [removed: 2015] [added: 2016] and fiscal [removed: 2014, up from] [added: 2015, our total payroll client base] growth [removed: of] [added: was] approximately [removed: 1% for fiscal 2013.][added: 2%.]

Our [removed: online] HR administration services are often included as part of the SaaS solutions for mid-market clients.

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

| | | [removed: 2015 |] [added: May 31, 2016] | | [removed: 2014] [added: 2016] | | | [removed: 2013] [added: 2015] | | | [added: 2014] | |

| Paychex HR Services client worksite employees | | [removed: 858,000] | [added: 944,000] | | [removed: 12] [added: 10] | % | | [removed: 14] | [removed: %] [added: 858,000] | | [removed: 9] [added: 12] | % | [added: | | 766,000 |]

| Paychex HR Services clients | | [removed: 31,000 |] [added: 35,000] | | [removed: 11] [added: 10] | % | | [removed: 13] [added: 11] | % | | [removed: 10] [added: 13] | % |

| Health and benefits services applicants | | [removed: 142,000] | [added: 150,000] | | 6 | % | | [removed: 3] | [removed: %] [added: 142,000] | | [removed: 8] [added: 6] | % | [added: | | 134,000 |]

| Retirement services plans | | [removed: 70,000 |] [added: 74,000] | | [removed: 6] [added: 7] | % | | [removed: 5] [added: 6] | % | | [removed: 4] [added: 5] | % |

[removed: | • | Our full-service] Paychex [removed: 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. [removed: |]

Our financial position as of May 31, [removed: 2015] [added: 2016] remained strong with cash and total corporate investments of [removed: $936.4] [added: $793.2] million and no debt.

Our investment strategy [removed: focuses] [added: continues to focus] on protecting principal and optimizing liquidity.

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We also offer certain accounting and financial services, which include: the purchase of accounts receivable as a means of providing payroll funding to clients in the temporary staffing industry; a cloud-based accounting service; payment processing services; payment distribution services; and a small-business loan resource center.

We continue to focus on driving growth in the number of clients, revenue, and profits, while providing industry-leading service and technology solutions to our clients and their employees.

Our payroll client base grew 2% in fiscal 2016 to approximately 605,000 clients as of May 31, 2016, resulting from solid sales execution and client retention results in excess of 82% of the beginning of the fiscal year client base, consistent with the prior year’s record high.

In December 2015, the United States (“U.S.”) Federal Reserve raised the Federal Funds rate by 25 basis points.

This was the first interest hike in nearly a decade.

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| | · | | Net income increased 12% to $756.8 million and diluted earnings per share increased 13% to $2.09 per share. During the first quarter of fiscal 2016 (the “first quarter”), a net tax benefit was recorded for income derived in prior tax years that increased full-year diluted earnings per share by approximately $0.05. Excluding this net tax benefit, net income and diluted earnings per share would have increased 9% and 10%, respectively, for fiscal 2016. |

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In fiscal 2016, we made significant enhancements to our Paychex Flex platform, which is our cloud-based HCM solution.

In fiscal 2016, we completed the integration of key HCM modules with the release of Paychex Flex Time, Paychex Flex Benefits Administration, and Paychex Flex Hiring.

We believe this leading-edge technology, along with our flexible service options, positively impacted our performance in the mid-market space, as we experienced especially strong sales results for this division in fiscal 2016.

In December 2015, a wholly owned subsidiary of Paychex acquired substantially all of the net assets of Advance Partners.

Advance Partners is a leading provider of integrated financial, operational, and strategic services to support independent staffing firms.

Advance Partners offers customizable solutions to the temporary staffing industry, including payroll funding and outsourcing services.

Our full-service Paychex Employer Shared Responsibility (“ESR”) services continued to show strong market acceptance and growth in fiscal 2016.

The Affordable Care Act (“ACA”) sets forth specific coverage and reporting requirements that employers must meet.

Cash flow from operations exceeded $1.0 billion for the first time for fiscal 2016.

In July 2015, we announced an increase in our quarterly dividend of 11%, or $0.04 per share.

In July 2016, we subsequently announced an additional $0.04 per share, or 10%, increase in our quarterly dividend.

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| | · | | HRS Revenue is anticipated to increase in the range of 12% to 14%; |

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We continue to drive growth in clients, revenue, and profits.

We achieved a milestone of $1 billion of HRS revenue for fiscal 2015, as strong demand for our comprehensive human resource outsourcing solutions drove double-digit growth.

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

The Federal Funds rate has been at a range of zero to 0.25% since December 2008.

For fiscal 2015, payroll services client retention was at a record level in excess of 82% of our beginning of the year client base.

Our client satisfaction results remained high, which we believe is a result of our focus on providing innovative technology solutions and outstanding personal service to our clients to maximize client retention.

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

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

| • | 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. |

Cash flow from operations was $895.2 million for fiscal 2015.

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.

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| HRS revenue | | 1,040.7 | | | | 18 | % | | 878.9 | | | | 18 | % | | 746.0 | | |

| Total service revenue | | 2,697.5 | | | | 9 | % | | 2,478.2 | | | | 8 | % | | 2,285.2 | | |

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

Growth in checks per payroll was flat for fiscal 2015.

Revenue per check was positively impacted by price increases and increased product penetration, partially offset by discounting during the fiscal year.

Client retention reached record levels for both years and was in excess of 82% of the beginning of the year client base for fiscal 2015 and was approximately 82% of the beginning of the year client base for fiscal 2014.

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.

For both fiscal 2015 and fiscal 2014, the growth in HRS revenue was attributable to client base growth, as reflected in the table below.

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. |

| • | Retirement services revenue is our second largest HRS revenue stream. Retirement services revenue for fiscal 2015 benefited from pricing, along with a 6% growth in the number of plans served and 7% growth in the average asset value of retirement services participants' funds. Retirement services revenue for fiscal 2014 reflected a 5% increase in the number of plans served, price increases, and a 13% increase in the asset value of retirement services participant's funds. The asset fee revenue earned on the value of participants' funds for fiscal 2014 was partially offset by the impact from a shift in the mix of assets within these funds to investments that earn lower fees from external managers. |

| • | 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.

The lower average interest rates earned in fiscal 2014 were the result of lower yields on high quality financial instruments.

The increase for fiscal 2014 was largely due to the expiration of certain payroll tax cuts on December 31, 2012, which resulted in higher employee social security withholdings, along with increases in checks per payroll and client base and wage inflation.

The increase in wages was largely related to investments in product development and supporting technology, as well as sales force investment initiatives that began in fiscal 2013.

We invest predominately in municipal bonds including general obligation bonds, pre-refunded bonds that are secured by a U.S. government escrow, and essential services revenue [added: bonds, along with U.S. government agency securities and corporate] bonds.

During fiscal [removed: 2015,] [added: 2016,] our primary short-term investment vehicles were bank demand deposit [removed: accounts] [added: accounts, VRDNs, high-quality commercial paper,] and [removed: VRDNs.][added: government agency discount notes.]

During fiscal [removed: 2015,] [added: 2016,] the average interest rate earned on our combined funds held for clients and corporate investment portfolios was [removed: 1.0%, comparable the average interest rate earned] [added: 1.1%, compared to 1.0%] for fiscal [removed: 2014] [added: years 2015] and [removed: fiscal 2013.][added: 2014.]

Earnings from the available-for-sale securities, which as of May 31, [removed: 2015] [added: 2016] had an average duration of [removed: 3.2] [added: 3.1] years, would not reflect increases in interest rates until the investments are sold or mature and the proceeds are reinvested at higher rates.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of May 31, [removed: 2015] [added: 2016] are shown below by contractual maturity.

| In millions | | [removed: Amortized] cost | | | [removed: | Fair] value | | [removed: |]

| Maturity date: | | | | | | | [removed: | |]

| Due in one year or less | | $ | [removed: 345.8 |] [added: 359.6] | | $ | [removed: 347.8 |] [added: 360.7] |

| Due after one year through three years | | [removed: 726.3] | [removed: | |] [added: 742.7] | [removed: 734.3] | | [added: 749.4] |

| Due after three years through five years | | [removed: 800.9] | [removed: | |] [added: 918.5] | [removed: 802.0] | | [added: 935.7] |

| Due after five years | | [removed: 1,709.0] | [removed: | |] [added: 2,073.5] | [removed: 1,711.5] | | [added: 2,096.1] |

[removed: The] [added: Previously the] Federal Funds rate [added: had] remained at a range of zero to 0.25% [removed: throughout fiscal years 2015, 2014, and 2013.][added: since December 2008.]

[removed: | • |] [added: -] daily interest rate changes; [removed: |]

[removed: | • |] [added: -] seasonal variations in investment balances; [removed: |]

[removed: | • |] [added: -] actual duration of short-term and available-for-sale securities; [removed: |]

[removed: | • |] [added: -] the proportion of taxable and tax-exempt investments; [removed: |]

[removed: | • |] [added: -] changes in tax-exempt municipal rates versus taxable investment rates, which are not synchronized or simultaneous; and [removed: |]

[removed: | • |] [added: -] financial market volatility and the resulting effect on benchmark and other indexing interest rates. [removed: |]

Our total investment portfolio (funds held for clients and corporate investments) averaged approximately [removed: $5.1] [added: $5.0] billion for fiscal [removed: 2015.][added: 2016.]

The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized gain of [removed: $13.6] [added: $47.6] million as of May 31, [removed: 2015,] [added: 2016,] compared with an unrealized gain of [removed: $34.5] [added: $13.6] million as of May 31, [removed: 2014.][added: 2015.]

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

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

During fiscal [removed: 2014,] [added: 2016,] the net unrealized [removed: gain/(loss)] [added: gain] on our investment portfolios ranged from [removed: an unrealized loss of $12.8] [added: $3.7] million to [removed: an unrealized gain of $42.7] [added: $72.2] million.

The net unrealized gain on our investment portfolios was approximately [removed: $20.9 million] [added: $63.5] as of July [removed: 16, 2015.][added: 15, 2016.]

As of May 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] we had [removed: $3.6] [added: $4.1] billion and [removed: $3.4] [added: $3.6] billion, respectively, invested in available-for-sale securities at fair value.

The weighted-average yield-to-maturity was [added: 1.7% and] 1.6% as of May 31, [removed: 2015] [added: 2016] and [removed: 2014,] [added: 2015,] respectively.

Assuming a hypothetical increase in longer-term interest rates of 25 basis points, the resulting potential decrease in fair value for our portfolio of available-for-sale securities as of May 31, [removed: 2015,] [added: 2016,] would be in the range of $20.0 million to $25.0 million.

We believe that the investments we held as of May 31, [removed: 2015] [added: 2016] were not other-than-temporarily impaired.

While [removed: $923.0] [added: $155.6] 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 losses of [removed: $7.5] [added: $0.7] million [removed: was] [added: were] due to changes in interest rates and [removed: was] [added: were] not due to increased credit risk or other valuation concerns.

A [removed: substantial] [added: significant] portion of these securities in an unrealized loss position as of May 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] held an AA rating or better.

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| | | May 31, 2016 | | | | |

| | | Amortized | | | Fair | |

| Total | | $ | 4,094.3 | | $ | 4,141.9 |

The Federal Funds rate was raised by 25 basis points in December 2015 and has been in the range of 0.25% to 0.50% since then.

We have some credit risk exposure in connection with our purchase of accounts receivable as a means of providing funding to clients in the temporary staffing industry.

This credit risk exposure is diversified amongst multiple client arrangements and all such arrangements are regularly reviewed for potential write-off.

No single client is material in respect to total accounts receivable, service revenue, or results of operations.

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

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

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Incorporated in Delaware in 1979, we are a leading provider of [added: integrated human capital management (“HCM”) solutions for] payroll, human resource, [removed: insurance,] [added: retirement,] and [removed: benefits outsourcing solutions] [added: insurance services] for small- to medium-sized businesses.

As of May 31, [removed: 2015,] [added: 2016,] we serviced approximately [removed: 590,000] [added: 605,000] payroll clients.

[removed: -] [added: | | · | |] flexible, convenient service; [added: |]

[removed: -] [added: | | · | |] industry-leading, integrated technology; [added: |]

[removed: -] [added: | | · | |] solid sales execution; [added: |]

[removed: -] [added: | | · | |] comprehensive suite of value-added [removed: human capital management (“HCM”)] [added: HCM] services; [added: |]

[removed: -] [added: | | · | |] continued service penetration; and [added: |]

[removed: -] [added: | | · | |] strategic acquisitions. [added: |]

Paychex FlexSM is our [added: proprietary] 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.

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

For our small-business clients, which we define as typically less than 50 employees, Paychex [removed: aides] [added: supports] 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.

Our mid-market clients are [added: typically] defined as [removed: typically] more than 50 employees [removed: and have] [added: with] 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 [removed: tied together by] [added: on] the Paychex Flex platform, or through our traditional mid-market platform.

| [removed: •] | [added: · | |] 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 [removed: disputes, and we are subject to cash penalties imposed by tax or regulatory agencies for late filings and late or under payment of taxes.] [added: disputes.] |

| [removed: •] | [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. 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: •] | [added: · | |] 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. |

| [removed: •] | [added: · | |] Paychex HR Services: We offer comprehensive human resource outsourcing solutions that provide businesses a full-service approach to the outsourcing of employer and employee administrative needs. Our Paychex HR Services offering is available through Paychex HR Solutions, an administrative services organization (“ASO”), or Paychex PEO. Both options offer businesses a combined package of services that includes payroll, employer compliance, human resource and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained human resource representative. These comprehensive bundles of services are designed to make it easier for businesses to manage their payroll and related benefit costs while providing a benefits package equal to that of larger companies. Our PEO differs from the ASO in that we serve as a co-employer of the clients’ employees, provide health care coverage to PEO employees, and assume the risks and rewards of workers’ compensation insurance and certain health insurance offerings. PEO services are sold through our registered and licensed subsidiary, Paychex Business Solutions, [removed: Inc. The integration of the sales and service models of the ASO and PEO under Paychex HR Services has reduced redundancies and created more flexible options for business owners to find the solution that best meets their needs.] [added: LLC.] We also offer Paychex HR Essentials, which is an ASO product that provides support to our clients over the phone or online to help manage employee-related topics. As of May 31, [removed: 2015,] [added: 2016,] Paychex HR Services was utilized by [removed: 31,000] [added: approximately 35,000] clients with approximately [removed: 858,000] [added: 944,000] client worksite employees. |

| [removed: •] | [added: · | |] Retirement services administration: Our retirement services product line offers a variety of options to clients, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with safe harbor provisions, owner-only 401(k) plans, profit sharing plans, and money purchase plans. These services provide plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. Auto enrollment is an optional plan feature that allows employers to automatically enroll employees in their company’s 401(k) plan and increase overall plan participation. Clients have the ability to choose from a group of pre-defined fund selections or to customize their investment options within their plan. We are the largest 401(k) recordkeeper for small businesses in the U.S. Our large-market retirement services clients include [added: relationships with] financial advisors. As of May 31, [removed: 2015,] [added: 2016,] retirement services covered approximately [removed: 70,000] [added: 74,000] plans and the asset value of participants' funds externally managed totaled approximately [removed: $23.5] [added: $23.6] billion. |

| [removed: •] | [added: · | |] Insurance services: Our licensed insurance agency, [removed: PIA ,] [added: PIA,] provides insurance through a variety of carriers. Insurance offerings include property and casualty coverage such as workers’ compensation, business-owner policies, commercial auto, and health and benefits coverage, including health, dental, vision, and life. Our insurance services simplify the insurance process to make it easy to find plans with the features and affordability to meet the client’s needs. With access to numerous top national and regional insurance carriers, our professional insurance agents have access to a wide selection of plans from which they can best match the insurance needs of small businesses. Additionally, clients have the option to integrate their insurance plans with Paychex payroll processing for easy, accurate plan administration. |

We also offer new comprehensive solutions to help employers and employees with certain mandates under [removed: U.S. health care reform legislation.][added: the Affordable Care Act (“ACA”), which sets forth specific coverage and reporting requirements that employers must meet.]

Our Paychex Employer Shared [removed: Responsibility(“ESR”)] [added: Responsibility (“ESR”)] Service is aimed at helping clients: 1) determine if the ESR provision applies to them; 2) provide ongoing ESR analysis and monitoring, along with automatic alerts, of their employees and hours worked; 3) evaluate if their health care offering meets the minimum coverage requirement; and 4) prepare end-of-year reporting.

| [removed: •] | [removed: Online] [added: · | |] HR administration services: We offer [removed: online] [added: cloud-based] human resource administration software products for employee benefits management and administration, time and attendance solutions, and recruiting. Paychex HR Online offers powerful tools for managing employee benefits, personnel information, and human resource compliance and reporting. Our BeneTrac service manages the employee-benefit enrollment process. Our time and attendance products, including our Stratustime® software acquired in June 2014, help minimize the time spent compiling time sheet information. [removed: They] [added: These services] allow the employer to handle multiple payroll scenarios, improving productivity, accuracy, and reliability in the payroll process. Our expense reporting solution is a web-based solution that provides clients with tools to manage and control the expense reporting process. The applicant tracking suite provides technology that streamlines, simplifies, and drives the applicant workflow and onboarding process for companies of all sizes. |

| [removed: •] | [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. 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. |

These services [removed: include] [added: offer additional value-added benefits for small-business owners including: purchasing of accounts receivable as] a [added: means of providing funding to clients in the temporary staffing industry; a] cloud-based accounting [removed: service,] [added: service;] payment processing [removed: services,] [added: services;] payment distribution [removed: services, an] [added: services; and] a small-business loan resource center.

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

Our dedicated business development group drives sales through banking, national [removed: association,] [added: associations,] and franchise channels.

Our current partnership agreement with the AICPA is in place through September [removed: 2016.][added: 2021.]

We also [removed: enhanced our relationships with CPAs by partnering] [added: partner] with various state CPA society organizations.

Paychex also builds on its reputation as an expert in the [removed: payroll and human resources] [added: HCM] industry by providing education and assistance to clients and other interested parties.

Our internal database source indicates that there are approximately [removed: 10] [added: 11] million addressable businesses in the geographic markets that we currently serve within the U.S. Of those businesses, [removed: greater than] [added: approximately] 99% have fewer than 100 employees and comprise our primary customers and target market.

The average client size within our existing client base is approximately [removed: 17] [added: 16.7] employees.

For the fiscal year ended May 31, [removed: 2015] [added: 2016] (“fiscal [removed: 2015”),] [added: 2016”),] client retention [removed: reached record levels, rising to over] [added: was in excess of] 82% of our beginning of the year client [removed: base.][added: base, consistent with the prior year’s record high.]

The market for [removed: payroll processing and human resource] [added: HCM] services is highly competitive and fragmented.

As of May 31, [removed: 2015,] [added: 2016,] we employed approximately [removed: 13,000] [added: 13,500] people.

Our corporate website, www.paychex.com, provides materials for [removed: investments] [added: investors] and information about our services.

Also, copies of our Annual Report to Stockholders and Proxy Statement, to be issued in connection with our [removed: 2015] [added: 2016] Annual Meeting of Stockholders, will be made available, free of charge, upon written request submitted to Paychex, Inc., c/o Corporate Secretary, 911 Panorama Trail South, Rochester, New York 14625-2396.

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Our advanced suite of time and attendance products, including web and mobile tools, can assist companies with the scheduling, tracking, and reporting of time which can be beneficial to clients in complying with overtime regulations recently enacted by the Department of Labor.

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These services are in their infancy, but offer additional value-added benefits for small-business owners.

Within retirement services we have a dedicated, wholesale sales force focused solely on enhancing our relationships with financial advisors.

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 Payroll Services® and performing certain operational functions, while Paychex and Advantage provide all centralized back-office payroll processing and payroll tax administration services.

The marketing and selling by the Associates is conducted under their own logos.

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 2010, together with the PPACA, the (“Act”).

Paychex is positioned to assist our clients and their employees as they navigate the complexity of this legislation.

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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF [removed: THE SECURITIES]

For the fiscal year ended May 31, [removed: 2015][added: 2016]

Yes [removed: þ] [added: ☑] No [removed: ¨][added: ☐]

Yes [removed: ¨] [added: ☐] No [removed: þ][added: ☑]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form [removed: 10-K.][added: 10‑K.]

| Large accelerated filer [removed: þ] [added: ☑] | | Accelerated filer [removed: ¨] [added: ☐] | | Non-accelerated filer [removed: o] [added: ☐] | | Smaller reporting company [removed: o] [added: ☐] |

As of November 30, [removed: 2014,] [added: 2015] 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: $15,395,911,785] [added: $17,491,967,248] based on the closing price reported for such date on the NASDAQ Global Select Market.

As of June 30, [removed: 2015, 361,206,331] [added: 2016, 360,532,001] 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: 14, 2015,] [added: 12, 2016,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

| | Description | Page | | [added: |]

| | [removed: PART I] [added: [PART I](#PartI)] | | | [added: |]

| | [removed: Cautionary] [added: [Cautionary] Note Regarding Forward-Looking Statements Pursuant to the United States Private [removed: Securities Litigation] [added: Securities](#CautionaryNote) [Litigation] Reform Act of [removed: 1995] [added: 1995](#CautionaryNote)] | 1 | | [added: |]

[removed: Item 1.][added: | [Item 1](#Business) | [Business](#Business) | 2 | | |]

[removed: Risk Factors 7][added: | [Item 1A](#RiskFactors) | [Risk Factors](#RiskFactors) | 7 | | |]

[removed: Unresolved] [added: | [Item 1B](#UnresolvedStaffComments) | [Unresolved] Staff [removed: Comments 9][added: Comments](#UnresolvedStaffComments) | 9 | | |]

[removed: Item 2.][added: | [Item 2](#Properties) | [Properties](#Properties) | 10 | | |]

[removed: Legal Proceedings 10][added: | [Item 3](#LegalProceedings) | [Legal Proceedings](#LegalProceedings) | 10 | | |]

[removed: Mine] [added: | [Item 4](#MineSafetyDisclosures) | [Mine] Safety [removed: Disclosures 10][added: Disclosures](#MineSafetyDisclosures) | 10 | | |]

| | [removed: PART II] [added: [PART II](#PartII)] | | | [added: |]

[removed: Market] [added: | [Item 5](#MarketforCommonEquity) | [Market] for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of [removed: Equity Securities 11][added: Equity](#MarketforCommonEquity) [Securities](#MarketforCommonEquity) | 11 | | |]

[removed: Selected] [added: | [Item 6](#SelectedFinancialData) | [Selected] Financial [removed: Data 13][added: Data](#SelectedFinancialData) | 13 | | |]

[removed: Management’s] [added: | [Item 7](#MDA) | [Management’s] Discussion and Analysis of Financial Condition and Results of [removed: Operations 13][added: Operations](#MDA) | 16 | | |]

[removed: Quantitative] [added: | [Item 7A](#MarketRisk) | [Quantitative] and Qualitative Disclosures About Market [removed: Risk 27][added: Risk](#MarketRisk) | 28 | | |]

[removed: Financial] [added: | [Item 8](#FinancialStatementsAndSupplementaryData) | [Financial] Statements and Supplementary [removed: Data 29][added: Data](#FinancialStatementsAndSupplementaryData) | 29 | | |]

[removed: Changes] [added: | [Item 9](#ChangesAndDisagreements) | [Changes] in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure 58][added: Disclosure](#ChangesAndDisagreements) | 58 | | |]

[removed: Controls] [added: | [Item 9A](#ControlsAndProcedures) | [Controls] and [removed: Procedures 58][added: Procedures](#ControlsAndProcedures) | 58 | | |]

[removed: Other Information 59][added: | [Item 9B](#OtherInformation) | [Other Information](#OtherInformation) | 59 | | |]

| | [removed: PART III] [added: [PART III](#PartIII)] | | | [added: |]

[removed: Directors,] [added: | [Item 10](#DirectorsExecutiveOfficers) | [Directors,] Executive Officers and Corporate [removed: Governance 59][added: Governance](#DirectorsExecutiveOfficers) | 59 | | |]

[removed: Executive Compensation 60][added: | [Item 11](#ExecutiveCompensation) | [Executive Compensation](#ExecutiveCompensation) | 60 | | |]

[removed: Security] [added: | [Item 12](#SecurityOwnership) | [Security] Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters 60][added: Matters](#SecurityOwnership) | 60 | | |]

[removed: Certain] [added: | [Item 13](#CertainRelationships) | [Certain] Relationships and Related Transactions, and Director [removed: Independence 60][added: Independence](#CertainRelationships) | 60 | | |]

[removed: Principal] [added: | [Item 14](#PrincipalAccountingFees) | [Principal] Accounting Fees and [removed: Services 60][added: Services](#PrincipalAccountingFees) | 60 | | |]

| | [removed: PART IV] [added: [PART IV](#PartIV)] | | | [added: |]

[removed: Exhibits] [added: | [Item 15](#ExhibitsAndFinancialStatementSchedules) | [Exhibits] and Financial Statement [removed: Schedules 61][added: Schedules](#ExhibitsAndFinancialStatementSchedules) | 61 | | |]

| | [removed: Signatures] [added: [Signatures](#Signatures)] | 63 | | [added: |]

Forward-looking statements can be identified by such words and phrases as “we expect,” “expected to,” “estimates,” “estimated,” “current outlook,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected to be,” “anticipates,” “anticipated,” “we believe,” [added: “believe,”] “could be,” and other similar phrases.

Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to [added: our outlook,] revenue growth, earnings, earnings-per-share growth, or similar projections.

| [removed: •] | [added: · | |] general market and economic conditions including, among others, changes in U.S. employment and wage levels, changes to new hiring trends, legislative changes to stimulate the economy, changes in short- and long-term interest rates, changes in the fair value and the credit rating of securities held by us, and accessibility of financing; |

| [removed: •] | [added: · | |] changes in demand for our services and products, ability to develop and market new services and products effectively, pricing changes and the impact of competition; |

10-K 1 payx-20160531x10k.htm 10-K

THE SECURITIES

Yes ☑ No ☐

Yes ☑ No ☐

Yes ☐ No ☑

For the fiscal year ended May 31, 2016

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

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Business 2

Item 1A.

Item 1B.

Properties 10

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Item 15.

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We owned and leased the following properties as of May 31, [removed: 2015:][added: 2016:]

| | [added: |] Square feet | [removed: |]

| Rochester, New York | [removed: 721,000] | [added: 721,000] |

| Other U.S. locations | [removed: 65,000] | [added: 65,000] |

| Total owned facilities | [removed: 786,000] | [added: 786,000] |

| Rochester, New York | [removed: 189,000] | [added: 231,000] |

| Other U.S. locations | [removed: 2,032,000] | [added: 1,889,000] |

| International locations | [removed: 28,000] | [added: 35,000] |

| Total leased facilities | [removed: 2,249,000] | [added: 2,155,000] |

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As of June 30, [removed: 2015,] [added: 2016,] there were [removed: 13,351] [added: 12,548] 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: 6,948] [added: 5,813] participants in the Paychex, Inc. Employee Stock Purchase Plan and [removed: 5,043] [added: 4,841] 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: 2015] [added: 2016] and the fiscal year ended May 31, [removed: 2014] [added: 2015] (“fiscal [removed: 2014”)] [added: 2015”)] are as follows:

| | | Fiscal [removed: 2015] [added: 2016] | | | | | | Fiscal [removed: 2014] [added: 2015] | | | | |

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

| | | High | | Low | | [added: per share] | [added: |] High | | Low | | [removed: |] [added: per share] |

| First quarter | | [removed: $42.66] [added: $49.79] | | [removed: $40.10] [added: $41.59] | | [removed: $0.38] [added: $0.42] | | [removed: $40.84] [added: $42.66] | | [removed: $35.75] [added: $40.10] | | [removed: $0.35] [added: $0.38] |

| Second quarter | | [removed: $48.20] [added: $54.54] | | [removed: $41.59] [added: $43.19] | | [removed: $0.38] [added: $0.42] | | [removed: $44.01] [added: $48.20] | | [removed: $36.80] [added: $41.59] | | [removed: $0.35] [added: $0.38] |

| Third quarter | | [removed: $50.19] [added: $54.78] | | [removed: $44.52] [added: $45.76] | | [removed: $0.38] [added: $0.42] | | [removed: $45.95] [added: $50.19] | | [removed: $39.86] [added: $44.52] | | [removed: $0.35] [added: $0.38] |

| Fourth quarter | | [removed: $51.72] [added: $54.58] | | [removed: $48.00] [added: $51.06] | | [removed: $0.38] [added: $0.42] | | [removed: $43.56] [added: $51.72] | | [removed: $39.80] [added: $48.00] | | [removed: $0.35] [added: $0.38] |

The closing price of our common stock as of May [removed: 29, 2015,] [added: 31, 2016,] as reported on the NASDAQ Global Select Market, was [removed: $49.41] [added: $54.22] per share.

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

Shares of stock repurchased during [removed: the three months ended May 31,] [added: fiscal 2016 and fiscal] 2015 were purchased pursuant to the program and were retired.

[removed: | Period | | Total number] [added: As] of [removed: shares purchased | | | Average price paid per share | | | | Approximate] [added: May 31, 2016, the approximate] dollar value of shares that may yet be purchased under the program [removed: | | |][added: is $59.7 million.]

The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, [removed: 2010,] [added: 2011,] 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 [removed: on the following page).][added: below).]

[removed: ][added: ]

| May 31, | | [removed: 2010 | |] 2011 | | 2012 | | 2013 | | 2014 | | 2015 | [added: | 2016 |]

Our Peer Group [added: for fiscal 2016] is comprised of the following companies:

| | | | | | | Cash | | | | | | Cash |

| | | | | | | dividends | | | | | | dividends |

Shares repurchased under this program during fiscal 2016 and fiscal 2015 were as follows:

| | | Fiscal 2016 | | | | | Fiscal 2015 | | | | |

| In millions | | Total number of shares purchased | | Total dollars | | | Total number of shares purchased | | | Total dollars | |

| First quarter | | 1.3 | | $ | 62.9 | | | 0.9 | | $ | 37.5 |

| Second quarter | | — | | | — | | | 0.3 | | | 15.1 |

| Third quarter | | 0.9 | | | 45.0 | | | 0.4 | | | 17.9 |

| Fourth quarter | | — | | | — | | | 2.3 | | | 111.9 |

| Fiscal year | | 2.2 | | $ | 107.9 | | | 3.9 | | $ | 182.4 |

| Paychex | | $100.00 | | $96.81 | | $125.11 | | $142.92 | | $177.59 | | $201.67 |

| S&P 500 | | $100.00 | | $99.59 | | $126.75 | | $152.67 | | $170.69 | | $173.25 |

| Peer Group | | $100.00 | | $94.61 | | $125.45 | | $155.83 | | $200.87 | | $208.71 |

The following table provides information relating to our repurchase of common stock during the three months ended May 31, 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 |

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| --- | --- |

| [removed: In millions, except per share amounts] Year ended May 31, | | [removed: 2015] [added: 2016 (1)] | | | | [removed: 2014 (1)] [added: 2015] | | | | [removed: 2013 (2)] [added: 2014 (2), (4)] | | | | [removed: 2012] [added: 2013 (3), (4)] | | | | [removed: 2011] [added: 2012 (4)] | | |

| Service revenue | | $ | [removed: 2,697.5] [added: 2,905.8] | | | $ | [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] | |

| Interest on funds held for clients | | [removed: 42.1] [added: $] | [added: 46.1] | | | [removed: 40.7] [added: $] | [added: 42.1] | | | [removed: 41.0] [added: $] | [added: 40.7] | | | [removed: 43.6] [added: $] | [added: 41.0] | | | [removed: 48.1] [added: $] | [added: 43.6] | |

| Total revenue | | $ | [removed: 2,739.6] [added: 2,951.9] | | | $ | [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] | |

| Operating income | | $ | [removed: 1,053.6] [added: 1,146.6] | | | $ | [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] | |

| Net income | | $ | [removed: 674.9] [added: 756.8] | | | $ | [removed: 627.5] [added: 674.9] | | | $ | [removed: 569.0] [added: 627.5] | | | $ | [removed: 548.0] [added: 569.0] | | | $ | [removed: 515.3] [added: 548.0] | |

| Diluted earnings per share | | $ | [removed: 1.85] [added: 2.09] | | | $ | [removed: 1.71] [added: 1.85] | | | $ | [removed: 1.56] [added: 1.71] | | | $ | [removed: 1.51] [added: 1.56] | | | $ | [removed: 1.42] [added: 1.51] | |

| Cash dividends per common share | | $ | [removed: 1.52] [added: 1.68] | | | $ | [removed: 1.40] [added: 1.52] | | | $ | [removed: 1.31] [added: 1.40] | | | $ | [removed: 1.27] [added: 1.31] | | | $ | [removed: 1.24] [added: 1.27] | |

| Purchases of property and equipment | | $ | [removed: 102.8] [added: 97.7] | | | $ | [removed: 84.1] [added: 102.8] | | | $ | [removed: 98.7] [added: 84.1] | | | $ | [removed: 89.6] [added: 98.7] | | | $ | [removed: 100.5] [added: 89.6] | |

| Cash and total corporate investments | | $ | [removed: 936.4] [added: 793.2] | | | $ | [removed: 936.8] [added: 936.4] | | | $ | [removed: 874.6] [added: 936.8] | | | $ | [removed: 790.0] [added: 874.6] | | | $ | [removed: 671.3] [added: 790.0] | |

| Stockholders’ equity | | $ | [removed: 1,785.5] [added: 1,911.7] | | | $ | [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] | |

| Return on stockholders’ equity | | [removed: 36] | [added: 40] | % | | [removed: 35] | [added: 36] | % | | [removed: 34] | [added: 35] | % | | [removed: 34] | [added: 34] | % | | [removed: 35] | [added: 34] | % |

| [removed: (1)] | [added: (2) | |] With the introduction of a new health care offering within the [removed: PEO,] [added: PEO during] the [added: fiscal year ended May 31, 2014, 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: (2)] | [added: (3) | |] In the fourth quarter of [added: the] fiscal [added: year ended May 31,] 2013, the Company increased its tax provision related to the settlement of a state income tax matter. This reduced diluted earnings per share by approximately $0.04 per share. |

| In millions, except per share amounts | | | | | | | | | | | | | | | | | | | | |

| Basic earnings per share | | $ | 2.10 | | | $ | 1.86 | | | $ | 1.72 | | | $ | 1.56 | | | $ | 1.51 | |

| Total assets | | $ | 6,440.8 | | | $ | 6,467.5 | | | $ | 6,321.0 | | | $ | 6,127.3 | | | $ | 6,448.8 | |

| | (1) | | In the first quarter of fiscal 2016, a net tax benefit was recorded for income derived in prior tax years from customer-facing software we produced. This increased full-year diluted earnings per share by approximately $0.05 per share. |

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

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

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

| | (4) | | With the adoption of Financial Accounting Standards Board Accounting Standards Update No. 2015-17 “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes” during fiscal 2016, the reclassification of prior year deferred tax amounts was made on the Consolidated Balance Sheets to conform to the current period presentation. In the table above, a similar reclassification was made, which impacted total assets. Refer to Note A of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further details on this recently adopted accounting pronouncement. |

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

| Total assets | | $ | 6,482.5 | | | $ | 6,370.1 | | | $ | 6,163.7 | | | $ | 6,479.6 | | | $ | 5,393.8 | |

| | |

| --- | --- |

| [removed: Report] [added: [Report] on Management’s Assessment of Internal Control Over Financial [removed: Reporting] [added: Reporting](#ReportManagementsAssessment)] | 30 | |

| [removed: Reports] [added: [Report] of Independent Registered Public Accounting [removed: Firms] [added: Firm](#Report)] | 31 | |

| [removed: Consolidated] [added: [Consolidated] Statements of Income and Comprehensive Income for the Years Ended May 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013] [added: 2014](#IS)] | [removed: 33] [added: 32] | |

| [removed: Consolidated] [added: [Consolidated] Balance Sheets as of May 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015](#BS)] | [removed: 34] [added: 33] | |

| [removed: Consolidated] [added: [Consolidated] Statements of Stockholders’ Equity for the Years Ended May 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013] [added: 2014](#SE)] | [removed: 35] [added: 34] | |

| [removed: Consolidated] [added: [Consolidated] Statements of Cash Flows for the Years Ended May 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013] [added: 2014](#CF)] | [removed: 36] [added: 35] | |

| [removed: Notes] [added: [Notes] to Consolidated Financial [removed: Statements] [added: Statements](#Notes)] | [removed: 37] [added: 36] | |

| [removed: Schedule] [added: [Schedule] II — Valuation and Qualifying Accounts for the Years Ended May 31, [added: 2016,] 2015, [removed: 2014,] and [removed: 2013] [added: 2014](#ScheduleII)] | 58 | |

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, [removed: 2015.][added: 2016.]

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, [removed: 2015.][added: 2016.]

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: 2015,] [added: 2016,] 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.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income and comprehensive income, of stockholders’ equity, and of cash flows present fairly, in all material respects, the financial position of Paychex, Inc. and its subsidiaries at May 31, [removed: 2015] [added: 2016] and May 31, [removed: 2014,] [added: 2015,] and the results of their operations and their cash flows for each of the [removed: two] [added: three] years in the period ended May 31, [removed: 2015] [added: 2016] 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 accompanying index appearing under Item 8 [removed: for the year ended May 31, 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: 2015,] [added: 2016,] based on criteria established in Internal Control - Integrated Framework (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 audits.

| Year ended May 31, | | [removed: 2015 | | |] [added: 2016] | [removed: 2014] | | [added: 2015] | | [removed: 2013] | [added: 2014] | |

| Revenue: | | | | | | | | | | [removed: | | |]

| Service revenue | | $ | [removed: 2,697.5 |] [added: 2,905.8] | | $ | [removed: 2,478.2 |] [added: 2,697.5] | | $ | [removed: 2,285.2 |] [added: 2,478.2] |

| Interest on funds held for clients | | [removed: 42.1] | [removed: | | | 40.7] [added: 46.1] | | | [added: 42.1] | [removed: 41.0] | | [added: 40.7] |

| Total revenue | | [removed: 2,739.6] | [removed: | | | 2,518.9] [added: 2,951.9] | | | [added: 2,739.6] | [removed: 2,326.2] | | [added: 2,518.9] |

| Expenses: | | | | | | | | | | [removed: | | |]

| Operating expenses | | [removed: 808.0] | [removed: | | | 732.5] [added: 857.1] | | | [added: 808.0] | [removed: 671.3] | | [added: 732.5] |

| Selling, general and administrative expenses | | [removed: 878.0] | [removed: | | | 803.7] [added: 948.2] | | | [added: 878.0] | [removed: 750.1] | | [added: 803.7] |

| Total expenses | | [removed: 1,686.0] | [removed: | | | 1,536.2] [added: 1,805.3] | | | [added: 1,686.0] | [removed: 1,421.4] | | [added: 1,536.2] |

| Operating income | | [removed: 1,053.6] | [removed: | | | 982.7] [added: 1,146.6] | | | [added: 1,053.6] | [removed: 904.8] | | [added: 982.7] |

| Investment income, net | | [removed: 6.4] | [removed: | | | 5.4] [added: 4.5] | | | [added: 6.4] | [removed: 6.6] | | [added: 5.4] |

| Income before income taxes | | [removed: 1,060.0] | [removed: | | | 988.1] [added: 1,151.1] | | | [added: 1,060.0] | [removed: 911.4] | | [added: 988.1] |

| Income taxes | | [removed: 385.1] | [removed: | | | 360.6] [added: 394.3] | | | [added: 385.1] | [removed: 342.4] | | [added: 360.6] |

| Net income | | $ | [removed: 674.9 |] [added: 756.8] | | $ | [removed: 627.5 |] [added: 674.9] | | $ | [removed: 569.0 |] [added: 627.5] |

| Other comprehensive [removed: loss,] [added: income/(loss),] net of tax: | | | | | | | | | | [removed: | | |]

| Unrealized losses on securities, net of tax | | [removed: (14.0] | | [removed: )] | | [removed: (0.5] | | [removed: )] | | [removed: (15.7] | | [removed: )] | [added: | (0.5) | | | (0.5) |]

| Total other comprehensive [removed: loss,] [added: income/(loss),] net of tax | | [removed: (14.0] | [removed: | ) | | (0.5] [added: 21.7] | | [removed: )] | [added: (14.0)] | [removed: (15.7] | | [removed: )] [added: (0.5)] |

| Comprehensive income | | $ | [removed: 660.9 |] [added: 778.5] | | $ | [removed: 627.0 |] [added: 660.9] | | $ | [removed: 553.3 |] [added: 627.0] |

| Basic earnings per share | | $ | [removed: 1.86 |] [added: 2.10] | | $ | [removed: 1.72 |] [added: 1.86] | | $ | [removed: 1.56 |] [added: 1.72] |

| Diluted earnings per share | | $ | [removed: 1.85 |] [added: 2.09] | | $ | [removed: 1.71 |] [added: 1.85] | | $ | [removed: 1.56 |] [added: 1.71] |

| Weighted-average common shares outstanding | | [removed: 362.9] | [removed: | | | 364.5] [added: 360.7] | | | [added: 362.9] | [removed: 363.8] | | [added: 364.5] |

| Weighted-average common shares outstanding, assuming dilution | | [removed: 364.6] | [removed: | | | 366.1] [added: 362.5] | | | [added: 364.6] | [removed: 364.7] | | [added: 366.1] |

| Cash dividends per common share | | $ | [removed: 1.52 |] [added: 1.68] | | $ | [removed: 1.40 |] [added: 1.52] | | $ | [removed: 1.31 |] [added: 1.40] |

| [removed: As of] [added: | |] May 31, [added: 2015] | | [removed: 2015] | | | | [removed: 2014] | | | [added: | |]

| Assets | | | | | | | [removed: | |]

July 22, 2016

| | | | | | | | | | |

| | | | | | | | | | |

| | | | | | | |

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

| | | | | | | |

| Total assets | | $ | 6,440.8 | | $ | 6,467.5 |

| Deferred revenue | | | 26.3 | | | 11.2 |

| Total liabilities | | | 4,529.1 | | | 4,682.0 |

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

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

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

| | | | | | | | | | | | | | Accumulated | | | | |

| | | | | | | | Additional | | | | | | other | | | | |

| Net income | | | | | | | | | | | 756.8 | | | | | | 756.8 |

| Repurchases of common shares | | (2.2) | | | | | | (4.1) | | | (103.8) | | | | | | (107.9) |

| Stock-based award transactions | | 1.4 | | | | | | 42.1 | | | (14.6) | | | | | | 27.5 |

| Balance as of May 31, 2016 | | 360.4 | | $ | 3.6 | | $ | 952.7 | | $ | 926.2 | | $ | 29.2 | | $ | 1,911.7 |

| | | | | | | | | | |

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

| | | | | | | | | | |

| Year ended May 31, | | 2016 | | | 2015 | | | 2014 | |

The Company earns fees for funding of temporary staffing agencies payroll via purchasing of accounts receivable invoices.

The fees are deducted from the funding payment and revenue is recognized over an average collection period of 45 to 60 days.

On July 7, 2016, Paychex announced that the Board of Directors (the “Board”) approved a $0.04 increase in the Company’s regular quarterly dividend, an increase of 10%.

The quarterly dividend will go from $0.42 per share to $0.46 per share and is payable on August 25, 2016 to shareholders of record on August 1, 2016.

Accounts receivable balances, net of allowance for doubtful accounts, include: 1) trade receivables for services provided to clients of $221.6 million as of May 31, 2016 and $176.6 million as of May 31, 2015; and 2) purchased receivables related to funding arrangements with clients, resulting from the acquisition of Advance Partners in December 2015, of $187.0 million as of May 31, 2016.

A quantitative analysis was performed for our German reporting unit.

Fees earned for funding of payrolls for temporary staffing agency clients via the purchase of accounts receivable invoices are based on a percentage of funding amounts as specified in the client contract.

These fees are then recognized over the average collection period of 45 to 60 days.

Reclassifications: Certain prior period amounts have been reclassified to conform to the current period presentation and had no effect on reported consolidated earnings.

Recently adopted accounting pronouncements: In March 2016, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2015-17 “Income Taxes (Topic 740) - Balance Sheet Classification of Deferred Taxes.” This guidance requires deferred tax assets and liabilities be classified as non-current in a classified statement of financial position.

This guidance is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2016, with early application permitted as of the beginning of an interim or annual reporting period.

With the adoption, the Company’s deferred tax assets and liabilities were classified as non-current on its Consolidated Balance Sheet and prior period amounts have been reclassified to conform with current year presentation.

Additional ASUs have been issued to amend or clarify this ASU as follows:

| | · | | ASU No. 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” was issued in May 2016. ASU No. 2016-12 amends the new revenue recognition standard to clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition matters. |

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

| | · | | ASU No. 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” was issued in April 2016. ASU No. 2016-10 addresses implementation issues identified by the FASB-International Accounting Standards Board Joint Transition Resource Group for Revenue Recognition (TRG). |

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

| | · | | ASU No. 2016-08 “Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” was issued in March 2016. ASU No. 2016-08 requires an entity to determine whether the nature of its promise to provide goods or services to a customer is performed in a principal or agent capacity and to recognize revenue in a gross or net manner based on its principal/agent designation. |

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Rochester, New York

July 21, 2015

The Board of Directors

and Stockholders of Paychex, Inc.

We have audited the accompanying consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows of Paychex, Inc. for the year ended May 31, 2013.

Our audit also included the financial statement schedule listed in the Index at Item 15(a) for the year ended May 31, 2013.

These financial statements and schedule are the responsibility of the Company's management.

Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the operations and cash flows of Paychex, Inc. for the year ended May 31, 2013, in conformity with U.S. generally accepted accounting principles.

Also, in our opinion, the related financial statement schedule for the year ended May 31, 2013, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP

July 22, 2013

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

| Total assets | | $ | 6,482.5 | | | $ | 6,370.1 | |

| Deferred income taxes | | — | | | | 6.6 | | |

| Deferred income taxes | | 16.8 | | | | 55.7 | | |

| Total liabilities | | 4,697.0 | | | | 4,593.1 | | |

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

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

| Balance as of May 31, 2012 | | 362.6 | | | $ | 3.6 | | | $ | 561.1 | | | $ | 1,002.1 | | | $ | 37.7 | | | $ | 1,604.5 | |

| Stock-based award transactions | | 2.8 | | | 0.1 | | | | 75.5 | | | | (5.9 | | ) | | | | | | 69.7 | | |

Impairment is determined by comparing the estimated fair value of a reporting unit to its carrying amount, including goodwill.

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.

In June 2014, the Company adopted FASB ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force).” This ASU provides explicit guidance regarding the presentation in the statement of financial position of an unrecognized tax benefit when net operating losses or tax credit carryforwards exist.

It was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.

Adoption of this guidance did not have an effect on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU 2014-01, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” This ASU permits a company to make an accounting policy election to account for investments in qualified affordable housing projects under a new proportional amortization method.

If such an election is not made, the ASU requires use of the equity or cost method for investments.

| | |

| --- | --- |

Disclosure Controls and Procedures: Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in the Company’s reports filed under the [added: Securities] Exchange [removed: Act,] [added: Act of 1934, as amended (the “Exchange Act”),] such as this report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that as of May 31, [removed: 2015,] [added: 2016,] the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal [removed: Controls] [added: Control] Over Financial Reporting: The Company also carried out an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended May 31, [removed: 2015.][added: 2016.]

Based on such evaluation, there have been no changes in the Company’s internal [removed: controls] [added: control] over financial reporting that occurred during the Company’s most recently completed fiscal quarter ended May 31, [removed: 2015,] [added: 2016,] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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| --- | --- |

The following table shows the executive officers of the Company as of May 31, [removed: 2015,] [added: 2016,] and information regarding their positions and business experience.

| Martin Mucci | | [removed: 55] [added: 56] | | 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 was a director of Cbeyond, Inc. until it was purchased by Birch Communications in July 2014. He is a member of the Upstate New York 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: 58] [added: 59] | | 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: 54] [added: 55] | | 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: 49] [added: 50] | | 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 [removed: small] [added: 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: 57] [added: 58] | | 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: 45] [added: 46] | | 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: 52] [added: 53] | | 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: 50] [added: 51] | | 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: 2015] [added: 2016] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 14, 2015,] [added: 12, 2016,] in the sections “PROPOSAL 1 — ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,” [removed: “CORPORATE GOVERNANCE,”] “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” [added: “CORPORATE GOVERNANCE,”] and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.

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The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2015] [added: 2016] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 14, 2015,] [added: 12, 2016,] in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” and “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, [removed: 2015,”] [added: 2016,”] and is incorporated herein by reference.

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The information required by this item is set forth [removed: below and] in the Company’s Definitive Proxy Statement for its [removed: 2015] [added: 2016] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 14, 2015,] [added: 12, 2016,] under the [removed: section “BENEFICIAL] [added: sections “SECTION 16(a) BENEFICIAL] OWNERSHIP [removed: OF PAYCHEX COMMON STOCK,” and 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,”] [added: REPORTING COMPLIANCE,”] and is incorporated herein by reference.

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The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2015] [added: 2016] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 14, 2015,] [added: 12, 2016,] 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.

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The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2015] [added: 2016] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 14, 2015,] [added: 12, 2016,] under the section “PROPOSAL [removed: 5] [added: 3] — RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by reference.

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| # | | [removed: (10.1)] [added: (10.2)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 13, 2010),] [added: 14, 2015),] incorporated herein by reference from Exhibit 4.1 to the Company’s Registration Statement on Form S-8, No. [removed: 333-170871.] [added: 333-207592.] |

| # | | [removed: (10.2)] [added: (10.3)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Award Agreement for Non-Qualified Stock Options, incorporated herein by reference from Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on October 17, 2005. |

| # | | [removed: (10.3)] [added: (10.4)] | | 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: (10.4)] [added: (10.5)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Restricted Stock Unit Award Agreement, incorporated herein by reference from Exhibit 10(n) to the Company’s Form 10-K filed with the Commission on July 18, 2008. |

| # | | [removed: (10.5)] [added: (10.6)] | | 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: (10.6)] [added: (10.7)] | | 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. |

| # | | [removed: (10.7)] [added: (10.8)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Restricted Stock Award Agreement (Officer), incorporated herein by reference from Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on July 16, 2010. |

| # | | [removed: (10.8)] [added: (10.9)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Award Agreement (Officer), incorporated herein by reference from Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on July 16, 2010. |

| # | | [removed: (10.9)] [added: (10.10)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Officer Performance Incentive Award Agreement (Long Term), incorporated herein by reference from Exhibit 10.20 to the Company’s Form 10-K filed with the Commission on July 16, 2010. |

| # | | [removed: (10.10)] [added: (10.11)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Non-Qualified Stock Option Award Agreement (Board), incorporated herein by reference from Exhibit 10.20 to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.11)] [added: (10.12)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Restricted Stock Award Agreement (Board), incorporated herein by reference from Exhibit 10.21 to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.12)] [added: (10.16)] | | Paychex, Inc. [removed: 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010)] Form of [removed: Restricted Stock Unit (Special Retention)] [added: Performance] Award [removed: Agreement,] [added: Incentive Program,] incorporated herein by reference from Exhibit [removed: 10.22] [added: 10.25] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.14)] [added: (10.15)] | | Paychex, Inc. Change In Control Plan, incorporated herein by reference from Exhibit 10.24 to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | [removed: (10.15)] [added: (10.18)] | | Paychex, Inc. [removed: Form of Performance Award Incentive Program,] [added: Board Deferred Compensation Plan,] incorporated herein by reference from Exhibit [removed: 10.25] [added: 10.29] to the Company’s Form 10-K filed with the Commission on July [removed: 15, 2011.] [added: 20, 2009.] |

| # | | [removed: (10.16)] [added: (10.17)] | | 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: (10.17)] [added: (10.19)] | | Paychex, Inc. [removed: Board] [added: Employee] Deferred Compensation Plan, incorporated herein by reference from Exhibit [removed: 10.29] [added: 10.30] to the Company’s Form 10-K filed with the Commission on July 20, 2009. |

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: 21, 2015.][added: 22, 2016.]

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: 21, 2015.][added: 22, 2016.]

| # | | (10.1) | | Paychex, Inc. Qualified Employee Stock Purchase Plan, incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-8, No. 333-207594. |

| * # | | (10.14) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015) Form of Non-Qualified Stock Option and Restricted Stock Award Agreement Long Term Incentive Program (“LTIP”). |

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| # | | (10.18) | | 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. |

| | | (10.19) | | 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. |

| * | | (23.2) | | Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP. |

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