Paychex 2012 Annual Report Download - page 57

PAYCHEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A — Description of Business and Significant Accounting Policies
Description of business: Paychex, Inc. and its wholly owned subsidiaries (the “Company” or “Paychex”)
is a leading provider of payroll, human resource, and benefits outsourcing solutions for small- to medium-sized
businesses in the United States (“U.S.”). The Company also has a subsidiary 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
was less than one percent of its total revenue for each of the years ended May 31, 2012 (“fiscal 2012”), 2011
(“fiscal 2011”), and 2010 (“fiscal 2010”). Long-lived assets in Germany are insignificant in relation to total long-
lived assets of the Company as of May 31, 2012 and May 31, 2011.
Total revenue is comprised of service revenue and interest on funds held for clients. Service revenue is
comprised of the Payroll and Human Resource Services portfolios of services and products. 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.
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.
In addition to service fees paid by clients, the Company earns interest on funds held for clients that are
collected before due dates and invested until remittance to the applicable tax or regulatory agencies or client
employees. The funds held for clients and related client fund obligations are included in the Consolidated
Balance Sheets as current assets and current liabilities. The amount of funds held for clients and related client
fund obligations varies significantly during the year.
The Human Resource Services portfolio of services and products provides small- to medium-sized
businesses with retirement services administration, insurance services, eServices, and other human resource
services and products. Paychex HR Solutions is available through an administrative services organization
(“ASO”) and 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, assumes the risks and rewards of workers’ compensation insurance, and offers health care coverage
to PEO client employees. 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.
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