Paychex 2010 Annual Report Download - page 24

us to modify our services in a timely fashion in response to regulatory changes could have a material adverse effect
on our business and results of operations.
We may not be able to keep pace with changes in technology: To maintain our growth strategy, we must
adapt and respond to technological advances and technological requirements of our clients. Our future success will
depend on our ability to enhance capabilities and increase the performance of our internal use systems, particularly
our systems that meet our clients’ requirements. We continue to make significant investments related to the
development of new technology. If our systems become outdated, we may be at a disadvantage when competing in
our industry. There can be no assurance that our efforts to update and integrate systems will be successful. If we do
not integrate and update our systems in a timely manner, or if our investments in technology fail to provide the
expected results, there could be a material adverse effect to our business and results of operations.
In the event of a catastrophe, our business continuity plan may fail, which could result in the loss of client
data and adversely interrupt operations: Our operations are dependent on our ability to protect our infrastructure
against damage from catastrophe or natural disaster, severe weather including events resulting from climate change,
unauthorized security breach, power loss, telecommunications failure, terrorist attack, or other events that could
have a significant disruptive effect on our operations. We have a business continuity plan in place in the event of
system failure due to any of these events. Our business continuity plan has been tested in the past by circumstances
of severe weather, including floods and snowstorms, and has been successful. However, these past successes are not
an indicator of success in the future. If the business continuity plan is unsuccessful in a disaster recovery scenario,
we could potentially lose client data or experience material adverse interruptions to our operations or delivery of
services to our clients.
We may be adversely impacted by any failure of third-party service providers to perform their functions:
As part of providing services to clients, we rely on a number of third-party service providers. These service
providers include, but are not limited to, couriers used to deliver client payroll checks and banks used to
electronically transfer funds from clients to their employees. Failure by these service providers, for any reason,
to deliver their services in a timely manner could result in material interruptions to our operations, impact client
relations, and result in significant penalties or liabilities to us.
Our business and reputation may be affected by our ability to keep clients’ information confidential: Our
business involves the use of significant amounts of private and confidential client information including employees’
identification numbers, bank accounts, and retirement account information. This information is critical to the
accurate and timely provision of services to our clients, and certain information may be transmitted via the Internet.
There is no guarantee that our systems and processes are adequate to protect against all security breaches. If our
systems are disrupted or fail for any reason, or if our systems are infiltrated by unauthorized persons, our clients
could experience data loss, financial loss, harm to reputation, or significant business interruption. Such events may
expose us to unexpected liability, litigation, regulation investigation and penalties, loss of clients’ business,
unfavorable impact to business reputation, and there could be a material adverse effect on our business and results of
operations.
We may be exposed to additional risks related to our co-employment relationship within our PEO business:
Many federal and state laws that apply to the employer-employee relationship do not specifically address the
obligations and responsibilities of the “co-employment” relationship. As a result, there is a possibility that we may
be subject to liability for violations of employment or discrimination laws by our clients and acts or omissions of
client employees, who may be deemed to be our agents, even if we do not participate in any such acts or violations.
Although our agreements with the clients provide that the client will indemnify us for any liability attributable to its
own or its employees’ conduct, we may not be able to effectively enforce or collect such contractual obligations. In
addition, we could be subject to liabilities with respect to our employee benefit plans if it were determined that we
are not the “employer” under any applicable state or federal laws.
We may have an adverse outcome of legal matters, which could harm our business: We are subject to
various claims and legal matters that arise in the normal course of business. These include disputes or potential
disputes related to breach of contract, breach of fiduciary duty, employment-related claims, tax claims, and other
matters. Refer to Item 3 of this Form 10-K for additional disclosure regarding legal proceedings. Legal matters are
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