Paychex 2016 Annual Report Download - page 56

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A — Description of Business, Basis of Presentation, and Significant Accounting Policies
Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively the “Company” or
“Paychex”) is a leading provider of integrated human capital management (“HCM”) solutions for payroll, human
resource, retirement, and insurance services for small- to medium-sized businesses in the United States (“U.S.”).
The Company also has operations in Germany.
Paychex, a Delaware corporation formed in 1979, reports as one segment. Substantially all of the
Company’s revenue is generated within the U.S. The Company also generates revenue within Germany, which
represented less than one percent of the Company’s total revenue for each of the years ended May 31, 2016
(“fiscal 2016”), 2015 (“fiscal 2015”), and 2014 (“fiscal 2014”). Long-lived assets in Germany are insignificant in
relation to total long-lived assets of the Company as of May 31, 2016 and May 31, 2015. In addition, the
Company has equity method investments for a joint-venture in Brazil and a minority investment in a Canadian
entity, neither of which is significant.
Total revenue is comprised of service revenue and interest on funds held for clients. Service revenue is
comprised primarily of the fees earned on our portfolio of HCM services, which include payroll processing and
complementary human resource management and administration services. Payroll service revenue is earned
primarily from payroll processing, payroll tax administration services, employee payment services, and other
ancillary services. Payroll processing services include the calculation, preparation, and delivery of employee
payroll checks; production of internal accounting records and management reports; preparation of federal, state,
and local payroll tax returns; and collection and remittance of clients’ payroll obligations.
Our Human Resource Services (“HRS”) portfolio of services and products provide small- to medium-sized
businesses with retirement services administration, insurance services, HR administration services, and other
human resource services and products. Our comprehensive human resource outsourcing service is available
through Paychex HR Solutions, an administrative services organization (“ASO”), and Paychex PEO, a
professional employer organization (“PEO”). Both options offer businesses a combined package of services that
includes payroll, employer compliance, human resource and employee benefits administration, risk management
outsourcing, and the on-site availability of a professionally trained human resource services representative,
among other services. These comprehensive bundles of services are designed to make it easier for businesses to
manage their payroll and related benefits costs while providing a benefits package equal to that of larger
companies. The PEO differs from the ASO in that Paychex serves as a co-employer of the clients’ employees,
offers health care coverage to PEO client employees, and assumes the risks and rewards of workers’
compensation insurance and certain health insurance products. PEO services are sold through the Company’s
registered and licensed subsidiary, Paychex Business Solutions, Inc. Paychex HR Essentials is an ASO product
that provides support to the Company’s clients over the phone or online to help manage employee-related topics.
In connection with the automated payroll tax administration services, the Company electronically collects
payroll taxes from clients’ bank accounts, typically on payday, prepares and files the applicable tax returns, and
remits taxes to the applicable tax or regulatory agencies on the respective due dates. These taxes are typically
paid between one and 30 days after receipt of collections from clients, with some items extending to 90 days. The
Company handles regulatory correspondence, amendments, and penalty and interest disputes, and is subject to
cash penalties imposed by tax or regulatory agencies for late filings and late or under payment of taxes. With
employee payment services, employers are offered the option of paying their employees by direct deposit,
payroll debit card, a check drawn on a Paychex account (Readychex®), or a check drawn on the employer’s
account and electronically signed by Paychex. For the first three methods, Paychex electronically collects net
payroll from the clients’ bank accounts, typically one business day before payday, and provides payment to the
employees on payday.
The Company earns fees for funding of temporary staffing agencies payroll via purchasing of accounts
receivable invoices. The fees are deducted from the funding payment and revenue is recognized over an average
collection period of 45 to 60 days.
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