Item 1. Financial Statements

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

In millions, except per share amounts

		For the three months ended
		August 31,
		2026					2025
Revenue:
Management Solutions		$		1,213.1			$		1,163.3
PEO and Insurance Solutions				367.6					329.1
Total service revenue				1,580.7					1,492.4
Interest on funds held for clients				49.8					47.6
Total revenue				1,630.5					1,540.0
Expenses:
Cost of service revenue				430.1					413.8
Selling, general and administrative expenses				581.2					584.3
Total expenses				1,011.3					998.1
Operating income				619.2					541.9
Interest expense				(65.1	)				(68.2	)
Other income, net				10.9					23.8
Income before income taxes				565.0					497.5
Income taxes				135.3					113.7
Net income		$		429.7			$		383.8
Other comprehensive (loss)/income, net of tax				(31.4	)				28.7
Comprehensive income		$		398.3			$		412.5
Basic earnings per share		$		1.21			$		1.07
Diluted earnings per share		$		1.21			$		1.06
Weighted-average common shares outstanding				355.8					360.1
Weighted-average common shares outstanding, assuming dilution				356.6					361.9

See Notes to Consolidated Financial Statements.

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PA****YCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

		August 31,					May 31,
		2026					2026
Assets
Cash and cash equivalents		$		600.9			$		1,088.2
Restricted cash				55.0					52.8
Corporate investments				333.3					36.3
Interest receivable				39.2					36.1
Accounts receivable, net of allowance for credit losses				1,615.9					1,507.6
PEO unbilled receivables, net of advance collections				680.2					664.2
Prepaid income taxes				11.5					11.2
Prepaid expenses and other current assets				409.2					384.7
Current assets before funds held for clients				3,745.2					3,781.1
Funds held for clients				4,348.4					4,832.2
Total current assets				8,093.6					8,613.3
Property and equipment, net of accumulated depreciation				614.6					588.9
Operating lease right-of-use assets, net of accumulated amortization				75.8					63.9
Intangible assets, net of accumulated amortization				1,626.2					1,684.0
Goodwill				4,534.1					4,527.4
Long-term deferred costs				571.0					555.8
Other long-term assets				145.4					141.2
Total assets		$		15,660.7			$		16,174.5
Liabilities
Accounts payable		$		141.4			$		154.8
Accrued corporate compensation and related items				132.5					162.1
Accrued worksite employee compensation and related items				824.7					844.8
Accrued income taxes				81.1					87.8
Deferred revenue				70.8					69.4
Other current liabilities				648.8					637.1
Current liabilities before client fund obligations				1,899.3					1,956.0
Client fund obligations				4,440.7					4,884.6
Total current liabilities				6,340.0					6,840.6
Accrued income taxes				145.5					140.5
Deferred income taxes				537.6					543.3
Long-term borrowings, net of debt issuance costs				4,558.0					4,556.1
Operating lease liabilities				62.9					52.2
Other long-term liabilities				311.2					306.7
Total liabilities				11,955.2					12,439.4
Commitments and contingencies — Note H
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding: 356.0 shares as of August 31, 2026 and 355.6 shares as of May 31, 2026				3.6					3.6
Additional paid-in capital				1,994.8					1,975.6
Retained earnings				1,788.4					1,805.8
Accumulated other comprehensive loss				(81.3	)				(49.9	)
Total stockholders' equity				3,705.5					3,735.1
Total liabilities and stockholders' equity		$		15,660.7			$		16,174.5

See Notes to Consolidated Financial Statements.

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P****AYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts

		For the three months ended August 31, 2026
		Common stock																			Accumulated other comprehensive loss
		Shares				Amount					Additional paid-in capital					Retained earnings					Net unrealized (loss)/gain on AFS securities					Foreign currency translation					Total accumulated comprehensive loss					Total
Balance as of May 31, 2026			355.6			$		3.6			$		1,975.6			$		1,805.8			$		**(**37.8	)		$		**(**12.1	)		$		**(**49.9	)		$		3,735.1
Net income			—					—					—					429.7					—					—					—					429.7
Unrealized losses on securities, net of $9.7 million in tax benefit			—					—					—					—					(30.3	)				—					(30.3	)				(30.3	)
Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)			—					—					—					—					(0.0	)				—					(0.0	)				(0.0	)
Cash dividends declared ($1.19 per share)			—					—					—					(423.6	)				—					—					—					(423.6	)
Repurchases of common shares (2)			—					—					—					—					—					—					—					—
Stock-based compensation costs			—					—					19.3					—					—					—					—					19.3
Foreign currency translation adjustment			—					—					—					—					—					(1.1	)				(1.1	)				(1.1	)
Activity related to equity-based plans			0.4					0.0					(0.1	)				(23.5	)				—					—					—					(23.6	)
Balance as of August 31, 2026			356.0			$		3.6			$		1,994.8			$		1,788.4			$		**(**68.1	)		$		**(**13.2	)		$		**(**81.3	)		$		3,705.5

		For the three months ended August 31, 2025
		Common stock																			Accumulated other comprehensive loss
		Shares				Amount					Additional paid-in capital					Retained earnings					Net unrealized loss on AFS securities					Foreign currency translation					Total accumulated comprehensive loss					Total
Balance as of May 31, 2025			360.5			$		3.6			$		1,901.1			$		2,277.0			$		**(**38.5	)		$		**(**15.2	)		$		**(**53.7	)		$		4,128.0
Net income			—					—					—					383.8					—					—					—					383.8
Unrealized gains on securities, net of $8.4 million in tax expense			—					—					—					—					24.3					—					24.3					24.3
Reclassification adjustment for realized losses on securities to earnings, net of $0.0 million in tax benefit (1)			—					—					—					—					0.0					—					0.0					0.0
Cash dividends declared ($1.08 per share)			—					—					—					(389.0	)				—					—					—					(389.0	)
Repurchases of common shares(2)			(1.1	)				(0.0	)				(5.3	)				(154.8	)				—					—					—					(160.1	)
Stock-based compensation costs			—					—					26.8					—					—					—					—					26.8
Foreign currency translation adjustment			—					—					—					—					—					4.4					4.4					4.4
Activity related to equity-based plans			0.5					0.0					(0.8	)				(46.8	)				—					—					—					(47.6	)
Balance as of August 31, 2025			359.9			$		3.6			$		1,921.8			$		2,070.2			$		**(**14.2	)		$		**(**10.8	)		$		**(**25.0	)		$		3,970.6

(1)

Reclassification adjustments to earnings on the sale of AFS securities are reflected in interest on funds held for clients and other income, net on the Consolidated Statements of Income and Comprehensive Income.

(2)

The Company maintained a program to repurchase up to $400.0 million of its common stock with authorization that expired on January 16, 2026, at which time $9.4 million of unused repurchase authorization expired. On January 16, 2026, the Company's Board approved a program to repurchase up to an additional $1.0 billion of its common stock with no expiration date. The purpose of this program is to manage common stock dilution. All shares of common stock repurchased were retired.

See Notes to Consolidated Financial Statements.

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P****AYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In millions

		For the three months ended
		August 31,
		2026					2025
Operating activities
Net income		$		429.7			$		383.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				109.8					109.3
Amortization of premiums and discounts on AFS securities and long-term debt, net				(2.2	)				(2.1	)
Amortization of deferred contract costs				66.0					60.4
Stock-based compensation costs				19.3					26.8
Provision on deferred income taxes				9.3					66.0
Provision for credit losses				8.6					7.7
Net realized (gains)/losses on sales of AFS securities				(0.0	)				0.0
Changes in operating assets and liabilities:
Interest receivable				(3.1	)				(6.1	)
Accounts receivable and PEO unbilled receivables, net				(73.3	)				(18.9	)
Prepaid expenses and other current assets				(19.8	)				29.5
Accounts payable and other current liabilities				(56.7	)				124.9
Deferred costs				(86.1	)				(68.5	)
Net change in other long-term assets and liabilities				12.0					6.3
Net change in operating lease right-of-use assets and liabilities				(0.0	)				(0.7	)
Net cash provided by operating activities				413.5					718.4
Investing activities
Purchases of AFS securities				(5,072.2	)				(3,731.9	)
Proceeds from sales and maturities of AFS securities				4,880.7					2,547.3
Net purchases of short-term accounts receivable				(63.2	)				(47.0	)
Purchases of property and equipment				(56.1	)				(55.9	)
Acquisition of businesses, net of cash acquired				(18.1	)				(0.2	)
Purchases of other assets, net				(6.9	)				(15.0	)
Net cash used in investing activities				**(**335.8	)				**(**1,302.7	)
Financing activities
Net change in client fund obligations				(443.9	)				81.4
Dividends paid				(424.1	)				(389.1	)
Repurchases of common shares				—					(160.1	)
Contingent consideration paid for acquisitions				(15.0	)				—
Activity related to equity-based plans				(23.6	)				(47.6	)
Net cash used in financing activities				**(**906.6	)				**(**515.4	)
Net change in cash, restricted cash, and equivalents				**(**828.9	)				**(**1,099.7	)
Cash, restricted cash, and equivalents, beginning of period				1,484.8					2,734.3
Cash, restricted cash, and equivalents, end of period		$		655.9			$		1,634.6
Reconciliation of cash, restricted cash, and equivalents
Cash and cash equivalents		$		600.9			$		809.0
Restricted cash				55.0					50.4
Restricted cash and restricted cash equivalents included in funds held for clients				—					775.2
Total cash, restricted cash, and equivalents		$		655.9			$		1,634.6

See Notes to Consolidated Financial Statements.

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PAY****CHEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

August 31, 2026

Note A: Description of Business, Basis of Presentation, and Significant Accounting Policies

Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively, the "Company" or "Paychex") is an industry-leading human capital management ("HCM") company delivering a full suite of technology and advisory solutions in human resources ("HR"), employee benefit solutions, insurance and payroll for customers and their employees in the United States ("U.S.") and parts of Europe. The Company also has operations in Canada, India, and Israel. Paychex, a Delaware corporation formed in 1979, reports as one segment. Refer to Note J Segment Reporting for additional information on the Company's segment results.

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q ("Form 10-Q") and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. Certain disclosures are reported as zero balances due to rounding. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company's Annual Report on Form 10-K ("Form 10-K") for the fiscal year ended May 31, 2026 ("fiscal 2026"). Operating results and cash flows for the three months ended August 31, 2026 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2027 ("fiscal 2027").

Restricted cash and restricted cash equivalents: Restricted cash and restricted cash equivalents are recorded at fair value and consist of cash and cash equivalents, primarily money market securities, included in funds held for clients and cash that is restricted in use to secure commitments for certain workers' compensation insurance policies.

Accounts receivable, net of allowance for credit losses: Accounts receivable balances are shown on the Consolidated Balance Sheets net of the allowance for credit losses as follows:

		August 31,					May 31,
In millions		2026					2026
Trade receivables		$		289.6			$		238.5
Purchased receivables				1,369.1					1,309.5
Total accounts receivable, gross				1,658.7					1,548.0
Less: Allowance for credit losses				42.8					40.4
Accounts receivable, net of allowance for credit losses		$		1,615.9			$		1,507.6

Trade receivables are for services provided to customers in the normal course of business and purchased receivables are acquired from the Company's customers under non-recourse arrangements.

The Company is exposed to credit losses through the sale of its solutions and support services, payment of customer obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has multiple programs in place to assess and continuously monitor each customer's ability to pay for these solutions and support services. Credit monitoring programs include, but are not limited to, new customer credit reviews, establishing appropriate credit limits, monitoring of credit-distressed customers, and early electronic wire and collection procedures. The Company also considers contract terms and conditions, customer business type or strategy and may require collateralized asset support or prepayment to mitigate credit risk.

Accounts receivable are written off and charged against the allowance for credit losses when the Company has exhausted all collection efforts without success. The Company estimates its allowance for credit losses based on historical loss activity adjusted for current economic conditions, when applicable.

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Activity in the allowance for credit losses related to accounts receivables is as follows:

		Three months ended August 31,
In millions		2026					2025
Balance, beginning of period		$		40.4			$		26.0
Provision for credit losses				8.6					7.7
Write-offs and recoveries				(6.2	)				(9.3	)
Balance, end of period		$		42.8			$		24.4

No single customer had a material impact on total accounts receivable as of August 31, 2026 and May 31, 2026. No single customer had a material impact on service revenue or results of operations for the three months ended August 31, 2026 and August 31, 2025.

Professional Employer Organization ("PEO") unbilled receivables, net of advance collections: PEO unbilled receivables, including estimated revenues, offset by advance collections from clients, are recorded as PEO unbilled receivables, net of advance collections on the Company's Consolidated Balance Sheets. As of August 31, 2026 and May 31, 2026, advance collections were $3.1 million and $1.1 million, respectively.

PEO insurance reserves: As part of its PEO solution, the Company offers workers' compensation insurance and health insurance coverage to customers for the benefit of customer employees. Workers' compensation insurance is primarily provided under fully insured high-deductible workers' compensation insurance policies. Workers' compensation insurance reserves are established to provide for the estimated costs of paying claims up to per occurrence liability limits. These reserves include estimates of certain expenses associated with processing and settling these claims. For fiscal 2027, the Company has a maximum individual claims liability of $1.0 million. For fiscal 2026, the Company has an aggregate maximum liability of $1.0 million for claims exceeding $1.0 million, and once met, the maximum individual claims liability is $1.0 million.

As of August 31, 2026 and May 31, 2026, the Company had recorded current liabilities of $88.8 million and $80.7 million, respectively, and long-term liabilities of $160.5 million and $157.0 million, respectively, on its Consolidated Balance Sheets for workers' compensation insurance reserves. The amounts were recorded in other current liabilities and other long-term liabilities sections, respectively, of the Consolidated Balance Sheets.

With respect to PEO health insurance, the Company offers various health insurance plans that take the form of either fully insured guaranteed cost plans or fully insured insurance arrangements where the Company retains risk. A reserve for insurance arrangements where the Company retains risk is established to provide for the payment of claims in accordance with the Company's service contract with the carrier. The claims reserve includes estimates for reported losses, plus amounts for those claims incurred but not reported, and estimates of certain expenses associated with processing and settling the claims. The Company's maximum individual claims liability was $0.5 million under its policies during both fiscal 2027 and fiscal 2026. Amounts accrued related to the medical, dental, vision, life insurance, and disability plan reserves were $67.0 million and $64.3 million as of August 31, 2026 and May 31, 2026, respectively. These amounts are included in other current liabilities on the Consolidated Balance Sheets.

In establishing the PEO workers' compensation insurance reserves, the Company uses an independent actuarial estimate of undiscounted future cash payments that would be made to settle claims. Estimating the ultimate cost of future claims is an uncertain and complex process based upon historical loss experience and accepted actuarial methods and assumptions. These reserves are subject to change due to multiple factors, including economic trends, changes in legal liability law, and damage awards, all of which could materially impact the reserves as reported in the consolidated financial statements. Accordingly, final claim settlements may vary from the present estimates, particularly with workers' compensation insurance where those payments may not occur until well into the future. The Company regularly reviews the adequacy of its estimated insurance reserves. Adjustments to previously established reserves are reflected in the results of operations for the period in which the adjustment is identified. Such adjustments could be significant, reflecting any combination of new and adverse or favorable trends. Adjustments to previously established reserves were not material for the three months ended August 31, 2026 or 2025.

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Stock-based compensation costs: The Company has issued stock-based awards to employees and members of its Board of Directors (the "Board") consisting of stock options, restricted stock units, and restricted stock awards. The Company accounts for all stock-based awards to employees and members of the Board as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized were $19.3 million for the three months ended August 31, 2026, compared with $26.8 million for the three months ended August 31, 2025.

Recently adopted accounting pronouncements: In July 2025, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2025-05 "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets," which introduces a practical expedient for the application of the current expected credit loss model to current accounts receivable and contract assets. The practical expedient permits an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset. This ASU is effective for annual periods beginning after December 15, 2025, and interim periods within those annual reporting periods. The transition method is prospective. The Company adopted this guidance in its fiscal year beginning June 1, 2026, and elected the practical expedient. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Recently issued accounting pronouncements: In November 2024, the FASB issued ASU No. 2024-03 "Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses." ASU No. 2024-03 as amended by subsequent ASUs on the topic requires public business entities to disclose, for interim and annual reporting periods, additional information about certain income statement expense categories. The requirements are effective for annual reporting periods beginning after December 15, 2026, and for interim periods within annual reporting periods beginning after December 15, 2027. Entities are permitted to apply either the prospective or retrospective transition methods. This ASU is applicable to the Company's Annual Report on Form 10-K for the fiscal year ending May 31, 2028, and subsequent interim periods, with early application permitted. The requirements of this ASU are disclosure-related and will not have an impact on the Company's financial condition, results of operations, or cash flows. The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In September 2025, the FASB issued ASU No. 2025-06 "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software." This ASU updates the cost capitalization threshold for internal-use software development costs by removing all references to software project development stages and providing new guidance on how to evaluate whether the probable-to-complete recognition threshold has been met. This ASU is effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods. This ASU is applicable to the Company's fiscal year beginning June 1, 2028, with early application permitted. The transition method may be prospective, modified, or retrospective. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

In November 2025, the FASB issued ASU No. 2025-08 "Financial Instruments – Credit Losses (Topic 326): Purchased Loans." This ASU expands the population of acquired financial assets subject to the gross-up approach under Topic 326 whereby loans purchased without credit deterioration and deemed seasoned are recognized at their purchase price plus an allowance for expected credit losses. Purchased seasoned loans include all loans that are acquired in a business combination and loans acquired in an asset acquisition if purchased at least 90 days after origination and the acquirer was not involved in the origination of the loans. This ASU is effective for annual periods beginning after December 15, 2026, and interim periods within those annual reporting periods. This ASU is applicable to the Company's fiscal year beginning June 1, 2027, with early application permitted. The transition method is prospective. The Company does not currently purchase financial assets within the scope of the ASU. Accordingly, the adoption of this guidance will not have a material impact on the Company's consolidated financial statements.

Note B: Service Revenue

Service revenue is primarily attributable to fees for providing services to the Company's customers and is recognized when control of the contracted services is transferred to its customers, in an amount that reflects the consideration it expects to receive in exchange for such services. Insurance Solutions revenue is commissions earned on premiums collected and remitted to insurance carriers. The Company's contracts generally do not contain specified contract periods and may be terminated by either party with 30 days notice of termination. Sales and other applicable non-payroll related taxes are excluded from service revenue.

Based upon similar operational and economic characteristics, the Company's service revenue is disaggregated by Management Solutions and PEO and Insurance Solutions as reported in the Company's Consolidated Statements of Income and Comprehensive Income. The Company believes these revenue categories depict how the nature, amount, timing, and uncertainty of its revenue and cash flows are affected by economic factors.

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Management Solutions Revenue

Management Solutions revenue is primarily derived from the Company's integrated HCM and HR outsourcing solutions. Customers can select services on an á la carte basis or as part of various solution bundles. The Company's offerings often leverage the information gathered in its base payroll processing service, allowing it to provide comprehensive outsourcing services covering the HCM spectrum. Management Solutions revenue is generally recognized over time as services are performed and the customer simultaneously receives and controls the benefits from these services.

Revenue earned from delivery service for the distribution of certain customer payroll checks and reports is also included in Management Solutions revenue in the Company's Consolidated Statements of Income and Comprehensive Income. Delivery service revenue is recognized at a point in time following the delivery of payroll checks, reports, quarter-end packages, and tax returns to the Company's customers.

PEO and Insurance Solutions Revenue

PEO Solutions are sold through the Company's registered and licensed subsidiaries and offer businesses HCM and HR outsourcing solutions. The Company serves as a co-employer of its customers' employees, offers health and benefit insurance coverage to customer employees, and assumes the risks and rewards of workers' compensation insurance and certain health insurance offerings. PEO Solutions revenue is recognized over time as the services are performed and the customer simultaneously receives and controls the benefits from these services. PEO Solutions revenue is reported net of certain pass-through costs billed and incurred, which include payroll wages, payroll taxes, including federal and state unemployment insurance, and health insurance premiums on guaranteed cost benefit plans. For workers' compensation and health insurance plans where the Company retains risk, revenues and costs are recorded on a gross basis.

PEO pass-through costs netted within the PEO and Insurance Solutions revenue are as follows:

		For the three months ended
		August 31,
In millions		2026					2025
Payroll wages and payroll taxes		$		8,713.5			$		7,356.1
State unemployment insurance (included in payroll wages and payroll taxes)		$		27.7			$		23.7
Guaranteed cost benefit plans		$		214.4			$		175.5

Insurance Solutions are sold through the Company's licensed insurance agency, Paychex Insurance Agency, Inc., which provides insurance through a variety of carriers, allowing companies 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, cybersecurity, and health and benefits coverage, including medical, dental, vision, life insurance, and disability plans. Insurance Solutions revenue reflects commissions earned on remitted insurance services premiums billed and is recognized over time as services are performed and the customer simultaneously receives and controls the benefits from these services.

Contract Balances

The timing of revenue recognition for Management Solutions and PEO and Insurance Solutions is consistent with the invoicing of clients as they both generally occur during the respective client payroll period for which the services are provided. Therefore, the Company does not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Payments received for certain of the Company’s service offerings for set-up fees are considered a material right. Therefore, the Company defers revenue associated with these performance obligations, which exceed one year, and subsequently recognizes them as future services are provided, over approximately two years to four years.

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Changes in deferred revenue related to material rights that exceed one year were as follows:

		For the three months ended
		August 31,
In millions		2026					2025
Balance, beginning of period		$		91.4			$		92.4
Deferral of revenue				12.8					12.1
Recognition of unearned revenue				(13.4	)				(14.5	)
Balance, end of period		$		90.8			$		90.0

Deferred revenue related to material rights is reported in the deferred revenue and other long-term liabilities line items on the Company's Consolidated Balance Sheets. As of August 31, 2026, the Company expects to recognize deferred revenue related to these material rights for the remainder of fiscal 2027 and subsequent fiscal years as follows:

In millions		Estimated
Year ending May 31,		recognition of unearned revenue
2027		$		35.7
2028				32.4
Thereafter				22.7
Total recognition of unearned revenue		$		90.8

Assets Recognized from the Costs to Obtain and Fulfill Contracts

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it is expected that the economic benefit and amortization period will be longer than one year. The Company also recognizes an asset for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered.

Deferred costs to obtain and fulfill contracts are reported in the prepaid expenses and other current assets and long-term deferred costs line items on the Company's Consolidated Balance Sheets. Amortization expense related to costs to obtain and fulfill a contract is included in cost of service revenue and selling, general and administrative expenses in the Company's Consolidated Statements of Income and Comprehensive Income and recognized over the expected economic benefit period.

The Company regularly reviews its deferred costs for potential impairment and did not recognize an impairment loss during the three months ended August 31, 2026 or August 31, 2025.

Changes in deferred costs to obtain and fulfill contracts were as follows:

Costs to obtain contracts:
		For the three months ended
		August 31,
In millions		2026					2025
Balance, beginning of period		$		653.4			$		609.0
Capitalization of costs				64.2					48.9
Amortization				(55.9	)				(52.8	)
Balance, end of period		$		661.7			$		605.1

Costs to fulfill contracts:
		For the three months ended
		August 31,
In millions		2026					2025
Balance, beginning of period		$		135.9			$		87.0
Capitalization of costs				21.9					19.6
Amortization				(10.1	)				(7.6	)
Balance, end of period		$		147.7			$		99.0

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Note C: Basic and Diluted Earnings Per Share

Basic and diluted earnings per share were calculated as follows:

		For the three months ended
		August 31,
In millions, except per share amounts		2026					2025
Basic earnings per share:
Net income		$		429.7			$		383.8
Weighted-average common shares outstanding				355.8					360.1
Basic earnings per share		$		1.21			$		1.07
Diluted earnings per share:
Net income		$		429.7			$		383.8
Weighted-average common shares outstanding				355.8					360.1
Dilutive effect of common share equivalents				0.8					1.8
Weighted-average common shares outstanding, assuming dilution				356.6					361.9
Diluted earnings per share		$		1.21			$		1.06
Weighted-average anti-dilutive common share equivalents				2.1					0.2

Weighted-average common share equivalents that had an anti-dilutive impact are excluded from the computation of diluted earnings per share.

Note D: Other Income, Net

Other income, net, consisted of the following items:

		For the three months ended
		August 31,
In millions		2026					2025
Interest income on corporate investments		$		10.2			$		18.7
Other				0.7					5.1
Other income, net		$		10.9			$		23.8

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Note E: Funds Held for Clients and Corporate Investments

Funds held for clients and corporate investments were as follows:

		August 31, 2026
							Gross					Gross
		Amortized					unrealized					unrealized					Fair
In millions		cost					gains					losses					value
Type of issue:
Funds held for clients' money market securities and other restricted cash equivalents		$		—			$		—			$		—			$		—
AFS securities:
Asset-backed securities				87.0					0.2					(0.3	)				86.9
Corporate bonds				2,381.9					1.3					(43.6	)				2,339.6
Municipal bonds				830.9					0.2					(20.0	)				811.1
U.S. government agency and treasury securities				1,232.4					0.1					(30.3	)				1,202.2
Variable rate demand notes				204.3					—					—					204.3
Total AFS securities				4,736.5					1.8					(94.2	)				4,644.1
Other				34.0					4.3					(0.7	)				37.6
Total funds held for clients and corporate investments		$		4,770.5			$		6.1			$		**(**94.9	)		$		4,681.7

		May 31, 2026
							Gross					Gross
		Amortized					unrealized					unrealized					Fair
In millions		cost					gains					losses					value
Type of issue:
Funds held for clients' money market securities and other restricted cash equivalents		$		343.8			$		—			$		—			$		343.8
AFS securities:
Asset-backed securities				106.5					0.4					(0.1	)				106.8
Corporate bonds				2,349.9					5.5					(18.8	)				2,336.6
Municipal bonds				851.9					0.4					(21.1	)				831.2
U.S. government agency and treasury securities				1,232.6					1.0					(19.8	)				1,213.8
Total AFS securities				4,540.9					7.3					(59.8	)				4,488.4
Other				32.3					4.6					(0.6	)				36.3
Total funds held for clients and corporate investments		$		4,917.0			$		11.9			$		**(**60.4	)		$		4,868.5

Included in asset-backed securities as of August 31, 2026 were investment-grade securities primarily collateralized by fixed-rate auto loans and credit card receivables and all have credit ratings of AAA. The primary risk associated with these securities is the collection of the underlying receivables. Collateral on these asset-backed securities has performed as expected through August 31, 2026.

Included in corporate bonds as of August 31, 2026 were investment-grade securities covering a wide range of issuers, industries, and sectors and primarily carry credit ratings of A or better and have maturities ranging from September 1, 2026 through April 17, 2036.

Included in municipal bonds as of August 31, 2026 were general obligation bonds and revenue bonds that primarily carry credit ratings of AA or better and have maturities ranging from September 1, 2026 through May 1, 2033.

A substantial portion of the Company's portfolios are invested in high credit quality securities with ratings of AA or higher, and A-1/P-1 ratings on short-term securities.

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The classification of funds held for clients and corporate investments on the Consolidated Balance Sheets is as follows:

		August 31,					May 31,
In millions		2026					2026
Funds held for clients		$		4,348.4			$		4,832.2
Corporate investments				333.3					36.3
Total funds held for clients and corporate investments		$		4,681.7			$		4,868.5

Funds held for clients' money market securities and other restricted cash equivalents is collected from clients before due dates for payroll tax administration services and employee payment services and is invested until remitted to the applicable tax or regulatory agencies or client employees. Based upon the Company's intent and its contractual obligation to clients, these funds are considered restricted until they are remitted to fund these client obligations.

The Company's AFS securities reflected net unrealized losses of $92.4 million as of August 31, 2026 and net unrealized losses of $52.5 million as of May 31, 2026. Included in net unrealized losses as of August 31, 2026 and May 31, 2026, were 821 and 664 AFS securities, respectively, in an unrealized loss position, representing approximately 77% and 60% of the total securities held, respectively.

AFS securities in an unrealized loss position for which a credit loss has not been recognized were as follows:

		August 31, 2026
		Securities in an unrealized loss position for less than twelve months										Securities in an unrealized loss position for more than twelve months										Total
		Gross										Gross										Gross
		unrealized					Fair					unrealized					Fair					unrealized					Fair
In millions		losses					value					losses					value					losses					value
Type of issue:
Asset-backed securities		$		(0.3	)		$		29.8			$		—			$		—			$		(0.3	)		$		29.8
Corporate bonds				(41.4	)				1,748.9					(2.2	)				102.3					(43.6	)				1,851.2
Municipal bonds				(2.2	)				135.2					(17.8	)				637.6					(20.0	)				772.8
U.S. government agency and treasury securities				(23.6	)				851.7					(6.7	)				302.7					(30.3	)				1,154.4
Total		$		**(**67.5	)		$		2,765.6			$		**(**26.7	)		$		1,042.6			$		**(**94.2	)		$		3,808.2

		May 31, 2026
		Securities in an unrealized loss position for less than twelve months										Securities in an unrealized loss position for more than twelve months										Total
		Gross										Gross										Gross
		unrealized					Fair					unrealized					Fair					unrealized					Fair
In millions		losses					value					losses					value					losses					value
Type of issue:
Asset-backed securities		$		(0.1	)		$		21.7			$		—			$		—			$		(0.1	)		$		21.7
Corporate bonds				(16.3	)				1,148.8					(2.5	)				128.0					(18.8	)				1,276.8
Municipal bonds				(1.7	)				69.0					(19.4	)				713.2					(21.1	)				782.2
U.S. government agency and treasury securities				(13.4	)				610.7					(6.4	)				337.3					(19.8	)				948.0
Total		$		**(**31.5	)		$		1,850.2			$		**(**28.3	)		$		1,178.5			$		**(**59.8	)		$		3,028.7

The Company regularly reviews its investment portfolios to determine if any investment is impaired due to changes in credit risk or other potential valuation concerns. The Company believes the investments held as of August 31, 2026 that had gross unrealized losses of $94.2 million were not impaired due to credit risk or other valuation concerns, and the Company was not required to record a credit loss or an allowance for credit losses on its AFS securities. The Company believes it is probable that the principal and interest will be collected in accordance with contractual terms and that the unrealized losses on these securities were due to changes in interest rates and were not due to increased credit risk or other valuation concerns. A substantial portion of the securities in an unrealized loss position as of August 31, 2026 and as of May 31, 2026 held an AA rating or better. The Company

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does not intend to sell these investments until the recovery of their amortized cost basis or maturity and further believes that it is not more-likely-than-not that it will be required to sell these investments prior to that time. The Company’s assessment that an investment is not impaired due to credit risk or other valuation concerns could change in the future due to new developments or changes in the Company's strategies or assumptions related to any particular investment.

Realized gains and losses on the sale of AFS securities are determined by specific identification of the cost basis of each security. On the Consolidated Statements of Income and Comprehensive Income, realized gains and losses from the funds held for clients portfolio and corporate investments portfolio are included in interest on funds held for clients and other income, net, respectively.

Realized gains and losses from the sale of AFS securities were as follows:

		For the three months ended
		August 31,
In millions		2026					2025
Gross realized gains		$		0.0			$		0.0
Gross realized losses				(0.0	)				(0.0	)
Net realized gains/(losses)		$		0.0			$		**(**0.0	)

The amortized cost and fair value of AFS securities that had stated maturities as of August 31, 2026 are shown below by expected maturity.

		August 31, 2026
		Amortized					Fair
In millions		cost					value
Maturity date:
Due in one year or less		$		1,090.9			$		1,082.0
Due after one year through three years				1,174.1					1,157.2
Due after three years through five years				614.2					601.8
Due after five years				1,857.3					1,803.1
Total		$		4,736.5			$		4,644.1

Variable rate demand notes ("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.

Note F: Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The accounting standards related to fair value measurements include a hierarchy for information and valuations used in measuring fair value that is broken down into three levels based on reliability, as follows:

Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date.

Level 2 valuations are based on inputs other than quoted prices included in Level 1 that are observable for the instrument, either directly or indirectly, for substantially the full term of the asset or liability including the following:

o

quoted prices for similar, but not identical, instruments in active markets;

o

quoted prices for identical or similar instruments in markets that are not active;

o

inputs other than quoted prices that are observable for the instrument; or

o

inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.

The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable, net of allowance for credit losses, PEO unbilled receivables, net of advance collections, accounts payable and short-term borrowings, when used by the Company, approximate fair value due to the short maturities of these instruments. Marketable securities

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included in funds held for clients and corporate investments consist primarily of securities classified as AFS and are recorded at fair value on a recurring basis.

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:

		August 31, 2026
							Quoted					Significant
							prices in					other					Significant
		Carrying					active					observable					unobservable
		value					markets					inputs					inputs
In millions		(Fair value)					(Level 1)					(Level 2)					(Level 3)
Assets:
Restricted and unrestricted cash equivalents:
Money market securities		$		—			$		—			$		—			$		—
Total restricted and unrestricted cash equivalents		$		—			$		—			$		—			$		—
AFS securities:
Asset-backed securities		$		86.9			$		—			$		86.9			$		—
Corporate bonds				2,339.6					—					2,339.6					—
Municipal bonds				811.1					—					811.1					—
U.S. government agency and treasury securities				1,202.2					—					1,202.2					—
VRDNs				204.3					—					204.3					—
Total AFS securities		$		4,644.1			$		—			$		4,644.1			$		—
Other		$		37.6			$		37.6			$		—			$		—
Liabilities:
Other long-term liabilities		$		37.6			$		37.6			$		—			$		—

		May 31, 2026
							Quoted					Significant
							prices in					other					Significant
		Carrying					active					observable					unobservable
		value					markets					inputs					inputs
In millions		(Fair value)					(Level 1)					(Level 2)					(Level 3)
Assets:
Restricted and unrestricted cash equivalents:
Money market securities		$		25.3			$		25.3			$		—			$		—
Total restricted and unrestricted cash equivalents		$		25.3			$		25.3			$		—			$		—
AFS securities:
Asset-backed securities		$		106.8			$		—			$		106.8			$		—
Corporate bonds				2,336.6					—					2,336.6					—
Municipal bonds				831.2					—					831.2					—
U.S. government agency and treasury securities				1,213.8					—					1,213.8					—
Total AFS securities		$		4,488.4			$		—			$		4,488.4			$		—
Other		$		36.3			$		36.3			$		—			$		—
Liabilities:
Other long-term liabilities		$		36.3			$		36.3			$		—			$		—

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In determining the fair value of its assets and liabilities, the Company predominately uses the market approach. Money market securities, which are cash equivalents, are considered Level 1 investments as they are valued based on quoted market prices in active markets. Cash equivalents, when held by the Company, also include commercial paper, corporate bonds, municipal bonds, and U.S. government agency and treasury securities with original maturities of 90 days or less which are considered Level 2 investments as they are valued based on similar, but not identical, instruments in active markets. AFS securities, including asset-backed securities, corporate bonds, municipal bonds, U.S. government agency securities, and VRDNs, when held by the Company, are included in Level 2 and are valued utilizing inputs obtained from an independent pricing service. To determine the fair value of the Company's Level 2 AFS securities, the independent pricing service uses a variety of inputs, including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, new issue data, and monthly payment information. The Company has not adjusted the prices obtained from the independent pricing service because it believes that they are appropriately valued.

Assets included as other are mutual fund investments, consisting of participants' eligible deferral contributions under the Company's non-qualified and unfunded deferred compensation plans. The related liability is reported as other long-term liabilities. The mutual funds are considered Level 1 investments as they are valued based on quoted market prices in active markets.

The Company's long-term borrowings are accounted for on a historical cost basis. The amortized cost and fair value of these borrowings were as follows:

		August 31, 2026										May 31, 2026
		Amortized					Fair					Amortized					Fair
In millions		cost					value					cost					value
Senior Notes, Series B		$		399.5			$		394.3			$		399.5			$		397.4
5-Year Fixed Rate Bonds				1,488.7					1,489.3					1,487.9					1,504.9
7-Year Fixed Rate Bonds				1,485.8					1,485.4					1,485.2					1,504.3
10-Year Fixed Rate Bonds				1,184.0					1,175.5					1,183.5					1,194.2
Total long-term borrowings, net of debt issuance costs		$		4,558.0			$		4,544.5			$		4,556.1			$		4,600.8

The Company’s Senior Notes, Series B borrowings are not traded in active markets. As a result, the fair value of the Senior Notes was estimated using a market approach employing Level 2 valuation inputs, including borrowing rates the Company believes are currently available based on loans with similar terms and maturities.

The Company's fixed-rate corporate bonds ("Corporate Bonds") are not traded in active markets. The fair value of Corporate Bonds was estimated using a market approach employing Level 2 valuation inputs obtained from an independent pricing service. The Company reviews the values generated by the independent pricing service for reasonableness and has not adjusted the prices obtained because it believes that they are appropriately valued.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Note G: Supplemental Information

Property and equipment, net of accumulated depreciation: Depreciation expense was $39.1 million for the three months ended August 31, 2026 compared to $34.5 million for the three months ended August 31, 2025.

Goodwill and intangible assets, net of accumulated amortization: Amortization expense relating to intangible assets was $70.7 million for the three months ended August 31, 2026 compared to $74.8 million for the three months ended August 31, 2025. During the three months ended August 31, 2026, goodwill was impacted by an immaterial acquisition and immaterial foreign currency translation. The Company did not recognize an impairment loss as it relates to its goodwill or intangible assets during the three months ended August 31, 2026 or August 31, 2025.

Short-term financing: The Company had no outstanding short-term borrowings as of August 31, 2026 or May 31, 2026. The unused amount available under these credit facilities as of August 31, 2026 was approximately $2.0 billion.

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Effective January 23, 2026, the Company entered into amendments of its $750.0 million, five-year, unsecured, revolving credit facility ("the 2017 Credit Facility") and its $1.0 billion, five-year, unsecured, revolving credit facility ("the 2019 Credit Facility") with a syndicate of lenders for which JPMorgan Chase Bank, N.A. ("JPM") acts as administrative agent. The amendments to these credit facilities, among other things, increase the aggregate amount of principal available under the 2017 Credit Facility from $750 million to $1.0 billion, extend the maturity date for the 2017 Credit Facility from September 17, 2026 to January 23, 2031, and amend certain interest provisions and covenants under both credit facilities. In connection with these amendments, Paychex terminated its three-year, $250 million, unsecured, revolving credit facility for which PNC Bank, N.A. ("PNC") acted as administrative agent. As of the date of its termination, there were no outstanding loans under the PNC credit facility.

The credit facilities contain various financial and operational covenants that are usual and customary for such arrangements. The Company was in compliance with all of these covenants as of August 31, 2026.

Letters of credit: The Company had irrevocable standby letters of credit available totaling $173.0 million and $176.5 million as of August 31, 2026 and May 31, 2026, respectively, primarily to secure commitments for certain insurance policies. The letters of credit expire at various dates between September 01, 2026 and December 24, 2027. No amounts were outstanding on these letters of credit as of, or during the three months ended August 31, 2026 and August 31, 2025, or as of May 31, 2026.

Long-term debt: There were no material changes to the Company's long-term debt agreements or balances during the three months ended August 31, 2026. The Company's long-term debt agreements and Corporate Bonds contain customary representations, warranties, affirmative and negative covenants, including financial covenants that are usual and customary for such arrangements. The Company was in compliance with all of these covenants as of August 31, 2026.

During fiscal 2026, the Company repaid its long-term private placement debt Senior Notes, Series A for $400.0 million, which matured on March 13, 2026.

Note H: Commitments and Contingencies

Other commitments: The Company had outstanding commitments under existing workers’ compensation insurance agreements and other legally binding contractual arrangements. The Company also enters into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase capital assets of approximately $9.7 million as of August 31, 2026 and $13.5 million as of May 31, 2026.

In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with customers. Historically, there have been no material losses related to such guarantees. The Company has also entered into indemnification agreements with its officers, directors, and non-officer fiduciaries of its pooled employer plan retirement offering, which require the Company to defend and, if necessary, indemnify these individuals for certain pending or future claims as they relate to their services provided to the Company.

The Company currently self-insures the deductible portion of various insured exposures under certain corporate employee and PEO employee health benefit plans, including medical, dental, vision, life insurance, and disability plans. We also self-insure the deductible portion of certain PEO workers' compensation benefit plans. The Company's estimated loss exposure under these insurance arrangements is recorded in other current liabilities on the Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were not material as of August 31, 2026. Refer to Note A Description of Business, Basis of Presentation, and Significant Accounting Policies for additional information regarding the Company's estimated loss exposure under these PEO workers' compensation benefit plans.

In addition to its purchased primary insurance policies, the Company utilizes its captive insurance company to provide insurance coverage for certain risks where commercial coverage is limited, unavailable, or not economically practical. Such coverage includes employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism. The captive also supplements the Company's third-party insurance programs by funding certain deductibles, self-insured retentions, and providing excess coverage.

Contingencies: The Company is subject to various claims and legal matters that arise in the normal course of its business. These include disputes or potential disputes related to breach of contract, tort, employment-related claims, tax claims, statutory, and other matters.

The Company's management currently believes that resolution of any outstanding legal matters will not have a material adverse effect on the Company's financial position or results of operations. However, legal matters are subject to inherent uncertainties

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and there exists the possibility that the ultimate resolution of these matters could have a material adverse impact on the Company's financial position or results of operations in the period in which any such effect is recorded.

Note I: Income Taxes

The Company's effective income tax rate was 24.0% for the three months ended August 31, 2026, compared to 22.9% for the three months ended August 31, 2025. Both periods were impacted by the recognition of discrete tax impacts related to employee stock-based compensation payments.

On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was enacted into law. The most significant provisions applicable to the Company relate to accelerated tax deductions for qualified property and research expenditures. As a result, the Company's deferred tax liabilities were impacted in fiscal 2026 by the deductibility of previously capitalized research expenditures and accelerated tax depreciation. The Act did not have a material impact on the Company's effective tax rate.

Note J: Segment Reporting

Total revenue, net income, and significant expenses used by the chief operating decision maker for the purpose of allocating resources and evaluating the Company's financial performance were as follows:

	For the three months ended
	August 31,
In millions	2026					2025
Total revenue	$		1,630.5			$		1,540.0
Core business operations:
Compensation-related expenses			526.8					530.0
PEO direct insurance costs			152.9					138.6
Depreciation and amortization			52.9					48.2
Other segment items(1)			213.2					196.5
Non-core business operations:
Acquisition-related costs(2)			65.5					84.8
Total expenses			1,011.3					998.1
Interest expense			(65.1	)				(68.2	)
Other income, net			10.9					23.8
Income before income taxes			565.0					497.5
Income tax expense			135.3					113.7
Net income	$		429.7			$		383.8

(1)

Other segment items include expenses related to professional services, marketing and advertising, technology and general overhead.

(2)

Acquisition-related costs included in total expenses include the amortization of intangibles acquired in the acquisition of Paycor HCM, Inc. ("Paycor"), compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance, and retention bonuses, and other acquisition-related costs.

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