Paychex (PAYX) 10-K risk factor changes: FY2019 vs FY2018

In addition, you should refer to the [removed: description of] [added: cautionary note regarding] forward-looking statements at the beginning of Part I of this Form 10-K.

Our [removed: services] [added: business, services, and financial condition] may be adversely impacted by changes in government regulations and policies.

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

The growth of our international operations via acquisition also subjects us to additional risks, such as compliance with [removed: the Foreign Corrupt Practices Act] [added: foreign laws] and [removed: United Kingdom Bribery Act.][added: regulations.]

[removed: Uncertainty regarding the potential future] [added: The enactment of new laws and regulations,] modifications of existing laws and [added: regulations, or the adverse application or interpretation of new or existing laws or] regulations can [removed: also] adversely affect our business.

We rely upon information technology (“IT”) networks, cloud-based platforms, and systems to process, transmit, and store electronic information, and to support a variety of business [removed: processes.][added: processes, some of which are provided by third party vendors.]

Failure by these service providers, for any reason, to deliver their services in a timely manner [added: and in compliance with applicable laws and regulations] could result in material interruptions to our operations, impact client relations, and result in significant penalties or liabilities to us.

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

[removed: As a result, there] [added: There] is a 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.

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

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

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 [removed: fees] [added: fees,] or other costs.

We are sometimes the subject of complaints or litigation from customers, [removed: employees] [added: 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 [removed: conduct] [added: conduct,] and employment and labor law matters.

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 [removed: operations] [added: operations,] and cash flows.

In addition, as a U.S. company, we are required to comply with the economic sanctions and embargo programs administered by the Office of Foreign Assets Control and similar multi-national bodies and governmental agencies worldwide, and the Foreign Corrupt Practices Act (“FCPA”).

A violation of a sanction or embargo program or of the FCPA or similar laws prohibiting certain payments to governmental officials, could subject us, and individual employees, to a regulatory enforcement action as well as significant civil and criminal penalties which could adversely impact our business and operations.

If our systems become outdated, it may negatively impact our ability to meet performance expectations related to quality, time to market, cost and innovation relative to our competitors.

The failure to provide more efficient and user-friendly customer-facing digital experience across internet and mobile platforms as well as in physical locations may adversely impact our business and operating results.

The failure to continually develop enhancements and use of technologies such as robotics and other workflow automation tools, natural language processing, and artificial intelligence/machine learning may impact our ability to increase the efficiency of and reduce costs associated with operational risk management and compliance activities.

A cyberattack, unauthorized intrusion, malicious software infiltration, network disruption or outage, corruption of data, or theft of personal or other sensitive information, could have a material adverse effect on our business operations or that of our clients, result in liability or regulatory sanction, or cause harm to our business and reputation and result in a loss in confidence in our ability to serve clients all of which could have a material adverse effect on our business.

The rapid speed of disruptive innovations involving cyberattacks, security vulnerabilities and Internet disruptions enabled by new and emerging technologies may outpace our organization's ability to compete and/or manage the risk appropriately.

Hardware, applications and services, including cloud-based services, that we develop or procure from third party vendors may contain defects in design or other problems that could compromise the integrity and availability of our services.

Any delays or failures caused by network outages, software or hardware failures, or other data processing disruptions, could result in our inability to provide services in a timely fashion or at all.

Our acquisition of Oasis in December 2018 strengthened our presence in the PEO industry.

State and federal positions regarding co-employment relationships are in a constant state of flux and have changed with varying degrees of impact on our operations.

We cannot predict when changes will occur or forecast whether any particular future changes will be favorable or unfavorable to our operations.

Incurring additional liabilities related to our PEO business may adversely affect our results of operations.

In addition, our ability to grow through significant acquisitions may be limited.

See also “Item 7A.

We have made and may continue to make acquisitions that involve numerous risks and uncertainties.

Acquisitions subject us to risks, including increased debt, assumption of unforeseen liabilities, and difficulties in integrating operations.

Successful integration involves many challenges, including the difficulty of developing and marketing new products and services, our exposure to unforeseen liabilities of acquired companies, and the loss of key employees of an acquired business.

The integration and conversion of our acquired operations or other future acquisitions, if any, could result in increased operating costs if the anticipated synergies of operating these businesses as one are not achieved, a loss of strategic opportunities if management is distracted by the integration process, and a loss of customers if our service levels drop during or following the integration process.

In addition, an acquisition could adversely impact cash flows and/or operating results, and dilute stockholder interests, for many reasons, including charges to our income to reflect the impairment of acquired intangible assets including goodwill, interest costs and debt service requirements for any debt incurred in connection with an acquisition, and any issuance of securities in connection with an acquisition or new business venture that dilutes or lessens the rights of our current stockholders.

If the integration of any or all of our acquisitions or future acquisitions is not successful, it could have a material adverse impact on our operating results and stock price.

Certain of our debt agreements contain covenants that may constrain the operation of our business, and our failure to comply with these covenants could have a material adverse effect on our financial condition.

The Note Purchase and Guarantee Agreement that we entered into in January 2019 in connection with our acquisition of Oasis, contains restrictive covenants which may restrict our flexibility to operate our business.

These covenants include restrictions regarding the incurrence of liens and indebtedness, substantial changes in the general nature of our business and our subsidiaries (taken as a whole), certain merger transactions, certain sales of assets and other matters, all subject to certain exceptions.

The financial covenants, which are based on quarterly financial tests, require us not to exceed a maximum leverage ratio of 3.50:1.00 and a minimum interest coverage ratio of 2.00:1.00.

In addition, we will not permit certain of our indebtedness to exceed 20% of our consolidated stockholders’ equity.

If we do not comply with these covenants, it could result in material and adverse effects on our operating results and our financial condition.

In the event we receive negative publicity, our reputation and the value of our brand could be harmed and clients may not use our products and services, which may have a material adverse effect on our business.

Negative publicity relating to events or activities attributed to us, our corporate employees, or others associated with us, whether or not justified, may tarnish our reputation and reduce the value of our brand.

If we are unable to maintain quality HCM solutions and PEO services, our reputation with our clients may be harmed and the value of our brand may diminish.

In addition, if our brand is negatively impacted, it may have a material adverse effect on our business, including challenges retaining clients or attracting new clients and recruiting talent and retaining employees.

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.

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

If our systems become outdated, we may be at a disadvantage when competing in our industry.

A privacy or IT security breach could have a material adverse effect on our business.

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: 2018] [added: 2019] (“fiscal [removed: 2018”] [added: 2019”] or the “fiscal year”), May 31, [removed: 2017] [added: 2018] (“fiscal [removed: 2017”),] [added: 2018”),] and May 31, [removed: 2016] [added: 2017] (“fiscal [removed: 2016”),] [added: 2017”),] and our financial condition as of May 31, [removed: 2018.][added: 2019.]

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

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

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

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

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

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

| [added: PEO and Insurance Services] | [removed: ·] | | [removed: insurance services;] | [added: | | | | | | | |]

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

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

[added: | | · | | business services.] Our wholly owned subsidiary, Paychex Advance LLC (“Paychex Advance”), provides a portfolio of services to the temporary staffing [removed: industry.][added: industry, including payroll funding (via the purchase of accounts receivable) and outsourcing services, which includes payroll processing, invoicing, and tax preparation. |]

Our mission is to be the leading provider of payroll, [added: benefits,] HR, and [removed: employee benefits] [added: insurance] services for 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, when possible.][added: acquisitions.]

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

Our financial results for fiscal [removed: 2018] [added: 2019] reflect another year of [removed: steady growth.][added: continued growth across our major HCM product lines.]

[removed: HRS] [added: PEO and Insurance Services] revenue continued to experience strong growth of [removed: 14%] [added: 46%] for fiscal [removed: 2018] [added: 2019] as compared with fiscal [removed: 2017.][added: 2018.]

[removed: Payroll service] [added: Management Solutions] revenue increased [removed: 2%] [added: 4%] for fiscal [removed: 2018] [added: 2019] as compared with fiscal [removed: 2017,] [added: 2018,] primarily driven by growth in [added: our client base across many of our services, growth in] revenue per check, which improved as a result of [removed: our] price increases, net of [removed: discounts.][added: discounts, and increased revenue per client.]

As of May 31, 2018, [removed: including the Lessor Group (“Lessor”) acquisition,] we served over 650,000 payroll [added: and PEO] clients.

Client retention was approximately 81% of [removed: our] [added: the] beginning client base for [removed: the] fiscal [removed: year, consistent with a year ago.][added: 2018 and fiscal 2017.]

Interest rates available on high-quality financial instruments [removed: are] [added: have] gradually [removed: increasing.][added: increased.]

Our combined funds held for clients and corporate investment portfolios earned an average rate of return of [removed: 1.5%] [added: 1.9%] for fiscal [removed: 2018,] [added: 2019,] compared to [removed: 1.2%] [added: 1.5%] for fiscal [removed: 2017] [added: 2018] and [removed: 1.1%] [added: 1.2%] for fiscal [removed: 2016.][added: 2017.]

The United States (“U.S.”) Federal Reserve raised the Federal Funds rate by a total of 75 basis points during fiscal [removed: 2018] [added: 2019] to a range of [removed: 1.50%] [added: 2.25%] to [removed: 1.75%] [added: 2.50%] as of May 31, [removed: 2018.][added: 2019.]

[removed: In June 2018, the] [added: The] Federal Funds rate was [removed: raised an additional 25 basis points to a] [added: in the] range of [removed: 1.75%] [added: 1.50%] to [removed: 2.0%.][added: 1.75% as of May 31, 2018.]

[added: | | (2) | |] The Federal Funds rate was in the range of [added: 2.25% to 2.50% as of May 31, 2019, in the range of 1.50% to 1.75% as of May 31, 2018, and in the range of] 0.75% to [removed: 1.0%] [added: 1.00%] as of May 31, 2017. [added: |]

Highlights of our financial results for fiscal [removed: 2018,] [added: 2019,] compared to fiscal [removed: 2017,] [added: 2018,] are as follows:

| | · | | Total revenue increased [removed: 7%] [added: 12%] to [removed: $3.4] [added: $3.8] billion. |

| | [removed: o] [added: ·] | | [removed: Payroll] [added: Total] service revenue increased [removed: 2%] [added: 11%] to [removed: $1.8] [added: $3.7] billion. |

| | [removed: o] [added: ·] | | Interest on funds held for clients increased [removed: 26%] [added: 27%] to [removed: $63.5] [added: $80.6] million. |

| | · | | Operating income increased [removed: 4%] [added: 6%] to [removed: $1.3] [added: $1.4] billion. Adjusted operating income(1) increased [removed: 6%] [added: 4%] to [removed: $1.3] [added: $1.4] billion. |

| | · | | Diluted earnings per share increased [removed: 15%] [added: 4%] to [removed: $2.58] [added: $2.86] per share. Adjusted diluted earnings per share(1) increased [removed: 16%] [added: 11%] to [removed: $2.55] [added: $2.84] per share. |

| | · | | Dividends of [removed: $739.7] [added: $826.8] million were paid to stockholders, representing [removed: 79%] [added: 80%] of net income. |

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

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

[removed: Excluding Lessor, our] [added: Our total] payroll [added: and PEO] client base [removed: was relatively flat] [added: exceeded 650,000, including the Lessor acquisition,] for fiscal 2018 [removed: as compared to] [added: and was approximately 605,000 for] fiscal 2017.

While [removed: HRS products] [added: our HR product offerings] provide services to employers and employees beyond payroll, they effectively leverage payroll processing data.

Our HR [removed: administration] services are included as part of the integrated HCM solution within Paychex [removed: Flex.][added: Flex or provided through our Prism HR PEO platform.]

The following table illustrates the growth in selected [removed: HRS service] [added: HR product] offerings:

| | | May 31, [removed: 2018] [added: 2019] | | [removed: 2018] [added: 2019] | | | [removed: 2017] [added: 2018] | | | [removed: 2016] [added: 2017] | |

| Paychex HR [removed: Services] [added: Solutions] client worksite [removed: employees(1)] [added: employees] | | [removed: 1,157,000] [added: 1,086,000] | | [removed: 13] [added: 9] | % | | [removed: 8] [added: 9] | % | | [removed: 10] [added: 8] | % |

| Paychex HR [removed: Services clients(1)] [added: Solutions clients] | | [removed: 41,000] [added: 37,000] | | [removed: 12] [added: 7] | % | | [removed: 7] [added: 8] | % | | [removed: 10] [added: 8] | % |

Our portfolio of HCM and employee benefit-related services are as follows:

Management Solutions:

| | · | | HR Solutions Administrative Services Organization (“ASO”); |

Professional Employer Organization (“PEO”) and Insurance Services:

| | · | | PEO services provided by our licensed subsidiaries, Paychex Business Solutions, LLC, HR Outsourcing Holdings, Inc. (“HROi”), and Oasis Outsourcing Group Holdings, L.P. (“Oasis”); and |

| | · | | insurance services provided by our licensed insurance agency, Paychex Insurance Agency, Inc. |

Excluding the acquisition of Oasis, PEO and Insurance Services revenue increased 19% for fiscal 2019.

The impact of the acquisition of HROi on PEO and Insurance Services revenue growth for fiscal 2019 was approximately 4%.

The remaining increases were driven by growth in clients and client worksite employees across our combined existing PEO business.

Effective December 20, 2018, the Company acquired Oasis.

Upon closing, Oasis became a wholly owned subsidiary of the Company.

Oasis is an industry leader in providing HR outsourcing services.

The purchase price was $992.2 million, net of $262.3 million in cash acquired, including $132.1 million of restricted cash.

The acquisition was financed through a combination of cash on hand and the issuance of long-term private placement debt totaling $800.0 million.

| | o | | Management Solutions revenue increased 4% to $2.9 billion. |

| | o | | PEO and Insurance Services revenue increased 46% to $814.2 million. Excluding the acquisition of Oasis, PEO and Insurance Services revenue increased 19%. The impact of the acquisition of HROi on PEO and Insurance Services revenue growth was approximately 4%. |

| | · | | Net income increased 4% to $1.0 billion. Adjusted net income(1) increased 11% to $1.0 billion. |

Our payroll and PEO client base, including all acquisitions, was approximately 670,000 clients as of May 31, 2019.

| Management Solutions | | | | | | | | | | | |

| PEO client worksite employees(1) | | 405,000 | | 150 | % | | 50 | % | | 9 | % |

| PEO clients(1) | | 15,000 | | 126 | % | | 39 | % | | 3 | % |

| | (1) | | Oasis is included in the total number of worksite employees and clients for fiscal 2019. HROi is included in the total number of worksite employees and clients for both fiscal 2019 and fiscal 2018. |

In fiscal 2019, we continued to focus on enhancing the value to clients of our Paychex Flex platform.

New offerings and enhancements to our Paychex Flex platform made in fiscal 2019 included:

| | · | | Paychex Learning, an accessible, low-cost and seamlessly integrated web-based learning management system for providing professional training courses to the workforce; |

| | · | | Paychex Flex Assistant, a chatbot programmed to answer commonly asked HR-related questions; |

| | · | | Tablet-enabled facial recognition for time and attendance; |

| | · | | Retirement-focused product enhancements to both the participant dashboard and advisor portal, designed to simplify the process of enrolling and managing a 401(k) plan; |

| | · | | New synchronization functionality between Paychex General Ledger Service and QuickBooks Online, which enhances efficiency and productivity for businesses, as well as the accountants who serve them; and |

| | · | | The addition of performance management, workflow approvals, real-time analytics, and a configurable events calendar to the Paychex Flex platform. |

Total long-term borrowings, net of debt issuance costs, related to our acquisition of Oasis totaled $796.4 million as of May 31, 2019.

However, we funded our most recent acquisition of Oasis through a combination of cash and the issuance of long-term private placement debt of $800.0 million.

In May 2019, our Board of Directors (the “Board”) increased our quarterly dividend by 11% to $0.62 per share from $0.56 per share.

| Management Solutions | | $ | 2,877.7 | | | 4 | % | | $ | 2,758.4 | | | 3 | % | | $ | 2,680.7 | |

| PEO and Insurance Services | | | 814.2 | | | 46 | % | | | 555.8 | | | 32 | % | | | 421.7 | |

| Total service revenue | | | 3,691.9 | | | 11 | % | | | 3,314.2 | | | 7 | % | | | 3,102.4 | |

| Total revenue | | | 3,772.5 | | | 12 | % | | | 3,377.7 | | | 7 | % | | | 3,153.0 | |

| Operating income | | | 1,371.3 | | | 6 | % | | | 1,291.5 | | | 3 | % | | | 1,253.9 | |

| Income before income taxes | | | 1,368.0 | | | 5 | % | | | 1,300.1 | | | 3 | % | | | 1,259.1 | |

| Income taxes | | | 333.6 | | | 9 | % | | | 306.0 | | | (29) | % | | | 432.8 | |

Our payroll processing services, the foundation of our service model, include:

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

| | · | | comprehensive HR outsourcing through Paychex HR Services, under which we offer Paychex HR Solutions, our administrative services organization (“ASO”), and Paychex PEO, our professional employer organization (“PEO”); |

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

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, 2017, we served approximately 605,000 payroll clients.

| | o | | HRS revenue increased 14% to $1.5 billion. |

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

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. |

| Payroll service revenue | | $ | 1,810.0 | | | 2 | % | | $ | 1,779.3 | | | 3 | % | | $ | 1,729.9 | |

| HRS revenue | | | 1,507.4 | | | 14 | % | | | 1,321.4 | | | 12 | % | | | 1,175.9 | |

| Total service revenue | | | 3,317.4 | | | 7 | % | | | 3,100.7 | | | 7 | % | | | 2,905.8 | |

| Total revenue | | | 3,380.9 | | | 7 | % | | | 3,151.3 | | | 7 | % | | | 2,951.9 | |

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

| Income before income taxes | | | 1,296.1 | | | 4 | % | | | 1,244.8 | | | 8 | % | | | 1,151.1 | |

| Income taxes | | | 362.4 | | | (15) | % | | | 427.5 | | | 8 | % | | | 394.3 | |

| Net income | | $ | 933.7 | | | 14 | % | | $ | 817.3 | | | 8 | % | | $ | 756.8 | |

| | (2) | | The Federal Funds rate was in the range of 1.50% to 1.75% as of May 31, 2018, in the range of 0.75% to 1.00% as of May 31, 2017, and in the range of 0.25% to 0.50% as of May 31, 2016. In June 2018, the Federal Funds rate was raised an additional 25 basis points to a range of 1.75% to 2.0%. |

The acquisition of Paychex Advance contributed approximately 1% to payroll service revenue growth for fiscal 2017.

For fiscal 2017, our total payroll client base of 605,000 was comparable to fiscal 2016.

Client retention was approximately 82% of the beginning of the year client base for fiscal 2016.

For both fiscal 2018 and fiscal 2017, HRS revenue growth was primarily driven by increases in client bases across all major HCM services, including: comprehensive HR outsourcing services (including HROI), retirement services, time and attendance, and insurance services.

| Paychex HR Services client worksite employees(1) | | | 1,157,000 | | 13 | % | | | 1,021,000 | | 8 | % | | | 944,000 |

We continue to experience strong demand for our Paychex HR Services, our largest HRS revenue stream, as evidenced by the continued strong growth in client worksite employees for both our ASO and PEO.

In addition, for fiscal 2017, revenue was positively impacted by higher average premiums in our workers’ compensation insurance product.

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

| Compensation-related expenses | | $ | 1,242.4 | | 5 | % | | $ | 1,188.5 | | 4 | % | | $ | 1,148.2 |

| Total expenses | | $ | 2,093.4 | | 10 | % | | $ | 1,911.7 | | 6 | % | | $ | 1,805.3 |

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.

For fiscal 2017, compensation-related expenses increased due to higher headcount in operations, partially offset by lower variable selling costs.

Expense growth for fiscal 2018 and fiscal 2017 was impacted by continued growth in our PEO.

The acquisition of Paychex Advance contributed approximately 1% to the growth in total expenses for fiscal 2017.

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

Investment income, net, increased 13% for fiscal 2017 primarily due to higher average interest rates earned, partially offset by a 2% decrease in average investment balances.

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

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

During fiscal [removed: 2018,] [added: 2019,] our primary short-term investment vehicles were [removed: VRDNs] [added: government agency discount notes, VRDNs,] and bank demand deposit accounts.

During fiscal [removed: 2018,] [added: 2019,] the average interest rate earned on our combined funds held for clients and corporate investment portfolios was [removed: 1.5%,] [added: 1.9%,] compared to [removed: 1.2%] [added: 1.5%] and [removed: 1.1%] [added: 1.2%] for fiscal years [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively.

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

Earnings from the available-for-sale securities, which as of May 31, [removed: 2018] [added: 2019] had an average duration of [removed: 3.1] [added: 2.9] 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: 2018] [added: 2019] are shown below by contractual maturity.

| Due in one year or less | | $ | [removed: 356.0] [added: 183.5] | | $ | [removed: 355.7] [added: 183.4] |

| Due after one year through three years | | | [removed: 807.4] [added: 898.9] | | | [removed: 803.6] [added: 903.1] |

| Due after three years through five years | | | [removed: 926.5] [added: 989.2] | | | [removed: 915.3] [added: 998.7] |

| Due after five years | | | [removed: 1,053.2] [added: 1,529.5] | | | [removed: 1,030.2] [added: 1,535.6] |

As of May 31, [removed: 2018,] [added: 2019,] the Federal Funds rate was in the range of [removed: 1.50%] [added: 2.25%] to [removed: 1.75%] [added: 2.50%] as compared to [removed: in the] [added: a] range of [removed: 0.75%] [added: 1.50%] to [removed: 1.00%] [added: 1.75%] as of May 31, [removed: 2017,] [added: 2018,] and 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.]

Our total investment portfolio (funds held for clients and corporate investments) averaged approximately [removed: $5.0] [added: $4.8] billion for fiscal [removed: 2018.][added: 2019.]

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

The combined funds held for clients and corporate available-for-sale securities reflected a net unrealized [removed: loss] [added: gain] of [removed: $38.3] [added: $19.7] million as of May 31, [removed: 2018,] [added: 2019,] compared with a net unrealized [removed: gain] [added: loss] of [removed: $32.0] [added: $38.3] million as of May 31, [removed: 2017.][added: 2018.]

During fiscal [removed: 2017,] [added: 2019,] the net unrealized [removed: loss or] gain [added: or loss] on our investment portfolios ranged from an unrealized [removed: loss] [added: gain] of [removed: $30.5] [added: $19.7] million to an unrealized [removed: gain] [added: loss] of [removed: $69.5] [added: $60.7] million.

The net unrealized [removed: loss] [added: gain] on our investment portfolios was approximately [removed: $33.0] [added: $31.6] million as of July [removed: 18, 2018.][added: 17, 2019.]

As of May 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] we had [removed: $3.1] [added: $3.6] billion and [removed: $4.6] [added: $3.1] billion, respectively, invested in available-for-sale securities at fair value.

The weighted-average yield-to-maturity was [removed: 1.9%] [added: 2.1%] and [removed: 1.7%] [added: 1.9%] as of May 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: May 31, 2018,] 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: 2018,] [added: 2019,] would be in the range of [removed: $20.0] [added: $15.0] million to [removed: $25.0] [added: $20.0] million.

We believe that the investments we held as of May 31, [removed: 2018] [added: 2019] were not other-than-temporarily impaired.

While [removed: $2.2 billion] [added: $567.9 million] of our available-for-sale securities had fair values that were below amortized cost, we believe that it is probable that the principal and interest will be collected in accordance with the contractual terms, and that [removed: the] unrealized losses of [removed: $40.7] [added: $2.7] million were due to changes in interest rates and were not due to increased credit risk or other valuation concerns.

A [removed: significant portion] [added: majority] of these securities in an unrealized loss position as of May 31, [removed: 2018] [added: 2019] and [removed: 2017] [added: 2018] held an AA rating or better.

| | | May 31, 2019 | | | | |

| Total | | $ | 3,601.1 | | $ | 3,620.8 |

The Federal Reserve has periodically raised the Federal Funds rate in each of fiscal years 2019, 2018, and 2017.

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

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

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

On June 13, 2018, the Federal Funds rate was raised an additional 25 basis points to a range of 1.75% to 2.0%.

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

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

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

They can also opt for our comprehensive HR and payroll outsourcing solutions, [removed: Paychex] [added: which include our] HR [removed: Services.][added: Solutions, an Administrative Services Organization (“ASO”) and our PEO services.]

For the fiscal year ended May 31, [removed: 2018] [added: 2019] (“fiscal [removed: 2018”),] [added: 2019”),] client retention was [removed: approximately 81%] [added: over 82%] of our beginning client base for the fiscal year, [removed: consistent] [added: in line] with [removed: a year ago.][added: our historic best retention rate.]

We support our small-business [removed: clients in] [added: clients,] reducing the complexity and risk of running their own payroll, while ensuring greater accuracy with up-to-date tax rates and regulatory information.

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

[removed: All] [added: Most] new clients are sold on the Paychex Flex platform.

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

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

| | · | | Payroll tax administration services: [removed: Our payroll] [added: Payroll] tax administration services provide for accurate preparation and timely filing of quarterly and year-end tax returns, as well as the electronic transfer of funds to the applicable [added: federal, state, and local] tax or regulatory [removed: agencies (federal, state, and local).] [added: agencies.] 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 up to 90 days. We handle regulatory correspondence, amendments, and penalty and interest disputes. |

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

| | · | | Regulatory compliance services: We offer new-hire reporting services, which enable clients to comply with federal and state requirements to report information on newly hired employees. This information aids the government in enforcing child support orders and minimizes fraudulent unemployment and workers’ compensation insurance claims. Our garnishment processing service provides deductions from employees’ pay, forwards payments to third-party agencies, including those that require electronic payments, and tracks the obligations to fulfillment. These services enable employers to comply with legal requirements and reduce the risk of penalties. [added: We also offer comprehensive solutions to help employers and employees with certain mandates under the Affordable Care Act (“ACA”), which sets forth specific coverage and reporting requirements that employers must meet.] |

[removed: We also offer] [added: | | · | | HR Solutions (ASO): Our ASO offers businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services.] Paychex HR [removed: Essentials, which] [added: Essentials] is an ASO product that provides support to our clients over the phone or online to help manage employee-related topics. [added: |]

| | · | | Retirement services administration: Our retirement services product line offers a variety of options to clients, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with safe harbor provisions, owner-only 401(k) plans, profit sharing plans, and money purchase plans. These services provide plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. Auto enrollment is an optional plan feature that allows employers to automatically enroll employees in their company’s 401(k) plan and increase overall plan participation. Clients have the ability to choose from a group of pre-defined fund selections or to customize their investment options within their plan. We are the largest 401(k) recordkeeper for small businesses in the U.S. Our large-market retirement services clients include relationships with financial advisors. [removed: As of May 31, 2018, retirement services covered approximately 82,000 plans and the asset value of participants' funds externally managed totaled approximately $30.6 billion.] |

| | · | | Insurance services: Our licensed insurance agency, Paychex Insurance Agency, Inc., provides insurance through a variety of carriers, [removed: 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. |

| | · | | HR administration services: We offer cloud-based HR administration software [removed: products] for employee benefits management and administration, time and attendance solutions, recruiting, and onboarding. Paychex HR Online offers powerful tools for managing employee [removed: benefits,] personnel information, [removed: and] [added: performance management,] HR compliance and reporting. Our [removed: BeneTrac service manages] [added: Learning Management solution compliments our performance management. When combined with our workflow and approval engine, we offer clients] the [added: flexibility to capture ongoing performance feedback, recommend and enroll employees in specific training courses, and leverage automated workflows to track progress and approve compensation changes tied to performance. Our benefits administration modules manage the] employee-benefit enrollment [removed: process.] [added: process for both open-enrollment and life events.] Our time and attendance products, including our integrated Flex Time software, [removed: provides] [added: provide] timekeeping, scheduling, and workforce analytics. [added: Our extensive self-service capabilities provide significant efficiencies for both the company administrator and their employees.] These services allow the employer to handle multiple payroll scenarios, improving productivity, accuracy, and reliability in the payroll process. [removed: In fiscal 2018, we introduced the] [added: The] InVisionTM IRIS Time Clock, a biometric clock that scans the iris, [removed: providing] [added: provides] fast and accurate time capture. [removed: 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 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. [removed: Other products include employee handbooks, management manuals, and personnel and required regulatory forms. These products are designed to simplify clients’ administrative processes all while enhancing their employee benefits programs.] |

| | · | | [removed: Accounting and Financial Services:] [added: Business services:] We offer various [removed: accounting and financial] [added: business] 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. [removed: We recently launched] Paychex Promise, a subscription-based [removed: service that] [added: service,] 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. |

This flexible platform services our small- to medium-sized clients, and [added: a portion of] our PEO business.

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

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

We also partner with [removed: various] [added: numerous] state CPA society organizations.

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

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

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

AccountantHQ drives efficiency by putting accountants in the best position possible to easily access critical client payroll and HR [removed: data and] [added: data, as well as] powerful reporting tools.

[removed: 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 [removed: the breadth of] our [removed: 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.

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

We have one primary national competitor and we also compete with other national, [added: international,] regional, local, and online service providers.

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

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

We are continually engaged in developing enhancements to and [removed: the maintenance of] [added: maintaining] our various software platforms to meet the changing requirements of our clients and the marketplace.

However, during our third fiscal quarter, which ends in February, the number of new payroll clients, new retirement services clients, and new [removed: Paychex HR Services] worksite employees [added: associated with our HR Solutions ASO and PEO businesses] tends to be higher than during the rest of the fiscal year, primarily because many new clients prefer to start using our services at the beginning of a calendar year.

In addition, calendar year-end transaction processing and client funds activity are traditionally higher during our third fiscal quarter due to clients paying year-end [removed: bonuses and] [added: bonuses, clients] requesting additional year-end [removed: services.][added: services, and the preparation and delivery of end-of year reporting requirements.]

The SEC [removed: also] maintains a website (www.sec.gov) that includes our reports, proxy statements, and other information.

Our Form 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 [removed: and filings,] [added: filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act,] 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: 2018] [added: 2019] 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, 2019, we served approximately 670,000 payroll and PEO clients.

| | · | | personalized, technology-enabled service; |

| | · | | engaging in strategic acquisitions. |

We do this through the Power of Simplicity.

Our industry-leading technology combines with our personalized, technology-enabled service to make payroll, benefits, and HR administration simple for our clients.

In addition, our small-market clients can choose one of our comprehensive HR and payroll outsourcing services, which include ASO and PEO services, and participate in our benefits offerings, which include our insurance and retirement services.

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.

Our retirement services product line offers many plan design options to meet the client’s requirements, as well as investment options.

Management Solutions:

PEO and Insurance Services:

| | · | | PEO services: Our licensed subsidiaries, Paychex Business Solutions, LLC, HR Outsourcing Holdings, Inc. (“HROi”), and Oasis offer businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services. What differentiates our PEO services from our ASO services is 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 benefit insurance offerings. We are certified under the Small Business Efficiency Act to provide PEO services. |

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

Our platform is backed by self-service capabilities that empower client employees to access their benefits and complete tasks from any location and on any device.

These self-service capabilities allow for greater convenience for client employees and greater productivity for our clients.

We continue to invest in Paychex Flex, making significant enhancements designed to simplify the complexity of HR administration.

The latest enhancements include HR Center with performance and learning management, workflow approvals, and enhanced real-time analytics; benefits management enhancements with a refreshed enrollment experience for health and benefits and retirement; and increased options through the use of chatbots and artificial intelligence.

Our website is available at www.paychex.com.

This online channel allows us to market to existing and prospective clients that want to learn more about our products and services.

The website offers information about our core lines of business: payroll (www.paychex.com/payroll), human resources (www.paychex.com/human-resources), benefits (www.paychex.com/employee-benefits), and insurance (www.paychex.com/business-insurance).

We issue small business trend reports through our Paychex | IHS Markit Small Business Employment Watch.

As of May 31, 2019, we employed approximately 15,600 people, of which approximately 15,300 people were employed on a full-time basis.

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

| | · | | flexible, convenient service; |

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

| | · | | 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 that is competitive with those offered by larger companies. Clients are also assigned a dedicated HR professional called a human resources generalist, or HRG. Available to meet onsite, the HRG helps clients navigate obligations related to federal and state regulations, and supports employers with workforce functions such as hiring, training, and workplace safety. We believe HRGs differentiate us in the marketplace. |

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 are certified under the Small Business Efficiency Act to provide PEO services.

As of May 31, 2018, Paychex HR Services was utilized by approximately 41,000 clients with approximately 1,157,000 client worksite employees.

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

Our Paychex Employer Shared Responsibility (“ESR”) Service is aimed at helping clients: 1) determine if the 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 and file end-of-year reporting.

Our website, which is available at www.paychex.com, includes online payroll sales presentations and service and product information.

This online tool allows us to market to clients and prospective clients in other geographical areas where we do not have a direct sales presence.

In addition, the insurance services section of our website, which is accessible at 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 believe that there is opportunity for us in the HCM market as the demand is moving down-market to smaller businesses.

As of May 31, 2018, we employed approximately 14,300 people.

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

Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at (800) SEC-0330.

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

For the fiscal year ended May 31, [removed: 2018][added: 2019]

[removed: |] Securities registered pursuant to Section 12(b) of the Act: [removed: | | Common Stock, $0.01 Par Value |]

Indicate by check mark whether the registrant [removed: (1)] has [removed: filed all reports] [added: submitted electronically every Interactive Data File] required to be [removed: filed by Section 13 or 15(d) of the Securities Exchange Act] [added: submitted pursuant to Rule 405] of [removed: 1934] [added: Regulation S-T] during the preceding 12 months (or for such shorter period that the registrant was required to [removed: file such reports), and (2) has been subject to] [added: submit] such [removed: filing requirements for the past 90 days.][added: files).]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site, if any,] every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S-T [added: (§ 232.405 of this chapter)] during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files).

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

As of November 30, [removed: 2017,] [added: 2018,] 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: $21,553,152,555] [added: $22,652,311,624] based on the closing price reported for such date on the [removed: NASDAQ] [added: Nasdaq] Global Select Market.

As of June 30, [removed: 2018, 358,999,129] [added: 2019, 359,345,511] shares of the registrant’s common stock, $.01 par value, were outstanding.

Portions of the registrant’s definitive proxy statement to be issued in connection with its Annual Meeting of Stockholders to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

| [Item 1B](#UnresolvedStaffComments) | [Unresolved Staff Comments](#UnresolvedStaffComments) | [removed: 11] [added: 12] | | |

| [Item 2](#Properties) | [Properties](#Properties) | [removed: 11] [added: 13] | | |

| [Item 3](#LegalProceedings) | [Legal Proceedings](#LegalProceedings) | [removed: 12] [added: 13] | | |

| [Item 4](#MineSafetyDisclosures) | [Mine Safety Disclosures](#MineSafetyDisclosures) | [removed: 12] [added: 13] | | |

| [Item 5](#MarketforCommonEquity) | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity](#MarketforCommonEquity) [Securities](#MarketforCommonEquity) | [removed: 12] [added: 13] | | |

| [Item 6](#SelectedFinancialData) | [Selected Financial Data](#SelectedFinancialData) | [removed: 14] [added: 16] | | |

| [Item 7](#MDA) | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#MDA) | [removed: 15] [added: 17] | | |

| [Item 7A](#MarketRisk) | [Quantitative and Qualitative Disclosures About Market Risk](#MarketRisk) | [removed: 30] [added: 34] | | |

| [Item 8](#FinancialStatementsAndSupplementaryData) | [Financial Statements and Supplementary Data](#FinancialStatementsAndSupplementaryData) | [removed: 32] [added: 36] | | |

| [Item 9](#ChangesAndDisagreements) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ChangesAndDisagreements) | [removed: 67] [added: 80] | | |

| [Item 9A](#ControlsAndProcedures) | [Controls and Procedures](#ControlsAndProcedures) | [removed: 67] [added: 80] | | |

| [Item 9B](#OtherInformation) | [Other Information](#OtherInformation) | [removed: 68] [added: 81] | | |

| [Item 10](#DirectorsExecutiveOfficers) | [Directors, Executive Officers and Corporate Governance](#DirectorsExecutiveOfficers) | [removed: 68] [added: 82] | | |

| [Item 11](#ExecutiveCompensation) | [Executive Compensation](#ExecutiveCompensation) | [removed: 69] [added: 83] | | |

| [Item 12](#SecurityOwnership) | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#SecurityOwnership) | [removed: 69] [added: 83] | | |

| [Item 13](#CertainRelationships) | [Certain Relationships and Related Transactions, and Director Independence](#CertainRelationships) | [removed: 70] [added: 84] | | |

| [Item 14](#PrincipalAccountingFees) | [Principal Accounting Fees and Services](#PrincipalAccountingFees) | [removed: 70] [added: 84] | | |

| [Item 15](#ExhibitsAndFinancialStatementSchedules) | [Exhibits and Financial Statement Schedules](#ExhibitsAndFinancialStatementSchedules) | [removed: 71] [added: 85] | | |

| [Item 16](#Item_16) | [Form 10-K Summary](#Item_16) | [removed: 73] [added: 87] | | |

| | [Signatures](#Signatures) | [removed: 73] [added: 87] | | |

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

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

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

| | · | | the [removed: possibility] [added: failure] of third-party service providers [removed: failing] to perform their functions; |

| | · | | potential outcomes related to pending or future litigation [removed: and legislative matters;] [added: matters.] |

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

10-K 1 payx-20190531x10k.htm 10-K

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |

| Common Stock, $0.01 par value | PAYX | Nasdaq Global Select Market |

For the fiscal year ended May 31, 2019

| | · | | changes in governmental regulations and policies; |

| | · | | our ability to comply with U.S. and foreign laws and regulations; |

| | · | | our compliance with data privacy laws and regulations; |

| | · | | the possibility of cyberattacks, security vulnerabilities and Internet disruptions, including breaches of data security and privacy leaks, data loss and business interruptions; |

| | · | | the possibility that we may be subject to additional risks related to our co-employment relationship with our professional employer organization (“PEO”); |

| | · | | our clients’ failure to reimburse us for payments made by us on their behalf; |

| | · | | the effect of changes in government regulations mandating the amount of tax withheld or the timing of remittances; |

| | · | | volatility in the political and economic environment; |

| | · | | risks related to acquisitions and the integration of the businesses we acquire, including integrating Oasis Outsourcing Group Holdings, L.P.’s (“Oasis”) business with ours; |

| | · | | our failure to comply with covenants in our debt agreements; |

| | · | | changes in the availability of qualified people, including management, technical, compliance and sales personnel; |

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

| | · | | our failure to protect our intellectual property rights; |

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

| | · | | the possible effects of negative publicity on our reputation and the value of our brand; and |

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

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

We have made available our investor presentation regarding the financial results for the fiscal year ended May 31, 2019.

Please visit Paychex's Investor Relations page on our website at http://www.paychex.com/investors to view the presentation.

We intend to make future investor presentations available exclusively through our Investor Relations page.

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

| | | |

| Name of exchange on which registered: | | NASDAQ Global Select Market |

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

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

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

| | · | | changes in the availability of skilled workers, in particular those supporting our technology and product development; |

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

| | · | | the possibility of 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 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 PEO; |

| | · | | 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. |

We owned and leased the following properties as of May 31, [removed: 2018:][added: 2019:]

| International locations | | [removed: 19,000] [added: 13,000] |

| Total owned facilities | | [removed: 1,096,000] [added: 1,090,000] |

| Rochester, New York | | [removed: 156,000] [added: 111,000] |

| Other U.S. locations | | [removed: 1,883,000] [added: 2,106,000] |

| International locations | | [removed: 55,000] [added: 88,000] |

| Total leased facilities | | [removed: 2,094,000] [added: 2,305,000] |

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

Our international locations primarily house our European [removed: branch] [added: branches] and sales [removed: locations.][added: locations, and a location in India primarily houses information technology staffing.]

As of June 30, [removed: 2018,] [added: 2019,] there were [removed: 11,262] [added: 10,692] 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: 4,661] [added: 4,350] participants in the Paychex, Inc. [added: Qualified] Employee Stock Purchase Plan and [removed: 4,386] [added: 4,388] participants in the Paychex, Inc. Employee Stock Ownership Plan.

During fiscal [removed: 2018,] [added: 2019 and the fiscal year ended May 31, 2018 (“fiscal 2018”)] we maintained a common stock repurchase program authorized by the Board in July 2016 which [removed: expires] [added: expired] on May 31, 2019.

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

Shares repurchased under [removed: these programs] [added: this program] during fiscal [removed: 2018 and fiscal 2017] [added: 2019] were as [removed: follows:][added: follows (in millions):]

| Second quarter | | — | | [added: $] | — | | | [removed: 2.9] [added: —] | | [added: $] | [removed: 166.2] [added: 67.7] |

| Third quarter | | — | | [added: $] | — | | | — | | [added: $] | [removed: —] [added: 67.7] |

All shares of stock repurchased during fiscal [removed: 2018 and fiscal 2017] [added: 2019] were retired.

The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, [removed: 2013,] [added: 2014,] in Paychex common stock, the S&P 500 Index, and a Peer Group Index.

][added: 4](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531x10kg001.jpg)]

| May 31, | | [removed: 2013 | |] 2014 | | 2015 | | 2016 | | 2017 | | 2018 | [added: | 2019 |]

Our Peer Group for fiscal [removed: 2018] [added: 2019] is comprised of the following companies:

| In millions | | Total number of shares purchased | | Average price paid per share | | | Total dollars | | | Approximate dollar value of shares that may yet be purchased under the program | |

| First quarter | | 0.5 | | $ | 71.80 | | $ | 32.8 | | $ | 67.7 |

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

| March 1 to March 31, 2019 | | — | | $ | — | | | — | | $ | 67.7 |

| April 1 to April 30, 2019 | | — | | $ | — | | | — | | $ | 67.7 |

| May 1 to May 31, 2019 | | 0.2 | | $ | 83.76 | | | 24.1 | | $ | — |

| Fiscal year | | 0.7 | | $ | 76.42 | | $ | 56.9 | | | |

In May 2019, our Board authorized a program which allows us to repurchase up to $400.0 million of our common stock which expires on May 31, 2022.

| Paychex | | $100.00 | | $124.25 | | $141.11 | | $159.07 | | $180.58 | | $243.87 |

| S&P 500 | | $100.00 | | $111.81 | | $113.72 | | $133.59 | | $152.81 | | $158.59 |

| Peer Group | | $100.00 | | $128.44 | | $131.81 | | $154.93 | | $200.03 | | $227.60 |

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

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

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

| | | Fiscal 2018 | | | | | | Fiscal 2017 | | | | |

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

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

| | | Sales prices | | | | declared | | Sales prices | | | | declared |

| | | High | | Low | | per share | | High | | Low | | per share |

| First quarter | | $61.13 | | $54.24 | | $0.50 | | $61.87 | | $53.57 | | $0.46 |

| Second quarter | | $67.31 | | $56.71 | | $0.50 | | $61.62 | | $52.78 | | $0.46 |

| Third quarter | | $70.25 | | $61.86 | | $0.50 | | $62.18 | | $57.07 | | $0.46 |

| Fourth quarter | | $66.72 | | $59.84 | | $0.56 | | $63.03 | | $56.57 | | $0.46 |

The closing price of our common stock as of May 31, 2018, as reported on the NASDAQ Global Select Market, was $65.58 per share.

In addition, during fiscal 2017, we maintained a second common stock repurchase plan authorized by the Board in May 2014 which expired on May 31, 2017.

| | | Fiscal 2018 | | | | | | Fiscal 2017 | | | |

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

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

| Fourth quarter | | 0.9 | | | 49.0 | | | — | | | — |

| Fiscal year | | 2.5 | | $ | 143.1 | | | 2.9 | | $ | 166.2 |

As of May 31, 2018, the approximate dollar value of common stock shares available for repurchase under the program authorized in July 2016 is $100.5 million.

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

| 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 |

| Year ended May 31, | | [removed: 2018(1),(2),(3)] [added: 2019(4)] | | | | [removed: 2017(3)] [added: 2018(1),(2),(3),(4)] | | | | [removed: 2016(4),(5)] [added: 2017(1),(4)] | | | | [removed: 2015(5)] [added: 2016(5),(6)] | | | | [removed: 2014(5)] [added: 2015(6)] | | |

| Service revenue | | $ | [removed: 3,317.4] [added: 3,691.9] | | | $ | [removed: 3,100.7] [added: 3,314.2] | | | $ | [removed: 2,905.8] [added: 3,102.4] | | | $ | [removed: 2,697.5] [added: 2,905.8] | | | $ | [removed: 2,478.2] [added: 2,697.5] | |

| Interest on funds held for clients | | [removed: $] | [removed: 63.5] [added: 80.6] | | | [removed: $] | [removed: 50.6] [added: 63.5] | | | [removed: $] | [removed: 46.1] [added: 50.6] | | | [removed: $] | [removed: 42.1] [added: 46.1] | | | [removed: $] | [removed: 40.7] [added: 42.1] | |

| Total revenue | | $ | [removed: 3,380.9] [added: 3,772.5] | | | $ | [removed: 3,151.3] [added: 3,377.7] | | | $ | [removed: 2,951.9] [added: 3,153.0] | | | $ | [removed: 2,739.6] [added: 2,951.9] | | | $ | [removed: 2,518.9] [added: 2,739.6] | |

| Operating income | | $ | [removed: 1,287.5] [added: 1,371.3] | | | $ | [removed: 1,239.6] [added: 1,291.5] | | | $ | [removed: 1,146.6] [added: 1,253.9] | | | $ | [removed: 1,053.6] [added: 1,146.6] | | | $ | [removed: 982.7] [added: 1,053.6] | |

| Net income | | $ | [removed: 933.7] [added: 1,034.4] | | | $ | [removed: 817.3] [added: 994.1] | | | $ | [removed: 756.8] [added: 826.3] | | | $ | [removed: 674.9] [added: 756.8] | | | $ | [removed: 627.5] [added: 674.9] | |

| Basic earnings per share | | $ | [removed: 2.60] [added: 2.88] | | | $ | [removed: 2.27] [added: 2.77] | | | $ | [removed: 2.10] [added: 2.30] | | | $ | [removed: 1.86] [added: 2.10] | | | $ | [removed: 1.72] [added: 1.86] | |

| Diluted earnings per share | | $ | [removed: 2.58] [added: 2.86] | | | $ | [removed: 2.25] [added: 2.75] | | | $ | [removed: 2.09] [added: 2.28] | | | $ | [removed: 1.85] [added: 2.09] | | | $ | [removed: 1.71] [added: 1.85] | |

| Cash dividends per common share | | $ | [removed: 2.06] [added: 2.30] | | | $ | [removed: 1.84] [added: 2.06] | | | $ | [removed: 1.68] [added: 1.84] | | | $ | [removed: 1.52] [added: 1.68] | | | $ | [removed: 1.40] [added: 1.52] | |

| Purchases of property and equipment | | $ | [removed: 154.0] [added: 123.8] | | | $ | [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: Cash] [added: Cash, restricted cash,] and total corporate investments | | $ | [removed: 719.7] [added: 779.9] | | | $ | [removed: 777.4] [added: 719.7] | | | $ | [removed: 793.2] [added: 777.4] | | | $ | [removed: 936.4] [added: 793.2] | | | $ | [removed: 936.8] [added: 936.4] | |

| Total assets | | $ | [removed: 7,463.7] [added: 8,676.0] | | | $ | [removed: 6,833.7] [added: 7,915.4] | | | $ | [removed: 6,440.8] [added: 7,280.8] | | | $ | [removed: 6,467.5] [added: 6,440.8] | | | $ | [removed: 6,321.0] [added: 6,467.5] | |

| Total debt | | $ | [removed: —] [added: 796.4] | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |

| Stockholders’ equity | | $ | [removed: 2,024.5] [added: 2,619.5] | | | $ | [removed: 1,955.3] [added: 2,356.8] | | | $ | [removed: 1,911.7] [added: 2,227.2] | | | $ | [removed: 1,785.5] [added: 1,911.7] | | | $ | [removed: 1,777.0] [added: 1,785.5] | |

| Return on stockholders’ equity | | | [removed: 46] [added: 42] | % | | | [removed: 42] [added: 44] | % | | | [removed: 40] [added: 39] | % | | | [removed: 36] [added: 40] | % | | | [removed: 35] [added: 36] | % |

| | [removed: (1)] [added: (2)] | | In fiscal 2018, the enactment of the Tax [added: Cuts and Jobs] Act [added: (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 [removed: Operations”,] [added: Operations,”] and Item 8, “Financial Statements and Supplementary [removed: Data”] [added: Data,”] of this Form [removed: 10-K,] [added: 10-K] for additional discussion of the impact of the Tax Act. |

| | [removed: (2)] [added: (3)] | | 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. |

| | [removed: (3)] [added: (4)] | | 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 [added: discrete tax benefit] increased diluted earnings per share by approximately [added: $0.02 per diluted share,] $0.04 per diluted [removed: share] [added: share,] and $0.05 per diluted share for fiscal [removed: 2018] [added: 2019, fiscal 2018,] and fiscal 2017, respectively. |

| | [removed: (4)] [added: (5)] | | In the fiscal 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 [added: net tax benefit] increased diluted earnings per share by approximately $0.06 per share. |

| | [removed: (5)] [added: (6)] | | 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 2019, we adopted Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”). As a result, amounts have been adjusted to reflect the adoption of the new standard. The adoption of ASC Topic 606 increased diluted earnings per share by $0.17 and $0.02 per diluted share for fiscal 2018 and for the fiscal year ended May 31, 2017 (“fiscal 2017”), respectively. Refer to Item 8, “Financial Statements and Supplementary Data” of this Form 10-K, for additional discussion of the impact of adopting the new standard. |

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

| [Report on Management’s Assessment of Internal Control Over Financial Reporting](#ReportManagementsAssessment) | [removed: 33] [added: 37] | |

| [Report of Independent Registered Public Accounting [removed: Firm](#Report)] [added: Firm](#ReportofIndependentAccountingFirm)] | [removed: 34] [added: 38] | |

| [Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016](#IS)] [added: 2017](#IS)] | [removed: 36] [added: 40] | |

| [Consolidated Balance Sheets as of May 31, [removed: 2018] [added: 2019] and [removed: 2017](#BS)] [added: 2018](#BS)] | [removed: 37] [added: 41] | |

| [Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016](#SE)] [added: 2017](#SE)] | [removed: 38] [added: 42] | |

| [Consolidated Statements of Cash Flows for the Years Ended May 31, [added: 2019,] 2018, [removed: 2017] and [removed: 2016](#CF)] [added: 2017](#CF)] | [removed: 39] [added: 43] | |

| [Notes to Consolidated Financial Statements](#Notes) | [removed: 40] [added: 44] | |

| [Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, [added: 2019,] 2018, [removed: 2017,] and [removed: 2016](#ScheduleII)] [added: 2017](#ScheduleII)] | [removed: 67] [added: 80] | |

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, [removed: 2018.][added: 2019.]

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, [removed: 2018.][added: 2019.]

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: 2018,] [added: 2019,] 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.

We have audited the accompanying consolidated balance sheets of Paychex, Inc. and its subsidiaries as of May 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] 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, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of May 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended May 31, [removed: 2018] [added: 2019] 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: 2018,] [added: 2019,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the [removed: company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.]

[removed: July 20,] [added: | | | | | |] 2018 [added: | |]

| [removed: Year] [added: | | For the year] ended May 31, [removed: | | |] 2018 | | | [removed: 2017] | | | [removed: 2016] | [added: |]

| Service revenue | | $ | 3,317.4 | | $ | [removed: 3,100.7] [added: (3.2)] | | $ | [removed: 2,905.8] [added: 3,314.2] |

| Interest on funds held for clients | | | [removed: 63.5] [added: 80.6] | | | [removed: 50.6] [added: 63.5] | | | [removed: 46.1] [added: 50.6] |

| Operating expenses | | | 1,017.8 | | | [removed: 919.6] [added: 0.4] | | | [removed: 857.1] [added: 1,018.2] |

| Selling, general and administrative expenses | | | 1,075.6 | | | [removed: 992.1] [added: (7.6)] | | | [removed: 948.2] [added: 1,068.0] |

| Total expenses | | | 2,093.4 | | | [removed: 1,911.7] [added: (7.2)] | | | [removed: 1,805.3] [added: 2,086.2] |

| Operating income | | | 1,287.5 | | | [removed: 1,239.6] [added: 4.0] | | | [removed: 1,146.6] [added: 1,291.5] |

| [removed: Investment income,] [added: Interest (expense)/income,] net | | | [removed: 8.6] [added: (3.3)] | | | [removed: 5.2] [added: 8.6] | | | [removed: 4.5] [added: 5.2] |

| Income taxes | | | 362.4 | | | [removed: 427.5] [added: (56.4)] | | | [removed: 394.3] [added: 306.0] |

| Net income | | $ | 933.7 | | $ | [removed: 817.3] [added: 60.4] | | $ | [removed: 756.8] [added: 994.1] |

| Other comprehensive [removed: (loss)/income,] [added: income/(loss),] net of tax | | | [removed: (56.2)] [added: 36.3] | | | [removed: (9.2)] [added: (56.2)] | | | [removed: 21.7] [added: (9.2)] |

| Basic earnings per share | | $ | 2.60 | | $ | [removed: 2.27] [added: 0.17] | | $ | [removed: 2.10] [added: 2.77] |

| Diluted earnings per share | | $ | 2.58 | | $ | [removed: 2.25] [added: 0.17] | | $ | [removed: 2.09] [added: 2.75] |

| Weighted-average common shares outstanding | | | [removed: 359.0] [added: 359.2] | | | [removed: 359.8] [added: 359.0] | | | [removed: 360.7] [added: 359.8] |

| Weighted-average common shares outstanding, assuming dilution | | | [removed: 361.5] [added: 361.8] | | | [removed: 362.6] [added: 361.5] | | | [removed: 362.5] [added: 362.6] |

| Cash dividends per common share | | $ | [removed: 2.06] [added: 0.56] | | $ | [removed: 1.84] [added: 0.56] | | $ | [removed: 1.68] [added: 0.56] | [added: | $ | 0.62 | | $ | 2.30 |]

In millions, except per share [removed: amount][added: amounts]

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

| Cash and cash equivalents | | $ | [added: 673.6 | | $ |] 358.2 | | $ | 184.6 |

| Corporate investments | | | [removed: 66.0] [added: 39.0] | | | [removed: 138.8] [added: 66.0] |

| Interest receivable | | | [removed: 32.2] [added: 27.4] | | | [removed: 35.9] [added: 32.2] |

| Accounts receivable, net of allowance for doubtful accounts | | | [removed: 531.4 | | | 507.5] [added: 10.7] |

| Prepaid income taxes | | | [removed: 17.0] [added: 22.6] | | | [removed: 45.0] [added: 17.0] |

On December 20, 2018, we completed our acquisition of Oasis Outsourcing Group Holdings, L.P. (“Oasis”).

We are in the process of evaluating the existing controls and procedures of Oasis and integrating Oasis into our internal control over financial reporting.

In accordance with Securities and Exchange Commission Staff guidance, permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded Oasis from our assessment of the effectiveness of internal control over financial reporting as of May 31, 2019.

Oasis represented 8% of the Company’s total assets as of May 31, 2019 and 4% of the Company’s revenues for the year ended May 31, 2019.

The scope of management’s assessment of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of May 31, 2019 includes all of the Company’s consolidated operations except for those disclosure controls and procedures of Oasis that are subsumed by internal control over financial reporting.

As described in the Report on Management’s Assessment of Internal Control Over Financial Reporting, management has excluded Oasis Outsourcing Group Holdings, L.P. from its assessment of internal control over financial reporting as of May 31, 2019 because it was acquired by the Company in a purchase business combination during the year ended May 31, 2019.

We have also excluded Oasis Outsourcing Group Holdings, L.P. from our audit of internal control over financial reporting.

Oasis Outsourcing Group Holdings, L.P. is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 8% and 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended May 31, 2019.

company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

July 24, 2019

| Year ended May 31, | | | 2019 | | | As Adjusted(1) | | | As Adjusted(1) |

| Management Solutions | | $ | 2,877.7 | | $ | 2,758.4 | | $ | 2,680.7 |

| PEO and Insurance Services | | | 814.2 | | | 555.8 | | | 421.7 |

| Total service revenue | | | 3,691.9 | | | 3,314.2 | | | 3,102.4 |

| Total revenue | | | 3,772.5 | | | 3,377.7 | | | 3,153.0 |

| Operating expenses | | | 1,177.8 | | | 1,018.2 | | | 919.4 |

| Selling, general and administrative expenses | | | 1,223.4 | | | 1,068.0 | | | 979.7 |

| Total expenses | | | 2,401.2 | | | 2,086.2 | | | 1,899.1 |

| Operating income | | | 1,371.3 | | | 1,291.5 | | | 1,253.9 |

| Income before income taxes | | | 1,368.0 | | | 1,300.1 | | | 1,259.1 |

| Income taxes | | | 333.6 | | | 306.0 | | | 432.8 |

| Net income | | $ | 1,034.4 | | $ | 994.1 | | $ | 826.3 |

| Comprehensive income | | $ | 1,070.7 | | $ | 937.9 | | $ | 817.1 |

| Basic earnings per share | | $ | 2.88 | | $ | 2.77 | | $ | 2.30 |

| Diluted earnings per share | | $ | 2.86 | | $ | 2.75 | | $ | 2.28 |

| | (1) | | Amounts have been adjusted to reflect the adoption of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”). |

| As of May 31, | | 2019 | | | As Adjusted(1) | |

| Cash and cash equivalents | | $ | 673.6 | | $ | 358.2 |

| Restricted cash | | | 50.6 | | | — |

| PEO unbilled receivables, net of advance collections | | | 406.3 | | | 117.8 |

| Prepaid expenses and other current assets | | | 233.9 | | | 224.0 |

| Long-term restricted cash | | | 6.5 | | | — |

| Long-term deferred costs | | | 366.3 | | | 361.0 |

| Other long-term assets | | | 24.9 | | | 16.4 |

| Total assets | | $ | 8,676.0 | | $ | 7,915.4 |

| Accounts payable | | $ | 75.9 | | $ | 73.7 |

| Accrued corporate compensation and related items | | | 146.4 | | | 121.5 |

| Accrued worksite employee compensation and related items | | | 578.6 | | | 176.1 |

| Deferred revenue | | | 40.3 | | | 34.6 |

| Other current liabilities | | | 219.5 | | | 155.9 |

| Total revenue | | | 3,380.9 | | | 3,151.3 | | | 2,951.9 |

| Income before income taxes | | | 1,296.1 | | | 1,244.8 | | | 1,151.1 |

| Comprehensive income | | $ | 877.5 | | $ | 808.1 | | $ | 778.5 |

| Total liabilities | | | 5,439.2 | | | 4,878.4 |

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

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

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

| Cash dividends declared | | | | | | | | | | | (606.5) | | | | | | (606.5) |

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

| Accounts receivable | | | 13.6 | | | (103.7) | | | (37.5) |

| Increase/(decrease) in cash and cash equivalents | | | 173.6 | | | 53.1 | | | (38.5) |

Payroll service revenue is earned primarily from payroll processing, payroll tax administration services, employee payment services, and other ancillary services.

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

Our Human Resource Services (“HRS”) portfolio of services and products provide small- to medium-sized businesses with retirement services administration, insurance services, HR administration services, and other HR services and products.

Our comprehensive HR outsourcing service is available through Paychex HR Solutions, an administrative services organization (“ASO”), and Paychex PEO, a professional employer organization (“PEO”).

These comprehensive bundles of services are designed to make it easier for businesses to manage their payroll and related benefits costs while providing a benefits package equal to that of larger companies.

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

Paychex HR Essentials is an ASO product that provides support to the Company’s clients over the phone or online to help manage employee-related topics.

In connection with the automated payroll tax administration services, the Company electronically collects payroll taxes from clients’ bank accounts, typically on payday, prepares and files the applicable tax returns, and remits taxes to the applicable tax or regulatory agencies on the respective due dates.

These taxes are typically paid between one and 30 days after receipt of collections from clients, with some items extending to 90 days.

The Company handles regulatory correspondence, amendments, and penalty and interest disputes, and is subject to cash penalties imposed by tax or regulatory agencies for late filings and late or under payment of taxes.

With employee payment services, employers are offered the option of paying their employees by direct deposit, payroll debit card, a check drawn on a Paychex account (Readychex®), or a check drawn on the employer’s account and electronically signed by Paychex.

For the first three methods, Paychex electronically collects net payroll from the clients’ bank accounts, typically one business day before payday, and provides payment to the employees on payday.

Same Day Automated Clearing House (“ACH”) functionality is also available for clients using direct deposit.

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

The fees are deducted from the funding payment and revenue is recognized over an average collection period of 35 to 45 days.

The funds held for clients and related client fund obligations are included in the Consolidated Balance Sheets as current assets and current liabilities, respectively.

The amount of funds held for clients and related client fund obligations varies significantly during the year.

Subsequent Events: The Company has evaluated subsequent events for potential recognition and/or disclosure through the date of issuance of these financial statements.

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

During fiscal 2016, a quantitative analysis was performed for the Company’s European reporting unit, and for all other reporting units a qualitative analysis was performed.

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.

Certain processing services are provided under annual service arrangements with revenue recognized ratably over the service period.

Direct pass-through costs billed and incurred recognized as a reduction in service revenue were $7.9 billion, $5.9 billion, and $5.1 billion for fiscal years 2018, 2017, and 2016, respectively.

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

Recently adopted accounting pronouncements: In March 2018, the Company early-adopted Accounting Standards Update (“ASU”) No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU No. 2017-09 provides guidance concerning which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.

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 Company evaluated this guidance as part of its revenue recognition implementation efforts, and does not anticipate it will have a material impact on its consolidated financial statements.

ASU No. 2016-18 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017.

ASU No. 2016-16 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017.

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

Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that as of May 31, [removed: 2018,] [added: 2019,] 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: 2018.][added: 2019.]

[removed: Based on such evaluation,] [added: Other than these changes,] 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: 2018,] [added: 2019,] that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The scope of management’s assessment of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of May 31, 2019 includes all of the Company’s consolidated operations except for those disclosure controls and procedures of Oasis that are subsumed by internal control over financial reporting.

In connection with the Company’s adoption of ASC Topic 606 the Company has updated its control framework effective June 1, 2018 for certain new internal controls and changes to certain existing controls, including reconciliation controls, management review controls, and contract review controls.

The Company is in the process of evaluating the existing controls and procedures of Oasis and integrating Oasis into its internal control over financial reporting.

In accordance with SEC Staff guidance permitting a company to exclude an acquired business from management’s assessment of the effectiveness of internal control over financial reporting for the year in which the acquisition is completed, we have excluded Oasis from the Company’s assessment of the effectiveness of internal control over financial reporting as of May 31, 2019.

Oasis represented 8% of the Company’s total assets as of May 31, 2019 and 4% of the Company’s revenues for the fiscal year ended May 31, 2019.

The following table shows the executive officers of the Company as of May 31, [removed: 2018,] [added: 2019,] and information regarding their positions and business experience.

| Martin Mucci | | [removed: 58] [added: 59] | | 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: 61] [added: 62] | | 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: 57] [added: 58] | | 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: 52] [added: 53] | | Mr. Gibson joined Paychex in May 2013 as Senior Vice President of Service. Prior to joining the Company, Mr. Gibson served as President and Chief Executive Officer for AlphaStaff, a national provider of human resource outsourcing services to small- and medium-sized businesses. Prior to joining AlphaStaff in 2010, Mr. Gibson was President of the HR Management Division of Convergys, a global leader in technology, outsourcing, and business services. From 2004 to 2007, he served as Senior Vice President of Global Operations and Client Services of Convergys. |

| Michael E. Gioja | | [removed: 60] [added: 61] | | Mr. Gioja was named Senior Vice President of Information Technology and Product Development in July 2011. Mr. Gioja has been with the Company since November 2008 and previously served as Senior Vice President of Information, Technology, Product Management, and 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: 48] [added: 49] | | 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 [removed: Vossler] [added: Vossler(1)] | | [removed: 55] [added: 56] | | 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: 53] [added: 54] | | 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: 2018] [added: 2019] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] in the sections “PROPOSAL 1: ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,” [removed: “SECTION] [added: “DELINQUENT SECTION] 16(a) [removed: BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,”] [added: REPORTS,”] “CORPORATE GOVERNANCE,” and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.

| | (1) | | On July 10, 2019, the Board appointed Ms. Vossler to Vice President and Assistant Treasurer, effective as of the same date. The Board also appointed Robert L. Schrader to Vice President and Controller, effective as of July 10, 2019. |

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

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2018] [added: 2019] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” [removed: and] “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED May 31, [removed: 2018,”] [added: 2019,” “THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT”] and [added: the sub-heading “Governance and Compensation Committee Interlocks and Insider Participation” within the section “CORPORATE GOVERNANCE” 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: 2018] [added: 2019] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] under the section [removed: “SECTION 16(a) BENEFICIAL] [added: “BENEFICIAL] OWNERSHIP [removed: REPORTING COMPLIANCE,”] [added: OF PAYCHEX COMMON STOCK,”] and is incorporated herein by reference.

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

The following table details information on securities authorized for issuance under the Company’s stock option incentive plans as of May 31, [removed: 2018:][added: 2019:]

| Equity compensation plans approved by security holders (1) | | | [removed: 6.5] [added: 6.2] | | $ | [removed: 46.10] [added: 49.80] | | | [removed: 19.4] [added: 18.2] |

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its [removed: 2018] [added: 2019] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] 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: 2018] [added: 2019] Annual Meeting of Stockholders, anticipated to be held on or about October [removed: 11, 2018,] [added: 17, 2019,] under the section “PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,” and is incorporated herein by reference.

| (a) | | [added: |] Financial Statements, Financial Statement Schedules, and Exhibits | | |

| 1. | | [added: |] Financial Statements See Financial Statements and Supplementary Data Table of Contents at page [removed: 32.] [added: 36.] | | |

| 2. | | [added: |] Financial Statement Schedules | | |

| | | [added: |] 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: 32.] [added: 36.] 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. | | [added: |] Exhibits | | |

| | | [added: |] (3)(a) | | [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, 2004](http://www.sec.gov/Archives/edgar/data/723531/000095015204005452/l08538aexv3wa.txt). |

| | | [removed: (3)(b)] | [added: (3.1)] | [removed: [Bylaws,] [added: | [Amended and Restated By-Laws of Paychex, Inc.,] as [removed: amended,] [added: of May 3, 2019,] incorporated herein by reference from Exhibit [removed: 3(b)] [added: 3.1] to the Company’s Form [removed: 10-K] [added: 8-K] filed with the Commission on [removed: July 21, 2006](http://www.sec.gov/Archives/edgar/data/723531/000095015206005992/l20831aexv3wb.txt).] [added: May 7, 2019](http://www.sec.gov/Archives/edgar/data/723531/000072353119000018/payx-20190503xex3_1.htm).] |

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

| # | | [added: |] (10.2) | | [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. 333-207592](http://www.sec.gov/Archives/edgar/data/723531/000072353115000019/exhibit43paychex2002stocki.htm). |

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

| # | | [added: |] (10.4) | | [Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Restricted Stock Unit Award Agreement, incorporated herein by reference from Exhibit 10(n) to the Company’s Form 10-K filed with the Commission on July 18, 2008](http://www.sec.gov/Archives/edgar/data/723531/000095015208005502/l32343aexv10wn.htm). |

| # | | [added: |] (10.5) | | [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, 2008](http://www.sec.gov/Archives/edgar/data/723531/000095015208005502/l32343aexv10wq.htm). |

| # | | [added: |] (10.6) | | [Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated effective October 12, 2005) Form of Restricted Stock Award Agreement (Officer), incorporated herein by reference from Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on July 16, 2010](http://www.sec.gov/Archives/edgar/data/723531/000095012310066009/l39983exv10w18.htm). |

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

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

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

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

| * | | (21.1) | | [Subsidiaries of the [removed: Registrant](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex21_1.htm).] [added: Registrant](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex21_1.htm).] |

| * | | (23.1) | | [Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers [removed: LLP](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex23_1.htm).] [added: LLP](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex23_1.htm).] |

| * | | (24.1) | | [Power of [removed: Attorney](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex24_1.htm).] [added: Attorney](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex24_1.htm).] |

| * | | (31.1) | | [Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex31_1.htm).] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex31_1.htm).] |

| * | | (31.2) | | [Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex31_2.htm).] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex31_2.htm).] |

| * | | (32.1) | | [Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex32_1.htm).] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex32_1.htm).] |

| * | | (32.2) | | [Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of [removed: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353118000026/payx-20180531xex32_2.htm).] [added: 2002](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex32_2.htm).] |

| | | | | | |

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

| | | | | | |

| | | | (2.1) | | [Stock Purchase Agreement by and among Oasis Outsourcing Acquisition Corporation, Oasis Outsourcing Group Holdings, L.P. and Paychex North America Inc., incorporated herein by reference from Exhibit 2.1 to the Company’s Form 10-Q filed with the Commission on December 21, 2018](http://www.sec.gov/Archives/edgar/data/723531/000072353118000048/payx-20181130xex2_1.htm). |

| | | | (4.1) | | [Form of 4.07% Senior Notes, Series A, of Paychex of New York LLC, due March 13, 2026, incorporated herein by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on January 11, 2019](http://www.sec.gov/Archives/edgar/data/723531/000072353119000006/payx-20190109xex4_1.htm). |

| | | | (4.2) | | [Form of 4.25% Senior Notes, Series B, of Paychex of New York LLC, due March 13, 2029, incorporated herein by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on January 11, 2019](http://www.sec.gov/Archives/edgar/data/723531/000072353119000006/payx-20190109xex4_2.htm). |

| * | | | (4.3) | | [Description of Registrant’s Securities](https://www.sec.gov/Archives/edgar/data/723531/000072353119000032/payx-20190531xex4_3.htm). |

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

| | | (10.22) | | [Note Purchase and Guarantee Agreement, dated as of January 9, 2019, by and among the Company, the Parent, and the respective purchasers thereto, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on January 11, 2019](http://www.sec.gov/Archives/edgar/data/723531/000072353119000006/payx-20190109xex10_1.htm). |

| | | | | |

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: 20, 2018.][added: 24, 2019.]

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: 20, 2018.][added: 24, 2019.]

None.

/s/ Robert L.

Schrader

Robert L.

Schrader, Vice President and Controller

(Principal Accounting Officer)

Not Applicable

Phillip Horsley*, Director

Grant M.

Inman*, Director