Paychex (PAYX) 10-K risk factor changes: FY2017 vs FY2016

[removed: Our services may be adversely impacted by changes in government regulations and policies:] Many of our services, particularly payroll tax administration services and employee benefit plan administration services, are designed according to government regulations that continually [removed: change.][added: change, for example, the Department of Labor’s recently adopted fiduciary rule for retirement plan service.]

We may not be able to keep pace with changes in technology or provide timely enhancements to our products and [removed: services: To maintain our growth strategy, we must adapt and respond to technological advances and technological requirements of our clients.][added: services.]

Our future success will depend on our ability [added: to: enhance our current products and introduce new products in order] to [added: keep pace with products offered by our competitors;] enhance capabilities and increase the performance of our internal systems, particularly our systems that meet our clients’ [removed: requirements.][added: requirements; and adapt to technological advancements and changing industry standards.]

[removed: 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.

The security of our IT infrastructure is an important consideration in our [removed: customers] [added: customers’] purchasing decisions.

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 [removed: damage] [added: damage,] and subject us to lawsuits, regulatory fines, or other actions or liabilities which could materially and adversely affect our business and operating results.

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

[removed: In the event of a catastrophe, our business continuity plan may fail, which could result in the loss of client data and adversely interrupt operations:] Our operations are dependent on our ability to protect our infrastructure against damage from catastrophe or natural disaster, severe weather including events resulting from climate change, unauthorized security breach, power loss, telecommunications failure, terrorist attack, or other events that could have a significant disruptive effect on our operations.

We may be adversely impacted by any failure of third-party service providers to perform their [removed: functions: As part of providing services to clients, we rely on a number of third-party service providers.][added: functions.]

[removed: We may be exposed to additional risks related to our co-employment relationship within our PEO business:] Many federal and state laws that apply to the employer-employee relationship do not specifically address the obligations and responsibilities of the “co-employment” relationship.

[removed: We may be adversely impacted by changes in health insurance and workers’ compensation rates and underlying claims trends:] Within our PEO business, we maintain health and workers’ compensation insurance covering worksite employees.

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

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

Our interest earned on funds held for clients may be impacted by changes in government regulations mandating the amount of tax withheld or timing of [removed: remittance: We receive interest income from investing client funds collected but not yet remitted to applicable tax or regulatory agencies or to client employees.][added: remittance.]

[removed: We may be adversely impacted by volatility] [added: When there is a slowdown] in the [removed: financial and economic environment: During periods of weak economic conditions,] [added: economy,] employment levels [removed: tend to decrease] and interest rates may [added: decrease or] become more volatile.

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

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

Our services may be adversely impacted by changes in government regulations and policies.

Our business may be adversely impacted if the ACA is repealed in its entirety or certain aspects of ACA are repealed or modified as a result of recent political changes.

On January 20, 2017, President Donald J.

Trump issued an executive order stating that it is the policy of the new administration to seek the prompt repeal of the ACA.

While initial attempts at repeal and replacement have not been successful, the current administration continues to work toward that goal.

In May 2017, the U.S. House of Representatives approved legislation to repeal and replace major parts of the ACA and the U.S. Senate is currently considering the legislation.

Uncertainties exist regarding if and when the ACA will ultimately be modified or repealed.

If the ACA is modified to eliminate the employer reporting requirements or if the ACA is repealed and new legislation does not include such reporting requirements, it will negatively impact the revenue we currently generate from our ESR service.

Uncertainty regarding the potential future modification, repeal, or replacement of the ACA could adversely affect our ability to sell our ESR application to new clients.

Failure to update our services to comply with modified or new legislation in the area of health care reform as well as failure to educate and assist our clients regarding this legislation could adversely impact our business reputation and negatively impact our client base.

The market for our products is characterized by rapid technological advancements, changes in customer requirements, frequent new product introductions, and enhancements and changing industry standards.

To maintain our growth strategy, we must adapt and respond to technological advances and technological requirements of our clients.

Our reputation, results of operations, or financial condition may be adversely impacted if we fail to comply with data privacy laws and regulations.

Our services require the storage and transmission of proprietary and confidential information of our clients and their employees, including personal or identifying information, as well as their financial and payroll data.

Our applications are subject to various complex government laws and regulations on the federal, state, and local levels, including those governing personal privacy.

In the U.S., we are subject to rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, federal and state labor and employment laws, and state data breach notification laws.

Failure to comply with such laws and regulations could result in the imposition of consent orders or civil and criminal penalties, including fines, which could damage our reputation and have an adverse effect on our results of operations or financial condition.

The regulatory framework for privacy issues is rapidly evolving and future enactment of more restrictive laws, rules, or regulations and/or future enforcement actions or investigations could have a materially adverse impact on us through increased costs or restrictions on our business and noncompliance could result in regulatory penalties and significant legal liability.

We could be subject to reduced revenues, increased costs, liability claims, or harm to our competitive position as a result of cyber-attacks, security vulnerabilities or Internet disruptions.

In the event of a catastrophe, our business continuity plan may fail, which could result in the loss of client data and adversely interrupt operations.

As part of providing services to clients, we rely on a number of third-party service providers.

We may be exposed to additional risks related to our co-employment relationship within our PEO business.

We may be adversely impacted by changes in health insurance and workers’ compensation rates and underlying claims trends.

Our clients could have insufficient funds to cover payments we have made on their behalf, resulting in financial loss to us.

As part of the payroll processing service, we are authorized by our clients to transfer money from their accounts to fund amounts owed to their employees and various taxing authorities.

It is possible that we could be held liable for such amounts in the event the client has insufficient funds to cover them.

We have in the past, and may in the future, make payments on our clients’ behalf for which we may not be reimbursed, resulting in loss to us.

We receive interest income from investing client funds collected but not yet remitted to applicable tax or regulatory agencies or to client employees.

We may be adversely impacted by volatility in the political and economic environment.

Trade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and variability.

We invest our funds held for clients in high quality, investment-grade marketable securities, money markets, and other cash equivalents.

However, these funds held for clients are subject to general market, interest rate, credit, and liquidity risks.

These risks may be exacerbated during periods of unusual financial market volatility.

Failure to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third party allegations of infringement may be costly.

Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases.

Our intellectual property could be wrongfully acquired as a result of a cyber-attack or other wrongful conduct by employees or third parties.

To the extent that our intellectual property is not protected effectively by trademarks, copyrights, patents, or other means, other parties with knowledge of our intellectual property, including former employees, may seek to exploit our intellectual property for their own and others’ advantage.

Competitors may also misappropriate our trademarks, copyrights or other intellectual property rights or duplicate our technology and products.

Any significant impairment or misappropriation of our intellectual property or proprietary information could harm our business and our brand, and may adversely affect our ability to compete.

Our clients and our business could be adversely impacted by health care reform: The 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 ACA.

Failure to provide clients with appropriate information or solutions to effectively manage their health care benefits and related costs could have an adverse impact on our reputation and a negative impact on our client base.

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

Insurance services revenue is at risk for lower commission revenue from underwriters if clients move away from traditional insurance policies utilized in the past or as a result of pressure on commission rates, driven by restrictions on insurers as to use of premiums.

Refer to the discussion later in this section on changes in health insurance and workers' compensation insurance rates and underlying claim trends for a discussion of health care reform as it impacts our PEO.

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,” [added: the “Company,”] “we,” “our,” or “us”) for each of the three fiscal years ended May 31, [removed: 2016] [added: 2017] (“fiscal [removed: 2016”),] [added: 2017” or the “fiscal year”),] May 31, [removed: 2015] [added: 2016] (“fiscal [removed: 2015”),] [added: 2016”),] and May 31, [removed: 2014] [added: 2015] (“fiscal [removed: 2014”),] [added: 2015”),] and our financial condition as of May 31, [removed: 2016.][added: 2017.]

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

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

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

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

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

| | · | | comprehensive [removed: human resource] [added: HR] 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”); |

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

We [removed: are] [added: maintain industry-leading margins by] managing our personnel costs and expenses while continuing to invest in our business, particularly in leading-edge technology.

Our financial results for fiscal [removed: 2016] [added: 2017] reflected [removed: sustained growth in our business.][added: another year of solid growth.]

Payroll service revenue continued to experience steady growth of [removed: 4%] [added: 3%] for fiscal [removed: 2016] [added: 2017] as compared with fiscal [removed: 2015,] [added: 2016, primarily] driven by growth in [removed: client base and] revenue per [removed: check.][added: check, which improved as a result of our price increases, net of discounts.]

Our combined funds held for clients and corporate investment portfolios earned an average rate of return of [removed: 1.1%] [added: 1.2%] for fiscal [removed: 2016,] [added: 2017,] compared to [removed: 1.0%] [added: 1.1%] for fiscal [removed: years 2015] [added: 2016] and [removed: 2014.][added: 1.0% for fiscal 2015.]

[removed: In December 2015, the] [added: The] United States (“U.S.”) Federal Reserve raised the Federal Funds rate by [removed: 25] [added: a total of 50] basis [removed: points.][added: points during fiscal 2017 to a range of 0.75% to 1.0% as of May 31, 2017.]

The Federal Funds rate was in the range of 0.25% to 0.50% as of May 31, [removed: 2016, and was in the range of zero to 0.25% as of May 31, 2015.][added: 2016.]

Highlights of our financial results for fiscal [removed: 2016,] [added: 2017,] compared to fiscal [removed: 2015,] [added: 2016,] are as follows:

| | · | | Total revenue increased [removed: 8%] [added: 7%] to [removed: $3.0] [added: $3.2] billion. |

| | · | | Total service revenue increased [removed: 8%] [added: 7%] to [removed: $2.9] [added: $3.1] billion. |

| | o | | Payroll service revenue increased [removed: 4%] [added: 3%] to [removed: $1.7] [added: $1.8] billion. |

| | o | | HRS revenue increased [removed: 13%] [added: 12%] to [removed: $1.2] [added: $1.3] billion. |

| | · | | Interest on funds held for clients increased [removed: 9%] [added: 10%] to [removed: $46.1] [added: $50.6] million. |

| | · | | Operating income increased [removed: 9%] [added: 8%] to [removed: $1.1] [added: $1.2] billion. |

[removed: | | · | | Net] [added: For fiscal 2016, net] income increased 12% to $756.8 million and diluted earnings per share increased 13% to $2.09 per share. [removed: 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. |]

| | · | | Dividends of [removed: $606.5] [added: $662.3] million were paid to stockholders, representing [removed: 80%] [added: 81%] of net income. |

Our payroll client base totaled approximately 605,000 clients as of [added: both] May 31, [removed: 2016, compared to approximately 590,000 clients as of] [added: 2017 and] May 31, [removed: 2015,] [added: 2016,] and approximately [removed: 580,000] [added: 590,000] clients as of May 31, [removed: 2014.][added: 2015.]

Our payroll client base [added: growth was relatively flat for fiscal 2017 and] increased approximately 2% for each of the fiscal years [removed: 2016, 2015] [added: 2016] and [removed: 2014.][added: 2015.]

| | | Balance [removed: at] [added: as of] | | Growth rates for fiscal year | | | | | | | |

| | | May 31, [removed: 2016] [added: 2017] | | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | |

| Paychex HR Services client worksite employees | | [removed: 944,000] | [added: 1,021,000] | [removed: 10] | [added: 8 |] % | | [removed: 12] | [removed: %] [added: 944,000] | | [removed: 14] [added: 10] | % | [added: | | 858,000 |]

| Paychex HR Services clients | | [removed: 35,000] [added: 37,000] | | [removed: 10] [added: 7] | % | | [removed: 11] [added: 10] | % | | [removed: 13] [added: 11] | % |

| Health and benefits services applicants | | [removed: 150,000] | [added: 162,000] | [removed: 6] | [added: 8 |] % | | [added: | 150,000 | |] 6 | % | | [removed: 3] | [removed: %] [added: 142,000] |

| Retirement services plans | | [removed: 74,000] [added: 78,000] | | [removed: 7] [added: 5] | % | | [removed: 6] [added: 7] | % | | [removed: 5] [added: 6] | % |

[removed: In fiscal 2016, we made significant enhancements] [added: Enhancements] to our Paychex Flex [removed: platform, which is our cloud-based HCM solution.][added: platform made in fiscal 2017 included:]

Our full-service Paychex Employer Shared Responsibility (“ESR”) services continued to show [removed: strong market acceptance and] growth in fiscal [removed: 2016.][added: 2017.]

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

Our financial position as of May 31, [removed: 2016] [added: 2017] remained strong with cash and total corporate investments of [removed: $793.2] [added: $777.4] million and no debt.

Yields on high quality financial instruments remain low, [added: although gradually beginning to increase,] negatively impacting our income earned on funds held for clients and corporate investments.

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

During fiscal [removed: 2016,] [added: 2017,] our primary short-term investment vehicles were [added: Variable Rate Demand Notes (“VRDNs”) and] bank demand deposit [removed: accounts, variable rate demand notes (“VRDNs”), high-quality commercial paper, and government agency discount notes.][added: accounts.]

We believe that our investments as of May 31, [removed: 2016] [added: 2017] were not other-than-temporarily impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment.

Our positive operating cash flows for fiscal [removed: 2016] [added: 2017] allowed us to support our business growth and to pay substantial dividends to our stockholders.

Our wholly owned subsidiary, Paychex Advance LLC (“Paychex Advance”), provides a portfolio of services to the temporary staffing industry.

This includes the purchasing of accounts receivable as a means of providing payroll funding to these clients.

As of May 31, 2017, we served approximately 605,000 payroll clients, consistent with a year ago.

Fiscal 2017 new sales were challenged by comparison to a strong fiscal 2016, which benefited from higher demand as a result of the Affordable Care Act (“ACA”).

Client retention was approximately 81% of our beginning client base for the fiscal year, down slightly from prior years’ near-record-high levels.

Interest rates available on high-quality financial instruments remain low, but are gradually beginning to increase.

Subsequent to the end of fiscal 2017, the Federal Funds rate was raised an additional 25 basis points to a range of 1.0% to 1.25%.

| | · | | Net income and diluted earnings per share each increased 8% to $817.3 million and $2.25 per share, respectively. |

| | · | | Adjusted net income(1) increased 9% to $799.0 million and adjusted diluted earnings per share(1) increased 8% to $2.20 per share. |

| | (1) | | Adjusted net income and adjusted diluted earnings per share are not U.S. Generally Accepted Accounting Principle (“GAAP”) measures. Please refer to the “Non-GAAP Financial Measures” section on page 21 for a discussion of these non-GAAP measures. |

Our HR administration services are included as part of the integrated HCM solution within Paychex Flex.

In fiscal 2017, we continued to focus on enhancing the value to clients of our Paychex Flex platform.

| | · | | Mobile-first design, which allows employers and employees full functionality of all application components, regardless of device or screen size; |

| | · | | The addition of Paychex FlexTM Time Essentials, the TrueShiftTM time clock, and a new advanced scheduling feature within our Paychex FlexTM Time module; and |

| | · | | Function\-focused analytics in context throughout the platform. The enhanced data analytics tool and reports assist HR leaders with making more informed business decisions. |

We believe our leading-edge technology, along with our personalized, flexible service, will help our clients stay more connected to their employees and their businesses.

Our continued investment in our Paychex Flex platform during fiscal 2017 demonstrates that we are committed to providing industry-leading solutions to our clients and their employees.

During fiscal 2017 we enhanced our full-service ESR product, offering an all-new online dashboard for ease of predictive employer workforce analysis and risk monitoring, as well as year-end reporting.

We believe that our investments as of May 31, 2017 that were in an unrealized loss position were not other-than-temporarily impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment.

Cash flows from operations were $960.4 million for fiscal 2017.

| | · | | Total revenue is expected to grow approximately 5%; |

| | · | | Investment income, net is expected to be in the range of $9.0 million to $11.0 million; |

| | · | | Net income is expected to increase approximately 5% and adjusted net income(1) is anticipated to increase approximately 7%; and |

| | · | | Diluted earnings per share is expected to increase in the range of 5% to 6% and adjusted diluted earnings per share(1) is expected to increase in the range of 7% to 8%. |

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

| | (1) | | Adjusted net income and adjusted diluted earnings per share are not U.S. GAAP measures. Please refer to the “Non-GAAP Financial Measures” section on page 21 for a discussion of these non-GAAP measures. The difference between our guidance for the GAAP measures of net income and diluted earnings per share and the related non-GAAP measures of adjusted net income and adjusted diluted earnings per share is limited to the net tax benefit recognized in fiscal 2017 related to employee stock-based compensation payments. We have not incorporated any assumptions regarding such a discrete tax benefit in our fiscal 2018 projections, as factors impacting the amount are subject to uncertainty. Uncertainty primarily relates to employee decisions regarding exercise of stock-based awards and the market price of our common stock at that time. |

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

This includes anticipated non-recurring expenditures for the purchase of currently leased space.

Our guidance for fiscal 2018 is subject to factors and uncertainties, including the risk factors described in Item 1A, “Risk Factors,” which could cause our actual results to differ materially from our guidance.

Our guidance reflects our current expectations and are not guarantees of future performance.

Please see our “Cautionary Note Regarding Forward-Looking Statements” on page 1 for further information regarding our forward-looking statements.

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

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

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

The acquisition of Advance Partners in December 2015 contributed approximately 1% and 0.5% to the growth in payroll service revenue for fiscal 2017 and fiscal 2016, respectively.

As of May 31, 2017, we served approximately 605,000 payroll clients, consistent with levels one year ago.

The flat growth for fiscal 2017 was impacted by a challenging comparison for new sales to a strong fiscal 2016, which benefited from the implementation of the ACA.

In addition, we experienced a slight increase in client attrition for fiscal 2017 as compared to the prior year.

Advance Partners contributed approximately 1% to the growth in HRS revenue for both fiscal 2017 and fiscal 2016.

Average investment balances for funds held for clients decreased approximately 1% for fiscal 2017 primarily due to the impacts of timing of certain remittances due to taxing authorities and client mix.

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.

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.

Our financial results continue to be impacted by the interest rate environment as interest rates available on high-quality financial instruments remain low.

This was the first interest hike in nearly a decade.

Our HR administration services are often included as part of the SaaS solutions for mid-market clients.

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.

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

Our expected full-year fiscal 2017 payroll revenue growth rate is based upon anticipated client base growth and increases in revenue per check.

| | · | | total service revenue is expected to increase in the range of 7% to 8%; |

During both fiscal 2016 and fiscal 2015, the PEO, in particular, experienced strong demand.

Our HR administration products, including time and attendance and HR management, contributed to growth through strong sales of our SaaS solutions.

Time and attendance solutions benefited from a small business acquisition in fiscal 2015.

Average investment balances for funds held for clients increased 1% for fiscal 2016 and 3% for fiscal 2015.

The increase in average investment balances for fiscal 2015 was mainly driven by increases in client base and wage inflation.

| Other expenses | | | 542.0 | | 10 | % | | | 492.3 | | 15 | % | | | 427.3 |

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

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

Other expenses increased due to growth within the PEO.

Operating income, net of certain items, is as follows for fiscal years:

| Operating income | | $ | 1,146.6 | | 9 | % | | $ | 1,053.6 | | 7 | % | | $ | 982.7 |

| Excluding: Interest on funds held for clients | | | (46.1) | | 9 | % | | | (42.1) | | 3 | % | | | (40.7) |

| Operating income, net of certain items (1) | | $ | 1,100.5 | | 9 | % | | $ | 1,011.5 | | 7 | % | | $ | 942.0 |

| | (1) | | Operating income, net of certain items is a non-GAAP measure. Refer to the “Non-GAAP Financial Measure” discussion that follows. |

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

It is also the basis of the measure used internally for establishing the following year’s targets and measuring management’s performance in connection with certain performance-based compensation payments and awards.

Operating income, net of certain items, excludes interest on funds held for clients.

Interest on funds held for clients is an adjustment to operating income due to the volatility of interest rates, which are not within the control of management.

Investment income increased 17% for fiscal 2015 due to an increase in average investment balances resulting from investment of cash generated from operations, while interest rates earned remained relatively flat.

Excluding this net tax benefit, the effective income tax rate would have been approximately 35.8% for fiscal 2016.

Diluted earnings per share increased 13% to $2.09 per share for fiscal 2016 and 8% to $1.85 per share for fiscal 2015.

Excluding the net tax benefit recognized in the first quarter, net income and diluted earnings per share for fiscal 2016 would have increased 9% and 10%, respectively.

Commitments and Contractual Obligations

This agreement supersedes the $750 million credit facility agreement set to expire on June 21, 2018, which was terminated as part of the new agreement.

During fiscal 2016, the Company borrowed against this facility, and its predecessor facility, for one-day periods each, from one to two times a quarter as follows:

| | | | | | | | |

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

A substantial portion of our [removed: portfolios] [added: portfolio] is invested in high credit quality securities with [removed: AAA and AA] ratings [added: of AA or higher,] and A-1/P-1 ratings on short-term securities.

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

During fiscal [removed: 2016,] [added: 2017,] our primary short-term investment vehicles were [added: VRDNs and] bank demand deposit [removed: accounts, VRDNs, high-quality commercial paper, and government agency discount notes.][added: accounts.]

During fiscal [removed: 2016,] [added: 2017,] the average interest rate earned on our combined funds held for clients and corporate investment portfolios was [removed: 1.1%,] [added: 1.2%,] compared to [added: 1.1% and] 1.0% for fiscal years [removed: 2015] [added: 2016] and [removed: 2014.][added: 2015, respectively.]

Earnings from the available-for-sale securities, which as of May 31, [removed: 2016] [added: 2017] had an average duration of [removed: 3.1] [added: 3.2] 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: 2016] [added: 2017] are shown below by contractual maturity.

| Due in one year or less | | $ | [removed: 359.6] [added: 308.8] | | $ | [removed: 360.7] [added: 309.3] |

| Due after one year through three years | | | [removed: 742.7] [added: 762.1] | | | [removed: 749.4] [added: 768.2] |

| Due after three years through five years | | | [removed: 918.5] [added: 1,067.0] | | | [removed: 935.7] [added: 1,086.2] |

| Due after five years | | | [removed: 2,073.5] [added: 2,443.3] | | | [removed: 2,096.1] [added: 2,449.5] |

Under normal financial market conditions, the impact to earnings from a 25-basis-point change in short-term interest rates would be approximately [removed: $3.5] [added: $3.0] million to $4.0 million, after taxes, for a twelve-month period.

Our total investment portfolio (funds held for clients and corporate investments) averaged approximately $5.0 billion for fiscal [removed: 2016.][added: 2017.]

Our anticipated allocation is approximately [removed: 45%] [added: 40%] invested in short-term securities and VRDNs with an average duration of less than 30 days, and [removed: 55%] [added: 60%] invested in available-for-sale securities with an average duration of two and one-half to three and three-quarters years.

The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized gain of [removed: $47.6] [added: $32.0] million as of May 31, [removed: 2016,] [added: 2017,] compared with [removed: an] [added: a net] unrealized gain of [removed: $13.6] [added: $47.6] million as of May 31, [removed: 2015.][added: 2016.]

During fiscal 2016, the net unrealized gain on our investment portfolios ranged from [added: an unrealized gain of] $3.7 million to $72.2 million.

During fiscal [removed: 2015,] [added: 2017,] the net unrealized gain [added: or loss] on our investment portfolios ranged from an unrealized [removed: gain] [added: loss] of [removed: $9.5] [added: $30.5] million to [removed: $55.9] [added: an unrealized gain of $69.5] million.

The net unrealized gain on our investment portfolios was approximately [removed: $63.5] [added: $27.2] as of July [removed: 15, 2016.][added: 19, 2017.]

As of May 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] we had [removed: $4.1] [added: $4.6] billion and [removed: $3.6] [added: $4.1] billion, respectively, invested in available-for-sale securities at fair value.

The weighted-average yield-to-maturity was 1.7% [removed: and 1.6%] [added: both] as of May 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] 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: 2016,] [added: 2017,] 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: 2016] [added: 2017] were not other-than-temporarily impaired.

While [removed: $155.6] [added: $607.4] 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: $0.7] [added: $5.8] million were due to changes in interest rates and were not due to increased credit risk or other valuation concerns.

A significant portion of these securities in an unrealized loss position as of May 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] held an AA rating or better.

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

| | | May 31, 2017 | | | | |

| Total | | $ | 4,581.2 | | $ | 4,613.2 |

After almost seven years of no movement in the Federal Funds rate, the Federal Reserve has raised the rate by 25 basis points three times since December 2015.

As of May 31, 2017, the Federal Funds rate was in the range of in the range of 0.75% to 1.0% as compared to in the range of 0.25% to 0.50% as of May 31, 2016, and in the range of zero to 0.25% as of May 31, 2015.

On June 15, 2017, the Federal Funds rate was raised a fourth time to a range of 1.0% to 1.25%.

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

| 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.

Previously the Federal Funds rate had remained at a range of zero to 0.25% since December 2008.

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

As of May 31, [removed: 2016,] [added: 2017,] we serviced approximately 605,000 payroll clients.

Our mission is to be the leading provider of [added: HCM solutions for] payroll, [removed: human resource] [added: HR, retirement,] and [removed: employee benefit] [added: insurance] services for small- to medium-sized businesses by being an essential partner with America’s businesses.

Our [added: business] strategy focuses on the following:

| | · | | [added: providing a] comprehensive suite of value-added HCM services; |

| | · | | [added: engaging in] strategic acquisitions. |

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

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

Paychex [removed: FlexSM] [added: Flex®] is our 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.

[removed: The platform] [added: It] uses a single cloud-based platform, with single client and employee records, and single sign-on, including self-service options and mobility applications.

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

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

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

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

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

[removed: These] [added: Our mid-market] clients are serviced through our Paychex Flex Enterprise solution set, which offers an integrated suite of HCM solutions on the Paychex Flex platform, or through our [removed: traditional mid-market] [added: legacy] platform.

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

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

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

| | · | | 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. [added: Same day ACH functionality is also available for clients using direct deposit, allowing employers the flexibility to pay employees via direct deposit on the same day they initiate payroll.] Our Readychex service provides a cost-effective solution that offers the benefit of convenient, one-step payroll account reconciliation for employers. |

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

Our [removed: complementary] services are categorized as follows:

| | · | | Paychex HR Services: We offer comprehensive [removed: human resource] [added: HR] 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, [removed: human resource] [added: HR] and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained [removed: human resource] [added: HR] 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, [removed: provide] [added: offer] health care coverage to PEO [added: client] 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: LLC.] [added: LLC, subsidiaries of which are certified to provide PEO services under the SBEA.] 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: 2016,] [added: 2017,] Paychex HR Services was utilized by approximately [removed: 35,000] [added: 37,000] clients with approximately [removed: 944,000] [added: 1,021,000] client worksite employees. |

| | · | | 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 relationships with financial advisors. As of May 31, [removed: 2016,] [added: 2017,] retirement services covered approximately [removed: 74,000] [added: 78,000] plans and the asset value of participants' funds externally managed totaled approximately [removed: $23.6] [added: $27.4] billion. |

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

Our Paychex Employer Shared Responsibility (“ESR”) Service is aimed at helping clients: 1) determine if the [added: ACA’s] ESR provision applies to them; 2) provide ongoing [removed: ESR] [added: ACA] 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.

| | · | | HR administration services: We offer cloud-based [removed: human resource] [added: HR] 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 [removed: human resource] [added: HR] compliance and reporting. Our BeneTrac service manages the employee-benefit enrollment process. Our time and attendance products, including our [removed: Stratustime® software acquired in June 2014, help minimize the time spent compiling time sheet information.] [added: integrated FlexTime® software, provides timekeeping, scheduling, and workforce analytics.] 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. |

We utilize a virtual sales force to service geographical areas where we may not have a local [removed: presence] [added: presence, cover inbound leads for certain small-business clients,] or for products for which we do not have a local sales force.

Approximately [removed: 50%] [added: 55%] of our new [removed: core] [added: small-market] payroll clients (excluding business acquisitions) come from these referral sources.

The BuildMyBiz® website, which is available at www.BuildMyBiz.com, provides [removed: tools and resources for starting, growing,] [added: convenient collections of information, tools,] and [removed: managing a business.][added: services on challenges facing entrepreneurs.]

Our internal database source indicates that there are approximately [removed: 11] [added: 12] million addressable businesses in the geographic markets that we currently serve within the U.S. Of those businesses, 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: 16.7] [added: 16.0] employees.

For the fiscal year ended May 31, [removed: 2016] [added: 2017] (“fiscal [removed: 2016”),] [added: 2017”),] client retention was [removed: in excess of 82%] [added: approximately 81%] of our beginning of the year client base, [removed: consistent with] [added: a slight decrease from] the prior [added: fiscal] year’s [removed: record high.][added: near-record-high level.]

In addition to traditional payroll processing and [removed: human resource] [added: HR] service providers, we compete with in-house payroll and [removed: human resource] [added: HR] systems and departments.

Payroll and [removed: human resource] [added: HR] systems and software are sold by many vendors.

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

Competition in the payroll processing and [removed: human resource] [added: HR] services industry is primarily based on service responsiveness, product quality and reputation, including ease of use and accessibility of technology, breadth of service and product offerings, and price.

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

As of May 31, [removed: 2016,] [added: 2017,] we employed approximately [removed: 13,500] [added: 13,700] people.

Also, copies of our Annual Report to Stockholders and Proxy Statement, to be issued in connection with our [removed: 2016] [added: 2017] 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.

We were recently certified under the Small Business Efficiency Act (“SBEA”) related to our PEO offering.

In addition, Paychex Flex presents function-focused analytics throughout the platform, assisting HR leaders with making more informed business decisions.

Paychex Flex uses a mobile-first design throughout our HCM suite, which allows full functionality of all application components, regardless of device or screen size.

With an environment of increasing regulations, the need for HR outsourcing services is moving down-market.

All new clients are sold on the Paychex Flex platform.

Mid-market clients also have the option to select the HCM modules they need with the ability to easily add services as they grow.

These services offer additional value-added benefits for small-business owners.

Paychex Advance, LLC was established in December 2015 with the acquisition of Advance Partners and offers customizable solutions to the temporary staffing industry, including payroll funding (via purchase of accounts receivable) and outsourcing services, which include payroll processing, invoicing, and tax preparation.

In addition, through partnerships with third-party providers, we provide clients opportunities for services such as payment processing services, financial fitness programs, and a small-business loan resource center.

We also utilize digital marketing as a means to market our services.

The information on our website is not incorporated by reference into our Form 10-K.

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

These services offer additional value-added benefits for small-business owners including: purchasing of accounts receivable as a means of providing 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.

More than half of the CPA firms in the U.S. are enrolled and actively participating in the Paychex Partner Program from AICPA Business Solutions.

We also have a joint-venture arrangement to provide payroll and human resource services in Brazil.

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

For the fiscal year ended May 31, [removed: 2016][added: 2017]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definitions of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [added: company,” and “emerging growth] company” in Rule 12b-2 of the Exchange Act.

| | | | | (Do not check if a smaller reporting company) | | [added: Emerging growth company ☐] |

As of November 30, [removed: 2015] [added: 2016] 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: $17,491,967,248] [added: $18,874,963,639] based on the closing price reported for such date on the NASDAQ Global Select Market.

As of June 30, [removed: 2016, 360,532,001] [added: 2017, 359,395,731] 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: 12, 2016,] [added: 11, 2017,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

| [Item 1B](#UnresolvedStaffComments) | [Unresolved Staff Comments](#UnresolvedStaffComments) | [removed: 9] [added: 10] | | |

| [Item 4](#MineSafetyDisclosures) | [Mine Safety Disclosures](#MineSafetyDisclosures) | [removed: 10] [added: 11] | | |

| [Item 7](#MDA) | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#MDA) | [removed: 16] [added: 14] | | |

| [Item 7A](#MarketRisk) | [Quantitative and Qualitative Disclosures About Market Risk](#MarketRisk) | [removed: 28] [added: 29] | | |

| [Item 8](#FinancialStatementsAndSupplementaryData) | [Financial Statements and Supplementary Data](#FinancialStatementsAndSupplementaryData) | [removed: 29] [added: 31] | | |

| [Item 9](#ChangesAndDisagreements) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ChangesAndDisagreements) | [removed: 58] [added: 63] | | |

| [Item 9A](#ControlsAndProcedures) | [Controls and Procedures](#ControlsAndProcedures) | [removed: 58] [added: 63] | | |

| [Item 9B](#OtherInformation) | [Other Information](#OtherInformation) | [removed: 59] [added: 64] | | |

| [Item 10](#DirectorsExecutiveOfficers) | [Directors, Executive Officers and Corporate Governance](#DirectorsExecutiveOfficers) | [removed: 59] [added: 64] | | |

| [Item 11](#ExecutiveCompensation) | [Executive Compensation](#ExecutiveCompensation) | [removed: 60] [added: 65] | | |

| [Item 12](#SecurityOwnership) | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#SecurityOwnership) | [removed: 60] [added: 65] | | |

| [Item 13](#CertainRelationships) | [Certain Relationships and Related Transactions, and Director Independence](#CertainRelationships) | [removed: 60] [added: 66] | | |

| [Item 14](#PrincipalAccountingFees) | [Principal Accounting Fees and Services](#PrincipalAccountingFees) | [removed: 60] [added: 66] | | |

| [Item 15](#ExhibitsAndFinancialStatementSchedules) | [Exhibits and Financial Statement Schedules](#ExhibitsAndFinancialStatementSchedules) | [removed: 61] [added: 67] | | |

| | [Signatures](#Signatures) | [removed: 63] [added: 69] | | |

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

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

| | · | | changes in technology that adversely affect our [removed: services and] products and [added: services and] impact our ability to provide timely enhancements to services and products; |

| | · | | the possibility of failure of our operating facilities, [added: or the failure of our] computer systems, and communication systems during a catastrophic event; |

| | · | | the possibility that we may be subject to liability for violations of employment or discrimination laws by our clients and acts or omissions of client employees who may be deemed to be our agents, even if we do not participate in any such acts or [removed: violations;] [added: violations, including possible liability related to our co-employment relationship with our professional employer organization (“PEO”);] and |

| | · | | potentially unfavorable outcomes related to pending or future [removed: (possible)] legal matters. |

Any of these factors, as well as such other factors as discussed in Part I, Item 1A, “Risk Factors” and throughout Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10‑K (“Form 10-K”), as well as in our periodic filings with the Securities and Exchange Commission [removed: (“SEC” or “Commission”),] [added: (the “SEC”),] could cause our actual results to differ materially from our anticipated results.

10-K 1 payx-20170531x10k.htm 10-K

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

For the fiscal year ended May 31, 2017

| [Item 16](#Item_16) | [Form 10-K Summary](#Item_16) | 68 | | |

| | · | | the possibility of cyber-attacks, security breaches, or other security vulnerabilities that could disrupt operations or expose confidential client data, and could also result in reduced revenues, increased costs, liability claims, or harm to our competitive position; |

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

| | · | | the possibility of a security breach that disrupts operations or exposes client confidential data; |

We owned and leased the following properties as of May 31, [removed: 2016:][added: 2017:]

| Rochester, New York | | [removed: 231,000] [added: 237,000] |

| Other U.S. locations | | [removed: 1,889,000] [added: 1,869,000] |

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

| Total leased facilities | | [removed: 2,155,000] [added: 2,134,000] |

Our international locations are [removed: primarily] in Germany and house our German branch and sales locations.

The level and continuation of future dividends are dependent on our future earnings and cash flows, and are subject to the discretion of our Board of Directors (the [removed: “Board.”)][added: “Board”).]

As of June 30, [removed: 2016,] [added: 2017,] there were [removed: 12,548] [added: 11,828] 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: 5,813] [added: 5,100] participants in the Paychex, Inc. Employee Stock Purchase Plan and [removed: 4,841] [added: 4,675] 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: 2016] [added: 2017] and the fiscal year ended May 31, [removed: 2015] [added: 2016] (“fiscal [removed: 2015”)] [added: 2016”)] are as follows:

| | | Fiscal [removed: 2016] [added: 2017] | | | | | | Fiscal [removed: 2015] [added: 2016] | | | | |

| First quarter | | [removed: $49.79] [added: $61.87] | | [removed: $41.59] [added: $53.57] | | [removed: $0.42] [added: $0.46] | | [removed: $42.66] [added: $49.79] | | [removed: $40.10] [added: $41.59] | | [removed: $0.38] [added: $0.42] |

| Second quarter | | [removed: $54.54] [added: $61.62] | | [removed: $43.19] [added: $52.78] | | [removed: $0.42] [added: $0.46] | | [removed: $48.20] [added: $54.54] | | [removed: $41.59] [added: $43.19] | | [removed: $0.38] [added: $0.42] |

| Third quarter | | [removed: $54.78] [added: $62.18] | | [removed: $45.76] [added: $57.07] | | [removed: $0.42] [added: $0.46] | | [removed: $50.19] [added: $54.78] | | [removed: $44.52] [added: $45.76] | | [removed: $0.38] [added: $0.42] |

| Fourth quarter | | [removed: $54.58] [added: $63.03] | | [removed: $51.06] [added: $56.57] | | [removed: $0.42] [added: $0.46] | | [removed: $51.72] [added: $54.58] | | [removed: $48.00] [added: $51.06] | | [removed: $0.38] [added: $0.42] |

The closing price of our common stock as of May 31, [removed: 2016,] [added: 2017,] as reported on the NASDAQ Global Select Market, was [removed: $54.22] [added: $59.23] per share.

Shares repurchased under [removed: this program] [added: these programs] during fiscal [removed: 2016] [added: 2017] and fiscal [removed: 2015] [added: 2016] were as follows:

| | | Fiscal [removed: 2016] [added: 2017] | | | | | [removed: Fiscal 2015] | [added: Fiscal 2016] | | | |

| In millions | | Total number of shares purchased | | Total dollars | | | [added: |] Total number of shares purchased | | [removed: |] Total dollars | |

| First quarter | | [removed: 1.3] [added: —] | | $ | [removed: 62.9] [added: —] | | | [removed: 0.9] [added: 1.3] | | $ | [removed: 37.5] [added: 62.9] |

| Third quarter | | [removed: 0.9] [added: —] | | | [removed: 45.0] [added: —] | | | [removed: 0.4] [added: 0.9] | | | [removed: 17.9] [added: 45.0] |

| Fourth quarter | | — | | | — | | | [removed: 2.3] [added: —] | | | [removed: 111.9] [added: —] |

| Fiscal year | | [removed: 2.2] [added: 2.9] | | $ | [removed: 107.9] [added: 166.2] | | | [removed: 3.9] [added: 2.2] | | $ | [removed: 182.4] [added: 107.9] |

As of May 31, [removed: 2016,] [added: 2017,] the approximate dollar value of [added: common stock] shares [removed: that may yet be purchased] [added: available for repurchase] under the program [added: authorized in July 2016] is [removed: $59.7] [added: $243.5] million.

[removed: Shares] [added: All shares] of stock repurchased during fiscal [removed: 2016] [added: 2017] and fiscal [removed: 2015 were purchased pursuant to the program and] [added: 2016] were retired.

The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, [removed: 2011,] [added: 2012,] in Paychex common stock, the S&P 500 Index, and a Peer Group Index.

][added: 2](https://www.sec.gov/Archives/edgar/data/723531/000072353117000023/payx-20170531x10kg001.jpg)]

| May 31, | | [removed: 2011 | |] 2012 | | 2013 | | 2014 | | 2015 | | 2016 | [added: | 2017 |]

We [removed: will] neither make nor endorse any predictions as to future stock performance.

Our [added: new] Peer Group for fiscal [removed: 2016] [added: 2017] is comprised of the following companies:

| Automatic Data Processing, Inc. (direct competitor) | | [removed: Broadridge Financial Solutions,] [added: Intuit] Inc. |

| [removed: Fiserv,] [added: DST System,] Inc. | | Robert Half International Inc. |

| [added: Fiserv, Inc. | |] The Western Union Company | [removed: | Intuit Inc. |]

| [added: Equifax, Inc. | |] Total Systems Services, Inc. | [removed: | Iron Mountain Incorporated |]

| Global Payments Inc. | | [removed: Moody’s Corporation] |

| The Dun & Bradstreet Corporation | | [added: TD AMERITRADE Holding Corporation] |

During fiscal 2017 we maintained two authorized common stock repurchase programs.

The first program was authorized by our Board in May 2014 and expired on May 31, 2017.

The second program was authorized by the Board in July 2016 and expires on May 31, 2019.

Each program allows us to repurchase up to $350.0 million of our common stock.

| Second quarter | | 2.9 | | | 166.2 | | | — | | | — |

All amounts authorized under the program in May 2014 have been fully repurchased.

| Paychex | | $100.00 | | $129.23 | | $147.63 | | $183.44 | | $208.32 | | $234.85 |

| S&P 500 | | $100.00 | | $127.28 | | $153.30 | | $171.40 | | $174.34 | | $204.79 |

| Peer Group - Old | | $100.00 | | $132.60 | | $164.71 | | $212.33 | | $220.61 | | $261.94 |

| Peer Group - New | | $100.00 | | $132.83 | | $168.59 | | $216.53 | | $222.22 | | $261.18 |

The Governance & Compensation Committee of our Board annually reviews and approves the selection of Peer Group companies, adjusting the group from year to year based upon our business and changes in the Peer Group companies’ business or the comparability of their metrics.

The Peer Group may also be adjusted in the event of mergers, acquisitions, or other significant economic changes.

The Peer Group was adjusted for fiscal 2017.

The Brink’s Company and Iron Mountain Incorporated were removed and replaced with Alliance Data Systems Corporation and Equifax, Inc., as they are more closely aligned with the Paychex business.

Both the old and new peer groups are presented for this year of transition.

| Alliance Data Systems Corporation | | H&R Block, Inc. |

| Broadridge Financial Solutions, Inc. | | Moody’s Corporation |

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

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

| 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 Brink’s Company | | H&R Block, Inc. |

| DST System, Inc. | | TD AMERITRADE Holding Corporation |

| Year ended May 31, | | [removed: 2016 (1)] [added: 2017(1)] | | | | [removed: 2015] [added: 2016(2)] | | | | [removed: 2014 (2), (4)] [added: 2015(3)] | | | | [removed: 2013 (3), (4)] [added: 2014(3),(4)] | | | | [removed: 2012 (4)] [added: 2013(3),(5)] | | |

| Service revenue | | $ | [removed: 2,905.8] [added: 3,100.7] | | | $ | [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] | |

| Interest on funds held for clients | | $ | [removed: 46.1] [added: 50.6] | | | $ | [removed: 42.1] [added: 46.1] | | | $ | [removed: 40.7] [added: 42.1] | | | $ | [removed: 41.0] [added: 40.7] | | | $ | [removed: 43.6] [added: 41.0] | |

| Total revenue | | $ | [removed: 2,951.9] [added: 3,151.3] | | | $ | [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] | |

| Operating income | | $ | [removed: 1,146.6] [added: 1,239.6] | | | $ | [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] | |

| Net income | | $ | [removed: 756.8] [added: 817.3] | | | $ | [removed: 674.9] [added: 756.8] | | | $ | [removed: 627.5] [added: 674.9] | | | $ | [removed: 569.0] [added: 627.5] | | | $ | [removed: 548.0] [added: 569.0] | |

| Basic earnings per share | | $ | [removed: 2.10] [added: 2.27] | | | $ | [removed: 1.86] [added: 2.10] | | | $ | [removed: 1.72] [added: 1.86] | | | $ | [removed: 1.56] [added: 1.72] | | | $ | [removed: 1.51] [added: 1.56] | |

| Diluted earnings per share | | $ | [removed: 2.09] [added: 2.25] | | | $ | [removed: 1.85] [added: 2.09] | | | $ | [removed: 1.71] [added: 1.85] | | | $ | [removed: 1.56] [added: 1.71] | | | $ | [removed: 1.51] [added: 1.56] | |

| Cash dividends per common share | | $ | [removed: 1.68] [added: 1.84] | | | $ | [removed: 1.52] [added: 1.68] | | | $ | [removed: 1.40] [added: 1.52] | | | $ | [removed: 1.31] [added: 1.40] | | | $ | [removed: 1.27] [added: 1.31] | |

| Purchases of property and equipment | | $ | [removed: 97.7] [added: 94.3] | | | $ | [removed: 102.8] [added: 97.7] | | | $ | [removed: 84.1] [added: 102.8] | | | $ | [removed: 98.7] [added: 84.1] | | | $ | [removed: 89.6] [added: 98.7] | |

| Cash and total corporate investments | | $ | [removed: 793.2] [added: 777.4] | | | $ | [removed: 936.4] [added: 793.2] | | | $ | [removed: 936.8] [added: 936.4] | | | $ | [removed: 874.6] [added: 936.8] | | | $ | [removed: 790.0] [added: 874.6] | |

| Total assets | | $ | [removed: 6,440.8] [added: 6,833.7] | | | $ | [removed: 6,467.5] [added: 6,440.8] | | | $ | [removed: 6,321.0] [added: 6,467.5] | | | $ | [removed: 6,127.3] [added: 6,321.0] | | | $ | [removed: 6,448.8] [added: 6,127.3] | |

| Stockholders’ equity | | $ | [removed: 1,911.7] [added: 1,955.3] | | | $ | [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] | |

| Return on stockholders’ equity | | | [removed: 40] [added: 42] | % | | | [removed: 36] [added: 40] | % | | | [removed: 35] [added: 36] | % | | | [removed: 34] [added: 35] | % | | | 34 | % |

| | [removed: (1)] [added: (2)] | | In [removed: 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 [removed: $0.05] [added: $0.06] per share. |

| | [removed: (2)] [added: (4)] | | With the introduction of a new health care offering within the PEO during the 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: (3)] [added: (5)] | | In [removed: the fourth quarter of the] fiscal 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. |

| | (1) | | In fiscal 2017, we early-adopted new accounting guidance related to employee stock-based compensation payments. As a result, a discrete tax benefit was recognized upon exercise or lapse of stock-based awards. This increased diluted earnings per share by approximately $0.05 per share. |

| | (3) | | During fiscal 2016, we adopted new accounting guidance related to the presentation of deferred taxes within the Consolidated Balance Sheets. As a result, a reclassification of prior year deferred tax amounts was made to conform to the May 31, 2016 presentation of deferred taxes within the Consolidated Balance Sheets. In the table above, a similar reclassification was made, which impacted total assets. |

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

| | (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. |

| [Report on Management’s Assessment of Internal Control Over Financial Reporting](#ReportManagementsAssessment) | [removed: 30] [added: 32] | |

| [Report of Independent Registered Public Accounting Firm](#Report) | [removed: 31] [added: 33] | |

| [Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#IS)] [added: 2015](#IS)] | [removed: 32] [added: 34] | |

| [Consolidated Balance Sheets as of May 31, [removed: 2016] [added: 2017] and [removed: 2015](#BS)] [added: 2016](#BS)] | [removed: 33] [added: 35] | |

| [Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#SE)] [added: 2015](#SE)] | [removed: 34] [added: 36] | |

| [Consolidated Statements of Cash Flows for the Years Ended May 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#CF)] [added: 2015](#CF)] | [removed: 35] [added: 37] | |

| [Notes to Consolidated Financial Statements](#Notes) | [removed: 36] [added: 38] | |

| [Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, [added: 2017,] 2016, [removed: 2015,] and [removed: 2014](#ScheduleII)] [added: 2015](#ScheduleII)] | [removed: 58] [added: 63] | |

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, [removed: 2016.][added: 2017.]

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, [removed: 2016.][added: 2017.]

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: 2016,] [added: 2017,] 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: 2016] [added: 2017] and May 31, [removed: 2015,] [added: 2016,] and the results of their operations and their cash flows for each of the three years in the period ended May 31, [removed: 2016] [added: 2017] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, [removed: 2016,] [added: 2017,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

| Year ended May 31, | | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | | | [removed: 2014] [added: 2015] | |

| Service revenue | | $ | [removed: 2,905.8] [added: 3,100.7] | | $ | [removed: 2,697.5] [added: 2,905.8] | | $ | [removed: 2,478.2] [added: 2,697.5] |

| Interest on funds held for clients | | | [removed: 46.1] [added: 50.6] | | | [removed: 42.1] [added: 46.1] | | | [removed: 40.7] [added: 42.1] |

| Total revenue | | | [removed: 2,951.9] [added: 3,151.3] | | | [removed: 2,739.6] [added: 2,951.9] | | | [removed: 2,518.9] [added: 2,739.6] |

| Operating expenses | | | [removed: 857.1] [added: 919.6] | | | [removed: 808.0] [added: 857.1] | | | [removed: 732.5] [added: 808.0] |

| Selling, general and administrative expenses | | | [removed: 948.2] [added: 992.1] | | | [removed: 878.0] [added: 948.2] | | | [removed: 803.7] [added: 878.0] |

| Total expenses | | | [removed: 1,805.3] [added: 1,911.7] | | | [removed: 1,686.0] [added: 1,805.3] | | | [removed: 1,536.2] [added: 1,686.0] |

| Operating income | | | [removed: 1,146.6] [added: 1,239.6] | | | [removed: 1,053.6] [added: 1,146.6] | | | [removed: 982.7] [added: 1,053.6] |

| Investment income, net | | | [removed: 4.5] [added: 5.2] | | | [removed: 6.4] [added: 4.5] | | | [removed: 5.4] [added: 6.4] |

| Income before income taxes | | | [removed: 1,151.1] [added: 1,244.8] | | | [removed: 1,060.0] [added: 1,151.1] | | | [removed: 988.1] [added: 1,060.0] |

| Income taxes | | | [removed: 394.3] [added: 427.5] | | | [removed: 385.1] [added: 394.3] | | | [removed: 360.6] [added: 385.1] |

| Net income | | $ | [removed: 756.8] [added: 817.3] | | $ | [removed: 674.9] [added: 756.8] | | $ | [removed: 627.5] [added: 674.9] |

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

| Unrealized [removed: gains/(losses)] [added: (losses)/gains] on securities, net of tax | | | [removed: 21.7] [added: (9.2)] | | | [removed: (14.0)] [added: 21.7] | | | [removed: (0.5)] [added: (14.0)] |

| Total other comprehensive [removed: income/(loss),] [added: (loss)/income,] net of tax | | | [removed: 21.7] [added: (9.2)] | | | [removed: (14.0)] [added: 21.7] | | | [removed: (0.5)] [added: (14.0)] |

| Comprehensive income | | $ | [removed: 778.5] [added: 808.1] | | $ | [removed: 660.9] [added: 778.5] | | $ | [removed: 627.0] [added: 660.9] |

| Basic earnings per share | | $ | [removed: 2.10] [added: 2.27] | | $ | [removed: 1.86] [added: 2.10] | | $ | [removed: 1.72] [added: 1.86] |

| Diluted earnings per share | | $ | [removed: 2.09] [added: 2.25] | | $ | [removed: 1.85] [added: 2.09] | | $ | [removed: 1.71] [added: 1.85] |

| Weighted-average common shares outstanding | | | [removed: 360.7] [added: 359.8] | | | [removed: 362.9] [added: 360.7] | | | [removed: 364.5] [added: 362.9] |

| Weighted-average common shares outstanding, assuming dilution | | | [removed: 362.5] [added: 362.6] | | | [removed: 364.6] [added: 362.5] | | | [removed: 366.1] [added: 364.6] |

| Cash dividends per common share | | $ | [removed: 1.68] [added: 1.84] | | $ | [removed: 1.52] [added: 1.68] | | $ | [removed: 1.40] [added: 1.52] |

| As of May 31, | | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | |

| Cash and cash equivalents | | $ | [removed: 131.5] [added: 184.6] | | $ | [removed: 170.0] [added: 131.5] |

| Corporate investments | | | [removed: 220.6] [added: 138.8] | | | [removed: 366.6] [added: 220.6] |

| Interest receivable | | | [removed: 36.1] [added: 35.9] | | | [removed: 37.9] [added: 36.1] |

| Accounts receivable, net of allowance for doubtful accounts | | | [removed: 408.6] [added: 507.5] | | | [removed: 176.6] [added: 408.6] |

| Prepaid income taxes | | | [removed: 10.5] [added: 45.0] | | | [removed: 12.9] [added: 10.5] |

As discussed in Note A to the consolidated financial statements, the Company changed the manner in which it accounts for share-based payment award transactions in fiscal year 2017.

July 21, 2017

| Repurchases of common shares | | (2.9) | | | | | | (5.4) | | | (160.8) | | | | | | (166.2) |

| Activity related to equity-based plans | | 1.9 | | | | | | 47.3 | | | (18.7) | | | | | | 28.6 |

| Balance as of May 31, 2017 | | 359.4 | | $ | 3.6 | | $ | 1,030.0 | | $ | 901.7 | | $ | 20.0 | | $ | 1,955.3 |

| Year ended May 31, | | 2017 | | | 2016 | | | 2015 | |

| Net income | | $ | 817.3 | | $ | 756.8 | | $ | 674.9 |

PEO services are sold through the Company’s registered and licensed subsidiary, Paychex Business Solutions, LLC.

Same day ACH functionality is also available for clients using direct deposit.

For fiscal 2017, it was determined that the Company has three reporting units.

A qualitative analysis was performed for our Paychex Advance LLC (“Paychex Advance”) reporting unit in fiscal 2017.

During fiscal years 2016 and 2015, a quantitative analysis was performed for our German reporting unit, and for all other reporting units a qualitative analysis was performed.

In June 2016, the Company early-adopted new accounting guidance related to employee share-based payments.

Under this new guidance, excess tax benefits or shortfalls related to employee share-based payments are recognized in income taxes on the Consolidated Statements of Income and Comprehensive Income, whereas they previously were recorded as additional paid-in capital on the Consolidated Balance Sheets.

This new accounting guidance was adopted prospectively and decreased the Company’s effective income tax rate by approximately 150 basis points for fiscal 2017.

Recently adopted accounting pronouncements: In June 2016, the Company early-adopted Accounting Standards Update (“ASU”) No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” issued by the Financial Accounting Standards Board (“FASB”).

Amendments related to accounting for excess tax benefits have been adopted prospectively, resulting in the recognition of $18.3 million of excess tax benefits within income tax expense in the Consolidated Statements of Income and Comprehensive Income for fiscal 2017, increasing diluted earnings per share by approximately $0.05 per share.

Excess tax benefits related to share-based payments are now included in operating cash flows rather than financing cash flows.

We have previously classified cash paid for tax withholding purposes as a financing activity in the statement of cash flows, therefore there was no change related to this requirement.

The amendments allow for a one-time accounting policy election to either account for forfeitures as they occur or continue to estimate forfeitures as required by current guidance.

The Company has elected to continue estimating forfeitures under the current guidance.

The Company also adopted the following ASUs during fiscal 2017, none of which had a material impact on its consolidated financial statements:

| | · | | ASU No. 2015-09, “Financial Services - Insurance (Topic 944): Disclosures about Short-Duration Contracts.” |

| | · | | ASU No. 2015-05, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” |

| | · | | ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” |

| | · | | ASU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis.” |

| | · | | ASU No. 2015-01, “Income Statement - Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” |

| | · | | ASU No. 2014-15, “Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern.” |

Recently issued accounting pronouncements: In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU No. 2017-09 provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.

This guidance is effective for public companies for annual periods, and for interim periods within those annual periods, beginning after December 15, 2017 and is applicable to the Company’s fiscal year beginning June 1, 2018.

Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued.

Amendments in this ASU will be applied prospectively to any award modified on or after the adoption date.

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

In March 2017, the FASB issued ASU No. 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities.” The amendments in ASU No. 2017-08 require that the premium on purchased callable debt securities to be amortized to the earliest call date.

The amendments do not, however, require an accounting change for securities held at a discount; instead, the discount continues to be amortized to maturity.

This guidance is effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, and is applicable to the Company’s fiscal year beginning June 1, 2019.

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

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

In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses From the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” ASU No. 2017-05 clarifies that a financial asset is within the scope of Subtopic 610-20 if it is deemed an “in substance non-financial asset.” ASU No. 2017-05 is effective at the same time the revenue standard in ASU No. 2014-09, “Revenue From Contracts With Customers (Topic 606)” goes into effect, which is for the Company’s fiscal year beginning June 1, 2018.

The Company is currently evaluating this guidance as part of its revenue recognition implementation efforts, but does not anticipate it will have a material impact on its consolidated financial statements.

July 22, 2016

| Balance as of May 31, 2013 | | 365.4 | | $ | 3.7 | | $ | 659.5 | | $ | 1,088.5 | | $ | 22.0 | | $ | 1,773.7 |

| Repurchases of common shares | | (6.2) | | | (0.1) | | | (11.2) | | | (238.4) | | | | | | (249.7) |

| Stock-based award transactions | | 3.8 | | | | | | 119.7 | | | (9.5) | | | | | | 110.2 |

A quantitative analysis was performed for our German reporting unit.

At the time of the exercise of non-qualified stock options or vesting of stock awards, the Company accounts for the resulting tax deduction by reducing its accrued income tax liability with an offset to the deferred tax asset and any excess of the tax benefit over the deferred tax asset as an increase to additional paid-in capital.

The Company currently has a sufficient pool of excess tax benefits in additional paid-in capital to absorb any deficiency in tax benefits that fall short of the related deferred tax asset related to stock-based awards.

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.

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.

Recently issued accounting pronouncements: In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This guidance supersedes current guidance on revenue recognition in Topic 605, “Revenue Recognition.” In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition.

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

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. |

The Company has substantially completed its initial analysis identifying the areas that will be impacted by the new guidance and is currently analyzing the impact to its consolidated financial statements.

Shares purchased will be retired.

There were no performance stock options granted in fiscal 2016.

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

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

| Outstanding as of May 31, 2015 | | 4.7 | | $ | 35.21 | | | | | |

| Granted | | 0.8 | | $ | 47.42 | | | | | |

| Expired | | — | | $ | 35.89 | | | | | |

| Exercisable as of May 31, 2016 | | 2.6 | | $ | 33.84 | | 4.9 | | $ | 53.1 |

However, the terms of the award allowed for accelerated vesting of up to 50% of the award at target depending on achievement against pre-established targets for fiscal 2014.

Based on achievement against pre-established targets for fiscal 2016, a total of 63.0% of the award was earned.

In July 2014, 23.5% of the awards accelerated and vested based on achievement against performance targets for fiscal 2014.

The remaining 39.5% of the awards will vest in July 2016.

| Outstanding as of May 31, 2015 | | 2.7 | | $ | 31.31 | | | | | |

| Granted | | — | | $ | — | | | | | |

| Exercised | | (0.1) | | $ | 31.11 | | | | | |

| Forfeited | | (0.1) | | $ | 29.85 | | | | | |

| Exercisable as of May 31, 2016 | | 0.4 | | $ | 31.22 | | 5.2 | | $ | 9.6 |

For fiscal 2016, the total intrinsic value of the performance stock options exercised was $1.0 million.

| Vested | | (0.5) | | $ | 31.34 | | | | | |

| Granted | | — | | $ | 47.46 |

| Nonvested as of May 31, 2015 | | 0.6 | | $ | 34.24 |

| Forfeited | | — | | $ | 37.09 |

Non-compensatory employee benefit plan: Prior to January 1, 2016, the Company offered a non-qualified

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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this report, is recorded, processed, [removed: summarized] [added: 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: 2016,] [added: 2017,] the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting: The Company also carried out an evaluation of the internal control over financial reporting to determine whether any changes occurred during the [added: fiscal] quarter ended May 31, [removed: 2016.][added: 2017.]

Based on such evaluation, there have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter ended May 31, [removed: 2016,] [added: 2017,] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The following table shows the executive officers of the Company as of May 31, [removed: 2016,] [added: 2017,] and information regarding their positions and business experience.

| Martin Mucci | | [removed: 56] [added: 57] | | 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 [removed: Telephone] [added: Communications] of Rochester, a telecommunications company, [added: including President of Telephone Operations and Chief Executive Officer of Frontier Telephone of Rochester,] 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: 59] [added: 60] | | 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 [removed: since 2009.] [added: from 2009 to 2011.] He previously served for over twenty years with Bausch & Lomb Incorporated, a world leader in the development, manufacture, and marketing of eye health products, most recently as Corporate Vice President and Chief Financial Officer from 2007 to 2009. |

| Mark A. Bottini | | [removed: 55] [added: 56] | | 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: 50] [added: 51] | | Mr. Gibson joined Paychex in May 2013 as Senior Vice President of Service. Prior to joining the Company, Mr. Gibson served as President and Chief Executive Officer for AlphaStaff, a national provider of human resource outsourcing services to small\- and medium-sized businesses. Prior to joining AlphaStaff in 2010, Mr. Gibson was President of the HR Management Division of Convergys, a global leader in technology, outsourcing, and business services. From 2004 to 2007, he served as Senior Vice President of Global Operations and Client Services of Convergys. |

| Michael E. Gioja | | [removed: 58] [added: 59] | | 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: 46] [added: 47] | | 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: 53] [added: 54] | | 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: 51] [added: 52] | | 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: 2016] [added: 2017] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 12, 2016,] [added: 11, 2017,] in the sections “PROPOSAL [removed: 1 —] [added: 1:] ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,” “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” “CORPORATE GOVERNANCE,” and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2016] [added: 2017] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 12, 2016,] [added: 11, 2017,] in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” and “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED MAY 31, [removed: 2016,”] [added: 2017,”] and is incorporated herein by reference.

The information required by this item is set forth [added: below and] in the Company’s Definitive Proxy Statement for its [removed: 2016] [added: 2017] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 12, 2016,] [added: 11, 2017,] under the [removed: sections] [added: section] “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and is incorporated herein by reference.

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

Under the Paychex, Inc. 2002 Stock Incentive Plan, as amended and restated effective October 14, 2015 (the “2002 Plan”), non-qualified or incentive stock options, restricted stock, restricted stock units, performance shares, and performance stock options have been awarded to employees and the Board.

The 2002 Plan was adopted on July 9, 2015 by the Board and became effective upon stockholder approval at the Company’s Annual Meeting of Stockholders held on October 14, 2015.

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

The following table details information on securities authorized for issuance under the Company’s stock incentive plans as of May 31, 2017:

| | | | | | | | | | |

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

| | | | | | | | | | |

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

| Equity compensation plans approved by security holders (1) | | | 6.6 | | $ | 44.03 | | | 20.6 |

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

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

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2016] [added: 2017] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 12, 2016,] [added: 11, 2017,] under the sub-headings “Board Meetings and Committees” and “Policy on Transactions with Related Persons” within the section “CORPORATE GOVERNANCE,” and is incorporated herein by reference.

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2016] [added: 2017] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 12, 2016,] [added: 11, 2017,] under the section “PROPOSAL [removed: 3 —] [added: 4:] RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by reference.

| 1. | | Financial Statements See Financial Statements and Supplementary Data Table of Contents at page [removed: 29.] [added: 31.] | | |

| | | Financial statement schedules required to be filed by Item 8 of this Form 10-K include Schedule II — Valuation and Qualifying Accounts. See Financial Statements and Supplementary Data Table of Contents at page [removed: 29.] [added: 31.] All other schedules are omitted as the required matter is not present, the amounts are not significant, or the information is shown in the financial statements or the notes thereto. | | |

| # | | (10.1) | | Paychex, Inc. [added: 2015] Qualified Employee Stock Purchase Plan, incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-8, No. 333-207594. |

| # | | (10.2) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015), incorporated herein by reference from Exhibit [removed: 4.1] [added: 4.3] to the Company’s Registration Statement on Form S-8, No. 333-207592. |

| # | | (10.3) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) [removed: Award Agreement for] [added: Form of] Non-Qualified Stock [removed: Options,] [added: Option Award Agreement,] incorporated herein by reference from Exhibit [removed: 10.3] [added: 10.2] to the Company’s Form 8-K filed with the Commission on [removed: October 17, 2005.] [added: 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 Non-Qualified Stock Option Award [removed: Agreement,] [added: Agreement for Directors,] incorporated herein by reference from Exhibit [removed: 10.2] [added: 10(q)] to the Company’s Form [removed: 8-K] [added: 10-K] filed with the Commission on July [removed: 16,] [added: 18,] 2008. |

| # | | [removed: (10.5)] [added: (10.4)] | | 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: (10.6)] [added: (10.7)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option [added: Award] Agreement [removed: for Directors,] [added: (Officer),] incorporated herein by reference from Exhibit [removed: 10(q)] [added: 10.19] to the Company’s Form 10-K filed with the Commission on July [removed: 18, 2008.] [added: 16, 2010.] |

| # | | [removed: (10.7)] [added: (10.9)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 12, 2005) 2009] [added: 13, 2010) Form of] Non-Qualified Stock Option Award Agreement [removed: (Special Grant),] [added: (Board),] incorporated herein by reference from Exhibit [removed: 10.17] [added: 10.20] to the Company’s Form 10-K filed with the Commission on July [removed: 20, 2009.] [added: 15, 2011.] |

| # | | [removed: (10.8)] [added: (10.6)] | | 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: (10.9)] [added: (10.8)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of [removed: Non-Qualified Stock Option] [added: Officer Performance Incentive] Award Agreement [removed: (Officer),] [added: (Long Term),] incorporated herein by reference from Exhibit [removed: 10.19] [added: 10.20] to the Company’s Form 10-K filed with the Commission on July 16, 2010. |

| # | | (10.10) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 12, 2005)] [added: 13, 2010)] Form of [removed: Officer Performance Incentive] [added: Restricted Stock] Award Agreement [removed: (Long Term),] [added: (Board),] incorporated herein by reference from Exhibit [removed: 10.20] [added: 10.21] to the Company’s Form 10-K filed with the Commission on July [removed: 16, 2010.] [added: 15, 2011.] |

| # | | (10.11) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Non-Qualified Stock Option Award Agreement [removed: (Board),] [added: (Officer) Long Term Incentive Program (“LTIP”),] incorporated herein by reference from Exhibit [removed: 10.20] [added: 10.23] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | (10.12) | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October [removed: 13, 2010)] [added: 14, 2015)] Form of [added: Non-Qualified Stock Option and] Restricted Stock Award Agreement [removed: (Board),] [added: LTIP,] incorporated herein by reference from Exhibit [removed: 10.21] [added: 10.14] to the Company’s Form 10-K filed with the Commission on July [removed: 15, 2011.] [added: 22, 2016.] |

| # | | [removed: (10.13)] [added: (10.14)] | | Paychex, Inc. [removed: 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010)] Form of [removed: Non-Qualified Stock Option] [added: Performance] Award [removed: Agreement (Officer) Long Term] Incentive [removed: Program (“LTIP”),] [added: Program,] incorporated herein by reference from Exhibit [removed: 10.23] [added: 10.25] to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| * # | | [removed: (10.14)] [added: (10.18)] | | Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated [removed: effective] October 14, 2015) Form of Non-Qualified Stock Option [removed: and Restricted Stock] Award [removed: Agreement Long Term Incentive Program (“LTIP”).] [added: Agreement.] |

| # | | [removed: (10.15)] [added: (10.13)] | | Paychex, Inc. Change In Control Plan, incorporated herein by reference from Exhibit 10.24 to the Company’s Form 10-K filed with the Commission on July 15, 2011. |

| # | | (10.16) | | 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: #] | | [removed: (10.17)] [added: (10.15)] | | 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: (10.18)] [added: (10.17)] | | 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. |

| * # | | (10.19) | | Paychex Inc. 2002 Stock Incentive Plan (as amended and restated October 14, 2015) Form of Officer Performance Incentive Award Agreement (Long-Term). |

| # | | (10.19) | | 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. |

SIGNATURES

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 22, 2016.

PAYCHEX, INC.

By: /s/ Martin Mucci

Martin Mucci

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 22, 2016.

/s/ Martin Mucci

Martin Mucci, President and

Chief Executive Officer, and Director

(Principal Executive Officer)

/s/ Efrain Rivera

Efrain Rivera, Senior Vice President, Chief Financial Officer, and Treasurer

(Principal Financial Officer)

B.

Thomas Golisano*, Chairman of the Board

Joseph G.

Doody*, Director

David J. S. Flaschen*, Director

Phillip Horsley*, Director

Grant M.

Inman*, Director

Pamela A.

Joseph*, Director

Joseph M.

Tucci*, Director

Joseph Velli*, Director

*By: /s/ Martin Mucci

Martin Mucci, as Attorney-in-Fact

Not Applicable

SIGNATURES

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 21, 2017.

PAYCHEX, INC.

By: /s/ Martin Mucci

Martin Mucci

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 21, 2017.

/s/ Martin Mucci

Martin Mucci, President and

Chief Executive Officer, and Director

(Principal Executive Officer)

/s/ Efrain Rivera

Efrain Rivera, Senior Vice President, Chief Financial Officer, and Treasurer

(Principal Financial Officer)

B.

Thomas Golisano*, Chairman of the Board

Thomas F.

Bonadio*, Director

Joseph G.

Doody*, Director

David J.S. Flaschen*, Director

Phillip Horsley*, Director

Grant M.

Inman*, Director

Joseph M.

Tucci*, Director

Joseph Velli*, Director

Kara Wilson*, Director

*By: /s/ Martin Mucci

Martin Mucci, as Attorney-in-Fact