PAYXPaychex

Please tell us and present separately in your financial statements the material components of the operating expenses line item. Refer to Rule 5-03.3 of Regulation S-X. Please also tell us and disclose in an accounting policy footnote the types of amounts included in operating expenses versus selling, general and administrative expenses.

to the Staff’s comment, the Company reviewed its presentation of operating expenses and determined that the operating expense line item reported on our Consolidated Statements of Income and Comprehensive Income are the cost of services provided to our clients and we believe appropriately fall under Rule 5-03.2(d) of Regulation S-X.

As such, we will update the presentation of our Consolidated Statements of Income and Comprehensive Income in future filings, beginning with our next required report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) after the Staff’s

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comments have been resolved, as follows:

2018

2017

Year ended May 31,

2019

As Adjusted

Revenue:

Management Solutions

$

2,877.7

2,758.4

2,680.7

PEO and Insurance Services

814.2

555.8

421.7

Total service revenue

3,691.9

3,314.2

3,102.4

Interest on funds held for clients

80.6

63.5

50.6

Total revenue

3,772.5

3,377.7

3,153.0

Expenses:

Cost of service revenue

1,177.8

1,018.2

919.4

Selling, general and administrative expenses

1,223.4

1,068.0

979.7

Total expenses

2,401.2

2,086.2

1,899.1

Operating income

1,371.3

1,291.5

1,253.9

In response to the Staff’s comment, the Company will disclose in an accounting policy footnote the types of amounts included in cost of service revenue versus selling, general and administrative expenses. In future filings, beginning with our next required report under the Exchange Act after the Staff’s comments have been resolved, we will expand our accounting policy as follows:

“Cost of service revenue: Our costs and expenses applicable to total service revenue represent direct costs associated with providing payroll, benefits, human resource, and insurance services. This includes labor-related costs, direct costs related to certain PEO offerings, postage and delivery costs, facility costs, professional services, and depreciation and amortization of property and equipment, including internally developed software.

Selling, general and administrative expenses: Our selling, general and administrative expenses represent labor-related costs, including amortization of deferred sales commissions and bonuses, corporate asset depreciation and amortization, marketing, and other general and administrative expenses incurred by the Company.”

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Please tell us the specific types of incremental costs of obtaining a contract that you have recognized as an asset. Also, tell us separately for each type of incremental cost how you determined the asset recognition criteria in paragraphs 25-1 through 25-3 of ASC 340-4025 were met.

The specific incremental costs to obtain a contract that the Company recognizes as an asset are sales commissions and bonuses, including related fringe benefits.

In accordance with ASC 340-40-25-1, the Company has applied the asset recognition criteria as follows:

·

Sales commissions are paid on each new contract sold. Sales commissions are considered incremental costs as they would not be incurred unless the underlying sales were completed.

Sales bonuses are typically earned once a certain level, or tier, of sales units (or revenue) has been achieved.

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Achievement is based on cumulative sales during a period, which consists of multiple contracts. Sales bonuses incurred based on new contracts sold are considered incremental costs.

The Company incurs FICA expenses and 401(k) match expenses on compensation paid in the form of sales commissions and sales bonuses. The Company considers these fringe benefit costs to be incremental as they would not be incurred if the underlying sales were not completed.

For all the above items, at the time a sale is completed, the Company expects these incremental costs to be recovered over the life of the client relationship.

In accordance with ASC 340-40-25-3, the Company has determined that each of the above incremental costs act as an incentive to obtain a contract and would not be incurred unless the underlying sales were completed. If a new sale was not completed, these costs would not be incurred by the Company.

The Company will expand disclosures within ‘Note B – Service Revenue’ in future filings, beginning with our next required report under the Exchange Act after the Staff’s comments have been resolved. The additional disclosure will read as follows:

“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. Incremental costs of obtaining a contract include only those costs the Company incurs to obtain a contract that it would not have incurred if the contract had not been obtained. The Company determined that certain sales commissions and bonuses, including related fringe benefits meet the capitalization criteria under ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”).”

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We read your response to comment 2. Please also tell us and disclose your accounting policy for incremental costs of obtaining a contract renewal, including whether a commission paid for a renewal is commensurate with a commission paid on the initial contract, any material differences in the incremental costs capitalized for a contract renewal versus the initial contract and the amortization period for incremental

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costs capitalized upon obtaining a contract renewal. Refer to ASC 340-40-50-2 and Revenue Recognition Transition Resource Group Memo No. 23.

The Company’s incremental costs to obtain a contract include commissions paid upon the initial commencement of a contract with its clients. The Company’s contracts generally do not contain specified contract periods and may be terminated by either party with 30-days’ notice of termination. As a result, the Company does not incur incremental costs related to contract renewals. The incremental costs of obtaining a new contract with a client are capitalized if it is expected that the economic benefit and amortization period will be longer than one year.

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The Company’s assets related to incremental costs to obtain 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.

The Company will expand disclosures within ‘Note B – Service Revenue’ in future filings, beginning with our next required report under the Exchange Act after the Staff’s comments have been resolved. The revised disclosures will read as follows:

“The Company’s contracts generally do not contain specified contract periods and may be terminated have a term of 30 days as they are cancellable at any time by either party with 30-days’ notice of termination.”

“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. Incremental costs of obtaining a contract include only those costs that are directly related to the acquisition of new contracts and that would not have been incurred if the contract had not been obtained. The Company does not incur incremental costs to obtain a contract renewal. The Company determined that certain sales commissions and bonuses, including related fringe benefits, selling and commission costs meet the capitalization criteria under ASC Subtopic 340-40, “Other Assets and Deferred Costs: Contracts with Customers” (“ASC 340-40”).”

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In future filings please describe your policies for the review, approval or ratifications of transactions with related persons rather than providing a web address where such policies may be found. Please refer to Item 404(b)(1) of Regulation S-K.

In the section on page 18 entitled “Policy on Transactions With Related Persons” we discuss our process for review and approval of related party transactions. In future filings, we will expand on and clarify this discussion. Specifically, we will indicate that management has a responsibility to report any potential conflicts of interest or related party transactions.

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Annually, officers and directors complete a Director’s and Officer’s Questionnaire, within which we request information regarding whether the individual or

John Cash, Division of Corporation Finance

10/27/2014 any member of their immediate family had any interest in any actual or proposed transaction with the Company or any of its subsidiaries where the amount involved exceeded $120,000. The individuals are also asked about any other economic relationships that might be conflicts of interest. The responses are reviewed by Corporate Accounting and Legal. In our discussion we indicated that the Governance & Compensation Committee (“the G&C committee”) reviews all transactions with related parties in excess of $120,000. We will expand this discussion to include factors considered by the G&C committee in their review, which includes: the business objective of the transaction; the individual’s involvement in the transaction; whether the transaction would impact the judgment of the officer or director to act in the best interest of the Company; and any other matters the G&C committee deems appropriate. We will also address whether any instances of conflict or non-compliance have occurred. Should a conflict of interest be identified, relevant information and circumstances would be reviewed to determine if action is required relative to continuing the arrangement. During fiscal 2014, no instances were identified.

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In future filings please disclose in more detail the factors taken into consideration in determining the number of shares of performance shares, option awards, and restricted stock awards granted to each NEO. Please refer to comment 5 of our letter dated January 28, 2009.

The G&C committee initiates its target total compensation analysis by reference to our Peer Group data. As noted in our 2014 Proxy Statement, total compensation for both our CEO and CFO is below our Peer Group median. As noted in response to #3, total compensation for all other NEOs based on the average of Peer Group NEOs, excluding the CEO and CFO positions, is also below the median. The G&C committee then evaluates individual performance to adjust target total compensation, and evaluates all NEOs against an internal pay equity metric to determine any further adjustments.

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Once the total compensation is determined, the G&C committee will determine the pay mix based on both short-term and long-term compensation, as well as fixed and performance-based compensation. They target to maintain performance-based pay as a percentage of total compensation of over 70% for the CEO and over 60% for the other NEOs. Additionally, they target the value distributed to long-term compensation to be approximately 60% of CEO total compensation and 50% of the other NEOs total compensation. In our discussion of the equity awards, we indicate that the quantity of awards is based on an estimated total value, as determined by the G&C committee. For our July 2013 grants, the total estimated value was $3,750,000 for the CEO and $850,000 for Senior Vice Presidents. The equity was distributed as follows: 30% to stock options, 50% to performance shares, and 20% to time-vested restricted stock. This distribution provides for 80% of the awards value to be performance-based while 20% is fixed. We will expand our disclosure in future filings to quantify that total value, as approved by the G&C committee, and discuss the factors involved in that determination.

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You state here that the compensation of NEOs other than your CEO and CFO was compared to average NEO compensation excluding CEO and CFO position for your Peer Group. You do not disclose the results of this comparison. In future filing please disclose your NEOs’ total compensation in comparison to that of the Peer Group for the last completed fiscal year.

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Please see Item 402(b)(2)(xiv) of Regulation S-K and comment 3 of our letter dated October 20, 2010.

Currently there are no comparable matches available in our Peer Group to provide a benchmark of total compensation for all of our NEOs. As we have disclosed, we utilize an average of NEO compensation for our Peer Group (excluding the CEO and CFO positions) as our benchmark comparison for our NEOs, except our CEO and CFO. In future filings we will expand our disclosure to include the results of the comparison.

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For total compensation for the fiscal year ending May 31, 2014, this comparison indicated that our NEOs, other than the CEO and CFO, had total compensation that was below the median total compensation of the Peer Group. We will include such results for our NEOs against the Peer Group in future filings.

Paychex, Inc. hereby acknowledges that:

•

Paychex, Inc. is responsible for the adequacy and accuracy of the disclosure in its filings;

Staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

Paychex, Inc. may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under federal securities laws of the United States.

If you have any question, or require additional information, please do not hesitate to contact me.

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