10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM 10‑Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2018

Commission file number 0-11330

_________________________________________

PAYCHEX, INC.

911 Panorama Trail South

Rochester, New York 14625-2396

(585) 385-6666

A Delaware Corporation

IRS Employer Identification Number: 16-1124166

_________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ☒	Accelerated filer    ☐	Non-accelerated filer    ☐	Smaller reporting company    ☐
			Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $0.01 Par Value	359,081,940	Shares
CLASS	OUTSTANDING AS OF	September 30, 2018

PAYCHEX, INC.

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Statements of Income and Comprehensive Income	1
	Consolidated Balance Sheets	2
	Consolidated Statements of Cash Flows	3
	Notes to Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	34
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION		34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35
Signatures		36

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

In millions, except per share amounts

	For the three months ended
	August 31,
			2017
	2018		As Adjusted(1)
Revenue:
Management Solutions	$	687.7	$	665.9
PEO and Insurance Services		158.0		113.3
Total service revenue		845.7		779.2
Interest on funds held for clients		17.1		13.7
Total revenue		862.8		792.9
Expenses:
Operating expenses		265.5		232.0
Selling, general and administrative expenses		277.0		243.6
Total expenses		542.5		475.6
Operating income		320.3		317.3
Investment income, net		2.3		2.1
Income before income taxes		322.6		319.4
Income taxes		79.0		109.0
Net income	$	243.6	$	210.4
Other comprehensive income, net of tax		0.4		4.4
Comprehensive income	$	244.0	$	214.8
Basic earnings per share	$	0.68	$	0.59
Diluted earnings per share	$	0.67	$	0.58
Weighted-average common shares outstanding		359.1		358.9
Weighted-average common shares outstanding,     assuming dilution		361.5		361.3
Cash dividends per common share	$	0.56	$	0.50

(1)Amounts have been adjusted to reflect the adoption of Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”).

See Notes to Consolidated Financial Statements.

1

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amount

			May 31,
	August 31,		2018
	2018		As Adjusted(1)
Assets
Cash and cash equivalents	$	440.1	$	358.2
Corporate investments		82.9		66.0
Interest receivable		29.1		32.2
Accounts receivable, net of allowance for doubtful accounts		535.2		492.4
Prepaid income taxes		—		17.0
Prepaid expenses and other current assets		225.1		224.0
Current assets before funds held for clients		1,312.4		1,189.8
Funds held for clients		3,763.8		4,703.8
Total current assets		5,076.2		5,893.6
Long-term corporate investments		264.6		295.5
Property and equipment, net of accumulated depreciation		389.1		393.5
Intangible assets, net of accumulated amortization		135.5		141.4
Goodwill		813.3		814.0
Long-term deferred costs		355.6		361.0
Other long-term assets		15.7		16.4
Total assets	$	7,050.0	$	7,915.4
Liabilities
Accounts payable	$	62.6	$	73.7
Accrued compensation and related items		283.2		320.6
Accrued income taxes		51.6		—
Short-term borrowings		56.7		—
Deferred revenue		36.6		34.6
Other current liabilities		114.2		132.9
Current liabilities before client fund obligations		604.9		561.8
Client fund obligations		3,792.5		4,734.9
Total current liabilities		4,397.4		5,296.7
Accrued income taxes		19.1		18.4
Deferred income taxes		155.5		154.4
Other long-term liabilities		91.0		89.1
Total liabilities		4,663.0		5,558.6
Commitments and contingencies — Note M
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding:359.0 shares as of August 31, 2018    and May 31, 2018		3.6		3.6
Additional paid-in capital		1,151.1		1,126.8
Retained earnings		1,268.1		1,262.6
Accumulated other comprehensive loss		(35.8)		(36.2)
Total stockholders’ equity		2,387.0		2,356.8
Total liabilities and stockholders’ equity	$	7,050.0	$	7,915.4

(1)  Amounts have been adjusted to reflect the adoption of ASC Topic 606.

See Notes to Consolidated Financial Statements. 

2

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In millions

	For the three months ended
	August 31,
			2017
	2018		As Adjusted(1)
Operating activities
Net income	$	243.6	$	210.4
Adjustments to reconcile net income to net cash provided by    operating activities:
Depreciation and amortization on property and equipment and    intangible assets		35.9		32.0
Amortization of premiums and discounts on available-for-sale securities, net		14.4		17.1
Stock-based compensation costs		10.9		8.7
Provision for deferred income taxes		2.6		48.9
Provision for allowance for doubtful accounts		0.3		0.7
Net realized gains on sales of available-for-sale securities		0.1		—
Changes in operating assets and liabilities:
Interest receivable		3.1		3.9
Accounts receivable		(43.0)		8.8
Prepaid expenses and other current assets		15.2		28.2
Accounts payable and other current liabilities		(15.2)		(19.8)
Deferred costs		6.2		4.2
Net change in other long-term assets and liabilities		(0.4)		0.5
Net cash provided by operating activities		273.7		343.6
Investing activities
Purchases of available-for-sale securities		(11,115.8)		(8,646.7)
Proceeds from sales and maturities of available-for-sale securities		11,297.0		8,892.0
Net change in funds held for clients’ money market securities and other    cash equivalents		762.5		(929.7)
Purchases of property and equipment		(24.4)		(18.0)
Acquisition of businesses, net of cash acquired		—		(8.2)
Purchases of other assets		(0.8)		(0.4)
Net cash provided by/(used in) investing activities		918.5		(711.0)
Financing activities
Net change in client fund obligations		(942.5)		645.5
Net proceeds from short-term borrowings		56.7		57.2
Dividends paid		(201.4)		(179.1)
Repurchases of common shares		(32.8)		(94.1)
Activity related to equity-based plans		9.7		(12.3)
Net cash (used in)/provided by financing activities		(1,110.3)		417.2
Increase in cash and cash equivalents		81.9		49.8
Cash and cash equivalents, beginning of fiscal year		358.2		184.6
Cash and cash equivalents, end of period	$	440.1	$	234.4

(1)  Amounts have been adjusted to reflect the adoption of ASC Topic 606.

See Notes to Consolidated Financial Statements.

3

PAYCHEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

August 31, 2018

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, benefits, human resource (“HR”), and insurance services for small- to medium-sized businesses in the United States (“U.S.”). The Company also has operations in Europe. 

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 Europe, which represented approximately onepercent of the Company’s total revenue for the three months ended August 31, 2018 and was less than one percent of the Company's total revenue for the three months ended August 31, 2017.  Long-lived assets in Europe were approximately 10% of total long-lived assets of the Company as of August 31, 2018 and May 31, 2018. 

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q (“Form 10-Q”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended May 31, 2018 (“fiscal 2018”).  Operating results and cash flows for the three months ended August 31, 2018 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2019 (“fiscal 2019”).

Effective June 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed in “Recently adopted accounting pronouncements.”  All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standard, as indicated by the “As Adjusted” footnote.

Reclassifications:  Certain prior period amounts have been reclassified to conform to the current period presentation in connection with the adoption of ASU No. 2014-09 and had no effect on reported consolidated earnings.

PEO insurance reserves: As part of the professional employer organization (“PEO”) service, the Company offers workers' compensation insurance and health insurance to client companies for the benefit of client employees. For workers' compensation insurance, reserves are established to provide for the estimated costs of paying claims up to per occurrence liability limits. The Company’s maximum individual claims liability, excluding HR Outsourcing Holdings, Inc. (“HROI”), was $1.0 million and $1.3 million under its fiscal 2019 and fiscal 2018 workers' compensation insurance policies, respectively. HROI’s maximum individual claims liability was $0.5 million under its workers’ compensation insurance policies for the years ending September 30, 2018 and September 30, 2017.  

Under the minimum premium insurance plan offering within the PEO, the Company's health benefits insurance reserves are established to provide for the payment of claims liability charges in accordance with its service contract with the insurance carrier. The Company's maximum individual claims liability, excluding HROI, was $0.3 million under both its calendar 2018 and 2017 minimum premium insurance plan policies. HROI’s maximum individual claims liability was $0.3 million under its minimum premium insurance plan policies for the years ending June 30, 2019 and June 30, 2018.  In addition, the Company also provides self-insured dental and vision plans.

Estimating the ultimate cost of future claims is an uncertain and complex process based upon historical loss experience and actuarial loss projections, and is 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 insurance reserves are reflected in the results of operations for the period in which such adjustments are identified. Such adjustments could be significant, reflecting any combination of new and adverse or favorable trends.

4

Stock-based compensation costs: The Company has issued stock-based awards to employees and directors consisting of stock options, restricted stock awards, restricted stock units, performance shares, performance-based restricted stock, and performance-based stock options. The Company accounts for all stock-based awards to employees and directors as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized were $10.9 million for the three months ended August 31, 2018, as compared with $8.7 million for the three months ended August 31, 2017. The methods and assumptions used in the determination of the fair value of stock-based awards are consistent with those described in the Company’s fiscal 2018 Form 10-K.

Recently adopted accounting pronouncements:In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  This guidance, as amended by subsequent ASUs on the topic, outlines a single comprehensive model for determining revenue recognition for contracts with customers, and supersedes guidance on revenue recognition in ASC Topic 605, “Revenue Recognition.”  The Company adopted the new standard on June 1, 2018, utilizing the full retrospective method, which required the Company to recast each prior reporting period presented and included a cumulative adjustment to increase stockholder’s equity by $262.9 million as of June 1, 2016.  We have updated our control framework for new internal controls and made changes to existing controls related to the new standard.

Impact on Previously Reported Results

The provisions of ASU No. 2014-09 do not materially impact the timing or the amount of revenue the Company recognizes on an annual basis in its Consolidated Statements of Income and Comprehensive Income. However, it does have an impact on the timing and amount of revenue the Company recognizes on a quarterly basis due to changes in the way it accounts for certain revenues where performance obligations are satisfied at a point in time. The provisions of the new standard have a material impact on the Company’s Consolidated Balance Sheets. The primary impact of adopting the new standard is on the Company’s treatment of certain costs to obtain and fulfill contracts.  In relation to those items, the new standard resulted in the Company deferring additional costs on its Consolidated Balance Sheets and amortizing them to the Consolidated Statements of Income and Comprehensive Income over the estimated average life of the client.  Refer to Note B for further details. 

The following table presents a recast of selected unaudited consolidated statements of income and comprehensive income line items after giving effect to the adoption of ASU No. 2014-09: 

	For the three months ended August 31, 2017
	As Previously
In millions, except per share amounts	Reported		Adjustments		As Adjusted
Service revenue	$	803.1	$	(23.9)	$	779.2
Operating expenses		232.1		(0.1)		232.0
Selling, general and administrative expenses		239.7		3.9		243.6
Total expenses		471.8		3.8		475.6
Operating income		345.0		(27.7)		317.3
Income taxes		119.3		(10.3)		109.0
Net income	$	227.8	$	(17.4)	$	210.4
Basic earnings per share	$	0.63	$	(0.04)	$	0.59
Diluted earnings per share	$	0.63	$	(0.05)	$	0.58

5

The following table presents a recast of selected unaudited consolidated balance sheet line items after giving effect to the adoption of ASU No. 2014-09:

	May 31, 2018
	As Previously
In millions	Reported		Adjustments		As Adjusted
Assets
Accounts receivable, net of allowance for doubtful accounts	$	531.4	$	(39.0)	$	492.4
Prepaid expenses and other current assets	$	75.8	$	148.2	$	224.0
Long-term deferred costs(1)	$	18.5	$	342.5	$	361.0
Liabilities and stockholders' equity
Accounts payable	$	74.5	$	(0.8)	$	73.7
Deferred revenue	$	24.3	$	10.3	$	34.6
Deferred income taxes	$	48.8	$	105.6	$	154.4
Other long-term liabilities	$	84.8	$	4.3	$	89.1
Retained earnings	$	930.3	$	332.3	$	1,262.6

(1) Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company’s fiscal 2018 Form 10-K.  Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

The following table presents a recast of selected unaudited consolidated statement of cash flow line items after giving effect to the adoption of ASU No. 2014-09:

	For the three months ended August 31, 2017
	As Previously
In millions	Reported		Adjustments		As Adjusted
Cash flows from operating activities
Net income	$	227.8	$	(17.4)	$	210.4
Provision for deferred income taxes	$	59.2	$	(10.3)	$	48.9
Accounts receivable	$	(15.4)	$	24.2	$	8.8
Deferred costs	$	—	$	4.2	$	4.2
Accounts payable and other current liabilities	$	(19.2)	$	(0.6)	$	(19.8)
Net change in other long-term assets and liabilities	$	0.6	$	(0.1)	$	0.5

In June 2018, the Company also adopted the following ASUs, none of which had a material impact on its consolidated financial statements:

· ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”

· ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).”

· ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”

· ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).”

· ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”

6

Recently issued accounting pronouncements: In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  ASU 2018-13 modified the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits.  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This guidance, as amended by subsequent ASUs on the topic, improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU No. 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. This guidance is applicable to the Company's fiscal year beginning June 1, 2019. The Company is gathering data and assessing the impact of the new lease accounting standard and the Company anticipates that the adoption of the new lease accounting standard will result in additional assets and liabilities being recorded on its Consolidated Balance Sheets.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (“SEC”) during the three months ended August 31, 2018 did not, or are not expected to, have a material effect on the Company’s consolidated financial statements.

Note B: Service Revenue

Service revenue is primarily attributable to fees for providing services to the Company’s clients and are recognized when control of the promised services are transferred to its clients, 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 or a fixed amount per processing period plus a fee per employee or transaction processed. The Company’s contracts generally have a term of 30 days as they are cancellable at any time by either party with 30-days’ notice of termination. Sales and other applicable taxes are excluded from service revenue.

Based upon similar operational and economic characteristics, the Company’s service revenue is disaggregated by Management Solutions and PEO and Insurance Services as reported on 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.

Revenue earned from delivery service for the distribution of certain client payroll checks and reports is included in Management Solutions revenue on 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 clients. 

The following table, consistent with the Consolidated Statements of Income and Comprehensive Income, disaggregates service revenue by Management Solutions and PEO and Insurance Services:

	For the three months ended August 31,
			2017
In millions	2018		As Adjusted
Management Solutions	$	687.7	$	665.9
PEO and Insurance Services		158.0		113.3
Total service revenue	$	845.7	$	779.2

7

Management Solutions Revenue

Management Solutions revenue is primarily derived from the Company’s payroll processing, payroll-related ancillary services and HR outsourcing solutions. Clients can select services on an á la carte basis or as part of various product 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.

PEO and Insurance Services Revenue

PEO services are sold through the Company’s registered and licensed subsidiaries, Paychex Business Solutions, LLC and HROI and offer businesses a combined package of services that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services. The Company serves as a co-employer of its clients’ employees, offers health insurance coverage to client employees, and assumes the risks and rewards of workers’ compensation insurance and certain health insurance benefit offerings. PEO revenue is recognized over time as the services are performed and the customer simultaneously receives and controls the benefits from these services. PEO revenue is reported net of certain direct pass-through costs billed and incurred, which include payroll wages, payroll taxes, including state unemployment insurance, and certain health insurance benefit premiums, primarily costs related to our guaranteed cost benefit plans. For guaranteed cost benefit plans where the Company does not retain risk, it is acting as the agent for revenue recognition purposes and revenues are recorded net of the premiums paid to the insurance carrier. Approximately 60% of the client worksite employees that participate in the Company’s benefit plans are enrolled in guaranteed cost benefit plans where the Company does not retain risk. For workers’ compensation and certain benefit plans where the Company retains risk, it is acting as the principal for revenue recognition purposes and revenues and costs are recorded on a gross basis. Approximately 40% of the client worksite employees that participate in the Company’s health insurance offerings are enrolled in these benefit plans.

Insurance services are sold through the Company’s licensed insurance agency, Paychex Insurance Agency, Inc., which provides insurance through a variety of carriers, while 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, and health and benefits coverage, including health, dental, vision, and life. Insurance services revenue is recognized over time as services are performed and the customer simultaneously receives and controls the benefits from these services.

Contract Balances

The timing of revenue recognition for Management Solutions and PEO and Insurance Services is consistent with the invoicing of clients as they both 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.

Advance payments 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 these as future services are provided, over approximately three to four years.

Changes in deferred revenue related to material right performance obligations were as follows:

	For the three months ended
In millions	August 31, 2018
Balance, beginning of period	$	46.4
Deferral of revenue		6.1
Recognition of unearned revenue		(6.8)
Balance, end of period	$	45.7

Deferred revenue related to material right performance obligations is reported in the deferred revenue and other long-term liabilities line items on the Company’s Consolidated Balance Sheets contained in this Form 10-Q.

8

Assets Recognized from the Costs to Obtain and Fulfill Contracts

The Company recognizes an asset for the incremental costs of obtaining a contract with a client if it is expected that the amortization period will be longer than one year.  The Company determined that certain selling and commission costs meet the capitalization criteria under ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”).  Prior to the adoption of ASU No. 2014-09 these costs were deferred up to an amount equal to the revenue deferred and any costs in excess of that amount were recognized as expense when incurred.  The Company also recognizes an asset for the costs to fulfill a contract with a client 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 our ability to satisfy future performance obligations. 

The assets related to both costs to obtain and costs to fulfill contracts with clients are capitalized and amortized using an accelerated method to closely align with the pattern of client attrition over the estimated life of the client relationship.  Deferred 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 operating and selling, general, and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive Income. The Company regularly reviews its deferred costs and did not recognize an impairment loss during the reporting period. 

Changes in deferred costs to obtain and fulfill contracts were as follows:

	For the three months ended August 31, 2018
	Beginning		Capitalization				Ending
In millions	balance		of costs		Amortization		balance
Costs to obtain a contract	$	455.0	$	32.4	$	(38.9)	$	448.5
Costs to fulfill a contact	$	65.4	$	6.0	$	(5.7)	$	65.7

Note C: Basic and Diluted Earnings Per Share

Basic and diluted earnings per share were calculated as follows:

	For the three months ended
	August 31,
			2017
In millions, except per share amounts	2018		As Adjusted(1)
Basic earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Basic earnings per share	$	0.68	$	0.59
Diluted earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Dilutive effect of common share equivalents		2.4		2.4
Weighted-average common shares outstanding, assuming dilution		361.5		361.3
Diluted earnings per share	$	0.67	$	0.58
Weighted-average anti-dilutive common share equivalents		0.3		1.1

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

Weighted-average common share equivalents that have an anti-dilutive impact are excluded from the computation of diluted earnings per share.

For both the three months ended August 31, 2018 and August 31, 2017, 0.5 million shares of the Company’s common stock were issued in connection with the exercise or vesting of stock-based awards.  In addition, for the three months ended August 31, 2017, 0.6 million shares of the Company’s common stock were issued in relation to an immaterial business acquisition completed in August 2017.  Refer to Note D for further details.

9

In July 2016, the Company announced that its Board of Directors approved a program to repurchase up to $350.0 million of the Company’s common stock, with authorization expiring in May 2019.  The purpose of the program is to manage common stock dilution. During the three months ended August 31, 2018 and August 31, 2017, the Company repurchased 0.5 million shares for $32.8 million and 1.6 million shares for $94.1 million, respectively. All shares of common stock repurchased were retired.

Note D: Business Combinations

Effective February 28, 2018, the Company acquired Lessor Group (“Lessor”). Upon closing, Lessor became a wholly owned subsidiary of the Company.  Lessor is a market-leading provider of payroll and HCM software solutions headquartered in Denmark and serving clients in Northern Europe.  The purchase price was $162.5 million, net of $13.4 million in cash acquired.  Goodwill in the amount of $111.5 million was recorded as a result of the acquisition, which is not tax-deductible.  The purchase accounting is provisional and subject to change, pending completion of a final valuation of Lessor.  However, further changes to goodwill resulting from the acquisition are not anticipated to be material to the Company’s Consolidated Balance Sheets. 

Effective August 18, 2017, the Company acquired HROI and all of its operating subsidiaries.  HROI is a national PEO that provides HR solutions to small- and medium-sized businesses in more than 35 states.  The acquisition expanded the Company’s presence in the PEO industry.  The purchase price was $75.4 million and was comprised of $42.2 million of cash plus $33.2 million issued in the form of Paychex common stock.  Goodwill in the amount of $51.1 million was recorded as a result of the acquisition, which is not tax-deductible.

The financial results of both Lessor and HROI are included in the Company’s consolidated financial statements from the respective dates of acquisition.  The Company concluded that these acquisitions were not material to its results of operations and financial position.  Therefore, pro-forma financial information has been excluded.

Note E: Investment Income, Net

Investment income, net, consisted of the following items:

	For the three months ended
	August 31,
In millions	2018		2017
Interest income on corporate funds	$	3.2	$	2.9
Interest expense		(0.9)		(0.8)
Investment income, net	$	2.3	$	2.1

Note F: Funds Held for Clients and Corporate Investments

Funds held for clients and corporate investments are as follows:

	August 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,179.8	$	—	$	—	$	1,179.8
Available-for-sale securities:
Corporate bonds		367.7		0.3		(7.3)		360.7
General obligation municipal bonds		1,149.8		1.3		(9.7)		1,141.4
Pre-refunded municipal bonds(1)		45.7		0.2		(0.1)		45.8
Revenue municipal bonds		767.5		1.0		(7.1)		761.4
U.S. government agency securities		454.5		0.1		(14.6)		440.0
Variable rate demand notes		162.3		—		—		162.3
Total available-for-sale securities		2,947.5		2.9		(38.8)		2,911.6
Other		17.4		2.5		—		19.9
Total funds held for clients and corporate investments	$	4,144.7	$	5.4	$	(38.8)	$	4,111.3

10

	May 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,942.3	$	—	$	—	$	1,942.3
Available-for-sale securities:
Corporate bonds		328.6		0.1		(7.3)		321.4
General obligation municipal bonds		1,231.6		1.3		(11.2)		1,221.7
Pre-refunded municipal bonds(1)		50.9		0.1		(0.1)		50.9
Revenue municipal bonds		813.5		0.9		(8.0)		806.4
U.S. government agency securities		410.2		—		(14.1)		396.1
Variable rate demand notes		308.3		—		—		308.3
Total available-for-sale securities		3,143.1		2.4		(40.7)		3,104.8
Other		16.1		2.1		—		18.2
Total funds held for clients and corporate investments	$	5,101.5	$	4.5	$	(40.7)	$	5,065.3

(1) Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.

Included in money market securities and other cash equivalents as of August 31, 2018 and May 31, 2018 were bank demand deposit accounts, time deposits, commercial paper, and money market funds.  In addition, as of August 31, 2018, certain U.S. government agency securities with maturities of 90 days or less at acquisition were also included in money market securities and other cash equivalents.

Classification of investments on the Consolidated Balance Sheets is as follows:

	August 31,		May 31,
In millions	2018		2018
Funds held for clients	$	3,763.8	$	4,703.8
Corporate investments		82.9		66.0
Long-term corporate investments		264.6		295.5
Total funds held for clients and corporate investments	$	4,111.3	$	5,065.3

The Company’s available-for-sale securities reflected net unrealized losses of $35.9 million and $38.3 million as of August 31, 2018 and May 31, 2018, respectively.  Included in the net unrealized loss totals as of August 31, 2018 and May 31, 2018, were 916 and 970 available-for-sale securities in an unrealized loss position, respectively.  The available-for-sale securities in an unrealized loss position were as follows:

	August 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(5.8)	$	272.9	$	(1.5)	$	39.7	$	(7.3)	$	312.6
General obligation municipal bonds		(7.4)		745.1		(2.3)		64.1		(9.7)		809.2
Pre-refunded municipal bonds		(0.1)		12.8		—		0.5		(0.1)		13.3
Revenue municipal bonds		(5.2)		445.1		(1.9)		55.6		(7.1)		500.7
U.S. government agency securities		(7.0)		232.8		(7.6)		176.7		(14.6)		409.5
Total	$	(25.5)	$	1,708.7	$	(13.3)	$	336.6	$	(38.8)	$	2,045.3

11

	May 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(6.0)	$	271.5	$	(1.3)	$	34.6	$	(7.3)	$	306.1
General obligation municipal bonds		(8.7)		856.4		(2.5)		68.9		(11.2)		925.3
Pre-refunded municipal bonds		(0.1)		18.5		—		0.5		(0.1)		19.0
Revenue municipal bonds		(6.3)		540.9		(1.7)		50.9		(8.0)		591.8
U.S. government agency securities		(6.4)		219.7		(7.7)		176.4		(14.1)		396.1
Total	$	(27.5)	$	1,907.0	$	(13.2)	$	331.3	$	(40.7)	$	2,238.3

The Company regularly reviews its investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. The Company believes that the investments held as of August 31, 2018 that had gross unrealized losses of $38.8 million were not other-than-temporarily impaired. The Company believes that 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 majority of the securities in an unrealized loss position as of August 31, 2018 and May 31, 2018 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 other-than-temporarily impaired could change in the future due to new developments or changes in the Company’s strategies or assumptions related to any particular investment.

Realized gains and losses on the sales of securities are determined by specific identification of the amortized cost basis of each security. On the Consolidated Statements of Income and Comprehensive Income, realized gains and losses from funds held for clients are included in interest on funds held for clients and realized gains and losses from corporate investments are included in investment income, net. Realized gains were insignificant for the three months ended August 31, 2018 and August 31, 2017.  There were no realized losses for the three months ended August 31, 2018 and August 31, 2017.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of August 31, 2018 are shown below by contractual maturity. Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

	August 31, 2018
	Amortized		Fair
In millions	cost		value
Maturity date:
Due in one year or less	$	382.8	$	382.4
Due after one year through three years		788.0		784.6
Due after three years through five years		979.8		965.6
Due after five years		796.9		779.0
Total	$	2,947.5	$	2,911.6

Variable rate demand notes 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.

12

Note G: Fair Value Measurements

Fair 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:

· Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date.

· Level 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:

o quoted prices for similar, but not identical, instruments in active markets;

o quoted prices for identical or similar instruments in markets that are not active;

o inputs other than quoted prices that are observable for the instrument; or

o inputs that are derived principally from or corroborated by observable market data by correlation or other means.

· Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.

The carrying values of cash and cash equivalents, accounts receivable, net of allowance for doubtful accounts, 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 available-for-sale and are recorded at fair value on a recurring basis.

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:

	August 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	366.9	$	—	$	366.9	$	—
Time deposits		150.0		—		150.0		—
U.S. government agency securities		457.8		—		457.8		—
Money market securities		39.5		39.5		—		—
Total cash equivalents	$	1,014.2	$	39.5	$	974.7	$	—
Available-for-sale securities:
Corporate bonds	$	360.7	$	—	$	360.7	$	—
General obligation municipal bonds		1,141.4		—		1,141.4		—
Pre-refunded municipal bonds		45.8		—		45.8		—
Revenue municipal bonds		761.4		—		761.4		—
U.S. government agency securities		440.0		—		440.0		—
Variable rate demand notes		162.3		—		162.3		—
Total available-for-sale securities	$	2,911.6	$	—	$	2,911.6	$	—
Other	$	19.9	$	19.9	$	—	$	—
Liabilities:
Other long-term liabilities	$	19.9	$	19.9	$	—	$	—

13

	May 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	655.0	$	—	$	655.0	$	—
Time deposits		200.0		—		200.0		—
Money market securities		7.1		7.1		—		—
Total cash equivalents	$	862.1	$	7.1	$	855.0	$	—
Available-for-sale securities:
Corporate bonds	$	321.4	$	—	$	321.4	$	—
General obligation municipal bonds		1,221.7		—		1,221.7		—
Pre-refunded municipal bonds		50.9		—		50.9		—
Revenue municipal bonds		806.4		—		806.4		—
U.S. government agency securities		396.1		—		396.1		—
Variable rate demand notes		308.3		—		308.3		—
Total available-for-sale securities	$	3,104.8	$	—	$	3,104.8	$	—
Other	$	18.2	$	18.2	$	—	$	—
Liabilities:
Other long-term liabilities	$	18.2	$	18.2	$	—	$	—

In determining the fair value of its assets and liabilities, the Company predominately uses the market approach.  Money market securities, which are cash equivalents, are valued based on quoted market prices in active markets. Cash equivalents also include commercial paper, time deposits, and U.S. government agency securities with a maturity of 90 days or less at acquisition, which are considered Level 2 investments as they are valued based on similar, but not identical, instruments in active markets.  Available-for-sale securities, including municipal bonds, variable rate demand notes, corporate bonds, and U.S. government agency securities, 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 available-for-sale 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.

Assets 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 valued based on quoted market prices in active markets.

The 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.

14

Note H: Accounts Receivable, Net of Allowance for Doubtful Accounts

The components of accounts receivable, net of allowance for doubtful accounts, consisted of the following:

			May 31,
	August 31,		2018
In millions	2018		As Adjusted(1)
PEO receivables(2)	$	166.3	$	140.1
Purchased receivables(3)		295.1		267.0
Other trade receivables(4)		80.1		92.3
Total accounts receivable, gross		541.5		499.4
Less:  Allowance for doubtful accounts		6.3		7.0
Accounts receivable, net of allowance for doubtful accounts	$	535.2	$	492.4

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

(2) PEO receivables are primarily client wages and related tax withholdings since the last payroll processed.  Balances will vary based on the timing of the last payroll processed and the end of the reporting period.

(3) Purchased receivables relate to payroll funding arrangements with clients in the temporary staffing industry.

(4) Other trade receivables primarily relate to other ongoing services provided to our clients and can vary based on the timing of these services and the end of the reporting period.

No single client had a material impact on total accounts receivable, service revenue, or results of operations.

Note I: Property and Equipment, Net of Accumulated Depreciation

The components of property and equipment, at cost, consisted of the following:

	August 31,		May 31,
In millions	2018		2018
Land and improvements	$	10.6	$	10.6
Buildings and improvements		128.0		126.4
Data processing equipment		213.5		211.3
Software (1)		563.8		545.5
Furniture, fixtures, and equipment		111.2		114.5
Leasehold improvements		109.3		111.4
Construction in progress (1)		61.2		63.0
Total property and equipment, gross		1,197.6		1,182.7
Less: Accumulated depreciation		808.5		789.2
Property and equipment, net of accumulated depreciation	$	389.1	$	393.5

(1) Software 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. 

Depreciation expense was $29.4 million for the three months ended August 31, 2018, compared to $28.1 million for the three months ended August 31, 2017.

In August 2017, the Company announced its plan for a new multi-building Paychex campus based in Rochester, NY.  This involved the purchase of five buildings and the renovation of over 300,000 square feet of existing space.  The new campus will result in the consolidation of currently leased space in the Rochester area.  The Company completed the purchase of these buildings during the three months ended November 30, 2017 for a combined cost of approximately $34.7 million and placed approximately $16.0 million in escrow for building renovations, which are in-process.  As of August 31, 2018 and May 31, 2018, $33.2 million and $32.0 million is included in the Company’s construction in progress balance, respectively, with a remaining balance in escrow of $4.4 million and $14.2 million, respectively.  In addition, in September 2017, the Company entered into a transaction with the County of Monroe Industrial Development Agency for purposes of obtaining public benefits and inducements, expiring on December 31, 2039.  The public inducements include exemption from sales and use taxes for goods and services directly related to the renovations of the new multi-building campus as well as other property tax incentives.

15

Note J: Goodwill and Intangible Assets, Net of Accumulated Amortization

The Company had goodwill balances on its Consolidated Balance Sheets of $813.3 million as of August 31, 2018 and $814.0 million as of May 31, 2018. 

The Company has certain intangible assets on its Consolidated Balance Sheets. The components of intangible assets, at cost, consisted of the following:

	August 31,		May 31,
In millions	2018		2018
Client lists	$	307.4	$	308.5
Other intangible assets		13.3		13.3
Total intangible assets, gross		320.7		321.8
Less: Accumulated amortization		185.2		180.4
Intangible assets, net of accumulated amortization	$	135.5	$	141.4

Amortization expense relating to intangible assets was $6.5 million for the three months ended August 31, 2018, compared to $3.9 million for the three months ended August 31, 2017.

As of August 31, 2018, the estimated amortization expense relating to intangible asset balances for the full year fiscal 2019 and the following four fiscal years is as follows:

In millions	Estimated amortization
Year ending May 31,	expense
2019	$	26.0
2020		22.6
2021		19.5
2022		16.6
2023		14.2

Note K: Accumulated Other Comprehensive (Loss)/Income

The change in unrealized gains and losses, net of applicable taxes, related to investments in available-for-sale securities and foreign currency translation adjustments are the primary components reported in accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets.  The changes in accumulated other comprehensive (loss)/income are as follows:

	For the three months ended
	August 31,
In millions	2018		2017
Beginning balance	$	(36.2)	$	20.0
Other comprehensive (loss)/income:
Unrealized gains on available-for-sale securities, net of tax		2.1		4.3
Foreign currency translation adjustment		(1.7)		0.1
Total other comprehensive income, net of tax		0.4		4.4
Ending balance	$	(35.8)	$	24.4
Total tax expense included in other comprehensive income	$	0.5	$	2.4

Reclassification adjustments out of accumulated other comprehensive (loss)/income for realized gains and losses on the sale of available-for-sale securities were insignificant for each of the three months ended August 31, 2018 and August 31, 2017.  Those reclassification adjustments are reflected in interest on funds held for clients on the Consolidated Statements of Income and Comprehensive Income.

16

Note L: Short-term Financing

The Company maintains credit facilities and letters of credit as part of its normal and recurring business operations.

Credit Facilities:  The Company maintains three committed, unsecured credit facilities, as follows:

Bank	Borrower (1)	Date Entered	Expiration Date	Maximum Amount Available	Purpose
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 5, 2015	August 5, 2020	$1 Billion	To meet short-term funding requirements.
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 17, 2017	August 17, 2022	$500 Million	To meet short-term funding requirements.
PNC Bank, National Association (“PNC”)	Paychex Advance, LLC	March 17, 2016	March 17, 2020	$150 Million	To finance working capital needs and general corporate purposes.

(1)Borrower is a wholly owned subsidiary of the Company.

(2) JP Morgan Chase Bank, N.A. (“JPM”) acts as the administrative agent for this syndicated credit facility.

For all credit facilities, obligations under any facility are guaranteed by the Company and certain of its subsidiaries and will bear interest at competitive rates based on options provided to the borrower.  Upon the expiration date, any borrowings outstanding will mature and be payable on such date.

JPM $1 Billion Credit Facility: There were no borrowings outstanding under this credit facility as of August 31, 2018 or May 31, 2018.  Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017 are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		6			13
Maximum amount borrowed	$	394.5		$	660.0
Weighted-average amount borrowed	$	216.3		$	278.8
Weighted-average interest rate		4.99	%		4.23	%

The Company typically borrows on an overnight basis and only borrowed on an overnight basis during the three months ended August 31, 2018.  In addition to overnight borrowings, during the three months ended August 31, 2017, the Company borrowed $100.0 million for a three-day period at a weighted-average LIBOR-based interest rate of 4.25%. Subsequent to August 31, 2018, the Company borrowed two times, on an overnight basis, $417.0 million on a weighted-average basis under this line.

JPM $500 Million Credit Facility: There were no borrowings outstanding under this credit facility as of August 31, 2018 or May 31, 2018. Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017 are as follows: 

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		4			—
Maximum amount borrowed	$	223.0		$	—
Weighted-average amount borrowed	$	133.4		$	—
Weighted-average interest rate		4.99	%		0.00	%

The Company typically borrows on an overnight basis and only borrowed on an overnight basis during the three months ended August 31, 2018.  Subsequent to August 31, 2018, the Company borrowed one time, on an overnight basis, $135.5 million under this line.

17

PNC $150 Million Credit Facility:  As of August 31, 2018, the Company had $56.7 million outstanding under this credit facility, which remains outstanding as of the date of this report.  There wereno borrowings outstanding under this credit facility as of May 31, 2018. Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017, are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		88			88
Maximum amount borrowed	$	56.8		$	57.2
Weighted-average amount borrowed	$	56.0		$	55.8
Weighted-average interest rate		2.53	%		1.67	%

All of the Company’s credit facilities contain various financial and operational covenants that are usual and customary for such arrangements. The Company was in compliance with all of these covenants as of August 31, 2018.

Certain 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.

Letters of credit: The Company had irrevocable standby letters of credit outstanding totaling $61.8 million and $56.8 million as of August 31, 2018 and May 31, 2018, respectively, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between November 2018 and July 2020.  No amounts were outstanding on these letters of credit as of or during the three months ended August 31, 2018 and August 31, 2017, or as of May 31, 2018.

Note M: Commitments and Contingencies

Other commitments: The Company enters into various purchase commitments with vendors in the ordinary course of business. The Company had outstanding commitments to purchase approximately $10.5 million and $6.7 million of capital assets as of August 31, 2018 and May 31, 2018, respectively.

In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. In addition, the Company has entered into indemnification agreements with its officers and directors, 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.

The Company currently self-insures the deductible portion of various insured exposures under certain employee benefit plans. The estimated loss exposure under these insurance arrangements is recorded in other current liabilities on the Company’s Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were not material as of August 31, 2018. The Company also maintains insurance coverage in addition to its purchased primary insurance policies for gap coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-insured retentions through its captive insurance company.

Contingencies: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, patent, breach of fiduciary duty, employment-related claims, tax claims, and other matters.

The 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 results of operations in the period in which any such effect is recorded.

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Note N: Income Taxes

The Company’s effective income tax rate was 24.5% and 34.1% for the three months ended August 31, 2018 and August 31, 2017, respectively.  The decrease in the effective income tax rate for the three months ended August 31, 2018 was primarily due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017, partially offset by certain discrete items related to the revaluation of deferred taxes.  In addition, the effective income tax rates in both periods were impacted by the recognition of a net discrete tax benefit related to employee stock-based compensation payments.  The net discrete tax benefit impacted the three months ended August 31, 2018 and August 31, 2017 by $0.01 per diluted share for each respective period. 

The Tax Act made broad and complex changes to U.S. Federal corporate income taxation as outlined in the Company’s Form 10-K for fiscal 2018.  In December 2017, the staff of the SEC issued guidance under Staff Accounting Bulletin No. 118 (“SAB No. 118”), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” allowing taxpayers to record provisional amounts for reasonable estimates when they do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. The SEC also issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. This analysis is complete except for provisional amounts that were determined in accordance with SAB No. 118 related to certain equity compensation agreements. However, any changes as a result of further guidance related to this topic are not expected to have a material impact on the provisional amounts.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews the operating results of Paychex, Inc. and its wholly owned subsidiaries (“Paychex,” the “Company,” “we,” “our,” or “us”) for the three months ended August 31, 2018 (the “first quarter”) and August 31, 2017, and our financial condition as of August 31, 2018. The focus of this review is on the underlying business reasons for material changes and trends affecting our revenue, expenses, net income, and financial condition. This review should be read in conjunction with the August 31, 2018 consolidated financial statements and the related Notes to Consolidated Financial Statements (Unaudited) contained in this Quarterly Report on Form 10-Q (“Form 10-Q”). This review should also be read in conjunction with our Annual Report on Form 10-K (“Form 10-K”) for the year ended May 31, 2018 (“fiscal 2018”). Forward-looking statements in this review are qualified by the cautionary statement included under the next sub-heading, “Cautionary Note Regarding Forward-Looking Statements Pursuant to the United States Private Securities Litigation Reform Act of 1995.”

Cautionary Note Regarding Forward-Looking Statements Pursuant to the United States Private Securities Litigation Reform Act of 1995

Certain written and oral statements made by us may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by such words and phrases as “we expect,” “expected to,” “estimates,” “estimated,” “overview,” “current outlook,” “we look forward to,” “would equate to,” “projects,” “projections,” “projected,” “projected to be,” “anticipates,” “anticipated,” “we believe,” “believes,” “could be,” “targeting,” and other similar words or phrases.  Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, or similar projections.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, many of which are outside our control. Our actual results and financial conditions may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any of these forward-looking statements. 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:

· general market and economic conditions including, among others, changes in U.S. employment and wage levels, changes to new hiring trends, legislative changes to stimulate the economy, changes in short- and long-term interest rates, changes in the fair value and the credit rating of securities held by us, and accessibility of financing;

· changes in demand for our services and products, ability to develop and market new services and products effectively, pricing changes, and the impact of competition;

· changes in the availability of skilled workers, in particular those supporting our technology and product development;

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· changes in the laws regulating collection and payment of payroll taxes, professional employer organizations (“PEOs”), and employee benefits, including retirement plans, workers’ compensation insurance, health insurance (including health care reform legislation), state unemployment, and section 125 plans;

· changes in health insurance and workers’ compensation insurance rates and underlying claim trends;

· changes in technology that adversely affect our products and services and impact our ability to provide timely enhancements to services and products;

· the possibility of cyberattacks, security breaches, or other security vulnerabilities that could disrupt operations or expose confidential client data, and could also result in reduced revenues, increased costs, liability claims, or harm to our competitive position;

· the possibility of the failure of our operating facilities, or the failure of our computer systems, and communication systems during a catastrophic event;

· the possibility of third-party service providers failing to perform their functions;

· the possibility of a failure of internal controls or our inability to implement business process improvements;

· the 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, including possible liability related to our co-employment relationship with our PEO;

· potential outcomes related to pending or future litigation and legislative matters;

· the expected impacts of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”); and

· risks related to the integration of the businesses we acquire.

Any of these factors, as well as such other factors as discussed in our Form 10-K for fiscal 2018 or other periodic filings with the Securities and Exchange Commission (“SEC”), could cause our actual results to differ materially from our anticipated results. The information provided in this Form 10-Q is based upon the facts and circumstances known at this time, and any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of filing this Form 10-Q with the SEC to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

Business

We are a leading provider of integrated human capital management (“HCM”) solutions for payroll, benefits, human resource (“HR”), and insurance services for small- to medium-sized businesses. Our business strategy focuses on flexible, convenient service; industry-leading, integrated technology; providing a comprehensive suite of value-added HCM services; solid sales execution; continued service penetration; and engaging in strategic acquisitions, when possible. We believe that success in our mission to be a leading provider of HCM services by being an essential partner with America's businesses will lead to strong, long-term financial performance.

We offer a comprehensive portfolio of HCM services and products that allow our clients to meet their diverse payroll and HR needs. Clients can select services on an á la carte basis or as part of various product bundles. Our offerings often leverage the information gathered in our base payroll processing service, allowing us to provide comprehensive outsourcing services covering the HCM spectrum.

We support our clients through our core payroll, utilizing our proprietary, robust, Paychex Flex® processing platform or SurePayroll®  online applications. Both products are cloud-based software-as-a-service (“SaaS”) solutions that allow users to process payroll when they want, how they want, and on any device (desktop, tablet, and mobile phone). Clients with more complex payroll and benefits needs are serviced through our Paychex Flex Enterprise solution set, which offers an integrated suite of HCM solutions through the Paychex Flex platform, or through our legacy platform. Our SaaS solution through Paychex Flex Enterprise integrates payroll processing with HR management, employee benefits administration, time and labor management, applicant tracking, and onboarding solutions.  Paychex Flex Enterprise allows clients to choose the services and software they need to meet the complexity of their business and have them integrated through one HCM solution.

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Our portfolio of HCM and employee benefit-related services are as follows:

Service	Description
Management Solutions:
Payroll processing services	Includes 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.
Payroll tax administration services	Provides accurate preparation and timely filing of quarterly and year-end tax returns, as well as the electronic transfer of funds to the applicable federal, state, and local tax or regulatory agencies.
Employee payment services	Provides an employer 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 us.
Regulatory compliance services	Includes new-hire reporting and garnishment processing, which allow employers to comply with legal requirements and reduce the risk of penalties.We also offer comprehensive solutions to help clients navigate the Affordable Care Act.
HR Solutions Administrative Services Organization (“ASO”)	Offers businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services. Paychex HR Essentials is an ASO product that provides support to our clients over the phone or online to help manage employee-related topics.
Retirement services administration	Offers a variety of retirement plan options to clients, as well as recordkeeping services, which include plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services.
HR administration services	Offers cloud-based HR administration software products for employee benefits management and administration, time and attendance solutions, recruiting, and onboarding.
Other HR services and products	Includes section 125 plans, state unemployment insurance services, employee handbooks, management manuals, and personnel and required regulatory forms.
Accounting and Financial Services	Offers various accounting and financial services to businesses. Our wholly owned subsidiary, Paychex Advance, LLC, provides a portfolio of services to the temporary staffing industry, including payroll funding (via the purchase of accounts receivable) and outsourcing services, which include payroll processing, invoicing, and tax preparation.

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PEO and Insurance Services:
Paychex PEO	Our licensed subsidiaries, Paychex Business Solutions, LLC, and HR Outsourcing Holdings, Inc. (“HROI”) offer businesses a combined package that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services. We serve as a co-employer of our clients’ employees, offer health care coverage to PEO client employees, and assume the risks and rewards of workers’ compensation insurance and certain health insurance offerings.
Insurance services	Our licensed insurance agency, Paychex Insurance Agency, Inc., provides insurance through a variety of carriers. Insurance offerings include property and casualty coverage, such as workers’ compensation; business-owner policies; commercial auto; and health and benefits coverage, including health, dental, vision, and life.

Overview

Our financial results for the first quarter reflected continued solid growth across our major HCM product lines.  Total revenue and total service revenue each increased 9% for the first quarter. Our acquisitions of HROI and Lessor Group (“Lessor”) completed during fiscal 2018, contributed approximately 4% to the growth in total revenue for the first quarter.  

In conjunction with the adoption of Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”) effective June 1, 2018 and to better reflect our business, we have modified the way we disaggregate our service revenue. Previously, we classified revenue as Payroll service revenue or Human Resource Services (“HRS”) revenue. Payroll service revenue and HRS revenue increased by 1% and 18%, respectively, for the first quarter.

Post-adoption of ASC Topic 606, we classify our service revenue as Management Solutions revenue or PEO and Insurance Services revenue. Management Solutions revenue is primarily comprised of our payroll processing; payroll-related ancillary services, which includes retirement services and time and attendance solutions; and our ASO. PEO and Insurance Services revenue includes PEO services offered through our registered and licensed subsidiaries, Paychex Business Solutions, LLC and HROI.  Additionally, it includes insurance services sold through our licensed insurance agency, Paychex Insurance Agency, Inc. which includes property and casualty coverage and health and benefits coverage.Management Solutions revenue and PEO and Insurance Services revenue increased by 3% and 39%, respectively, for the first quarter. 

Interest on funds held for clients increased 25% for the first quarter. Interest rates available on high-quality financial instruments are gradually increasing. Our combined funds held for clients and corporate investment portfolios earned an average rate of return of 1.8% for the first quarter, compared to 1.4% for the same period last year. The Federal Funds rate was in the range of 1.75% to 2.0% as of August 31, 2018.

We continue to focus on driving growth in the number of clients, revenue, and profits, while providing award-winning service and leading-edge technology solutions to our clients and their employees.  We are continually engaged in developing enhancements to our various software platforms to meet the changing requirements of our clients and the marketplace. Concentrated efforts remain on the continued enhancement of Paychex Flex, our robust, cloud-based HCM platform, which allows direct client access to payroll, HR, and benefits information in a streamlined and integrated approach to workplace management. In August 2018, we introduced Beta Face Recognition which provides clients with the ability to add facial recognition to the existing kiosk apps for Flex Time and Flex Time Essentials products.  

Highlights of the financial results for the first quarter as compared to the same period last year are as follows:

· Total revenue increased 9% to $862.8 million.

· Total service revenue increased 9% to $845.7 million.

o Management Solutions revenue increased 3% to $687.7 million.

o PEO and Insurance Services revenue increased 39% to $158.0 million.

· Interest on funds held for clients increased 25% to $17.1 million.

· Operating income increased 1% to $320.3 million.

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· Net income increased 16% to $243.6 million and adjusted net income(1) increased 18% to $242.0 million.

· Diluted earnings per share increased 16% to $0.67 per share and adjusted diluted earnings per share(1) increased 18% to $0.67 per share.

(1)Adjusted net income and adjusted diluted earnings per share are not U.S. generally accepted accounting principles (“GAAP”) measures.

Refer to the “Non-GAAP Financial Measures” section within the discussion of “Results of Operations” of this Item 2 for a discussionof these non-GAAP measures and a reconciliation to the most comparable GAAP measures of net income and diluted earnings per share.

Financial Position and Liquidity

Our financial position as of August 31, 2018 remained strong with cash and total corporate investments of $787.6 million. Short-term borrowings totaled $56.7 million as of August 31, 2018.  Our investment strategy continues to focus on protecting principal and optimizing liquidity. We invest predominately in municipal bonds – including general obligation bonds; pre-refunded bonds, which are secured by a U.S. government escrow; and essential services revenue bonds – along with U.S. government agency securities and corporate bonds. During the first quarter, our primary short-term investment vehicles were Variable Rate Demand Notes (“VRDNs”) and bank demand deposit accounts.

A majority of our portfolio is invested in high credit quality securities with ratings of AA or higher, and A-1/P-1 ratings on short-term securities. We limit the amounts that can be invested in any single issuer and invest in short- to intermediate-term instruments whose fair values are less sensitive to interest rate changes. We believe that our investments as of August 31, 2018 in an unrealized loss position were not other-than-temporarily impaired, nor has any event occurred subsequent to that date that would indicate any other-than-temporary impairment.

Our primary source of cash is generated from our ongoing operations. Cash flows from operations was $273.7 million for the first quarter, a decrease of 20%from the same period last year, driven by changes in accounts receivable primarily due to timing, other current liabilities, and the provision for deferred income taxes. Historically, we have funded our operations, capital purchases, business acquisitions, share repurchases, and dividend payments from our operating activities. Our positive cash flows have allowed us to support our business and to pay substantial dividends, targeting approximately 80% of our net income, to our stockholders. It is anticipated that cash and total corporate investments as of August 31, 2018, along with projected operating cash flows and available short-term financing, will support our normal business operations, capital purchases, share repurchases, and dividend payments for the foreseeable future.

For further analysis of our results of operations for the first quarter, and our financial position as of August 31, 2018, refer to the analysis and discussion in the “Results of Operations” and “Liquidity and Capital Resources” sections of this Item 2.

Outlook

Our outlook for the fiscal year ending May 31, 2019 (“fiscal 2019”) is based upon current market expectations and economic conditions continuing with no significant changes.  Our guidance for fiscal 2019 remains unchanged from what we provided previously. As a result of the adoption of ASC Topic 606, we are providing the following additional fiscal 2019 guidance:

· Management Solutions revenue is anticipated to increase approximately 4%; and

· PEO and Insurance Services revenue is anticipated to increase in the range of 18% to 20%.

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RESULTS OF OPERATIONS

Summary of Results of Operations:

	For the three months ended
	August 31,
				2017
In millions, except per share amounts	2018			As Adjusted(1)			Change
Revenue:
Management Solutions	$	687.7		$	665.9		3	%
PEO and Insurance Services		158.0			113.3		39	%
Total service revenue		845.7			779.2		9	%
Interest on funds held for clients		17.1			13.7		25	%
Total revenue		862.8			792.9		9	%
Combined operating and SG&A expenses		542.5			475.6		14	%
Operating income		320.3			317.3		1	%
Investment income, net		2.3			2.1		10	%
Income before income taxes		322.6			319.4		1	%
Income taxes		79.0			109.0		(28)	%
Effective income tax rate		24.5	%		34.1	%
Net income	$	243.6		$	210.4		16	%
Diluted earnings per share	$	0.67		$	0.58		16	%

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

We invest in highly liquid, investment-grade fixed income securities and do not utilize derivative instruments to manage interest rate risk.  As of August 31, 2018, we had no exposure to high-risk or illiquid investments. Details regarding our combined funds held for clients and corporate investment portfolios are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017			Change
Average investment balances:
Funds held for clients	$	3,694.7		$	3,786.6		(2)	%
Corporate investments		884.3			929.8		(5)	%
Total	$	4,579.0		$	4,716.4		(3)	%
Average interest rates earned (exclusive of net realized gains):
Funds held for clients		1.9	%		1.4	%
Corporate investments		1.4	%		1.2	%
Combined funds held for clients and corporate investments		1.8	%		1.4	%
Total net realized gains	$	0.1		$	—

	August 31,			May 31,
$ in millions	2018			2018
Net unrealized losses on available-for-sale securities(1)	$	35.9		$	38.3
Federal Funds rate(2)		2.00	%		1.75	%
Total fair value of available-for-sale securities	$	2,911.6		$	3,104.8
Weighted-average duration of available-for-sale securities in years(3)		3.1			3.1
Weighted-average yield-to-maturity of available-for-sale securities(3)		1.9	%		1.9	%

(1)The net unrealized loss on our investment portfolio was approximately $50.7 million as of September 28, 2018.

(2)The Federal Funds rate was in the range of 1.75% to 2.0% as of August 31, 2018, compared to a range of 1.50% to 1.75% as of May 31,

2018.  In September 2018, the Federal Funds rate was raised an additional 25 basis points to a range of 2.0% to 2.25%.

(3)Theseitems exclude the impact of VRDNs, as they are tied to short-term interest rates.

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Management Solutions revenue: Management Solutions revenue was $687.7 million for the first quarter, reflecting an increase of 3% compared to the same period last year. The increase in Management Solutions revenue was primarily driven by increases in client bases across the following HCM services: payroll; ASO; retirement services; and time and attendance solutions.Retirement services revenue also benefited from an increase in asset fee revenue earned on the asset value of participants’ funds.  Our acquisition of Lessor, completed during February 2018, contributed less than 1% to Management Solutions revenue growth for the first quarter. Management Solutions revenue growth was tempered by the composition of processing days in the first quarter compared to the same period last year.

PEO and Insurance Services revenue: PEO and Insurance Services revenue was $158.0 million for the first quarter, reflecting an increase of 39% compared to the same period last year. PEO and Insurance Services revenue growth was primarily driven by increases in client bases across our PEO business. Demand for these services resulted in double digit growth in the number of client worksite employees served.  Our acquisition of HROI, completed during August 2017, contributed approximately 20% to total PEO and Insurance Services revenue growth for the first quarter. Insurance Services revenue experienced solid growth benefiting from an increase in the number of health and benefit applicants, coupled with higher average premiums for workers’ compensation insurance services.

Total service revenue: Total service revenue was $845.7 million for the first quarter, reflecting an increase of 9% compared to the same period last year. The increase was primarily attributable to the items previously discussed.

Interest on funds held for clients: Interest on funds held for clients was $17.1 million for the first quarter, reflecting an increase of 25% compared to the same period last year. The increase resulted primarily from higher average interest rates earned.  The funds held for clients average investment balances decreased 2% for the first quarter compared to the same period last year, primarily due to the impact of the Tax Act on client fund collections and client mix, partially offset by wage inflation.

Combined operating and SG&A expenses: Total expenses were $542.5 million for the first quarter, reflecting an increase of 14% compared to the same period last year. The following table summarizes total combined operating and SG&A expenses:

	For the three months ended
	August 31,
			2017
In millions	2018		As Adjusted(1)		Change
Compensation-related expenses	$	327.7	$	294.3	11	%
Depreciation and amortization		35.9		32.0	12	%
PEO insurance costs		63.7		37.4	70	%
Other expenses		115.2		111.9	3	%
Total expenses	$	542.5	$	475.6	14	%

(1)Amounts have been adjusted to reflect the adoption of ASC Topic 606.

Compensation-related expenses increased 11% for the first quarter, which was primarily driven by increased headcount due to investment in the sales force and technology resources, as well as increases in operations to support the growth in the business and certain service optimization initiatives. The acquisitions completed during fiscal 2018 contributed approximately 6% to the growth in compensation-related expenses for the first quarter. Headcount was approximately 14,500 employees, including Lessor, as of August 31, 2018, compared to approximately 13,700 employees, as of August 31, 2017.

Depreciation expense is primarily related to buildings, furniture and fixtures, data processing equipment, and software. Amortization of intangible assets is primarily related to client list acquisitions, which are amortized using either straight-line or accelerated methods. The growth in depreciation and amortization for the first quarter was primarily driven by an increase in internally developed software that was placed in service over the past two years.

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PEO insurance costs include workers’ compensation and minimum premium health insurance benefit plans where we retain risk. Growth in our combined PEO business, including the acquisition of HROI, contributed to the growth in PEO insurance costs for the first quarter. The acquisition of HROI, completed during August 2017, contributed approximately 4% to the growth in total expenses for the first quarter compared to the same period last year.

Other expenses include items such as non-capital equipment, delivery, forms and supplies, communications, travel and entertainment, professional services, and other costs incurred to support our business. Continued investment in product development and supporting technology impacted other expense growth for the first quarter.

Operating income: Operating income was $320.3 million for the first quarter, reflecting an increase of 1% as compared with the same period last year. The changes in operating income were attributable to the factors previously discussed.  Operating income as a percent of total revenue was 37.1% for the first quarter, compared to 40.0% for the respective period last year.   

Investment income, net: Investment income, net, primarily represents earnings from our cash and cash equivalents and investments in available-for-sale securities. Investment income does not include interest on funds held for clients, which is included in total revenue. Investment income, net, was $2.3 million for the first quarter, reflecting an increase of 10% compared to the same period last year. These increases were due to higher average interest rates earned, partially offset by a 5% decrease in average corporate investment balances for the first quarter compared to the same period last year.  The decrease in average corporate investment balances was due to funds used for stock repurchases over the past twelve months, higher dividend payments, and acquisitions.

Income taxes: Our effective income tax rate was 24.5% for the first quarter compared to 34.1% for the respective prior year period. The decrease in the effective income tax rate for the first quarter was primarily due to the enactment of the Tax Act in December 2017, partially offset by certain discrete items related to the revaluation of deferred taxes.  In addition, the effective income tax rates in both periods were impacted by a net discrete tax benefit related to employee stock-based compensation payments which impacted diluted earnings per share by approximately $0.01 per diluted share for both the first quarter and respective prior year period.

Net income and diluted earnings per share: Net income and diluted earnings per share were $243.6 million and $0.67 per share for the first quarter, each reflecting an increase of 16% as compared to the same period last year.  These fluctuations were attributable to the factors previously discussed. Adjusted net income was $242.0 million for the first quarter, reflecting an increase of 18% compared to the same period last year.  Adjusted diluted earnings per share was $0.67 per share for the first quarter, reflecting an increase of 18% compared to the same period last year.  Refer to the “Non-GAAP Financial Measures” section that follows for a discussion of these non-GAAP measures.

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Non-GAAP Financial Measures: Adjusted net income and adjusted diluted earnings per share are summarized as follows:

	For the three months ended
	August 31,
			2017
$ in millions	2018(1)		As adjusted(2)		Change
Net income	$	243.6	$	210.4	16	%
Non-GAAP adjustments:
Excess tax benefit related to employee stock-based compensation payments (3)		(3.3)		(5.0)
Revaluation of net deferred tax liabilities (4)		1.7		—
Total non-GAAP adjustments		(1.6)		(5.0)
Adjusted net income	$	242.0	$	205.4	18	%
Diluted earnings per share	$	0.67	$	0.58	16	%
Non-GAAP adjustments:
Excess tax benefit related to employee stock-based compensation payments (3)		(0.01)		(0.01)
Revaluation of net deferred tax liabilities (4)		—		—
Total non-GAAP adjustments		—		(0.01)
Adjusted diluted earnings per share	$	0.67	$	0.57	18	%

(1)The calculation of the impact of non-GAAP adjustments on diluted earnings per share is performed on each line independently.  The table

may not add down by +/- $0.01 due to rounding.

(2)Amounts have been adjusted to reflect the adoption of ASC Topic 606.

(3)Net tax windfall or shortfall benefits related to employee stock-based compensation payments recognized in income taxes.  This item is

subject to volatility and will vary based on employee decisions on exercising employee stock options and fluctuations in our stock price,

neither of which is within the control of management.

(4)One-time tax charge recognized in the first quarter as a result of updated guidance on Internal Revenue Code Section 162(m).  This event is

not expected to recur.

In addition to reporting net income and diluted earnings per share which are U.S. GAAP measures, we present adjusted net income and adjusted diluted earnings per share, which are non-GAAP measures.  We believe adjusted net income and adjusted diluted earnings per share are appropriate additional measures, as they are indicators of our core business operations performance period over period.  Adjusted net income and adjusted diluted earnings per share are not calculated through the application of GAAP and are not a required form of disclosure by the SEC.  As such, they should not be considered as a substitute for the GAAP measures of net income and diluted earnings per share, and therefore should not be used in isolation, but in conjunction with the GAAP measures.  The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

LIQUIDITY AND CAPITAL RESOURCES

Our financial position as of August 31, 2018 remained strong with cash and total corporate investments of $787.6 million.  Short-term borrowings totaled $56.7 million as of August 31, 2018.  We believe that our investments in an unrealized loss position as of August 31, 2018 were not other-than-temporarily impaired, nor has any event occurred subsequent to that date to indicate any other-than-temporary impairment. We anticipate that cash and total corporate investments as of August 31, 2018, along with projected operating cash flows and available short-term financing, will support our normal business operations, capital purchases, share repurchases, and dividend payments, for the foreseeable future.

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Short-Term Financing

We maintain credit facilities and letters of credit as part of our normal and recurring business operations.

Credit Facilities:  We maintain three committed, unsecured credit facilities as follows:

Bank	Borrower (1)	Date Entered	Expiration Date	Maximum Amount Available	Purpose
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 5, 2015	August 5, 2020	$1 Billion	To meet short-term funding requirements.
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 17, 2017	August 17, 2022	$500 Million	To meet short-term funding requirements.
PNC Bank, National Association (“PNC”)	Paychex Advance, LLC	March 17, 2016	March 17, 2020	$150 Million	To finance working capital needs and general corporate purposes.

(1)Borrower is a wholly owned subsidiary of our Company.

(2)JP Morgan Chase Bank, N.A. (“JPM”) acts as the administrative agent for this syndicated credit facility.

For all of the credit facilities, obligations under any facility are guaranteed by us and certain of our subsidiaries and will bear interest at competitive rates based on options provided to the borrower.  Upon the expiration date, any borrowings outstanding will mature and be payable on such date.

JPM $1 Billion Credit Facility: There were no borrowings outstanding under this credit facility as of August 31, 2018.  Details of borrowings under this credit facility during the first quarter, and the respective prior year period are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		6			13
Maximum amount borrowed	$	394.5		$	660.0
Weighted-average amount borrowed	$	216.3		$	278.8
Weighted-average interest rate		4.99	%		4.23	%

We typically borrow on an overnight basis and only borrowed on an overnight basis during the first quarter. Subsequent to August 31, 2018, we borrowed two times, on an overnight basis, $417.0 million on a weighted-average basis under this line.

JPM $500 Million Credit Facility:  There were no borrowings outstanding under this credit facility as of August 31, 2018.  Details of borrowings under this credit facility during the first quarter, and the respective prior year period are as follows: 

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		4			—
Maximum amount borrowed	$	223.0		$	—
Weighted-average amount borrowed	$	133.4		$	—
Weighted-average interest rate		4.99	%		0.00	%

We typically borrow on an overnight basis and only borrowed on an overnight basis during the first quarter.Subsequent to August 31, 2018, we borrowed one time, on an overnight basis, $135.5 million under this line.

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PNC $150 Million Credit Facility:  As of August 31, 2018, there was $56.7 million outstanding under this credit facility, which remains outstanding as of the date of this report.  Details of borrowings under this credit facility during the first quarter and the respective prior year period are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		88			88
Maximum amount borrowed	$	56.8		$	57.2
Weighted-average amount borrowed	$	56.0		$	55.8
Weighted-average interest rate		2.53	%		1.67	%

All of our credit facilities contain various financial and operational covenants that are usual and customary for such arrangements. We were in compliance with all of these covenants as of August 31, 2018.

Certain lenders under these credit facilities, and their respective affiliates, have performed, and may in the future perform for us and our subsidiaries, 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.

Letters of credit: As of August 31, 2018, we had irrevocable standby letters of credit outstanding totaling $61.8 million, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between November 2018 and July 2020.  No amounts were outstanding on these letters of credit during the first quarter, or as of August 31, 2018.

Other commitments:We enter into various purchase commitments with vendors in the ordinary course of business. We had outstanding commitments to purchase approximately $10.5 million of capital assets as of August 31, 2018.  

In the normal course of business, we make representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. In addition, we have entered into indemnification agreements with our officers and directors, which require us to defend and, if necessary, indemnify these individuals for certain pending or future legal claims as they relate to their services provided to us.

We currently self-insure the deductible portion of various insured exposures under certain employee benefit plans. Our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on our Consolidated Balance Sheets. Historically, the amounts accrued have not been material and are not material as of August 31, 2018. We also maintain insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-insured retentions through our captive insurance company.

During fiscal 2018, we announced our plan for a new multi-building Paychex campus based in Rochester, NY.  This involved the purchase of five buildings and the renovation of over 300,000 square feet of existing space.  We completed the purchase of these buildings for a combined cost of approximately $34.7 million and placed approximately $16.0 million in escrow for the building renovations.  Renovations on the buildings purchased are in-process and are expected to be substantially completed later this fiscal year. In addition, during fiscal 2018, we entered into a transaction with the County of Monroe Industrial Development Agency for purposes of obtaining public benefits and inducements, expiring on December 31, 2039.  The public inducements include exemption from sales and use taxes for goods and services directly related to the renovations of the new multi-building campus as well as other property tax incentives.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions with unconsolidated entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes. We do maintain investments as a limited partner in both low-income housing projects and a venture capital fund focused on the financial technology sector.  These are not considered part of our ongoing operations. These investments are accounted for under the equity method of accounting and represented less than one percent of our total assets as of August 31, 2018.

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Operating Cash Flow Activities

	For the three months ended
	August 31,
			2017
In millions	2018		As Adjusted(1)
Net income	$	243.6	$	210.4
Non-cash adjustments to net income		64.2		107.4
Cash (used in)/provided by operating assets and liabilities		(34.1)		25.8
Net cash provided by operating activities	$	273.7	$	343.6

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

The decrease in our operating cash flows for the first quarter, compared to the same period last year, was primarily the result of fluctuations in operating assets and liabilities and non-cash adjustments, partially offset by higher net income. The decrease in non-cash adjustments was primarily due to a lower provision for deferred income taxes compared to the prior year period.  The provision for deferred income taxes in the prior year period was impacted by the utilization of alternative minimum tax credits carried forward from prior years. The remaining fluctuations in our operating assets and liabilities were primarily related to the timing of income taxes and PEO payroll accruals and unbilled receivables, which can fluctuate based on the timing of period end compared to payroll check dates. 

Investing Cash Flow Activities

	For the three months ended
	August 31,
In millions	2018		2017
Net change in funds held for clients and corporate investment activities	$	943.7	$	(684.4)
Purchases of property and equipment		(24.4)		(18.0)
Acquisition of businesses, net of cash acquired		—		(8.2)
Purchases of other assets		(0.8)		(0.4)
Net cash provided by/(used in) investing activities	$	918.5	$	(711.0)

Funds held for clients and corporate investments: Funds held for clients consist of short-term funds and available-for-sale securities. Corporate investments are primarily comprised of available-for-sale securities. The portfolio of funds held for clients and corporate investments is detailed in Note F of the Notes to Consolidated Financial Statements (Unaudited) contained in Item 1 of this Form 10-Q.

In general, fluctuations in the net change in funds held for clients and corporate investment activities primarily relate to timing of purchases, sales, or maturities of investments. The amount of funds held for clients will also vary based upon the timing of collecting client funds, and the related remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services. Additional discussion of interest rates and related risks is included in the “Market Risk Factors” section of this Form 10-Q.

The first quarter reflected a net cash inflow resulting from the net change in funds held for clients and corporate investment activities, whereas there was a net cash outflow for the respective prior year period.  These fluctuations were attributable to timing of collections and remittances within the client funds portfolio, and related investment or liquidation of funds held for client fund obligations, as discussed further in the “Financing Cash Flow Activities” section which follows.

Purchases of long-lived assets: To support our continued client and ancillary product growth, we made purchases of data processing equipment and software, and we upgraded various operating facilities.

Purchases of other assets relates primarily to client list acquisitions and an increase in equity investments. 

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Financing Cash Flow Activities

	For the three months ended
	August 31,
In millions, except per share amounts	2018		2017
Net change in client fund obligations	$	(942.5)	$	645.5
Net proceeds from short-term borrowings		56.7		57.2
Dividends paid		(201.4)		(179.1)
Repurchases of common shares		(32.8)		(94.1)
Activity related to equity-based plans		9.7		(12.3)
Net cash (used in)/provided by financing activities	$	(1,110.3)	$	417.2
Cash dividends per common share	$	0.56	$	0.50

Net change in client fund obligations: The client fund obligations liability will vary based on the timing of collecting client funds and the related required remittance of funds to applicable tax or regulatory agencies for payroll tax administration services and to employees of clients utilizing employee payment services. Collections from clients are typically remitted from one to 30 days after receipt, with some items extending to 90 days.

The first quarter reflected a net cash outflow resulting from the net change in client fund obligations, whereas there was a net cash inflow for the same period last year.   Client fund obligation balances are significantly impacted by the timing of the period end and overall trends in client fund balances.  August 31, 2018 fell on a Friday, which is a significant disbursement day for direct pay funds.  August 31, 2017, which was a Thursday, is a significant collection day for direct pay funds.  In addition, funds held for clients average investment balances were down slightly in the first quarter compared to the same period last year, primarily due to the impact of the Tax Act on client fund collections.

Net proceeds from short-term borrowings:  During the first quarter, we borrowed funds under our credit facilities. Certain borrowings remained outstanding under the PNC credit facility as of August 31, 2018.  Borrowings are to finance working capital needs and general corporate purposes and decreased slightly from the period ended August 31, 2017.

Dividends paid: The increase in dividend payments for the first quarter compared to the corresponding period last year is primarily due to the 12% increase in rate in April 2018, offset slightly by the impact of repurchases of our common stock. The payment of future dividends is dependent on our future earnings and cash flow and is subject to the discretion of our Board of Directors (the “Board”).

Repurchases of common stock: In July 2016, our Board approved a program to repurchase up to $350.0 million of our common stock, with authorization expiring in May 2019.  The purpose of the program is to manage common stock dilution.  During the first quarter, we repurchased 0.5 million shares for $32.8 million.  During the three months ended August 31, 2017, we repurchased 1.6 million shares of our common stock for $94.1 million.  All shares of common stock repurchased were retired.  As of August 31, 2018, approximately $67.7 million remains available under the approved common stock repurchase program.

Activity related to equity-based plans: The increase in cash flows from activity related to equity-based plans for the first quarter compared to the respective prior year period is largely a result of higher proceeds from stock option exercises, as 0.4 million options were exercised at a higher market price during the first quarter compared to 0.6 million options exercised during the respective prior year period. Please also see the information included in Part II, Item 2 of this Form 10-Q.

MARKET RISK FACTORS

Changes in interest rates and interest rate risk: Funds held for clients are primarily comprised of short-term funds and available-for-sale securities. Corporate investments are primarily comprised of available-for-sale securities. As a result of our investing activities, we are exposed to changes in interest rates that may materially affect our results of operations and financial position. Changes in interest rates will impact the earnings potential of future investments and will cause fluctuations in the fair value of our longer-term available-for-sale securities. We follow an investment strategy of protecting principal and optimizing liquidity. A substantial portion of our portfolios is invested in high credit quality securities with ratings of AA or higher, and A-1/P-1 ratings on short-term securities. We invest predominantly in municipal bonds - including general obligation bonds; pre-refunded bonds, which are secured by a U.S. government escrow; and essential services revenue bonds - along with U.S. government agency securities and corporate bonds. We limit the amounts that can be invested in any single issuer and invest primarily in short- to intermediate-term instruments whose fair value is less sensitive to interest rate changes. We manage the available-for-sale securities to a benchmark duration of two and one-half to three and three-quarters years.

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During the first quarter, our primary short-term investment vehicles were VRDNs and bank demand deposit accounts. We have no exposure to high-risk or illiquid investments.  We have insignificant exposure to European investments.  We have not and do not utilize derivative financial instruments to manage our interest rate risk.

During the first quarter, the average interest rate earned on our combined funds held for clients and corporate investment portfolios was 1.8% compared with 1.4% for the respective prior year period. When interest rates are rising, the full impact of higher interest rates will not immediately be reflected in net income due to the interaction of short- and long-term interest rate changes. During a rising interest rate environment, earnings increase from our short-term investments, and over time earnings increase from our longer-term available-for-sale securities. Earnings from the available-for-sale-securities, which as of August 31, 2018 had an average duration of 3.1 years, would not reflect increases in interest rates until the investments are sold or mature and the proceeds are reinvested at higher rates.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of August 31, 2018 are shown below by contractual maturity. Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

	August 31, 2018
	Amortized		Fair
In millions	cost		value
Maturity date:
Due in one year or less	$	382.8	$	382.4
Due after one year through three years		788.0		784.6
Due after three years through five years		979.8		965.6
Due after five years		796.9		779.0
Total	$	2,947.5	$	2,911.6

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.

In June 2018, the Federal Funds rate was raised by 25 basis points to a range of 1.75% to 2.00%.  In September 2018, the Federal Funds rate was raised an additional 25 basis points to a range of 2.0% to 2.25%.  The Federal Reserve has raised this rate by 25 basis points seven times since December 2015.

Calculating the future effects of changing interest rates involves many factors. These factors include, but are not limited to:

· daily interest rate changes;

· seasonal variations in investment balances;

· actual duration of short-term and available-for-sale securities;

· the proportion of taxable and tax-exempt investments;

· changes in tax-exempt municipal rates versus taxable investment rates, which are not synchronized or simultaneous; and

· financial market volatility and the resulting effect on benchmark and other indexing interest rates.

Subject to these factors and under normal financial market conditions, a 25-basis-point change in taxable interest rates generally affects our tax-exempt interest rates by approximately 17 basis points. Under normal financial market conditions, the impact to earnings from a 25-basis-point change in short-term interest rates would be in the range of $3.0 million to $4.0 million, after taxes, for a twelve-month period. Such a basis point change may or may not be tied to changes in the Federal Funds rate.

Our total investment portfolio (funds held for clients and corporate investments) is expected to average approximately $5.0 billion for fiscal 2019. Our anticipated allocation is approximately 40% invested in short-term and VRDNs with an average duration of less than 30 days and 60% invested in available-for-sale securities, with an average duration of two and one-half to three and three-quarters years.

32

The combined funds held for clients and corporate available-for-sale securities reflected net unrealized losses of $35.9 million as of August 31, 2018 and $38.3 million as of May 31, 2018.  During the first quarter, the net unrealized loss on our investment portfolios ranged from $32.1  million to $42.1 million. These fluctuations were driven by changes in market rates of interest. The net unrealized loss on our investment portfolios was approximately$50.7 million as of September 28, 2018.

As of August 31, 2018 and May 31, 2018, we had $2.9 billion and $3.1 billion, respectively, invested in available-for-sale securities at fair value. The weighted-average yield-to-maturity was 1.9% as of August 31, 2018 and May 31, 2018. The weighted-average yield-to-maturity excludes available-for-sale securities tied to short-term interest rates, such as VRDNs. Assuming a hypothetical increase in longer-term interest rates of 25 basis points, the resulting potential decrease in fair value for our portfolio of available-for-sale securities held as of August 31, 2018 would be in the range of $20.0 million to $25.0 million. Conversely, a corresponding decrease in interest rates would result in a comparable increase in fair value. This hypothetical increase or decrease in the fair value of the portfolio would be recorded as an adjustment to the portfolio’s recorded value, with an offsetting amount recorded in stockholders’ equity. These fluctuations in fair value would have no related or immediate impact on the results of operations, unless any declines in fair value were considered to be other-than-temporary and an impairment loss recognized.

Credit risk: We are exposed to credit risk in connection with these investments through the possible inability of the borrowers to meet the terms of their bonds. We regularly review our investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. We believe that the investments we held as of August 31, 2018 were not other-than-temporarily impaired. While $2.0 billion of our available-for-sale securities had fair values that were below amortized cost, we believe that it is probable that the principal and interest will be collected in accordance with the contractual terms, and that the unrealized losses of $38.8 million were due to changes in interest rates and were not due to increased credit risk or other valuation concerns. A majority of the securities in an unrealized loss position as of August 31, 2018 and May 31, 2018 held an AA rating or better. We do not intend to sell these investments until the recovery of their amortized cost basis or maturity, and further believe that it is not more-likely-than-not that we will be required to sell these investments prior to that time. Our assessment that an investment is not other-than-temporarily impaired could change in the future due to new developments or changes in our strategies or assumptions related to any particular investment.

We have some credit risk exposure in connection with our purchase of accounts receivable as a means of providing payroll funding to clients in the temporary staffing industry.  This credit risk exposure is diversified amongst multiple client arrangements and all such arrangements are regularly reviewed for potential write-off.  No single client is material in respect to total accounts receivable, service revenue, or results of operations. 

CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in Item 7 of our Form 10-K for fiscal 2018, filed with the SEC on July 20, 2018. On an ongoing basis, we evaluate the critical accounting policies used to prepare our consolidated financial statements, including, but not limited to, those related to:

· revenue recognition;

· PEO insurance reserves;

· goodwill and other intangible assets;

· stock-based compensation costs; and

· income taxes.

During the first quarter, we adopted the new revenue recognition guidance in Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  Refer to Notes A and B of the Notes to Consolidated Financial Statements (Unaudited) for additional information. There have been no other material changes in these aforementioned critical accounting policies.

NEW ACCOUNTING PRONOUNCEMENTS

Recently adopted accounting pronouncements: Refer to Note A of the Notes to Consolidated Financial Statements (Unaudited) contained in Item 1 of this Form 10-Q for a discussion of recently adopted accounting pronouncements.

Recently issued accounting pronouncements: Refer to Note A of the Notes to Consolidated Financial Statements (Unaudited) contained in Item 1 of this Form 10-Q for a discussion of recently issued accounting pronouncements.

33

Item 3. Quantitative and Qualitative Disclosure of Market Risk

The information called for by this item is provided under the caption “Market Risk Factors” under Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.

Item 4. Controls and Procedures

Disclosure Controls and Procedures: Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures: As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on such evaluation, the Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that as of August 31, 2018, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting:  In connection with the Company’s adoption of Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” the Company has updated its control framework effective June 1, 2018 for certain new internal controls and changes to certain existing controls, including reconciliation controls, management review controls, and contract review controls.  Other than these changes, there have been no material changes in our internal control over financial reporting that occurred during the quarter ended August 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

In July 2016, the Company’s Board of Directors approved a program to repurchase up to $350.0 million of the Company's common stock, authorized through May 31, 2019.  The purpose of the program is to manage common stock dilution.  The following table provides information relating to our repurchases of common stock during the first quarter:

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Approximate dollar value of shares that may yet be purchased under the programs
June 1, 2018 - June 30, 2018	—	$	—	—	$	100,471,980
July 1, 2018 - July 31, 2018	—	$	—	—	$	100,471,980
August 1, 2018 - August 31, 2018	456,430	$	71.80	456,430	$	67,699,782
Total for the period	456,430	$	—	456,430	$	67,699,782

Shares of common stock repurchased were retired.

34

Item 6. Exhibits

INDEX TO EXHIBITS

Exhibit number	Description
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL instance document.
101.SCH	XBRL taxonomy extension schema document.
101.CAL	XBRL taxonomy extension calculation linkbase document.
101.LAB	XBRL taxonomy label linkbase document.
101.PRE	XBRL taxonomy extension presentation linkbase document.
101.DEF	XBRL taxonomy extension definition linkbase document.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PAYCHEX, INC.

Date:	October 5, 2018	/s/ Martin Mucci
		Martin Mucci
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:	October 5, 2018	/s/ Efrain Rivera
		Efrain Rivera
		Senior Vice President, Chief
		Financial Officer, and Treasurer
		(Principal Financial Officer)

36

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, MARTIN MUCCI, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Paychex, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    October 5, 2018	/s/ Martin Mucci
	Martin Mucci President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, EFRAIN RIVERA, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Paychex, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:    October 5, 2018	/s/ Efrain Rivera
	Efrain Rivera Senior Vice President, Chief Financial Officer, and Treasurer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Paychex, Inc. (the “Company”) on Form 10-Q for the period ended August 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on the date hereof (the “Report”), I, MARTIN MUCCI, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC upon request.

Date: October 5, 2018

/s/ Martin Mucci

Martin Mucci

President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Paychex, Inc. (the “Company”) on Form 10-Q for the period ended August 31, 2018 as filed with the Securities and Exchange Commission (“SEC”) on the date hereof (the “Report”), I, EFRAIN RIVERA, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC upon request.

Date: October 5, 2018

/s/ Efrain Rivera

Efrain Rivera

Senior Vice President, Chief Financial Officer, and
Treasurer

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Document and Entity Information - shares	3 Months Ended
	Aug. 31, 2018	Sep. 30, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	PAYCHEX INC
Entity Filer Category	Large Accelerated Filer
Entity Central Index Key	0000723531
Entity Small Business	false
Entity Emerging Growth Company	false
Amendment Flag	false
Document Type	10-Q
Trading Symbol	PAYX
Document Fiscal Period Focus	Q1
Document Period End Date	Aug. 31, 2018
Document Fiscal Year Focus	2019
Current Fiscal Year End Date	--05-31
Entity Common Stock, Shares Outstanding		359,081,940

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Consolidated Statements of Income and Comprehensive Income - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017	[1]
Revenue:
Total service revenue	$ 845.7	$ 779.2
Interest on funds held for clients	17.1	13.7
Total revenue	862.8	792.9
Expenses:
Operating expenses	265.5	232.0
Selling, general and administrative expenses	277.0	243.6
Total expenses	542.5	475.6
Operating income	320.3	317.3
Investment income, net	2.3	2.1
Income before income taxes	322.6	319.4
Income taxes	79.0	109.0
Net income	243.6	210.4	[2]
Other comprehensive income, net of tax	0.4	4.4
Comprehensive income	$ 244.0	$ 214.8
Basic earnings per share	$ 0.68	$ 0.59	[2]
Diluted earnings per share	$ 0.67	$ 0.58	[2]
Weighted-average common shares outstanding	359.1	358.9	[2]
Weighted-average common shares outstanding, assuming dilution	361.5	361.3	[2]
Cash dividends per common share	$ 0.56	$ 0.50
Management Solutions [Member]
Revenue:
Total service revenue	$ 687.7	$ 665.9
PEO And Insurance Services [Member]
Revenue:
Total service revenue	$ 158.0	$ 113.3

[1] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

[2] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

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Consolidated Balance Sheets - USD ($) $ in Millions		Aug. 31, 2018	May 31, 2018
Assets
Cash and cash equivalents		$ 440.1	$ 358.2	[1]
Corporate investments		82.9	66.0	[1]
Interest receivable		29.1	32.2	[1]
Accounts receivable, net of allowance for doubtful accounts		535.2	492.4	[1]
Prepaid income taxes	[1]		17.0
Prepaid expenses and other current assets		225.1	224.0	[1]
Current assets before funds held for clients		1,312.4	1,189.8	[1]
Funds held for clients		3,763.8	4,703.8	[1]
Total current assets		5,076.2	5,893.6	[1]
Long-term corporate investments		264.6	295.5	[1]
Property and equipment, net of accumulated depreciation		389.1	393.5	[1]
Intangible assets, net of accumulated amortization		135.5	141.4	[1]
Goodwill		813.3	814.0	[1]
Long-term deferred costs		355.6	361.0	[1],[2]
Other long-term assets		15.7	16.4	[1]
Total assets		7,050.0	7,915.4	[1]
Liabilities
Accounts payable		62.6	73.7	[1]
Accrued compensation and related items		283.2	320.6	[1]
Accrued income taxes		51.6
Short-term borrowings		56.7
Deferred revenue		36.6	34.6	[1]
Other current liabilities		114.2	132.9	[1]
Current liabilities before client fund obligations		604.9	561.8	[1]
Client fund obligations		3,792.5	4,734.9	[1]
Total current liabilities		4,397.4	5,296.7	[1]
Accrued income taxes		19.1	18.4	[1]
Deferred income taxes		155.5	154.4	[1]
Other long-term liabilities		91.0	89.1	[1]
Total liabilities		4,663.0	5,558.6	[1]
Commitments and contingencies - Note M				[1]
Stockholders' equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding: 359.0 shares as of August 31, 2018 and May 31, 2018		3.6	3.6	[1]
Additional paid-in capital		1,151.1	1,126.8	[1]
Retained earnings		1,268.1	1,262.6	[1]
Accumulated other comprehensive loss		(35.8)	(36.2)	[1]
Total stockholders' equity		2,387.0	2,356.8	[1]
Total liabilities and stockholders' equity		$ 7,050.0	$ 7,915.4	[1]

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company's fiscal 2018 Form 10-K. Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Aug. 31, 2018	May 31, 2018
Stockholders' equity
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	600,000,000	600,000,000
Common stock, shares issued	359,000,000	359,000,000
Common stock, shares outstanding	359,000,000	359,000,000

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Consolidated Statements of Cash Flows - USD ($) $ in Millions		3 Months Ended
		Aug. 31, 2018	Aug. 31, 2017
Operating activities
Net income		$ 243.6	$ 210.4	[1],[2]
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment and intangible assets		35.9	32.0	[1]
Amortization of premiums and discounts on available-for-sale securities, net		14.4	17.1	[1]
Stock-based compensation costs		10.9	8.7	[1]
Provision for deferred income taxes		2.6	48.9	[1]
Provision for allowance for doubtful accounts		0.3	0.7	[1]
Net realized gains on sales of available-for-sale securities		0.1
Changes in operating assets and liabilities:
Interest receivable		3.1	3.9	[1]
Accounts receivable		(43.0)	8.8	[1]
Prepaid expenses and other current assets		15.2	28.2	[1]
Accounts payable and other current liabilities		(15.2)	(19.8)	[1]
Deferred costs		6.2	4.2	[1]
Net change in other long-term assets and liabilities		(0.4)	0.5	[1]
Net cash provided by operating activities		273.7	343.6	[1]
Investing activities
Purchases of available-for-sale securities		(11,115.8)	(8,646.7)	[1]
Proceeds from sales and maturities of available-for-sale securities		11,297.0	8,892.0	[1]
Net change in funds held for clients’ money market securities and other cash equivalents		762.5	(929.7)	[1]
Purchases of property and equipment		(24.4)	(18.0)	[1]
Acquisition of businesses, net of cash acquired	[1]		(8.2)
Purchases of other assets		(0.8)	(0.4)	[1]
Net cash provided by/(used in) investing activities		918.5	(711.0)	[1]
Financing activities
Net change in client fund obligations		(942.5)	645.5	[1]
Net proceeds from short-term borrowings		56.7	57.2	[1]
Dividends paid		(201.4)	(179.1)	[1]
Repurchases of common shares		(32.8)	(94.1)	[1]
Activity related to equity-based plans		9.7	(12.3)	[1]
Net cash (used in)/provided by financing activities		(1,110.3)	417.2	[1]
Increase in cash and cash equivalents		81.9	49.8	[1]
Cash and cash equivalents, beginning of fiscal year	[1]	358.2	184.6
Cash and cash equivalents, end of period		$ 440.1	$ 234.4	[1]

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

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Description of Business, Basis of Presentation, and Significant Accounting Policies

3 Months Ended

Aug. 31, 2018

Description of Business, Basis of Presentation, and Significant Accounting Policies [Abstract]

Description of Business, Basis of Presentation, and Significant Accounting Policies

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, benefits, human resource (“HR”), and insurance services for small- to medium-sized businesses in the United States (“U.S.”). The Company also has operations in Europe. 

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 Europe, which represented approximately onepercent of the Company’s total revenue for the three months ended August 31, 2018 and was less than one percent of the Company's total revenue for the three months ended August 31, 2017.  Long-lived assets in Europe were approximately 10% of total long-lived assets of the Company as of August 31, 2018 and May 31, 2018. 

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q (“Form 10-Q”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended May 31, 2018 (“fiscal 2018”).  Operating results and cash flows for the three months ended August 31, 2018 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2019 (“fiscal 2019”).

Effective June 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed in “Recently adopted accounting pronouncements.”  All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standard, as indicated by the “As Adjusted” footnote.

Reclassifications:  Certain prior period amounts have been reclassified to conform to the current period presentation in connection with the adoption of ASU No. 2014-09 and had no effect on reported consolidated earnings.

PEO insurance reserves: As part of the professional employer organization (“PEO”) service, the Company offers workers' compensation insurance and health insurance to client companies for the benefit of client employees. For workers' compensation insurance, reserves are established to provide for the estimated costs of paying claims up to per occurrence liability limits. The Company’s maximum individual claims liability, excluding HR Outsourcing Holdings, Inc. (“HROI”), was $1.0 million and $1.3 million under its fiscal 2019 and fiscal 2018 workers' compensation insurance policies, respectively. HROI’s maximum individual claims liability was $0.5 million under its workers’ compensation insurance policies for the years ending September 30, 2018 and September 30, 2017.  

Under the minimum premium insurance plan offering within the PEO, the Company's health benefits insurance reserves are established to provide for the payment of claims liability charges in accordance with its service contract with the insurance carrier. The Company's maximum individual claims liability, excluding HROI, was $0.3 million under both its calendar 2018 and 2017 minimum premium insurance plan policies. HROI’s maximum individual claims liability was $0.3 million under its minimum premium insurance plan policies for the years ending June 30, 2019 and June 30, 2018.  In addition, the Company also provides self-insured dental and vision plans.

Estimating the ultimate cost of future claims is an uncertain and complex process based upon historical loss experience and actuarial loss projections, and is 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 insurance reserves are reflected in the results of operations for the period in which such adjustments are identified. Such adjustments could be significant, reflecting any combination of new and adverse or favorable trends.

Stock-based compensation costs: The Company has issued stock-based awards to employees and directors consisting of stock options, restricted stock awards, restricted stock units, performance shares, performance-based restricted stock, and performance-based stock options. The Company accounts for all stock-based awards to employees and directors as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized were $10.9 million for the three months ended August 31, 2018, as compared with $8.7 million for the three months ended August 31, 2017. The methods and assumptions used in the determination of the fair value of stock-based awards are consistent with those described in the Company’s fiscal 2018 Form 10-K.

Recently adopted accounting pronouncements:In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  This guidance, as amended by subsequent ASUs on the topic, outlines a single comprehensive model for determining revenue recognition for contracts with customers, and supersedes guidance on revenue recognition in ASC Topic 605, “Revenue Recognition.”  The Company adopted the new standard on June 1, 2018, utilizing the full retrospective method, which required the Company to recast each prior reporting period presented and included a cumulative adjustment to increase stockholder’s equity by $262.9 million as of June 1, 2016.  We have updated our control framework for new internal controls and made changes to existing controls related to the new standard.

Impact on Previously Reported Results

The provisions of ASU No. 2014-09 do not materially impact the timing or the amount of revenue the Company recognizes on an annual basis in its Consolidated Statements of Income and Comprehensive Income. However, it does have an impact on the timing and amount of revenue the Company recognizes on a quarterly basis due to changes in the way it accounts for certain revenues where performance obligations are satisfied at a point in time. The provisions of the new standard have a material impact on the Company’s Consolidated Balance Sheets. The primary impact of adopting the new standard is on the Company’s treatment of certain costs to obtain and fulfill contracts.  In relation to those items, the new standard resulted in the Company deferring additional costs on its Consolidated Balance Sheets and amortizing them to the Consolidated Statements of Income and Comprehensive Income over the estimated average life of the client.  Refer to Note B for further details. 

The following table presents a recast of selected unaudited consolidated statements of income and comprehensive income line items after giving effect to the adoption of ASU No. 2014-09: 

	For the three months ended August 31, 2017
	As Previously
In millions, except per share amounts	Reported		Adjustments		As Adjusted
Service revenue	$	803.1	$	(23.9)	$	779.2
Operating expenses		232.1		(0.1)		232.0
Selling, general and administrative expenses		239.7		3.9		243.6
Total expenses		471.8		3.8		475.6
Operating income		345.0		(27.7)		317.3
Income taxes		119.3		(10.3)		109.0
Net income	$	227.8	$	(17.4)	$	210.4
Basic earnings per share	$	0.63	$	(0.04)	$	0.59
Diluted earnings per share	$	0.63	$	(0.05)	$	0.58

The following table presents a recast of selected unaudited consolidated balance sheet line items after giving effect to the adoption of ASU No. 2014-09:

	May 31, 2018
	As Previously
In millions	Reported		Adjustments		As Adjusted
Assets
Accounts receivable, net of allowance for doubtful accounts	$	531.4	$	(39.0)	$	492.4
Prepaid expenses and other current assets	$	75.8	$	148.2	$	224.0
Long-term deferred costs(1)	$	18.5	$	342.5	$	361.0
Liabilities and stockholders' equity
Accounts payable	$	74.5	$	(0.8)	$	73.7
Deferred revenue	$	24.3	$	10.3	$	34.6
Deferred income taxes	$	48.8	$	105.6	$	154.4
Other long-term liabilities	$	84.8	$	4.3	$	89.1
Retained earnings	$	930.3	$	332.3	$	1,262.6

(1)Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company’s fiscal 2018 Form 10-K.  Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

The following table presents a recast of selected unaudited consolidated statement of cash flow line items after giving effect to the adoption of ASU No. 2014-09:

	For the three months ended August 31, 2017
	As Previously
In millions	Reported		Adjustments		As Adjusted
Cash flows from operating activities
Net income	$	227.8	$	(17.4)	$	210.4
Provision for deferred income taxes	$	59.2	$	(10.3)	$	48.9
Accounts receivable	$	(15.4)	$	24.2	$	8.8
Deferred costs	$	—	$	4.2	$	4.2
Accounts payable and other current liabilities	$	(19.2)	$	(0.6)	$	(19.8)
Net change in other long-term assets and liabilities	$	0.6	$	(0.1)	$	0.5

In June 2018, the Company also adopted the following ASUs, none of which had a material impact on its consolidated financial statements:

· ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”

· ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).”

· ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”

· ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).”

· ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”

Recently issued accounting pronouncements: In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  ASU 2018-13 modified the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits.  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This guidance, as amended by subsequent ASUs on the topic, improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU No. 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. This guidance is applicable to the Company's fiscal year beginning June 1, 2019. The Company is gathering data and assessing the impact of the new lease accounting standard and the Company anticipates that the adoption of the new lease accounting standard will result in additional assets and liabilities being recorded on its Consolidated Balance Sheets.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (“SEC”) during the three months ended August 31, 2018 did not, or are not expected to, have a material effect on the Company’s consolidated financial statements.

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Service Revenue

3 Months Ended

Aug. 31, 2018

Service Revenue [Abstract]

Service Revenue

Note B: Service Revenue

Service revenue is primarily attributable to fees for providing services to the Company’s clients and are recognized when control of the promised services are transferred to its clients, 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 or a fixed amount per processing period plus a fee per employee or transaction processed. The Company’s contracts generally have a term of 30 days as they are cancellable at any time by either party with 30-days’ notice of termination. Sales and other applicable taxes are excluded from service revenue.

Based upon similar operational and economic characteristics, the Company’s service revenue is disaggregated by Management Solutions and PEO and Insurance Services as reported on 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.

Revenue earned from delivery service for the distribution of certain client payroll checks and reports is included in Management Solutions revenue on 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 clients. 

The following table, consistent with the Consolidated Statements of Income and Comprehensive Income, disaggregates service revenue by Management Solutions and PEO and Insurance Services:

	For the three months ended August 31,
			2017
In millions	2018		As Adjusted
Management Solutions	$	687.7	$	665.9
PEO and Insurance Services		158.0		113.3
Total service revenue	$	845.7	$	779.2

Management Solutions Revenue

Management Solutions revenue is primarily derived from the Company’s payroll processing, payroll-related ancillary services and HR outsourcing solutions. Clients can select services on an á la carte basis or as part of various product 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.

PEO and Insurance Services Revenue

PEO services are sold through the Company’s registered and licensed subsidiaries, Paychex Business Solutions, LLC and HROI and offer businesses a combined package of services that includes payroll, employer compliance, HR and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained HR representative, among other services. The Company serves as a co-employer of its clients’ employees, offers health insurance coverage to client employees, and assumes the risks and rewards of workers’ compensation insurance and certain health insurance benefit offerings. PEO revenue is recognized over time as the services are performed and the customer simultaneously receives and controls the benefits from these services. PEO revenue is reported net of certain direct pass-through costs billed and incurred, which include payroll wages, payroll taxes, including state unemployment insurance, and certain health insurance benefit premiums, primarily costs related to our guaranteed cost benefit plans. For guaranteed cost benefit plans where the Company does not retain risk, it is acting as the agent for revenue recognition purposes and revenues are recorded net of the premiums paid to the insurance carrier. Approximately 60% of the client worksite employees that participate in the Company’s benefit plans are enrolled in guaranteed cost benefit plans where the Company does not retain risk. For workers’ compensation and certain benefit plans where the Company retains risk, it is acting as the principal for revenue recognition purposes and revenues and costs are recorded on a gross basis. Approximately 40% of the client worksite employees that participate in the Company’s health insurance offerings are enrolled in these benefit plans.

Insurance services are sold through the Company’s licensed insurance agency, Paychex Insurance Agency, Inc., which provides insurance through a variety of carriers, while 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, and health and benefits coverage, including health, dental, vision, and life. Insurance services revenue is recognized over time as services are performed and the customer simultaneously receives and controls the benefits from these services.

Contract Balances

The timing of revenue recognition for Management Solutions and PEO and Insurance Services is consistent with the invoicing of clients as they both 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.

Advance payments 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 these as future services are provided, over approximately three to four years.

Changes in deferred revenue related to material right performance obligations were as follows:

	For the three months ended
In millions	August 31, 2018
Balance, beginning of period	$	46.4
Deferral of revenue		6.1
Recognition of unearned revenue		(6.8)
Balance, end of period	$	45.7

Deferred revenue related to material right performance obligations is reported in the deferred revenue and other long-term liabilities line items on the Company’s Consolidated Balance Sheets contained in this Form 10-Q.

Assets Recognized from the Costs to Obtain and Fulfill Contracts

The Company recognizes an asset for the incremental costs of obtaining a contract with a client if it is expected that the amortization period will be longer than one year.  The Company determined that certain selling and commission costs meet the capitalization criteria under ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”).  Prior to the adoption of ASU No. 2014-09 these costs were deferred up to an amount equal to the revenue deferred and any costs in excess of that amount were recognized as expense when incurred.  The Company also recognizes an asset for the costs to fulfill a contract with a client 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 our ability to satisfy future performance obligations. 

The assets related to both costs to obtain and costs to fulfill contracts with clients are capitalized and amortized using an accelerated method to closely align with the pattern of client attrition over the estimated life of the client relationship.  Deferred 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 operating and selling, general, and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive Income. The Company regularly reviews its deferred costs and did not recognize an impairment loss during the reporting period. 

Changes in deferred costs to obtain and fulfill contracts were as follows:

	For the three months ended August 31, 2018
	Beginning		Capitalization				Ending
In millions	balance		of costs		Amortization		balance
Costs to obtain a contract	$	455.0	$	32.4	$	(38.9)	$	448.5
Costs to fulfill a contact	$	65.4	$	6.0	$	(5.7)	$	65.7

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Basic and Diluted Earnings Per Share

3 Months Ended

Aug. 31, 2018

Basic and Diluted Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

Note C: Basic and Diluted Earnings Per Share

Basic and diluted earnings per share were calculated as follows:

	For the three months ended
	August 31,
			2017
In millions, except per share amounts	2018		As Adjusted(1)
Basic earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Basic earnings per share	$	0.68	$	0.59
Diluted earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Dilutive effect of common share equivalents		2.4		2.4
Weighted-average common shares outstanding, assuming dilution		361.5		361.3
Diluted earnings per share	$	0.67	$	0.58
Weighted-average anti-dilutive common share equivalents		0.3		1.1

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

Weighted-average common share equivalents that have an anti-dilutive impact are excluded from the computation of diluted earnings per share.

For both the three months ended August 31, 2018 and August 31, 2017,  0.5 million shares of the Company’s common stock were issued in connection with the exercise or vesting of stock-based awards.  In addition, for the three months ended August 31, 2017,  0.6 million shares of the Company’s common stock were issued in relation to an immaterial business acquisition completed in August 2017.  Refer to Note D for further details.

In July 2016, the Company announced that its Board of Directors approved a program to repurchase up to $350.0 million of the Company’s common stock, with authorization expiring in May 2019.  The purpose of the program is to manage common stock dilution. During the three months ended August 31, 2018 and August 31, 2017, the Company repurchased 0.5 million shares for $32.8 million and 1.6 million shares for $94.1 million, respectively. All shares of common stock repurchased were retired.

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Business Combinations

3 Months Ended

Aug. 31, 2018

Business Combinations [Abstract]

Business Combinations

Note D: Business Combinations

Effective February 28, 2018, the Company acquired Lessor Group (“Lessor”). Upon closing, Lessor became a wholly owned subsidiary of the Company.  Lessor is a market-leading provider of payroll and HCM software solutions headquartered in Denmark and serving clients in Northern Europe.  The purchase price was $162.5 million, net of $13.4 million in cash acquired.  Goodwill in the amount of $111.5 million was recorded as a result of the acquisition, which is not tax-deductible.  The purchase accounting is provisional and subject to change, pending completion of a final valuation of Lessor.  However, further changes to goodwill resulting from the acquisition are not anticipated to be material to the Company’s Consolidated Balance Sheets. 

Effective August 18, 2017, the Company acquired HROI and all of its operating subsidiaries.  HROI is a national PEO that provides HR solutions to small- and medium-sized businesses in more than 35 states.  The acquisition expanded the Company’s presence in the PEO industry.  The purchase price was $75.4 million and was comprised of $42.2 million of cash plus $33.2 million issued in the form of Paychex common stock.  Goodwill in the amount of $51.1 million was recorded as a result of the acquisition, which is not tax-deductible.

The financial results of both Lessor and HROI are included in the Company’s consolidated financial statements from the respective dates of acquisition.  The Company concluded that these acquisitions were not material to its results of operations and financial position.  Therefore, pro-forma financial information has been excluded.

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Investment Income, Net

3 Months Ended

Aug. 31, 2018

Investment Income, Net [Abstract]

Investment Income, Net

Note E: Investment Income, Net

Investment income, net, consisted of the following items:

	For the three months ended
	August 31,
In millions	2018		2017
Interest income on corporate funds	$	3.2	$	2.9
Interest expense		(0.9)		(0.8)
Investment income, net	$	2.3	$	2.1

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Funds Held for Clients and Corporate Investments

3 Months Ended

Aug. 31, 2018

Funds Held for Clients and Corporate Investments [Abstract]

Funds Held for Clients and Corporate Investments

Note F: Funds Held for Clients and Corporate Investments

Funds held for clients and corporate investments are as follows:

	August 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,179.8	$	—	$	—	$	1,179.8
Available-for-sale securities:
Corporate bonds		367.7		0.3		(7.3)		360.7
General obligation municipal bonds		1,149.8		1.3		(9.7)		1,141.4
Pre-refunded municipal bonds(1)		45.7		0.2		(0.1)		45.8
Revenue municipal bonds		767.5		1.0		(7.1)		761.4
U.S. government agency securities		454.5		0.1		(14.6)		440.0
Variable rate demand notes		162.3		—		—		162.3
Total available-for-sale securities		2,947.5		2.9		(38.8)		2,911.6
Other		17.4		2.5		—		19.9
Total funds held for clients and corporate investments	$	4,144.7	$	5.4	$	(38.8)	$	4,111.3

	May 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,942.3	$	—	$	—	$	1,942.3
Available-for-sale securities:
Corporate bonds		328.6		0.1		(7.3)		321.4
General obligation municipal bonds		1,231.6		1.3		(11.2)		1,221.7
Pre-refunded municipal bonds(1)		50.9		0.1		(0.1)		50.9
Revenue municipal bonds		813.5		0.9		(8.0)		806.4
U.S. government agency securities		410.2		—		(14.1)		396.1
Variable rate demand notes		308.3		—		—		308.3
Total available-for-sale securities		3,143.1		2.4		(40.7)		3,104.8
Other		16.1		2.1		—		18.2
Total funds held for clients and corporate investments	$	5,101.5	$	4.5	$	(40.7)	$	5,065.3

(1)Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.

Included in money market securities and other cash equivalents as of August 31, 2018 and May 31, 2018 were bank demand deposit accounts, time deposits, commercial paper, and money market funds.  In addition, as of August 31, 2018, certain U.S. government agency securities with maturities of 90 days or less at acquisition were also included in money market securities and other cash equivalents.

Classification of investments on the Consolidated Balance Sheets is as follows:

	August 31,		May 31,
In millions	2018		2018
Funds held for clients	$	3,763.8	$	4,703.8
Corporate investments		82.9		66.0
Long-term corporate investments		264.6		295.5
Total funds held for clients and corporate investments	$	4,111.3	$	5,065.3

The Company’s available-for-sale securities reflected net unrealized losses of $35.9 million and $38.3 million as of August 31, 2018 and May 31, 2018, respectively.  Included in the net unrealized loss totals as of August 31, 2018 and May 31, 2018, were 916 and970 available-for-sale securities in an unrealized loss position, respectively.  The available-for-sale securities in an unrealized loss position were as follows:

	August 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(5.8)	$	272.9	$	(1.5)	$	39.7	$	(7.3)	$	312.6
General obligation municipal bonds		(7.4)		745.1		(2.3)		64.1		(9.7)		809.2
Pre-refunded municipal bonds		(0.1)		12.8		—		0.5		(0.1)		13.3
Revenue municipal bonds		(5.2)		445.1		(1.9)		55.6		(7.1)		500.7
U.S. government agency securities		(7.0)		232.8		(7.6)		176.7		(14.6)		409.5
Total	$	(25.5)	$	1,708.7	$	(13.3)	$	336.6	$	(38.8)	$	2,045.3

	May 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(6.0)	$	271.5	$	(1.3)	$	34.6	$	(7.3)	$	306.1
General obligation municipal bonds		(8.7)		856.4		(2.5)		68.9		(11.2)		925.3
Pre-refunded municipal bonds		(0.1)		18.5		—		0.5		(0.1)		19.0
Revenue municipal bonds		(6.3)		540.9		(1.7)		50.9		(8.0)		591.8
U.S. government agency securities		(6.4)		219.7		(7.7)		176.4		(14.1)		396.1
Total	$	(27.5)	$	1,907.0	$	(13.2)	$	331.3	$	(40.7)	$	2,238.3

The Company regularly reviews its investment portfolios to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns. The Company believes that the investments held as of August 31, 2018 that had gross unrealized losses of $38.8 million were not other-than-temporarily impaired. The Company believes that 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 majority of the securities in an unrealized loss position as of August 31, 2018 and May 31, 2018 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 other-than-temporarily impaired could change in the future due to new developments or changes in the Company’s strategies or assumptions related to any particular investment.

Realized gains and losses on the sales of securities are determined by specific identification of the amortized cost basis of each security. On the Consolidated Statements of Income and Comprehensive Income, realized gains and losses from funds held for clients are included in interest on funds held for clients and realized gains and losses from corporate investments are included in investment income, net. Realized gains were insignificant for the three months ended August 31, 2018 and August 31, 2017.  There were no realized losses for the three months ended August 31, 2018 and August 31, 2017.

The amortized cost and fair value of available-for-sale securities that had stated maturities as of August 31, 2018 are shown below by contractual maturity. Expected maturities can differ from contractual maturities because borrowers may have the right to prepay obligations without prepayment penalties.

	August 31, 2018
	Amortized		Fair
In millions	cost		value
Maturity date:
Due in one year or less	$	382.8	$	382.4
Due after one year through three years		788.0		784.6
Due after three years through five years		979.8		965.6
Due after five years		796.9		779.0
Total	$	2,947.5	$	2,911.6

Variable rate demand notes 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.

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Fair Value Measurements

3 Months Ended

Aug. 31, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements

Note G: Fair Value Measurements

Fair 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:

· Level 1 valuations are based on quoted prices in active markets for identical instruments that the Company can access at the measurement date.

· Level 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:

o quoted prices for similar, but not identical, instruments in active markets;

o quoted prices for identical or similar instruments in markets that are not active;

o inputs other than quoted prices that are observable for the instrument; or

o inputs that are derived principally from or corroborated by observable market data by correlation or other means.

· Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.

The carrying values of cash and cash equivalents, accounts receivable, net of allowance for doubtful accounts, 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 available-for-sale and are recorded at fair value on a recurring basis.

The Company’s financial assets and liabilities measured at fair value on a recurring basis were as follows:

	August 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	366.9	$	—	$	366.9	$	—
Time deposits		150.0		—		150.0		—
U.S. government agency securities		457.8		—		457.8		—
Money market securities		39.5		39.5		—		—
Total cash equivalents	$	1,014.2	$	39.5	$	974.7	$	—
Available-for-sale securities:
Corporate bonds	$	360.7	$	—	$	360.7	$	—
General obligation municipal bonds		1,141.4		—		1,141.4		—
Pre-refunded municipal bonds		45.8		—		45.8		—
Revenue municipal bonds		761.4		—		761.4		—
U.S. government agency securities		440.0		—		440.0		—
Variable rate demand notes		162.3		—		162.3		—
Total available-for-sale securities	$	2,911.6	$	—	$	2,911.6	$	—
Other	$	19.9	$	19.9	$	—	$	—
Liabilities:
Other long-term liabilities	$	19.9	$	19.9	$	—	$	—

	May 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	655.0	$	—	$	655.0	$	—
Time deposits		200.0		—		200.0		—
Money market securities		7.1		7.1		—		—
Total cash equivalents	$	862.1	$	7.1	$	855.0	$	—
Available-for-sale securities:
Corporate bonds	$	321.4	$	—	$	321.4	$	—
General obligation municipal bonds		1,221.7		—		1,221.7		—
Pre-refunded municipal bonds		50.9		—		50.9		—
Revenue municipal bonds		806.4		—		806.4		—
U.S. government agency securities		396.1		—		396.1		—
Variable rate demand notes		308.3		—		308.3		—
Total available-for-sale securities	$	3,104.8	$	—	$	3,104.8	$	—
Other	$	18.2	$	18.2	$	—	$	—
Liabilities:
Other long-term liabilities	$	18.2	$	18.2	$	—	$	—

In determining the fair value of its assets and liabilities, the Company predominately uses the market approach.  Money market securities, which are cash equivalents, are valued based on quoted market prices in active markets. Cash equivalents also include commercial paper, time deposits, and U.S. government agency securities with a maturity of 90 days or less at acquisition, which are considered Level 2 investments as they are valued based on similar, but not identical, instruments in active markets.  Available-for-sale securities, including municipal bonds, variable rate demand notes, corporate bonds, and U.S. government agency securities, 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 available-for-sale 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.

Assets 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 valued based on quoted market prices in active markets.

The 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.

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Accounts Receivable, Net of Allowance for Doubtful Accounts

3 Months Ended

Aug. 31, 2018

Accounts Receivable, Net of Allowance for Doubtful Accounts [Abstract]

Accounts Receivable, Net of Allowance for Doubtful Accounts

Note H: Accounts Receivable, Net of Allowance for Doubtful Accounts

The components of accounts receivable, net of allowance for doubtful accounts, consisted of the following:

			May 31,
	August 31,		2018
In millions	2018		As Adjusted(1)
PEO receivables(2)	$	166.3	$	140.1
Purchased receivables(3)		295.1		267.0
Other trade receivables(4)		80.1		92.3
Total accounts receivable, gross		541.5		499.4
Less:  Allowance for doubtful accounts		6.3		7.0
Accounts receivable, net of allowance for doubtful accounts	$	535.2	$	492.4

(1)Amounts have been adjusted to reflect the adoption of ASC Topic 606.

(2)PEO receivables are primarily client wages and related tax withholdings since the last payroll processed.  Balances will vary based on the timing of the last payroll processed and the end of the reporting period.

(3)Purchased receivables relate to payroll funding arrangements with clients in the temporary staffing industry.

(4)Other trade receivables primarily relate to other ongoing services provided to our clients and can vary based on the timing of these services and the end of the reporting period.

No single client had a material impact on total accounts receivable, service revenue, or results of operations.

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Property and Equipment, Net of Accumulated Depreciation

3 Months Ended

Aug. 31, 2018

Property and Equipment, Net of Accumulated Depreciation [Abstract]

Property and Equipment, Net of Accumulated Depreciation

Note I: Property and Equipment, Net of Accumulated Depreciation

The components of property and equipment, at cost, consisted of the following:

	August 31,		May 31,
In millions	2018		2018
Land and improvements	$	10.6	$	10.6
Buildings and improvements		128.0		126.4
Data processing equipment		213.5		211.3
Software (1)		563.8		545.5
Furniture, fixtures, and equipment		111.2		114.5
Leasehold improvements		109.3		111.4
Construction in progress (1)		61.2		63.0
Total property and equipment, gross		1,197.6		1,182.7
Less: Accumulated depreciation		808.5		789.2
Property and equipment, net of accumulated depreciation	$	389.1	$	393.5

(1)Software 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.

Depreciation expense was $29.4 million for the three months ended August 31, 2018, compared to $28.1 million for the three months ended August 31, 2017.

In August 2017, the Company announced its plan for a new multi-building Paychex campus based in Rochester, NY.  This involved the purchase of five buildings and the renovation of over 300,000 square feet of existing space.  The new campus will result in the consolidation of currently leased space in the Rochester area.  The Company completed the purchase of these buildings during the three months ended November 30, 2017 for a combined cost of approximately $34.7 million and placed approximately $16.0 million in escrow for building renovations, which are in-process.  As of August 31, 2018 and May 31, 2018, $33.2 million and $32.0 million is included in the Company’s construction in progress balance, respectively, with a remaining balance in escrow of $4.4 million and $14.2 million, respectively.  In addition, in September 2017, the Company entered into a transaction with the County of Monroe Industrial Development Agency for purposes of obtaining public benefits and inducements, expiring on December 31, 2039.  The public inducements include exemption from sales and use taxes for goods and services directly related to the renovations of the new multi-building campus as well as other property tax incentives.

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Goodwill and Intangible Assets, Net of Accumulated Amortization

3 Months Ended

Aug. 31, 2018

Goodwill and Intangible Assets, Net of Accumulated Amortization [Abstract]

Goodwill and Intangible Assets, Net of Accumulated Amortization

Note J: Goodwill and Intangible Assets, Net of Accumulated Amortization

The Company had goodwill balances on its Consolidated Balance Sheets of $813.3 million as of August 31, 2018 and $814.0 million as of May 31, 2018. 

The Company has certain intangible assets on its Consolidated Balance Sheets. The components of intangible assets, at cost, consisted of the following:

	August 31,		May 31,
In millions	2018		2018
Client lists	$	307.4	$	308.5
Other intangible assets		13.3		13.3
Total intangible assets, gross		320.7		321.8
Less: Accumulated amortization		185.2		180.4
Intangible assets, net of accumulated amortization	$	135.5	$	141.4

Amortization expense relating to intangible assets was $6.5 million for the three months ended August 31, 2018, compared to $3.9million for the three months ended August 31, 2017.

As of August 31, 2018, the estimated amortization expense relating to intangible asset balances for the full year fiscal 2019 and the following four fiscal years is as follows:

In millions	Estimated amortization
Year ending May 31,	expense
2019	$	26.0
2020		22.6
2021		19.5
2022		16.6
2023		14.2

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Accumulated Other Comprehensive (Loss)/Income

3 Months Ended

Aug. 31, 2018

Accumulated Other Comprehensive (Loss)/Income [Abstract]

Accumulated Other Comprehensive (Loss)/ Income

Note K: Accumulated Other Comprehensive (Loss)/Income

The change in unrealized gains and losses, net of applicable taxes, related to investments in available-for-sale securities and foreign currency translation adjustments are the primary components reported in accumulated other comprehensive loss on the Company’s Consolidated Balance Sheets.  The changes in accumulated other comprehensive (loss)/income are as follows:

	For the three months ended
	August 31,
In millions	2018		2017
Beginning balance	$	(36.2)	$	20.0
Other comprehensive (loss)/income:
Unrealized gains on available-for-sale securities, net of tax		2.1		4.3
Foreign currency translation adjustment		(1.7)		0.1
Total other comprehensive income, net of tax		0.4		4.4
Ending balance	$	(35.8)	$	24.4
Total tax expense included in other comprehensive income	$	0.5	$	2.4

Reclassification adjustments out of accumulated other comprehensive (loss)/income for realized gains and losses on the sale of available-for-sale securities were insignificant for each of the three months ended August 31, 2018 and August 31, 2017.  Those reclassification adjustments are reflected in interest on funds held for clients on the Consolidated Statements of Income and Comprehensive Income.

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Short-term Financing

3 Months Ended

Aug. 31, 2018

Short-term Financing [Abstract]

Short-term Financing

Note L: Short-term Financing

The Company maintains credit facilities and letters of credit as part of its normal and recurring business operations.

Credit Facilities:  The Company maintains three committed, unsecured credit facilities, as follows:

Bank	Borrower (1)	Date Entered	Expiration Date	Maximum Amount Available	Purpose
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 5, 2015	August 5, 2020	$1 Billion	To meet short-term funding requirements.
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 17, 2017	August 17, 2022	$500 Million	To meet short-term funding requirements.
PNC Bank, National Association (“PNC”)	Paychex Advance, LLC	March 17, 2016	March 17, 2020	$150 Million	To finance working capital needs and general corporate purposes.

(1)Borrower is a wholly owned subsidiary of the Company.

(2)JP Morgan Chase Bank, N.A. (“JPM”) acts as the administrative agent for this syndicated credit facility.

For all credit facilities, obligations under any facility are guaranteed by the Company and certain of its subsidiaries and will bear interest at competitive rates based on options provided to the borrower.  Upon the expiration date, any borrowings outstanding will mature and be payable on such date.

JPM $1 Billion Credit Facility: There were no borrowings outstanding under this credit facility as of August 31, 2018 or May 31, 2018.  Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017 are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		6			13
Maximum amount borrowed	$	394.5		$	660.0
Weighted-average amount borrowed	$	216.3		$	278.8
Weighted-average interest rate		4.99	%		4.23	%

The Company typically borrows on an overnight basis and only borrowed on an overnight basis during the three months ended August 31, 2018.  In addition to overnight borrowings, during the three months ended August 31, 2017, the Company borrowed $100.0 million for a three-day period at a weighted-average LIBOR-based interest rate of 4.25%. Subsequent to August 31, 2018, the Company borrowed two times, on an overnight basis, $417.0 million on a weighted-average basis under this line.

JPM $500 Million Credit Facility: There were no borrowings outstanding under this credit facility as of August 31, 2018 or May 31, 2018. Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017 are as follows: 

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		4			—
Maximum amount borrowed	$	223.0		$	—
Weighted-average amount borrowed	$	133.4		$	—
Weighted-average interest rate		4.99	%		0.00	%

The Company typically borrows on an overnight basis and only borrowed on an overnight basis during the three months ended August 31, 2018.  Subsequent to August 31, 2018, the Company borrowed one time, on an overnight basis, $135.5 million under this line.

PNC $150 Million Credit Facility:  As of August 31, 2018, the Company had $56.7 million outstanding under this credit facility, which remains outstanding as of the date of this report.  There wereno borrowings outstanding under this credit facility as of May 31, 2018. Details of borrowings under this credit facility during the three months ended August 31, 2018 and August 31, 2017, are as follows:

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		88			88
Maximum amount borrowed	$	56.8		$	57.2
Weighted-average amount borrowed	$	56.0		$	55.8
Weighted-average interest rate		2.53	%		1.67	%

All of the Company’s credit facilities contain various financial and operational covenants that are usual and customary for such arrangements. The Company was in compliance with all of these covenants as of August 31, 2018.

Certain 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.

Letters of credit: The Company had irrevocable standby letters of credit outstanding totaling$61.8 million and $56.8 million as of August 31, 2018 and May 31, 2018, respectively, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between November 2018 and July 2020.  No amounts were outstanding on these letters of credit as of or during the three months ended August 31, 2018 and August 31, 2017, or as of May 31, 2018.

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Commitments and Contingencies

3 Months Ended

Aug. 31, 2018

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note M: Commitments and Contingencies

Other commitments: The Company enters into various purchase commitments with vendors in the ordinary course of business. The Company had outstanding commitments to purchase approximately $10.5 million and $6.7 million of capital assets as of August 31, 2018 and May 31, 2018, respectively.

In the normal course of business, the Company makes representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. In addition, the Company has entered into indemnification agreements with its officers and directors, 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.

The Company currently self-insures the deductible portion of various insured exposures under certain employee benefit plans. The estimated loss exposure under these insurance arrangements is recorded in other current liabilities on the Company’s Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were not material as of August 31, 2018. The Company also maintains insurance coverage in addition to its purchased primary insurance policies for gap coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-insured retentions through its captive insurance company.

Contingencies: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, patent, breach of fiduciary duty, employment-related claims, tax claims, and other matters.

The 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 results of operations in the period in which any such effect is recorded.

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Income Taxes

3 Months Ended

Aug. 31, 2018

Income Taxes [Abstract]

Income Taxes

Note N: Income Taxes

The Company’s effective income tax rate was 24.5% and 34.1% for the three months ended August 31, 2018 and August 31, 2017, respectively.  The decrease in the effective income tax rate for the three months ended August 31, 2018 was primarily due to the enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017, partially offset by certain discrete items related to the revaluation of deferred taxes.  In addition, the effective income tax rates in both periods were impacted by the recognition of a net discrete tax benefit related to employee stock-based compensation payments.  The net discrete tax benefit impacted the three months ended August 31, 2018 and August 31, 2017 by $0.01 per diluted share for each respective period. 

The Tax Act made broad and complex changes to U.S. Federal corporate income taxation as outlined in the Company’s Form 10-K for fiscal 2018.  In December 2017, the staff of the SEC issued guidance under Staff Accounting Bulletin No. 118 (“SAB No. 118”), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” allowing taxpayers to record provisional amounts for reasonable estimates when they do not have the necessary information available, prepared or analyzed in reasonable detail to complete their accounting for certain income tax effects of the Tax Act. The SEC also issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. This analysis is complete except for provisional amounts that were determined in accordance with SAB No. 118 related to certain equity compensation agreements. However, any changes as a result of further guidance related to this topic are not expected to have a material impact on the provisional amounts.

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Description of Business, Basis of Presentation, and Significant Accounting Policies (Policy)

3 Months Ended

Aug. 31, 2018

Description of Business, Basis of Presentation, and Significant Accounting Policies [Abstract]

Description of Business

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, benefits, human resource (“HR”), and insurance services for small- to medium-sized businesses in the United States (“U.S.”). The Company also has operations in Europe. 

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 Europe, which represented approximately onepercent of the Company’s total revenue for the three months ended August 31, 2018 and was less than one percent of the Company's total revenue for the three months ended August 31, 2017.  Long-lived assets in Europe were approximately 10% of total long-lived assets of the Company as of August 31, 2018 and May 31, 2018. 

Basis of Presentation

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q (“Form 10-Q”) and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature), which are necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended May 31, 2018 (“fiscal 2018”).  Operating results and cash flows for the three months ended August 31, 2018 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2019 (“fiscal 2019”).

Effective June 1, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as discussed in “Recently adopted accounting pronouncements.”  All amounts and disclosures set forth in this Form 10-Q have been updated to comply with the new standard, as indicated by the “As Adjusted” footnote.

Reclassifications

Reclassifications:  Certain prior period amounts have been reclassified to conform to the current period presentation in connection with the adoption of ASU No. 2014-09 and had no effect on reported consolidated earnings.

PEO Insurance Reserves

PEO insurance reserves: As part of the professional employer organization (“PEO”) service, the Company offers workers' compensation insurance and health insurance to client companies for the benefit of client employees. For workers' compensation insurance, reserves are established to provide for the estimated costs of paying claims up to per occurrence liability limits. The Company’s maximum individual claims liability, excluding HR Outsourcing Holdings, Inc. (“HROI”), was $1.0 million and $1.3 million under its fiscal 2019 and fiscal 2018 workers' compensation insurance policies, respectively. HROI’s maximum individual claims liability was $0.5 million under its workers’ compensation insurance policies for the years ending September 30, 2018 and September 30, 2017.  

Under the minimum premium insurance plan offering within the PEO, the Company's health benefits insurance reserves are established to provide for the payment of claims liability charges in accordance with its service contract with the insurance carrier. The Company's maximum individual claims liability, excluding HROI, was $0.3 million under both its calendar 2018 and 2017 minimum premium insurance plan policies. HROI’s maximum individual claims liability was $0.3 million under its minimum premium insurance plan policies for the years ending June 30, 2019 and June 30, 2018.  In addition, the Company also provides self-insured dental and vision plans.

Estimating the ultimate cost of future claims is an uncertain and complex process based upon historical loss experience and actuarial loss projections, and is 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 insurance reserves are reflected in the results of operations for the period in which such adjustments are identified. Such adjustments could be significant, reflecting any combination of new and adverse or favorable trends.

Stock-Based Compensation Costs

Stock-based compensation costs: The Company has issued stock-based awards to employees and directors consisting of stock options, restricted stock awards, restricted stock units, performance shares, performance-based restricted stock, and performance-based stock options. The Company accounts for all stock-based awards to employees and directors as compensation costs in the consolidated financial statements based on their fair values measured as of the date of grant. These costs are recognized over the requisite service period. Stock-based compensation costs recognized were $10.9 million for the three months ended August 31, 2018, as compared with $8.7 million for the three months ended August 31, 2017. The methods and assumptions used in the determination of the fair value of stock-based awards are consistent with those described in the Company’s fiscal 2018 Form 10-K.

Recently Adopted and Issued Accounting Pronouncements

Recently adopted accounting pronouncements:In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).”  This guidance, as amended by subsequent ASUs on the topic, outlines a single comprehensive model for determining revenue recognition for contracts with customers, and supersedes guidance on revenue recognition in ASC Topic 605, “Revenue Recognition.”  The Company adopted the new standard on June 1, 2018, utilizing the full retrospective method, which required the Company to recast each prior reporting period presented and included a cumulative adjustment to increase stockholder’s equity by $262.9 million as of June 1, 2016.  We have updated our control framework for new internal controls and made changes to existing controls related to the new standard.

Impact on Previously Reported Results

The provisions of ASU No. 2014-09 do not materially impact the timing or the amount of revenue the Company recognizes on an annual basis in its Consolidated Statements of Income and Comprehensive Income. However, it does have an impact on the timing and amount of revenue the Company recognizes on a quarterly basis due to changes in the way it accounts for certain revenues where performance obligations are satisfied at a point in time. The provisions of the new standard have a material impact on the Company’s Consolidated Balance Sheets. The primary impact of adopting the new standard is on the Company’s treatment of certain costs to obtain and fulfill contracts.  In relation to those items, the new standard resulted in the Company deferring additional costs on its Consolidated Balance Sheets and amortizing them to the Consolidated Statements of Income and Comprehensive Income over the estimated average life of the client.  Refer to Note B for further details. 

The following table presents a recast of selected unaudited consolidated statements of income and comprehensive income line items after giving effect to the adoption of ASU No. 2014-09: 

	For the three months ended August 31, 2017
	As Previously
In millions, except per share amounts	Reported		Adjustments		As Adjusted
Service revenue	$	803.1	$	(23.9)	$	779.2
Operating expenses		232.1		(0.1)		232.0
Selling, general and administrative expenses		239.7		3.9		243.6
Total expenses		471.8		3.8		475.6
Operating income		345.0		(27.7)		317.3
Income taxes		119.3		(10.3)		109.0
Net income	$	227.8	$	(17.4)	$	210.4
Basic earnings per share	$	0.63	$	(0.04)	$	0.59
Diluted earnings per share	$	0.63	$	(0.05)	$	0.58

The following table presents a recast of selected unaudited consolidated balance sheet line items after giving effect to the adoption of ASU No. 2014-09:

	May 31, 2018
	As Previously
In millions	Reported		Adjustments		As Adjusted
Assets
Accounts receivable, net of allowance for doubtful accounts	$	531.4	$	(39.0)	$	492.4
Prepaid expenses and other current assets	$	75.8	$	148.2	$	224.0
Long-term deferred costs(1)	$	18.5	$	342.5	$	361.0
Liabilities and stockholders' equity
Accounts payable	$	74.5	$	(0.8)	$	73.7
Deferred revenue	$	24.3	$	10.3	$	34.6
Deferred income taxes	$	48.8	$	105.6	$	154.4
Other long-term liabilities	$	84.8	$	4.3	$	89.1
Retained earnings	$	930.3	$	332.3	$	1,262.6

(1)Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company’s fiscal 2018 Form 10-K.  Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

The following table presents a recast of selected unaudited consolidated statement of cash flow line items after giving effect to the adoption of ASU No. 2014-09:

	For the three months ended August 31, 2017
	As Previously
In millions	Reported		Adjustments		As Adjusted
Cash flows from operating activities
Net income	$	227.8	$	(17.4)	$	210.4
Provision for deferred income taxes	$	59.2	$	(10.3)	$	48.9
Accounts receivable	$	(15.4)	$	24.2	$	8.8
Deferred costs	$	—	$	4.2	$	4.2
Accounts payable and other current liabilities	$	(19.2)	$	(0.6)	$	(19.8)
Net change in other long-term assets and liabilities	$	0.6	$	(0.1)	$	0.5

In June 2018, the Company also adopted the following ASUs, none of which had a material impact on its consolidated financial statements:

· ASU No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.”

· ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force).”

· ASU No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”

· ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).”

· ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”

Recently issued accounting pronouncements: In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  ASU 2018-13 modified the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits.  This guidance is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years, with early adoption permitted. This guidance is applicable to the Company’s fiscal year beginning June 1, 2020. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This guidance, as amended by subsequent ASUs on the topic, improves transparency and comparability among companies by recognizing lease assets and lease liabilities on the balance sheet and by disclosing key information about leasing arrangements. ASU No. 2016-02 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. This guidance is applicable to the Company's fiscal year beginning June 1, 2019. The Company is gathering data and assessing the impact of the new lease accounting standard and the Company anticipates that the adoption of the new lease accounting standard will result in additional assets and liabilities being recorded on its Consolidated Balance Sheets.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities Exchange Commission (“SEC”) during the three months ended August 31, 2018 did not, or are not expected to, have a material effect on the Company’s consolidated financial statements.

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Description of Business, Basis of Presentation, and Significant Accounting Policies (Tables)

3 Months Ended

Aug. 31, 2018

Description of Business, Basis of Presentation, and Significant Accounting Policies [Abstract]

Schedule of Recast of Selected Unaudited Consolidated Statements

The following table presents a recast of selected unaudited consolidated statements of income and comprehensive income line items after giving effect to the adoption of ASU No. 2014-09: 

	For the three months ended August 31, 2017
	As Previously
In millions, except per share amounts	Reported		Adjustments		As Adjusted
Service revenue	$	803.1	$	(23.9)	$	779.2
Operating expenses		232.1		(0.1)		232.0
Selling, general and administrative expenses		239.7		3.9		243.6
Total expenses		471.8		3.8		475.6
Operating income		345.0		(27.7)		317.3
Income taxes		119.3		(10.3)		109.0
Net income	$	227.8	$	(17.4)	$	210.4
Basic earnings per share	$	0.63	$	(0.04)	$	0.59
Diluted earnings per share	$	0.63	$	(0.05)	$	0.58

The following table presents a recast of selected unaudited consolidated balance sheet line items after giving effect to the adoption of ASU No. 2014-09:

	May 31, 2018
	As Previously
In millions	Reported		Adjustments		As Adjusted
Assets
Accounts receivable, net of allowance for doubtful accounts	$	531.4	$	(39.0)	$	492.4
Prepaid expenses and other current assets	$	75.8	$	148.2	$	224.0
Long-term deferred costs(1)	$	18.5	$	342.5	$	361.0
Liabilities and stockholders' equity
Accounts payable	$	74.5	$	(0.8)	$	73.7
Deferred revenue	$	24.3	$	10.3	$	34.6
Deferred income taxes	$	48.8	$	105.6	$	154.4
Other long-term liabilities	$	84.8	$	4.3	$	89.1
Retained earnings	$	930.3	$	332.3	$	1,262.6

(1)Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company’s fiscal 2018 Form 10-K.  Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

The following table presents a recast of selected unaudited consolidated statement of cash flow line items after giving effect to the adoption of ASU No. 2014-09:

	For the three months ended August 31, 2017
	As Previously
In millions	Reported		Adjustments		As Adjusted
Cash flows from operating activities
Net income	$	227.8	$	(17.4)	$	210.4
Provision for deferred income taxes	$	59.2	$	(10.3)	$	48.9
Accounts receivable	$	(15.4)	$	24.2	$	8.8
Deferred costs	$	—	$	4.2	$	4.2
Accounts payable and other current liabilities	$	(19.2)	$	(0.6)	$	(19.8)
Net change in other long-term assets and liabilities	$	0.6	$	(0.1)	$	0.5

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Service Revenue (Tables)

3 Months Ended

Aug. 31, 2018

Service Revenue [Abstract]

Summary of Disaggregates Revenue by Services

	For the three months ended August 31,
			2017
In millions	2018		As Adjusted
Management Solutions	$	687.7	$	665.9
PEO and Insurance Services		158.0		113.3
Total service revenue	$	845.7	$	779.2

Summary of Changes in Deferred Revenue Related to Material Right Performance Obligations

	For the three months ended
In millions	August 31, 2018
Balance, beginning of period	$	46.4
Deferral of revenue		6.1
Recognition of unearned revenue		(6.8)
Balance, end of period	$	45.7

Summary of Changes in Deferred Costs to Obtain and Fulfill Contracts

	For the three months ended August 31, 2018
	Beginning		Capitalization				Ending
In millions	balance		of costs		Amortization		balance
Costs to obtain a contract	$	455.0	$	32.4	$	(38.9)	$	448.5
Costs to fulfill a contact	$	65.4	$	6.0	$	(5.7)	$	65.7

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Basic and Diluted Earnings Per Share (Tables)

3 Months Ended

Aug. 31, 2018

Basic and Diluted Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share

	For the three months ended
	August 31,
			2017
In millions, except per share amounts	2018		As Adjusted(1)
Basic earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Basic earnings per share	$	0.68	$	0.59
Diluted earnings per share:
Net income	$	243.6	$	210.4
Weighted-average common shares outstanding		359.1		358.9
Dilutive effect of common share equivalents		2.4		2.4
Weighted-average common shares outstanding, assuming dilution		361.5		361.3
Diluted earnings per share	$	0.67	$	0.58
Weighted-average anti-dilutive common share equivalents		0.3		1.1

(1) Amounts have been adjusted to reflect the adoption of ASC Topic 606.

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Investment Income, Net (Tables)

3 Months Ended

Aug. 31, 2018

Investment Income, Net [Abstract]

Schedule of Investment Income, Net

	For the three months ended
	August 31,
In millions	2018		2017
Interest income on corporate funds	$	3.2	$	2.9
Interest expense		(0.9)		(0.8)
Investment income, net	$	2.3	$	2.1

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Funds Held for Clients and Corporate Investments (Tables)

3 Months Ended

Aug. 31, 2018

Funds Held for Clients and Corporate Investments [Abstract]

Funds Held for Clients and Corporate Investments

	August 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,179.8	$	—	$	—	$	1,179.8
Available-for-sale securities:
Corporate bonds		367.7		0.3		(7.3)		360.7
General obligation municipal bonds		1,149.8		1.3		(9.7)		1,141.4
Pre-refunded municipal bonds(1)		45.7		0.2		(0.1)		45.8
Revenue municipal bonds		767.5		1.0		(7.1)		761.4
U.S. government agency securities		454.5		0.1		(14.6)		440.0
Variable rate demand notes		162.3		—		—		162.3
Total available-for-sale securities		2,947.5		2.9		(38.8)		2,911.6
Other		17.4		2.5		—		19.9
Total funds held for clients and corporate investments	$	4,144.7	$	5.4	$	(38.8)	$	4,111.3

	May 31, 2018
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
In millions	cost		gains		losses		value
Type of issue:
Funds held for clients' money market securities and other    cash equivalents	$	1,942.3	$	—	$	—	$	1,942.3
Available-for-sale securities:
Corporate bonds		328.6		0.1		(7.3)		321.4
General obligation municipal bonds		1,231.6		1.3		(11.2)		1,221.7
Pre-refunded municipal bonds(1)		50.9		0.1		(0.1)		50.9
Revenue municipal bonds		813.5		0.9		(8.0)		806.4
U.S. government agency securities		410.2		—		(14.1)		396.1
Variable rate demand notes		308.3		—		—		308.3
Total available-for-sale securities		3,143.1		2.4		(40.7)		3,104.8
Other		16.1		2.1		—		18.2
Total funds held for clients and corporate investments	$	5,101.5	$	4.5	$	(40.7)	$	5,065.3

(1)Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.

Classification of Investments on Consolidated Balance Sheets

	August 31,		May 31,
In millions	2018		2018
Funds held for clients	$	3,763.8	$	4,703.8
Corporate investments		82.9		66.0
Long-term corporate investments		264.6		295.5
Total funds held for clients and corporate investments	$	4,111.3	$	5,065.3

Securities in Unrealized Loss Position

	August 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(5.8)	$	272.9	$	(1.5)	$	39.7	$	(7.3)	$	312.6
General obligation municipal bonds		(7.4)		745.1		(2.3)		64.1		(9.7)		809.2
Pre-refunded municipal bonds		(0.1)		12.8		—		0.5		(0.1)		13.3
Revenue municipal bonds		(5.2)		445.1		(1.9)		55.6		(7.1)		500.7
U.S. government agency securities		(7.0)		232.8		(7.6)		176.7		(14.6)		409.5
Total	$	(25.5)	$	1,708.7	$	(13.3)	$	336.6	$	(38.8)	$	2,045.3

	May 31, 2018
	Securities in an unrealized  loss position for less than  twelve months				Securities in an unrealized  loss position for more than  twelve months				Total
	Gross				Gross				Gross
	unrealized		Fair		unrealized		Fair		unrealized		Fair
In millions	losses		value		losses		value		losses		value
Type of issue:
Corporate bonds	$	(6.0)	$	271.5	$	(1.3)	$	34.6	$	(7.3)	$	306.1
General obligation municipal bonds		(8.7)		856.4		(2.5)		68.9		(11.2)		925.3
Pre-refunded municipal bonds		(0.1)		18.5		—		0.5		(0.1)		19.0
Revenue municipal bonds		(6.3)		540.9		(1.7)		50.9		(8.0)		591.8
U.S. government agency securities		(6.4)		219.7		(7.7)		176.4		(14.1)		396.1
Total	$	(27.5)	$	1,907.0	$	(13.2)	$	331.3	$	(40.7)	$	2,238.3

Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity

	August 31, 2018
	Amortized		Fair
In millions	cost		value
Maturity date:
Due in one year or less	$	382.8	$	382.4
Due after one year through three years		788.0		784.6
Due after three years through five years		979.8		965.6
Due after five years		796.9		779.0
Total	$	2,947.5	$	2,911.6

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Fair Value Measurements (Tables)

3 Months Ended

Aug. 31, 2018

Fair Value Measurements [Abstract]

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

	August 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	366.9	$	—	$	366.9	$	—
Time deposits		150.0		—		150.0		—
U.S. government agency securities		457.8		—		457.8		—
Money market securities		39.5		39.5		—		—
Total cash equivalents	$	1,014.2	$	39.5	$	974.7	$	—
Available-for-sale securities:
Corporate bonds	$	360.7	$	—	$	360.7	$	—
General obligation municipal bonds		1,141.4		—		1,141.4		—
Pre-refunded municipal bonds		45.8		—		45.8		—
Revenue municipal bonds		761.4		—		761.4		—
U.S. government agency securities		440.0		—		440.0		—
Variable rate demand notes		162.3		—		162.3		—
Total available-for-sale securities	$	2,911.6	$	—	$	2,911.6	$	—
Other	$	19.9	$	19.9	$	—	$	—
Liabilities:
Other long-term liabilities	$	19.9	$	19.9	$	—	$	—

	May 31, 2018
			Quoted		Significant
			prices in		other		Significant
	Carrying		active		observable		unobservable
	value		markets		inputs		inputs
In millions	(Fair value)		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash equivalents:
Commercial paper	$	655.0	$	—	$	655.0	$	—
Time deposits		200.0		—		200.0		—
Money market securities		7.1		7.1		—		—
Total cash equivalents	$	862.1	$	7.1	$	855.0	$	—
Available-for-sale securities:
Corporate bonds	$	321.4	$	—	$	321.4	$	—
General obligation municipal bonds		1,221.7		—		1,221.7		—
Pre-refunded municipal bonds		50.9		—		50.9		—
Revenue municipal bonds		806.4		—		806.4		—
U.S. government agency securities		396.1		—		396.1		—
Variable rate demand notes		308.3		—		308.3		—
Total available-for-sale securities	$	3,104.8	$	—	$	3,104.8	$	—
Other	$	18.2	$	18.2	$	—	$	—
Liabilities:
Other long-term liabilities	$	18.2	$	18.2	$	—	$	—

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Accounts Receivable, Net of Allowance for Doubtful Accounts (Tables)

3 Months Ended

Aug. 31, 2018

Accounts Receivable, Net of Allowance for Doubtful Accounts [Abstract]

Components of Accounts Receivable, Net of Allowance for Doubtful Accounts

			May 31,
	August 31,		2018
In millions	2018		As Adjusted(1)
PEO receivables(2)	$	166.3	$	140.1
Purchased receivables(3)		295.1		267.0
Other trade receivables(4)		80.1		92.3
Total accounts receivable, gross		541.5		499.4
Less:  Allowance for doubtful accounts		6.3		7.0
Accounts receivable, net of allowance for doubtful accounts	$	535.2	$	492.4

(1)Amounts have been adjusted to reflect the adoption of ASC Topic 606.

(2)PEO receivables are primarily client wages and related tax withholdings since the last payroll processed.  Balances will vary based on the timing of the last payroll processed and the end of the reporting period.

(3)Purchased receivables relate to payroll funding arrangements with clients in the temporary staffing industry.

(4)Other trade receivables primarily relate to other ongoing services provided to our clients and can vary based on the timing of these services and the end of the reporting period.

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Property and Equipment, Net of Accumulated Depreciation (Tables)

3 Months Ended

Aug. 31, 2018

Property and Equipment, Net of Accumulated Depreciation [Abstract]

Components of Property and Equipment, at Cost

	August 31,		May 31,
In millions	2018		2018
Land and improvements	$	10.6	$	10.6
Buildings and improvements		128.0		126.4
Data processing equipment		213.5		211.3
Software (1)		563.8		545.5
Furniture, fixtures, and equipment		111.2		114.5
Leasehold improvements		109.3		111.4
Construction in progress (1)		61.2		63.0
Total property and equipment, gross		1,197.6		1,182.7
Less: Accumulated depreciation		808.5		789.2
Property and equipment, net of accumulated depreciation	$	389.1	$	393.5

(1)Software 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.

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Goodwill and Intangible Assets, Net of Accumulated Amortization (Tables)

3 Months Ended

Aug. 31, 2018

Goodwill and Intangible Assets, Net of Accumulated Amortization [Abstract]

Components of Intangible Assets, at Cost

	August 31,		May 31,
In millions	2018		2018
Client lists	$	307.4	$	308.5
Other intangible assets		13.3		13.3
Total intangible assets, gross		320.7		321.8
Less: Accumulated amortization		185.2		180.4
Intangible assets, net of accumulated amortization	$	135.5	$	141.4

Estimated Amortization Expense

In millions	Estimated amortization
Year ending May 31,	expense
2019	$	26.0
2020		22.6
2021		19.5
2022		16.6
2023		14.2

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Accumulated Other Comprehensive (Loss)/Income (Tables)

3 Months Ended

Aug. 31, 2018

Accumulated Other Comprehensive (Loss)/Income [Abstract]

Changes in Accumulated Other Comprehensive (Loss)/ Income

	For the three months ended
	August 31,
In millions	2018		2017
Beginning balance	$	(36.2)	$	20.0
Other comprehensive (loss)/income:
Unrealized gains on available-for-sale securities, net of tax		2.1		4.3
Foreign currency translation adjustment		(1.7)		0.1
Total other comprehensive income, net of tax		0.4		4.4
Ending balance	$	(35.8)	$	24.4
Total tax expense included in other comprehensive income	$	0.5	$	2.4

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Short-term Financing (Tables) - Revolving Credit Facility [Member]

3 Months Ended

Aug. 31, 2018

Line of Credit Facility [Line Items]

Description of Credit Facilities

Bank	Borrower (1)	Date Entered	Expiration Date	Maximum Amount Available	Purpose
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 5, 2015	August 5, 2020	$1 Billion	To meet short-term funding requirements.
JP Morgan Chase Bank, N.A.(2)	Paychex of New York, LLC	August 17, 2017	August 17, 2022	$500 Million	To meet short-term funding requirements.
PNC Bank, National Association (“PNC”)	Paychex Advance, LLC	March 17, 2016	March 17, 2020	$150 Million	To finance working capital needs and general corporate purposes.

(1)Borrower is a wholly owned subsidiary of the Company.

(2)JP Morgan Chase Bank, N.A. (“JPM”) acts as the administrative agent for this syndicated credit facility.

JPM $1 Billion Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]

Line of Credit Facility [Line Items]

Credit Facility Amount Borrowed

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		6			13
Maximum amount borrowed	$	394.5		$	660.0
Weighted-average amount borrowed	$	216.3		$	278.8
Weighted-average interest rate		4.99	%		4.23	%

JPM $500 Million Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]

Line of Credit Facility [Line Items]

Credit Facility Amount Borrowed

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		4			—
Maximum amount borrowed	$	223.0		$	—
Weighted-average amount borrowed	$	133.4		$	—
Weighted-average interest rate		4.99	%		0.00	%

PNC $150 Million Credit Facility [Member] | PNC Bank, National Association [Member]

Line of Credit Facility [Line Items]

Credit Facility Amount Borrowed

	For the three months ended
	August 31,
$ in millions	2018			2017
Number of days borrowed		88			88
Maximum amount borrowed	$	56.8		$	57.2
Weighted-average amount borrowed	$	56.0		$	55.8
Weighted-average interest rate		2.53	%		1.67	%

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Description of Business, Basis of Presentation, and Significant Accounting Policies (Narrative) (Details) $ in Millions	3 Months Ended		12 Months Ended
	Aug. 31, 2018 USD ($) segment	Aug. 31, 2017 USD ($)	Jun. 30, 2019 USD ($)	May 31, 2019 USD ($)	Dec. 31, 2018 USD ($)	Sep. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	May 31, 2018 USD ($)	Dec. 31, 2017 USD ($)	Sep. 30, 2017 USD ($)	Jun. 01, 2016 USD ($)
Accounting Policies [Line Items]
Number of reportable segments | segment	1
Stock-based compensation costs recognized	$ 10.9	$ 8.7
Maximum individual workers' compensation claims liability				$ 1.0				$ 1.3
Maximum individual health insurance claims liability					$ 0.3				$ 0.3
ASU 2014-09 [Member]
Accounting Policies [Line Items]
Cumulative adjustment to increase stockholder's equity											$ 262.9
HR Outsourcing Holdings, Inc. [Member]
Accounting Policies [Line Items]
Maximum individual workers' compensation claims liability						$ 0.5				$ 0.5
Maximum individual health insurance claims liability							$ 0.3
HR Outsourcing Holdings, Inc. [Member] | Scenario, Forecast [Member]
Accounting Policies [Line Items]
Maximum individual health insurance claims liability			$ 0.3
Europe [Member] | Revenue [Member] | Geographic Concentration Risk [Member]
Accounting Policies [Line Items]
Total percentage	1.00%
Europe [Member] | Revenue [Member] | Geographic Concentration Risk [Member] | Maximum [Member]
Accounting Policies [Line Items]
Total percentage		1.00%
Europe [Member] | Long Lived Assets [Member] | Geographic Concentration Risk [Member]
Accounting Policies [Line Items]
Total percentage	10.00%							10.00%

XML

Description of Business, Basis of Presentation, and Significant Accounting Policies (Schedule of Recast of Selected Unaudited Consolidated Statements of Income and Comprehensive Income) (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Service revenue	$ 845.7	$ 779.2	[1]
Operating expenses	265.5	232.0	[1]
Selling, general and administrative expenses	277.0	243.6	[1]
Total expenses	542.5	475.6	[1]
Operating income	320.3	317.3	[1]
Income taxes	79.0	109.0	[1]
Net income	$ 243.6	$ 210.4	[1],[2]
Basic earnings per share	$ 0.68	$ 0.59	[1],[2]
Diluted earnings per share	$ 0.67	$ 0.58	[1],[2]
As Previously Reported [Member] | ASU 2014-09 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Service revenue		$ 803.1
Operating expenses		232.1
Selling, general and administrative expenses		239.7
Total expenses		471.8
Operating income		345.0
Income taxes		119.3
Net income		$ 227.8
Basic earnings per share		$ 0.63
Diluted earnings per share		$ 0.63
Adjustments [Member] | ASU 2014-09 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Service revenue		$ (23.9)
Operating expenses		(0.1)
Selling, general and administrative expenses		3.9
Total expenses		3.8
Operating income		(27.7)
Income taxes		(10.3)
Net income		$ (17.4)
Basic earnings per share		$ (0.04)
Diluted earnings per share		$ (0.05)

[1] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

[2] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

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Description of Business, Basis of Presentation, and Significant Accounting Policies (Schedule of Recast of Selected Unaudited Consolidated Balance Sheet) (Details) - USD ($) $ in Millions		Aug. 31, 2018	May 31, 2018
Assets
Accounts receivable, net of allowance for doubtful accounts		$ 535.2	$ 492.4	[1]
Prepaid expenses and other current assets		225.1	224.0	[1]
Long-term deferred costs		355.6	361.0	[1],[2]
Liabilities and stockholders' equity
Accounts payable		62.6	73.7	[1]
Deferred revenue		36.6	34.6	[1]
Deferred income taxes		155.5	154.4	[1]
Other long-term liabilities		91.0	89.1	[1]
Retained earnings		$ 1,268.1	1,262.6	[1]
ASU 2014-09 [Member] | As Previously Reported [Member]
Assets
Accounts receivable, net of allowance for doubtful accounts			531.4
Prepaid expenses and other current assets			75.8
Long-term deferred costs	[2]		18.5
Liabilities and stockholders' equity
Accounts payable			74.5
Deferred revenue			24.3
Deferred income taxes			48.8
Other long-term liabilities			84.8
Retained earnings			930.3
ASU 2014-09 [Member] | Adjustments [Member]
Assets
Accounts receivable, net of allowance for doubtful accounts			(39.0)
Prepaid expenses and other current assets			148.2
Long-term deferred costs	[2]		342.5
Liabilities and stockholders' equity
Accounts payable			(0.8)
Deferred revenue			10.3
Deferred income taxes			105.6
Other long-term liabilities			4.3
Retained earnings			$ 332.3

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts were previously reported as a component of other long-term assets on the Consolidated Balance Sheets included in the Company's fiscal 2018 Form 10-K. Long-term deferred costs are separately stated on the Consolidated Balance Sheets contained in this Form 10-Q.

XML

Description of Business, Basis of Presentation, and Significant Accounting Policies (Schedule of Recast of Selected Unaudited Consolidated Statement of Cash Flow) (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
Cash flows from operating activities
Net income	$ 243.6	$ 210.4	[1],[2]
Provision for deferred income taxes	2.6	48.9	[1]
Accounts receivable	(43.0)	8.8	[1]
Deferred costs	6.2	4.2	[1]
Accounts payable and other current liabilities	(15.2)	(19.8)	[1]
Net change in other long-term assets and liabilities	$ (0.4)	0.5	[1]
ASU 2014-09 [Member] | As Previously Reported [Member]
Cash flows from operating activities
Net income		227.8
Provision for deferred income taxes		59.2
Accounts receivable		(15.4)
Accounts payable and other current liabilities		(19.2)
Net change in other long-term assets and liabilities		0.6
ASU 2014-09 [Member] | Adjustments [Member]
Cash flows from operating activities
Net income		(17.4)
Provision for deferred income taxes		(10.3)
Accounts receivable		24.2
Deferred costs		4.2
Accounts payable and other current liabilities		(0.6)
Net change in other long-term assets and liabilities		$ (0.1)

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

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Service Revenue (Narrative) (Details)	3 Months Ended
	Aug. 31, 2018
Service Revenue [Abstract]
Percentage of client worksite employees participation in benefit plans not retained risk	60.00%
Percentage of client worksite employees participation in benefit plans retained risk	40.00%
Revenue performance obligations timing	the Company defers revenue associated with these performance obligations, which exceed one year, and subsequently recognizes these as future services are provided, over approximately three to four years

XML

Service Revenue (Summary of Disaggregates Revenue by Services) (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017	[1]
Disaggregation of Revenue [Line Items]
Total service revenue	$ 845.7	$ 779.2
Management Solutions [Member]
Disaggregation of Revenue [Line Items]
Total service revenue	687.7	665.9
PEO And Insurance Services [Member]
Disaggregation of Revenue [Line Items]
Total service revenue	$ 158.0	$ 113.3

[1] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

XML

Service Revenue (Summary of Changes in Deferred Revenue Related to Material Right Performance Obligations) (Details) $ in Millions	3 Months Ended
	Aug. 31, 2018 USD ($)
Service Revenue [Abstract]
Balance, beginning of period	$ 46.4
Deferral of revenue	6.1
Recognition of unearned revenue	(6.8)
Balance, end of period	$ 45.7

XML

Service Revenue (Summary of Changes in Deferred Costs to Obtain and Fulfill Contracts) (Details) $ in Millions	3 Months Ended
	Aug. 31, 2018 USD ($)
Costs To Obtain A Contract [Member]
Capitalized Contract Cost [Line Items]
Beginning balance	$ 455.0
Capitalization of costs	32.4
Amortization	(38.9)
Ending balance	448.5
Costs To Fulfill A Contract [Member]
Capitalized Contract Cost [Line Items]
Beginning balance	65.4
Capitalization of costs	6.0
Amortization	(5.7)
Ending balance	$ 65.7

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Basic and Diluted Earnings Per Share (Narrative) (Details) - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
Equity, Class of Treasury Stock [Line Items]
Common stock issued in connection with exercise or vesting of stock-based awards	0.5	0.5
Common stock issued related to acquisition		0.6
Authorized in July 2016 [Member]
Equity, Class of Treasury Stock [Line Items]
Expiration date	May 31, 2019
Approved repurchase amount	$ 350.0
Common stock repurchased and retired, shares	0.5	1.6
Common stock repurchased and retired, values	$ 32.8	$ 94.1

XML

Basic and Diluted Earnings Per Share (Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017	[1]
Basic earnings per share:
Net income	$ 243.6	$ 210.4	[2]
Weighted-average common shares outstanding	359.1	358.9	[2]
Basic earnings per share	$ 0.68	$ 0.59	[2]
Diluted earnings per share:
Dilutive effect of common share equivalents	2.4	2.4
Weighted-average common shares outstanding, assuming dilution	361.5	361.3	[2]
Diluted earnings per share	$ 0.67	$ 0.58	[2]
Weighted-average anti-dilutive common share equivalents	0.3	1.1

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

XML

Business Combinations (Narrative) (Details) $ in Millions			3 Months Ended
	Feb. 28, 2018 USD ($)	Aug. 18, 2017 USD ($) state	Aug. 31, 2018
Lessor Group [Member]
Business Acquisition [Line Items]
Effective acquisition date			Feb. 28, 2018
Purchase price	$ 162.5
Cash acquired	13.4
Goodwill acquired	$ 111.5
HR Outsourcing Holdings, Inc. [Member]
Business Acquisition [Line Items]
Effective acquisition date			Aug. 18, 2017
Purchase price		$ 75.4
Cash portion of purchase price		42.2
Common stock issued portion of purchase price		33.2
Goodwill acquired		$ 51.1
HR Outsourcing Holdings, Inc. [Member] | Minimum [Member]
Business Acquisition [Line Items]
Number of states in which HR Solutions services are provided | state		35

XML

Investment Income, Net (Schedule of Investment Income, Net) (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
Investment Income, Net [Abstract]
Interest income on corporate funds	$ 3.2	$ 2.9
Interest expense	(0.9)	(0.8)
Investment income, net	$ 2.3	$ 2.1	[1]

[1] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

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Funds Held for Clients and Corporate Investments (Narrative) (Details) $ in Millions		3 Months Ended
	Aug. 31, 2018 USD ($) security	Aug. 31, 2018 USD ($) security	May 31, 2018 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Net unrealized losses on available-for-sale securities	$ 35.9	$ 35.9	$ 38.3
Number of available-for-sale securities in an unrealized loss position | security	916	916	970
Gross unrealized losses on available-for-sale securities	$ 38.8	$ 38.8	$ 40.7
Maximum [Member]
Schedule of Available-for-sale Securities [Line Items]
Short-term investments maturity at acquisition	90 days
Variable Rate Demand Notes [Member] | Minimum [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities contractual maturities		20 years
Variable Rate Demand Notes [Member] | Maximum [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities contractual maturities		30 years

XML

Funds Held for Clients and Corporate Investments (Funds Held for Clients and Corporate Investments) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Schedule of Available-for-sale Securities [Line Items]
Funds held for clients' money market securities and other cash equivalents, Amortized cost	$ 1,179.8	$ 1,942.3
Funds held for clients' money market securities and other cash equivalents, Gross unrealized gains
Funds held for clients' money market securities and other cash equivalents, Gross unrealized losses
Funds held for clients' money market securities and other cash equivalents, Fair value	1,179.8	1,942.3
Available-for-sale securities, Amortized cost	2,947.5	3,143.1
Available-for-sale securities, Gross unrealized gains	2.9	2.4
Available-for-sale securities, Gross unrealized losses	(38.8)	(40.7)
Available-for-sale securities, Fair value	2,911.6	3,104.8
Other, Amortized cost	17.4	16.1
Other, Gross unrealized gains	2.5	2.1
Other, Gross unrealized losses
Other, Fair value	19.9	18.2
Total funds held for clients and corporate investments, Amortized cost	4,144.7	5,101.5
Total funds held for clients and corporate investments, Gross unrealized gains	5.4	4.5
Total funds held for clients and corporate investments, Gross unrealized losses	(38.8)	(40.7)
Total funds held for clients and corporate investments, Fair value	4,111.3	5,065.3
Corporate Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	367.7	328.6
Available-for-sale securities, Gross unrealized gains	0.3	0.1
Available-for-sale securities, Gross unrealized losses	(7.3)	(7.3)
Available-for-sale securities, Fair value	360.7	321.4
General Obligation Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	1,149.8	1,231.6
Available-for-sale securities, Gross unrealized gains	1.3	1.3
Available-for-sale securities, Gross unrealized losses	(9.7)	(11.2)
Available-for-sale securities, Fair value	1,141.4	1,221.7
Pre-Refunded Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	45.7	50.9	[1]
Available-for-sale securities, Gross unrealized gains	0.2	0.1	[1]
Available-for-sale securities, Gross unrealized losses	(0.1)	(0.1)	[1]
Available-for-sale securities, Fair value	45.8	50.9	[1]
Revenue Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	767.5	813.5
Available-for-sale securities, Gross unrealized gains	1.0	0.9
Available-for-sale securities, Gross unrealized losses	(7.1)	(8.0)
Available-for-sale securities, Fair value	761.4	806.4
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	454.5	410.2
Available-for-sale securities, Gross unrealized gains	0.1
Available-for-sale securities, Gross unrealized losses	(14.6)	(14.1)
Available-for-sale securities, Fair value	440.0	396.1
Variable Rate Demand Notes [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, Amortized cost	162.3	308.3
Available-for-sale securities, Gross unrealized gains
Available-for-sale securities, Gross unrealized losses
Available-for-sale securities, Fair value	$ 162.3	$ 308.3

[1] Pre-refunded municipal bonds are secured by an escrow fund of U.S. government obligations.

XML

Funds Held for Clients and Corporate Investments (Classification of Investments on Consolidated Balance Sheets) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Funds Held for Clients and Corporate Investments [Abstract]
Funds held for clients	$ 3,763.8	$ 4,703.8	[1]
Corporate investments	82.9	66.0	[1]
Long-term corporate investments	264.6	295.5	[1]
Total funds held for clients and corporate investments, Fair value	$ 4,111.3	$ 5,065.3

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

XML

Funds Held for Clients and Corporate Investments (Securities in Unrealized Loss Position) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	$ (25.5)	$ (27.5)
Securities in an unrealized loss position for more than twelve months, Gross unrealized losses	(13.3)	(13.2)
Total, Gross unrealized losses	(38.8)	(40.7)
Securities in an unrealized loss position for less than twelve months, Fair value	1,708.7	1,907.0
Securities in an unrealized loss position for more than twelve months, Fair value	336.6	331.3
Total, Fair value	2,045.3	2,238.3
Corporate Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	(5.8)	(6.0)
Securities in an unrealized loss position for more than twelve months, Gross unrealized losses	(1.5)	(1.3)
Total, Gross unrealized losses	(7.3)	(7.3)
Securities in an unrealized loss position for less than twelve months, Fair value	272.9	271.5
Securities in an unrealized loss position for more than twelve months, Fair value	39.7	34.6
Total, Fair value	312.6	306.1
General Obligation Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	(7.4)	(8.7)
Securities in an unrealized loss position for more than twelve months, Gross unrealized losses	(2.3)	(2.5)
Total, Gross unrealized losses	(9.7)	(11.2)
Securities in an unrealized loss position for less than twelve months, Fair value	745.1	856.4
Securities in an unrealized loss position for more than twelve months, Fair value	64.1	68.9
Total, Fair value	809.2	925.3
Pre-Refunded Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	(0.1)	(0.1)
Total, Gross unrealized losses	(0.1)	(0.1)
Securities in an unrealized loss position for less than twelve months, Fair value	12.8	18.5
Securities in an unrealized loss position for more than twelve months, Fair value	0.5	0.5
Total, Fair value	13.3	19.0
Revenue Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	(5.2)	(6.3)
Securities in an unrealized loss position for more than twelve months, Gross unrealized losses	(1.9)	(1.7)
Total, Gross unrealized losses	(7.1)	(8.0)
Securities in an unrealized loss position for less than twelve months, Fair value	445.1	540.9
Securities in an unrealized loss position for more than twelve months, Fair value	55.6	50.9
Total, Fair value	500.7	591.8
U.S. Government Agency Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities in an unrealized loss position for less than twelve months, Gross unrealized losses	(7.0)	(6.4)
Securities in an unrealized loss position for more than twelve months, Gross unrealized losses	(7.6)	(7.7)
Total, Gross unrealized losses	(14.6)	(14.1)
Securities in an unrealized loss position for less than twelve months, Fair value	232.8	219.7
Securities in an unrealized loss position for more than twelve months, Fair value	176.7	176.4
Total, Fair value	$ 409.5	$ 396.1

XML

Funds Held for Clients and Corporate Investments (Amortized Cost and Fair Value of Available-for-Sale Securities by Contractual Maturity) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Funds Held for Clients and Corporate Investments [Abstract]
Due in one year or less, Amortized cost	$ 382.8
Due after one year through three years, Amortized cost	788.0
Due after three years through five years, Amortized cost	979.8
Due after five years, Amortized cost	796.9
Available-for-sale securities, Amortized cost	2,947.5	$ 3,143.1
Due in one year or less, Fair value	382.4
Due after one year through three years, Fair value	784.6
Due after three years through five years, Fair value	965.6
Due after five years, Fair value	779.0
Available-for-sale securities, Fair value	$ 2,911.6	$ 3,104.8

XML

Fair Value Measurements (Narrative) (Details)	Aug. 31, 2018
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments maturity at acquisition	90 days

XML

Fair Value Measurements (Financial Assets and Liabilities Measured at Fair Value on Recurring Basis) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	$ 1,014.2	$ 862.1
Available-for-sale securities	2,911.6	3,104.8
Other	19.9	18.2
Other long-term liabilities	19.9	18.2
Commercial Paper [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	366.9	655.0
Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	150.0	200.0
Money Market Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	39.5	7.1
Corporate Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	360.7	321.4
General Obligation Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	1,141.4	1,221.7
Pre-Refunded Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	45.8	50.9
Revenue Municipal Bonds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	761.4	806.4
U.S. Government Agency Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	457.8
Available-for-sale securities	440.0	396.1
Variable Rate Demand Notes [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	162.3	308.3
Quoted Prices in Active Markets (Level 1) [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	39.5	7.1
Available-for-sale securities
Other	19.9	18.2
Other long-term liabilities	19.9	18.2
Quoted Prices in Active Markets (Level 1) [Member] | Commercial Paper [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Quoted Prices in Active Markets (Level 1) [Member] | Time Deposits [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Quoted Prices in Active Markets (Level 1) [Member] | Money Market Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	39.5	7.1
Quoted Prices in Active Markets (Level 1) [Member] | Corporate Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Quoted Prices in Active Markets (Level 1) [Member] | General Obligation Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Quoted Prices in Active Markets (Level 1) [Member] | Pre-Refunded Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Quoted Prices in Active Markets (Level 1) [Member] | Revenue Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Quoted Prices in Active Markets (Level 1) [Member] | U.S. Government Agency Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Available-for-sale securities
Quoted Prices in Active Markets (Level 1) [Member] | Variable Rate Demand Notes [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	974.7	855.0
Available-for-sale securities	2,911.6	3,104.8
Other
Other long-term liabilities
Significant Other Observable Inputs (Level 2) [Member] | Commercial Paper [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	366.9	655.0
Significant Other Observable Inputs (Level 2) [Member] | Time Deposits [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	150.0	200.0
Significant Other Observable Inputs (Level 2) [Member] | Money Market Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Significant Other Observable Inputs (Level 2) [Member] | Corporate Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	360.7	321.4
Significant Other Observable Inputs (Level 2) [Member] | General Obligation Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	1,141.4	1,221.7
Significant Other Observable Inputs (Level 2) [Member] | Pre-Refunded Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	45.8	50.9
Significant Other Observable Inputs (Level 2) [Member] | Revenue Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	761.4	806.4
Significant Other Observable Inputs (Level 2) [Member] | U.S. Government Agency Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	457.8
Available-for-sale securities	440.0	396.1
Significant Other Observable Inputs (Level 2) [Member] | Variable Rate Demand Notes [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	162.3	308.3
Significant Unobservable Inputs (Level 3) [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Available-for-sale securities
Other
Other long-term liabilities
Significant Unobservable Inputs (Level 3) [Member] | Commercial Paper [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Significant Unobservable Inputs (Level 3) [Member] | Time Deposits [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Significant Unobservable Inputs (Level 3) [Member] | Money Market Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Significant Unobservable Inputs (Level 3) [Member] | Corporate Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | General Obligation Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Pre-Refunded Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Revenue Municipal Bonds [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | U.S. Government Agency Securities [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents
Available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Variable Rate Demand Notes [Member] | Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities

XML

Accounts Receivable, Net of Allowance for Doubtful Accounts (Components of Accounts Receivable, Net of Allowance for Doubtful Accounts) (Details) - USD ($) $ in Millions		Aug. 31, 2018	May 31, 2018	[1]
Total accounts receivable, gross		$ 541.5	$ 499.4
Less: Allowance for doubtful accounts		6.3	7.0
Accounts receivable, net of allowance for doubtful accounts		535.2	492.4
PEO Receivables [Member]
Total accounts receivable, gross	[2]	166.3	140.1
Purchased Receivables [Member]
Total accounts receivable, gross	[3]	295.1	267.0
Other Trade Receivables [Member]
Total accounts receivable, gross	[4]	$ 80.1	$ 92.3

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] PEO receivables are primarily client wages and related tax withholdings since the last payroll processed. Balances will vary based on the timing of the last payroll processed and the end of the reporting period.

[3] Purchased receivables relate to payroll funding arrangements with clients in the temporary staffing industry.

[4] Other trade receivables primarily relate to other ongoing services provided to our clients and can vary based on the timing of these services and the end of the reporting period.

XML

Property and Equipment, Net of Accumulated Depreciation (Narrative) (Details) $ in Millions	1 Months Ended	3 Months Ended
	Sep. 30, 2017	Aug. 31, 2018 USD ($)	Nov. 30, 2017 USD ($)	Aug. 31, 2017 USD ($) ft² item		May 31, 2018 USD ($)
Property, Plant and Equipment [Line Items]
Depreciation expense		$ 29.4		$ 28.1
Cost of building purchased		24.4		$ 18.0	[1]
Multi-Building Campus [Member] | County Of Monroe Industrial Development Agency [Member]
Property, Plant and Equipment [Line Items]
Public benefits and inducements expiration date	Dec. 31, 2039
Multi-Building Campus [Member] | Rochester, NY [Member]
Property, Plant and Equipment [Line Items]
Number of buildings planned to be purchased | item				5
Renovation square feet | ft²				300,000
Cost of building purchased			$ 34.7
Construction in progress		33.2				$ 32.0
Escrow for building renovations			$ 16.0
Remaining balance in escrow		$ 4.4				$ 14.2

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

XML

Property and Equipment, Net of Accumulated Depreciation (Components of Property and Equipment, at Cost) (Details) - USD ($) $ in Millions		Aug. 31, 2018	May 31, 2018
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		$ 1,197.6	$ 1,182.7
Less: Accumulated depreciation		808.5	789.2
Property and equipment, net of accumulated depreciation		389.1	393.5	[1]
Land and Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		10.6	10.6
Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		128.0	126.4
Data Processing Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		213.5	211.3
Software [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	[2]	563.8	545.5
Furniture, Fixtures, and Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		111.2	114.5
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross		109.3	111.4
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment, gross	[2]	$ 61.2	$ 63.0

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Software 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.

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Goodwill and Intangible Assets, Net of Accumulated Amortization (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017	May 31, 2018	[1]
Goodwill and Intangible Assets, Net of Accumulated Amortization [Abstract]
Goodwill	$ 813.3		$ 814.0
Amortization expense	$ 6.5	$ 3.9

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

XML

Goodwill and Intangible Assets, Net of Accumulated Amortization (Components of Intangible Assets, at Cost) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Intangible Assets [Line Items]
Total intangible assets, gross	$ 320.7	$ 321.8
Less: Accumulated amortization	185.2	180.4
Intangible assets, net of accumulated amortization	135.5	141.4	[1]
Client Lists [Member]
Intangible Assets [Line Items]
Total intangible assets, gross	307.4	308.5
Other Intangible Assets [Member]
Intangible Assets [Line Items]
Total intangible assets, gross	$ 13.3	$ 13.3

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

XML

Goodwill and Intangible Assets, Net of Accumulated Amortization (Estimated Amortization Expense) (Details) $ in Millions	Aug. 31, 2018 USD ($)
Year ending May 31
2019	$ 26.0
2020	22.6
2021	19.5
2022	16.6
2023	$ 14.2

XML

Accumulated Other Comprehensive (Loss)/Income (Changes in Accumulated Other Comprehensive (Loss)/Income) (Details) - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018		Aug. 31, 2017
Accumulated Other Comprehensive (Loss)/Income [Abstract]
Beginning balance	$ (36.2)	[1]	$ 20.0
Unrealized gains on available-for-sale securities, net of tax	2.1		4.3
Foreign currency translation adjustment	(1.7)		0.1
Total other comprehensive income, net of tax	0.4		4.4	[2]
Ending balance	(35.8)		24.4
Total tax expense included in other comprehensive income	$ 0.5		$ 2.4

[1] Amounts have been adjusted to reflect the adoption of ASC Topic 606.

[2] Amounts have been adjusted to reflect the adoption of Accounting Standards Codification ("ASC") Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606").

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Short-term Financing (Narrative) (Details) - USD ($) $ in Millions		3 Months Ended
	Sep. 01, 2018	Aug. 31, 2018	Aug. 31, 2017	May 31, 2018
Revolving Credit Facility [Member] | JPM $1 Billion Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]
Line of Credit Facility [Line Items]
Amounts outstanding		$ 0.0		$ 0.0
Amount borrowed		$ 394.5	$ 660.0
Number of days borrowed		6 days	13 days
Weighted-average interest rate		4.99%	4.23%
Weighted-average amount borrowed		$ 216.3	$ 278.8
Revolving Credit Facility [Member] | JPM $1 Billion Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member] | Three Days [Member]
Line of Credit Facility [Line Items]
Amount borrowed			$ 100.0
Number of days borrowed			3 days
Weighted-average interest rate			4.25%
Revolving Credit Facility [Member] | JPM $1 Billion Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member] | Two Overnight Basis [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Weighted-average amount borrowed	$ 417.0
Revolving Credit Facility [Member] | JPM $500 Million Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]
Line of Credit Facility [Line Items]
Amounts outstanding		0.0		0.0
Amount borrowed		$ 223.0
Number of days borrowed		4 days
Weighted-average interest rate		4.99%	0.00%
Weighted-average amount borrowed		$ 133.4
Revolving Credit Facility [Member] | JPM $500 Million Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member] | Overnight Basis [Member] | Subsequent Event [Member]
Line of Credit Facility [Line Items]
Amount borrowed	$ 135.5
Revolving Credit Facility [Member] | PNC $150 Million Credit Facility [Member] | PNC Bank, National Association [Member]
Line of Credit Facility [Line Items]
Amounts outstanding		56.7		0.0
Amount borrowed		$ 56.8	$ 57.2
Number of days borrowed		88 days	88 days
Weighted-average interest rate		2.53%	1.67%
Weighted-average amount borrowed		$ 56.0	$ 55.8
Standby Letters of Credit [Member]
Line of Credit Facility [Line Items]
Maximum borrowing capacity		61.8		56.8
Amounts outstanding		$ 0.0	$ 0.0	$ 0.0
Minimum [Member] | Standby Letters of Credit [Member]
Line of Credit Facility [Line Items]
Expiration Date		Nov. 01, 2018
Maximum [Member] | Standby Letters of Credit [Member]
Line of Credit Facility [Line Items]
Expiration Date		Jul. 01, 2020

XML

Short-term Financing (Description of Credit Facilities) (Details) $ in Millions	3 Months Ended
	Aug. 31, 2018 USD ($)	[1]
Paychex of New York, LLC [Member] | JP Morgan Chase Bank, N.A. [Member] | JPM $1 Billion Credit Facility [Member]
Line of Credit Facility [Line Items]
Date Entered	Aug. 05, 2015	[2]
Expiration Date	Aug. 05, 2020	[2]
Maximum Amount Available	$ 1,000	[2]
Paychex of New York, LLC [Member] | JP Morgan Chase Bank, N.A. [Member] | JPM $500 Million Credit Facility [Member]
Line of Credit Facility [Line Items]
Date Entered	Aug. 17, 2017	[2]
Expiration Date	Aug. 17, 2022	[2]
Maximum Amount Available	$ 500	[2]
Paychex Advance, LLC [Member] | PNC Bank, National Association [Member] | PNC $150 Million Credit Facility [Member]
Line of Credit Facility [Line Items]
Date Entered	Mar. 17, 2016
Expiration Date	Mar. 17, 2020
Maximum Amount Available	$ 150

[1] Borrower is a wholly owned subsidiary of the Company.

[2] JP Morgan Chase Bank, N.A. ("JPM") acts as the administrative agent for this syndicated credit facility.

XML

Short-term Financing (Credit Facility Amount Borrowed) (Details) - Revolving Credit Facility [Member] - USD ($) $ in Millions	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
JPM $1 Billion Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]
Line of Credit Facility [Line Items]
Number of days borrowed	6 days	13 days
Maximum amount borrowed	$ 394.5	$ 660.0
Weighted-average amount borrowed	$ 216.3	$ 278.8
Weighted-average interest rate	4.99%	4.23%
JPM $500 Million Credit Facility [Member] | JP Morgan Chase Bank, N.A. [Member]
Line of Credit Facility [Line Items]
Number of days borrowed	4 days
Maximum amount borrowed	$ 223.0
Weighted-average amount borrowed	$ 133.4
Weighted-average interest rate	4.99%	0.00%
PNC $150 Million Credit Facility [Member] | PNC Bank, National Association [Member]
Line of Credit Facility [Line Items]
Number of days borrowed	88 days	88 days
Maximum amount borrowed	$ 56.8	$ 57.2
Weighted-average amount borrowed	$ 56.0	$ 55.8
Weighted-average interest rate	2.53%	1.67%

XML

Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Millions	Aug. 31, 2018	May 31, 2018
Commitments and Contingencies [Abstract]
Commitments to purchase capital assets	$ 10.5	$ 6.7

XML

Income Taxes (Narrative) (Details) - $ / shares	3 Months Ended
	Aug. 31, 2018	Aug. 31, 2017
Income Taxes [Abstract]
Effective income tax rate	24.50%	34.10%
Net diluted earnings per share related to employee stock-based compensation payments	$ 0.01	$ 0.01