AI interpretation based on checked source excerpts. Issuer assertions and evidence limitations remain explicit.
Policy quality-scores-2: six equally weighted categories. The overall score requires full coverage. Missing inputs are not zero. Qualitative grades are sourced interpretations, not probabilities. 6/6 · 18/10/2026
Moat50
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
structural advantage · 2/4 · Payroll information supports integrated HCM services and recurring tax and payment workflows, creating plausible operational switching friction. Retention and adjacent-service adoption substantiate a modest advantage; replacement effort and differentiation against competitors are unmeasured.
durability · 2/4 · Retention remained at 82%–83% across fiscal 2024–2026. Estimated six- to eight-year relationship lives provide additional, accounting-based support. Short termination rights and missing competitive comparisons prevent a strong durability assessment.
customer dependency · 2/4 · Payroll calculation, tax filings and remittances are important recurring functions, and shared information links additional services. Customers can nevertheless select individual services and exit on short notice; dependence on Paychex specifically is mixed.
erosion resilience · 2/4 · Stable retention, adjacent-service growth and continued price realization indicate resilience. Technology and cybersecurity risks remain prospective, while the ERTC-related ancillary decline demonstrates actual exposure to changes in service demand. AI superiority remains unproven.
Pricing power56
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
realized pricing · 2/4 · Management attributes higher revenue per client partly to price realization in fiscal 2025, fiscal 2026 and the latest quarter. This establishes positive observed pricing outcomes, but product penetration and acquired customer mix prevent isolating their magnitude or elasticity.
retention · 2/4 · Directly disclosed 82%–83% client retention over three fiscal years demonstrates repeat demand despite easy contractual exit. It is not exceptional retention, and unquantified revenue retention and undisclosed attrition causes limit conclusions about response to pricing.
margin resilience · 3/4 · Fiscal 2026 GAAP margin declined from 39.6% to 38.6%, while adjusted margin increased. The latest quarter improved both GAAP and adjusted margins alongside revenue growth. This demonstrates strong operating resilience, although lower acquisition costs explain part of the quarterly improvement and pricing’s separate contribution is unknown.
contractual freedom · 2/4 · Generally unspecified contract periods and bilateral 30-day termination rights indicate flexibility to end arrangements without long-term lock-in. Customers have equivalent exit freedom, and explicit repricing rights or price-reset restrictions are not supplied.
Predictability100
Five consecutive annual periods. Equal weights: nondeclining revenue frequency; revenue-growth volatility (5–40pp); positive FCF frequency; FCF-margin volatility (3–20pp). Stability indicator, not a growth forecast.
- Nondeclining revenue years (%)
- 100.00
- Revenue growth volatility (pp)
- 4.72
- Positive FCF years (%)
- 100.00
- FCF margin volatility (pp)
- 2.33
Financial strength69
Equal-weight grades: debt/FCF (1–8x), net debt/earnings before interest and tax (0–5x), interest service (1–12x), current ratio (0.75–2x). Earnings use reported operating income, or reported pretax profit plus reported interest expense when operating income is unavailable. Interest service uses earnings/interest expense; if unavailable, it uses reported operating cash flow/cash interest paid, without relabeling cash paid as accrued expense. Nonpositive cash flow/earnings score 0 for their service component; reported zero interest with a positive numerator scores 100. Net cash scores 100 for net leverage. Missing disclosures remain unavailable. General nonfinancial-company rubric, not a credit rating; exceptional and nonoperating gains are not normalized out. IFRS finance-cost and cash-flow classifications retain their reported scope.
- debtFcfGrade
- 86.25
- netDebtEbitGrade
- 72.37
- interestCoverageGrade
- 75.59
- currentRatioGrade
- 40.73
- Debt / FCF (x)
- 1.96
- Net debt / operating income (x)
- 1.38
- Interest coverage (x)
- 9.32
- Current ratio (x)
- 1.26
Capital allocation100
Three-year equal-weight indicators: pretax return on average invested capital (0–25%; equity + debt − cash, each year and its prior year), share-count growth (0–5%, lower better), share-based cost/revenue (2–20%, lower better), consolidated FCF/net income (0–1x). Return uses reported operating income or, if unavailable, EBIT calculated from reported pretax profit plus reported interest expense; exceptional/nonoperating gains are not normalized out. Share-based cost uses the reported cash-flow add-back or, if absent, separately reported recognized compensation expense; the latter never becomes an FCF adjustment. Nonpositive net income scores 0 for cash conversion; absent income/FCF stays unavailable. Nonpositive invested capital has no defined return and remains unavailable. Does not establish acquisition quality or buyback timing.
- 3-year pre-tax operating return (%)
- 48.54
- 3-year average dilution (%)
- -0.14
- 3-year average SBC / revenue (%)
- 1.59
- cashConversionGrade
- 100.00
Management63
Equal-weight average of four evidence-backed rubric grades (0–4), scaled to 100.
capital discipline · 2/4 · Actual share retirement and operating cash generation support discipline, but debt-financed Paycor materially increased interest expense and its investment returns remain unestablished. Latest-quarter dividends declared of $423.6 million were close to $413.5 million operating cash flow, with equity-plan issuance continuing. Capital deployment is assessable but mixed.
incentive alignment · 3/4 · Actual annual incentives paid at 64% of target demonstrate payout variability. Performance equity represented 60% of target long-term incentive value, with three-year revenue and operating-income metrics and a relative TSR modifier. These are granted arrangements, not proposals; ongoing awards have not demonstrated completed performance vesting, and meaningful executive ownership is unestablished.
execution · 3/4 · Stable client retention, measured HR outsourcing and retirement expansion, continued price realization and latest-quarter operating-income growth demonstrate strong execution. This assessment uses operating outcomes rather than direct service-quality measures. Acquisition-driven annual growth and incomplete evidence of Paycor returns constrain the conclusion.
governance · 2/4 · Annual elections, majority voting, a single voting class, independent committee leadership and six actual Audit Committee meetings support oversight. The existing 50% ownership threshold for special meetings limits shareholder access. The supplied disclosures establish mixed governance protections, without proving exceptional oversight effectiveness or subsequent proposal outcomes.
Evidence
Payroll client retention was in the range of 82% to 83% of our beginning client base for both fiscal 2026 and fiscal 2025 and we have sustained high revenue retention.
MD&A / fiscal 2026 and fiscal 2025 payroll client retention · Filed 17/07/2026
For fiscal 2024, client retention was in the range of 82% to 83% of our beginning client base.
Business / fiscal 2024 client retention · Filed 11/07/2024
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.
Revenue recognition / reuse of base payroll information · Filed 24/09/2026
Payroll is integrated with HCM software modules for customers who have more complex HR needs.
Business / payroll integration with HCM modules · Filed 17/07/2026
Our payroll processing solutions include the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients’ payroll obligations.
Business / payroll processing and tax remittance functions · Filed 17/07/2026
The following table illustrates selected customer metrics: $ in billions As of May 31, 2026 2025 Change(1) Paychex HR solutions (ASO and PEO) customer worksite employees 2,600,000 2,460,000 6 % Retirement solutions plans 130,000 124,000 4 % Asset value of retirement solutions participants’ funds $ 66.0 $ 55.7 19 % Perks unique employee purchases 237,000 133,000 78 % (1) Percentage changes are calculated based on unrounded numbers.
MD&A / HR outsourcing and retirement customer metrics · Filed 17/07/2026
The 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 the 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.
Accounting policies / estimated customer relationship lives · Filed 17/07/2026
Higher revenue per client resulting from price realization and product penetration, including HR solutions and retirement;
MD&A / fiscal 2025 revenue per client and price realization · Filed 11/07/2025
Higher revenue per client resulting from price realization and product penetration.
MD&A / quarter ended August 31, 2026 price realization · Filed 24/09/2026
The Company's contracts generally do not contain specified contract periods and may be terminated by either party with 30 days notice of termination.
Revenue recognition / contract duration and bilateral termination rights · Filed 24/09/2026
Customers can select services on an á la carte basis or as part of various solution bundles.
Revenue recognition / individual services and bundles · Filed 24/09/2026
Paycor contributed approximately 15% to Management Solutions revenue growth for fiscal 2026.
MD&A / Paycor contribution to fiscal 2026 Management Solutions growth · Filed 17/07/2026
Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: • our ability to keep pace with changes in technology or provide timely enhancements to our solutions and support; • risks related to our use of artificial intelligence ("AI") and new technologies in our business; • software defects, undetected errors, and development delays for our solutions; • the possibility of cyberattacks, security vulnerabilities or Internet disruptions, including data security and privacy leaks and data loss and business interruptions; • the possibility of failure of our business continuity plan during a catastrophic event; • the failure of third-party service providers to perform their functions; • the possibility that we may be exposed to additional risks related to our co-employment relationship with our professional employer organization ("PEO") business; • changes in health insurance and workers' compensation insurance rates and underlying claim trends; • risks related to acquisitions and the integration and performance of the businesses we acquire; • our customers' failure to reimburse us for payments made by us on their behalf; • the effect of changes in government regulations mandating the amount of tax withheld or the timing of remittances; • our failure to comply with covenants in our corporate bonds and debt agreements; • changes in our credit ratings; • changes in governmental regulations, laws, and policies; • our ability to comply with U.S., state, and foreign laws and regulations; • our compliance with data privacy and AI laws and regulations; • our failure to protect our intellectual property rights; • potential outcomes related to pending or future litigation matters; • the impact of macroeconomic factors on the U.S.
Forward-looking risk disclosures / technology, cybersecurity and acquisition risks · Filed 24/09/2026
Such changes could reduce or eliminate the need for some of our services and substantially decrease our revenue.
Risk factors / potential regulatory reduction in service demand · Filed 17/07/2026
We have approximately 250 compliance professionals who are in real-time contact with tax agencies and regulators to understand upcoming or newly enacted laws and regulations.
Business / compliance professional resources · Filed 17/07/2026
WISE now draws on more than 26 trillion data points, helping make our solutions smarter, more relevant, and more proactive.
Business / management description of WISE dataset · Filed 17/07/2026
Higher revenue per client driven by Paycor's upmarket customer base, price realization, and product penetration.
MD&A / fiscal 2026 price realization, penetration and acquired customer mix · Filed 17/07/2026
Operating margin (operating income as a percentage of total revenue) and adjusted operating margin(1) (adjusted operating income(1) as a percentage of total revenue) were as follows: Fiscal Year 2026 2025 Operating margin 38.6 % 39.6 % Adjusted operating margin(1) 43.2 % 42.5 % (1) Adjusted operating income and adjusted operating margin are not U.S.
MD&A / fiscal 2026 and fiscal 2025 GAAP and adjusted operating margins · Filed 17/07/2026
Non-GAAP Financial Measures: Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and adjusted EBITDA are summarized as follows: For the three months ended August 31, $ in millions, except per share amounts 2026 2025 Change Operating income $ 619.2 $ 541.9 14 % Non-GAAP adjustments: Acquisition-related costs(1) 65.5 84.8 Adjusted operating income $ 684.7 $ 626.7 9 % Adjusted operating margin 42.0 % 40.7 % Net income $ 429.7 $ 383.8 12 % Non-GAAP adjustments: Acquisition-related costs(1) 65.5 84.8 Income tax benefit for acquisition-related costs (15.7 ) (20.6 ) Discrete tax windfall related to employee stock-based compensation payments(2) (0.3 ) (7.2 ) Adjusted net income $ 479.2 $ 440.8 9 % Diluted earnings per share(3) $ 1.21 $ 1.06 14 % Non-GAAP adjustments: Acquisition-related costs(1) 0.18 0.23 Income tax benefit for acquisition-related costs (0.04 ) (0.06 ) Discrete tax windfall related to employee stock-based compensation payments(2) (0.00 ) (0.02 ) Adjusted diluted earnings per share $ 1.34 $ 1.22 10 % Net income $ 429.7 $ 383.8 12 % Non-GAAP adjustments: Interest expense 65.1 68.2 Interest income on corporate investments (10.2 ) (18.7 ) Income taxes 135.3 113.7 Depreciation and amortization expense 109.8 109.3 EBITDA $ 729.7 $ 656.3 11 % Non-GAAP adjustments: Acquisition-related costs(1) 8.6 23.7 Adjusted EBITDA $ 738.3 $ 680.0 9 % (1) Acquisition-related costs included in selling, general and administrative expenses include: • $56.9 million for the first quarter compared to $61.1 million for the corresponding prior-year period, in amortization of intangibles acquired in the acquisition of Paycor, • $8.5 million for the first quarter compared to $18.7 million for the corresponding prior-year period, in compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance and retention bonuses, and • $0.1 million for the first quarter compared to $5.0 million for the corresponding prior-year period, in other acquisition-related costs.
MD&A / quarterly GAAP results, adjusted results and acquisition-cost reconciliation · Filed 24/09/2026
All shares repurchased during fiscal 2026 were retired and were as follows: Fiscal 2026 In millions, except per share amount Total number of shares purchased Average price paid per share Total dollars Approximate dollar value of shares that may yet be purchased under the program First quarter 1.1 $ 145.59 $ 160.1 $ 135.9 Second quarter 1.0 $ 122.54 126.5 $ 9.4 Third quarter 0.8 $ 99.05 75.0 $ 925.0 March 1 to March 31, 2026 — $ — — $ 925.0 April 1 to April 30, 2026 — $ — — $ 925.0 May 1 to May 31, 2026 2.7 $ 91.48 249.4 $ 675.6 Fiscal year 5.6 $ 108.81 $ 611.0 18 Table of Contents The following graph shows a five-year comparison of the total cumulative returns of investing $100 on May 31, 2021, in Paychex common stock, the S&P 500 Index, and a Peer Group Index.
Share repurchases / fiscal 2026 purchases and retirement · Filed 17/07/2026
Interest expense: Interest expense increased $164.1 million to $269.5 million in fiscal 2026, primarily due to the issuance of incremental debt in April 2025 to finance the acquisition of Paycor.
MD&A / acquisition financing and increased interest expense · Filed 17/07/2026
Our primary source of cash is our ongoing operations, which was $413.5 million during the first quarter.
Liquidity / first-quarter operating cash generation · Filed 24/09/2026
2 Table of Contents PAYCHEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) In millions, except per share amounts For the three months ended August 31, 2026 Common stock Accumulated other comprehensive loss Shares Amount Additional paid-in capital Retained earnings Net unrealized (loss)/gain on AFS securities Foreign currency translation Total accumulated comprehensive loss Total Balance as of May 31, 2026 355.6 $ 3.6 $ 1,975.6 $ 1,805.8 $ (37.8 ) $ (12.1 ) $ (49.9 ) $ 3,735.1 Net income — — — 429.7 — — — 429.7 Unrealized losses on securities, net of $9.7 million in tax benefit — — — — (30.3 ) — (30.3 ) (30.3 ) Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1) — — — — (0.0 ) — (0.0 ) (0.0 ) Cash dividends declared ($1.19 per share) — — — (423.6 ) — — — (423.6 ) Repurchases of common shares (2) — — — — — — — — Stock-based compensation costs — — 19.3 — — — — 19.3 Foreign currency translation adjustment — — — — — (1.1 ) (1.1 ) (1.1 ) Activity related to equity-based plans 0.4 0.0 (0.1 ) (23.5 ) — — — (23.6 ) Balance as of August 31, 2026 356.0 $ 3.6 $ 1,994.8 $ 1,788.4 $ (68.1 ) $ (13.2 ) $ (81.3 ) $ 3,705.5 For the three months ended August 31, 2025 Common stock Accumulated other comprehensive loss Shares Amount Additional paid-in capital Retained earnings Net unrealized loss on AFS securities Foreign currency translation Total accumulated comprehensive loss Total Balance as of May 31, 2025 360.5 $ 3.6 $ 1,901.1 $ 2,277.0 $ (38.5 ) $ (15.2 ) $ (53.7 ) $ 4,128.0 Net income — — — 383.8 — — — 383.8 Unrealized gains on securities, net of $8.4 million in tax expense — — — — 24.3 — 24.3 24.3 Reclassification adjustment for realized losses on securities to earnings, net of $0.0 million in tax benefit (1) — — — — 0.0 — 0.0 0.0 Cash dividends declared ($1.08 per share) — — — (389.0 ) — — — (389.0 ) Repurchases of common shares(2) (1.1 ) (0.0 ) (5.3 ) (154.8 ) — — — (160.1 ) Stock-based compensation costs — — 26.8 — — — — 26.8 Foreign currency translation adjustment — — — — — 4.4 4.4 4.4 Activity related to equity-based plans 0.5 0.0 (0.8 ) (46.8 ) — — — (47.6 ) Balance as of August 31, 2025 359.9 $ 3.6 $ 1,921.8 $ 2,070.2 $ (14.2 ) $ (10.8 ) $ (25.0 ) $ 3,970.6 (1) Reclassification adjustments to earnings on the sale of AFS securities are reflected in interest on funds held for clients and other income, net on the Consolidated Statements of Income and Comprehensive Income.
Stockholders’ equity / dividends, equity compensation and share issuance · Filed 24/09/2026
• Variable compensation is comprised of an annual cash incentive program and longer-term equity-based incentives: • For fiscal 2026, the annual cash incentive payouts were 64% of target for the CEO and our other NEOs, based upon the satisfaction of certain quantitative and qualitative components.
Proxy compensation summary / actual fiscal 2026 annual incentive payouts · Filed 04/09/2026
• For fiscal 2026, performance-based equity awarded to our NEOs comprised 60% of the total long-term incentive value at target and is subject to a three-year performance period.
Proxy compensation summary / awarded performance equity mix and duration · Filed 04/09/2026
The performance-based RSUs granted in fiscal 2026 have a three-year performance period, and may be earned based on the sustained year-over-year growth in service revenue and operating income (equally weighted), net of certain items compared to performance targets, subject to a downward or upward adjustment of 25% based on relative TSR.
CD&A / granted performance RSU metrics and relative shareholder return adjustment · Filed 04/09/2026
Paychex, Inc. 2026 Proxy Statement • 3 Table of Contents Proxy Summary • There were no performance periods that concluded for the Company’s performance-based equity awards during fiscal 2026, reflecting the C&L Committee’s decision in fiscal 2025 to extend the performance period of the long-term incentive program from two to three years.
Proxy compensation summary / no completed performance-equity periods in fiscal 2026 · Filed 04/09/2026
We have established robust governance practices and mechanisms to ensure accountability and responsiveness to stockholders: • We have a declassified Board of Directors, and our director nominees are elected annually; • We have a robust Lead Independent Director role; • Majority voting standard applies to uncontested director elections; • Stockholders can act by written consent with the same number of votes that would be necessary to authorize or take such action at a meeting; • Audit, C&L, Corporate Development Advisory, Investment, and N&G committees led by independent directors; • We do not require supermajority voting standards to amend our governing documents; and • We have a single-class voting structure.
Corporate governance / voting structure and independent committee leadership · Filed 04/09/2026
The Company’s existing 50% ownership threshold helps ensure that special meetings are called only where there is meaningful, substantial stockholder support, while preserving an important mechanism for stockholders to hold the Board and management accountable.
Shareholder proposal discussion / existing special-meeting ownership threshold · Filed 04/09/2026
The Audit Committee held six meetings during fiscal 2026 and had full access to each of the aforementioned parties.
Audit Committee report / fiscal 2026 meetings and access · Filed 04/09/2026
Management Solutions revenue: $1.2 billion for the first quarter, reflecting an increase of 4%.
MD&A / quarterly Management Solutions revenue growth · Filed 24/09/2026
Lower revenue from ancillary services, primarily due to the expiration of our Employee Retention Tax Credit ("ERTC") program.
MD&A / realized ancillary-service decline following ERTC program expiration · Filed 11/07/2025
The Peer Group is comprised of the following industries or segments: a direct competitor in the HCM industry, financial transaction management companies, and business services and outsourcing companies.
CD&A / compensation peer-group industry composition · Filed 04/09/2026
Our Peer Group used for evaluating executive compensation for fiscal 2026 consisted of the following companies: Peer Group Automatic Data Processing, Inc.
CD&A / compensation peer-group company list · Filed 04/09/2026
