{"url_path":"/sec/payx/10-k/2026/item-8","section_key":"item-8","section_title":"Item 8 Financial Statements and Supplementary Data","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-07-17","source_url":"https://www.sec.gov/Archives/edgar/data/723531/0001193125-26-307785-index.html","accession_number":"0001193125-26-307785","cik":"0000723531","ticker":"PAYX","issuer_name":"PAYCHEX INC","edgar_url":"https://www.sec.gov/Archives/edgar/data/723531/0001193125-26-307785-index.html","primary_entity_key":"0000723531","primary_entity_name":"PAYCHEX INC"},"word_count":21375,"has_tables":true,"body_markdown":"Item 8. Financial Statements and Supplementary Data\n\nTABLE OF CONTENTS\n\n \n\n \n\n \n\nDescription\n\nPage\n\n[Report on Management’s Assessment of Internal Control Over Financial Reporting](#reportmanagementsassessment)\n\n38\n\n \n\n[Report of Independent Registered Public Accounting Firm](#audit_report) (PCAOB ID 238)\n\n39\n\n \n\n[Consolidated Statements of Income and Comprehensive Income for the Years Ended May 31, 2026, 2025, and 2024](#is)\n\n41\n\n \n\n[Consolidated Balance Sheets as of May 31, 2026 and 2025](#bs)\n\n42\n\n \n\n[Consolidated Statements of Stockholders’ Equity for the Years Ended May 31, 2026, 2025, and 2024](#se)\n\n43\n\n \n\n[Consolidated Statements of Cash Flows for the Years Ended May 31, 2026, 2025, and 2024](#cf)\n\n44\n\n \n\n[Notes to Consolidated Financial Statements](#notes)\n\n45\n\n \n\n[Schedule II — Valuation and Qualifying Accounts for the Years Ended May 31, 2026, 2025, and 2024](#schedule_ii)\n\n79\n\n \n\n \n\n37\n\n[Table of Contents](#tableofcontents)\n\n \n\nREPORT ON MANAGEMENT’S ASSESSMENT OF\n\nINTERNAL CONTROL OVER FINANCIAL REPORTING\n\nManagement 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.\n\nBecause 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.\n\nManagement assessed the effectiveness of the Company’s internal control over financial reporting as of May 31, 2026. 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, 2026.\n\nThe 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, 2026, 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.\n\n \n\n/s/ John B. Gibson\n\nJohn B. Gibson\n\nPresident and Chief Executive Officer\n\n \n\n/s/ Robert L. Schrader\n\nRobert L. Schrader\n\nSenior Vice President and Chief Financial Officer\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n38\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\n \n\nReport of Independent Registered Public Accounting Firm\n\nTo the Board of Directors and Stockholders of Paychex, Inc.\n\nOpinions on the Financial Statements and Internal Control over Financial Reporting\n\nWe have audited the accompanying consolidated balance sheets of Paychex, Inc. and its subsidiaries (the \"Company\") as of May 31, 2026 and 2025, 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, 2026, 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, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).\n\nIn 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, 2026 and 2025, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2026 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, 2026, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.\n\nBasis for Opinions\n\nThe 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. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.\n\nWe conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.\n\nOur audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.\n\nDefinition and Limitations of Internal Control over Financial Reporting\n\nA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.\n\n39\n\n[Table of Contents](#tableofcontents)\n\n \n\nBecause 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.\n\nCritical Audit Matters\n\nThe critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.\n\nProfessional Employer Organization (PEO) Workers’ Compensation Insurance Reserves\n\nAs described in Note A to the consolidated financial statements, the Company offers workers’ compensation insurance 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. As of May 31, 2026, the total liability for workers’ compensation insurance reserves is $237.7 million. In establishing the PEO workers' compensation insurance reserves, management uses an independent actuarial estimate of undiscounted future cash payments that would be made to settle the claims. The determination of estimated ultimate losses by the Company’s independent actuary are based on accepted actuarial methods and assumptions. The estimated ultimate losses are primarily based upon loss development factors, and other factors such as the nature of employees’ job responsibilities, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends.\n\nThe principal considerations for our determination that performing procedures relating to PEO workers’ compensation insurance reserves is a critical audit matter are (i) the significant judgment by management when developing the PEO workers’ compensation insurance reserves; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions and actuarial estimates related to the loss development factors; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.\n\nAddressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the Company’s PEO workers’ compensation insurance reserves, including controls over the development of management’s assumptions and actuarial estimates related to the loss development factors. These procedures also included, among others (i) testing the completeness and accuracy of the underlying data used in management’s estimate of the PEO workers’ compensation insurance reserves and (ii) the involvement of professionals with specialized skill and knowledge to assist in (a) developing an independent estimate of the PEO workers’ compensation insurance reserves and comparing the independent estimate to management’s estimate and (b) evaluating the appropriateness of management’s model and the reasonableness of management’s assumptions and actuarial estimates related to the loss development factors.\n\n \n\n \n\n \n\n \n\n/s/ PricewaterhouseCoopers LLP\n\nVictor, New York\n\nJuly 17, 2026\n\n \n\nWe have served as the Company’s auditor since 2013.\n\n \n\n40\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nPAYCHEX, INC.\n\nCONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME\n\nIn millions, except per share amounts\n\n \n\nYear ended May 31,\n\n \n\n \n\n2026\n\n \n\n \n\n \n\n2025\n\n \n\n \n\n \n\n2024\n\n \n\nRevenue:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nManagement Solutions\n\n \n\n$\n\n \n\n4,867.9\n\n \n\n \n\n$\n\n \n\n4,067.1\n\n \n\n \n\n$\n\n \n\n3,866.4\n\n \n\nPEO and Insurance Solutions\n\n \n\n \n\n \n\n1,433.2\n\n \n\n \n\n \n\n \n\n1,342.9\n\n \n\n \n\n \n\n \n\n1,265.6\n\n \n\nTotal service revenue\n\n \n\n \n\n \n\n6,301.1\n\n \n\n \n\n \n\n \n\n5,410.0\n\n \n\n \n\n \n\n \n\n5,132.0\n\n \n\nInterest on funds held for clients\n\n \n\n \n\n \n\n210.9\n\n \n\n \n\n \n\n \n\n161.7\n\n \n\n \n\n \n\n \n\n146.3\n\n \n\nTotal revenue\n\n \n\n \n\n \n\n6,512.0\n\n \n\n \n\n \n\n \n\n5,571.7\n\n \n\n \n\n \n\n \n\n5,278.3\n\n \n\nExpenses:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCost of service revenue\n\n \n\n \n\n \n\n1,674.5\n\n \n\n \n\n \n\n \n\n1,540.4\n\n \n\n \n\n \n\n \n\n1,479.3\n\n \n\nSelling, general and administrative expenses\n\n \n\n \n\n \n\n2,327.0\n\n \n\n \n\n \n\n \n\n1,823.6\n\n \n\n \n\n \n\n \n\n1,624.9\n\n \n\nTotal expenses\n\n \n\n \n\n \n\n4,001.5\n\n \n\n \n\n \n\n \n\n3,364.0\n\n \n\n \n\n \n\n \n\n3,104.2\n\n \n\nOperating income\n\n \n\n \n\n \n\n2,510.5\n\n \n\n \n\n \n\n \n\n2,207.7\n\n \n\n \n\n \n\n \n\n2,174.1\n\n \n\nInterest expense\n\n \n\n \n\n \n\n(269.5\n\n)\n\n \n\n \n\n \n\n(105.4\n\n)\n\n \n\n \n\n \n\n(37.3\n\n)\n\nOther income, net\n\n \n\n \n\n \n\n69.9\n\n \n\n \n\n \n\n \n\n73.6\n\n \n\n \n\n \n\n \n\n81.2\n\n \n\nIncome before income taxes\n\n \n\n \n\n \n\n2,310.9\n\n \n\n \n\n \n\n \n\n2,175.9\n\n \n\n \n\n \n\n \n\n2,218.0\n\n \n\nIncome taxes\n\n \n\n \n\n \n\n550.8\n\n \n\n \n\n \n\n \n\n518.6\n\n \n\n \n\n \n\n \n\n527.6\n\n \n\nNet income\n\n \n\n$\n\n \n\n1,760.1\n\n \n\n \n\n$\n\n \n\n1,657.3\n\n \n\n \n\n$\n\n \n\n1,690.4\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOther comprehensive income/(loss), net of tax\n\n \n\n \n\n \n\n3.8\n\n \n\n \n\n \n\n \n\n91.4\n\n \n\n \n\n \n\n \n\n14.8\n\n \n\nComprehensive income\n\n \n\n$\n\n \n\n1,763.9\n\n \n\n \n\n$\n\n \n\n1,748.7\n\n \n\n \n\n$\n\n \n\n1,705.2\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nBasic earnings per share\n\n \n\n$\n\n \n\n4.90\n\n \n\n \n\n$\n\n \n\n4.60\n\n \n\n \n\n$\n\n \n\n4.69\n\n \n\nDiluted earnings per share\n\n \n\n$\n\n \n\n4.89\n\n \n\n \n\n$\n\n \n\n4.58\n\n \n\n \n\n$\n\n \n\n4.67\n\n \n\nWeighted-average common shares outstanding\n\n \n\n \n\n \n\n358.9\n\n \n\n \n\n \n\n \n\n360.2\n\n \n\n \n\n \n\n \n\n360.3\n\n \n\nWeighted-average common shares outstanding, assuming\n   dilution\n\n \n\n \n\n \n\n360.0\n\n \n\n \n\n \n\n \n\n362.0\n\n \n\n \n\n \n\n \n\n362.1\n\n \n\n \n\nSee Notes to Consolidated Financial Statements.\n\n41\n\n[Table of Contents](#tableofcontents)\n\n \n\nPAYCHEX, INC.\n\nCONSOLIDATED BALANCE SHEETS\n\nIn millions, except per share amounts\n\n \n\nAs of May 31,\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nAssets\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCash and cash equivalents\n\n \n\n$\n\n \n\n1,088.2\n\n \n\n \n\n$\n\n \n\n1,628.6\n\n \n\nRestricted cash\n\n \n\n \n\n \n\n52.8\n\n \n\n \n\n \n\n \n\n47.9\n\n \n\nCorporate investments\n\n \n\n \n\n \n\n36.3\n\n \n\n \n\n \n\n \n\n34.5\n\n \n\nInterest receivable\n\n \n\n \n\n \n\n36.1\n\n \n\n \n\n \n\n \n\n27.9\n\n \n\nAccounts receivable, net of allowance for credit losses\n\n \n\n \n\n \n\n1,507.6\n\n \n\n \n\n \n\n \n\n1,330.5\n\n \n\nPEO unbilled receivables, net of advance collections\n\n \n\n \n\n \n\n664.2\n\n \n\n \n\n \n\n \n\n616.6\n\n \n\nPrepaid income taxes\n\n \n\n \n\n \n\n11.2\n\n \n\n \n\n \n\n \n\n38.9\n\n \n\nPrepaid expenses and other current assets\n\n \n\n \n\n \n\n384.7\n\n \n\n \n\n \n\n \n\n378.3\n\n \n\nCurrent assets before funds held for clients\n\n \n\n \n\n \n\n3,781.1\n\n \n\n \n\n \n\n \n\n4,103.2\n\n \n\nFunds held for clients\n\n \n\n \n\n \n\n4,832.2\n\n \n\n \n\n \n\n \n\n4,813.3\n\n \n\nTotal current assets\n\n \n\n \n\n \n\n8,613.3\n\n \n\n \n\n \n\n \n\n8,916.5\n\n \n\nProperty and equipment, net of accumulated depreciation\n\n \n\n \n\n \n\n588.9\n\n \n\n \n\n \n\n \n\n511.5\n\n \n\nOperating lease right-of-use assets, net of accumulated amortization\n\n \n\n \n\n \n\n63.9\n\n \n\n \n\n \n\n \n\n63.8\n\n \n\nIntangible assets, net of accumulated amortization\n\n \n\n \n\n \n\n1,684.0\n\n \n\n \n\n \n\n \n\n1,947.3\n\n \n\nGoodwill\n\n \n\n \n\n \n\n4,527.4\n\n \n\n \n\n \n\n \n\n4,514.1\n\n \n\nLong-term deferred costs\n\n \n\n \n\n \n\n555.8\n\n \n\n \n\n \n\n \n\n482.4\n\n \n\nOther long-term assets\n\n \n\n \n\n \n\n141.2\n\n \n\n \n\n \n\n \n\n128.5\n\n \n\nTotal assets\n\n \n\n$\n\n \n\n16,174.5\n\n \n\n \n\n$\n\n \n\n16,564.1\n\n \n\nLiabilities\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAccounts payable\n\n \n\n$\n\n \n\n154.8\n\n \n\n \n\n$\n\n \n\n129.8\n\n \n\nAccrued corporate compensation and related items\n\n \n\n \n\n \n\n162.1\n\n \n\n \n\n \n\n \n\n183.9\n\n \n\nAccrued worksite employee compensation and related items\n\n \n\n \n\n \n\n844.8\n\n \n\n \n\n \n\n \n\n735.8\n\n \n\nShort-term debt\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n18.6\n\n \n\nLong-term debt, net, current portion\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n399.8\n\n \n\nAccrued income taxes\n\n \n\n \n\n \n\n87.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\nDeferred revenue\n\n \n\n \n\n \n\n69.4\n\n \n\n \n\n \n\n \n\n69.4\n\n \n\nOther current liabilities\n\n \n\n \n\n \n\n637.1\n\n \n\n \n\n \n\n \n\n552.0\n\n \n\nCurrent liabilities before client fund obligations\n\n \n\n \n\n \n\n1,956.0\n\n \n\n \n\n \n\n \n\n2,089.3\n\n \n\nClient fund obligations\n\n \n\n \n\n \n\n4,884.6\n\n \n\n \n\n \n\n \n\n4,867.0\n\n \n\nTotal current liabilities\n\n \n\n \n\n \n\n6,840.6\n\n \n\n \n\n \n\n \n\n6,956.3\n\n \n\nAccrued income taxes\n\n \n\n \n\n \n\n140.5\n\n \n\n \n\n \n\n \n\n119.0\n\n \n\nDeferred income taxes\n\n \n\n \n\n \n\n543.3\n\n \n\n \n\n \n\n \n\n444.7\n\n \n\nLong-term debt, net of debt issuance costs\n\n \n\n \n\n \n\n4,556.1\n\n \n\n \n\n \n\n \n\n4,548.4\n\n \n\nOperating lease liabilities\n\n \n\n \n\n \n\n52.2\n\n \n\n \n\n \n\n \n\n55.5\n\n \n\nOther long-term liabilities\n\n \n\n \n\n \n\n306.7\n\n \n\n \n\n \n\n \n\n312.2\n\n \n\nTotal liabilities\n\n \n\n \n\n \n\n12,439.4\n\n \n\n \n\n \n\n \n\n12,436.1\n\n \n\nCommitments and contingencies — Note Q\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nStockholders’ equity\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCommon stock, $0.01 par value; Authorized: 600.0 shares;\n  Issued and outstanding: 355.6 shares as of May 31, 2026\n   and 360.5 shares as of May 31, 2025\n\n \n\n \n\n \n\n3.6\n\n \n\n \n\n \n\n \n\n3.6\n\n \n\nAdditional paid-in capital\n\n \n\n \n\n \n\n1,975.6\n\n \n\n \n\n \n\n \n\n1,901.1\n\n \n\nRetained earnings\n\n \n\n \n\n \n\n1,805.8\n\n \n\n \n\n \n\n \n\n2,277.0\n\n \n\nAccumulated other comprehensive loss\n\n \n\n \n\n \n\n(49.9\n\n)\n\n \n\n \n\n \n\n(53.7\n\n)\n\nTotal stockholders’ equity\n\n \n\n \n\n \n\n3,735.1\n\n \n\n \n\n \n\n \n\n4,128.0\n\n \n\nTotal liabilities and stockholders’ equity\n\n \n\n$\n\n \n\n16,174.5\n\n \n\n \n\n$\n\n \n\n16,564.1\n\n \n\n \n\nSee Notes to Consolidated Financial Statements.\n\n42\n\n[Table of Contents](#tableofcontents)\n\n \n\nPAYCHEX, INC.\n\nCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY\n\nIn millions, except per share amounts\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAccumulated other comprehensive loss\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\naccumulated\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAdditional\n\n \n\n \n\n \n\n \n\n \n\n \n\nunrealized\n\n \n\n \n\nCash\n\n \n\n \n\nForeign\n\n \n\n \n\nother\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCommon stock\n\n \n\n \n\npaid-in\n\n \n\n \n\nRetained\n\n \n\n \n\nloss on AFS\n\n \n\n \n\nflow\n\n \n\n \n\ncurrency\n\n \n\n \n\ncomprehensive\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nShares\n\n \n\n \n\nAmount\n\n \n\n \n\ncapital\n\n \n\n \n\nearnings\n\n \n\n \n\nsecurities\n\n \n\n \n\nhedges\n\n \n\n \n\ntranslation\n\n \n\n \n\nincome/(loss)\n\n \n\n \n\nTotal\n\n \n\nBalance as of May 31, 2023\n\n \n\n \n\n360.5\n\n \n\n \n\n$\n\n \n\n3.6\n\n \n\n \n\n$\n\n \n\n1,626.4\n\n \n\n \n\n$\n\n \n\n2,023.1\n\n \n\n \n\n$\n\n \n\n(130.3\n\n)\n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n(29.6\n\n)\n\n \n\n$\n\n \n\n(159.9\n\n)\n\n \n\n$\n\n \n\n3,493.2\n\n \n\nNet income\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,690.4\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,690.4\n\n \n\nUnrealized gains on securities, net of $2.6 million in tax expense\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n7.6\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n7.6\n\n \n\n \n\n \n\n \n\n7.6\n\n \n\nReclassification adjustment for realized losses on securities, net of $0.7\n   million in tax benefit (1)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n2.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n2.0\n\n \n\n \n\n \n\n \n\n2.0\n\n \n\nDividends declared ($3.65 per share)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,315.4\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,315.4\n\n)\n\nRepurchases of common shares (2)\n\n \n\n \n\n(1.5\n\n)\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n(6.2\n\n)\n\n \n\n \n\n \n\n(163.0\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(169.2\n\n)\n\nStock-based compensation\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n61.1\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n61.1\n\n \n\nForeign currency translation adjustment\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n5.2\n\n \n\n \n\n \n\n \n\n5.2\n\n \n\n \n\n \n\n \n\n5.2\n\n \n\nActivity related to equity-based plans\n\n \n\n \n\n1.1\n\n \n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n48.2\n\n \n\n \n\n \n\n \n\n(22.1\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n26.1\n\n \n\nBalance as of May 31, 2024\n\n \n\n \n\n360.1\n\n \n\n \n\n \n\n \n\n3.6\n\n \n\n \n\n \n\n \n\n1,729.5\n\n \n\n \n\n \n\n \n\n2,213.0\n\n \n\n \n\n \n\n \n\n(120.7\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(24.4\n\n)\n\n \n\n \n\n \n\n(145.1\n\n)\n\n \n\n \n\n \n\n3,801.0\n\n \n\nNet income\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,657.3\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,657.3\n\n \n\nUnrealized gains/(losses), net of $26.4 million in tax expense\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n81.9\n\n \n\n \n\n \n\n \n\n(19.2\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n62.7\n\n \n\n \n\n \n\n \n\n62.7\n\n \n\nReclassification adjustment to earnings, net of $0.1\n   million in tax benefit (1)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n0.3\n\n \n\n \n\n \n\n \n\n19.2\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n19.5\n\n \n\n \n\n \n\n \n\n19.5\n\n \n\nDividends declared ($4.02 per share)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,448.7\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,448.7\n\n)\n\nRepurchases of common shares (2)\n\n \n\n \n\n(0.8\n\n)\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n(4.0\n\n)\n\n \n\n \n\n \n\n(100.5\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(104.5\n\n)\n\nStock-based compensation\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n111.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n111.8\n\n \n\nFair value of awards included in transaction consideration\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n15.9\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n15.9\n\n \n\nForeign currency translation adjustment\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n9.2\n\n \n\n \n\n \n\n \n\n9.2\n\n \n\n \n\n \n\n \n\n9.2\n\n \n\nActivity related to equity-based plans\n\n \n\n \n\n1.2\n\n \n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n47.9\n\n \n\n \n\n \n\n \n\n(44.1\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n3.8\n\n \n\nBalance as of May 31, 2025\n\n \n\n \n\n360.5\n\n \n\n \n\n \n\n \n\n3.6\n\n \n\n \n\n \n\n \n\n1,901.1\n\n \n\n \n\n \n\n \n\n2,277.0\n\n \n\n \n\n \n\n \n\n(38.5\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(15.2\n\n)\n\n \n\n \n\n \n\n(53.7\n\n)\n\n \n\n \n\n \n\n4,128.0\n\n \n\nNet income\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,760.1\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,760.1\n\n \n\nUnrealized gains, net of $2.4 million in tax expense\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n6.4\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n6.4\n\n \n\n \n\n \n\n \n\n6.4\n\n \n\nReclassification adjustment to earnings, net of\n   $1.9 million in tax expense (1)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(5.7\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(5.7\n\n)\n\n \n\n \n\n \n\n(5.7\n\n)\n\nDividends declared ($4.43 per share)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,589.9\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(1,589.9\n\n)\n\nRepurchases of common shares (2)\n\n \n\n \n\n(5.6\n\n)\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n(27.0\n\n)\n\n \n\n \n\n \n\n(584.0\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(611.0\n\n)\n\nStock-based compensation\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n96.1\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n96.1\n\n \n\nForeign currency translation adjustment\n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n3.1\n\n \n\n \n\n \n\n \n\n3.1\n\n \n\n \n\n \n\n \n\n3.1\n\n \n\nActivity related to equity-based plans\n\n \n\n \n\n0.7\n\n \n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n5.4\n\n \n\n \n\n \n\n \n\n(57.4\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(52.0\n\n)\n\nBalance as of May 31, 2026\n\n \n\n \n\n355.6\n\n \n\n \n\n$\n\n \n\n3.6\n\n \n\n \n\n$\n\n \n\n1,975.6\n\n \n\n \n\n$\n\n \n\n1,805.8\n\n \n\n \n\n$\n\n \n\n(37.8\n\n)\n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n(12.1\n\n)\n\n \n\n$\n\n \n\n(49.9\n\n)\n\n \n\n$\n\n \n\n3,735.1\n\n \n\n \n\n(1)\nReclassification adjustments out of accumulated other comprehensive income/(loss) for realized (losses)/gains, net of tax, on the sale of available-for-sale (“AFS”) securities are reflected in interest on funds held for clients and other income/(expense), net on the Consolidated Statements of Income and Comprehensive Income.\n\n(2)\nThe Company maintained a program to repurchase up to $400.0 million of its common stock, with authorizations 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 Company maintained a separate program to repurchase up to $400.0 million of its common stock which expired on January 31, 2024. The purpose of these programs is to manage common stock dilution. All shares of common stock repurchased were retired.\n\n \n\n \n\nSee Notes to Consolidated Financial Statements.\n\n43\n\n[Table of Contents](#tableofcontents)\n\n \n\nPAYCHEX, INC.\n\nCONSOLIDATED STATEMENTS OF CASH FLOWS\n\nIn millions\n\n \n\nYear ended May 31,\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nOperating activities\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet income\n\n \n\n$\n\n \n\n1,760.1\n\n \n\n \n\n$\n\n \n\n1,657.3\n\n \n\n \n\n$\n\n \n\n1,690.4\n\n \n\nAdjustments to reconcile net income to net cash provided by operating\n   activities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nDepreciation and amortization\n\n \n\n \n\n \n\n442.6\n\n \n\n \n\n \n\n \n\n209.5\n\n \n\n \n\n \n\n \n\n176.5\n\n \n\nAmortization of discounts and premiums on AFS securities, net\n\n \n\n \n\n \n\n(7.6\n\n)\n\n \n\n \n\n \n\n23.4\n\n \n\n \n\n \n\n \n\n(7.0\n\n)\n\nAmortization of deferred contract costs\n\n \n\n \n\n \n\n249.2\n\n \n\n \n\n \n\n \n\n236.5\n\n \n\n \n\n \n\n \n\n231.7\n\n \n\nStock-based compensation costs\n\n \n\n \n\n \n\n96.1\n\n \n\n \n\n \n\n \n\n111.8\n\n \n\n \n\n \n\n \n\n61.1\n\n \n\nProvision of/(benefit from) deferred income taxes\n\n \n\n \n\n \n\n103.7\n\n \n\n \n\n \n\n \n\n(15.8\n\n)\n\n \n\n \n\n \n\n(29.8\n\n)\n\nProvision for credit losses\n\n \n\n \n\n \n\n38.1\n\n \n\n \n\n \n\n \n\n24.2\n\n \n\n \n\n \n\n \n\n19.8\n\n \n\nNet realized (gains)/losses on sales of AFS securities\n\n \n\n \n\n \n\n(7.6\n\n)\n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n2.6\n\n \n\nNet realized losses on disposal of assets\n\n \n\n \n\n \n\n6.2\n\n \n\n \n\n \n\n \n\n3.7\n\n \n\n \n\n \n\n \n\n32.8\n\n \n\nPremium paid on cash flow hedges\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(19.2\n\n)\n\n \n\n \n\n \n\n—\n\n \n\nChanges in operating assets and liabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nInterest receivable\n\n \n\n \n\n \n\n(8.2\n\n)\n\n \n\n \n\n \n\n(3.8\n\n)\n\n \n\n \n\n \n\n1.1\n\n \n\nAccounts receivable and PEO unbilled receivables, net\n\n \n\n \n\n \n\n(105.8\n\n)\n\n \n\n \n\n \n\n(130.7\n\n)\n\n \n\n \n\n \n\n113.0\n\n \n\nPrepaid expenses and other current assets\n\n \n\n \n\n \n\n40.0\n\n \n\n \n\n \n\n \n\n(12.0\n\n)\n\n \n\n \n\n \n\n(25.2\n\n)\n\nAccounts payable and other current liabilities\n\n \n\n \n\n \n\n291.4\n\n \n\n \n\n \n\n \n\n42.3\n\n \n\n \n\n \n\n \n\n(127.0\n\n)\n\nDeferred costs\n\n \n\n \n\n \n\n(342.5\n\n)\n\n \n\n \n\n \n\n(246.5\n\n)\n\n \n\n \n\n \n\n(244.9\n\n)\n\nNet change in other long-term assets and liabilities\n\n \n\n \n\n \n\n3.9\n\n \n\n \n\n \n\n \n\n21.9\n\n \n\n \n\n \n\n \n\n6.1\n\n \n\nNet change in operating lease right-of-use assets and liabilities\n\n \n\n \n\n \n\n(2.9\n\n)\n\n \n\n \n\n \n\n(2.1\n\n)\n\n \n\n \n\n \n\n(3.5\n\n)\n\nNet cash provided by operating activities\n\n \n\n \n\n \n\n2,556.7\n\n \n\n \n\n \n\n \n\n1,900.9\n\n \n\n \n\n \n\n \n\n1,897.7\n\n \n\nInvesting activities\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nPurchases of AFS securities\n\n \n\n \n\n \n\n(12,226.2\n\n)\n\n \n\n \n\n \n\n(14,302.9\n\n)\n\n \n\n \n\n \n\n(6,868.5\n\n)\n\nProceeds from sales and maturities of AFS securities\n\n \n\n \n\n \n\n11,517.6\n\n \n\n \n\n \n\n \n\n14,292.5\n\n \n\n \n\n \n\n \n\n7,161.2\n\n \n\nNet change in purchased receivables\n\n \n\n \n\n \n\n(166.1\n\n)\n\n \n\n \n\n \n\n(157.3\n\n)\n\n \n\n \n\n \n\n(153.8\n\n)\n\nPurchases of property and equipment\n\n \n\n \n\n \n\n(234.9\n\n)\n\n \n\n \n\n \n\n(191.8\n\n)\n\n \n\n \n\n \n\n(161.4\n\n)\n\nAcquisition of businesses, net of cash acquired\n\n \n\n \n\n \n\n(0.4\n\n)\n\n \n\n \n\n \n\n(2,967.5\n\n)\n\n \n\n \n\n \n\n(208.3\n\n)\n\nPurchases of other assets\n\n \n\n \n\n \n\n(42.4\n\n)\n\n \n\n \n\n \n\n(29.8\n\n)\n\n \n\n \n\n \n\n(30.1\n\n)\n\nNet cash used in investing activities\n\n \n\n \n\n \n\n(1,152.4\n\n)\n\n \n\n \n\n \n\n(3,356.8\n\n)\n\n \n\n \n\n \n\n(260.9\n\n)\n\nFinancing activities\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet change in client fund obligations\n\n \n\n \n\n \n\n17.6\n\n \n\n \n\n \n\n \n\n(290.7\n\n)\n\n \n\n \n\n \n\n(425.3\n\n)\n\nNet proceeds from short-term borrowings\n\n \n\n \n\n \n\n(18.8\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n9.0\n\n \n\nPayments on long-term borrowings\n\n \n\n \n\n \n\n(400.0\n\n)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\nProceeds from issuance of corporate bonds\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n4,180.9\n\n \n\n \n\n \n\n \n\n—\n\n \n\nDividends paid\n\n \n\n \n\n \n\n(1,589.6\n\n)\n\n \n\n \n\n \n\n(1,448.5\n\n)\n\n \n\n \n\n \n\n(1,315.3\n\n)\n\nRepurchases of common shares\n\n \n\n \n\n \n\n(611.0\n\n)\n\n \n\n \n\n \n\n(104.5\n\n)\n\n \n\n \n\n \n\n(169.2\n\n)\n\nDebt issuance costs\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(47.8\n\n)\n\n \n\n \n\n \n\n—\n\n \n\nActivity related to equity-based plans\n\n \n\n \n\n \n\n(52.0\n\n)\n\n \n\n \n\n \n\n3.8\n\n \n\n \n\n \n\n \n\n26.1\n\n \n\nNet cash (used in)/provided by financing activities\n\n \n\n \n\n \n\n(2,653.8\n\n)\n\n \n\n \n\n \n\n2,293.2\n\n \n\n \n\n \n\n \n\n(1,874.7\n\n)\n\nNet change in cash, restricted cash, and equivalents\n\n \n\n \n\n \n\n(1,249.5\n\n)\n\n \n\n \n\n \n\n837.3\n\n \n\n \n\n \n\n \n\n(237.9\n\n)\n\nCash, restricted cash, and equivalents, beginning of fiscal year\n\n \n\n \n\n \n\n2,734.3\n\n \n\n \n\n \n\n \n\n1,897.0\n\n \n\n \n\n \n\n \n\n2,134.9\n\n \n\nCash, restricted cash, and equivalents, end of fiscal year\n\n \n\n$\n\n \n\n1,484.8\n\n \n\n \n\n$\n\n \n\n2,734.3\n\n \n\n \n\n$\n\n \n\n1,897.0\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nReconciliation of cash, restricted cash, and equivalents\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCash and cash equivalents\n\n \n\n$\n\n \n\n1,088.2\n\n \n\n \n\n$\n\n \n\n1,628.6\n\n \n\n \n\n$\n\n \n\n1,468.9\n\n \n\nRestricted cash\n\n \n\n \n\n \n\n52.8\n\n \n\n \n\n \n\n \n\n47.9\n\n \n\n \n\n \n\n \n\n47.8\n\n \n\nRestricted cash and restricted cash equivalents included in funds held for clients\n\n \n\n \n\n \n\n343.8\n\n \n\n \n\n \n\n \n\n1,057.8\n\n \n\n \n\n \n\n \n\n380.3\n\n \n\nTotal cash, restricted cash, and equivalents\n\n \n\n$\n\n \n\n1,484.8\n\n \n\n \n\n$\n\n \n\n2,734.3\n\n \n\n \n\n$\n\n \n\n1,897.0\n\n \n\n \n\n \n\n \n\nSee Notes to Consolidated Financial Statements.\n\n44\n\n[Table of Contents](#tableofcontents)\n\n \n\nPAYCHEX, INC.\n\nNOTES TO CONSOLIDATED FINANCIAL STATEMENTS\n\nNote A — Description of Business, Basis of Presentation, and Significant Accounting Policies\n\n \n\nDescription 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.\n\n \n\nPaychex, a Delaware corporation formed in 1979, reports as a single segment. Refer to Note R of this Item 8 for further discussion of the Company’s segment reporting for each of the fiscal years ended May 31, 2026 (“fiscal 2026”), May 31, 2025 (“fiscal 2025”), and May 31, 2024 (“fiscal 2024”) and as of May 31, 2026 and 2025.\n\n \n\nThe Company offers a full range of integrated HCM solutions covering the employee life cycle for businesses and their employees. Customers may choose from a breadth of solutions that also allow integration with some of the most popular HR, accounting, point-of-sale, and productivity applications on the market today. Paychex’s offerings often leverage the information gathered in its base payroll processing service, allowing the Company to provide comprehensive outsourcing services covering the HCM spectrum.\n\n \n\nPaychex supports its customers through its proprietary, robust Paychex Flex® platform, Paycor and the Company’s SurePayroll® SaaS-based solutions. These solutions allow users to process payroll when they want, how they want, and on any type of device (desktop, tablet, and mobile phone). Paychex’s larger customers generally have more complex payroll and employee benefit needs and can opt for an integrated suite of HCM solutions, which allows them to choose the service and software solutions that will meet the needs of their businesses.\n\n \n\nTotal revenue is comprised of service revenue and interest on funds held for clients. Service revenue is comprised primarily of the fees earned on the portfolio of HCM services, which include payroll processing, complementary HR management and administration services, professional employer organization (“PEO”) solutions, and insurance agency commissions. Refer to Note B of this Item 8 for further discussion of the Company’s service revenue.\n\n \n\nBasis of presentation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain disclosures are reported as zero balances due to rounding.\n\n \n\nReclassifications: Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated earnings.\n\n \n\nCash and cash equivalents: Cash and cash equivalents consist of available cash, money market securities, and other investments with a maturity of 90 days or less at acquisition. Cash and cash equivalents include funds collected from the Company’s PEO customers for the payment of worksite employee payrolls and associated payroll taxes. $217.7 million and $179.8 million collected from PEO customers are included in cash and cash equivalents on the Company’s Consolidated Balance Sheets as of May 31, 2026 and 2025, respectively.\n\n \n\nRestricted cash and restricted cash equivalents: Restricted cash and restricted cash equivalents are recorded at fair value, and consist of cash and cash equivalents, primarily money market securities, included in funds held for clients and cash that is restricted in use to secure commitments for certain workers’ compensation insurance policies.\n\n \n\nAccounts receivable, net of allowance for credit losses: Accounts receivable balances are shown on the Consolidated Balance Sheets net of the allowance for credit losses as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nTrade receivables\n\n \n\n$\n\n \n\n238.5\n\n \n\n \n\n$\n\n \n\n205.4\n\n \n\nPurchased receivables\n\n \n\n \n\n \n\n1,309.5\n\n \n\n \n\n \n\n \n\n1,151.1\n\n \n\nTotal accounts receivable, gross\n\n \n\n \n\n \n\n1,548.0\n\n \n\n \n\n \n\n \n\n1,356.5\n\n \n\nLess: Allowance for credit losses\n\n \n\n \n\n \n\n40.4\n\n \n\n \n\n \n\n \n\n26.0\n\n \n\nAccounts receivable, net of allowance for credit losses\n\n \n\n$\n\n \n\n1,507.6\n\n \n\n \n\n$\n\n \n\n1,330.5\n\n \n\n \n\n45\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nTrade receivables are for services provided to customers in the normal course of business and purchased receivables are acquired from the Company's customers under non-recourse arrangements.\n\n \n\nThe Company is exposed to credit losses through the sale of its solutions and support services, payment of customer obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has multiple programs in place to assess and continuously monitor each customer’s ability to pay for these solutions and support services. Credit monitoring programs include, but are not limited to, new customer credit reviews, establishing appropriate credit limits, monitoring of credit distressed customers, and early electronic wire and collection procedures. The Company also considers contract terms and conditions, customer business type or strategy and may require collateralized asset support or prepayment to mitigate credit risk.\n\n \n\nAccounts receivable are written off and charged against the allowance for credit losses when the Company has exhausted all collection efforts without success. The Company estimates its allowance for credit losses based on historical loss activity adjusted for current economic conditions and reasonable and supportable forecast factors, when applicable.\n\n \n\nAllowance for credit losses activity related to accounts receivables are as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n \n\n2026\n\n \n\n \n\n \n\n2025\n\n \n\n \n\n \n\n2024\n\n \n\nBalance, beginning of period\n\n \n\n$\n\n \n\n26.0\n\n \n\n \n\n$\n\n \n\n21.3\n\n \n\n \n\n$\n\n \n\n20.5\n\n \n\nProvision for credit losses\n\n \n\n \n\n \n\n38.1\n\n \n\n \n\n \n\n \n\n24.2\n\n \n\n \n\n \n\n \n\n19.8\n\n \n\nWrite-offs and recoveries\n\n \n\n \n\n \n\n(23.7\n\n)\n\n \n\n \n\n \n\n(19.5\n\n)\n\n \n\n \n\n \n\n(19.0\n\n)\n\nBalance, end of period\n\n \n\n$\n\n \n\n40.4\n\n \n\n \n\n$\n\n \n\n26.0\n\n \n\n \n\n$\n\n \n\n21.3\n\n \n\n \n\nNo single customer had a material impact on total accounts receivable as of May 31, 2026 or 2025. No single customer had a material impact on service revenue or results of operations for the fiscal years ended May 31, 2026, 2025 and 2024.\n\n \n\nPEO unbilled receivables, net of advance collections: The Company recognizes a liability for worksite employee gross wages and related payroll tax liabilities at the end of the period in which the worksite employee performs work, and where it assumes, under applicable federal and state regulations, the obligation for the payment of payroll and payroll tax liabilities. The estimated payroll and payroll tax liabilities are recorded in accrued worksite employee compensation and related items on the Company’s Consolidated Balance Sheets. The associated unbilled receivables, including estimated revenues, offset by advance collections from customers, are recorded as PEO unbilled receivables, net of advance collections on the Company’s Consolidated Balance Sheets. As of May 31, 2026 and 2025, advance collections were $1.1 million and $1.8 million, respectively.\n\n \n\nFunds held for clients and corporate investments: Marketable securities included in funds held for clients and corporate investments consist primarily of securities classified as AFS and are recorded at fair value obtained from an independent pricing service. The funds held for clients portfolio also includes cash and cash equivalents such as money market securities. Unrealized gains and losses, net of applicable income taxes, are reported as other comprehensive income or loss in the Consolidated Statements of Income and Comprehensive Income. 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/(expense), net, respectively.\n\n \n\nConcentrations: Substantially all the Company’s deposited cash is maintained at large well-capitalized (as defined by their regulators) financial institutions. Deposits at these institutions may, at times, exceed federally insured limits (e.g., FDIC coverage). The Company monitors the creditworthiness of these institutions and has not experienced any losses during fiscal 2026, fiscal 2025 or fiscal 2024. All the Company’s deliverable securities are held in custody with certain of the aforementioned financial institutions, in accordance with standard custody arrangements. Non-deliverable securities are primarily time deposits and money market funds.\n\n \n\n46\n\n[Table of Contents](#tableofcontents)\n\n \n\nProperty and equipment, net of accumulated depreciation: Property and equipment is stated at cost, less accumulated depreciation. Depreciation is based on the estimated useful lives of property and equipment using the straight-line method. The estimated useful lives of depreciable assets are generally as follows:\n\n \n\nCategory\n\n \n\nDepreciable life\n\nBuildings and improvements\n\n \n\n10 to 35 years or the remaining life, whichever is shorter\n\nData processing equipment\n\n \n\n3 to 5 years\n\nFurniture, fixtures, and equipment\n\n \n\n2 to 7 years\n\nLeasehold improvements\n\n \n\n10 years or the life of the lease, whichever is shorter\n\nSoftware\n\n \n\n3 to 12 years\n\n \n\n \n\nNormal and recurring repairs and maintenance costs are charged to expense as incurred. The Company reviews the carrying value of property and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.\n\n \n\nSoftware development and enhancements: Expenditures for software purchases and software developed for internal use are capitalized and depreciated on a straight-line basis over the estimated useful lives, which are generally 3 to 5 years. Software developed as part of the Company’s main processing platform is depreciated over 12 years. For software developed for internal use, certain costs are capitalized, including external direct costs of materials and services associated with developing or obtaining the software, and payroll and payroll-related costs for employees who are directly associated with internal-use software projects. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended use. Costs associated with preliminary project stage activities, training, maintenance, and other post-implementation stage activities are expensed as incurred. The carrying value of software and development costs is reviewed for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.\n\n \n\nGoodwill and other intangible assets, net of accumulated amortization: Goodwill is not amortized, but instead is tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change in a way to indicate that there has been a potential decline in the fair value of a reporting unit. The Company performs its annual impairment testing in its fiscal fourth quarter. During fiscal 2026, fiscal 2025 and fiscal 2024, a qualitative analysis was performed on all reporting units to determine if it is more-likely-than-not that the fair value of the reporting units had declined below their carrying values. The qualitative assessment considered various financial, macroeconomic, industry, and reporting unit specific qualitative factors. Based on the results of the Company’s testing, no impairment loss was recognized in the results of operations for fiscal 2026, fiscal 2025, or fiscal 2024. Subsequent to the latest review, there have been no events or circumstances that indicate any potential impairment of the Company’s goodwill balance.\n\n \n\nFinite-lived intangible assets are reported net of accumulated amortization on the Consolidated Balance Sheets. Amortization is based on the estimated useful lives of asset using either an accelerated method or straight-line method. The estimated useful lives of amortizable assets are generally as follows:\n\n \n\nCategory\n\n \n\nAmortizable life\n\nCustomer lists\n\n \n\n3 to 12 years\n\nAcquired developed software\n\n \n\n5 to 7 years\n\nOther intangibles:\n\n \n\n \n\nFinite-lived trade names and trademarks\n\n \n\n3 to 15 years\n\nNaming rights\n\n \n\nOver remaining term of underlying agreement\n\n \n\nIn addition, the Company has an intangible asset with an indefinite useful life, which is tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change in a way to indicate that the carrying value may not be recoverable. The Company has determined, using qualitative assessments, there is no impairment of this intangible asset for fiscal 2026, fiscal 2025, or fiscal 2024.\n\n47\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nImpairment of Long-Lived Assets: Long-lived assets, including intangible assets with finite lives and operating lease right-of-use (“ROU”) assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. The recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. The Company has determined that there was no impairment of long-lived assets for fiscal 2026, fiscal 2025, or fiscal 2024.\n\n \n\nDerivative Instruments: At inception, a derivative asset is recorded for the fair value of the premiums paid. Changes to the fair value of these cash flow hedges are temporarily reported in Accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets and reclassified to earnings as the hedged item affects earnings. The Company formally assesses, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure. Interest rate swaption contracts (“Swaption Contracts”), qualifying as cash flow hedges of interest payments, were used to hedge a portion of the Company's long-term fixed rate debt in fiscal 2025. Refer to Note M Short-term Financing for additional information on the Company's Swaption Contracts.\n\nForeign Currency: The financial statements of the Company’s foreign subsidiaries have been translated into U.S. dollars. Assets and liabilities are translated into U.S. dollars at period-end exchange rates. Income and expenses are translated at the average exchange rate for the reporting period. The resulting non-cash foreign currency translation adjustments, representing unrealized gains or losses, are included in the Consolidated Statements of Stockholders’ Equity as a component of accumulated other comprehensive income/(loss), net of tax. The Company did not have any material realized gains or losses resulting from foreign exchange transactions during fiscal 2026, fiscal 2025, or fiscal 2024.\n\n \n\nRevenue recognition: Revenues are primarily attributable to fees for providing services as well as investment income earned on funds held for clients. Fees associated with services are recognized when control of the contracted services is transferred to the Company's customers, in an amount that reflects the consideration it expects to receive in exchange for such services. The Company’s service revenue is largely attributable to processing services where the fee is based on a fixed amount per processing period, a fixed amount per processing period plus a fee per employee or transaction processed, or fee per employee per month or per processing period. Insurance Solutions revenues are recognized when commissions are earned on premiums billed and collected. Fees earned for the purchase of customer's accounts receivable under non-recourse arrangements are based on a percentage of funding amounts as specified in the customer contract. These fees are then recognized over the average collection period of 40 to 55 days for customers in the temporary staffing agency market and approximately 5 to 15 days for other customers. The revenue earned from delivery service for the distribution of certain client payroll checks and reports is included in service revenue, and the costs for the delivery are included in cost of service revenue on the Consolidated Statements of Income and Comprehensive Income.\n\n \n\nThe Company receives advance payments for set-up fees from its customers. Advance payments received for certain service offerings for set-up fees are considered a material right. Therefore, the Company defers the revenue associated with these advance payments, recognizing the revenue and related expenses over the expected period to which the material right exists.\n\n \n\nPEO Solutions revenue is included in service revenue and is reported net of certain pass-through costs billed and incurred, which include payroll wages, payroll taxes, including federal and state unemployment insurance, and certain health insurance benefit premiums, primarily costs related to the Company’s guaranteed cost benefit plans. Direct costs related to workers’ compensation and certain benefit plans where the Company retains risk are recognized as cost of service revenue rather than as a reduction in service revenue. Refer to Note B of this Item 8 for further discussion of the Company's PEO pass-through costs.\n\n \n\nInterest on funds held for clients is earned primarily on funds that are collected from clients before due dates for payroll tax administration and employee payment services and invested until remittance to the applicable tax or regulatory agencies or client employees. The interest earned on these funds is included in total revenue on the Consolidated Statements of Income and Comprehensive Income because the collecting, holding, and remitting of these funds are components of providing these services.\n\n \n\n48\n\n[Table of Contents](#tableofcontents)\n\n \n\nAssets 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. Incremental costs of obtaining a contract include only those costs that are directly related to the acquisition of new contracts and that would not have been incurred if the contract had not been obtained. The Company does not incur incremental costs to obtain a contract renewal. The Company determined that certain sales commissions and bonuses, including related fringe benefits, meet the capitalization criteria under Accounting Standards Codification (“ASC”) Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”). 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. The Company has determined that substantially all costs related to implementation activities are administrative in nature and meet the capitalization criteria under ASC 340-40. These capitalized costs to fulfill a contract principally relate to upfront direct costs that are expected to be recovered and enhance the Company’s ability to satisfy future performance obligations.\n\n \n\nThe assets related to both costs to obtain and costs to fulfill contracts with customers are capitalized and amortized using either an accelerated method over an eight-year life or straight-line method over a six-year life to closely align with the pattern of customer attrition over the estimated life of the customer relationship. The Company regularly reviews its deferred costs for potential impairment and did not recognize an impairment loss during fiscal 2026, fiscal 2025, or fiscal 2024.\n\n \n\nCost of service revenue: The Company’s costs and expenses applicable to total service revenue represent direct costs associated with providing HR, payroll, benefits, and insurance services. This includes labor-related costs, direct costs related to certain PEO solutions, postage and delivery costs, facility costs, professional services, and depreciation and amortization of property and equipment, including internally developed software.\n\n \n\nSelling, general and administrative expenses: The Company’s selling, general and administrative expenses represent labor-related costs, including amortization of deferred sales commissions and bonuses, corporate asset depreciation and amortization, marketing, and other general and administrative expenses incurred by the Company.\n\n \n\nPEO insurance reserves: As part of its PEO solution, the Company offers workers’ compensation insurance and health insurance 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. 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. The determination of estimated ultimate losses by the Company’s independent actuary are based on accepted actuarial methods and assumptions. The estimated ultimate losses are primarily based upon loss development factors, and other factors such as the nature of employees’ job responsibilities, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into the Company's workers’ compensation claims cost estimates. For fiscal 2026 and fiscal 2025, 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.\n\n \n\nAs of May 31, 2026 and 2025, the Company had recorded current liabilities of $80.7 million and $80.4 million, respectively, and long-term liabilities of $157.0 million and $156.4 million, respectively, on its Consolidated Balance Sheets for workers’ compensation insurance reserves. The amounts were recorded in the other current liabilities and other long-term liabilities sections, respectively, of the Consolidated Balance Sheets.\n\n \n\nWith 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 2026 and fiscal 2025. Amounts accrued related to the health insurance and dental and vision plan reserves were $64.3 million and $48.2 million as of May 31, 2026 and 2025, respectively. These amounts are included in other current liabilities on the Consolidated Balance Sheets.\n\n \n\n49\n\n[Table of Contents](#tableofcontents)\n\n \n\nEstimating 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 fiscal 2026, fiscal 2025, or fiscal 2024.\n\n \n\nLeases: The Company accounts for its leases under ASC Topic 842, \"Leases\". At contract inception, the Company determines if the new contractual arrangement is a lease or contains a leasing arrangement. If a contract contains a lease with a term greater than one year, the Company evaluates whether it should be classified as an operating or a finance lease. Currently, all the Company’s leases have been classified as operating leases. Upon modification of a contract, the Company will reassess to determine if a contract is or contains a leasing arrangement.\n\n \n\nThe Company records lease liabilities based on the future estimated cash payments discounted over the lease term, defined as the non-cancellable time period of the lease, together with all the following:\n\n \n\n•\nperiods covered by an option to extend the lease if the Company is reasonably certain to exercise the extension option; and\n\n•\nperiods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the termination option.\n\n \n\nLeases may also include options to terminate the arrangement or options to purchase the underlying lease property. The Company does not separate lease and non-lease components of contracts. Lease components provide the Company with the right to use an identified asset, which consist of the Company’s real estate properties and office equipment. Non-lease components consist primarily of maintenance services.\n\n \n\nAs an implicit discount rate is typically not readily determinable in the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The incremental borrowing rate is determined using a portfolio approach utilizing publicly available information related to our unsecured borrowing rates. For certain leases with original terms of 12 months or less, the Company recognizes lease expense as incurred and does not recognize any lease liabilities. Short-term and long-term portions of operating lease liabilities are classified as other current liabilities and operating lease liabilities, respectively, on the Company’s Consolidated Balance Sheets.\n\n \n\nAn ROU asset is measured as the amount of the lease liability with adjustments, if applicable, for lease incentives, initial direct costs incurred by the Company, and lease prepayments made prior to or at lease commencement. ROU assets are classified as operating lease ROU assets, net of accumulated amortization, on the Company’s Consolidated Balance Sheets. The Company evaluates the carrying value of ROU assets if there are indicators of potential impairment and performs the analysis concurrent with the review of the recoverability of the related asset group. If the carrying value of the asset group is determined to not be fully recoverable and is in excess of its estimated fair value, the Company will record an impairment loss in its Consolidated Statements of Income and Comprehensive Income. The Company did not recognize an impairment loss during fiscal 2026, fiscal 2025 or fiscal 2024.\n\n \n\nFixed lease expense payments are recognized on a straight-line basis over the lease term. Variable lease payments vary because of changes in facts or circumstances occurring after the commencement date, other than the passage of time, and are often due to changes in an external market rate or the value of an index (e.g. Consumer Price Index). Variable lease payments are expensed as incurred in the Company’s Consolidated Statements of Income and Comprehensive Income.\n\n \n\nStock-based compensation costs: All stock-based awards to employees are recognized as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. For stock options, the Company estimates the fair value of grants using a Black-Scholes option pricing model. This model requires various assumptions as inputs including the expected volatility of the Paychex stock price and expected option life. Volatility is estimated based on a combination of historical volatility, using stock prices over a period equal to the expected option life, and implied market volatility. Expected option life is estimated based on historical exercise behavior.\n\n \n\n50\n\n[Table of Contents](#tableofcontents)\n\n \n\nThe fair value of time-based stock awards is determined based on the stock price. For grants that do not accrue dividends or dividend equivalents, the fair value is the stock price reduced by the present value of estimated dividends over the vesting period or performance period.\n\n \n\nThe fair value of performance-based stock awards that include a market condition is estimated based on a Monte Carlo simulation. The Monte Carlo simulation requires various assumptions as inputs including the expected volatility of the Paychex stock price and the stock prices of the companies that comprise the designated peer group. Stock price volatility of the Company and the designated peer group is estimated based on historical volatility, using stock prices over a period equal to the measurement period of the award.\n\n \n\nThe Company’s policy is to estimate forfeitures and only record compensation costs for those awards that are expected to vest. The assumptions for forfeitures are determined based on type of award and historical experience. Forfeiture assumptions are adjusted at the point in time a significant change is identified, with any adjustment recorded in the period of change, and the final adjustment at the end of the requisite service period to equal actual forfeitures.\n\n \n\nThe assumptions of volatility, expected option life, and forfeitures all require significant judgment and are subject to change in the future due to factors such as employee exercise behavior, stock price trends, and changes to type or provisions of stock-based awards. Any material change in one or more of these assumptions could have an impact on the estimated fair value of a future award. The Company periodically reassesses its assumptions as well as its choice of valuation models. The Company will reconsider use of its valuation models if additional information becomes available in the future indicating that another model would provide a more accurate estimate of fair value or if characteristics of future grants would warrant such a change.\n\n \n\nRefer to Note F of this Item 8 for further discussion of the Company’s stock-based compensation plans.\n\n \n\nIncome taxes: The Company accounts for deferred taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities, using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.\n\n \n\nThe Company also maintains a reserve for uncertain tax positions. The Company evaluates tax positions taken or expected to be taken in a tax return for recognition in its consolidated financial statements. Prior to recording the related tax benefit in the consolidated financial statements, the Company must conclude that tax positions will be more-likely-than-not to be sustained, assuming those positions will be examined by taxing authorities with full knowledge of all relevant information. The benefit recognized in the consolidated financial statements is the amount the Company expects to realize after examination by taxing authorities. If a tax position drops below the more-likely-than-not standard, the benefit can no longer be recognized. Assumptions, judgment, and the use of estimates are required in determining if the more-likely-than-not standard has been met when developing the provision for income taxes and in determining the expected benefit. A change in the assessment of the more-likely-than-not standard could materially impact the Company’s results of operations or financial position. Refer to Note L of this Item 8 for further discussion of the Company’s reserve for uncertain tax positions.\n\n \n\nBusiness combinations: The Company accounts for acquisitions in accordance with the guidance in Financial Accounting Standards Board (\"FASB\") ASC Topic 805, Business Combinations (\"ASC 805\"), using the acquisition method of accounting. The Company allocates the purchase price consideration associated with its acquisitions to the fair values of assets acquired and liabilities assumed at their respective acquisition dates, with the excess recorded to goodwill. This allocation involves a number of assumptions, estimates, and judgments in determining fair value of the following:\n\n \n\n•\nIntangible assets, including valuation methodology, estimations of future cash flows, discount rates, market segment growth rates, and our assumed market share, as well as the estimated useful life of intangible assets;\n\n•\nDeferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances, which are initially estimated as of the acquisition date;\n\n•\nGoodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and liabilities assumed; and\n\n•\nPre-existing liabilities and legal claims, and contingent consideration, each as may be applicable.\n\nThe Company's assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. These assumptions and estimates are used to value assets acquired and liabilities assumed, and to allocate goodwill to the reporting units of the business that are expected to benefit from the business combination. Adjustments to the fair values of assets acquired and liabilities assumed may be recorded during the measurement\n\n51\n\n[Table of Contents](#tableofcontents)\n\n \n\nperiod, which may be up to one year from the acquisition date, with the corresponding offset to goodwill. The Company may engage a valuation specialist to assist in the fair value measurement of assets acquired and liabilities assumed for each acquisition.\n\nUse of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenue, and expenses during the reporting period. Actual amounts and results could differ from these estimates.\n\n \n\nRecently adopted accounting pronouncements: Effective for the Company's Annual Report on Form 10-K for fiscal 2026, the Company adopted Accounting Standard Update (\"ASU\") No. 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” using a retrospective application approach. The requirements of this ASU are disclosure-related and do not have an impact on the Company’s financial condition, results of operations, or cash flows. The ASU requires additional detail in the income tax rate reconciliation, including quantitative thresholds for reconciling items, and mandates disaggregation of income taxes paid among federal, state, and foreign jurisdictions, with further breakdowns for significant individual jurisdictions. Refer to Note L of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding income taxes.\n\n \n\nRecently 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.\n\n \n\nIn July 2025, the FASB issued 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 will adopt this guidance in its fiscal year beginning June 1, 2026, and will elect the practical expedient. The adoption of this guidance will not have a material impact on the Company's consolidated financial statements.\n\nIn 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.\n\nIn 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.\n\n \n\nNote B — Service Revenue\n\n \n\nService 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\n\n52\n\n[Table of Contents](#tableofcontents)\n\n \n\ninsurance 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.\n\n \n\nBased 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.\n\n \n\nManagement Solutions Revenue\n\n \n\nManagement 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.\n\n \n\nRevenue 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.\n\n \n\nPEO and Insurance Solutions Revenue\n\n \n\nPEO 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 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.\n\n \n\nPEO pass-through costs netted within the PEO and Insurance Solutions revenue are as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nPayroll wages and payroll taxes\n\n \n\n$\n\n \n\n32,197.0\n\n \n\n \n\n$\n\n \n\n29,280.0\n\n \n\n \n\n$\n\n \n\n27,381.5\n\n \n\nState unemployment insurance (included in payroll wages and payroll taxes)\n\n \n\n$\n\n \n\n179.4\n\n \n\n \n\n$\n\n \n\n167.4\n\n \n\n \n\n$\n\n \n\n151.8\n\n \n\nGuaranteed cost benefit plans\n\n \n\n$\n\n \n\n752.3\n\n \n\n \n\n$\n\n \n\n681.6\n\n \n\n \n\n$\n\n \n\n660.3\n\n \n\n \n\n53\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nInsurance 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 health, dental, vision, and life. 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.\n\n \n\nContract Balances\n\n \n\nThe 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.\n\n \n\nPayments 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.\n\n \n\nChanges in deferred revenue related to material rights that exceed one year were as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nBalance, beginning of period\n\n \n\n$\n\n \n\n92.4\n\n \n\n \n\n$\n\n \n\n74.9\n\n \n\nDeferred revenue acquired\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n19.0\n\n \n\nDeferral of revenue\n\n \n\n \n\n \n\n54.1\n\n \n\n \n\n \n\n \n\n39.0\n\n \n\nRecognition of unearned revenue\n\n \n\n \n\n \n\n(55.1\n\n)\n\n \n\n \n\n \n\n(40.5\n\n)\n\nBalance, end of period\n\n \n\n$\n\n \n\n91.4\n\n \n\n \n\n$\n\n \n\n92.4\n\n \n\n \n\nDeferred 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 May 31, 2026, the Company expects to recognize $45.8 million of deferred revenue related to material rights during its fiscal year ending May 31, 2027 and $45.6 million of deferred revenue thereafter.\n\n \n\n54\n\n[Table of Contents](#tableofcontents)\n\n \n\nAssets Recognized from the Costs to Obtain and Fulfill Contracts\n\n \n\nThe Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it is expected that the economic benefit and amortization period will be longer than one year. The Company also recognizes an asset for the costs to fulfill a contract with a customer if the costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered.\n\n \n\nDeferred costs to obtain and fulfill contracts are reported in the prepaid expenses and other current assets and long-term deferred costs line items on the Company’s Consolidated Balance Sheets. Amortization expense related to costs to obtain and fulfill a contract are included in cost of service revenue and selling, general and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive Income. Refer to Note A of this Item 8 for additional disclosures on our policies for assets recognized from the costs to obtain and fulfill contracts.\n\n \n\nThe Company regularly reviews its deferred costs for potential impairment and did not recognize an impairment loss during fiscal 2026, fiscal 2025, or fiscal 2024.\n\n \n\nChanges in deferred costs to obtain and fulfill contracts were as follows:\n\n \n\nCosts to fulfill contracts:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nBalance, beginning of period\n\n \n\n$\n\n \n\n87.0\n\n \n\n \n\n$\n\n \n\n76.6\n\n \n\nCapitalization of costs\n\n \n\n \n\n \n\n83.0\n\n \n\n \n\n \n\n \n\n37.8\n\n \n\nAmortization\n\n \n\n \n\n \n\n(34.1\n\n)\n\n \n\n \n\n \n\n(27.4\n\n)\n\nBalance, end of period\n\n \n\n$\n\n \n\n135.9\n\n \n\n \n\n$\n\n \n\n87.0\n\n \n\n \n\nCosts to obtain contracts:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nBalance, beginning of period\n\n \n\n$\n\n \n\n609.0\n\n \n\n \n\n$\n\n \n\n609.4\n\n \n\nCapitalization of costs\n\n \n\n \n\n \n\n259.5\n\n \n\n \n\n \n\n \n\n208.7\n\n \n\nAmortization\n\n \n\n \n\n \n\n(215.1\n\n)\n\n \n\n \n\n \n\n(209.1\n\n)\n\nBalance, end of period\n\n \n\n$\n\n \n\n653.4\n\n \n\n \n\n$\n\n \n\n609.0\n\n \n\n \n\nNote C — Basic and Diluted Earnings Per Share\n\n \n\nBasic and diluted earnings per share were calculated as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions, except per share amounts\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nBasic earnings per share:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet income\n\n \n\n$\n\n \n\n1,760.1\n\n \n\n \n\n$\n\n \n\n1,657.3\n\n \n\n \n\n$\n\n \n\n1,690.4\n\n \n\nWeighted-average common shares outstanding\n\n \n\n \n\n \n\n358.9\n\n \n\n \n\n \n\n \n\n360.2\n\n \n\n \n\n \n\n \n\n360.3\n\n \n\nBasic earnings per share\n\n \n\n$\n\n \n\n4.90\n\n \n\n \n\n$\n\n \n\n4.60\n\n \n\n \n\n$\n\n \n\n4.69\n\n \n\nDiluted earnings per share:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNet income\n\n \n\n$\n\n \n\n1,760.1\n\n \n\n \n\n$\n\n \n\n1,657.3\n\n \n\n \n\n$\n\n \n\n1,690.4\n\n \n\nWeighted-average common shares outstanding\n\n \n\n \n\n \n\n358.9\n\n \n\n \n\n \n\n \n\n360.2\n\n \n\n \n\n \n\n \n\n360.3\n\n \n\nDilutive effect of common share equivalents\n\n \n\n \n\n \n\n1.1\n\n \n\n \n\n \n\n \n\n1.8\n\n \n\n \n\n \n\n \n\n1.8\n\n \n\nWeighted-average common shares outstanding, assuming dilution\n\n \n\n \n\n \n\n360.0\n\n \n\n \n\n \n\n \n\n362.0\n\n \n\n \n\n \n\n \n\n362.1\n\n \n\nDiluted earnings per share\n\n \n\n$\n\n \n\n4.89\n\n \n\n \n\n$\n\n \n\n4.58\n\n \n\n \n\n$\n\n \n\n4.67\n\n \n\nWeighted-average anti-dilutive common share equivalents\n\n \n\n \n\n \n\n1.3\n\n \n\n \n\n \n\n \n\n0.2\n\n \n\n \n\n \n\n \n\n0.6\n\n \n\n \n\nWeighted-average common share equivalents that had an anti-dilutive impact are excluded from the computation of diluted earnings per share.\n\n55\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote D — Business Combinations\n\n \n\nThe Company accounts for acquisitions in accordance with the guidance in FASB ASC 805, Business Combinations. This guidance requires disclosure of consideration transferred, including any contingent consideration, assets acquired, and liabilities assumed to be measured at their fair values as of the acquisition date. This guidance further provides that: (1) acquisition costs will generally be expensed as incurred, (2) restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and (3) changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 805 requires that any excess of the purchase price over the fair values of the net assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill.\n\n \n\nPaycor HCM, Inc.\n\nOn April 14, 2025, the Company completed its acquisition of Paycor HCM, Inc. (“Paycor”) for total purchase consideration of approximately $4.1 billion, of which $4.06 billion was paid in cash and $25.1 million was paid in the form of replacement awards. To finance the purchase consideration, Paychex issued a $4.2 billion aggregate principal amount of fixed-rate corporate bonds. Refer to Note N for further details on the issued fixed rate corporate bonds. Paycor is a leading Software-as-a-Service (“SaaS”) provider of HCM solutions for small and medium-sized businesses across all 50 states within the U.S.\n\nEach unvested award of time-based restricted stock units (\"RSUs\") and restricted stock awards (\"RSAs\") granted under the Paycor 2021 Omnibus Incentive Plan held by employees at the Director and above level was replaced with either Paychex RSUs or Paychex RSAs subject to the original vesting conditions. These replaced awards represent $15.9 million of the $25.1 million of fair value attributable to pre-combination services. Refer to Note F for further details on the replaced RSUs and RSAs. For unvested RSUs held by employees below the level of Director or each unvested phantom award held by Serbia-based Paycor employees at any level, these awards were converted into a cash award for the right to receive $22.50 in cash per share, subject to the original vesting conditions. These cash awards represent $9.2 million of the $25.1 million of fair value attributable to pre-combination services.\n\nThe amount of Paycor revenue and net loss included in the Company’s condensed Consolidated Statements of Income and Comprehensive Income from the acquisition date through May 31, 2025, was $92.5 million and $75.9 million, respectively. Paycor's financial results during fiscal 2025 include acquisition-related costs of $84.5 million, net of tax. Refer to Note R for additional discussion on these acquisition-related costs.\n\nAcquisition-related costs consist of miscellaneous professional service fees and expenses for our recent acquisitions. The Company recognized $304.2 million of acquisition-related costs, including $242.0 million related to amortization for step-up basis intangible assets, during fiscal 2026, and $49.2 million during fiscal 2025. These costs are shown as part of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.\n\nThe transaction aims to enhance the Company’s capabilities in the upmarket segment and expand its suite of AI-driven HCM solutions.\n\n56\n\n[Table of Contents](#tableofcontents)\n\n \n\nPurchase Consideration and Allocation\n\nThe Company accounted for the Paycor acquisition as a business combination using the acquisition method of accounting in accordance with ASC 805. The assets acquired and liabilities assumed in the acquisition of Paycor were recorded at their respective fair values as of the acquisition date. Estimates of fair value represent management’s best estimate and require a complex series of judgments about future events and uncertainties. Third-party valuation specialists were engaged to assist in the valuation of certain assets and liabilities. The purchase price allocation as of the acquisition date was subject to change as additional information about the fair values of assets acquired and liabilities assumed became available. Measurement period adjustments were finalized within one year from the acquisition date.\n\nThe following table summarizes the components of the purchase consideration:\n\nIn millions, except per share amounts\n\n \n\n \n\n \n\n \n\nNumber of shares of Paycor common stock outstanding (1)\n\n \n\n \n\n \n\n180.5\n\n \n\nCash consideration (per share of common stock)\n\n \n\n$\n\n \n\n22.50\n\n \n\nTotal cash consideration\n\n \n\n$\n\n \n\n4,060.6\n\n \n\n \n\n \n\n \n\n \n\n \n\nFair value of Paycor equity awards replaced by Paychex for pre-combination services (2)\n\n \n\n$\n\n \n\n25.1\n\n \n\nTotal equity consideration\n\n \n\n$\n\n \n\n25.1\n\n \n\nTotal purchase consideration\n\n \n\n$\n\n \n\n4,085.7\n\n \n\n(1)\nRepresents outstanding shares of Paycor common stock as of April 11, 2025.\n\n(2)\nRepresents the fair value of Paycor's stock-based compensation awards attributable to pre-combination services. ASC 805 requires that the fair value of replacements awards attributable to pre-combination service be included in consideration transferred.\n\n \n\nPurchase Price Allocation\n\n \n\nDuring fiscal 2026, the Company adjusted its purchase price allocation, which increased goodwill $4.2 million, primarily resulting from the write-down of a building by $4.9 million, net of deferred taxes of $1.9 million as a result of an updated valuation, offset by a reduction due to a change in deferred tax liability of $3.9 million primarily related to return-to-provision adjustments from the predecessor's final tax return. The impact of these changes on previously reported earnings was not material.\n\nIn millions\n\n \n\n \n\n \n\n \n\nTotal purchase price\n\n \n\n$\n\n \n\n4,085.7\n\n \n\nAssets Acquired\n\n \n\n \n\n \n\n \n\nCash and cash equivalents\n\n \n\n$\n\n \n\n168.8\n\n \n\nRestricted cash\n\n \n\n \n\n \n\n0.0\n\n \n\nInterest receivable\n\n \n\n \n\n \n\n0.7\n\n \n\nAccounts receivable\n\n \n\n \n\n \n\n26.5\n\n \n\nPrepaid income taxes\n\n \n\n \n\n \n\n1.0\n\n \n\nPrepaid expenses and other current assets\n\n \n\n \n\n \n\n28.7\n\n \n\nFunds held for clients\n\n \n\n \n\n \n\n1,288.2\n\n \n\nProperty and equipment\n\n \n\n \n\n \n\n27.6\n\n \n\nOperating lease right-of-use assets\n\n \n\n \n\n \n\n14.1\n\n \n\nIntangible assets\n\n \n\n \n\n \n\n1,776.5\n\n \n\nOther long-term assets\n\n \n\n \n\n \n\n1.9\n\n \n\nTotal assets\n\n \n\n$\n\n \n\n3,334.0\n\n \n\nLiabilities Assumed\n\n \n\n \n\n \n\n \n\nCurrent liabilities\n\n \n\n$\n\n \n\n137.4\n\n \n\nClient funds obligation\n\n \n\n \n\n \n\n1,288.9\n\n \n\nDeferred income taxes\n\n \n\n \n\n \n\n339.3\n\n \n\nOther long-term liabilities\n\n \n\n \n\n \n\n74.5\n\n \n\nTotal Liabilities\n\n \n\n$\n\n \n\n1,840.1\n\n \n\nFair value of purchase consideration\n\n \n\n \n\n \n\n4,085.7\n\n \n\nLess: fair value of net assets\n\n \n\n \n\n \n\n1,493.9\n\n \n\nGoodwill\n\n \n\n$\n\n \n\n2,591.8\n\n \n\n \n\n57\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nThe Company finalized the purchase price allocation for the acquisition of Paycor as of March 31, 2026. Customer relationships were the most significant of the acquired identifiable intangible assets. The fair value of the customer relationship intangible asset was estimated using a multi-period excess earnings method. The cash flow projections for the acquired Paycor customer relationships reflected significant judgments and assumptions including the revenue growth rate, customer attrition rate, and discount rate. The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed (the useful life). The final fair values allocated to the identifiable intangible assets and their final estimated useful lives are as follows:\n\n \n\nIn millions\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nIdentifiable Intangible Assets\n\n \n\n \n\nEstimated\nuseful life (years)\n\n \n\nEstimated\nfair value\n\n \n\nDeveloped technology\n\n \n\n \n\n7 years\n\n \n\n$\n\n \n\n367.0\n\n \n\nCustomer relationships\n\n \n\n \n\n12 years\n\n \n\n \n\n \n\n1,118.0\n\n \n\nTrade name and trademarks\n\n \n\n \n\n15 years\n\n \n\n \n\n \n\n234.0\n\n \n\nNaming rights\n\n \n\n \n\n13.4 years(1)\n\n \n\n \n\n \n\n57.5\n\n \n\nTotal\n\n \n\n \n\n \n\n \n\n$\n\n \n\n1,776.5\n\n \n\n \n\n(1)\nNaming rights are amortized over the remaining term of the underlying contract.\n\n \n\nThe goodwill is attributable primarily to the expected revenue synergies expected from combining the operations of both entities, and intangible assets that do not qualify for separate recognition, including assembled workforce acquired through the acquisition. None of the goodwill is expected to be deductible for income tax purposes.\n\n \n\nUnaudited Pro Forma Financial Information\n\n \n\nThe following unaudited pro forma consolidated results of operations are provided for illustrative purposes only and present the estimated unaudited pro forma combined results of Paychex and Paycor for years ended May 31, 2025 and 2024, as if the acquisition had occurred on June 1, 2023:\n\n \n\n \n\nYear ended May,\n\n \n\nIn millions\n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nRevenues\n\n \n\n$\n\n \n\n6,206.7\n\n \n\n \n\n$\n\n \n\n5,933.2\n\n \n\nNet income\n\n \n\n$\n\n \n\n1,580.2\n\n \n\n \n\n$\n\n \n\n1,405.4\n\n \n\n \n\nThe supplemental pro forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of Paychex and Paycor. The supplemental pro forma financial information does not necessarily represent what the combined companies’ revenue or results of operations would have been had the Paycor Acquisition been completed on June 1, 2023, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining Paychex and Paycor.\n\nThe unaudited supplemental pro forma financial information reflects primarily pro forma adjustments related to removal of seller's amortization of cost to obtain and fulfill contracts, elimination of seller's stock-based compensation expense offset by compensation expense related to replacement awards and settlement of seller awards, amortization expense for step-up in fair value estimates of intangible assets, and interest expense and deferred financing cost amortization related to the fixed rate-corporate bonds issued to finance the Paycor Acquisition. The unaudited supplemental pro forma financial information includes transaction charges associated with the Paycor Acquisition. There are no material, nonrecurring pro forma adjustments directly attributable to the Paycor Acquisition included in the reported pro forma revenue and loss from continuing operations before income taxes.\n\nPaycor’s fiscal year end was June 30th. Since Paycor and the Company had different fiscal year end dates, the unaudited pro forma operating results were prepared based on comparable periods. The pro forma financial information does not purport to be indicative of the results that would have been obtained had the transactions been completed as of June 1, 2023, for the periods presented and are not intended to be a projection of future results or trends.\n\n \n\nAlterna Capital Solutions LLC\n\n \n\n58\n\n[Table of Contents](#tableofcontents)\n\n \n\nEffective July 31, 2023, substantially all of the net assets of Alterna Capital Solutions LLC (“Alterna”), were acquired by a wholly owned subsidiary of the Company. Alterna purchases outstanding accounts receivable of their customers under non-recourse arrangements. This acquisition allows the Company to increase and diversify its portfolio of solutions and support serving small- to medium-sized businesses. The acquisition consideration was comprised of a base purchase price of $95.1 million plus immediate settlement of debt totaling $128.9 million, net of $15.7 million in cash and restricted cash acquired. Accounts receivable balances acquired, net of allowance for doubtful accounts, and less amounts due to customers related to funding arrangements, totaled $146.1 million. Management determined that intangible assets related to the customer list were $18.9 million to be amortized utilizing an accelerated method of amortization over a weighted average of 8 years. Goodwill in the amount of $46.7 million was recorded as a result of the acquisition, which is tax-deductible. The Company finalized the purchase price allocation for the acquisition of Alterna as of November 30, 2023. The financial results of Alterna are included in the Company’s consolidated financial statements from its respective date of acquisition. This acquisition was not material to the Company’s results of operations, financial position, or cash flows.\n\nNote E — Other Income, Net\n\n \n\nOther income, net, consisted of the following items:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nInterest income on corporate investments\n\n \n\n$\n\n \n\n63.4\n\n \n\n \n\n$\n\n \n\n72.8\n\n \n\n \n\n$\n\n \n\n82.7\n\n \n\nOther\n\n \n\n \n\n \n\n6.5\n\n \n\n \n\n \n\n \n\n0.8\n\n \n\n \n\n \n\n \n\n(1.5\n\n)\n\nOther income, net\n\n \n\n$\n\n \n\n69.9\n\n \n\n \n\n$\n\n \n\n73.6\n\n \n\n \n\n$\n\n \n\n81.2\n\n \n\n \n\n \n\nNote F — Stock-Based Compensation Plans\n\n \n\nThe Paychex, Inc. 2002 Stock Incentive Plan, as last amended and restated effective October 15, 2020 (the “2002 Plan”), authorizes grants of up to 46.5 million shares of the Company’s common stock. As of May 31, 2026, there were 11.2 million shares available for future grants under the 2002 Plan. The Company issues new shares of common stock to satisfy stock option exercises, issuances under the Company’s employee stock purchase plan, and stock awards.\n\n \n\nAll stock-based awards to employees are recognized as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized as an expense in the Consolidated Statements of Income and Comprehensive Income on a straight-line basis over the requisite service period and an increase in additional paid-in capital.\n\n \n\nStock-based compensation expense was $96.1 million, $111.8 million, and $61.1 million for fiscal years 2026, 2025, and 2024, respectively. Related income tax benefits recognized were $17.5 million, $17.7 million, and $12.7 million for the respective fiscal years.\n\n \n\nAs of May 31, 2026, the total unrecognized compensation cost related to all unvested stock-based awards was $119.6 million and is expected to be recognized over a weighted-average period of 2.5 years.\n\n \n\nStock options: Stock options entitle the holder to purchase, at the end of the vesting term, a specified number of shares of the Company’s common stock at an exercise price per share equal to the closing market price of the Company’s common stock on the date of grant. All stock options have a contractual life of ten years from the date of grant and vest one-third per annum for executives and after one year for outside directors. Vesting is generally achieved with active employment or participation as a member of the Board on the date of vesting.\n\n59\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nThe following table summarizes stock option activity for fiscal 2026:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nWeighted-\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nWeighted-\n\n \n\n \n\naverage\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nShares\n\n \n\n \n\naverage\n\n \n\n \n\nremaining\n\n \n\n \n\nAggregate\n\n \n\n \n\n \n\nsubject\n\n \n\n \n\nexercise price\n\n \n\n \n\ncontractual\n\n \n\n \n\nintrinsic\n\n \n\nIn millions, except per share amounts\n\n \n\nto options(1)\n\n \n\n \n\nper share\n\n \n\n \n\nterm (years)\n\n \n\n \n\nvalue(2)\n\n \n\nOutstanding as of May 31, 2025\n\n \n\n \n\n3.0\n\n \n\n \n\n$\n\n \n\n84.33\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nGranted\n\n \n\n \n\n0.3\n\n \n\n \n\n$\n\n \n\n139.25\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nExercised\n\n \n\n \n\n(0.5\n\n)\n\n \n\n$\n\n \n\n60.85\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nForfeited\n\n \n\n \n\n(0.0\n\n)\n\n \n\n$\n\n \n\n135.10\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOutstanding as of May 31, 2026\n\n \n\n \n\n2.8\n\n \n\n \n\n$\n\n \n\n93.76\n\n \n\n \n\n \n\n4.4\n\n \n\n \n\n$\n\n \n\n40.8\n\n \n\nExercisable as of May 31, 2026\n\n \n\n \n\n2.2\n\n \n\n \n\n$\n\n \n\n84.85\n\n \n\n \n\n \n\n3.5\n\n \n\n \n\n$\n\n \n\n40.8\n\n \n\n \n\n(1)\nIncludes the activity related to long-term incentive plan stock options granted in July 2016, which vested in fiscal 2021.\n\n(2)\nTotal shares valued at the market price of the underlying stock as of May 31, 2026 less the exercise price.\n\n \n\nOther information pertaining to stock option grants is as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions, except per share amounts\n\n \n\n2026\n\n \n\n2025\n\n \n\n2024\n\n \n\nWeighted-average grant-date fair value per share of stock options granted\n\n \n\n$\n\n \n\n33.50\n\n \n\n$\n\n \n\n27.54\n\n \n\n$\n\n \n\n27.21\n\n \n\nTotal intrinsic value of stock options exercised\n\n \n\n$\n\n \n\n37.8\n\n \n\n$\n\n \n\n42.0\n\n \n\n$\n\n \n\n40.3\n\n \n\n \n\nBlack-Scholes fair value assumptions: The fair value of stock option grants was estimated at the date of grant using a Black-Scholes option pricing model. The weighted-average assumptions used for valuation are as follows:\n\n \n\n \n\nYear ended May 31,\n\n \n\n2026\n\n \n\n2025\n\n \n\n2024\n\nRisk-free interest rate\n\n \n\n \n\n4.4\n\n \n\n%\n\n \n\n \n\n \n\n4.2\n\n \n\n%\n\n \n\n \n\n \n\n4.1\n\n \n\n%\n\nDividend yield\n\n \n\n \n\n3.0\n\n \n\n%\n\n \n\n \n\n \n\n3.2\n\n \n\n%\n\n \n\n \n\n \n\n3.1\n\n \n\n%\n\nVolatility factor\n\n \n\n \n\n0.26\n\n \n\n \n\n \n\n \n\n \n\n0.25\n\n \n\n \n\n \n\n \n\n \n\n0.25\n\n \n\n \n\nExpected option life in years\n\n \n\n \n\n6.6\n\n \n\n \n\n \n\n \n\n \n\n6.5\n\n \n\n \n\n \n\n \n\n \n\n6.6\n\n \n\n \n\n \n\nRisk-free interest rates are yields for zero coupon U.S. Treasury notes maturing approximately at the end of the expected option life. The estimated volatility factor is based on a combination of historical volatility, using stock prices over a period equal to the expected option life, and implied market volatility. The expected option life is based on historical exercise behavior.\n\n \n\nRestricted Stock Units and Restricted Stock Awards: An RSU is an agreement to issue shares at the time of vesting with no associated exercise cost for the recipient. For each unit granted, the holder will receive one share of Paychex common stock at the time of vesting. Prior to fiscal 2023, the Company also granted RSAs to certain executives and outside directors. All shares underlying RSAs are restricted in that they are not transferable until they vest. If the recipient does not vest in the awards, due to leaving Paychex, all shares or units, and any dividends accrued thereon, when applicable, will be forfeited and returned to the Company.\n\n \n\nTime-Based RSUs and RSAs: Time-based RSUs and RSAs granted to executives vest one-third per annum over three years. Time-based RSUs and RSAs granted to non-executive employees vest on a graded basis over a four- or five-year period. Time-based RSUs and RSAs granted to outside directors vest on the one-year anniversary of the grant date. Vesting is generally achieved on these dates with active employment or participation as a member of the Board on the date of vesting.\n\n \n\nPaycor Replacement Awards: In connection with the acquisition of Paycor, the Company exchanged certain unvested Paycor employee equity awards for Paychex RSUs or RSAs based on an exchange ratio of approximately 1 to 0.15 calculated in accordance with the Merger Agreement (the \"Replacement Awards\"). The fair value of the Replacement Awards was $105.2 million as of the date of acquisition, of which $15.9 million was related to pre-combination expense and was included in the purchase price. The remaining portion of $89.3 million relates to post-combination expense, of which $39.1 million was expensed\n\n60\n\n[Table of Contents](#tableofcontents)\n\n \n\ndue to the acceleration of awards as of May 31, 2025. As of May 31, 2026, the total unrecognized compensation cost related to the Replacement Awards was approximately $15.2 million and is expected to be recognized over a weighted-average period of 1.2 years. Refer to Note D of this Item 8 for further information related to the Company’s acquisition of Paycor.\n\n \n\nThe following table summarizes time-based RSU and RSA activity for fiscal 2026:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nWeighted-\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\naverage\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal\n\n \n\n \n\ngrant-date\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRSUs and\n\n \n\n \n\nfair value\n\n \n\nIn millions, except per share amounts\n\n \n\nRSUs\n\n \n\n \n\nRSAs\n\n \n\n \n\nRSAs\n\n \n\n \n\nper share\n\n \n\nNonvested as of May 31, 2025\n\n \n\n \n\n1.5\n\n \n\n \n\n \n\n0.1\n\n \n\n \n\n \n\n1.6\n\n \n\n \n\n$\n\n \n\n123.30\n\n \n\nGranted\n\n \n\n \n\n0.6\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n0.6\n\n \n\n \n\n$\n\n \n\n127.21\n\n \n\nVested\n\n \n\n \n\n(0.7\n\n)\n\n \n\n \n\n(0.1\n\n)\n\n \n\n \n\n(0.8\n\n)\n\n \n\n$\n\n \n\n123.58\n\n \n\nForfeited\n\n \n\n \n\n(0.2\n\n)\n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n(0.2\n\n)\n\n \n\n$\n\n \n\n127.60\n\n \n\nNonvested as of May 31, 2026\n\n \n\n \n\n1.2\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n1.2\n\n \n\n \n\n$\n\n \n\n124.36\n\n \n\n \n\nOther information pertaining to time-based RSUs and RSAs is as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions, except per share amounts\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nWeighted-average grant-date fair value per share of RSUs/RSAs granted\n\n \n\n$\n\n \n\n127.21\n\n \n\n \n\n$\n\n \n\n116.67\n\n \n\n \n\n$\n\n \n\n114.95\n\n \n\nTotal fair value of RSUs/RSAs vested\n\n \n\n$\n\n \n\n101.6\n\n \n\n \n\n$\n\n \n\n54.7\n\n \n\n \n\n$\n\n \n\n60.1\n\n \n\n \n\nThe grant date fair value of time-based RSUs and RSAs is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the vesting period. Time-based RSUs and RSAs may, or may not, earn dividends or dividend equivalents depending on the terms of the specific grant.\n\n \n\nPerformance-Based RSUs and RSAs: Performance-based RSUs granted in fiscal 2026 and fiscal 2025 primarily include awards that have a three-year performance period, after which the number of underlying RSUs earned will be determined based on achievement against pre-established performance targets and a market-based condition. Performance-based RSUs and RSAs granted prior to fiscal 2025 had a two-year performance period, after which the number of underlying RSUs and RSAs earned were determined based on achievement against pre-established performance targets and were then subject to a one-year service period. Performance-based RSUs and RSAs do not earn dividends or dividend equivalents during the performance period.\n\n \n\nThe following table summarizes performance-based RSU and RSA activity for fiscal 2026:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nWeighted-\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\naverage\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal\n\n \n\n \n\ngrant-date\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRSUs and\n\n \n\n \n\nfair value\n\n \n\nIn millions, except per share amounts\n\n \n\nRSUs\n\n \n\n \n\nRSAs\n\n \n\n \n\nRSAs\n\n \n\n \n\nper share\n\n \n\nNonvested as of May 31, 2025\n\n \n\n \n\n0.3\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n0.3\n\n \n\n \n\n$\n\n \n\n118.49\n\n \n\nGranted\n\n \n\n \n\n0.1\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n0.1\n\n \n\n \n\n$\n\n \n\n139.40\n\n \n\nVested\n\n \n\n \n\n(0.1\n\n)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n(0.1\n\n)\n\n \n\n$\n\n \n\n108.26\n\n \n\nForfeited\n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n—\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n$\n\n \n\n130.10\n\n \n\nNonvested as of May 31, 2026\n\n \n\n \n\n0.3\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n0.3\n\n \n\n \n\n$\n\n \n\n128.64\n\n \n\n \n\nOther information pertaining to performance-based RSUs and RSAs is as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions, except per share amounts\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nWeighted-average grant-date fair value per share of RSUs/RSAs granted\n\n \n\n$\n\n \n\n139.40\n\n \n\n \n\n$\n\n \n\n125.17\n\n \n\n \n\n$\n\n \n\n114.23\n\n \n\nTotal fair value of RSUs/RSAs vested\n\n \n\n$\n\n \n\n11.2\n\n \n\n \n\n$\n\n \n\n14.6\n\n \n\n \n\n$\n\n \n\n0.4\n\n \n\n \n\n61\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nMonte Carlo simulation fair value assumptions: The fair value of performance-based RSUs, that include a market condition, was estimated at the date of grant using a Monte Carlo simulation. The weighted-average assumptions used for valuation are as follows:\n\n \n\n \n\n \n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\n \n\n \n\n \n\n \n\n2026\n\n \n\n2025\n\nRisk-free interest rate\n\n \n\n \n\n \n\n \n\n \n\n \n\n3.9\n\n \n\n%\n\n \n\n \n\n \n\n4.2\n\n \n\n%\n\nDividend yield\n\n \n\n \n\n \n\n \n\n \n\n \n\n3.1\n\n \n\n%\n\n \n\n \n\n \n\n3.3\n\n \n\n%\n\nVolatility factor\n\n \n\n \n\n \n\n \n\n \n\n \n\n0.23\n\n \n\n \n\n \n\n \n\n \n\n0.24\n\n \n\n \n\nMeasurement period in years\n\n \n\n \n\n \n\n \n\n \n\n \n\n2.9\n\n \n\n \n\n \n\n \n\n \n\n2.9\n\n \n\n \n\n \n\nRisk-free interest rates are yields based on the U.S. Treasury Constant Maturity Treasury Yield Curve as of the grant date, based on the award measurement period. The estimated volatility factor is estimated based on historical volatility, using stock prices over a period equal to the measurement period. The measurement period is based on the remaining term from the date of grant to the end of the performance period.\n\nThe fair value of performance-based RSUs and RSAs with a performance condition and no market condition is equal to the closing market price of the underlying common stock as of the date of grant, adjusted for the present value of expected dividends over the performance period.\n\n \n\nNon-compensatory employee benefit plan: The Company offers a qualified Employee Stock Purchase Plan (“ESPP”) to all U.S. employees. The Company’s common stock can be purchased through a payroll deduction at a discount to the market price. The qualified ESPP allows for a discount of up to 15% based on the sole discretion of the committee established to administer the plan. For offering periods during fiscal years 2026, 2025, and 2024 the discount was set at 5% of the market price. Transactions under the qualified ESPP occur through the Company’s third-party stock plan administrator. The plans have been deemed non-compensatory and therefore, no stock-based compensation costs have been recognized for fiscal years 2026, 2025, or 2024 related to the plan.\n\n \n\nNote G — Funds Held for Clients and Corporate Investments\n\n \n\nFunds held for clients and corporate investments are as follows:\n\n \n\n \n\n \n\nMay 31, 2026\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAmortized\n\n \n\n \n\nunrealized\n\n \n\n \n\nunrealized\n\n \n\n \n\nFair\n\n \n\nIn millions\n\n \n\ncost\n\n \n\n \n\ngains\n\n \n\n \n\nlosses\n\n \n\n \n\nvalue\n\n \n\nType of issue:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nFunds held for clients' money market securities and other\n   restricted cash equivalents\n\n \n\n$\n\n \n\n343.8\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n343.8\n\n \n\nAFS securities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n \n\n \n\n \n\n106.5\n\n \n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n(0.1\n\n)\n\n \n\n \n\n \n\n106.8\n\n \n\nCorporate bonds\n\n \n\n \n\n \n\n2,349.9\n\n \n\n \n\n \n\n \n\n5.5\n\n \n\n \n\n \n\n \n\n(18.8\n\n)\n\n \n\n \n\n \n\n2,336.6\n\n \n\nMunicipal bonds\n\n \n\n \n\n \n\n851.9\n\n \n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n(21.1\n\n)\n\n \n\n \n\n \n\n831.2\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n \n\n1,232.6\n\n \n\n \n\n \n\n \n\n1.0\n\n \n\n \n\n \n\n \n\n(19.8\n\n)\n\n \n\n \n\n \n\n1,213.8\n\n \n\nTotal AFS securities\n\n \n\n \n\n \n\n4,540.9\n\n \n\n \n\n \n\n \n\n7.3\n\n \n\n \n\n \n\n \n\n(59.8\n\n)\n\n \n\n \n\n \n\n4,488.4\n\n \n\nOther\n\n \n\n \n\n \n\n32.3\n\n \n\n \n\n \n\n \n\n4.6\n\n \n\n \n\n \n\n \n\n(0.6\n\n)\n\n \n\n \n\n \n\n36.3\n\n \n\nTotal funds held for clients and corporate investments\n\n \n\n$\n\n \n\n4,917.0\n\n \n\n \n\n$\n\n \n\n11.9\n\n \n\n \n\n$\n\n \n\n(60.4\n\n)\n\n \n\n$\n\n \n\n4,868.5\n\n \n\n \n\n62\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\n \n\nMay 31, 2025\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAmortized\n\n \n\n \n\nunrealized\n\n \n\n \n\nunrealized\n\n \n\n \n\nFair\n\n \n\nIn millions\n\n \n\ncost\n\n \n\n \n\ngains\n\n \n\n \n\nlosses\n\n \n\n \n\nvalue\n\n \n\nType of issue:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nFunds held for clients' money market securities and other\n   restricted cash equivalents\n\n \n\n$\n\n \n\n1,057.8\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n1,057.8\n\n \n\nAFS securities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n \n\n \n\n \n\n158.3\n\n \n\n \n\n \n\n \n\n0.9\n\n \n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n159.2\n\n \n\nCorporate bonds\n\n \n\n \n\n \n\n1,640.3\n\n \n\n \n\n \n\n \n\n10.7\n\n \n\n \n\n \n\n \n\n(7.0\n\n)\n\n \n\n \n\n \n\n1,644.0\n\n \n\nMunicipal bonds\n\n \n\n \n\n \n\n1,017.3\n\n \n\n \n\n \n\n \n\n0.5\n\n \n\n \n\n \n\n \n\n(44.3\n\n)\n\n \n\n \n\n \n\n973.5\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n \n\n993.2\n\n \n\n \n\n \n\n \n\n2.3\n\n \n\n \n\n \n\n \n\n(16.7\n\n)\n\n \n\n \n\n \n\n978.8\n\n \n\nTotal AFS securities\n\n \n\n \n\n \n\n3,809.1\n\n \n\n \n\n \n\n \n\n14.4\n\n \n\n \n\n \n\n \n\n(68.0\n\n)\n\n \n\n \n\n \n\n3,755.5\n\n \n\nOther\n\n \n\n \n\n \n\n33.1\n\n \n\n \n\n \n\n \n\n2.3\n\n \n\n \n\n \n\n \n\n(0.9\n\n)\n\n \n\n \n\n \n\n34.5\n\n \n\nTotal funds held for clients and corporate investments\n\n \n\n$\n\n \n\n4,900.0\n\n \n\n \n\n$\n\n \n\n16.7\n\n \n\n \n\n$\n\n \n\n(68.9\n\n)\n\n \n\n$\n\n \n\n4,847.8\n\n \n\n \n\nIncluded in funds held for clients’ money market securities and other restricted cash equivalents as of May 31, 2026 were bank demand deposit accounts, and money market funds.\n\n \n\nIncluded in asset-backed securities as of May 31, 2026 were investment-grade securities primarily collateralized by fixed-rate auto loans and credit card receivables and all have credit ratings of AAA. The primary risk associated with these securities is the collection of the underlying receivables. Collateral on these asset-backed securities has performed as expected through May 31, 2026.\n\n \n\nIncluded in corporate bonds as of May 31, 2026 were investment-grade securities covering a wide range of issuers, industries, and sectors and primarily carry credit ratings of A or better and having maturities ranging from June 3, 2026 through April 17, 2036.\n\n \n\nIncluded in municipal bonds as of May 31, 2026 were general obligation bonds and revenue bonds and primarily carry credit ratings of AA or better and have maturities ranging from June 1, 2026 through December 1, 2032.\n\n \n\nA substantial portion of our portfolios are invested in high credit quality securities with ratings of AA or higher, and A-1/P-1 ratings on short-term securities.\n\n \n\nThe classification of funds held for clients and corporate investments on the Consolidated Balance Sheets is as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nFunds held for clients\n\n \n\n$\n\n \n\n4,832.2\n\n \n\n \n\n$\n\n \n\n4,813.3\n\n \n\nCorporate investments\n\n \n\n \n\n \n\n36.3\n\n \n\n \n\n \n\n \n\n34.5\n\n \n\nTotal funds held for clients and corporate investments\n\n \n\n$\n\n \n\n4,868.5\n\n \n\n \n\n$\n\n \n\n4,847.8\n\n \n\n \n\nFunds 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.\n\n \n\n63\n\n[Table of Contents](#tableofcontents)\n\n \n\nThe Company’s AFS securities reflected net unrealized losses of $52.5 million and $53.6 million as of May 31, 2026 and May 31, 2025. Included in the net unrealized losses as of May 31, 2026 and May 31, 2025 were 664 and 600 AFS securities in an unrealized loss position, representing approximately 60% and 50% of the total securities held, respectively. AFS securities in an unrealized loss position for which a credit loss has not been recognized were as follows:\n\n \n\n \n\nMay 31, 2026\n\n \n\n \n\nSecurities in an unrealized\nloss position for less than\ntwelve months\n\n \n\nSecurities in an unrealized\nloss position for more than\ntwelve months\n\n \n\nTotal\n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\n \n\nunrealized\n\n \n\nFair\n\n \n\nunrealized\n\n \n\nFair\n\n \n\nunrealized\n\n \n\nFair\n\n \n\nIn millions\n\nlosses\n\n \n\nvalue\n\n \n\nlosses\n\n \n\nvalue\n\n \n\nlosses\n\n \n\nvalue\n\n \n\nType of issue:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n$\n\n \n\n(0.1\n\n)\n\n$\n\n \n\n21.7\n\n \n\n$\n\n \n\n—\n\n \n\n$\n\n \n\n—\n\n \n\n$\n\n \n\n(0.1\n\n)\n\n$\n\n \n\n21.7\n\n \n\nCorporate bonds\n\n \n\n \n\n(16.3\n\n)\n\n \n\n \n\n1,148.8\n\n \n\n \n\n \n\n(2.5\n\n)\n\n \n\n \n\n128.0\n\n \n\n \n\n \n\n(18.8\n\n)\n\n \n\n \n\n1,276.8\n\n \n\nMunicipal bonds\n\n \n\n \n\n(1.7\n\n)\n\n \n\n \n\n69.0\n\n \n\n \n\n \n\n(19.4\n\n)\n\n \n\n \n\n713.2\n\n \n\n \n\n \n\n(21.1\n\n)\n\n \n\n \n\n782.2\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n(13.4\n\n)\n\n \n\n \n\n610.7\n\n \n\n \n\n \n\n(6.4\n\n)\n\n \n\n \n\n337.3\n\n \n\n \n\n \n\n(19.8\n\n)\n\n \n\n \n\n948.0\n\n \n\nTotal\n\n$\n\n \n\n(31.5\n\n)\n\n$\n\n \n\n1,850.2\n\n \n\n$\n\n \n\n(28.3\n\n)\n\n$\n\n \n\n1,178.5\n\n \n\n$\n\n \n\n(59.8\n\n)\n\n$\n\n \n\n3,028.7\n\n \n\n \n\n \n\nMay 31, 2025\n\n \n\n \n\nSecurities in an unrealized\nloss position for less than\ntwelve months\n\n \n\nSecurities in an unrealized\nloss position for more than\ntwelve months\n\n \n\nTotal\n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\nGross\n\n \n\n \n\n \n\n \n\n \n\nunrealized\n\n \n\nFair\n\n \n\nunrealized\n\n \n\nFair\n\n \n\nunrealized\n\n \n\nFair\n\n \n\nIn millions\n\nlosses\n\n \n\nvalue\n\n \n\nlosses\n\n \n\nvalue\n\n \n\nlosses\n\n \n\nvalue\n\n \n\nType of issue:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n$\n\n \n\n(0.0\n\n)\n\n$\n\n \n\n16.4\n\n \n\n$\n\n \n\n(0.0\n\n)\n\n$\n\n \n\n2.8\n\n \n\n$\n\n \n\n(0.0\n\n)\n\n \n\n \n\n19.2\n\n \n\nCorporate bonds\n\n \n\n \n\n(0.1\n\n)\n\n \n\n \n\n83.2\n\n \n\n \n\n \n\n(6.9\n\n)\n\n \n\n \n\n236.7\n\n \n\n \n\n \n\n(7.0\n\n)\n\n \n\n \n\n319.9\n\n \n\nMunicipal bonds\n\n \n\n \n\n(2.2\n\n)\n\n \n\n \n\n48.5\n\n \n\n \n\n \n\n(42.1\n\n)\n\n \n\n \n\n880.1\n\n \n\n \n\n \n\n(44.3\n\n)\n\n \n\n \n\n928.6\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n(0.7\n\n)\n\n \n\n \n\n152.0\n\n \n\n \n\n \n\n(16.0\n\n)\n\n \n\n \n\n531.8\n\n \n\n \n\n \n\n(16.7\n\n)\n\n \n\n \n\n683.8\n\n \n\nTotal\n\n$\n\n \n\n(3.0\n\n)\n\n$\n\n \n\n300.1\n\n \n\n$\n\n \n\n(65.0\n\n)\n\n$\n\n \n\n1,651.4\n\n \n\n$\n\n \n\n(68.0\n\n)\n\n$\n\n \n\n1,951.5\n\n \n\n \n\nThe 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 May 31, 2026 that had gross unrealized losses of $59.8 million were not impaired due to credit risk or other valuation concerns, and was not required to record a credit loss or an allowance for credit losses on its AFS securities. The Company believes it is probable that the principal and interest will be collected in accordance with contractual terms and that the unrealized losses on these securities were due to changes in interest rates and were not due to increased credit risk or other valuation concerns. A substantial portion of the securities in an unrealized loss position as of May 31, 2026 and 2025 held an AA rating or better. The Company does not intend to sell these investments until the recovery of their amortized cost basis or maturity and further believes that it is not more-likely-than-not that it will be required to sell these investments prior to that time. The Company’s assessment that an investment is not impaired due to credit risk or other valuation concerns could change in the future due to new developments or changes in the Company’s strategies or assumptions related to any particular investment.\n\n \n\nRealized gains and losses from the sale of AFS securities were as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nGross realized gains\n\n \n\n$\n\n \n\n7.6\n\n \n\n \n\n$\n\n \n\n0.0\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nGross realized losses\n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n(0.4\n\n)\n\n \n\n \n\n \n\n(2.6\n\n)\n\nNet realized (losses)/gains\n\n \n\n$\n\n \n\n7.6\n\n \n\n \n\n$\n\n \n\n(0.4\n\n)\n\n \n\n$\n\n \n\n(2.6\n\n)\n\n \n\n64\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\nThe amortized cost and fair value of AFS securities that had stated maturities as of May 31, 2026 are shown below by expected maturity.\n\n \n\n \n\n \n\nMay 31, 2026\n\n \n\n \n\n \n\nAmortized\n\n \n\n \n\nFair\n\n \n\nIn millions\n\n \n\ncost\n\n \n\n \n\nvalue\n\n \n\nMaturity date:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nDue in one year or less\n\n \n\n$\n\n \n\n912.6\n\n \n\n \n\n$\n\n \n\n906.9\n\n \n\nDue after one year through three years\n\n \n\n \n\n \n\n1,426.5\n\n \n\n \n\n \n\n \n\n1,407.7\n\n \n\nDue after three years through five years\n\n \n\n \n\n \n\n599.1\n\n \n\n \n\n \n\n \n\n595.8\n\n \n\nDue after five years\n\n \n\n \n\n \n\n1,602.7\n\n \n\n \n\n \n\n \n\n1,578.0\n\n \n\nTotal\n\n \n\n$\n\n \n\n4,540.9\n\n \n\n \n\n$\n\n \n\n4,488.4\n\n \n\n \n\nVariable 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.\n\n \n\nNote H — Fair Value Measurements\n\n \n\nFair 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:\n\n \n\n•\nLevel 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date.\n\n \n\n•\nLevel 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:\n\no\nquoted prices for similar, but not identical, instruments in active markets;\n\no\nquoted prices for identical or similar instruments in markets that are not active;\n\no\ninputs other than quoted prices that are observable for the instrument; or\n\no\ninputs that are derived principally from or corroborated by observable market data by correlation or other means.\n\n \n\n•\nLevel 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.\n\n \n\nThe 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 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.\n\n \n\n65\n\n[Table of Contents](#tableofcontents)\n\n \n\nThe Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:\n\n \n\n \n\n \n\nMay 31, 2026\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nQuoted\n\n \n\n \n\nSignificant\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nprices in\n\n \n\n \n\nother\n\n \n\n \n\nSignificant\n\n \n\n \n\n \n\nCarrying\n\n \n\n \n\nactive\n\n \n\n \n\nobservable\n\n \n\n \n\nunobservable\n\n \n\n \n\n \n\nvalue\n\n \n\n \n\nmarkets\n\n \n\n \n\ninputs\n\n \n\n \n\ninputs\n\n \n\nIn millions\n\n \n\n(Fair value)\n\n \n\n \n\n(Level 1)\n\n \n\n \n\n(Level 2)\n\n \n\n \n\n(Level 3)\n\n \n\nAssets:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRestricted and unrestricted cash equivalents:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMoney market securities\n\n \n\n$\n\n \n\n25.3\n\n \n\n \n\n$\n\n \n\n25.3\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nTotal restricted and unrestricted cash equivalents\n\n \n\n$\n\n \n\n25.3\n\n \n\n \n\n$\n\n \n\n25.3\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nAFS securities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n \n\n$\n\n \n\n106.8\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n106.8\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nCorporate bonds\n\n \n\n \n\n \n\n2,336.6\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n2,336.6\n\n \n\n \n\n \n\n \n\n—\n\n \n\nMunicipal bonds\n\n \n\n \n\n \n\n831.2\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n831.2\n\n \n\n \n\n \n\n \n\n—\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n \n\n1,213.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,213.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\nTotal AFS securities\n\n \n\n$\n\n \n\n4,488.4\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n4,488.4\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nOther\n\n \n\n$\n\n \n\n36.3\n\n \n\n \n\n$\n\n \n\n36.3\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nLiabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOther long-term liabilities\n\n \n\n$\n\n \n\n36.3\n\n \n\n \n\n$\n\n \n\n36.3\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n \n\n \n\n \n\nMay 31, 2025\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nQuoted\n\n \n\n \n\nSignificant\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nprices in\n\n \n\n \n\nother\n\n \n\n \n\nSignificant\n\n \n\n \n\n \n\nCarrying\n\n \n\n \n\nactive\n\n \n\n \n\nobservable\n\n \n\n \n\nunobservable\n\n \n\n \n\n \n\nvalue\n\n \n\n \n\nmarkets\n\n \n\n \n\ninputs\n\n \n\n \n\ninputs\n\n \n\nIn millions\n\n \n\n(Fair value)\n\n \n\n \n\n(Level 1)\n\n \n\n \n\n(Level 2)\n\n \n\n \n\n(Level 3)\n\n \n\nAssets:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRestricted and unrestricted cash equivalents:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCorporate bonds\n\n \n\n$\n\n \n\n4.7\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n4.7\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nMunicipal bonds\n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n—\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n \n\n615.5\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n615.5\n\n \n\n \n\n \n\n \n\n—\n\n \n\nMoney market securities\n\n \n\n \n\n \n\n42.8\n\n \n\n \n\n \n\n \n\n42.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\nTotal restricted and unrestricted cash equivalents\n\n \n\n$\n\n \n\n663.4\n\n \n\n \n\n$\n\n \n\n42.8\n\n \n\n \n\n$\n\n \n\n620.6\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nAFS securities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAsset-backed securities\n\n \n\n$\n\n \n\n159.2\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n159.2\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nCorporate bonds\n\n \n\n \n\n \n\n1,644.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n1,644.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\nMunicipal bonds\n\n \n\n \n\n \n\n973.5\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n973.5\n\n \n\n \n\n \n\n \n\n—\n\n \n\nU.S. government agency and treasury securities\n\n \n\n \n\n \n\n978.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n978.8\n\n \n\n \n\n \n\n \n\n—\n\n \n\nTotal AFS securities\n\n \n\n$\n\n \n\n3,755.5\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n3,755.5\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nOther\n\n \n\n$\n\n \n\n34.5\n\n \n\n \n\n$\n\n \n\n34.5\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\nLiabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOther long-term liabilities\n\n \n\n$\n\n \n\n34.5\n\n \n\n \n\n$\n\n \n\n34.5\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n66\n\n[Table of Contents](#tableofcontents)\n\n \n\n \n\n \n\nIn 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 also include 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.\n\n \n\nAssets 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.\n\n \n\nThe 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:\n\n \n\n \n\n \n\n \n\nMay 31, 2026\n\n \n\n \n\nMay 31, 2025\n\n \n\n \n\n \n\nAmortized\n\n \n\n \n\nFair\n\n \n\n \n\nAmortized\n\n \n\n \n\nFair\n\n \n\nIn millions\n\n \n\ncost\n\n \n\n \n\nvalue\n\n \n\n \n\ncost\n\n \n\n \n\nvalue\n\n \n\nSenior Notes, Series A\n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n399.8\n\n \n\n \n\n$\n\n \n\n398.3\n\n \n\nSenior Notes, Series B\n\n \n\n \n\n \n\n399.5\n\n \n\n \n\n \n\n \n\n397.4\n\n \n\n \n\n \n\n \n\n399.3\n\n \n\n \n\n \n\n \n\n395.5\n\n \n\n5-Year Fixed Rate Bonds\n\n \n\n \n\n \n\n1,487.9\n\n \n\n \n\n \n\n \n\n1,504.9\n\n \n\n \n\n \n\n \n\n1,484.8\n\n \n\n \n\n \n\n \n\n1,505.1\n\n \n\n7-Year Fixed Rate Bonds\n\n \n\n \n\n \n\n1,485.2\n\n \n\n \n\n \n\n \n\n1,504.3\n\n \n\n \n\n \n\n \n\n1,482.7\n\n \n\n \n\n \n\n \n\n1,504.9\n\n \n\n10-Year Fixed Rate Bonds\n\n \n\n \n\n \n\n1,183.5\n\n \n\n \n\n \n\n \n\n1,194.2\n\n \n\n \n\n \n\n \n\n1,181.6\n\n \n\n \n\n \n\n \n\n1,201.9\n\n \n\nTotal long-term borrowings, net of debt issuance costs\n\n \n\n$\n\n \n\n4,556.1\n\n \n\n \n\n$\n\n \n\n4,600.8\n\n \n\n \n\n$\n\n \n\n4,948.2\n\n \n\n \n\n$\n\n \n\n5,005.7\n\n \n\n \n\n \n\n \n\nThe Company’s Senior Notes, Series A were not traded in active markets and matured on March 13, 2026. The Company’s Senior Notes, Series B borrowings are also 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.\n\n \n\nThe 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.\n\n \n\nThe 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.\n\n67\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote I — Leases\n\n \n\nThe Company’s lease portfolio consists primarily of operating leases for office space and has remaining terms from less than one year up to twelve years, with contractual terms expiring from 2026 to 2038. Lease contracts may include one or more renewal options that allow the Company to extend the lease term, typically from one year to five years per renewal option. The exercise of lease options is generally at the discretion of the Company. None of the Company’s leases contain residual value guarantees, substantial restrictions, or covenants.\n\n \n\nSupplemental balance sheet information related to the Company’s leases were as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\n$ in millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nOperating lease ROU assets, net of accumulated amortization\n\n \n\n$\n\n \n\n63.9\n\n \n\n \n\n$\n\n \n\n63.8\n\n \n\nOperating lease liabilities, current(1)\n\n \n\n \n\n \n\n22.0\n\n \n\n \n\n \n\n \n\n22.5\n\n \n\nOperating lease liabilities, non-current\n\n \n\n \n\n \n\n52.2\n\n \n\n \n\n \n\n \n\n55.5\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nWeighted average remaining lease term (in years)\n\n \n\n \n\n \n\n5.1\n\n \n\n \n\n \n\n \n\n4.0\n\n \n\nWeighted average discount rate\n\n \n\n \n\n \n\n4.13\n\n%\n\n \n\n \n\n \n\n3.73\n\n%\n\n \n\n(1)\nThe current portion of operating lease liabilities is reported in the other current liabilities line item on the Company’s Consolidated Balance Sheets.\n\n \n\nThe components of lease expense were as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n2024\n\n \n\nFixed payment operating lease expense\n\n \n\n$\n\n \n\n19.8\n\n \n\n \n\n$\n\n \n\n27.7\n\n \n\n \n\n$\n\n \n\n28.7\n\n \n\nVariable payment operating lease expense\n\n \n\n \n\n \n\n4.1\n\n \n\n \n\n \n\n \n\n4.8\n\n \n\n \n\n \n\n \n\n5.8\n\n \n\nShort-term lease expense\n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n0.0\n\n \n\n \n\nDuring the fiscal fourth quarter ended May 31, 2024, the Company focused on cost optimization initiatives, including further reductions to the Company's geographic footprint. As part of this initiative the Company ceased the use of certain leased property and accelerated the amortization of certain ROU assets, resulting in an additional $9.7 million of expense. This expense is included in cost of service revenue and selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income. The related lease liabilities will be satisfied under the original terms of the lease arrangements, unless buy-outs can be negotiated.\n\n \n\n68\n\n[Table of Contents](#tableofcontents)\n\n \n\nSupplemental cash flow information related to the Company’s leases were as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n \n\n2024\n\n \n\nCash paid for amounts included in the measurement of lease liabilities\n\n \n\n$\n\n \n\n23.7\n\n \n\n \n\n$\n\n \n\n24.9\n\n \n\n \n\n$\n\n \n\n20.9\n\n \n\nAmortization of ROU assets\n\n \n\n \n\n \n\n16.0\n\n \n\n \n\n \n\n \n\n14.0\n\n \n\n \n\n \n\n \n\n25.8\n\n \n\nROU assets obtained in exchange for new operating lease liabilities\n\n \n\n \n\n \n\n21.6\n\n \n\n \n\n \n\n \n\n32.0\n\n \n\n \n\n \n\n \n\n7.2\n\n \n\nLease incentives received in the form of tenant allowances and free rent\n\n \n\n \n\n \n\n0.4\n\n \n\n \n\n \n\n \n\n0.6\n\n \n\n \n\n \n\n \n\n0.8\n\n \n\n \n\nFuture lease payments are as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n2027\n\n \n\n$\n\n \n\n21.4\n\n \n\n2028\n\n \n\n \n\n \n\n17.1\n\n \n\n2029\n\n \n\n \n\n \n\n14.7\n\n \n\n2030\n\n \n\n \n\n \n\n11.1\n\n \n\n2031\n\n \n\n \n\n \n\n7.4\n\n \n\nThereafter\n\n \n\n \n\n \n\n11.7\n\n \n\nTotal future lease payments\n\n \n\n \n\n \n\n83.4\n\n \n\nLess: imputed interest\n\n \n\n \n\n \n\n9.2\n\n \n\nTotal operating lease liabilities\n\n \n\n$\n\n \n\n74.2\n\n \n\nCurrent portion\n\n \n\n$\n\n \n\n22.0\n\n \n\nNon-current portion\n\n \n\n$\n\n \n\n52.2\n\n \n\n \n\nAs of May 31, 2026, the Company has entered into one lease agreement that had not yet commenced for a term of 7.58 years. This lease will require lease payments over the term of approximately $14.5 million.\n\nNote J — Property and Equipment, Net of Accumulated Depreciation\n\n \n\nThe components of property and equipment, at cost, consisted of the following:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nin millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nLand and improvements\n\n \n\n$\n\n \n\n10.9\n\n \n\n \n\n$\n\n \n\n13.0\n\n \n\nBuildings and improvements\n\n \n\n \n\n \n\n151.5\n\n \n\n \n\n \n\n \n\n152.3\n\n \n\nData processing equipment\n\n \n\n \n\n \n\n252.9\n\n \n\n \n\n \n\n \n\n242.8\n\n \n\nSoftware (1)\n\n \n\n \n\n \n\n1,322.5\n\n \n\n \n\n \n\n \n\n1,129.7\n\n \n\nFurniture, fixtures, and equipment\n\n \n\n \n\n \n\n72.9\n\n \n\n \n\n \n\n \n\n69.8\n\n \n\nLeasehold improvements\n\n \n\n \n\n \n\n59.6\n\n \n\n \n\n \n\n \n\n51.6\n\n \n\nConstruction in progress (1)\n\n \n\n \n\n \n\n45.5\n\n \n\n \n\n \n\n \n\n67.5\n\n \n\nTotal property and equipment, gross\n\n \n\n \n\n \n\n1,915.8\n\n \n\n \n\n \n\n \n\n1,726.7\n\n \n\nLess: Accumulated depreciation\n\n \n\n \n\n \n\n1,326.9\n\n \n\n \n\n \n\n \n\n1,215.2\n\n \n\nProperty and equipment, net of accumulated depreciation\n\n \n\n$\n\n \n\n588.9\n\n \n\n \n\n$\n\n \n\n511.5\n\n \n\n \n\n(1)\nSoftware includes both purchased software and costs capitalized related to internally developed software placed in service. Capitalized costs related to internally developed software that has not yet been placed in service is included in construction in progress.\n\n \n\nDepreciation expense was $143.1 million, $118.8 million, and $127.5 million for fiscal 2026, 2025, and 2024, respectively.\n\n \n\nDuring the fourth quarter of fiscal 2024, the Company reprioritized certain technology investments and disposed of certain leasehold improvements, furniture, and fixtures associated with abandoned leased properties and recorded losses on disposal of $17.1 million and $4.1 million, respectively. The losses are included in selling, general and administrative expenses on the Consolidated Statements of Income and Comprehensive Income.\n\n69\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote K — Goodwill and Intangible Assets, Net of Accumulated Amortization\n\n \n\nGoodwill and changes in goodwill as of and for the years ended May 31, 2026 and May 31, 2025 were as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nBalance, beginning of fiscal year\n\n \n\n$\n\n \n\n4,514.1\n\n \n\n \n\n$\n\n \n\n1,882.7\n\n \n\nChanges during the period:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nGoodwill acquired\n\n \n\n \n\n \n\n10.2\n\n \n\n \n\n \n\n \n\n2,626.5\n\n \n\nCurrency translation adjustment\n\n \n\n \n\n \n\n3.1\n\n \n\n \n\n \n\n \n\n4.9\n\n \n\nBalance, end of fiscal year\n\n \n\n$\n\n \n\n4,527.4\n\n \n\n \n\n$\n\n \n\n4,514.1\n\n \n\n \n\nAcquired goodwill for fiscal 2026 primarily relates to purchase accounting adjustments made during the measurement period for Paycor. Acquired goodwill for fiscal 2025 primarily relates to the Company's acquisition of Paycor. Refer to Note D for more information related to the Company's acquisitions.\n\n \n\nThe Company had certain intangible assets on its Consolidated Balance Sheets. The components of intangible assets, at cost, consisted of the following:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nCustomer lists\n\n \n\n$\n\n \n\n1,835.5\n\n \n\n \n\n$\n\n \n\n1,797.9\n\n \n\nAcquired developed software\n\n \n\n \n\n \n\n408.5\n\n \n\n \n\n \n\n \n\n410.5\n\n \n\nOther intangible assets\n\n \n\n \n\n \n\n315.0\n\n \n\n \n\n \n\n \n\n314.7\n\n \n\nTotal intangible assets, gross\n\n \n\n \n\n \n\n2,559.0\n\n \n\n \n\n \n\n \n\n2,523.1\n\n \n\nLess: Accumulated amortization\n\n \n\n \n\n \n\n875.0\n\n \n\n \n\n \n\n \n\n575.8\n\n \n\nIntangible assets, net of accumulated amortization\n\n \n\n$\n\n \n\n1,684.0\n\n \n\n \n\n$\n\n \n\n1,947.3\n\n \n\n \n\nDuring fiscal 2026, the Company acquired customer lists with a weighted-average amortization period of 8.0 years.\n\n \n\nAmortization expense relating to intangible assets was $299.5 million, $90.7 million, and $49.0 million for fiscal 2026, 2025, and 2024, respectively.\n\n \n\nThe Company did not recognize an impairment loss as it relates to its goodwill or intangible assets during fiscal 2026, 2025, or 2024.\n\n \n\nThe estimated amortization expense for the next five fiscal years relating to intangible asset balances is as follows:\n\n \n\nIn millions\n\n \n\n \n\nEstimated\namortization\n\n \n\nYear ending May 31,\n\n \n\nexpense\n\n \n\n2027\n\n \n\n$\n\n \n\n277.7\n\n \n\n2028\n\n \n\n \n\n \n\n258.5\n\n \n\n2029\n\n \n\n \n\n \n\n228.3\n\n \n\n2030\n\n \n\n \n\n \n\n198.5\n\n \n\n2031\n\n \n\n \n\n \n\n181.1\n\n \n\n \n\n70\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote L — Income Taxes\n\n \n\nThe components of deferred tax assets and liabilities are as follows:\n\n \n\n \n\n \n\nMay 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nDeferred tax assets:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCompensation and employee benefit liabilities\n\n \n\n$\n\n \n\n71.5\n\n \n\n \n\n$\n\n \n\n69.2\n\n \n\nOther current liabilities\n\n \n\n \n\n \n\n27.2\n\n \n\n \n\n \n\n \n\n15.8\n\n \n\nTax credit carry forward\n\n \n\n \n\n \n\n0.8\n\n \n\n \n\n \n\n \n\n10.4\n\n \n\nStock-based compensation\n\n \n\n \n\n \n\n16.2\n\n \n\n \n\n \n\n \n\n24.4\n\n \n\nUnrealized losses on AFS securities\n\n \n\n \n\n \n\n13.1\n\n \n\n \n\n \n\n \n\n13.6\n\n \n\nCapitalization of research and development\n\n \n\n \n\n \n\n26.9\n\n \n\n \n\n \n\n \n\n133.4\n\n \n\nLeases\n\n \n\n \n\n \n\n16.0\n\n \n\n \n\n \n\n \n\n15.6\n\n \n\nNet operating loss (“NOL”) carry forwards\n\n \n\n \n\n \n\n15.9\n\n \n\n \n\n \n\n \n\n28.9\n\n \n\nTax benefit of uncertain tax positions\n\n \n\n \n\n \n\n20.4\n\n \n\n \n\n \n\n \n\n18.3\n\n \n\nGross deferred tax assets\n\n \n\n \n\n \n\n208.0\n\n \n\n \n\n \n\n \n\n329.6\n\n \n\nDeferred tax liabilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nDeferred contract costs\n\n \n\n \n\n \n\n173.3\n\n \n\n \n\n \n\n \n\n149.7\n\n \n\nCapitalized software\n\n \n\n \n\n \n\n177.0\n\n \n\n \n\n \n\n \n\n167.7\n\n \n\nGoodwill, intangible assets, and fixed assets\n\n \n\n \n\n \n\n374.4\n\n \n\n \n\n \n\n \n\n431.8\n\n \n\nOperating lease right-of-use assets\n\n \n\n \n\n \n\n14.0\n\n \n\n \n\n \n\n \n\n12.7\n\n \n\nOther\n\n \n\n \n\n \n\n6.7\n\n \n\n \n\n \n\n \n\n6.6\n\n \n\nGross deferred tax liabilities\n\n \n\n \n\n \n\n745.4\n\n \n\n \n\n \n\n \n\n768.5\n\n \n\nNet deferred tax liability\n\n \n\n$\n\n \n\n(537.4\n\n)\n\n \n\n$\n\n \n\n(438.9\n\n)\n\n \n\nOn 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 reflected in the deferred tax table above. There was no material impact on the Company's effective tax rate as a result of The Act.\n\n \n\nThe deferred tax asset related to NOL carry forwards is comprised of $2.1 million of federal NOL carry forwards, $8.4 million of state NOL carry forwards, and $5.4 million of foreign NOL carry forwards. The federal NOL carry forwards were acquired through various acquisitions. Certain federal NOL carry forwards have indefinite lives, while others expire between the fiscal years ending May 31, 2028 and May 31, 2037. The state NOL carry forwards expire between the fiscal years ending May 31, 2027 through May 31, 2045.\n\n \n\nThe components of the provision for income taxes are as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nCurrent:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nFederal\n\n \n\n$\n\n \n\n324.4\n\n \n\n \n\n$\n\n \n\n418.8\n\n \n\n \n\n$\n\n \n\n433.5\n\n \n\nState\n\n \n\n \n\n \n\n122.9\n\n \n\n \n\n \n\n \n\n118.4\n\n \n\n \n\n \n\n \n\n117.4\n\n \n\nNon-U.S.\n\n \n\n \n\n \n\n(0.2\n\n)\n\n \n\n \n\n \n\n(2.8\n\n)\n\n \n\n \n\n \n\n6.5\n\n \n\nTotal current\n\n \n\n \n\n \n\n447.1\n\n \n\n \n\n \n\n \n\n534.4\n\n \n\n \n\n \n\n \n\n557.4\n\n \n\nDeferred:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nFederal\n\n \n\n \n\n \n\n101.4\n\n \n\n \n\n \n\n \n\n(9.9\n\n)\n\n \n\n \n\n \n\n(18.6\n\n)\n\nState\n\n \n\n \n\n \n\n2.3\n\n \n\n \n\n \n\n \n\n(2.7\n\n)\n\n \n\n \n\n \n\n(4.6\n\n)\n\nNon-U.S.\n\n \n\n \n\n \n\n0.0\n\n \n\n \n\n \n\n \n\n(3.2\n\n)\n\n \n\n \n\n \n\n(6.6\n\n)\n\nTotal deferred\n\n \n\n \n\n \n\n103.7\n\n \n\n \n\n \n\n \n\n(15.8\n\n)\n\n \n\n \n\n \n\n(29.8\n\n)\n\nIncome taxes\n\n \n\n$\n\n \n\n550.8\n\n \n\n \n\n$\n\n \n\n518.6\n\n \n\n \n\n$\n\n \n\n527.6\n\n \n\n \n\n71\n\n[Table of Contents](#tableofcontents)\n\n \n\nA reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\n \n\n2026\n\n \n\n2025 (2)\n\n \n\n2024 (2)\n\ndollars in millions\n\n \n\nAmount\n\n \n\n \n\n%\n\n \n\nAmount\n\n \n\n \n\n%\n\n \n\nAmount\n\n \n\n \n\n%\n\nFederal statutory tax rate\n\n \n\n$\n\n \n\n485.3\n\n \n\n \n\n \n\n21.0\n\n \n\n%\n\n \n\n$\n\n \n\n456.9\n\n \n\n \n\n \n\n21.0\n\n \n\n%\n\n \n\n$\n\n \n\n465.8\n\n \n\n \n\n \n\n21.0\n\n \n\n%\n\nIncrease/(decrease) resulting from:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nState income taxes, net of federal tax benefit (1)\n\n \n\n \n\n \n\n98.5\n\n \n\n \n\n \n\n4.3\n\n \n\n%\n\n \n\n \n\n \n\n92.2\n\n \n\n \n\n \n\n4.2\n\n \n\n%\n\n \n\n \n\n \n\n91.2\n\n \n\n \n\n \n\n4.1\n\n \n\n%\n\nForeign tax effects\n\n \n\n \n\n \n\n0.1\n\n \n\n \n\n \n\n0.0\n\n \n\n%\n\n \n\n \n\n \n\n(0.7\n\n)\n\n \n\n \n\n0.0\n\n \n\n%\n\n \n\n \n\n \n\n0.2\n\n \n\n \n\n \n\n0.0\n\n \n\n%\n\nTax credits\n\n \n\n \n\n \n\n(30.7\n\n)\n\n \n\n \n\n(1.3\n\n)\n\n%\n\n \n\n \n\n \n\n(20.1\n\n)\n\n \n\n \n\n(0.9\n\n)\n\n%\n\n \n\n \n\n \n\n(18.4\n\n)\n\n \n\n \n\n(0.9\n\n)\n\n%\n\nNontaxable or nondeductible items\n\n \n\n \n\n \n\n(0.2\n\n)\n\n \n\n \n\n0.0\n\n \n\n%\n\n \n\n \n\n \n\n2.9\n\n \n\n \n\n \n\n0.1\n\n \n\n%\n\n \n\n \n\n \n\n(8.7\n\n)\n\n \n\n \n\n(0.4\n\n)\n\n%\n\nChanges in unrecognized tax benefits\n\n \n\n \n\n \n\n(3.9\n\n)\n\n \n\n \n\n(0.2\n\n)\n\n%\n\n \n\n \n\n \n\n(5.3\n\n)\n\n \n\n \n\n(0.2\n\n)\n\n%\n\n \n\n \n\n \n\n(1.0\n\n)\n\n \n\n \n\n(0.0\n\n)\n\n%\n\nOther adjustments\n\n \n\n \n\n \n\n1.7\n\n \n\n \n\n \n\n0.0\n\n \n\n%\n\n \n\n \n\n \n\n(7.3\n\n)\n\n \n\n \n\n(0.4\n\n)\n\n%\n\n \n\n \n\n \n\n(1.5\n\n)\n\n \n\n \n\n(0.0\n\n)\n\n%\n\nEffective income tax rate\n\n \n\n$\n\n \n\n550.8\n\n \n\n \n\n \n\n23.8\n\n \n\n%\n\n \n\n$\n\n \n\n518.6\n\n \n\n \n\n \n\n23.8\n\n \n\n%\n\n \n\n$\n\n \n\n527.6\n\n \n\n \n\n \n\n23.8\n\n \n\n%\n\n \n\n(1)\nState taxes in California, New York State, New York City, and New Jersey made up the majority (greater than 50%) of the tax effect in this category.\n\n(2)\nDisclosures for 2025 and 2024 were adjusted for retrospective application of ASU 2023-09. Refer to Note A for further information on the adoption of ASU 2023-09.\n\n \n\nThe effective income tax rates in all periods were impacted by recognition of net discrete tax benefits related to employee stock-based compensation payments.\n\n \n\nThe following is income taxes paid, net of refunds by significant jurisdiction:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nFederal\n\n \n\n$\n\n \n\n205.0\n\n \n\n \n\n$\n\n \n\n406.0\n\n \n\n \n\n$\n\n \n\n439.0\n\n \n\nState\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCalifornia\n\n \n\n \n\n \n\n26.3\n\n \n\n \n\n \n\n*\n\n \n\n \n\n \n\n*\n\n \n\nOther\n\n \n\n \n\n \n\n79.0\n\n \n\n \n\n \n\n*\n\n \n\n \n\n \n\n*\n\n \n\nTotal State\n\n \n\n \n\n \n\n105.3\n\n \n\n \n\n \n\n \n\n106.4\n\n \n\n \n\n \n\n \n\n100.5\n\n \n\nForeign\n\n \n\n \n\n*\n\n \n\n \n\n \n\n*\n\n \n\n \n\n \n\n*\n\n \n\nTotal income tax payments, net of refunds\n\n \n\n$\n\n \n\n310.3\n\n \n\n \n\n$\n\n \n\n512.4\n\n \n\n \n\n \n\n \n\n539.5\n\n \n\n \n\n* Jurisdiction below threshold for period presentation.\n\n \n\nUncertain income tax positions: The Company is subject to U.S. federal income tax, numerous local and state tax jurisdictions within the U.S., and taxes in the Company's foreign operations in Europe, Canada, India, and Israel. The Company maintains a reserve for uncertain tax positions. As of May 31, 2026, the reserve for uncertain tax positions, including interest and net of benefits, was $120.6 million, of which $120.1 million was included in long-term liabilities and $0.5 million was netted in the deferred tax on the Consolidated Balance Sheets. As of May 31, 2025, the total reserve for uncertain tax positions, including interest and net of federal benefits, was $108.6 million, of which $100.6 million was included in long-term liabilities and $8.0 million was netted in deferred tax on the Consolidated Balance Sheets.\n\n \n\n72\n\n[Table of Contents](#tableofcontents)\n\n \n\nA reconciliation of the beginning and ending amounts of the Company’s gross unrecognized tax benefits, not including interest or other potential offsetting effects, is as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nBalance as of beginning of fiscal year\n\n \n\n$\n\n \n\n106.0\n\n \n\n \n\n$\n\n \n\n87.2\n\n \n\n \n\n$\n\n \n\n72.0\n\n \n\nAdditions for tax positions of the current year\n\n \n\n \n\n \n\n16.1\n\n \n\n \n\n \n\n \n\n20.1\n\n \n\n \n\n \n\n \n\n20.6\n\n \n\nAdditions for tax positions of prior years\n\n \n\n \n\n \n\n1.2\n\n \n\n \n\n \n\n \n\n9.8\n\n \n\n \n\n \n\n \n\n0.8\n\n \n\nReductions for tax positions of prior years\n\n \n\n \n\n \n\n(8.3\n\n)\n\n \n\n \n\n \n\n(5.5\n\n)\n\n \n\n \n\n \n\n(3.8\n\n)\n\nSettlements with tax authorities\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(0.0\n\n)\n\n \n\n \n\n \n\n(0.3\n\n)\n\nExpiration of the statute of limitations\n\n \n\n \n\n \n\n(3.6\n\n)\n\n \n\n \n\n \n\n(5.6\n\n)\n\n \n\n \n\n \n\n(2.1\n\n)\n\nBalance as of end of fiscal year\n\n \n\n$\n\n \n\n111.4\n\n \n\n \n\n$\n\n \n\n106.0\n\n \n\n \n\n$\n\n \n\n87.2\n\n \n\n \n\nThe reserve as of May 31, 2026 substantially relates to the Company’s uncertain tax positions for certain U.S. federal and state income tax matters. The Company believes the reserve for uncertain tax positions, including interest and net of federal benefits, of $120.6 million as of May 31, 2026 adequately covers open tax years and uncertain tax positions up to and including fiscal 2026 for major taxing jurisdictions. As of May 31, 2026 and 2025, the $120.1 million and $100.6 million, respectively, of unrecognized tax benefits, including interest and net of federal benefit, if recognized, would impact the Company’s effective income tax rate.\n\n \n\nThe Company has concluded all U.S. federal income tax matters through fiscal 2017. Fiscal years 2018, 2020, and 2023 are currently under audit by the IRS. With limited exception, state income tax audits by taxing authorities are closed through fiscal 2022, primarily due to expiration of the statute of limitations.\n\n \n\nThe Company continues to follow its policy of recognizing interest and penalties accrued on tax positions as a component of income taxes on the Consolidated Statements of Income and Comprehensive Income. The amount of accrued interest and penalties associated with the Company’s tax positions is immaterial to the Consolidated Balance Sheets. The amount of interest and penalties recognized for fiscal years 2026, 2025, and 2024 was immaterial to the Company’s results of operations.\n\nNote M — Short-term Financing\n\n \n\nThe Company maintains committed and unsecured credit facilities and irrevocable letters of credit as part of its normal and recurring business operations. The purpose of these credit facilities is to meet short-term funding requirements, finance working capital needs, and for general corporate purposes. The Company typically borrows on an overnight or short-term basis on its credit facilities.\n\n \n\nEffective January 23, 2026, the Company entered into amendments of its $750.0 million, five-year, unsecured, revolving credit facility (the \"2017 JPM Credit Facility\") and its $1.0 billion, five-year, unsecured, revolving credit facility (the \"2019 JPM Credit Facility\") with a syndicate of lenders for which JP Morgan 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 and extend its maturity date 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, $250 million, unsecured, revolving credit facility for which PNC Bank, N.A. (\"PNC\") acted as administrative agent (the \"2020 PNC Credit Facility\"). As of the date of its termination, there were no outstanding loans under the PNC Bank, N.A. Credit Facility.\n\n \n\n73\n\n[Table of Contents](#tableofcontents)\n\n \n\nDetails of the Company’s credit facilities as of May 31, 2026 are as follows:\n\n \n\n \n\n \n\n \n\n \n\nMaximum Amount Available\n\n \n\n \n\nAmount Outstanding\n\n \n\n \n\n \n\n \n\n \n\nMay 31,\n\n \n\n \n\nMay 31,\n\n \n\n$ in millions\n\n \n\nExpiration Date\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nCredit facilities:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2019 JPM Credit Facility\n\n \n\nApril 12, 2029\n\n \n\n$\n\n \n\n1,000.0\n\n \n\n \n\n$\n\n \n\n1,000.0\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n2017 JPM Credit Facility\n\n \n\nJanuary 23, 2031\n\n \n\n \n\n \n\n1,000.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n2017 JPM Credit Facility\n\n \n\nJanuary 23, 2026\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n750.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n2020 PNC Credit Facility (weighted-average interest rate of 3.87% as of May 31, 2025)\n\n \n\nJanuary 23, 2026\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n250.0\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n18.6\n\n \n\nTotal\n\n \n\n \n\n \n\n$\n\n \n\n2,000.0\n\n \n\n \n\n$\n\n \n\n2,000.0\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n18.6\n\n \n\n \n\nUpon the expiration date of any credit facility, any borrowings outstanding under that facility will mature and be payable.\n\n \n\nInterest rates on each of the Company’s credit facilities can be based upon (1) an alternate base rate that is established by the lending institution at the highest of several publicly available interest rates, plus an applicable interest rate margin, or (2) at our election, the Securitized Overnight Financing Rate (“SOFR”) or an alternate interest rate as determined by the administrative agent, plus an applicable interest rate margin. The Company is also required to pay a commitment fee, ranging from 0.05% to 0.15%, related to the unutilized portion of each credit facility. The commitment fee is determined on a sliding-scale basis based upon the Company’s consolidated leverage ratio.\n\n \n\nObligations under the credit facilities are guaranteed by the Company and certain of its subsidiaries. The credit facilities contain financial and operational covenants with which the Company must maintain compliance. The Company’s ability to borrow under the credit facilities may be restricted in the event of certain covenant breaches or events of default. In addition, the terms of the credit facilities could restrict the Company’s ability to engage in certain business transactions. The Company was in compliance with all these covenants as of May 31, 2026.\n\n \n\nCertain lenders under these credit facilities, and their respective affiliates, have performed, and may in the future perform for the Company, various commercial banking, investment banking, underwriting, and other financial advisory services, for which they have received, and will continue to receive in the future, customary fees and expenses.\n\n \n\nBridge Loan Commitment: On January 7, 2025, the Company and a Company subsidiary, Paychex of New York, LLC, entered into a bridge loan commitment with JPM, pursuant to which JPM committed to provide a 364-day senior unsecured credit facility of up to $3.5 billion for the acquisition of Paycor, including related fees and expenses. The Company incurred $14.9 million in debt financing fees, including structuring and commitment fees, which were capitalized as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets and were recognized as interest expense on a straight-line basis. On April 10, 2025, the Company obtained alternative financing through the issuance of its Corporate Bonds, effectively canceling the bridge loan commitment. Refer to Note N for further discussion of the Corporate Bonds issued.\n\n \n\nInterest Rate Swaption Contracts: On January 31, 2025, the Company executed three Swaption Contracts with JPM. The Swaption Contracts qualified as cash flow hedges, had an aggregate notional amount of $3.0 billion, and were utilized to manage exposure to fluctuations in benchmark interest rates associated with the issuance of the Corporate Bonds to fund the acquisition of Paycor. At inception, the Company recorded Swaption Contract assets related to paid premiums of $19.2 million. Upon issuing the Corporate Bonds, the Company elected not to exercise the Swaption Contracts, and wrote-off the hedge asset when it expired.\n\n \n\nLetters of credit: The Company had irrevocable standby letters of credit outstanding totaling $176.5 million and $165.0 million as of May 31, 2026 and May 31, 2025, respectively, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between June 1, 2026 and May 26, 2027. No amounts were outstanding on these letters of credit during fiscal 2026 or fiscal 2025, or as of May 31, 2026 and May 31, 2025, respectively. Subsequent to May 31, 2026, ten letters of credit which expired were renewed for one year terms.\n\n74\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote N — Long-term Financing\n\n \n\nLong-term debt, at amortized cost, consisted of the following as of:\n\n \n\n \n\n \n\nEffective\n\nMay 31,\n\n \n\nIn millions\n\n \n\ninterest rate\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nSenior Notes Series A, fixed rate 4.07% - due March 13, 2026\n\n \n\n4.12%\n\n \n\n$\n\n \n\n-\n\n \n\n \n\n$\n\n \n\n400.0\n\n \n\nSenior Notes Series B, fixed rate 4.25% - due March 13, 2029\n\n \n\n4.30%\n\n \n\n \n\n \n\n400.0\n\n \n\n \n\n \n\n \n\n400.0\n\n \n\n5-year Corporate Bonds, fixed rate 5.10% - due April 15, 2030\n\n \n\n5.35%\n\n \n\n \n\n \n\n1,500.0\n\n \n\n \n\n \n\n \n\n1,500.0\n\n \n\n7-year Corporate Bonds, fixed rate 5.35% - due April 15, 2032\n\n \n\n5.57%\n\n \n\n \n\n \n\n1,500.0\n\n \n\n \n\n \n\n \n\n1,500.0\n\n \n\n10-year Corporate Bonds, fixed rate 5.60% - due April 15, 2035\n\n \n\n5.84%\n\n \n\n \n\n \n\n1,200.0\n\n \n\n \n\n \n\n \n\n1,200.0\n\n \n\nTotal long-term debt\n\n \n\n \n\n \n\n \n\n \n\n4,600.0\n\n \n\n \n\n \n\n \n\n5,000.0\n\n \n\nLess: current portion, net of debt issuance costs\n\n \n\n \n\n \n\n \n\n \n\n-\n\n \n\n \n\n \n\n \n\n(399.8\n\n)\n\nLess: unamortized discount and debt issuance costs\n\n \n\n \n\n \n\n \n\n \n\n(43.9\n\n)\n\n \n\n \n\n \n\n(51.8\n\n)\n\nLong-term debt, net\n\n \n\n \n\n$\n\n \n\n \n\n4,556.1\n\n \n\n \n\n$\n\n \n\n4,548.4\n\n \n\n \n\nThe Senior Notes, Series A and Senior Notes, Series B (collectively the “Notes”), and Corporate Bonds are senior unsecured obligations, with interest paid semi-annually in arrears. The effective interest rate for the Notes and Corporate Bonds includes the interest on the debt and amortization of debt discount and debt issuance costs.\n\n \n\nThe Notes are issued pursuant to the Note Purchase and Guarantee Agreement (the “Agreement”) and may be prepaid, all or in part, at any time by the Company subject to certain conditions as described in the Agreement. Payment of all amounts due with respect to the Notes and performance under the Agreement is guaranteed by the Company, Paychex of New York LLC, and certain other subsidiaries of the Company. The Corporate Bonds are issued pursuant to an indenture dated as of April 10, 2025, by and between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Trustee”), as supplemented by the First Supplemental Indenture, dated as of April 10, 2025, by and between the Company and the Trustee.\n\n \n\nDuring fiscal 2026, the Company repaid its long-term private placement debt Senior Note, Series A for $400.0 million, which matured on March 13, 2026.\n\n \n\nThe Agreement 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 these covenants as of May 31, 2026.\n\nNote O — Supplemental Cash Flow Information\n\n \n\nCash\n\nIncome taxes paid were $310.3 million, $512.4 million, and $539.5 million for fiscal 2026, fiscal 2025, and fiscal 2024, respectively. Refer to Note L of this Item 8 for further discussion on cash paid for income taxes.\n\n \n\nInterest expense paid was $267.6 million, $37.5 million, and $36.2 million for fiscal 2026, fiscal 2025, and fiscal 2024, respectively.\n\n \n\nNon-Cash\n\nIn fiscal 2025, there was non-cash consideration of $15.9 million for pre-acquisition stock-based compensation and $9.2 million for deferred compensation related to the Company's acquisition of Paycor, and $11.6 million for the fair value of contingent consideration related to an earn-out for an immaterial acquisition. See Note D for further discussion of the Company's acquisition of Paycor.\n\n \n\nRefer to Note I of this Item 8 for supplemental cash flow information pertaining to the Company's leasing activities.\n\n75\n\n[Table of Contents](#tableofcontents)\n\n \n\nNote P — Employee Benefit Plans\n\n \n\n401(k) plan: The Company maintains a contributory savings plan that qualifies under section 401(k) of the Internal Revenue Code. The Paychex, Inc. 401(k) Incentive Retirement Plan (the “Plan”) allows all employees to immediately participate in the salary deferral portion of the Plan, contributing up to a maximum of 50% of their salary, subject to Internal Revenue Service limitations. Employees who have completed one year of service and a minimum of 1,000 hours worked are eligible to receive a Company matching contribution, when such contribution is in effect. Through December 31, 2025, the Company provided a matching contribution of 100% of the first 3% and 50% on the next 2% of eligible pay for a total matching contribution of 4%. Effective January 1, 2026, the Company provides a matching contribution of 100% of the first 4% of eligible pay that an employee contributes to the Plan. Company contributions to the Plan for fiscal 2026, 2025, and 2024 were $40.8 million, $37.0 million, and $37.5 million, respectively.\n\n \n\nThe Plan is 100% participant directed. Plan participants can fully diversify their portfolios by choosing from any or all investment fund choices in the Plan. Transfers in and out of investment funds, including the Paychex, Inc. Employee Stock Ownership Plan Stock Fund, are not restricted, except for certain restricted trading periods for individuals designated as insiders as specified in the Company’s Insider Trading Policy. The Company matching contribution, when in effect, follows the same fund elections as the employee compensation deferrals.\n\n \n\nDeferred compensation plans: The Company and certain of its subsidiaries offer non-qualified and unfunded deferred compensation plans to a select group of key employees, executive officers, and outside directors. Eligible employees are provided with the opportunity to defer up to 50% of their annual base salary and bonus and outside directors may defer 100% of their Board cash compensation. Gains and losses are credited based on the participant’s election of a variety of investment choices. The Company does not match any participant deferral or guarantee its return. Distributions are paid at one of the following dates selected by the participant: the participant’s termination date, the date the participant retires from any active employment, or a designated specific date. The amounts accrued under these plans were $36.3 million and $34.5 million as of May 31, 2026 and 2025, respectively, and are reflected in other long-term liabilities on the accompanying Consolidated Balance Sheets.\n\nNote Q — Commitments and Contingencies\n\n \n\nOther commitments: As of May 31, 2026, the Company had outstanding commitments under existing workers’ compensation insurance agreements and other legally binding contractual arrangements with minimum future payment obligations of approximately $898.4 million. The Company also enters into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase approximately $13.5 million of capital assets. These minimum future payment obligations relate to the following fiscal years:\n\n \n\n \n\n \n\nPayments due by period\n\n \n\nIn millions\n\n \n\n2027\n\n \n\n \n\n2028\n\n \n\n \n\n2029\n\n \n\n \n\n2030\n\n \n\n \n\n2031\n\n \n\n \n\nThereafter\n\n \n\nWorkers' compensation estimated obligations\n\n \n\n$\n\n \n\n80.7\n\n \n\n \n\n$\n\n \n\n42.5\n\n \n\n \n\n$\n\n \n\n27.3\n\n \n\n \n\n$\n\n \n\n18.5\n\n \n\n \n\n$\n\n \n\n12.8\n\n \n\n \n\n$\n\n \n\n55.9\n\n \n\nPurchase obligations\n\n \n\n$\n\n \n\n359.6\n\n \n\n \n\n$\n\n \n\n138.8\n\n \n\n \n\n$\n\n \n\n67.7\n\n \n\n \n\n$\n\n \n\n22.4\n\n \n\n \n\n$\n\n \n\n10.8\n\n \n\n \n\n$\n\n \n\n61.4\n\n \n\n \n\nIn 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 our 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.\n\n \n\nThe Company currently self-insures the deductible portion of various insured exposures under certain corporate employee and PEO employee health, medical, and 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 May 31, 2026.\n\n \n\nIn 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.\n\n \n\n76\n\n[Table of Contents](#tableofcontents)\n\n \n\nContingencies: 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.\n\n \n\nThe 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 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.\n\n \n\n \n\nNote R — Segment Reporting\n\n \n\nThe Company has determined that it operates as a single operating segment at the consolidated level. Operating segments for the Company are determined based on the information used by the chief operating decision maker (\"CODM\") in assessing performance and allocating resources. The Company's Chief Executive Officer is the CODM and reviews the Company's financial information on a consolidated basis. Accordingly, the CODM primarily uses consolidated net income as the measure of segment profit or loss and to assess performance and allocate resources, primarily through the annual budgeting and forecasting process. Budget-to-actual variances are reviewed regularly, with consideration given to the impact of certain expenses that are not considered part of the Company's core business operations.\n\n \n\nTotal revenue, net income, and significant expenses used by the CODM for the purpose of allocating resources and evaluating the Company's financial performance were as follows:\n\n \n\n \n\n \n\nYear ended May 31,\n\n \n\nIn millions\n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\n2024\n\n \n\nTotal revenue\n\n \n\n$\n\n \n\n6,512.0\n\n \n\n \n\n$\n\n \n\n5,571.7\n\n \n\n \n\n$\n\n \n\n5,278.3\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCore business operations:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCompensation-related expenses\n\n \n\n \n\n \n\n2,091.9\n\n \n\n \n\n \n\n \n\n1,853.0\n\n \n\n \n\n \n\n \n\n1,810.4\n\n \n\nPEO direct insurance costs\n\n \n\n \n\n \n\n563.2\n\n \n\n \n\n \n\n \n\n520.1\n\n \n\n \n\n \n\n \n\n471.3\n\n \n\nDepreciation and amortization\n\n \n\n \n\n \n\n200.6\n\n \n\n \n\n \n\n \n\n168.8\n\n \n\n \n\n \n\n \n\n176.5\n\n \n\nOther segment items(1)\n\n \n\n \n\n \n\n841.6\n\n \n\n \n\n \n\n \n\n659.8\n\n \n\n \n\n \n\n \n\n606.5\n\n \n\nNon-core business operations:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAcquisition-related costs(2)\n\n \n\n \n\n \n\n304.2\n\n \n\n \n\n \n\n \n\n162.3\n\n \n\n \n\n \n\n \n\n—\n\n \n\nCost optimization initiatives(3)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n39.5\n\n \n\nTotal expenses\n\n \n\n \n\n \n\n4,001.5\n\n \n\n \n\n \n\n \n\n3,364.0\n\n \n\n \n\n \n\n \n\n3,104.2\n\n \n\nInterest expense, excluding Paycor acquisition-related costs\n\n \n\n \n\n \n\n(269.5\n\n)\n\n \n\n \n\n \n\n(71.4\n\n)\n\n \n\n \n\n \n\n(37.3\n\n)\n\nAcquisition-related costs(2)\n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n(34.0\n\n)\n\n \n\n \n\n \n\n—\n\n \n\nOther income, net\n\n \n\n \n\n \n\n69.9\n\n \n\n \n\n \n\n \n\n73.6\n\n \n\n \n\n \n\n \n\n81.2\n\n \n\nIncome before income taxes\n\n \n\n \n\n \n\n2,310.9\n\n \n\n \n\n \n\n \n\n2,175.9\n\n \n\n \n\n \n\n \n\n2,218.0\n\n \n\nIncome tax expense\n\n \n\n \n\n \n\n550.8\n\n \n\n \n\n \n\n \n\n518.6\n\n \n\n \n\n \n\n \n\n527.6\n\n \n\nNet income\n\n \n\n$\n\n \n\n1,760.1\n\n \n\n \n\n$\n\n \n\n1,657.3\n\n \n\n \n\n$\n\n \n\n1,690.4\n\n \n\n \n\n(1)\nOther segment items include professional service expense, marketing and advertising expenses, and other overhead expense.\n\n(2)\nAcquisition-related costs included in total expenses include the amortization of intangibles acquired in the acquisition of Paycor, compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance, and retention bonuses, and other acquisition-related costs, primarily reflecting third-party professional service fees. Acquisition-related costs included in interest expense include the amortization of financing fees related to debt instruments associated with the financing of the Paycor acquisition and the excluded components of the initial fair value of the interest rate swaption contracts.\n\n(3)\nCost optimization initiatives include further reductions to our geographic footprint, reprioritization of certain technology investments, and headcount optimization.\n\n \n\nGeographic information: Substantially all of the Company's revenue is generated within the U.S. Approximately 1% of the Company's total revenue was generated within Europe for fiscal 2026, 2025, and 2024. Long-lived assets in European\n\n77\n\n[Table of Contents](#tableofcontents)\n\n \n\ncountries and other foreign countries were approximately 2% and less than 1%, respectively, of total long-lived assets of the Company as of both May 31, 2026 and 2025.\n\n78\n\n[Table of Contents](#tableofcontents)\n\n \n\nSchedule II — Valuation and Qualifying Accounts\n\nPAYCHEX, INC.\n\nCONSOLIDATED FINANCIAL STATEMENT SCHEDULE\n\nFOR THE YEAR ENDED MAY 31,\n\n(In millions)\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAdditions to/\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nBalance as of\n\n \n\n \n\nAdditions\n\n \n\n \n\n(deductions\n\n \n\n \n\n \n\n \n\n \n\n \n\nBalance as\n\n \n\n \n\n \n\nbeginning\n\n \n\n \n\ncharged to\n\n \n\n \n\nfrom) other\n\n \n\n \n\nCosts and\n\n \n\n \n\nof end\n\n \n\nDescription\n\n \n\nof fiscal year\n\n \n\n \n\nexpenses\n\n \n\n \n\naccounts\n\n \n\n \n\ndeductions(1)\n\n \n\n \n\nof fiscal year\n\n \n\n2026\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAllowance for credit losses\n\n \n\n$\n\n \n\n26.0\n\n \n\n \n\n$\n\n \n\n38.1\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n23.7\n\n \n\n \n\n$\n\n \n\n40.4\n\n \n\n2025\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAllowance for credit losses\n\n \n\n$\n\n \n\n21.3\n\n \n\n \n\n$\n\n \n\n24.2\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n19.5\n\n \n\n \n\n$\n\n \n\n26.0\n\n \n\n2024\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nAllowance for credit losses\n\n \n\n$\n\n \n\n20.5\n\n \n\n \n\n$\n\n \n\n19.8\n\n \n\n \n\n$\n\n \n\n—\n\n \n\n \n\n$\n\n \n\n19.0\n\n \n\n \n\n$\n\n \n\n21.3\n\n \n\n \n\n(1)\nUncollectible amounts written off, net of recoveries, and other adjustments."}