Paychex (PAYX) 10-K risk factor changes: FY2020 vs FY2019

[removed: These] [added: *Our future results of operations are subject to] risks and uncertainties [added: that] could cause actual results to differ materially from historical and current results, and from our projections.

The [added: following] risk factors [removed: described below] represent our current view of some of the most important risks facing our business and are important to understanding our business.

[removed: The risks described below] [added: These] are not the only risks we face.

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

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

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

A violation of a sanction or embargo [removed: program] [added: program,] or of the [removed: FCPA] [added: 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.

[removed: We] [added: We] may not be able to keep pace with changes in technology or provide timely enhancements to our products and [removed: services.][added: services.]

[removed: Our] [added: Our] reputation, results of operations, or financial condition may be adversely impacted if we fail to comply with data privacy laws and [removed: regulations.][added: regulations. Our services require the storage and transmission of proprietary and confidential information of our clients and their employees, including personal or identifying information, as well as their financial and payroll data.]

In the U.S., we are subject to rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, federal and state labor and employment laws, and state data breach notification [removed: laws.][added: and data privacy laws, such as the California Consumer Protection Act, which became effective on January 1, 2020.]

[removed: We] [added: We] could be subject to reduced revenues, increased costs, liability claims, or harm to our competitive position as a result of cyberattacks, security vulnerabilities or Internet [removed: disruptions.][added: disruptions. We rely upon information technology (“IT”) networks, cloud-based platforms, and systems to process, transmit, and store electronic information, and to support a variety of business processes, some of which are provided by third-party vendors.]

At the same time, the continued occurrence of high-profile [added: cyber-attacks and] data breaches provides evidence of an external environment increasingly hostile to information security.

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

[removed: Third parties,] [added: Third-parties,] including vendors that provide services for our operations, could also be a source of security risk to us in the event of a failure of their own security systems and infrastructure.

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

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

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

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

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

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

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

[removed: Our] [added: Our] clients could have insufficient funds to cover payments we [removed: have] made on their behalf, resulting in financial loss to [removed: us.][added: us. As part of our payroll processing service, we are authorized by our clients to transfer money from their accounts to fund amounts owed to their employees and various taxing authorities.]

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

[removed: We] [added: We] may be adversely impacted by volatility in the political and economic [removed: environment.][added: environment. Trade, monetary and fiscal policies, and political and economic conditions may substantially change, and credit markets may experience periods of constriction and variability.]

[removed: We have] [added: We] made and may continue to make acquisitions that involve numerous risks and [removed: uncertainties.][added: uncertainties. Acquisitions subject us to risks, including increased debt, assumption of unforeseen liabilities, and difficulties in integrating operations.]

[removed: Certain] [added: 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 [removed: condition.][added: condition.]

The Note Purchase and Guarantee Agreement [added: (the “Agreement”)] that we entered into in January 2019 in connection with our acquisition of Oasis, contains [removed: restrictive] covenants which may restrict our flexibility to operate our business.

The [added: Agreement also contains] financial covenants, which are [removed: based] [added: reviewed for compliance] on [added: a] quarterly [removed: financial tests,] [added: basis, that] 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, [removed: we will not permit] certain of our indebtedness [removed: to] [added: may not] exceed 20% of our consolidated stockholders’ equity.

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

[removed: We] [added: We] may not be able to attract and retain qualified people, which could impact the quality of our services and customer [removed: satisfaction.][added: satisfaction. Our success, growth, and financial results depend in part on our continuing ability to attract, retain, and motivate highly qualified people at all levels, including management, technical, compliance, and sales personnel.]

[removed: Failure] [added: Failure] to protect our intellectual property rights may harm our competitive position and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be [removed: costly.][added: costly. Despite our efforts to protect our intellectual property and proprietary information, we may be unable to do so effectively in all cases.]

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

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

[removed: In] [added: In] the event we receive negative publicity, our reputation and the value of our brand could be [removed: harmed] [added: harmed,] and clients may not use our products and services, which may have a material adverse effect on our [removed: business.][added: 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 [added: and employee benefit-related] solutions and PEO [removed: services,] [added: and insurance solutions,] our reputation with our clients may be harmed and the value of our brand may diminish.

[removed: We] [added: We] are involved in litigation from time to time arising from the operation of our business and, as such, we could incur substantial judgments, fines, legal fees, or other [removed: costs.][added: costs. We are sometimes the subject of complaints or litigation from customers, employees, or other third-parties for various actions.]

[removed: Quantitative] [added: Quantitative] and qualitative disclosures about market [removed: risk:] [added: risk:] Refer to [added: the “Market Risk Factors” section contained in] Item 7A of this Form 10-K for a discussion on [removed: Market Risk Factors,] [added: this type of risk,] which could have a material adverse effect on our business and results of operations.

Our business and results of operations have been, and our financial condition may be, impacted by the outbreak of COVID-19 and such impact could be materially adverse. The global spread of COVID-19 created significant volatility, uncertainty and economic disruption.

In the United States and globally, governmental authorities instituted certain preventative measures, including border closures, travel restrictions, operational restrictions on certain businesses, shelter-in-place orders, quarantines and recommendations to practice social distancing.

These restrictions disrupted and may continue to disrupt economic activity, resulting in reduced commercial and consumer confidence and spending, increased unemployment, closure or restricted operating conditions for businesses, volatility in the global capital markets, instability in the credit and financial markets, labor shortages, regulatory recommendations to provide relief for impacted consumers, disruption in supply chains, and restrictions on many hospitality and travel industry operations.

The extent to which the coronavirus pandemic impacts our business, operations, and financial results is uncertain and will depend on future developments, including the duration or recurrence, of the pandemic, the related length and severity of its impact on the U.S. and global economy, and the continued governmental, business and individual actions taken in response to the pandemic and economic disruption.

Impacts related to the COVID-19 pandemic are expected to continue to pose risks to our business for the foreseeable future, heightened many of the risks and uncertainties identified below, and could have a materially adverse impact on our business, financial condition, and results of operations.

[Table of Contents](#TableOfContents)

Our business is substantially dependent on our clients continued use of our solutions and services, and our results of operations will decline if our clients are no longer willing or able to use them.

Our clients are sensitive to negative changes in economic conditions.

If they cease operations or file for bankruptcy protection, we may not be paid for services we already provided, and our client base will shrink, which will lower our revenue.

If under financial pressure, our clients may determine that they are no longer willing to pay for the services and solutions we provide, which would reduce our revenue.

Our clients may decrease their workforce, which would decrease their demand for our services.

Because of spending constraints on our clients and competition in the industry, we may face pricing pressure on our services and face challenges in onboarding new clients, which would reduce revenue and ultimately impact our results of operations.

If the third-party service providers we rely on are unable to perform their services for us and our clients, our operations could be materially disrupted and we could face significant penalties or liabilities.

Our operational risk, including data security risk, has increased during the pandemic as a majority of our employees are working remotely and cybercriminal activity increases in an attempt to profit from the disruption to typical operations.

There has been and may continue to be a significant number of new laws and regulations promulgated by federal, state, local, and foreign governments following the outbreak of the COVID-19 pandemic.

We have expended additional resources and incurred additional costs in addressing regulatory requirements applicable to us and our clients.

These regulations may be unclear, difficult to interpret or in conflict with other applicable regulations.

The failure to comply with these new laws and regulations could result in financial penalties, legal proceedings, and reputational harm.

[Table of Contents](#TableOfContents)

In addition, cybercriminals may seek to exploit the disruption caused by the COVID-19 pandemic by attempting to engage in payment-related fraud or by more frequently attempting to gain access to our systems through phishing or other means that may be more successful when most of our employees are working remotely.

We may be particularly targeted for cyber-attack because of the amount and type of personal and business information that we collect, use, and retain.

[Table of Contents](#TableOfContents)

If a significant number of our clients are unable to cover payments we make on their behalf, our results of operations will be materially adversely impacted.

[Table of Contents](#TableOfContents)

If we sell available-for-sale securities to satisfy short-term funding requirements, we may recognize losses, which would reduce the interest income earned on funds held for clients.

[Table of Contents](#TableOfContents)

Third-parties may claim that we are infringing their intellectual property rights.

To the extent we seek to enforce or must defend our intellectual property rights with litigation, we could incur significant expenses and/or be required to pay substantial damages.

We may also be obligated to indemnify our customers or vendors in connection with claims or litigation.

The litigation to enforce or defend our intellectual property rights could be costly and time-consuming.

Our future results of operations are subject to a number of risks and uncertainties.

Failure to educate and assist our clients regarding new or revised legislation that impacts them could have an adverse impact on our reputation.

Failure by us to modify our services in a timely fashion in response to regulatory changes could have a material adverse effect on our business and results of operations.

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

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

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

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

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

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

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

Within our PEO business, we maintain health and workers’ compensation insurance covering worksite employees.

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

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

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

When there is a slowdown in the economy, employment levels and interest rates may decrease or become more volatile.

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

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

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

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.

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

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, 2019 (“fiscal 2019” or the “fiscal year”), May 31, 2018 (“fiscal 2018”), and May 31, 2017 (“fiscal 2017”), and our financial condition as of May 31, 2019.

This review should be read in conjunction with the accompanying consolidated financial statements and the related Notes to Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K (“Form 10-K”) and the “Risk Factors” discussed in Item 1A of this Form 10-K.

Forward-looking statements in this review are qualified by the cautionary statement under the heading “Cautionary Note Regarding Forward-Looking Statements Pursuant to the United States Private Securities Litigation Reform Act of 1995” contained at the beginning of Part I of this Form 10-K.

Overview

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

We offer a comprehensive portfolio of HCM services and products that allow our clients to meet their diverse payroll and HR needs.

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

Mid-market companies typically have more 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, onboarding solutions, and performance and learning management.

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

Management Solutions:

| | · | | payroll processing services; |

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

| | · | | payroll tax administration services; |

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

| | · | | employee payment services; |

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

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

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

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

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

| | · | | retirement services administration; |

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

| | · | | HR administration services, including time and attendance, benefit enrollment, recruiting, and onboarding; |

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

| | · | | other HR services and products; and |

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

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

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

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. |

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

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

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

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

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

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

We believe these investments are critical to our success.

Market Risk Factors

Changes in interest rates and interest rate risk: Funds held for clients are primarily comprised of short-term funds and available-for-sale securities.

Corporate investments are primarily comprised of available-for-sale securities.

As a result of our investing activities, we are exposed to changes in interest rates that may materially affect our results of operations and financial position.

Changes in interest rates will impact the earnings potential of future investments and will cause fluctuations in the fair value of our longer-term available-for-sale securities.

We follow an investment strategy of protecting principal and optimizing liquidity.

A substantial portion of our 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 and treasury securities and corporate bonds.

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

We manage the available-for-sale securities to a benchmark duration of two and one-half to three and three-quarters years.

During fiscal 2019, our primary short-term investment vehicles were government agency discount notes, VRDNs, and bank demand deposit accounts.

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

We have insignificant exposure to European investments.

We have not and do not utilize derivative financial instruments to manage our interest rate risk.

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

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

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

Earnings from the available-for-sale securities, which as of May 31, 2019 had an average duration of 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, 2019 are shown below by contractual maturity.

Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

| | | | | | | |

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

| | | | | | | |

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

| | | Amortized | | | Fair | |

| In millions | | cost | | | value | |

| Maturity date: | | | | | | |

| Due in one year or less | | $ | 183.5 | | $ | 183.4 |

| Due after one year through three years | | | 898.9 | | | 903.1 |

| Due after three years through five years | | | 989.2 | | | 998.7 |

| Due after five years | | | 1,529.5 | | | 1,535.6 |

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

VRDNs are primarily categorized as due after five years in the table above as the contractual maturities on these securities are typically 20 to 30 years.

Although these securities are issued as long-term securities, they are priced and traded as short-term instruments because of the liquidity provided through the tender feature.

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

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

Calculating the future effects of changing interest rates involves many factors.

These factors include, but are not limited to:

- daily interest rate changes;

- seasonal variations in investment balances;

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

As of May 31, [removed: 2019,] [added: 2020,] we served [removed: approximately 670,000] [added: greater than 680,000] payroll and PEO clients.

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

[removed: Company Strategy][added: Company Strategy]

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

[removed: Our industry-leading] [added: We provide leading-edge HCM] technology [removed: combines] [added: solutions, coupled] with [removed: our personalized, technology-enabled service] [added: human expertise,] to make [added: complex HR,] payroll, [removed: benefits,] and [removed: HR administration] [added: benefits issues] simple for our clients.

[removed: Our Clients][added: Our Clients]

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

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

[removed: Our clients have the option to] [added: Clients can] select the [removed: HCM] modules they need [removed: with the ability to] [added: and] easily add [added: on additional] services as they grow.

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

[removed: This] [added: The] flexibility [removed: allows] [added: and scalability of] our [added: solutions allow our] clients to define the solution that best meets their [removed: needs.][added: needs and to grow within the Flex platform.]

For the fiscal year ended May 31, [removed: 2019] [added: 2020] (“fiscal [removed: 2019”),] [added: 2020”),] client retention was [added: at record levels of] over [removed: 82%] [added: 83%] of our beginning client base for the fiscal [removed: year, in line with our historic best retention rate.][added: year.]

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

Clients [removed: can] [added: may] choose to have our service team handle everything for them, or [removed: can] process payroll themselves utilizing our [added: proprietary,] robust [added: SaaS] Paychex [removed: Flex® processing] [added: Flex] platform [removed: or] [added: and our] SurePayroll® [removed: online applications.][added: SaaS-based products.]

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

[removed: With an] [added: Our mid-market clients generally have more complex payroll and employee benefit needs, though with the] environment of increasing regulations, [added: we believe] the need for HR outsourcing services [removed: is] [added: has been] moving down-market.

[removed: In addition,] [added: Both] our [removed: small-market] [added: small and mid-market] clients can choose one of our comprehensive HR [removed: and payroll] outsourcing services, which include ASO and PEO [removed: services,] [added: solutions,] and participate in our benefits offerings, which include our insurance and retirement services.

[removed: Description] [added: Description] of [removed: Services][added: Services]

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

Our portfolio of [removed: HCM and employee benefit-related] services [removed: are] [added: is] comprised of the following:

[removed: Management Solutions:][added: Management Solutions:]

[removed: | | · | | Payroll] [added: ·Payroll] processing [removed: services:] [added: services:] 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. [removed: |]

[removed: | | · | | Payroll tax administration services: 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 federal, state, and local tax or regulatory 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. [removed: 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. |]

[removed: | | · | | HR] [added: ·HR] Solutions [removed: (ASO):] [added: (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. [removed: Paychex HR Essentials is an ASO product that provides support to our clients over the phone or online to help manage employee-related topics. |]

[removed: | | · | | Other] [added: ·Other] HR services and [removed: products:] [added: 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. [removed: 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: PEO] [added: PEO] and Insurance [removed: Services:][added: Solutions:]

[removed: | | · | | PEO services:] [added: ·PEO solutions:] 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. [removed: 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. |]

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

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

[removed: Our] [added: The] platform [removed: is backed by] [added: embeds] self-service capabilities that empower client employees to [removed: access] [added: manage] their [removed: benefits] [added: HR] and [removed: complete tasks] [added: benefits information] from any [removed: location and] [added: location,] on any device.

These self-service capabilities allow for greater [added: access and] convenience for client employees and greater productivity for [removed: our] clients.

We continue to invest in Paychex Flex, making significant enhancements designed to simplify the complexity of [removed: HR administration.][added: HR.]

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

[removed: Our] [added: We believe our] Paychex mobile applications add greater value and convenience for our clients and their employees by allowing them instant access [removed: and increased productivity.][added: on their mobile device.]

[removed: Sales] [added: Sales] and [removed: Marketing][added: Marketing]

We market and sell our services primarily through our direct sales force based in the [removed: metropolitan] markets we serve.

[removed: This online channel] [added: The website] allows us to market to existing and prospective clients that want to learn more about our products and [removed: services.][added: services and offers information about our core lines of business: human resources (www.paychex.com/human-resources), payroll (www.paychex.com/payroll), benefits (www.paychex.com/employee-benefits), and insurance (www.paychex.com/business-insurance).]

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

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

Unless we state otherwise or the context otherwise requires, the terms “Paychex,” “we,” “us,” “our” and the “Company” refer to Paychex, Inc., a Delaware corporation, and its consolidated subsidiaries.

Overview

Our purpose is to allow our customers the freedom to succeed.

The workplace is evolving, and we lead the way by making complex HR, payroll, and benefits simple for our clients.

Paychex incorporated in Delaware in 1979 and has a fiscal year that ends May 31st.

For any organization, a key function is the effective management of human capital which requires both resources and expertise.

Organizations are faced with complex and ever-changing requirements, including diverse federal, state and local regulations across multiple jurisdictions.

In addition, the workplace is rapidly changing as employees increasingly become mobile, work remotely, and expect a user experience similar to consumer-oriented Internet applications.

We focus on helping small- to medium-sized businesses who do not have the resources or expertise to adapt to the constantly evolving environment.

The COVID-19 environment has further accelerated certain trends and increased regulatory complexity.

Paychex offers a wide range of services – including a fully outsourced HR solution, payroll processing, retirement services, and insurance – allowing us to customize our offering to the client's business, whether it is small or large, simple or complex.

We believe that we have the breadth of solutions to cover the spectrum of the employee life cycle, but we also allow integration with some of the most popular HR, accounting, point-of-sale, and productivity applications on the market today.

Our comprehensive solutions allow our clients to manage their workforces effectively from hire to retire.

The key features of our solutions are:

·Comprehensive cloud-based platform optimized to meet the payroll and HCM needs of small and medium-sized organizations;

·Streamlined workforce management that combines technology with flexible service options;

·Modern, mobile, and intuitive user experience and self-service capabilities that significantly increase employee engagement;

·Scalable and customizable platform that allows clients the ability to add services as they grow;

·Software as a service, or “SaaS”, delivery model that reduces total cost of ownership for our clients; and

·Over 45 years of expertise in HR and payroll with our technology backed by over 200 compliance experts and 600 HR business partners.

We market our solutions through our direct and virtual sales forces which are supported by various corporate lead generation and marketing initiatives.

Over 50% of our revenues are gained from our services beyond payroll processing.

We focus on providing an industry-leading client experience, and continue to see improving client satisfaction scores and retention.

We intend to strengthen and extend our position as a leading provider through continued investments in both our technology and service offerings.

Key elements of our strategy include:

·Providing industry-leading, integrated technology. We continue to invest significantly in our award-winning Paychex Flex® platform and mobility applications to increase efficiency and functionality for our clients and their employees.

[Table of Contents](#TableOfContents)

·Increasing client satisfaction. Our flexible service model and technology-enabled service allows us to provide a personalized service experience for our clients and their employees.

We continue to invest in artificial intelligence and machine learning and self-service capabilities to allow clients and their employees easy, intuitive, and flexible service how, when, and where they want it.

·Expanding our leadership in HR. We have a comprehensive suite of value-added HR Solutions for our clients and their employees.

Greater than half of our revenues are from HR and benefits solutions beyond payroll.

After several strategic PEO acquisitions over the past several years, we are now the second largest provider of PEO services in the nation.

With over 600 HR business partners, we have extensive expertise that we believe sets us apart in the industry.

·Growing our client base. We believe there is significant potential to grow within our current target markets.

We have invested significantly in new demand generation and sales tools and expanding certain areas of our sales force.

We continue to focus on sales productivity with the intent of expanding our market share across all our product lines.

·Engaging in strategic acquisitions. In the past, we utilized acquisitions as a mean to expand our portfolio, enter new markets or increase our scale.

We continue to evaluate and monitor potential acquisitions and will utilize this when the acquisitions are in alignment with our overall strategy.

Our Solutions

Our solutions bring together payroll and HCM software with flexible, personalized technology-enabled service capabilities.

We report our results of operations and financial condition as one business segment.

Our fiscal year ends May 31st.

Our business strategy focuses on the following:

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

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

| | · | | industry-leading, integrated technology; |

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

| | · | | solid sales execution; |

| | · | | continued service penetration; and |

| | · | | engaging in strategic acquisitions. |

We do this through the Power of Simplicity.

We utilize service agreements and arrangements with clients that are generally terminable by the client at any time or upon relatively short notice.

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

Our advanced suite of time and attendance products, including web and mobile tools, assist companies with the scheduling, tracking, and reporting of time.

Our mid-market clients have more complex payroll and employee benefit needs.

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

Most new clients are sold on the Paychex Flex platform.

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

Paychex Flex Enterprise allows mid-market clients to choose the services and software they need to meet the complexity of their business and all integrated into one HCM solution.

| | · | | Employee payment services: Our employee payment services provide an employer 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. 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. |

| | · | | 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. |

| | · | | HR administration services: We offer cloud-based HR administration software for employee benefits management and administration, time and attendance solutions, recruiting, and onboarding. Paychex HR Online offers powerful tools for managing employee personnel information, performance management, HR compliance and reporting. Our Learning Management solution compliments our performance management. When combined with our workflow and approval engine, we offer clients the 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 process for both open-enrollment and life events. Our time and attendance products, including our integrated Flex Time software, provide timekeeping, scheduling, and workforce analytics. 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. The InVisionTM IRIS Time Clock, a biometric clock that scans the iris, provides fast and accurate time capture. The applicant tracking suite provides technology that streamlines, simplifies, and drives the applicant workflow and onboarding process for companies of all sizes. |

| | · | | Business services: We offer various 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. Paychex Promise, a subscription-based 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. |

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

Technology and Service Platform

Paychex Flex is our proprietary HCM SaaS platform through which we provide an integrated product suite that covers the employee life cycle from recruiting and hiring to retirement.

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

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

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.

Enabling our clients and their employees to have full access to our products offers diverse capabilities and flexibility for both the employer and employee.

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, and for products for which we do not have a local sales force.

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).

None of our employees were covered by collective bargaining agreements.

We are subject to various claims and legal matters that arise in the normal course of our business.

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

Our management currently believes that resolution of outstanding legal matters will not have a material adverse effect on our financial position or results of operations.

However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse impact on the Company’s financial position and the results of operations in the period in which any such effect is recorded.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: WASHINGTON,] [added: WASHINGTON,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: FORM 10-K]

[removed: ANNUAL] [added: x ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF [added: THE SECURITIES EXCHANGE ACT OF 1934]

[removed: For] [added: For] the fiscal year [removed: ended May 31, 2019][added: ended May 31, 2020]

[removed: Commission] [added: Commission] file [removed: number 0-11330][added: number 0-11330]

[removed: Paychex, Inc.][added: Paychex, Inc.]

| [removed: Title] [added: Title] of each [removed: class] [added: class] | [removed: Trading Symbol(s)] [added: Trading Symbol(s)] | [removed: Name] [added: Name] of each exchange on which [removed: registered] [added: registered] |

| [removed: Common] [added: Common] Stock, $0.01 par [removed: value] [added: value] | [removed: PAYX] [added: PAYX] | [removed: Nasdaq Global] [added: Nasdaq Global] Select [removed: Market] [added: Market] |

Yes [removed: ☑] [added: ] No [removed: ☐][added: ]

Yes [removed: ☐] [added: ] No [removed: ☑][added: ]

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

| Large accelerated filer [removed: ☑] [added: ] | | Accelerated filer [removed: ☐] [added: ] | | Non-accelerated filer [removed: ☐] [added: ] | | Smaller reporting company [removed: ☐] [added: ] |

| | | | | | | Emerging growth company [removed: ☐] [added: ] |

As of November 30, [removed: 2018,] [added: 2019,] 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: $22,652,311,624] [added: $27,530,894,822] based on the closing price reported for such date on the Nasdaq Global Select Market.

As of June 30, [removed: 2019, 359,345,511] [added: 2020, 358,769,682] shares of the registrant’s common stock, $.01 par value, were outstanding.

[removed: Documents] [added: Documents] Incorporated by [removed: Reference][added: Reference]

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: 17, 2019,] [added: 15, 2020,] to the extent not set forth herein, are incorporated by reference into Part III, Items 10 through 14, inclusive.

[removed: INDEX] [added: INDEX] TO FORM [removed: 10-K][added: 10-K]

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

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

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

| [Item 1A](#RiskFactors) | [Risk Factors](#RiskFactors) | [removed: 8] [added: 9] | | |

| [Item 1B](#UnresolvedStaffComments) | [Unresolved Staff Comments](#UnresolvedStaffComments) | [removed: 12] [added: 14] | | |

| [Item 2](#Properties) | [Properties](#Properties) | [removed: 13] [added: 15] | | |

| [Item 3](#LegalProceedings) | [Legal Proceedings](#LegalProceedings) | [removed: 13] [added: 15] | | |

| [Item 4](#MineSafetyDisclosures) | [Mine Safety Disclosures](#MineSafetyDisclosures) | [removed: 13] [added: 15] | | |

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

| [Item 5](#MarketforCommonEquity) | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity](#MarketforCommonEquity) [removed: [Securities](#MarketforCommonEquity)] [added: ‎[Securities](#MarketforCommonEquity)] | [removed: 13] [added: 15] | | |

| [Item 6](#SelectedFinancialData) | [Selected Financial Data](#SelectedFinancialData) | [removed: 16] [added: 18] | | |

| [Item 7](#MDA) | [Management’s Discussion and Analysis of Financial Condition and Results of Operations](#MDA) | [removed: 17] [added: 19] | | |

| [Item 7A](#MarketRisk) | [Quantitative and Qualitative Disclosures About Market Risk](#MarketRisk) | [removed: 34] [added: 33] | | |

| [Item 8](#FinancialStatementsAndSupplementaryData) | [Financial Statements and Supplementary Data](#FinancialStatementsAndSupplementaryData) | [removed: 36] [added: 35] | | |

| [Item 9](#ChangesAndDisagreements) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ChangesAndDisagreements) | [removed: 80] [added: 74] | | |

| [Item 9A](#ControlsAndProcedures) | [Controls and Procedures](#ControlsAndProcedures) | [removed: 80] [added: 74] | | |

| [Item 9B](#OtherInformation) | [Other Information](#OtherInformation) | [removed: 81] [added: 74] | | |

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

| [Item 10](#DirectorsExecutiveOfficers) | [Directors, Executive Officers and Corporate Governance](#DirectorsExecutiveOfficers) | [removed: 82] [added: 75] | | |

| [Item 11](#ExecutiveCompensation) | [Executive Compensation](#ExecutiveCompensation) | [removed: 83] [added: 76] | | |

_________________________________________

_________________________________________

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From __________to __________

____________________________________

(Exact name of registrant as specified in its charter)

| | | |

| Delaware (State or other jurisdiction of incorporation or organization) | | 16-1124166 (I.R.S. Employer Identification No.) |

| 911 Panorama Trail South Rochester, NY (Address of principal executive offices) | | 14625-2396 (Zip Code) |

Registrant’s telephone number, including area code: (585) 385-6666

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

Securities registered pursuant to Section 12(g) of the Act: None

Yes  No 

Yes  No 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Yes  No 

[Table of Contents](#TableOfContents)

PAYCHEX, INC.

For the fiscal year ended May 31, 2020

[Table of Contents](#TableOfContents)

PART I

·the impact of the outbreak of COVID-19 on the U.S. and global economy and on our ability to provide services to our clients;

[Table of Contents](#TableOfContents)

Information available on our website is not a part of, and is not incorporated into, this Form 10-K.

[Table of Contents](#TableOfContents)

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

_____________________________

THE SECURITIES

EXCHANGE ACT OF 1934

____________________________

911 Panorama Trail South

Rochester, New York 14625-2396

(585) 385-6666

A Delaware Corporation

IRS Employer Identification Number: 16-1124166

PART I

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

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

[Table of Contents](#TableOfContents)

Item 2. Properties

We owned and leased the following properties as of May 31, 2020:

| | | |

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

| | | |

| | | Square feet |

| Owned facilities: | | |

| Rochester, New York | | 1,012,000 |

| Other U.S. locations | | 65,000 |

| International locations | | 13,000 |

| Total owned facilities | | 1,090,000 |

| | | |

| Leased facilities: | | |

| Rochester, New York | | 97,000 |

| Other U.S. locations | | 1,937,000 |

| International locations | | 86,000 |

| Total leased facilities | | 2,120,000 |

Our facilities in Rochester, New York house various distribution, processing, and technology functions, certain ancillary functions, a telemarketing unit, and other back-office functions.

Facilities outside of Rochester, New York are in various locations throughout the U.S. and house our service centers, fulfillment centers and sales functions.

Our international locations primarily house our European operations in Denmark and Germany and a location in India houses information technology, service, and sales support functions.

We believe that adequate, suitable lease space will continue to be available to meet our needs.

Item 3. Legal Proceedings

We are subject to various claims and legal matters that arise in the normal course of our business.

These include disputes or potential disputes related to breach of contract, tort, employment-related claims, tax claims, patent, statutory, and other matters.

Our management currently believes that resolution of outstanding legal matters will not have a material adverse effect on our financial position or results of operations.

However, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse impact on the Company’s financial position and the results of operations in the period in which any such effect is recorded.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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

Dividends have historically been paid on our common stock in August, November, February, and May.

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

As of June 30, 2020, there were 10,075 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 4,031 participants in the Paychex, Inc. Qualified Employee Stock Purchase Plan and 4,393 participants in the Paychex, Inc. Employee Stock Ownership Plan.

[Table of Contents](#TableOfContents)

In May 2019, our Board approved a program to repurchase up to $400.0 million of our common stock with authorization expiring in May 2022.

All shares repurchased during fiscal 2020 were retired and were as follows:

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

We owned and leased the following properties as of May 31, 2019:

| | | |

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

| | | |

| | | Square feet |

| Owned facilities: | | |

| Rochester, New York | | 1,012,000 |

| Other U.S. locations | | 65,000 |

| International locations | | 13,000 |

| Total owned facilities | | 1,090,000 |

| | | |

| Leased facilities: | | |

| Rochester, New York | | 111,000 |

| Other U.S. locations | | 2,106,000 |

| International locations | | 88,000 |

| Total leased facilities | | 2,305,000 |

Our facilities in Rochester, New York house various distribution, processing, and technology functions, certain ancillary functions, a telemarketing unit, and other back-office functions.

Facilities outside of Rochester, New York are 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.

These locations are concentrated in metropolitan areas.

Our international locations primarily house our European branches and sales locations, and a location in India primarily houses information technology staffing.

We believe that adequate, suitable lease space will continue to be available to meet our needs.

Not applicable.

PART II

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

Dividends have historically been paid on our common stock in August, November, February, and May.

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

As of June 30, 2019, there were 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 4,350 participants in the Paychex, Inc. Qualified Employee Stock Purchase Plan and 4,388 participants in the Paychex, Inc. Employee Stock Ownership Plan.

During fiscal 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 expired on May 31, 2019.

This program allowed us to repurchase up to $350.0 million of our common stock.

Shares repurchased under this program during fiscal 2019 were as follows (in millions):

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

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

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

| 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 |

| Second quarter | | — | | $ | — | | | — | | $ | 67.7 |

| Third quarter | | — | | $ | — | | | — | | $ | 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 | | | |

All shares of stock repurchased during fiscal 2019 were retired.

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.

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

All comparisons of stock price performance shown assume reinvestment of dividends.

We are a participant in the S&P 500 Index, a market group of companies with a larger than average market capitalization.

Our Peer Group is a group of companies with comparable revenue and net income, who are in a comparable industry, or who are direct competitors of Paychex (as detailed below).


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

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

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

| May 31, | | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 |

| 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 |

There can be no assurance that our stock performance will continue into the future with the same or similar trends depicted in the graph above.

We neither make nor endorse any predictions as to future stock performance.

Our Peer Group for fiscal 2019 is comprised of the following companies:

| | | |

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

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

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

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

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

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

| Year ended May 31, | | 2019(4) | | | | 2018(1),(2),(3),(4) | | | | 2017(1),(4) | | | | 2016(5),(6) | | | | 2015(6) | | |

| Service revenue | | $ | 3,691.9 | | | $ | 3,314.2 | | | $ | 3,102.4 | | | $ | 2,905.8 | | | $ | 2,697.5 | |

| Interest on funds held for clients | | | 80.6 | | | | 63.5 | | | | 50.6 | | | | 46.1 | | | | 42.1 | |

| Total revenue | | $ | 3,772.5 | | | $ | 3,377.7 | | | $ | 3,153.0 | | | $ | 2,951.9 | | | $ | 2,739.6 | |

| Operating income | | $ | 1,371.3 | | | $ | 1,291.5 | | | $ | 1,253.9 | | | $ | 1,146.6 | | | $ | 1,053.6 | |

| Net income | | $ | 1,034.4 | | | $ | 994.1 | | | $ | 826.3 | | | $ | 756.8 | | | $ | 674.9 | |

| Basic earnings per share | | $ | 2.88 | | | $ | 2.77 | | | $ | 2.30 | | | $ | 2.10 | | | $ | 1.86 | |

| Diluted earnings per share | | $ | 2.86 | | | $ | 2.75 | | | $ | 2.28 | | | $ | 2.09 | | | $ | 1.85 | |

| Cash dividends per common share | | $ | 2.30 | | | $ | 2.06 | | | $ | 1.84 | | | $ | 1.68 | | | $ | 1.52 | |

| Purchases of property and equipment | | $ | 123.8 | | | $ | 154.0 | | | $ | 94.3 | | | $ | 97.7 | | | $ | 102.8 | |

| Cash, restricted cash, and total corporate investments | | $ | 779.9 | | | $ | 719.7 | | | $ | 777.4 | | | $ | 793.2 | | | $ | 936.4 | |

| Total assets | | $ | 8,676.0 | | | $ | 7,915.4 | | | $ | 7,280.8 | | | $ | 6,440.8 | | | $ | 6,467.5 | |

| Total debt | | $ | 796.4 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |

| Stockholders’ equity | | $ | 2,619.5 | | | $ | 2,356.8 | | | $ | 2,227.2 | | | $ | 1,911.7 | | | $ | 1,785.5 | |

| Return on stockholders’ equity | | | 42 | % | | | 44 | % | | | 39 | % | | | 40 | % | | | 36 | % |

| | (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. |

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

| | (2) | | In fiscal 2018, the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) significantly impacted our net income, basic and diluted earnings per share, and return on stockholders’ equity. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,” of this Form 10-K for additional discussion of the impact of the Tax Act. |

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

| | (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. |

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

| | (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 discrete tax benefit increased diluted earnings per share by approximately $0.02 per diluted share, $0.04 per diluted share, and $0.05 per diluted share for fiscal 2019, fiscal 2018, and fiscal 2017, respectively. |

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

| | (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 net tax benefit increased diluted earnings per share by approximately $0.06 per share. |

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

| | (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. |

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

TABLE OF CONTENTS

| | | |

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

| Description | Page | |

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

| [Report of Independent Registered Public Accounting Firm](#ReportofIndependentAccountingFirm) | 38 | |

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

| [Consolidated Balance Sheets as of May 31, 2019 and 2018](#BS) | 41 | |

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

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

| [Notes to Consolidated Financial Statements](#Notes) | 44 | |

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

REPORT ON MANAGEMENT’S ASSESSMENT OF

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Paychex, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2019.

In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control — Integrated Framework” (2013).

Based on our assessment, management determined that the Company maintained effective internal control over financial reporting as of May 31, 2019.

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.

The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, is appointed by the Company’s Audit Committee.

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, 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.

| | | |

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

| /s/ Martin Mucci Martin Mucci President and Chief Executive Officer | | /s/ Efrain Rivera Efrain Rivera Senior Vice President, Chief Financial Officer, and Treasurer |

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Paychex, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Paychex, Inc. and its subsidiaries as of May 31, 2019 and 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, 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, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 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, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

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

None.

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 Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.

Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that as of May 31, 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, 2019.

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.

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, 2019, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Internal Control Over Financial Reporting: The Report on Management’s Assessment of Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in Part II, Item 8 of this Form 10-K.

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.

None.

PART III

The following table shows the executive officers of the Company as of May 31, 2019, and information regarding their positions and business experience.

Such executive officers hold principal policy-making powers at the Company.

| | | | | |

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

| Name | | Age | | Position and business experience |

| Martin Mucci | | 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 | | 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 | | 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 | | 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 | | 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. |

| | | | | |

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

| Name | | Age | | Position and business experience |

| Stephanie L. Schaeffer | | 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 Vossler(1) | | 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 | | 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. |

| | (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 additional information required by this item is set forth in the Company’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders, anticipated to be held on or about October 17, 2019, in the sections “PROPOSAL 1: ELECTION OF DIRECTORS FOR A ONE-YEAR TERM,” “DELINQUENT SECTION 16(a) REPORTS,” “CORPORATE GOVERNANCE,” and “CODE OF BUSINESS ETHICS AND CONDUCT” and is incorporated herein by reference.

The information required by this item is set forth in the Company’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders, anticipated to be held on or about October 17, 2019, in the sections “COMPENSATION DISCUSSION AND ANALYSIS,” “NAMED EXECUTIVE OFFICER COMPENSATION,” “DIRECTOR COMPENSATION FOR THE FISCAL YEAR ENDED May 31, 2019,” “THE GOVERNANCE AND COMPENSATION COMMITTEE REPORT” and 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 2019 Annual Meeting of Stockholders, anticipated to be held on or about October 17, 2019, under the section “BENEFICIAL OWNERSHIP OF PAYCHEX COMMON STOCK,” and is incorporated herein by reference.

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

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

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

Refer to Note 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, 2019:

| | | | | | | | | | |

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

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

| Equity compensation plans approved by security holders (1) | | | 6.2 | | $ | 49.80 | | | 18.2 |

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

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

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

PART IV

| | | | | | |

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

| | | | | | |

| (a) | | | Financial Statements, Financial Statement Schedules, and Exhibits | | |

| 1. | | | Financial Statements See Financial Statements and Supplementary Data Table of Contents at page 36. | | |

| 2. | | | Financial Statement Schedules | | |

| | | | 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 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. | | | Exhibits | | |

| | | | (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). |

| | | | (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). |

| | | | (3.1) | | [Amended and Restated By-Laws of Paychex, Inc., as of May 3, 2019, incorporated herein by reference from Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on May 7, 2019](http://www.sec.gov/Archives/edgar/data/723531/000072353119000018/payx-20190503xex3_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). |

| # | | | (10.1) | | [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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

| # | | | (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). |

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

| # | | | (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). |

| | | | | |

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

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

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

| # | | (10.13) | | [Paychex, Inc. Change In Control Plan, incorporated herein by reference from Exhibit 10.24 to the Company’s Form 10-K filed with the Commission on July 15, 2011](http://www.sec.gov/Archives/edgar/data/723531/000095012311065947/l42678exv10w24.htm). |

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

| | | (10.15) | | [Form of Indemnity Agreement for Directors and Officers, incorporated herein by reference from Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on March 28, 2012](http://www.sec.gov/Archives/edgar/data/723531/000119312512137499/d299747dex101.htm). |

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

| # | | (10.17) | | [Paychex, Inc. Employee Deferred Compensation Plan, incorporated herein by reference from Exhibit 10.30 to the Company’s Form 10-K filed with the Commission on July 20, 2009](http://www.sec.gov/Archives/edgar/data/723531/000095012309023519/l36954aexv10w30.htm). |

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

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

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

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

| | | (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). |

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

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on July 24, 2019.

PAYCHEX, INC.

By: /s/ Martin Mucci

Martin Mucci

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on July 24, 2019.

/s/ Martin Mucci

Martin Mucci, President and

Chief Executive Officer, and Director

(Principal Executive Officer)

/s/ Efrain Rivera

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

(Principal Financial Officer)

/s/ Robert L.

Schrader

Robert L.

Schrader, Vice President and Controller

(Principal Accounting Officer)

B.

Thomas Golisano*, Chairman of the Board

Thomas F.

Bonadio*, Director

Joseph G.

Doody*, Director

David J.S. Flaschen*, Director

Pamela A.

Joseph*, Director

Joseph M.

Tucci*, Director

Joseph Velli*, Director

Kara Wilson*, Director

*By: /s/ Martin Mucci

Martin Mucci, as Attorney-in-Fact