Paychex (PAYX) 10-K risk factor changes: FY2018 vs FY2017

Many of our services, particularly payroll tax administration services and employee benefit plan administration services, are designed according to government regulations that continually change, for example, the [added: ambiguity surrounding the] Department of Labor’s [removed: recently adopted] fiduciary rule for retirement plan service.

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

[removed: Cyber-attacks] [added: Cyberattacks] and security threats are a risk to our business and reputation.

Our intellectual property could be wrongfully acquired as a result of a [removed: cyber-attack] [added: cyberattack] or other wrongful conduct by employees or third parties.

Our business and reputation may be adversely impacted if we fail to comply with U.S. and foreign laws and regulations.

Our services are subject to various laws and regulations, including, but not limited to, the ACA and Anti-Money Laundering rules.

The growth of our international operations via acquisition also subjects us to additional risks, such as compliance with the Foreign Corrupt Practices Act and United Kingdom Bribery Act.

As of this fiscal year, the financial impact of our international operations to our overall business has been insignificant.

However, over time, our international operations may grow and increase their significance to our business.

Uncertainty regarding the potential future modifications of existing laws and regulations can also adversely affect our business.

There is uncertainty regarding the potential future evolution and modification of the ACA.

Failure to comply with 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.

We have policies and procedures to monitor our compliance with U.S. and foreign laws and regulations throughout the business and our acquisitions.

In addition, the European Union’s General Data Privacy Regulation became fully effective in May 2018.

Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are increasingly more complex and sophisticated and may be difficult to detect for long periods of time, we may be unable or fail to anticipate these techniques or implement adequate or timely preventative or responsive measures.

We may be required to invest significant additional resources to comply with evolving cybersecurity regulations and to modify and enhance our information security and controls, and to investigate and remediate any security vulnerabilities.

We are involved in litigation from time to time arising from the operation of our business and, as such, we could incur substantial judgments, fines, legal fees or other costs.

We are sometimes the subject of complaints or litigation from customers, employees or other third parties for various actions.

From time to time, we are involved in litigation involving claims related to, among other things, breach of contract, tortious conduct and employment and labor law matters.

The damages sought against us in some of these litigation proceedings could be substantial.

Although we maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a claim, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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.

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,” the “Company,” “we,” “our,” or “us”) for each of the three fiscal years ended May 31, [removed: 2017] [added: 2018] (“fiscal [removed: 2017”] [added: 2018”] or the “fiscal year”), May 31, [removed: 2016] [added: 2017] (“fiscal [removed: 2016”),] [added: 2017”),] and May 31, [removed: 2015] [added: 2016] (“fiscal [removed: 2015”),] [added: 2016”),] and our financial condition as of May 31, [removed: 2017.][added: 2018.]

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

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

Our financial results for fiscal [removed: 2017 reflected] [added: 2018 reflect] another year of [removed: solid] [added: steady] growth.

Payroll service revenue [removed: continued to experience steady growth of 3%] [added: increased 2%] for fiscal [removed: 2017] [added: 2018] as compared with fiscal [removed: 2016,] [added: 2017,] primarily driven by growth in revenue per check, which improved as a result of our price increases, net of discounts.

As of May 31, 2017, we served approximately 605,000 payroll [removed: clients, consistent with a year ago.][added: clients.]

Client retention was approximately 81% of our beginning client base for the fiscal year, [removed: down slightly from prior years’ near-record-high levels.][added: consistent with a year ago.]

Interest rates available on high-quality financial instruments [removed: remain low, but] are gradually [removed: beginning to increase.][added: increasing.]

Our combined funds held for clients and corporate investment portfolios earned an average rate of return of [removed: 1.2%] [added: 1.5%] for fiscal [removed: 2017,] [added: 2018,] compared to [removed: 1.1%] [added: 1.2%] for fiscal [removed: 2016] [added: 2017] and [removed: 1.0%] [added: 1.1%] for fiscal [removed: 2015.][added: 2016.]

The United States (“U.S.”) Federal Reserve raised the Federal Funds rate by a total of [removed: 50] [added: 75] basis points during fiscal [removed: 2017] [added: 2018] to a range of [removed: 0.75%] [added: 1.50%] to [removed: 1.0%] [added: 1.75%] as of May 31, [removed: 2017.][added: 2018.]

[removed: Subsequent to the end of fiscal 2017,] [added: In June 2018,] the Federal Funds rate was raised an additional 25 basis points to a range of [removed: 1.0%] [added: 1.75%] to [removed: 1.25%.][added: 2.0%.]

The Federal Funds rate was in the range of [removed: 0.25%] [added: 0.75%] to [removed: 0.50%] [added: 1.0%] as of May 31, [removed: 2016.][added: 2017.]

Highlights of our financial results for fiscal [removed: 2017,] [added: 2018,] compared to fiscal [removed: 2016,] [added: 2017,] are as follows:

| | · | | Total revenue increased 7% to [removed: $3.2] [added: $3.4] billion. |

| | [removed: ·] [added: o] | | [removed: Total] [added: Payroll] service revenue increased [removed: 7%] [added: 2%] to [removed: $3.1] [added: $1.8] billion. |

| | o | | HRS revenue increased [removed: 12%] [added: 14%] to [removed: $1.3] [added: $1.5] billion. |

| | [removed: ·] [added: o] | | Interest on funds held for clients increased [removed: 10%] [added: 26%] to [removed: $50.6] [added: $63.5] million. |

| | · | | Operating income increased [removed: 8%] [added: 4%] to [removed: $1.2] [added: $1.3] billion. [added: Adjusted operating income(1) increased 6% to $1.3 billion.] |

[removed: | | · | |] Net income and diluted earnings per [removed: share each] [added: share: Net income] increased [added: 14% to $933.7 million for fiscal 2018 and] 8% to $817.3 million [removed: and $2.25 per share, respectively. |][added: for fiscal 2017.]

| | · | | [removed: Adjusted net income(1)] [added: Diluted earnings per share] increased [removed: 9%] [added: 15%] to [removed: $799.0 million and adjusted] [added: $2.58 per share. Adjusted] diluted earnings per share(1) increased [removed: 8%] [added: 16%] to [removed: $2.20] [added: $2.55] per share. |

| | · | | Dividends of [removed: $662.3] [added: $739.7] million were paid to stockholders, representing [removed: 81%] [added: 79%] of net income. |

| | (1) | | Adjusted [added: operating income, adjusted] net income and adjusted diluted earnings per share are not U.S. [removed: Generally Accepted Accounting Principle] [added: generally accepted accounting principles] (“GAAP”) measures. Please refer to the “Non-GAAP Financial Measures” section [removed: on page 21] [added: of this Item 7] for a discussion of these non-GAAP [removed: measures.] [added: measures and a reconciliation to the most comparable GAAP measures of operating income, net income, and diluted earnings per share.] |

Our payroll client [removed: base totaled approximately 605,000] [added: base, including Lessor, exceeded 650,000] clients as of [removed: both] May 31, [removed: 2017 and May 31, 2016,] [added: 2018,] and [added: was] approximately [removed: 590,000] [added: 605,000] clients as of May 31, [removed: 2015.][added: 2017 and May 31, 2016.]

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

| | | May 31, [removed: 2017] [added: 2018] | | [removed: 2017] [added: 2018] | | | [removed: 2016] [added: 2017] | | | [removed: 2015] [added: 2016] | |

| Paychex HR Services client worksite [removed: employees] [added: employees(1)] | | [removed: 1,021,000] | [added: 1,157,000] | [removed: 8] | [added: 13 |] % | | [removed: 10] | [removed: %] [added: 1,021,000] | | [removed: 12] [added: 8] | % | [added: | | 944,000 |]

| Paychex HR Services [removed: clients] [added: clients(1)] | | [removed: 37,000] [added: 41,000] | | [removed: 7] [added: 12] | % | | [removed: 10] [added: 7] | % | | [removed: 11] [added: 10] | % |

| Health and benefits services applicants | | [removed: 162,000] | [added: 177,000] | [removed: 8] | [added: 9 |] % | | [removed: 6] | [removed: %] [added: 162,000] | | [removed: 6] [added: 8] | % | [added: | | 150,000 |]

| Retirement services plans | | [removed: 78,000] [added: 82,000] | | [removed: 5] [added: 6] | % | | [removed: 7] [added: 5] | % | | [removed: 6] [added: 7] | % |

The Paychex Insurance Agency, Inc. website, [removed: www.paychexinsurance.com,] [added: www.paychex.com/group-health-insurance,] helps small-business owners navigate the area of insurance coverage.

Both this website and [removed: www.paychex.com] [added: www.paychex.com/worx] have sections dedicated to the topic of health care reform.

Our financial position as of May 31, [removed: 2017] [added: 2018] remained strong with cash and total corporate investments of [removed: $777.4] [added: $719.7] million and no debt.

During fiscal [removed: 2017,] [added: 2018,] our primary short-term investment vehicles were Variable Rate Demand Notes (“VRDNs”) and bank demand deposit accounts.

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

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

We believe that our investments as of May 31, [removed: 2017] [added: 2018] 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.

Our primary source of cash is [added: generated by] our ongoing operations.

Cash flows from operations were [removed: $960.4 million] [added: $1.3 billion] for fiscal [removed: 2017.][added: 2018.]

Our positive operating cash flows for fiscal [removed: 2017] [added: 2018] allowed us to support our business [removed: growth] and to pay substantial dividends to our stockholders.

Dividends paid to stockholders were [removed: 81%] [added: 79%] of net income for fiscal [removed: 2017.][added: 2018.]

HRS revenue continued to experience strong growth of 14% for fiscal 2018 as compared with fiscal 2017.

HRS revenue growth was primarily driven by increases in client bases across the following HCM services: comprehensive HR outsourcing services, including HR Outsourcing Holdings, Inc. (“HROI”) acquired in fiscal 2018; retirement services; time and attendance; and insurance services.

As of May 31, 2018, including the Lessor Group (“Lessor”) acquisition, we served over 650,000 payroll clients.

| | · | | Net income increased 14% to $933.7 million. Adjusted net income(1) increased 15% to $920.0 million. |

Excluding Lessor, our payroll client base was relatively flat for fiscal 2018 as compared to fiscal 2017.

(1) The total number of worksite employees and clients for fiscal 2018 include HROI.

In fiscal 2018, we expanded our commitment to delivering superior technology and service solutions to our Paychex clients.

New offerings introduced in fiscal 2018 included:

| | · | | Accountant HQ, a Paychex Flex platform-based offering, which provides access to authorized client payroll and HR data and key account contacts to assist a client’s accountant in driving greater efficiency; |

| | · | | InVisionTM Iris Time Clock, a biometric clock that scans the iris, providing fast and accurate time capture; |

| | · | | Netspend’s Tip NetworkTM, which streamlines the process for paying tipped employees; |

| | · | | Do-It-Yourself online employee handbook; and |

| | · | | Onboarding Essentials, which enables clients to onboard new hires quickly and in a completely paperless fashion. |

Concentrated effort remains on the continued enhancements of Paychex Flex, our robust cloud-based HCM platform, which allows direct client access to payroll, HR, and benefits information in a streamlined and integrated approach to workplace management.

In April 2018 and July 2017, our Board of Directors (the “Board”) increased our quarterly dividend by 12% to $0.56 per share from $0.50 per share, and 9% to $0.50 per share from $0.46 per share, respectively.

The impact of the acquisition of Lessor on payroll service revenue growth for fiscal 2018 was insignificant.

As of May 31, 2018, including the Lessor acquisition, we served over 650,000 payroll clients.

Client retention was approximately 81% of the beginning client base for fiscal 2018, consistent with fiscal 2017.

(1) The total number of worksite employees and clients for fiscal 2018 include HROI.

Average investment balances for funds held for clients decreased approximately 1% for fiscal 2018, primarily due to the impact of the Tax Cut and Jobs Act of 2017 (the “Tax Act”) on employee withholdings and changes in client mix, which offset the impact of wage inflation.

For fiscal 2018, compensation-related expenses increased due to higher headcount reflecting accelerated investment in technology, sales teams, and the impact of the acquisitions of Lessor and HROI.

In addition, compensation-related expenses in fiscal 2018 included a one-time bonus paid to non-management employees.

For fiscal 2018, other expenses also reflect a one-time expense of $32.6 million related to the termination of certain license agreements.

In addition, the combined acquisitions of HROI and Lessor contributed approximately 5% to the total expense growth for fiscal 2018 compared to fiscal 2017.

Adjusted operating income increased 6% to $1.3 billion for fiscal 2018 and 8% to $1.2 billion for fiscal 2017.

See the “Non-GAAP Financial Measures” section of this Item 7 for further discussion of this non-GAAP measure.

Investment income, net, increased 66% for fiscal 2018 primarily due to higher average interest rates earned.

The increase in average investment balances for fiscal 2018 was the result of higher net income partially offset by share repurchases, business acquisitions, and an increase in the rate for quarterly dividend payments.

As a result of the Tax Act, we recorded a non-recurring net tax benefit of $25.5 million for fiscal 2018 for the revaluation of our net deferred tax liabilities.

This amount impacted diluted earnings per share by approximately $0.07 per share for fiscal 2018.

In addition, as it relates to the Tax Act, our effective income tax rate for fiscal 2018 benefited from a reduced statutory tax rate applied to our current year taxable income.

During fiscal 2018, we recognized a tax benefit as a result of the termination of certain license agreements, which increased diluted earnings per share by approximately $0.02 per diluted share.

| Operating income | | $ | 1,287.5 | | 4 | % | | $ | 1,239.6 | | 8 | % | | $ | 1,146.6 |

| Termination of license agreements(1) | | | 32.6 | | | | | | — | | | | | | — |

| Total non-GAAP adjustments | | | 32.6 | | | | | | — | | | | | | — |

| Adjusted operating income | | $ | 1,320.1 | | 6 | % | | $ | 1,239.6 | | 8 | % | | $ | 1,146.6 |

| Revaluation of net deferred tax liabilities(4) | | | (25.5) | | | | | | — | | | | | | — |

| Termination of license agreements(1) | | | 24.7 | | | | | | — | | | | | | — |

| Non-GAAP adjustments: | | | | | | | | | | | | | | | |

| Revaluation of net deferred tax liabilities(4) | | | (0.07) | | | | | | — | | | | | | — |

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”).

| | o | | Payroll service revenue increased 3% to $1.8 billion. |

Our payroll client base growth was relatively flat for fiscal 2017 and increased approximately 2% for each of the fiscal years 2016 and 2015.

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

Enhancements to our Paychex Flex platform made in fiscal 2017 included:

| | · | | 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.

Our full-service Paychex Employer Shared Responsibility (“ESR”) services continued to show growth in fiscal 2017.

The ACA sets forth specific coverage and reporting requirements that employers must meet.

Paychex ESR services help clients navigate the complexities of those requirements, avoid steep fines and penalties, and reduce ACA-related administrative work.

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.

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

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

In July 2017, we subsequently announced an additional $0.04 per share, or 9%, increase in our quarterly dividend.

Outlook

Our outlook for the fiscal year ending May 31, 2018 (“fiscal 2018”) is based upon current market, economic, and interest rate conditions continuing with no significant changes.

Our guidance for fiscal 2018 is as follows:

| | · | | Payroll service revenue is anticipated to increase in the range of 1% to 2%; |

| | · | | HRS Revenue is anticipated to increase in the range of 8% to 10%; |

| | · | | Interest on funds held for clients is expected to reflect growth in the mid- to upper-teens; |

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

| | · | | Operating income, as a percent of total revenue, is expected to approximate 40%; |

| | · | | 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. |

The average rate of return on our combined funds held for clients and corporate investment portfolios is expected to be approximately 1.4% for fiscal 2018, reflecting increases to the Federal Funds rate through the most recent change in June 2017.

As of May 31, 2017, the long-term investment portfolio had an average yield-to-maturity of 1.7% and an average duration of 3.2 years.

Purchases of property and equipment for fiscal 2018 are expected to be in the range of $180.0 million to $190.0 million.

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

In addition, this includes costs for internally developed software as we continue to invest in our service supporting technology.

Fiscal 2018 depreciation expense is projected to be in the range of $110.0 million to $120.0 million, and we project amortization of intangible assets for fiscal 2018 to be in the range of $15.0 million to $20.0 million.

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.

Revenue per check improved as a result of price increases, net of discounts.

In addition, fiscal 2016 benefited from growth in our client base and two additional processing days during the year.

During fiscal [removed: 2017,] [added: 2018,] our primary short-term investment vehicles were VRDNs and bank demand deposit accounts.

During fiscal [removed: 2017,] [added: 2018,] the average interest rate earned on our combined funds held for clients and corporate investment portfolios was [removed: 1.2%,] [added: 1.5%,] compared to [removed: 1.1%] [added: 1.2%] and [removed: 1.0%] [added: 1.1%] for fiscal years [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] respectively.

Earnings from the available-for-sale securities, which as of May 31, [removed: 2017] [added: 2018] had an average duration of [removed: 3.2] [added: 3.1] years, would not reflect increases in interest rates until the investments are sold or mature and the proceeds are reinvested at higher rates.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of May 31, [removed: 2017] [added: 2018] are shown below by contractual maturity.

| Due in one year or less | | $ | [removed: 308.8] [added: 356.0] | | $ | [removed: 309.3] [added: 355.7] |

| Due after one year through three years | | | [removed: 762.1] [added: 807.4] | | | [removed: 768.2] [added: 803.6] |

| Due after three years through five years | | | [removed: 1,067.0] [added: 926.5] | | | [removed: 1,086.2] [added: 915.3] |

| Due after five years | | | [removed: 2,443.3] [added: 1,053.2] | | | [removed: 2,449.5] [added: 1,030.2] |

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

As of May 31, [removed: 2017,] [added: 2018,] the Federal Funds rate was in the range of [removed: in the range of 0.75%] [added: 1.50%] to [removed: 1.0%] [added: 1.75%] as compared to in the range of [removed: 0.25%] [added: 0.75%] to [removed: 0.50%] [added: 1.00%] as of May 31, [removed: 2016,] [added: 2017,] and in the range of [removed: zero to] 0.25% [added: to 0.50%] as of May 31, [removed: 2015.][added: 2016.]

On June [removed: 15, 2017,] [added: 13, 2018,] the Federal Funds rate was raised [removed: a fourth time] [added: an additional 25 basis points] to a range of [removed: 1.0%] [added: 1.75%] to [removed: 1.25%.][added: 2.0%.]

Our total investment portfolio (funds held for clients and corporate investments) averaged approximately $5.0 billion for fiscal [removed: 2017.][added: 2018.]

The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized [removed: gain] [added: loss] of [removed: $32.0] [added: $38.3] million as of May 31, [removed: 2017,] [added: 2018,] compared with a net unrealized gain of [removed: $47.6] [added: $32.0] million as of May 31, [removed: 2016.][added: 2017.]

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

During fiscal [removed: 2016,] [added: 2018,] the net unrealized gain [added: or loss] on our investment portfolios ranged from an unrealized gain of [removed: $3.7] [added: $41.4] million to [removed: $72.2] [added: an unrealized loss of $54.5] million.

The net unrealized [removed: gain] [added: loss] on our investment portfolios was approximately [removed: $27.2] [added: $33.0 million] as of July [removed: 19, 2017.][added: 18, 2018.]

As of May 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] we had [removed: $4.6] [added: $3.1] billion and [removed: $4.1] [added: $4.6] billion, respectively, invested in available-for-sale securities at fair value.

The weighted-average yield-to-maturity was [added: 1.9% and] 1.7% [removed: both] as of May 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] 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: 2017,] [added: 2018,] 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: 2017] [added: 2018] were not other-than-temporarily impaired.

While [removed: $607.4 million] [added: $2.2 billion] 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: $5.8] [added: $40.7] 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: 2017] [added: 2018] and [removed: 2016] [added: 2017] held an AA rating or better.

| | | May 31, 2018 | | | | |

| Total | | $ | 3,143.1 | | $ | 3,104.8 |

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

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

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

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

We [removed: were recently] [added: are] certified under the Small Business Efficiency Act [removed: (“SBEA”) related] to [removed: our] [added: provide] PEO [removed: offering.][added: services.]

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

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

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

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

In addition, [removed: large] [added: mid-market] clients can utilize a relationship manager for more personalized service.

This flexible platform services our [removed: small-business clients, mid-market] [added: small- to medium-sized] clients, and our PEO business.

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

We simplify their payroll with a combination of our dynamic products and customer service [added: options] for a quick and easy [removed: pay day.][added: payday.]

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

Our mid-market clients [removed: are typically defined as more than 50 employees with] [added: have] more complex payroll and employee benefit needs.

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

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

[removed: Mid-market] [added: Our] clients [removed: also] have the option to select the HCM modules they need with the ability to easily add services as they grow.

This flexibility allows our clients to define the solution that best meets their [removed: particular] needs.

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

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

| | · | | Paychex HR Services: We offer comprehensive 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, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained 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 [removed: equal to] that [removed: of] [added: is competitive with those offered by] larger companies. [removed: Our PEO differs from the ASO in that we serve as] [added: Clients are also assigned] a [removed: co-employer of the clients’ employees, offer health care coverage] [added: dedicated HR professional called a human resources generalist, or HRG. Available] to [removed: PEO client employees, and assume] [added: meet onsite,] the [removed: risks] [added: HRG helps clients navigate obligations related to federal] and [removed: rewards of workers’ compensation insurance] [added: state regulations,] and [removed: certain health insurance offerings. PEO services are sold through our registered] [added: supports employers with workforce functions such as hiring, training,] and [removed: licensed subsidiary, Paychex Business Solutions, LLC, subsidiaries of which are certified to provide PEO services under the SBEA.] [added: workplace safety.] We [removed: also offer Paychex HR Essentials, which is an ASO product that provides support to our clients over] [added: believe HRGs differentiate us in] the [removed: phone or online to help manage employee-related topics. As of May 31, 2017, Paychex HR Services was utilized by approximately 37,000 clients with approximately 1,021,000 client worksite employees.] [added: marketplace.] |

| | · | | 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: 2017,] [added: 2018,] retirement services covered approximately [removed: 78,000] [added: 82,000] plans and the asset value of participants' funds externally managed totaled approximately [removed: $27.4] [added: $30.6] billion. |

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

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

| | · | | HR administration services: We offer cloud-based HR administration software products for employee benefits management and administration, time and attendance solutions, [added: recruiting,] and [removed: recruiting.] [added: onboarding.] Paychex HR Online offers powerful tools for managing employee benefits, personnel information, and HR compliance and reporting. Our BeneTrac service manages the employee-benefit enrollment process. Our time and attendance products, including our integrated [removed: FlexTime®] [added: Flex Time] 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. [added: In fiscal 2018, we introduced the InVisionTM IRIS Time Clock, a biometric clock that scans the iris, providing fast and accurate time capture.] 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. |

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

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

It also serves as a cost-efficient tool that serves as a source of leads and new sales, while complementing the efforts of our direct [added: and virtual] sales [removed: force.][added: forces.]

In addition, [removed: our] [added: the] insurance services [added: section of our] website, which is [removed: available] [added: accessible] at [removed: www.paychexinsurance.com,] [added: www.paychex.com/group-health-insurance,] provides information to help small businesses navigate the insurance industry, and generates leads by allowing interested parties to get in contact with one of our professional insurance agents.

We track current regulatory issues that impact the [removed: small] business community and provide a monthly regulatory update.

Our internal database source indicates that there are approximately [removed: 12] [added: 11] 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.

[removed: We] [added: Within this space, we] serve a diverse base of small- to medium-sized clients operating in a broad range of industries located throughout the U.S. and [removed: in Germany.][added: Europe.]

For the fiscal year ended May 31, [removed: 2017] [added: 2018] (“fiscal [removed: 2017”),] [added: 2018”),] client retention was approximately 81% of our beginning [removed: of the year] client [removed: base, a slight decrease from] [added: base for] the [removed: prior] fiscal [removed: year’s near-record-high level.][added: year, consistent with a year ago.]

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

[removed: HRS] [added: Human Resource Services (“HRS”)] products also compete with a variety of providers of HR services, such as retirement services companies, insurance companies, and HR and benefits consulting firms.

As of May 31, [removed: 2017,] [added: 2018,] we employed approximately [removed: 13,700] [added: 14,300] people.

Such reports may be read and copied at the SEC’s Public Reference Room at 100 F [removed: Street] [added: Street,] NE, Washington, D.C. 20549.

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

Also, copies of our Annual Report to Stockholders and Proxy Statement, to be issued in connection with our [removed: 2017] [added: 2018] 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.

As of May 31, 2018, we served over 650,000 payroll clients.

| | · | | engaging in strategic acquisitions, when possible. |

Our Clients

The target market for our integrated HCM solutions is in the small- to mid-market space.

Clients can choose to have our service team handle everything for them, or can process payroll themselves utilizing our robust Paychex Flex® processing platform or SurePayroll® online applications.

Both products are cloud-based software-as-a-service (“SaaS”) solutions that allow users to do payroll when they want, how they want, and on any device (desktop, tablet, and mobile phone).

Our portfolio of HCM and employee benefit-related services are comprised of the following:

Our PEO differs from the ASO in that we serve as a co-employer of our clients’ employees, offer health care coverage to PEO 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, LLC and HR Outsourcing Holdings, Inc., which was acquired in August 2017.

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, 2018, Paychex HR Services was utilized by approximately 41,000 clients with approximately 1,157,000 client worksite employees.

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

| | · | | Accounting and Financial Services: We offer various accounting and financial services to small- to medium-sized businesses. Our wholly owned subsidiary, Paychex Advance, LLC, provides a portfolio of services to the temporary staffing industry, including payroll funding (via the purchase of accounts receivable) and outsourcing services, which include payroll processing, invoicing, and tax preparation. We recently launched Paychex Promise, a subscription-based service that offers protection against payroll interruptions and solutions to address routine challenges of running a successful business. The primary offering is payroll protection, which extends the collection of payroll funds from a client’s bank account by seven days without interruption of service or charges for insufficient funds. 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. |

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

Technology and Service Platform

Through the Paychex Flex online platform, AccountantHQ offers access to authorized client payroll and HR data and key account contacts, along with an extensive accountant resource library.

AccountantHQ drives efficiency by putting accountants in the best position possible to easily access critical client payroll and HR data and powerful reporting tools.

Our Paychex WORX website, available at www.paychex.com/worx, is a digital destination for insightful resources useful for businesses at every stage, from entrepreneur to enterprise.

Paychex WORX highlights the breadth of our product line, expertise, and ability to help businesses of all sizes with a wide range of HR and financial information for current clients and prospects alike.

We believe our ability to attract and retain qualified employees in all areas of our business is important to our future success and growth.

As of May 31, 2017, we serviced approximately 605,000 payroll clients.

| | · | | engaging in strategic acquisitions. |

Services and Products

We provide insurance offerings through the Paychex Insurance Agency, Inc. (“PIA”) that allow employers to expand their employee benefit offerings at an affordable cost.

We mainly earn our revenue through recurring fees for services performed.

Service revenue is primarily driven by the number of clients, checks or transactions per client per pay period, and utilization of ancillary services.

Small-Business Clients

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

Our core payroll clients can opt for our full-service customer service model through our branch operations or use Paychex Online Payroll®, our secure Internet portal.

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

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

Our SurePayroll SaaS solution offers “do-it-yourself,” self-service and mobile applications for small businesses.

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

Mid-Market Clients

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

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

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

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

Our services are categorized as follows:

PIA has a website, www.paychexinsurance.com, with information and interactive tools to help educate visitors on insurance and aid in making business insurance decisions.

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

Accounting and Financial Services: We offer various accounting and financial services to small- to medium-sized businesses.

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.

Within payroll, we differentiate the markets we serve between small-business and mid-market companies.

We sell HRS products to both new clients and our existing client base.

The BuildMyBiz® website, which is available at www.BuildMyBiz.com, provides convenient collections of information, tools, and services on challenges facing entrepreneurs.

The average client size within our existing client base is approximately 16.0 employees.

Revenue from operations in Germany and long-lived assets in Germany are not material.

No single client has a material impact on total service revenue or results of operations.

Historically, as a result of these factors, our total revenue has been slightly higher in our third fiscal quarter, with greater sales commission expenses also reported in that quarter.

For the fiscal year ended May 31, [removed: 2017][added: 2018]

As of November 30, [removed: 2016] [added: 2017,] 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: $18,874,963,639] [added: $21,553,152,555] based on the closing price reported for such date on the NASDAQ Global Select Market.

As of June 30, [removed: 2017, 359,395,731] [added: 2018, 358,999,129] 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 11, [removed: 2017,] [added: 2018,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

For the fiscal year ended May 31, [removed: 2017][added: 2018]

| [Item 1](#Business) | [Business](#Business) | [removed: 2] [added: 3] | | |

| [Item 1A](#RiskFactors) | [Risk Factors](#RiskFactors) | [removed: 7] [added: 8] | | |

| [Item 1B](#UnresolvedStaffComments) | [Unresolved Staff Comments](#UnresolvedStaffComments) | [removed: 10] [added: 11] | | |

| [Item 2](#Properties) | [Properties](#Properties) | [removed: 10] [added: 11] | | |

| [Item 3](#LegalProceedings) | [Legal Proceedings](#LegalProceedings) | [removed: 10] [added: 12] | | |

| [Item 4](#MineSafetyDisclosures) | [Mine Safety Disclosures](#MineSafetyDisclosures) | [removed: 11] [added: 12] | | |

| [Item 5](#MarketforCommonEquity) | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity](#MarketforCommonEquity) [Securities](#MarketforCommonEquity) | [removed: 11] [added: 12] | | |

| [Item 6](#SelectedFinancialData) | [Selected Financial Data](#SelectedFinancialData) | [removed: 13] [added: 14] | | |

| [Item 7](#MDA) | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#MDA) | [removed: 14] [added: 15] | | |

| [Item 7A](#MarketRisk) | [Quantitative and Qualitative Disclosures About Market Risk](#MarketRisk) | [removed: 29] [added: 30] | | |

| [Item 8](#FinancialStatementsAndSupplementaryData) | [Financial Statements and Supplementary Data](#FinancialStatementsAndSupplementaryData) | [removed: 31] [added: 32] | | |

| [Item 9](#ChangesAndDisagreements) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ChangesAndDisagreements) | [removed: 63] [added: 67] | | |

| [Item 9A](#ControlsAndProcedures) | [Controls and Procedures](#ControlsAndProcedures) | [removed: 63] [added: 67] | | |

| [Item 9B](#OtherInformation) | [Other Information](#OtherInformation) | [removed: 64] [added: 68] | | |

| [Item 10](#DirectorsExecutiveOfficers) | [Directors, Executive Officers and Corporate Governance](#DirectorsExecutiveOfficers) | [removed: 64] [added: 68] | | |

| [Item 11](#ExecutiveCompensation) | [Executive Compensation](#ExecutiveCompensation) | [removed: 65] [added: 69] | | |

| [Item 12](#SecurityOwnership) | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#SecurityOwnership) | [removed: 65] [added: 69] | | |

| [Item 13](#CertainRelationships) | [Certain Relationships and Related Transactions, and Director Independence](#CertainRelationships) | [removed: 66] [added: 70] | | |

| [Item 14](#PrincipalAccountingFees) | [Principal Accounting Fees and Services](#PrincipalAccountingFees) | [removed: 66] [added: 70] | | |

| [Item 15](#ExhibitsAndFinancialStatementSchedules) | [Exhibits and Financial Statement Schedules](#ExhibitsAndFinancialStatementSchedules) | [removed: 67] [added: 71] | | |

| [Item 16](#Item_16) | [Form 10-K Summary](#Item_16) | [removed: 68] [added: 73] | | |

| | [Signatures](#Signatures) | [removed: 69] [added: 73] | | |

| | · | | changes in the laws regulating collection and payment of payroll taxes, professional employer [removed: organizations,] [added: organizations (“PEOs”),] and employee benefits, including retirement plans, workers’ compensation, health insurance (including health care reform legislation), state unemployment, and section 125 plans; |

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

| | · | | the possibility of [removed: cyber-attacks,] [added: cyberattacks,] 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; |

| | · | | the possibility of a failure of internal controls or our inability to implement business [removed: processing] [added: process] improvements; |

| | · | | 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 violations, including possible liability related to our co-employment relationship with our [removed: professional employer organization (“PEO”); and] [added: PEO;] |

10-K 1 payx-20180531x10k.htm 10-K

| | · | | potential outcomes related to pending or future litigation and legislative matters; |

| | · | | the expected impacts of the Tax Cut and Jobs Act of 2017 (the “Tax Act”); and |

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

| | · | | risks related to the integration of the businesses we acquire. |

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

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

| | · | | potentially unfavorable outcomes related to pending or future legal matters. |

We owned and leased the following properties as of May 31, [removed: 2017:][added: 2018:]

| Rochester, New York | | [removed: 721,000] [added: 1,012,000] |

| Total owned facilities | | [removed: 786,000] [added: 1,096,000] |

| Rochester, New York | | [removed: 237,000] [added: 156,000] |

| Other U.S. locations | | [removed: 1,869,000] [added: 1,883,000] |

| International locations | | [removed: 28,000] [added: 19,000] |

| Total leased facilities | | [removed: 2,134,000] [added: 2,094,000] |

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

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

| International locations | | 55,000 |

[removed: Our common stock trades on the NASDAQ Global Select Market under the symbol “PAYX.”] Dividends have historically been paid on our common stock in August, November, February, and May.

As of June 30, [removed: 2017,] [added: 2018,] there were [removed: 11,828] [added: 11,262] 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: 5,100] [added: 4,661] participants in the Paychex, Inc. Employee Stock Purchase Plan and [removed: 4,675] [added: 4,386] participants in the Paychex, Inc. Employee Stock Ownership Plan.

The high and low [removed: sale] [added: sales] prices for our common stock as reported on the NASDAQ Global Select Market and dividends for fiscal [removed: 2017] [added: 2018] and the fiscal year ended May 31, [removed: 2016] [added: 2017] (“fiscal [removed: 2016”)] [added: 2017”)] are as follows:

| | | Fiscal [removed: 2017] [added: 2018] | | | | | | Fiscal [removed: 2016] [added: 2017] | | | | |

| First quarter | | [removed: $61.87] [added: $61.13] | | [removed: $53.57] [added: $54.24] | | [removed: $0.46] [added: $0.50] | | [removed: $49.79] [added: $61.87] | | [removed: $41.59] [added: $53.57] | | [removed: $0.42] [added: $0.46] |

| Second quarter | | [removed: $61.62] [added: $67.31] | | [removed: $52.78] [added: $56.71] | | [removed: $0.46] [added: $0.50] | | [removed: $54.54] [added: $61.62] | | [removed: $43.19] [added: $52.78] | | [removed: $0.42] [added: $0.46] |

| Third quarter | | [removed: $62.18] [added: $70.25] | | [removed: $57.07] [added: $61.86] | | [removed: $0.46] [added: $0.50] | | [removed: $54.78] [added: $62.18] | | [removed: $45.76] [added: $57.07] | | [removed: $0.42] [added: $0.46] |

| Fourth quarter | | [removed: $63.03] [added: $66.72] | | [removed: $56.57] [added: $59.84] | | [removed: $0.46] [added: $0.56] | | [removed: $54.58] [added: $63.03] | | [removed: $51.06] [added: $56.57] | | [removed: $0.42] [added: $0.46] |

The closing price of our common stock as of May 31, [removed: 2017,] [added: 2018,] as reported on the NASDAQ Global Select Market, was [removed: $59.23] [added: $65.58] per share.

[removed: During] [added: In addition, during] fiscal [removed: 2017] [added: 2017,] we maintained [removed: two authorized] [added: a second] common stock repurchase [removed: programs.][added: plan authorized by the Board in May 2014 which expired on May 31, 2017.]

[removed: The second] [added: During fiscal 2018, we maintained a common stock repurchase] program [removed: was] authorized by the Board in July 2016 [removed: and] [added: which] expires on May 31, 2019.

[removed: Each program allows] [added: Both programs allow] us to repurchase up to $350.0 million of our common stock.

Shares repurchased under these programs during fiscal [removed: 2017] [added: 2018] and fiscal [removed: 2016] [added: 2017] were as follows:

| | | Fiscal [removed: 2017] [added: 2018] | | | | | | Fiscal [removed: 2016] [added: 2017] | | | |

| Second quarter | | [removed: 2.9] [added: —] | | | [removed: 166.2] [added: —] | | | [removed: —] [added: 2.9] | | | [removed: —] [added: 166.2] |

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

| Fourth quarter | | [removed: —] [added: 0.9] | | | [removed: —] [added: 49.0] | | | — | | | — |

| Fiscal year | | [removed: 2.9] [added: 2.5] | | $ | [removed: 166.2] [added: 143.1] | | | [removed: 2.2] [added: 2.9] | | $ | [removed: 107.9] [added: 166.2] |

As of May 31, [removed: 2017,] [added: 2018,] the approximate dollar value of common stock shares available for repurchase under the program authorized in July 2016 is [removed: $243.5] [added: $100.5] million.

All amounts authorized under the program in May 2014 [removed: have been] [added: were] fully repurchased.

All shares of stock repurchased during fiscal [removed: 2017] [added: 2018] and fiscal [removed: 2016] [added: 2017] were retired.

The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, [removed: 2012,] [added: 2013,] in Paychex common stock, the S&P 500 Index, and a Peer Group Index.

][added: 1](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531x10kg001.jpg)]

| May 31, | | [removed: 2012 | |] 2013 | | 2014 | | 2015 | | 2016 | | 2017 | [added: | 2018 |]

Our [removed: new] Peer Group for fiscal [removed: 2017] [added: 2018] is comprised of the following companies:

Our common stock trades on the NASDAQ Global Select Market under the symbol “PAYX”.

| First quarter | | 1.6 | | $ | 94.1 | | | — | | $ | — |

| Paychex | | $100.00 | | $114.24 | | $141.94 | | $161.20 | | $181.73 | | $206.30 |

| S&P 500 | | $100.00 | | $120.45 | | $134.67 | | $136.98 | | $160.91 | | $184.05 |

| Peer Group | | $100.00 | | $126.92 | | $163.02 | | $167.30 | | $196.63 | | $253.88 |

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

| First quarter | | — | | $ | — | | | 1.3 | | $ | 62.9 |

| 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.

| Year ended May 31, | | [removed: 2017(1)] [added: 2018(1),(2),(3)] | | | | [removed: 2016(2)] [added: 2017(3)] | | | | [removed: 2015(3)] [added: 2016(4),(5)] | | | | [removed: 2014(3),(4)] [added: 2015(5)] | | | | [removed: 2013(3),(5)] [added: 2014(5)] | | |

| Service revenue | | $ | [removed: 3,100.7] [added: 3,317.4] | | | $ | [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] | |

| Interest on funds held for clients | | $ | [removed: 50.6] [added: 63.5] | | | $ | [removed: 46.1] [added: 50.6] | | | $ | [removed: 42.1] [added: 46.1] | | | $ | [removed: 40.7] [added: 42.1] | | | $ | [removed: 41.0] [added: 40.7] | |

| Total revenue | | $ | [removed: 3,151.3] [added: 3,380.9] | | | $ | [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] | |

| Operating income | | $ | [removed: 1,239.6] [added: 1,287.5] | | | $ | [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] | |

| Net income | | $ | [removed: 817.3] [added: 933.7] | | | $ | [removed: 756.8] [added: 817.3] | | | $ | [removed: 674.9] [added: 756.8] | | | $ | [removed: 627.5] [added: 674.9] | | | $ | [removed: 569.0] [added: 627.5] | |

| Basic earnings per share | | $ | [removed: 2.27] [added: 2.60] | | | $ | [removed: 2.10] [added: 2.27] | | | $ | [removed: 1.86] [added: 2.10] | | | $ | [removed: 1.72] [added: 1.86] | | | $ | [removed: 1.56] [added: 1.72] | |

| Diluted earnings per share | | $ | [removed: 2.25] [added: 2.58] | | | $ | [removed: 2.09] [added: 2.25] | | | $ | [removed: 1.85] [added: 2.09] | | | $ | [removed: 1.71] [added: 1.85] | | | $ | [removed: 1.56] [added: 1.71] | |

| Cash dividends per common share | | $ | [removed: 1.84] [added: 2.06] | | | $ | [removed: 1.68] [added: 1.84] | | | $ | [removed: 1.52] [added: 1.68] | | | $ | [removed: 1.40] [added: 1.52] | | | $ | [removed: 1.31] [added: 1.40] | |

| Purchases of property and equipment | | $ | [removed: 94.3] [added: 154.0] | | | $ | [removed: 97.7] [added: 94.3] | | | $ | [removed: 102.8] [added: 97.7] | | | $ | [removed: 84.1] [added: 102.8] | | | $ | [removed: 98.7] [added: 84.1] | |

| Cash and total corporate investments | | $ | [removed: 777.4] [added: 719.7] | | | $ | [removed: 793.2] [added: 777.4] | | | $ | [removed: 936.4] [added: 793.2] | | | $ | [removed: 936.8] [added: 936.4] | | | $ | [removed: 874.6] [added: 936.8] | |

| Total assets | | $ | [removed: 6,833.7] [added: 7,463.7] | | | $ | [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] | |

| Stockholders’ equity | | $ | [removed: 1,955.3] [added: 2,024.5] | | | $ | [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] | |

| Return on stockholders’ equity | | | [removed: 42] [added: 46] | % | | | [removed: 40] [added: 42] | % | | | [removed: 36] [added: 40] | % | | | [removed: 35] [added: 36] | % | | | [removed: 34] [added: 35] | % |

| | [removed: (1)] [added: (3)] | | 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 [added: $0.04 per diluted share and] $0.05 per [removed: share.] [added: diluted share for fiscal 2018 and fiscal 2017, respectively.] |

| | [removed: (2)] [added: (4)] | | In [added: the] fiscal [removed: 2016,] [added: year ended May 31, 2016 (“fiscal 2016”),] a net tax benefit was recorded for income derived in prior tax years from customer-facing software we produced. This increased [removed: full-year] diluted earnings per share by approximately $0.06 per share. |

| | [removed: (3)] [added: (5)] | | 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. |

| | (1) | | In fiscal 2018, the enactment of the Tax Act significantly impacted our net income, basic and diluted earnings per share, and return on stockholders’ equity. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for additional discussion of the impact of the Tax Act. |

| | (2) | | In fiscal 2018, an additional expense and corresponding tax benefit was recognized as a result of the termination of certain license agreements. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for additional discussion of the impact of the termination of certain license agreements. |

| | (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. |

| | (5) | | In 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. |

| [Report on Management’s Assessment of Internal Control Over Financial Reporting](#ReportManagementsAssessment) | [removed: 32] [added: 33] | |

| [Report of Independent Registered Public Accounting Firm](#Report) | [removed: 33] [added: 34] | |

| [Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, [added: 2018,] 2017, [removed: 2016,] and [removed: 2015](#IS)] [added: 2016](#IS)] | [removed: 34] [added: 36] | |

| [Consolidated Balance Sheets as of May 31, [removed: 2017] [added: 2018] and [removed: 2016](#BS)] [added: 2017](#BS)] | [removed: 35] [added: 37] | |

| [Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, [added: 2018,] 2017, [removed: 2016,] and [removed: 2015](#SE)] [added: 2016](#SE)] | [removed: 36] [added: 38] | |

| [Consolidated Statements of Cash Flows for the Years Ended May 31, [removed: 2017, 2016,] [added: 2018, 2017] and [removed: 2015](#CF)] [added: 2016](#CF)] | [removed: 37] [added: 39] | |

| [Notes to Consolidated Financial Statements](#Notes) | [removed: 38] [added: 40] | |

| [Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, [added: 2018,] 2017, [removed: 2016,] and [removed: 2015](#ScheduleII)] [added: 2016](#ScheduleII)] | [removed: 63] [added: 67] | |

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, [removed: 2017.][added: 2018.]

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, [removed: 2017.][added: 2018.]

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: 2017,] [added: 2018,] 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 [removed: accompanying] consolidated [removed: balance sheets and the related consolidated] [added: financial] statements [removed: of income and comprehensive income, of stockholders’ equity, and of cash flows] [added: referred to above] present fairly, in all material respects, the financial position of [removed: Paychex, Inc. and its subsidiaries at] [added: the Company as of] May 31, [removed: 2017] [added: 2018] and [removed: May 31, 2016,] [added: 2017,] and the results of their operations and their cash flows for each of the three years in the period ended May 31, [removed: 2017] [added: 2018] 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: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the [removed: Committee of Sponsoring Organizations of the Treadway Commission (COSO).][added: COSO.]

The Company's management is responsible for these [removed: financial statements and] [added: consolidated] financial [removed: statement schedule,] [added: statements,] for maintaining effective internal control over financial [removed: reporting] [added: reporting,] and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Management’s Assessment of Internal Control over Financial Reporting.

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

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

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

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

| Year ended May 31, | | [removed: 2017] | [added: 2018] | | [removed: 2016] | [added: 2017] | | [removed: 2015] | [added: 2016] |

| Service revenue | | $ | [removed: 3,100.7] [added: 3,317.4] | | $ | [removed: 2,905.8] [added: 3,100.7] | | $ | [removed: 2,697.5] [added: 2,905.8] |

| Interest on funds held for clients | | | [removed: 50.6] [added: 63.5] | | | [removed: 46.1] [added: 50.6] | | | [removed: 42.1] [added: 46.1] |

| Total revenue | | | [removed: 3,151.3] [added: 3,380.9] | | | [removed: 2,951.9] [added: 3,151.3] | | | [removed: 2,739.6] [added: 2,951.9] |

| Operating expenses | | | [removed: 919.6] [added: 1,017.8] | | | [removed: 857.1] [added: 919.6] | | | [removed: 808.0] [added: 857.1] |

| Selling, general and administrative expenses | | | [removed: 992.1] [added: 1,075.6] | | | [removed: 948.2] [added: 992.1] | | | [removed: 878.0] [added: 948.2] |

| Total expenses | | | [removed: 1,911.7] [added: 2,093.4] | | | [removed: 1,805.3] [added: 1,911.7] | | | [removed: 1,686.0] [added: 1,805.3] |

| Operating income | | | [removed: 1,239.6] [added: 1,287.5] | | | [removed: 1,146.6] [added: 1,239.6] | | | [removed: 1,053.6] [added: 1,146.6] |

| Investment income, net | | | [removed: 5.2] [added: 8.6] | | | [removed: 4.5] [added: 5.2] | | | [removed: 6.4] [added: 4.5] |

| Income before income taxes | | | [removed: 1,244.8] [added: 1,296.1] | | | [removed: 1,151.1] [added: 1,244.8] | | | [removed: 1,060.0] [added: 1,151.1] |

| Income taxes | | | [removed: 427.5] [added: 362.4] | | | [removed: 394.3] [added: 427.5] | | | [removed: 385.1] [added: 394.3] |

| Net income | | $ | [removed: 817.3] [added: 933.7] | | $ | [removed: 756.8] [added: 817.3] | | $ | [removed: 674.9] [added: 756.8] |

| Other comprehensive (loss)/income, net of [removed: tax:] [added: tax] | | | [added: (56.2)] | | | [added: (9.2)] | | | [added: 21.7] |

| Unrealized [removed: (losses)/gains] [added: losses] on securities, net of tax | | | [removed: (9.2)] | | | [removed: 21.7] | | | [removed: (14.0)] | [added: | | | | (47.6) | | | (47.6) |]

| Total other comprehensive (loss)/income, net of tax | | | [removed: (9.2)] [added: (56.2)] | | | [removed: 21.7] [added: (9.2)] | | | [removed: (14.0)] [added: 21.7] |

| Comprehensive income | | $ | [removed: 808.1] [added: 877.5] | | $ | [removed: 778.5] [added: 808.1] | | $ | [removed: 660.9] [added: 778.5] |

| Basic earnings per share | | $ | [removed: 2.27] [added: 2.60] | | $ | [removed: 2.10] [added: 2.27] | | $ | [removed: 1.86] [added: 2.10] |

| Diluted earnings per share | | $ | [removed: 2.25] [added: 2.58] | | $ | [removed: 2.09] [added: 2.25] | | $ | [removed: 1.85] [added: 2.09] |

| Weighted-average common shares outstanding | | | [removed: 359.8] [added: 359.0] | | | [removed: 360.7] [added: 359.8] | | | [removed: 362.9] [added: 360.7] |

| Weighted-average common shares outstanding, assuming dilution | | | [removed: 362.6] [added: 361.5] | | | [removed: 362.5] [added: 362.6] | | | [removed: 364.6] [added: 362.5] |

| Cash dividends per common share | | $ | [removed: 1.84] [added: 2.06] | | $ | [removed: 1.68] [added: 1.84] | | $ | [removed: 1.52] [added: 1.68] |

| As of May 31, | | [removed: 2017] [added: 2018] | | | [removed: 2016] [added: 2017] | |

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Paychex, Inc. and its subsidiaries as of May 31, 2018 and 2017, and the related consolidated statements of income and comprehensive income, of stockholders’ equity, and of cash flows for each of the three years in the period ended May 31, 2018, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of May 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Basis for Opinions

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Definition and Limitations of Internal Control over Financial Reporting

July 20, 2018

We have served as the Company’s auditor since 2013.

| Repurchases of common shares | | (2.5) | | | | | | (4.5) | | | (138.6) | | | | | | (143.1) |

| Acquisition of businesses | | 0.6 | | | | | | 33.2 | | | | | | | | | 33.2 |

| Foreign currency translation adjustment | | | | | | | | | | | | | | (8.6) | | | (8.6) |

| Balance as of May 31, 2018 | | 359.0 | | $ | 3.6 | | $ | 1,126.8 | | $ | 930.3 | | $ | (36.2) | | $ | 2,024.5 |

The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables.

Refer to Note H for further discussion of the Company’s accounts receivable activity and balances.

Impairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite lives, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

The Company has determined that there was no impairment of long-lived assets for the fiscal years 2018, 2017, or 2016.

Foreign Currency: The financial statements of the Company’s foreign subsidiaries have been translated into U.S. dollars.

Assets and liabilities are translated into U.S. dollars at period-end exchange rates.

Income and expenses are translated at the average exchange rate for the reporting period.

The resulting non-cash foreign currency translation adjustments, representing unrealized gains or losses, are included in consolidated stockholders’ equity as a component of accumulated other comprehensive (loss)/income.

The Company did not have any realized gains and losses resulting from foreign exchange transactions during the fiscal years 2018, 2017, or 2016.

HROI’s maximum individual claims liability was $0.5 million under its fiscal 2018 workers’ compensation insurance policy.

HROI’s maximum individual claims liability was $0.3 million under its minimum premium insurance plan policies ending June 30, 2018.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law.

Refer to Note K for further discussion on deferred taxes and the tax impacts of the Tax Act.

In January 2018, the Company early-adopted ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” ASU No. 2017-01 clarifies the definition of a business to allow for the evaluation of whether transactions should be accounted for as acquisitions or disposals of assets or businesses.

The adoption of ASU 2017-01 did not have a material impact on the Company’s consolidated financial statements.

The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” ASU No. 2018-02 allows entities to reclassify certain stranded income tax effects from accumulated other comprehensive income to retained earnings resulting from the Tax Act, enacted on December 22, 2017.

The guidance also requires additional financial statement disclosures to clarify the effects of adoption.

ASU No. 2018-02 should be applied either in the period of adoption or retrospectively to each period or periods in which the effect of the change in the U.S. federal corporate income tax rate from the Tax Act was recognized.

The Company is in the preliminary stages of gathering data and assessing the impact of the new lease accounting standard and the Company anticipates that the adoption of the new lease accounting standard will result in additional assets and liabilities being recorded on its Consolidated Balance Sheet.

As of the date of this report, the Company has finalized the analysis of the new standard and its impact to the Company.

As anticipated, the primary impact of adopting the new standard is on the way the Company treats certain costs to obtain contracts and costs to fulfill contracts.

As the Company’s revenue grows, the impact of deferring and amortizing additional costs creates higher overall pre-tax income, net earnings, and earnings per share, when compared to current U.S. GAAP.

In addition, in our opinion, the financial statement schedule listed in the accompanying index appearing under Item 8 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

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

| Balance as of May 31, 2014 | | 363.0 | | $ | 3.6 | | $ | 794.4 | | $ | 957.5 | | $ | 21.5 | | $ | 1,777.0 |

| Unrealized losses on securities, net of tax | | | | | | | | | | | | | | (14.0) | | | (14.0) |

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

During fiscal 2017, the Company disposed of equity-method investments for a joint-venture in Brazil and a minority investment in a Canadian entity, neither of which was significant.

The quarterly dividend will go from $0.46 per share to $0.50 per share and is payable on August 24, 2017 to shareholders of record on August 1, 2017.

The Company records a deferred tax asset related to the stock-based compensation costs recognized for certain stock-based awards.

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.

ASU No. 2016-09 simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.

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.” |

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.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805), Clarifying the Definition of a Business.” ASU No. 2017-01 provides a more defined framework to use in determining when a set of assets and activities is a business.

ASU No. 2017-01 also provides greater consistency in applying the guidance, making the definition of a business more operable.

The Company is currently evaluating this guidance to determine the potential impact on its consolidated financial statements.

The Company is currently evaluating this guidance to determine the potential impact on its consolidated financial statements.

ASU No. 2016-01 is effective for public business entities for annual and interim periods beginning after December 15, 2017, with early application permitted.

This guidance is applicable to the Company's fiscal year beginning June 1, 2018.

The Company’s ability to adopt using the full retrospective method is dependent on system readiness and the completion of our analysis of information necessary to restate prior period consolidated financial statements.

While the evaluation of the impact of the new revenue recognition standard on its consolidated financial statements has not yet been fully determined, the Company anticipates the provisions to primarily impact the manner in which it treats certain costs to obtain contracts and costs to fulfill contracts.

In May 2014, the Board had previously approved a program to repurchase up to $350.0 million of the Company’s common stock with authorization that expired in May 2017 (the “May 2014 Program”).

As of May 31, 2017, all amounts authorized under the May 2014 Program have been repurchased.

| Outstanding as of May 31, 2016 | | 4.5 | | $ | 37.42 | | | | | |

| Exercised | | (0.9) | | $ | 34.26 | | | | | |

| Expired | | — | | $ | 36.01 | | | | | |

Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that as of May 31, [removed: 2017,] [added: 2018,] 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 fiscal quarter ended May 31, [removed: 2017.][added: 2018.]

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: 2017,] [added: 2018,] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Internal Control Over Financial Reporting: The Report on Management’s Assessment of Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are [removed: incorporated herein by reference from] [added: included in] Part II, Item 8 of this Form 10-K.

The following table shows the executive officers of the Company as of May 31, [removed: 2017,] [added: 2018,] and information regarding their positions and business experience.

| Martin Mucci | | [removed: 57] [added: 58] | | 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 Communications of Rochester, a telecommunications company, 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: 60] [added: 61] | | 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 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: 56] [added: 57] | | 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: 51] [added: 52] | | Mr. Gibson joined Paychex in May 2013 as Senior Vice President of Service. Prior to joining the Company, Mr. Gibson served as President and Chief Executive Officer for AlphaStaff, a national provider of human resource outsourcing services to [removed: small\-] [added: small-] and medium-sized businesses. Prior to joining AlphaStaff in 2010, Mr. Gibson was President of the HR Management Division of Convergys, a global leader in technology, outsourcing, and business services. From 2004 to 2007, he served as Senior Vice President of Global Operations and Client Services of Convergys. |

| Michael E. Gioja | | [removed: 59] [added: 60] | | Mr. Gioja was named Senior Vice President of Information [removed: Technology, Product Management,] [added: Technology] and [added: Product] Development in July 2011. Mr. Gioja has been with the Company since November 2008 [added: and previously served] as [added: Senior] Vice President of [added: Information, Technology,] Product Management, [removed: subsequently adding development] and [removed: information technology to his responsibilities.] [added: Development and Vice President of Product Management.] 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: 47] [added: 48] | | 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: 54] [added: 55] | | 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: 52] [added: 53] | | 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: 2017] [added: 2018] Annual Meeting of Stockholders, anticipated to be held on or about October 11, [removed: 2017,] [added: 2018,] in the sections “PROPOSAL 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: 2017] [added: 2018] Annual Meeting of Stockholders, anticipated to be held on or about October 11, [removed: 2017,] [added: 2018,] in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” and “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED [removed: MAY] [added: May] 31, [removed: 2017,”] [added: 2018,”] and is incorporated herein by reference.

The information required by this item is set forth below and in the Company’s Definitive Proxy Statement for its [removed: 2017] [added: 2018] Annual Meeting of Stockholders, anticipated to be held on or about October 11, [removed: 2017,] [added: 2018,] under the section “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and is incorporated herein by reference.

The following table details information on securities authorized for issuance under the Company’s stock [added: option] incentive plans as of May 31, [removed: 2017:][added: 2018:]

| Equity compensation plans approved by security holders (1) | | | [removed: 6.6] [added: 6.5] | | $ | [removed: 44.03] [added: 46.10] | | | [removed: 20.6] [added: 19.4] |

| | | | | | | | | | |

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2017] [added: 2018] Annual Meeting of Stockholders, anticipated to be held on or about October 11, [removed: 2017,] [added: 2018,] 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: 2017] [added: 2018] Annual Meeting of Stockholders, anticipated to be held on or about October 11, [removed: 2017,] [added: 2018,] under the section “PROPOSAL [removed: 4:] [added: 3:] 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: 31.] [added: 32.] | | |

| | | 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: 31.] [added: 32.] 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. | | |

| | | (3)(a) | | [removed: Restated] [added: [Restated] Certificate of Incorporation, incorporated herein by reference from Exhibit 3(a) to the Company’s Form 10-K filed with the Commission on July 20, [removed: 2004.] [added: 2004](http://www.sec.gov/Archives/edgar/data/723531/000095015204005452/l08538aexv3wa.txt).] |

| | | (3)(b) | | [removed: Bylaws,] [added: [Bylaws,] as amended, incorporated herein by reference from Exhibit 3(b) to the Company’s Form 10-K filed with the Commission on July 21, [removed: 2006.] [added: 2006](http://www.sec.gov/Archives/edgar/data/723531/000095015206005992/l20831aexv3wb.txt).] |

| # | | (10.1) | | [removed: Paychex,] [added: [Paychex,] Inc. 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. [removed: 333-207594.] [added: 333-207594](http://www.sec.gov/Archives/edgar/data/723531/000072353115000021/exhibit43paychex2015employ.htm).] |

| # | | (10.2) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015), incorporated herein by reference from Exhibit 4.3 to the Company’s Registration Statement on Form S-8, No. [removed: 333-207592.] [added: 333-207592](http://www.sec.gov/Archives/edgar/data/723531/000072353115000019/exhibit43paychex2002stocki.htm).] |

| # | | (10.3) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Award Agreement, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on July 16, [removed: 2008.] [added: 2008](http://www.sec.gov/Archives/edgar/data/723531/000095015208005453/l32435aexv10w2.htm).] |

| # | | (10.4) | | [removed: Paychex,] [added: [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, [removed: 2008.] [added: 2008](http://www.sec.gov/Archives/edgar/data/723531/000095015208005502/l32343aexv10wn.htm).] |

| # | | (10.5) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Award Agreement for Directors, incorporated herein by reference from Exhibit 10(q) to the Company’s Form 10-K filed with the Commission on July 18, [removed: 2008.] [added: 2008](http://www.sec.gov/Archives/edgar/data/723531/000095015208005502/l32343aexv10wq.htm).] |

| # | | (10.6) | | [removed: Paychex,] [added: [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, [removed: 2010.] [added: 2010](http://www.sec.gov/Archives/edgar/data/723531/000095012310066009/l39983exv10w18.htm).] |

| # | | (10.7) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Non-Qualified Stock Option Award Agreement (Officer), incorporated herein by reference from Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on July 16, [removed: 2010.] [added: 2010](http://www.sec.gov/Archives/edgar/data/723531/000095012310066009/l39983exv10w19.htm).] |

| # | | (10.8) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Officer Performance Incentive Award Agreement (Long Term), incorporated herein by reference from Exhibit 10.20 to the Company’s Form 10-K filed with the Commission on July 16, [removed: 2010.] [added: 2010](http://www.sec.gov/Archives/edgar/data/723531/000095012310066009/l39983exv10w20.htm).] |

| # | | (10.9) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Non-Qualified Stock Option Award Agreement (Board), incorporated herein by reference from Exhibit 10.20 to the Company’s Form 10-K filed with the Commission on July 15, [removed: 2011.] [added: 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w20.htm).] |

| # | | (10.10) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Restricted Stock Award Agreement (Board), incorporated herein by reference from Exhibit 10.21 to the Company’s Form 10-K filed with the Commission on July 15, [removed: 2011.] [added: 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w21.htm).] |

| # | | (10.11) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 13, 2010) Form of Non-Qualified Stock Option Award Agreement (Officer) Long Term Incentive Program (“LTIP”), incorporated herein by reference from Exhibit 10.23 to the Company’s Form 10-K filed with the Commission on July 15, [removed: 2011.] [added: 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w23.htm).] |

| # | | (10.12) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015) Form of Non-Qualified Stock Option and Restricted Stock Award Agreement LTIP, incorporated herein by reference from Exhibit 10.14 to the Company’s Form 10-K filed with the Commission on July 22, [removed: 2016.] [added: 2016](http://www.sec.gov/Archives/edgar/data/723531/000072353116000046/payx-20160531xex10_14.htm).] |

| # | | (10.13) | | [removed: Paychex,] [added: [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, [removed: 2011.] [added: 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w24.htm).] |

| # | | (10.14) | | [removed: Paychex,] [added: [Paychex,] Inc. Form of Performance Award Incentive Program, incorporated herein by reference from Exhibit 10.25 to the Company’s Form 10-K filed with the Commission on July 15, [removed: 2011.] [added: 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w25.htm).] |

| | | (10.15) | | [removed: Form] [added: [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, [removed: 2012.] [added: 2012](http://www.sec.gov/Archives/edgar/data/723531/000119312512137499/d299747dex101.htm).] |

| # | | (10.16) | | [removed: Paychex,] [added: [Paychex,] Inc. Board Deferred Compensation Plan, incorporated herein by reference from Exhibit 10.29 to the Company’s Form 10-K filed with the Commission on July 20, [removed: 2009.] [added: 2009](http://www.sec.gov/Archives/edgar/data/723531/000095012309023519/l36954aexv10w29.htm).] |

| # | | (10.17) | | [removed: Paychex,] [added: [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, [removed: 2009.] [added: 2009](http://www.sec.gov/Archives/edgar/data/723531/000095012309023519/l36954aexv10w30.htm).] |

| [removed: *] # | | (10.18) | | [removed: Paychex,] [added: [Paychex,] Inc. 2002 Stock Incentive Plan (as amended and restated October 14, 2015) Form of Non-Qualified Stock Option Award [removed: Agreement.] [added: Agreement, incorporated herein by reference from Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on July 21, 2017](http://www.sec.gov/Archives/edgar/data/723531/000072353117000023/payx-20170531xex10_18.htm).] |

| [removed: *] # | | (10.19) | | [removed: Paychex] [added: [Paychex] Inc. 2002 Stock Incentive Plan (as amended and restated October 14, 2015) Form of Officer Performance Incentive Award Agreement [removed: (Long-Term).] [added: (Long-Term), incorporated herein by reference from Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on July 21, 2017](http://www.sec.gov/Archives/edgar/data/723531/000072353117000023/payx-20170531xex10_19.htm).] |

| * | | (23.1) | | [removed: Consent] [added: [Consent] of Independent Registered Public Accounting Firm, PricewaterhouseCoopers [removed: LLP.] [added: LLP](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex23_1.htm).] |

| * | | (31.1) | | [removed: Certification] [added: [Certification] Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex31_1.htm).] |

| * | | (31.2) | | [removed: Certification] [added: [Certification] Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002.] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex31_2.htm).] |

| * | | (32.1) | | [removed: Certification] [added: [Certification] Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex32_1.htm).] |

| * | | (32.2) | | [removed: Certification] [added: [Certification] Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002.] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex32_2.htm).] |

| # | | (10.20) | | [Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015) Performance-Based Restricted Stock Award Agreement, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on September 8, 2017](http://www.sec.gov/Archives/edgar/data/723531/000072353117000029/payx-20170908xex10_1.htm). |

| # | | (10.21) | | [Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 14, 2015) Amendment to Award Agreements, incorporated herein by reference from Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on September 8, 2017](http://www.sec.gov/Archives/edgar/data/723531/000072353117000029/payx-20170908xex10_2.htm). |

| * | | (21.1) | | [Subsidiaries of the Registrant](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex21_1.htm). |

| * | | (24.1) | | [Power of Attorney](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex24_1.htm). |

| * | | (21.1) | | Subsidiaries of the Registrant. |

| * | | (24.1) | | Power of Attorney. |

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July [removed: 21, 2017.][added: 20, 2018.]

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July [removed: 21, 2017.][added: 20, 2018.]

Pamela A.

Joseph*, Director