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Service Revenue | 9 Months Ended
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Feb. 28, 2023
Revenue from Contract with Customer [Abstract] |
Service Revenue | Note B: Service Revenue Service revenue is primarily attributable to fees for providing services to the Company’s clients and is recognized when control of the contracted services is transferred to its clients, in an amount that reflects the consideration it expects to receive in exchange for such services. Insurance Solutions revenue is commissions earned on premiums collected and remitted to insurance carriers. The Company’s contracts generally do not contain specified contract periods and may be terminated by either party with a 30-day notice of termination. Sales and other applicable non-payroll related 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 Solutions as reported in 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. Management Solutions Revenue Management Solutions revenue is primarily derived from the Company’s integrated HCM services and HR 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 services covering the HCM spectrum. Management Solutions revenue is generally recognized over time as services are performed and the client simultaneously receives and controls the benefits from these services. Revenue earned from delivery service for the distribution of certain client payroll checks and reports is also included in Management Solutions revenue in 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. PEO and Insurance Solutions Revenue PEO solutions are sold through the Company’s registered and licensed subsidiaries and offer businesses HCM and HR solutions. 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 offerings. PEO Solutions revenue is recognized over time as the services are performed and the client simultaneously receives and controls the benefits from these services. PEO Solutions revenue is reported net of certain pass-through costs billed and incurred, which include payroll wages, payroll taxes, including federal and state unemployment insurance, and health insurance premiums on guaranteed cost benefit plans. For workers’ compensation and health insurance plans where the Company retains risk, revenues and costs are recorded on a gross basis. PEO pass-through costs netted within the PEO and Insurance Solutions revenue are as follows:
|  | For the three months ended |  |  | For the nine months ended |
|  | February 28, |  |  | February 28, |
In millions |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Payroll wages and payroll taxes |  | $ |  | 6,944.1 |  |  | $ |  | 6,546.1 |  |  | $ |  | 19,615.2 |  |  | $ |  | 17,909.4 |
State unemployment insurance (included in payroll wages and payroll taxes) |  | $ |  | 71.4 |  |  | $ |  | 74.2 |  |  | $ |  | 111.2 |  |  | $ |  | 108.2 |
Guaranteed cost benefit plans |  | $ |  | 157.8 |  |  | $ |  | 164.3 |  |  | $ |  | 494.8 |  |  | $ |  | 471.9 |
Insurance solutions are sold through the Company’s licensed insurance agency, Paychex Insurance Agency, Inc., which provides insurance through a variety of carriers, 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, cyber security, and health and benefits coverage, including health, dental, vision, and life. Insurance Solutions revenue reflects commissions earned on remitted insurance services premiums billed and is recognized over time as services are performed and the client simultaneously receives and controls the benefits from these services. Contract Balances The timing of revenue recognition for Management Solutions and PEO and Insurance Solutions 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. 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 them as future services are provided, over approximately three to four years. Changes in deferred revenue related to material rights that exceed one year were as follows:
|  | For the three months ended |  |  | For the nine months ended |
|  | February 28, |  |  | February 28, |
In millions |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance, beginning of period |  | $ |  | 55.2 |  |  | $ |  | 43.8 |  |  | $ |  | 48.9 |  |  | $ |  | 40.2 |
Deferral of revenue |  |  |  | 10.9 |  |  |  |  | 9.1 |  |  |  |  | 31.0 |  |  |  |  | 25.4 |
Recognition of unearned revenue |  |  |  | (7.6 | ) |  |  |  | (6.8 | ) |  |  |  | (21.4 | ) |  |  |  | (19.5 | )
Balance, end of period |  | $ |  | 58.5 |  |  | $ |  | 46.1 |  |  | $ |  | 58.5 |  |  | $ |  | 46.1 |
Deferred revenue related to material rights is reported in the deferred revenue and other long-term liabilities line items on the Company’s Consolidated Balance Sheets. As of February 28, 2023, the Company expects to recognize deferred revenue related to these material rights for the remainder of fiscal 2023 and subsequent fiscal years as follows:
In millions |  | Estimated |
Year ending May 31, |  | recognition of unearned revenue |
2023 |  | $ |  | 7.1 |
2024 |  |  |  | 23.5 |
Thereafter |  |  |  | 27.9 |
Total recognition of unearned revenue |  | $ |  | 58.5 |
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 economic benefit and amortization period will be longer than one year. 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. 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 cost of service revenue and selling, general and administrative expenses in the Company’s Consolidated Statements of Income and Comprehensive Income and recognized over the expected economic benefit period. The Company regularly reviews its deferred costs for potential impairment and did no t recognize an impairment loss during the nine months ended February 28, 2023 or February 28, 2022. Changes in deferred costs to obtain and fulfill contracts were as follows:
Costs to obtain contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | For the three months ended |  |  | For the nine months ended |
|  | February 28, |  |  | February 28, |
In millions |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance, beginning of period |  | $ |  | 562.6 |  |  | $ |  | 500.5 |  |  | $ |  | 550.2 |  |  | $ |  | 488.2 |
Capitalization of costs |  |  |  | 65.2 |  |  |  |  | 70.1 |  |  |  |  | 172.2 |  |  |  |  | 169.1 |
Amortization |  |  |  | (48.9 | ) |  |  |  | (44.8 | ) |  |  |  | (143.5 | ) |  |  |  | (131.5 | )
Balance, end of period |  | $ |  | 578.9 |  |  | $ |  | 525.8 |  |  | $ |  | 578.9 |  |  | $ |  | 525.8 |
Costs to fulfill contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | For the three months ended |  |  | For the nine months ended |
|  | February 28, |  |  | February 28, |
In millions |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Balance, beginning of period |  | $ |  | 74.5 |  |  | $ |  | 70.5 |  |  | $ |  | 72.3 |  |  | $ |  | 69.3 |
Capitalization of costs |  |  |  | 8.3 |  |  |  |  | 7.4 |  |  |  |  | 23.4 |  |  |  |  | 21.0 |
Amortization |  |  |  | (6.6 | ) |  |  |  | (6.3 | ) |  |  |  | (19.5 | ) |  |  |  | (18.7 | )
Balance, end of period |  | $ |  | 76.2 |  |  | $ |  | 71.6 |  |  | $ |  | 76.2 |  |  | $ |  | 71.6 |

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI https://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045 + Details
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