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, 2021 (the "first quarter"), the respective prior year
period ended August 31, 2020 (the "prior year period"), and our financial
condition as of August 31, 2021. 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, 2021 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, 2021 ("fiscal 2021"). Forward-looking statements in this review are
qualified by the cautionary statement included under the next sub-heading,
"Cautionary Note Regarding Forward-Looking Statements".

Cautionary Note Regarding Forward-Looking Statements



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," "intend," "overview,"
"outlook," "guidance," "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 condition 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:

·our ability to keep pace with changes in technology and to provide timely enhancements to our products and services;

·software defects, undetected errors, or development delays for our products;

·the possibility of cyberattacks, security vulnerabilities and Internet disruptions, including breaches of data security and privacy leaks, data loss and business interruptions;

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

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

·the possibility that we may be subject to additional risks related to our co-employment relationship with our professional employer organization ("PEO");

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

·risks related to acquisitions and the integration of the businesses we acquire;

·our clients' failure to reimburse us for payments made by us on their behalf;

·the effect of changes in government regulations mandating the amount of tax withheld or the timing of remittances;

·our failure to comply with covenants in our debt agreements;

·changes in governmental regulations and policies;

·our ability to comply with U.S. and foreign laws and regulations;


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·our compliance with data privacy laws and regulations;

·our failure to protect our intellectual property rights;

·potential outcomes related to pending or future litigation matters;

·the impact of the COVID-19 pandemic on the U.S. and global economy, and in particular on our small- and medium-sized business clients;

·volatility in the political and economic environment;

·changes in the availability of qualified people; and

·the possible effects of negative publicity on our reputation and the value of our brand.





Any of these factors, as well as other factors discussed in our Form 10-K for
fiscal 2021 or in our 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 as of the date of this report, 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.

Our investor presentation regarding the financial results for the first quarter
is available and accessible on our Paychex Investor Relations portal at
https://investor.paychex.com. Information available on our website is not a part
of, and is not incorporated into, this Form 10-Q. We intend to make future
investor presentations available exclusively on our Paychex Investor Relations
portal.

Overview

We are a leading human resource ("HR") software and services company, offering
HR, payroll, benefits, and insurance solutions for small- to medium-sized
businesses. Within our human capital management ("HCM") solutions, we offer a
comprehensive portfolio of technology solutions and services that allow our
clients to meet their diverse HR and payroll needs.

Our comprehensive solutions allow our clients to manage their workforces
effectively from hire to retire. We provide leading-edge HCM technology
solutions, coupled with human expertise, to make complex HR, payroll, and
benefits issues simple for our clients. Paychex Flex is our proprietary HCM
software-as-a-service "SaaS" platform that unites HR, payroll, time and
attendance, and benefits processes to maximize efficiency and savings. Paychex
Flex helps clients manage the employee life cycle from recruiting and hiring to
retirement, providing an integrated suite of solutions including recruiting,
onboarding, HR, time and attendance and employee benefits. It utilizes a single
cloud-based platform, with single client and employee records. Clients can
select the modules they need and easily add on services as they grow. In
addition, we provide comprehensive HR Outsourcing solutions to help our clients
plan, manage, and comply with all aspects of HR.

Our portfolio of HCM and employee benefit-related services is disaggregated into
two categories, (1) Management Solutions and (2) PEO and Insurance Solutions, as
discussed under the heading "Description of Services" in Part 1, Item 1 of our
Form 10-K for fiscal 2021.

Our mission is to be the leading provider of HR, payroll, benefits, and
insurance solutions by being an essential partner to small-and medium-sized
businesses across the U.S. and parts of Europe. We believe that success in this
mission will lead to strong, long-term financial performance. Our strategy
focuses on providing industry-leading, integrated technology; increasing client
satisfaction; expanding our leadership in HR; growing our client base; and
engaging in strategic acquisitions.

We continue to focus on driving growth in the number of clients, revenue per
client, total revenue, and profits, while providing industry-leading technology
solutions and services to our clients and their employees. We maintain
industry-leading margins by managing our personnel costs and expenses while
continuing to invest in our business, particularly in sales and marketing and
innovative technology. We believe these investments are critical to our success.
Looking to the future, we believe that investing in our products, people, and
technology-enabled service capabilities will position us to capitalize on
opportunities for long-term growth.

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A recent Company survey of 1,000 small businesses noted that the biggest
challenge they currently face is recruiting and retaining employees as the
evolution of the workplace resulting from the pandemic has increased the
competition for talent. We continue to be a leader in innovative technology
solutions. Our most recent round of product releases includes solutions designed
to help employers hire and retain top talent in this challenging environment,
including:

·Paychex Pre-Check, which notifies employees on the channel of their choice -
including smart watches and smart speakers - that their gross-to-net paystub is
ready to be securely reviewed. Employees may perform the review in Paychex Flex
mobile app and are prompted to confirm the amount's accuracy or report an issue
to the employer's administrator, who can address the potential issue before
payday;

·Retention Insights, which uses predictive analytics to identify employees who may be more likely to consider leaving the organization;

·Pay Benchmarking, which allows employers to compare compensation details by position against national data provided by the Bureau of Labor Statistics;



·Talent Dashboard, which pulls together Retention Insights, time off balances,
and performance management ratings into one place, allowing administrators to
compare the performance rating and compensation of each job position;

·Amazon Alexa Integration, which makes it easy for users to interact with the
Paychex Flex application from anywhere. With the addition of Amazon Alexa to
existing integrations with Google Assistant™ and Siri® Shortcuts, Paychex Flex
is the first HCM application to offer integration with three of the major voice
assistant platforms;

·Time Off Management, which provides a full, end-to-end solution to ensure
clients maintain compliance with ever changing time off regulations. Our
solution includes an automated time off request and approval process (via our
Flex mobile application) and manages accrual calculations and balance tracking;
and

·Paychex Employee Retention Tax Credit Service, which helps businesses retroactively identify tax credits and file amended returns to claim these credits.

First Quarter Business Highlights

Highlights compared to the prior year period are as follows:



                                               For the three months ended
                                                       August 31,
In millions, except per share amounts            2021                2020         Change(2)
Total service revenue                     $        1,068.4      $      917.3          16 %
Total revenue                             $        1,082.9      $      932.2          16 %
Operating income                          $          442.9      $      284.0          56 %
Net income                                $          333.6      $      211.6          58 %
Adjusted net income(1)                    $          323.2      $      228.0          42 %
Diluted earnings per share                $           0.92      $       0.59          56 %
Adjusted diluted earnings per share(1)    $           0.89      $       0.63          41 %
Dividends paid to stockholders            $          238.1      $      223.2           7 %


(1)Adjusted net income and adjusted diluted earnings per share are not U.S.
generally accepted accounting principle ("GAAP") measures. Adjusted net income
and adjusted diluted earnings per share in both periods included an adjustment
for net tax windfall benefits related to employee stock-based compensation
payments. In the prior year period, adjusted net income and adjusted diluted
earnings per share included an adjustment for one-time non-recurring cost-saving
initiatives. Refer to the "Non-GAAP Financial Measures" section of this Item 2
for a discussion of these non-GAAP measures and a reconciliation to the U.S.
GAAP measures of net income and diluted earnings per share.

(2)Percentage changes are calculated based on unrounded numbers.

For further analysis of our results of operations for the first quarter and prior year period, and our financial position as of August 31, 2021, refer to the tables and analysis in the "Results of Operations" and "Liquidity and Capital Resources" sections of this Item 2.




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COVID-19 Update



As the global COVID-19 pandemic has continued to evolve, our priority has been,
and continues to be, the health and safety of our employees. A portion of our
workforce that initially transitioned to work remotely has voluntarily returned
to the office. As vaccination levels continue to increase and masking and social
distancing guidelines further relax, we look forward to welcoming more of our
employees back to their office locations. We currently anticipate a phased
return to the office beginning in Fall 2021, with a greater level of flexibility
in response to the feedback our employees have shared with us.

As our clients continue to manage through the COVID-19 pandemic, we remain
committed to helping them adapt and thrive, not only through the uncertainties
of the COVID-19 pandemic, but the transition to the future business environment.
Our COVID-19 Help Center remains a source of near real-time information and
tools to help businesses navigate this constantly evolving environment,
including information surrounding the Biden administration's recent new vaccine
requirements. We launched a new Paychex Employee Retention Tax Credit ("ERTC")
service to help businesses retroactively identify tax credits, based on wages
already paid, and file amended returns to claim the credit. Prior to and
including this new service, we have helped clients secure $4.0 billion to date
in combined ERTC and paid leave credits. As the global economy continues to
evolve, whether due to legislative changes, the pandemic, or other factors, we
are committed to supporting our clients to help them navigate these challenges.
Our unique blend of technology solutions and expertise provides valuable tools
and resources to assist our clients and their employees during this critical
time and beyond.

Our strong balance sheet and operational flexibility have allowed us to
successfully manage through the ongoing impacts of the COVID-19 pandemic to date
while protecting our cash flow and liquidity. The fiscal year is off to a strong
start as we achieved double-digit growth in both revenue and earnings over the
prior year period. These results reflected gradual improvement in the economy,
continued momentum in sales, and strong levels of client retention. We believe
we are well-positioned with a broad portfolio of innovative technology and
products along with our unparalleled expertise to meet the continuing needs of
businesses and help them succeed and thrive as they begin to bring employees
back to work and adjust to the changes of how, where, and when work gets done.

We continue to evaluate the nature and extent of changes to the market and
economic conditions related to the COVID-19 pandemic and will assess the
potential impact on our business and financial position. Despite improving
macroeconomic conditions and the emergence of vaccines, surges in COVID-19
cases, including variants of the strain, such as those recently experienced in
Europe and the U.S., may cause people to self-quarantine or governments to shut
down nonessential businesses again. We expect that the pandemic will continue to
have an effect on our results, although the magnitude, duration, and full
effects of the pandemic on our future results of operations or cash flows are
not possible to predict at this time.

For further discussion on the risks posed to our business from the COVID-19 pandemic, refer to Item 1A of our Form 10-K for fiscal 2021.

RESULTS OF OPERATIONS

Summary of Results of Operations:



                                              For the three months ended
                                                      August 31,
In millions, except per share amounts           2021               2020          Change(1)
Revenue:
Management Solutions                     $         805.5      $      687.4           17 %
PEO and Insurance Solutions                        262.9             229.9           14 %
Total service revenue                            1,068.4             917.3           16 %
Interest on funds held for clients                  14.5              14.9          (3) %
Total revenue                                    1,082.9             932.2           16 %
Total expenses                                     640.0             648.2          (1) %
Operating income                                   442.9             284.0           56 %
Other income/(expense), net                          1.0             (7.9)          n/m
Income before income taxes                         443.9             276.1           61 %
Income taxes                                       110.3              64.5           71 %
Effective income tax rate                           24.9 %            23.4 %
Net income                               $         333.6      $      211.6           58 %
Diluted earnings per share               $          0.92      $       0.59           56 %

(1) Percentage changes are calculated based on unrounded numbers.

n/m - not meaningful


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The changes in revenue as compared to the prior year period were primarily driven by the following factors:

?Management Solutions revenue: $805.5 million for the first quarter, reflecting an increase of 17%:

oIncrease in our client base and penetration of our suite of solutions, primarily HR outsourcing and time and attendance,

oHigher checks per client as our clients' employees return to work, and

oHigher revenue per check reflecting better price realization.

?PEO and Insurance Solutions revenue: $262.9 million for the first quarter, reflecting an increase of 14%:

oIncrease in the number of worksite employees and the impact of an increase in average wages per worksite employee,

oHigher revenue on state unemployment insurance, and

oIncrease in PEO health insurance revenue.

?Interest on funds held for clients: $14.5 million for the first quarter, reflecting a decrease of 3%:

oLower average interest rates, partially offset by

oIncrease in average investment balances; impacted by growth in our overall client base and improving macroeconomic conditions.



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,
2021, we had no exposure to high-risk or non-liquid investments. Details
regarding our combined funds held for clients and corporate cash equivalents and
investment portfolios were as follows:

                                                       For the three months ended
                                                               August 31,
$ in millions                                             2021              2020       Change(1)
Average investment balances:
Funds held for clients                              $      3,897.5      $ 3,507.2          11 %
Corporate cash equivalents and investments                 1,197.1        1,022.2          17 %
Total                                               $      5,094.6      $ 

4,529.4 12 %

Average interest rates earned (exclusive of net realized gains/(losses)): Funds held for clients

                                         1.5 %          1.7 %
Corporate cash equivalents and investments                     0.1 %          0.2 %
Combined funds held for clients and corporate
cash equivalents and investments                               1.1 %          1.3 %

Total net realized gains                            $          0.1      $     0.3

(1) Percentage changes are calculated based on unrounded numbers.

August 31,       May 31,
$ in millions                                                    2021       

2021

Net unrealized gains on available for sale ("AFS") securities (1)

$     78.7      $    79.3
Federal Funds rate (2)                                             0.25 %         0.25 %
Total fair value of AFS securities                           $  3,002.4      $ 3,020.2
Weighted-average duration of AFS securities in years (3)            3.4     

3.3


Weighted-average yield-to-maturity of AFS securities (3)            1.8 %   

1.9 %

(1) The net unrealized gain on our investment portfolio was approximately $58.2 million as of September 28, 2021.

(2) The Federal Funds rate was in the range of 0.00% to 0.25% as of August 31, 2021 and May 31, 2021.

(3) These items exclude the impact of variable rate demand notes ("VRDNs") as they are tied to short-term interest rates.




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Total expenses: The following table summarizes the total combined cost of
service revenue and selling, general and administrative expenses for the periods
below:

                                     For the three months ended
                                             August 31,
In millions                         2021                       2020     Change(1)
Compensation-related expenses  $         382.9                $ 370.6        3 %
PEO insurance costs                       96.0                   84.5       14 %
Depreciation and amortization             45.7                   49.6      (8) %
Cost-saving initiatives                      -                   31.2      n/m
Other expenses                           115.4                  112.3        3 %
Total expenses                 $         640.0                $ 648.2      (1) %

(1) Percentage changes are calculated based on unrounded numbers.

n/m - not meaningful



Total expenses decreased 1% to $640.0 million for the first quarter compared to
the prior year period. Excluding one-time costs of $31.2 million in the prior
year period, total expenses increased 4%, impacted by the following:

?Compensation-related expenses: $382.9 million for the first quarter, reflecting a 3% increase, due to an increase in fringe benefits to our employees.

?PEO insurance costs: $96.0 million for the first quarter, reflecting a 14% increase, due to growth in client worksite employees and health insurance revenue across the PEO business.



?Depreciation and amortization: $45.7 million for the first quarter, reflecting
an 8% decrease, due to lower amortization driven by intangible assets amortized
using accelerated methodologies.

?Other expenses: $115.4 million for the first quarter, reflecting a 3% increase, due to continued investment in product development and information technology.



Operating income: Operating income increased 56% to $442.9 million for the first
quarter compared to the prior year period as a result of double-digit revenue
growth and slight expense reduction. Adjusted operating income(1), which
excluded the impact of one-time costs related to the August 2020
geo-optimization plan in the prior year period, increased 41% to $442.9 million
for the first quarter compared to the prior year period. Operating margin and
adjusted operating margin (1) are as follows:

                                                         For the three months ended
                                                                  August 31,
                                                             2021           2020

Operating margin (operating income as a percentage of total revenue)

                                                40.9 %         30.5 %
Adjusted operating margin (1) (operating income,
adjusted for one-time costs, as a percentage of total
revenue)                                                      40.9 %        

33.8 %

Fluctuations in these metrics were attributable to the factors previously discussed.



(1) Adjusted operating income, adjusted operating margin, adjusted net income,
and adjusted diluted earnings per share are not U.S. GAAP measures. Refer to the
"Non-GAAP Financial Measures" section of this Item 2 for a discussion of these
non-GAAP measures and a reconciliation to the most comparable GAAP measures of
operating income, net income, and diluted earnings per share.

Income taxes: Our effective income tax rate was 24.9% for the first quarter,
compared to 23.4% for the prior year period. This increase was the result of an
increase in state taxes. Both periods were impacted by the recognition of net
discrete tax benefits related to employee stock-based compensation payments.

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Non-GAAP Financial Measures: Adjusted operating income, adjusted net income,
adjusted diluted earnings per share, earnings before interest, taxes,
depreciation, and amortization ("EBITDA"), and adjusted EBITDA are summarized as
follows:

                                                  For the three months ended
                                                          August 31,
$ in millions                                         2021              2020        Change(1)
Operating income                               $         442.9      $   284.0           56 %
Non-GAAP adjustments:
Cost-saving initiatives(2)                                   -           31.2
Total non-GAAP adjustments                                   -           31.2
Adjusted operating income                      $         442.9      $   315.2           41 %

Net income                                     $         333.6      $   211.6           58 %
Non-GAAP adjustments:
Excess tax benefit related to employee
stock-based compensation payments(3)                    (10.4)          (7.0)
Cost-saving initiatives(2)                                   -           23.4
Total non-GAAP adjustments                              (10.4)           16.4
Adjusted net income                            $         323.2      $   228.0           42 %

Diluted earnings per share(4)                  $          0.92      $    0.59           56 %
Non-GAAP adjustments:
Excess tax benefit related to employee
stock-based compensation payments(3)                    (0.03)         (0.02)
Cost-saving initiatives(2)                                   -           0.06
Total non-GAAP adjustments                              (0.03)           0.05
Adjusted diluted earnings per share            $          0.89      $    0.63           41 %

Net income                                     $         333.6      $   211.6           58 %
Non-GAAP adjustments:
Interest expense, net                                      9.0            8.4
Income taxes                                             110.3           64.5
Depreciation and amortization expense                     45.7           49.6
Total non-GAAP adjustments                               165.0          122.5
EBITDA                                                   498.6          334.1           49 %
Cost-saving initiatives(2)                                   -           31.2
Adjusted EBITDA                                $         498.6      $   365.3           36 %

(1) Percentage changes are calculated based on unrounded numbers.



(2) One-time costs and corresponding tax benefit recognized during fiscal 2021
related to the acceleration of cost-saving initiatives, including the long-term
strategy to reduce our geographic footprint and headcount optimization. These
events are not expected to recur.

(3) Net tax windfall 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) 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.

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

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LIQUIDITY AND CAPITAL RESOURCES



As of August 31, 2021, our financial position remained strong with cash,
restricted cash, and total corporate investments of $1.2 billion. Total
short-term and long-term borrowings, net of debt issuance costs, were
$804.5 million as of August 31, 2021. Our primary source of cash is generated by
our ongoing operations. Cash flow from operations were $385.6 million for the
first quarter. Our positive cash flows have allowed us to support our business
and pay dividends. We currently anticipate that cash, restricted cash, and total
corporate investments as of August 31, 2021, along with projected operating cash
flows and available short-term financing, will support our business operations,
capital purchases, share repurchases, and dividend payments for the foreseeable
future.

We believe that our investments in an unrealized loss position as of August 31,
2021 were not impaired due to increased credit risk or other valuation concerns,
nor has any event occurred subsequent to that date to indicate any change in our
assessment.

Financing

Short-term financing: We maintain committed and unsecured credit facilities and
irrevocable letters of credit as part of our normal and recurring business
operations. The purpose of these credit facilities is to meet short-term funding
requirements, finance working capital needs, and for general corporate purposes.
We typically borrow on an overnight or short-term basis on our credit
facilities. Refer to Note M of the Notes to Consolidated Financial Statements
contained in Item 8 of our Form 10-K for fiscal 2021 for further discussion on
our credit facilities.

Details of our credit facilities as of August 31, 2021 were as follows:



                                                          Maximum            August 31, 2021
                                                           Amount      Outstanding        Available
$ in millions                         Expiration Date    Available        Amount           Amount
Credit facilities:
JP Morgan Chase Bank, N.A. ("JPM")       July 31, 2024   $  1,000.0   $            -     $   1,000.0
JPM                                    August 17, 2022   $    500.0                -           500.0
PNC Bank, National Association
("PNC")                               February 6, 2023   $    250.0              7.1           242.9
Total Lines of Credit Outstanding
and Available                                                         $     

7.1 $ 1,742.9

Amounts outstanding under the PNC credit facility as of August 31, 2021 remain outstanding as of the date of this report.



Subsequent to August 31, 2021, we amended our $500.0 million credit facility
with JPM. The amendment increased the credit facility's maximum borrowing
capacity to $750.0 million, extended the term through September 17, 2026, with
the option to extend for two additional one-year periods, and amended interest
rate provisions to phase out the use of the London Interbank Offered Rate
("LIBOR"). In addition, we also amended our $1.0 billion credit facility with
JPM. The amendments phase out the use of LIBOR and adopt other administrative
changes to maintain consistency with our other credit facilities.

Details of borrowings under each credit facility during the first quarter and the respective prior year period were as follows:



                                                        For the three months ended August 31, 2021
                                                                     Credit Facility
                                                      $1 Billion        $500 Million      $250 Million
$ in millions                                            JPM                JPM               PNC
Number of days borrowed                                      -                  -                  92
Maximum amount borrowed                            $         -        $         -        $      106.5
Weighted-average amount borrowed                   $         -        $         -        $        8.3
Weighted-average interest rate                               - %                - %              1.15 %


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                                                       For the three months ended August 31, 2020
                                                                    Credit Facility
                                                     $1 Billion       $500 Million      $250 Million
$ in millions                                           JPM               JPM               PNC
Number of days borrowed                                     2                 -                  92
Maximum amount borrowed                            $    135.0       $         -        $      246.1
Weighted-average amount borrowed                   $     89.5       $         -        $       14.3
Weighted-average interest rate                           3.25 %               - %              1.07 %


Short-term borrowings are primarily used for the settlement of client fund obligations, rather than liquidating previously collected client funds that have been invested in AFS securities allocated to our long-term portfolio.

Subsequent to August 31, 2021, there were no overnight borrowings under our PNC and JPM credit facilities.



We expect to have access to the amounts available under our current credit
facilities to meet our ongoing financial needs. However, if we experience
reductions in our operating cash flows due to any of the risk factors outlined
in, but not limited to, Item 1A in our Form 10-K for fiscal 2021 and other SEC
filings, we may need to adjust our capital, operating and other discretionary
spending to realign our working capital requirements with the capital resources
available to us. Furthermore, if we determined the need for additional
short-term liquidity, there is no assurance that such financing, if pursued and
obtained, would be adequate or on terms acceptable to us.

Letters of credit: As of August 31, 2021, we had irrevocable standby letters of
credit available totaling $139.6 million, required to secure commitments for
certain insurance policies. The letters of credit expire at various dates
between November 17, 2021 and December 5, 2022. No amounts were outstanding on
these letters of credit during the first quarter or as of August 31, 2021.

Long-term financing: We have borrowed $800.0 million through the issuance of
long-term private placement debt ("Senior Notes"). Certain information related
to our Senior Notes are as follows:

                             Senior Notes             Senior Notes
                               Series A                 Series B
Stated interest rate             4.07%                    4.25%
Effective interest rate          4.15%                    4.31%
Interest rate type               Fixed                    Fixed

Interest payment dates Semi-annual, in arrears Semi-annual, in arrears Principal payment dates March 13, 2026

           March 13, 2029
Note type                      Unsecured                Unsecured


Refer to Note N of the Notes to Consolidated Financial Statements contained in
Item 8 of our Form 10-K for fiscal 2021 for further discussion on our long-term
financing.

Other commitments: We had outstanding commitments under existing workers'
compensation insurance agreements and legally binding contractual arrangements,
which included immaterial leases that have yet to commence. We also entered into
various purchase commitments with vendors in the ordinary course of business and
had outstanding commitments to purchase approximately $7.9 million of capital
assets as of August 31, 2021. In addition, we are involved in two limited
partnership agreements to contribute a maximum of $20.0 million to venture
capital funds in the financial technology sector. As of August 31, 2021, we have
contributed approximately $12.9 million of the total funding commitment.

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. We
have also 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 claims as they relate to their
services provided to us.

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We currently self-insure the deductible portion of various insured exposures
under certain corporate employee and PEO employee health and medical 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 were not material
as of August 31, 2021. 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.

Operating, Investing, and Financing Cash Flow Activities



                                                For the three months ended
                                                        August 31,
In millions                                         2021            2020    

Change

Net cash provided by operating activities $ 385.6 $ 215.0 $ 170.6 Net cash used in investing activities

                   (22.3)       (236.3)       214.0
Net cash used in financing activities                  (211.7)       (382.8)       171.1
Net change in cash, restricted cash, and
equivalents                                    $         151.6   $   

(404.1) $ 555.7



Cash dividends per common share                $          0.66   $      

0.62

The changes in our cash flows for the first quarter compared to the corresponding prior year period were primarily the result of the following key drivers:

Operating Cash Flow Activities

?Higher net income attributable to the reasons discussed in the "Results of Operations" section of this Item 2.

?Changes in purchased receivables balances due to the timing of collections, offset by growth in our business.

?Timing and magnitude of income tax payments; partially offset by,

?Higher incentive compensation payments than in the prior year period; and,

?Decrease in the net change in operating lease right-of-use assets and liabilities due to the prior year period reduction of our geographic footprint.

Investing Cash Flow Activities



?The decrease in cash used was primarily related to prior year period purchases
of AFS securities from funds held for clients that were previously being held as
cash or cash equivalents due to uncertainty in the economy. This is partially
offset by,

?Greater investment in technology as we continued to introduce new product solutions and enhancements.



Fluctuations in the net purchases and sales/maturities of AFS securities are
also due to timing within the client funds portfolio and market conditions.
Amounts will vary based upon the timing of collection from clients, and the
related remittance to applicable tax or regulatory agencies for payroll tax
administration services and to employees of clients utilizing employee payment
services.

Discussion of interest rates and related risks is included in the "Market Risk Factors" section of this Item 2.

Financing Cash Flow Activities

?Increase in net cash inflows from changes in client fund obligations as our clients continued to recover from the impacts of the COVID-19 pandemic.



?Decrease in the repurchase of common shares as we did not repurchase any shares
in the first quarter versus 0.4 million shares repurchased in the respective
prior year period. $472.4 million remains available under our common stock
repurchase programs. Refer to Part II, Item 2 of this Form 10-Q for further
discussion on our common stock repurchase programs.

?Dividends paid increased $14.9 million compared to the prior year period due to
an increase in our quarterly dividend from $0.62 to $0.66 per share. 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.

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The client fund obligations liability will also 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.

MARKET RISK FACTORS

Changes in interest rates and interest rate risk: Funds held for clients are
primarily comprised of short-term funds and AFS securities. Corporate
investments are primarily comprised of AFS 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 AFS 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; corporate bonds; and
U.S. government agency and treasury securities. 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 AFS securities to a benchmark duration of two and
one-half to three and three-quarters years.

During the first quarter, our primary short-term investment vehicle was bank
demand deposit accounts. We have no exposure to high-risk or non-liquid
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 cash equivalents and investment portfolios was
1.1% compared to 1.3% for the respective prior year period. When interest rates
are falling, the full impact of lower interest rates will not immediately be
reflected in net income due to the interaction of short- and long-term interest
rate changes. During a falling interest rate environment, earnings decrease from
our short-term investments, and over time, earnings will decrease from our
longer-term AFS securities. Earnings from AFS securities, which as of August 31,
2021 had an average duration of 3.4 years, would not reflect decreases in
interest rates until the investments are sold or mature and the proceeds are
reinvested at lower rates.

The amortized cost and fair value of AFS securities that had stated maturities as of August 31, 2021 are shown below by expected maturity.



                                             August 31, 2021
                                          Amortized     Fair
In millions                                  cost       value
Maturity date:
Due in one year or less                   $    318.7  $   322.0

Due after one year through three years 715.0 741.0 Due after three years through five years 1,025.1 1,062.1 Due after five years

                           864.9      877.3
Total                                     $  2,923.7  $ 3,002.4


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.

As of August 31, 2021, the Federal Funds rate was in the range of 0.00% to
0.25%. There continues to be uncertainty in the changing market and economic
conditions, including the possibility of additional measures that could be taken
by the Federal Reserve and other government agencies, related to the COVID-19
pandemic. We will continue to monitor the market conditions.

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

?governmental action resulting from the COVID-19 pandemic;

?daily interest rate changes;

?seasonal variations in investment balances;

?actual duration of short-term and AFS 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


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? 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 approximately $3.0 million to $3.5 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 cash
equivalents and investments) is expected to average approximately $5.5 billion
for fiscal 2022. Our anticipated allocation is approximately 40% invested in
short-term securities and VRDNs with an average duration of less than 30 days
and 60% invested in AFS securities, with an average duration of two and one-half
to three and three-quarters years.

The combined funds held for clients and corporate AFS securities reflected net
unrealized gains of $78.7 million as of August 31, 2021 and $79.3 million as of
May 31, 2021. During the first quarter, the net unrealized gain on our
investment portfolios ranged from $68.0 million to $89.2 million. These
fluctuations were driven by changes in market rates of interest. The net
unrealized gain on our investment portfolio was approximately $58.2 million as
of September 28, 2021.

As of August 31, 2021 and May 31, 2021, we had $3.0 billion, respectively,
invested in AFS securities at fair value. The weighted-average yield-to-maturity
was 1.8% as of August 31, 2021 and 1.9% as of May 31, 2021. The weighted-average
yield-to-maturity excludes AFS 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 AFS securities as of August 31, 2021, would be approximately $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 our results of operations unless any declines in fair value are due to
credit related concerns and an impairment loss is 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 impaired due to increased credit risk or other valuation concerns
and we believe that the investments we held as of August 31, 2021 were not
impaired as a result of the previously discussed reasons. While $273.9 million
of our AFS 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 gross unrealized losses of
$1.8 million were due to changes in interest rates and were not due to increased
credit risk or other valuation concerns. Most of the AFS securities in an
unrealized loss position as of August 31, 2021 and May 31, 2021 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 impaired due to increased
credit risk or other valuation concerns could change in the future due to new
developments, including changes in our strategies or assumptions related to any
particular investment.

We have some credit risk exposure relating to the purchase of accounts
receivable as a means of providing payroll funding to clients in the temporary
staffing industry. There is also credit risk exposure relating to our trade
accounts receivable. 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 as of August 31, 2021.



CRITICAL ACCOUNTING POLICIES

Our critical accounting policies are described in Item 7 of our Form 10-K for fiscal 2021, filed with the SEC on July 16, 2021. 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;

?assets recognized from the costs to obtain and fulfill contracts;

?PEO insurance reserves;

?goodwill and other intangible assets;

?impairment of long-lived assets;

?stock-based compensation costs; and


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?income taxes.

There have been no 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.

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