##### Table of Contents



UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
    20549
    FORM 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
  For the fiscal year ended May 31, 2009
  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
  Securities registered pursuant to Section 12(b) of the
    Act:


Common Stock, $0.01 Par ValueName of exchange on which registered:


NASDAQ Global Select Market   þ o
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
    Large
    accelerated
    filer  þ
    Accelerated
    filer  o
    Non-accelerated
    filer  o
    Smaller
    reporting company
    o (Do not check if a smaller
 reporting
    company)
  Rule 12b-2 o þ
      Documents
    Incorporated by Reference




---



##### 



PAYCHEX,
    INC.
  INDEX TO
    FORM 10-K
  For the
    fiscal year ended May 31, 2009
   
 Description

PagePART ISafe Harbor Statement Under the
    Private Securities Litigation Reform Act of 1995


1Item 1


Business


1Item 1A


Risk Factors


8Item 1B


Unresolved Staff Comments


10Item 2


Properties


10Item 3


Legal Proceedings


10Item 4


Submission of Matters to a Vote of Security
    Holders


11PART IIItem 5


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


11Item 6


Selected Financial Data


13Item 7


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


13Item 7A


Quantitative and Qualitative Disclosures About
    Market Risk


31Item 8


Financial Statements and Supplementary Data


34Item 9


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


65Item 9A


Controls and Procedures


65Item 9B


Other Information


65PART IIIItem 10


Directors, Executive Officers and Corporate
    Governance


66Item 11


Executive Compensation


67Item 12


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


67Item 13


Certain Relationships and Related Transactions,
    and Director Independence


67Item 14


Principal Accounting Fees and Services


67PART IVItem 15


Exhibits and Financial Statement Schedules


68Signatures


70EX-10.16EX-10.17EX-10.18EX-10.19EX-10.20EX-10.21EX-10.22EX-10.29EX-10.30EX-21.1EX-23.1EX-24.1EX-31.1EX-31.2EX-32.1EX-32.2   i




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##### Table of Contents



PART I SAFE
    HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
    REFORM ACT OF 1995  Form 10-K (Form 10-K):
  
    general market and economic conditions including, among others,
    changes in United States (U.S.) employment and wage
    levels, changes in 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, and the
    availability of skilled workers;
    changes in the laws regulating collection and payment of payroll
    taxes, professional employer organizations, and employee
    benefits, including retirement plans, workers
    compensation, health insurance, state unemployment, and
    section 125 plans;
    changes in workers compensation rates and underlying
    claims trends;
    the possibility of failure to keep pace with technological
    changes and provide timely enhancements to services and products;
    the possibility of failure of our operating facilities, computer
    systems, and communication systems during a catastrophic event;
    the possibility of third-party service providers failing to
    perform their functions;
    the possibility of penalties and losses resulting from errors
    and omissions in performing services;
    the possible inability of our clients to meet their payroll
    obligations;
    the possible failure of internal controls or our inability to
    implement business processing improvements; and
    potentially unfavorable outcomes related to pending legal
    matters.  Form 10-K Form 10-K
  Item 1.
    Business   1




---



##### Table of Contents



Company
    Strategy
    
    providing high-quality, timely, accurate, and affordable
    comprehensive payroll and integrated human resource services;
    delivering these services utilizing a well-trained and
    responsive work force through a network of local and corporate
    offices servicing more than 100 of the largest markets in the
    U.S.;
    growing our client base, primarily through the efforts of our
    direct sales force;
    continually improving client service and maximizing client
    retention;
    capitalizing on the growth opportunities within our current
    client base and from new clients by increasing utilization of
    our payroll and human resource ancillary services and products;
    capitalizing on and leveraging our highly developed
    technological and operating infrastructure;
    investing in our business through expansion of our service and
    product offerings to continually add value for our
    clients; and
    supplementing our growth through strategic acquisitions when
    appropriate opportunities arise.  Market
    Opportunities
      Clients
   2




---



##### Table of Contents



Business size

Estimated market distribution

Paychex, Inc. distribution(Number of employees)

(11.5 million businesses in Paychex areas served)

of client base1-4


79
%


40
%5-19


16
%


42
%20-49


3
%


12
%50-99


1
%


4
%100+


1
%


2
%   Services
    and Products
    
    payroll processing;
    payroll tax administration services;
    employee payment services;
    regulatory compliance services (new-hire reporting and
    garnishment processing);
    comprehensive human resource outsourcing services;
    retirement services administration;
    health and benefits services;
    workers compensation insurance services;
    time and attendance solutions; and
    other human resource services and products.    Payroll
    Processing
    ® one-half
 3




---



##### Table of Contents



Major Market Services:
  ® on-site,
    ®
  Ancillary
    Services and Products
    Payroll tax administration services: ®
  Employee payment services: Plus ®
 4




---



##### Table of Contents



Regulatory compliance services:
  Comprehensive human resource outsourcing
    services: on-site
  Retirement services administration:
  Health and benefits services:
  Workers compensation insurance
    services:
 5




---



##### Table of Contents



Time and attendance solutions: ®
  Other human resource services and
    products:
  Sales and
    Marketing
    Payroll


1,590Retirement services administration and other human resource
    services


350Comprehensive human resource outsourcing services


210Licensed agents for health and benefits services


160Licensed agents for workers compensation insurance


60Total sales representatives


2,370     www.paychex.com
   6




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##### Table of Contents



Competition
  ®
      Software
    Maintenance and Development
    Employees
    Intellectual
    Property
    Seasonality
    Other
  www.paychex.com Form 10-Ks, Form 10-Q, Form 8-K,
 7




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##### Table of Contents



c/o Corporate 14625-2396.
 Item 1A.  Risk
    Factors  Form 10-K.
  We may be adversely impacted by volatility in the
    financial and economic environment:
  Our interest earned on funds held for clients may be
    impacted by changes in government regulations mandating the
    amount of tax withheld or timing of
    remittance:
  Our services may be adversely impacted by changes in
    government regulations and policies:
  We may not be able to keep pace with changes in
    technology:
  In the event of a catastrophe, our business continuity
    plan may fail, which could result in the loss of client data and
    adversely interrupt operations:
 8




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##### Table of Contents



We may be adversely impacted by any failure of third-party
    service providers to perform their
    functions:
  We may make errors and omissions in providing services,
    which could result in significant penalties and liabilities for
    us:
  We may experience a loss as the result of our clients
    having insufficient funds to cover payments we have made on
    their behalf to applicable tax or regulatory agencies and
    employees:
  Our business and reputation may be affected by our ability
    to keep clients information
    confidential:
  We may be exposed to additional risks related to our
    co-employment relationship within our PEO
    business:
  We may not realize the anticipated benefits from
    acquisitions:
 9




---



##### Table of Contents



We may have an adverse outcome of legal matters, which
    could harm our business: Form 10-K
  Quantitative and qualitative disclosures about market
    risk: Form 10-K
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Square feetOwned facilities:Rochester, New York


668,000Other U.S. locations


66,000Total owned facilities


734,000Leased facilities:Rochester, New York


141,000Other U.S. locations


2,302,000Germany


1,200Total leased facilities


2,444,200     Item 3.
    Legal
    Proceedings     10




---



##### Table of Contents



Brunskill
    Associates, Inc. v. Rapid Payroll, Inc. et al
  Form 10-K.
    Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities        Fiscal 2009


Fiscal 2008Cash








Cashdividends








dividendsSales prices


declared per


Sales prices


declared perHigh


Low


share


High


Low


shareFirst quarter

$
35.53


$
30.26


$
0.31


$
47.14


$
38.69


$
0.30Second quarter

$
35.29


$
23.22


$
0.31


$
45.65


$
37.05


$
0.30Third quarter

$
27.95


$
21.83


$
0.31


$
40.68


$
31.35


$
0.30Fourth quarter

$
28.20


$
20.31


$
0.31


$
37.47


$
30.09


$
0.30    11




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##### Table of Contents



STOCK
    PRICE PERFORMANCE GRAPH
  
  May 31,

2004


2005


2006


2007


2008


2009Paychex, Inc.


100.00



78.27



101.11



113.60



100.29



82.97S&P 500


100.00



108.24



117.59



144.39



134.72



90.84S&P S(DP)


100.00



97.68



112.78



136.90



124.38



96.49    12




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##### Table of Contents



Item 6.
    Selected
    Financial Data  In thousands, except per share amountsYear ended May 31,

2009


2008


2007(1)


2006


2005Service revenue

$
2,007,305


$
1,934,536


$
1,752,868


$
1,573,797


$
1,384,674Interest on funds held for clients


75,454



131,787



134,096



100,799



60,469Total revenue

$
2,082,759


$
2,066,323


$
1,886,964


$
1,674,596


$
1,445,143Operating income

$
805,200


$
828,267


$
701,548


$
649,571


$
533,775As a % of total revenue


39
%


40
%


37
%


39
%


37
%Net income

$
533,545


$
576,145


$
515,447


$
464,914


$
368,849As a % of total revenue


26
%


28
%


27
%


28
%


26
%Diluted earnings per share

$
1.48


$
1.56


$
1.35


$
1.22


$
0.97Cash dividends per common share

$
1.24


$
1.20


$
0.79


$
0.61


$
0.51Purchases of property and equipment

$
64,709


$
82,289


$
79,020


$
81,143


$
70,686Total assets

$
5,127,415


$
5,309,791


$
6,246,519


$
5,549,302


$
4,617,418Total debt

$



$



$



$



$
Stockholders equity

$
1,341,478


$
1,196,642


$
1,952,248


$
1,654,843


$
1,385,676Return on stockholders equity


41
%


39
%


28
%


30
%


28
%     (1)
    
    Includes $25.7 million of stock-based compensation costs
    and an expense charge of $38.0 million to increase the
    litigation reserve.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Form 10-K (Form 10-K) Form 10-K. Form 10-K.
  Overview
      
    payroll processing;
    payroll tax administration services;
    employee payment services; and
    regulatory compliance services (new-hire reporting and
    garnishment processing).   13




---



##### Table of Contents




    comprehensive human resource outsourcing services, which include
    Paychex
    Premier®

    Human Resources and our Professional Employer Organization
    (PEO);
    retirement services administration;
    health and benefits services;
    workers compensation insurance services;
    time and attendance solutions; and
    other human resource services and products.      
    Checks per client decreased 5.2% for the fourth quarter and 2.9%
    for fiscal 2009, and are projected to decline 3% for the year
    ending May 31, 2010 (fiscal 2010);
    New client sales from new business starts declined 27% for the
    fourth quarter and 19% for fiscal 2009;
    Clients lost due to companies going out of business or no longer
    having any employees increased 19% for the fourth quarter and
    17% for fiscal 2009;
    Average rate of return earned on our combined investment
    portfolios was 2.1% for fiscal 2009 compared to 3.7% for fiscal
    2008; and
    Short-term taxable average interest rate earned was 1.2% for
    fiscal 2009 compared to 4.2% for fiscal 2008.      
    Payroll service revenue increased 1% to $1.5 billion.
    Human Resource Services revenue increased 11% to
    $523.6 million.
    Total revenue increased 1% to $2.1 billion.
    Operating income decreased 3% to $805.2 million, as
    combined interest on funds held for clients and investment
    income decreased 48%.
    Operating income, net of certain items, increased 5% to
    $729.7 million.
    Net income decreased 7% to $533.5 million. 14




---



##### Table of Contents




    Diluted earnings per share decreased 5% to $1.48 per share.
    Cash flow from operations decreased 5% to $688.8 million.
    Dividends of $447.7 million were paid to stockholders,
    representing 84% of net income.      Client base and increased utilization of ancillary
    services:
     15




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##### Table of Contents



ExpectedYear ended May 31,

2010


Change


2009


Change


2008Payroll


1,590



5
%


1,515



1
%


1,505Retirement services administration and other human resource
    services


350



(5
)%


370



4
%


355Comprehensive human resource outsourcing services


210



(5
)%


220



7
%


205Licensed agents for health and benefits services


160



23
%


130



37
%


95Licensed agents for workers compensation insurance


60



(8
)%


65



8
%


60Total sales representatives


2,370



3
%


2,300



4
%


2,220     $ in millionsAs of May 31,

2009


2008


2007Payroll tax administration services penetration


93
%


93
%


93
%Employee payment services penetration


75
%


73
%


71
%Retirement services clients


50,000



48,000



44,000Comprehensive human resource outsourcing services client
    employees served


453,000



439,000



373,000Comprehensive human resource outsourcing services clients


18,000



16,000



14,000Workers compensation insurance clients


77,000



72,000



62,000Health and benefits services revenue

$
20.9


$
12.3


$
6.4   Service and product initiatives:
  
    Enhanced the Paychex Time and Labor Online product, an
    Internet-based, integrated time and labor management system that
    provides clients with an easy and cost-effective way to automate
    time and attendance processes.
    Introduced Paychex Expense Manager, an integrated payroll and
    expense management solution to help clients control
    discretionary spending while giving their employees the
    convenience of preparing and submitting expense reports via an
    easy-to-use, secure, online tool.    
    Enhanced our 401(k) product through the addition of auto
    enrollment as an optional plan feature. This feature allows
    employers to automatically enroll their employees in their
    companys 401(k) plan and increase overall plan
    participation.
    Continued expansion of our health insurance services nationwide,
    simplifying the process for our clients to obtain coverage
    through our network of national and regional insurers. Revenue
    from health and benefits services increased 70% to
    $20.9 million for fiscal 2009, and is anticipated to exceed
    $30.0 million for fiscal 2010.
    Made necessary adjustments to proactively respond to provisions
    under the American Recovery and Reinvestment Act of 2009 (the
    2009 economic stimulus package), particularly the
    Making Work Pay income tax credit and premium
    assistance for COBRA recipients. Our preparedness allowed us to
    educate and assist our clients with these regulatory changes. 16




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##### Table of Contents



Business acquisitions:
  Focus on customer service:
  Financial position and liquidity:
  other-than-temporarily other-than-temporary A-1/P-1
  sub-prime
     17




---



##### Table of Contents



Outlook
    Low



HighPayroll service revenue


(5)%





(3)%Human Resource Services revenue


3%





6%Total service revenue


(4)%





(1)%Interest on funds held for clients


(30)%





(25)%Total revenue


(4)%





(1)%Investment income, net


(35)%





(30)%Net income


(12)%





(10)%     yield-to-maturity
  Interest on funds held

Investment income,Fiscal 2010

for clients

netFirst quarter

(45)%

(70)%Second quarter

(35)%

(40)%Third quarter

(20)%

10%Fourth quarter

(15)%

50%      18




---



##### Table of Contents



Results
    of Operations
  Summary
    of Results of Operations for the Fiscal Years Ended May
    31:
  In millions, except per share amounts

2009


Change


2008


Change


2007Revenue:Payroll service revenue

$
1,483.7



1
%

$
1,462.7



8
%

$
1,356.6Human Resource Services revenue


523.6



11
%


471.8



19
%


396.2Total service revenue


2,007.3



4
%


1,934.5



10
%


1,752.8Interest on funds held for clients


75.5



(43
)%


131.8



(2
)%


134.1Total revenue


2,082.8



1
%


2,066.3



10
%


1,886.9Combined operating and SG&A expenses


1,277.6



3
%


1,238.0



4
%


1,185.4Operating income


805.2



(3
)%


828.3



18
%


701.5As a % of total revenue


39
%






40
%






37
%Investment income, net


6.9



(74
)%


26.5



(36
)%


41.7Income before income taxes


812.1



(5
)%


854.8



15
%


743.2As a % of total revenue


39
%






41
%






39
%Income taxes


278.6







278.7



22
%


227.8Net income

$
533.5



(7
)%

$
576.1



12
%

$
515.4As a % of total revenue


26
%






28
%






27
%Diluted earnings per share

$
1.48



(5
)%

$
1.56



16
%

$
1.35     Year ended May 31,$ in millions

2009


2008


2007Average investment balances:Funds held for clients

$
3,323.3


$
3,408.9


$
3,275.9Corporate investments


538.2



716.7



1,109.5Total

$
3,861.5


$
4,125.6


$
4,385.4Average interest rates earned (exclusive of net realized gains):Funds held for clients


2.2
%


3.7
%


4.0
%Corporate investments


1.4
%


3.7
%


3.7
%Combined funds held for clients and corporate investments


2.1
%


3.7
%


4.0
%Net realized gains:Funds held for clients

$
1.1


$
6.4


$
1.7Corporate investments










0.4Total

$
1.1


$
6.4


$
2.1   19




---



##### Table of Contents



$ in millionsAs of May 31,

2009


2008


2007Net unrealized gains/(losses) on
    available-for-sale
    securities(1)

$
66.7


$
24.8


$
(14.9
)Federal Funds
    rate(2)


0.25
%


2.00
%


5.25
%Three-year AAA municipal securities yield


1.35
%


2.65
%


3.71
%Total fair value of
    available-for-sale
    securities

$
1,780.9


$
3,353.5


$
4,975.5Weighted-average
    duration of
    available-for-sale
    securities in
    years(3)


2.5



2.7



2.5Weighted-average
    yield-to-maturity
    of
    available-for-sale
    securities(3)


3.3
%


3.4
%


3.7
%     (1)
    
    The net unrealized gain of our investment portfolios was
    approximately $72.7 million as of July 10, 2009.(2)
    
    The Federal Funds rate was a range of zero to 0.25% as of
    May 31, 2009.(3)
    
    These items exclude the impact of VRDNs held as of May 31,
    2008 and 2007, as they are tied to short-term interest rates. We
    did not hold any VRDNs as of May 31, 2009.  Payroll service revenue:
    Human Resource Services revenue:
  $ in millionsAs of May 31,

2009


Change


2008


Change


2007Retirement services clients


50,000



2
%


48,000



9
%


44,000Comprehensive human resource outsourcing services client
    employees served


453,000



3
%


439,000



18
%


373,000Comprehensive human resource outsourcing clients


18,000



10
%


16,000



17
%


14,000Workers compensation insurance clients


77,000



6
%


72,000



17
%


62,000Health and benefits service revenue

$
20.9



70
%

$
12.3



93
%

$
6.4    20




---



##### Table of Contents



Total service revenue:
  Interest on funds held for clients: available-for-sale available-for-sale Form 10-K,
  Combined operating and SG&A
    expenses:
  In millions

2009


Change


2008


Change


2007Compensation-related expenses

$
835.1



4
%

$
804.7



10
%

$
728.3Stock-based compensation costs


25.7



1
%


25.4



(1
)%


25.7Facilities expenses


59.6



4
%


57.4



7
%


53.8Depreciation of property and equipment


64.0



4
%


61.4



8
%


56.8Amortization of intangible assets


21.8



13
%


19.2



16
%


16.6Other expenses


271.4



1
%


269.9



1
%


266.21,277.6



3
%


1,238.0



8
%


1,147.4Expense charge to increase the litigation reserve














(100
)%


38.0Total operating and SG&A expenses

$
1,277.6



3
%

$
1,238.0



4
%

$
1,185.4   Form 10-K,
     21




---



##### Table of Contents



Operating income:
    In millions

2009


Change


2008


Change


2007Operating income

$
805.2



(3
)%

$
828.3



18
%

$
701.5Excluding:Interest on funds held for clients


(75.5
)


(43
)%


(131.8
)


(2
)%


(134.1
)Expense charge to increase the litigation reserve














(100
)%


38.0Operating income, net of certain items

$
729.7



5
%

$
696.5



15
%

$
605.4   Investment income, net: available-for-sale
  Income taxes: Form 10-K,
  Net income and earnings per share:
    Liquidity
    and Capital Resources
  other-than-temporarily other-than-temporary
 22




---



##### Table of Contents



Commitments
    and Contractual Obligations
  Lines of credit:
  Financial institution

Amount available


Expiration dateJP Morgan Chase Bank, N.A.

$
350 million



February 2010Bank of America, N.A.

$
250 million



February 2010PNC Bank, National Association

$
150 million



February 2010Wells Fargo Bank, National Association

$
150 million



February 2010         Credit facility:
  Form 10-K,
  Letters of credit:
 23




---



##### Table of Contents



Other commitments:
  Payments due by periodLess than








More thanIn millions

Total


1 year


1-3 years


4-5 years


5 yearsOperating
    leases(1)

$
142.2


$
43.8


$
62.7


$
27.0


$
8.7Purchase
    obligations(2)


59.8



39.8



18.9



0.3



0.8Other
    liabilities(3)


0.6



0.4



0.2







Total(4)

$
202.6


$
84.0


$
81.8


$
27.3


$
9.5     (1)
    
    Operating leases are primarily for office space and equipment
    used in our branch operations. These amounts do not include
    future payments under redundant leases related to the
    acquisitions of Advantage Payroll Services Inc.
    (Advantage) and InterPay Inc., which are included in
    the table above with other liabilities.(2)
    
    Purchase obligations include our estimate of the minimum
    outstanding commitments under purchase orders to buy goods and
    services and legally binding contractual arrangements with
    future payment obligations. Included in the total purchase
    obligations is $4.5 million of commitments to purchase
    capital assets. Amounts actually paid under certain of these
    arrangements may be higher due to variable components of these
    agreements.(3)
    
    The obligations shown as other liabilities represent business
    acquisition reserves and are reflected in the Consolidated
    Balance Sheets as of May 31, 2009 with $0.4 million in
    other current liabilities and $0.2 million in other
    long-term liabilities. Certain deferred compensation plan
    obligations and other long-term liabilities amounting to
    $45.3 million are excluded from the table above because the
    timing of actual payments cannot be specifically or reasonably
    determined due to the variability in assumptions required to
    project the timing of future payments.(4)
    
    The liability for uncertain tax positions was approximately
    $25.7 million as of May 31, 2009, including tax,
    penalty, and interest. Refer to Note J of the Notes to
    Consolidated Financial Statements, contained in Item 8 of
    this
    Form 10-K,
    for more information on income taxes. We are not able to
    reasonably estimate the timing of future cash flows and have
    excluded this liability from the table above. We are currently
    under a state income tax audit for the years ended May 31,
    2004 through 2007. The examination phase of the audit may
    conclude within the next twelve months; however, based on the
    current status of the examination, it is not reasonably possible
    to estimate the impact, if any, to the amount of unrecognized
    tax benefits.       24




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
    Reclassification
    Within Consolidated Statements of Cash Flows
  Form 10-K,
  Operating
    Cash Flow Activities
  Year ended May 31,In millions

2009


2008


2007Net income

$
533.5


$
576.1


$
515.4Non-cash adjustments to net income


134.4



125.4



144.7Cash provided by/(used in) changes in operating assets and
    liabilities


20.9



23.2



(28.9
)Net cash provided by operating activities

$
688.8


$
724.7


$
631.2     Investing
    Cash Flow Activities
  Year ended May 31,In millions

2009


2008


2007Net change in funds held for clients and corporate investment
    activities

$
491.4


$
1,067.3


$
(713.4
)Purchases of property and equipment, net of proceeds from the
    sale of property and equipment


(64.1
)


(81.6
)


(78.9
)Acquisitions of businesses, net of cash acquired


(6.4
)


(32.9
)


(3.1
)Purchases of other assets


(16.4
)


(19.6
)


(21.6
)Net cash provided by/(used in) investing activities

$
404.5


$
933.2


$
(817.0
)   Funds held for clients and corporate
    investments: available-for-sale available-for-sale
 25




---



##### Table of Contents



Form 10-K.
  available-for-sale available-for-sale Form 10-K.
  Purchases of long-lived assets:
      Financing
    Cash Flow Activities
  Year ended May 31,In millions, except per share amounts

2009


2008


2007Net change in client fund obligations

$
(346.0
)

$
(198.7
)

$
376.1Repurchases of common stock






(1,000.0
)


Dividends paid


(447.7
)


(442.1
)


(301.3
)Proceeds from and excess tax benefit related to exercise of
    stock options


9.0



67.8



52.9Net cash (used in)/provided by financing activities

$
(784.7
)

$
(1,573.0
)

$
127.7Cash dividends per common share

$
1.24


$
1.20


$
0.79   Net change in client fund
    obligations:
  Repurchases of common stock:
  Dividends paid:
 26




---



##### Table of Contents



Exercise of stock options: Form 10-K,
  Other
  New accounting pronouncements:
  No. FAS 142-3,
    
    FSP No. FAS 107-1
    and APB
    28-1,
    Interim Disclosures about Fair Value of Financial
    Instruments, requiring publicly traded companies to
    disclose the fair value of financial instruments in interim
    financial statements;
    FSP
    No. FAS 157-4,
    Determining Fair Value When the Volume and Level of
    Activity for the Asset or Liability Have Significantly Decreased
    and Identifying Transactions That Are Not Orderly,
    providing guidance for determining fair value when there is no
    active market or where price inputs being used represent
    distressed sales; and
    FSP
    No. FAS 115-2
    and
    FAS 124-2,
    Recognition and Presentation of
    Other-Than-Temporary
    Impairments, providing guidance for measurement and
    recognition of impaired debt securities along with expanded
    disclosures with respect to impaired debt securities.     27




---



##### Table of Contents




    SFAS No. 166, Accounting for Transfers of
    Financial Assets  an amendment of FASB
    Statement No. 140; and
    SFAS No. 167, Amendments to FASB Interpretation
    No. 46(R).      Critical
    Accounting Policies
  Form 10-K,
  Revenue recognition:
        available-for-sale
 28




---



##### Table of Contents



PEO workers compensation
    insurance:
          May 31,In millions

2009


2008Prepaid expense

$
2.5


$
2.6Current liability

$
7.9


$
8.4Long-term liability

$
17.9


$
18.3   Valuation of investments: available-for-sale
  available-for-sale A-1/P-1 other-than-temporarily other-than-temporarily
  Goodwill and other intangible
    assets:
 29




---



##### Table of Contents



Accrual for client fund losses:
  Contingent liabilities: Form 10-K.
  Stock-based compensation costs:
        Income taxes:
 30




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  Market
    Risk Factors
  Changes in interest rates and interest rate
    risk: available-for-sale available-for-sale available-for-sale A-1/P-1 available-for-sale
  sub-prime
  available-for-sale available-for-sale available-for-sale
 31




---



##### Table of Contents



available-for-sale
  May 31, 2009In millions

Cost


Fair valueMaturity date:Due in one year or less

$
292.6


$
294.8Due after one year through three years


669.3



693.5Due after three years through five years


513.8



541.1Due after five years


238.4



251.4Total

$
1,714.1


$
1,780.8     2009


2008


2007Federal Funds rate  beginning of fiscal year


2.00
%


5.25
%


5.00
%Rate (decrease)/increase:First quarter










0.25Second quarter


(1.00
)


(0.75
)


Third quarter


(0.75
)


(1.50
)


Fourth quarter






(1.00
)


Federal Funds rate  end of fiscal
    year(1)


0.25
%


2.00
%


5.25
%Three-year AAA municipal securities
    yields  end of fiscal year


1.35
%


2.65
%


3.71
%     (1)
    
    The Federal Funds rate was a range of zero to 0.25% as of
    May 31, 2009.    
    daily interest rate changes;
    seasonal variations in investment balances;
    actual duration of short-term and
    available-for-sale
    securities;
    the proportional mix 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.    available-for-sale available-for-sale
  available-for-sale
 32




---



##### Table of Contents



available-for-sale yield-to-maturity yield-to-maturity available-for-sale available-for-sale other-than-temporary
  Credit risk: A-1/P-1
  other-than-temporarily other-than-temporarily available-for-sale other-than-temporarily
 33




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  TABLE OF
    CONTENTS
  Report on Managements Assessment of
    Internal Control Over Financial Reporting


35Report of Independent Registered Public
    Accounting Firm on Consolidated Financial Statements


36Report of Independent Registered Public
    Accounting Firm on Effectiveness of Internal Control Over
    Financial Reporting


37Consolidated Statements of Income for the Years
    Ended May 31, 2009, 2008, and 2007


38Consolidated Balance Sheets as of May 31,
    2009 and 2008


39Consolidated Statements of Stockholders
    Equity for the Years Ended May 31, 2009, 2008, and 2007


40Consolidated Statements of Cash Flows for the
    Years Ended May 31, 2009, 2008, and 2007


41Notes to Consolidated Financial Statements


42Schedule II  Valuation and
    Qualifying Accounts for the Years Ended May 31, 2009, 2008,
    and 2007


65  34




---



##### Table of Contents



REPORT ON
    MANAGEMENTS ASSESSMENT OF
    INTERNAL CONTROL OVER FINANCIAL REPORTING  Rules 13a-15(f) 15d-15(f)
        Form 10-K.
  /s/  Jonathan
    J. JudgeJonathan
    J. Judge
    President and Chief Executive Officer

/s/  John
    M. MorphyJohn
    M. Morphy
    Senior Vice President, Chief Financial Officer,
    and Secretary  35




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON CONSOLIDATED FINANCIAL STATEMENTS             
    36




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    ON EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL
    REPORTING                 
    37




---



##### Table of Contents



PAYCHEX,
    INC.



CONSOLIDATED
    STATEMENTS OF INCOME

In
    thousands, except per share amounts  Year ended May 31,

2009


2008


2007Revenue:Service revenue

$
2,007,305


$
1,934,536


$
1,752,868Interest on funds held for clients


75,454



131,787



134,096Total revenue

$
2,082,759


$
2,066,323


$
1,886,964Expenses:Operating expenses


680,518



660,735



615,479Selling, general and administrative expenses


597,041



577,321



569,937Total expenses


1,277,559



1,238,056



1,185,416Operating income


805,200



828,267



701,548Investment income, net


6,875



26,548



41,721Income before income taxes


812,075



854,815



743,269Income taxes


278,530



278,670



227,822Net income

$
533,545


$
576,145


$
515,447Basic earnings per share

$
1.48


$
1.56


$
1.35Diluted earnings per share

$
1.48


$
1.56


$
1.35Weighted-average common shares outstanding


360,783



368,420



381,149Weighted-average common shares outstanding, assuming
    dilution


360,985



369,528



382,802Cash dividends per common share

$
1.24


$
1.20


$
0.79    38




---



##### Table of Contents



PAYCHEX,
    INC.



CONSOLIDATED
    BALANCE SHEETS

In
    thousands, except per share amount  As of May 31,

2009


2008AssetsCash and cash equivalents

$
472,769


$
164,237Corporate investments


19,710



228,727Interest receivable


27,722



34,435Accounts receivable, net of allowance for doubtful accounts


177,958



184,686Deferred income taxes


10,180



7,274Prepaid income taxes


2,198



11,236Prepaid expenses and other current assets


27,913



27,231Current assets before funds held for clients


738,450



657,826Funds held for clients


3,501,376



3,808,085Total current assets


4,239,826



4,465,911Long-term corporate investments


82,234



41,798Property and equipment, net of accumulated depreciation


274,530



275,297Intangible assets, net of accumulated amortization


76,641



74,500Goodwill


433,316



433,316Deferred income taxes


16,487



13,818Other long-term assets


4,381



5,151Total assets

$
5,127,415


$
5,309,791LiabilitiesAccounts payable

$
37,334


$
40,251Accrued compensation and related items


135,064



132,589Deferred revenue


9,542



10,326Deferred taxes


17,159



Litigation reserve


20,411



22,968Other current liabilities


44,704



47,457Current liabilities before client fund obligations


264,214



253,591Client fund obligations


3,437,679



3,783,681Total current liabilities


3,701,893



4,037,272Accrued income taxes


25,730



17,728Deferred income taxes


12,773



9,600Other long-term liabilities


45,541



48,549Total liabilities


3,785,937



4,113,149Commitments and contingencies  Note NStockholders equityCommon stock, $0.01 par value; Authorized:
    600,000 shares;
    Issued and outstanding: 360,976 shares as of May 31,
    2009,
    and 360,500 shares as of May 31, 2008, respectively


3,610



3,605Additional paid-in capital


466,427



431,639Retained earnings


829,501



745,351Accumulated other comprehensive income


41,940



16,047Total stockholders equity


1,341,478



1,196,642Total liabilities and stockholders equity

$
5,127,415


$
5,309,791    39




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##### Table of Contents



PAYCHEX,
    INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY

In thousands  AccumulatedAdditional





otherCommon stock


paid-in


Retained


comprehensiveShares


Amount


capital


earnings


income/(loss)


TotalBalance as of May 31, 2006


380,303


$
3,803


$
284,395


$
1,380,971


$
(14,326
)

$
1,654,843Net income














515,447







515,447Unrealized gains on securities, net of tax


















4,665



4,665Total comprehensive income






















520,112Cash dividends declared














(301,313
)






(301,313
)Stock-based compensation










25,690











25,690Stock-based award transactions


1,848



19



52,897











52,916Balance as of May 31, 2007


382,151



3,822



362,982



1,595,105



(9,661
)


1,952,248Net income














576,145







576,145Unrealized gains on securities, net of tax


















25,708



25,708Total comprehensive income






















601,853Common shares repurchased


(23,658
)


(237
)


(24,395
)


(975,367
)






(999,999
)Cash dividends declared














(442,146
)






(442,146
)Stock-based compensation










25,535











25,535Stock-based award transactions


2,007



20



67,517











67,537Cumulative effect of accounting change for FIN 48














(8,386
)






(8,386
)Balance as of May 31, 2008


360,500



3,605



431,639



745,351



16,047



1,196,642Net income














533,545







533,545Unrealized gains on securities, net of tax


















25,893



25,893Total comprehensive income






















559,438Cash dividends declared














(447,732
)






(447,732
)Stock-based compensation










25,827











25,827Stock-based award transactions


476



5



8,961



(1,663
)






7,303Balance as of May 31, 2009


360,976


$
3,610


$
466,427


$
829,501


$
41,940


$
1,341,478    40




---



##### Table of Contents



PAYCHEX,
    INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS

In thousands  Year ended May 31,

2009


2008


2007Operating activitiesNet income

$
533,545


$
576,145


$
515,447Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization on property and equipment and
    intangible assets


85,772



80,614



73,418Amortization of premiums and discounts on
    available-for-sale
    securities


22,956



19,033



23,568Stock-based compensation costs


25,707



25,434



25,690(Benefit)/provision for deferred income taxes


(1,866
)


3,713



(16,388
)Provision for allowance for doubtful accounts


2,910



3,044



2,548Provision for litigation reserve










38,000Net realized gains on sales of
    available-for-sale
    securities


(1,135
)


(6,450
)


(2,129
)Changes in operating assets and liabilities:Interest receivable


6,713



19,189



(15,485
)Accounts receivable


3,818



(800
)


986Prepaid expenses and other current assets


8,356



(5,080
)


(4,371
)Accounts payable and other current liabilities


(10,049
)


2,715



(15,427
)Net change in other assets and liabilities


12,044



7,112



5,370Net cash provided by operating activities


688,771



724,669



631,227Investing activitiesPurchases of
    available-for-sale
    securities


(16,365,721
)


(79,919,857
)


(109,642,485
)Proceeds from sales and maturities of
    available-for-sale
    securities


17,958,518



81,568,872



108,505,132Net change in funds held for clients money market
    securities and other cash equivalents


(1,101,371
)


(581,738
)


423,906Purchases of property and equipment


(64,709
)


(82,289
)


(79,020
)Proceeds from sale of property and equipment


618



716



116Acquisition of businesses, net of cash acquired


(6,466
)


(32,940
)


(3,100
)Purchases of other assets


(16,407
)


(19,599
)


(21,586
)Net cash provided by/(used in) investing activities


404,462



933,165



(817,037
)Financing activitiesNet change in client fund obligations


(346,002
)


(198,649
)


376,137Repurchases of common stock






(999,999
)


Dividends paid


(447,732
)


(442,146
)


(301,313
)Proceeds from and excess tax benefit related to exercise of
    stock options


9,033



67,844



52,916Net cash (used in)/provided by financing activities


(784,701
)


(1,572,950
)


127,740Increase/(decrease) in cash and cash equivalents


308,532



84,884



(58,070
)Cash and cash equivalents, beginning of fiscal year


164,237



79,353



137,423Cash and cash equivalents, end of fiscal year

$
472,769


$
164,237


$
79,353    41




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
  Note A 
    Description
    of Business and Significant Accounting Policies  Description of Business:
      Plus ®
    ® on-site
  Principles of consolidation:
 42




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash and cash equivalents:
  Accounts receivable, net of allowance for doubtful
    accounts:
  Funds held for clients and corporate
    investments: available-for-sale
  Concentrations:
  Property and equipment, net of accumulated
    depreciation:
  Software development and
    enhancements: 98-1,
  Goodwill and other intangible assets, net of accumulated
    amortization:
 43




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Other long-term assets:
  Accrual for client fund losses:
  Revenue recognition:
       44




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  available-for-sale
    PEO workers compensation
    insurance:
          May 31,In thousands

2009


2008Prepaid expense

$
2,500


$
2,612Current liability

$
7,911


$
8,395Long-term liability

$
17,881


$
18,294    45




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock-based compensation costs:
            Income taxes:
  Use of estimates:
  New accounting pronouncements:
 46




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. FAS 142-3,
    
    FSP
    No. FAS 107-1
    and APB
    28-1,
    Interim Disclosures about Fair Value of Financial
    Instruments, requiring publicly traded companies to
    disclose the fair value of financial instruments in interim
    financial statements;
    FSP
    No. FAS 157-4,
    Determining Fair Value When the Volume and Level of
    Activity for the Asset or Liability Have Significantly Decreased
    and Identifying Transactions That Are Not Orderly,
    providing guidance for determining fair value when there is no
    active market or where price inputs being used represent
    distressed sales; and
    FSP
    No. FAS 115-2
    and
    FAS 124-2,
    Recognition and Presentation of
    Other-Than-Temporary
    Impairments, providing guidance for measurement and
    recognition of impaired debt securities along with expanded
    disclosures with respect to impaired debt securities.        
    SFAS No. 166, Accounting for Transfers of
    Financial Assets  an amendment of FASB
    Statement No. 140; and
    SFAS No. 167, Amendments to FASB Interpretation
    No. 46(R).   47




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note B 
    Reclassification
    Within Consolidated Statements of Cash Flows    In thousands

Year ended May 31, 2007Net cash used in investing activities  as previously
    reported

$
(440,900
)Impact of reclassification  net change in client fund
    obligations


(376,137
)Net cash used in investing activities  as reclassified

$
(817,037
)Net cash used in financing activities  as previously
    reported

$
(248,397
)Impact of reclassification  net change in client fund
    obligations


376,137Net cash provided by financing activities  as
    reclassified

$
127,740     Note C 
    Stock-Based
    Compensation Plans         48




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Stock option grants:
    Exercise


SharesShares


price


outstanding as ofDate of broad-based grant

granted


per share


May 31, 2009


Vesting scheduleJuly 1999


1,381,000


$
21.46



158,000


25% each July in 2000 through 2003October 2001


1,295,000


$
33.17



362,000


25% each October in 2002 through 2005April 2004


1,655,000


$
37.72



795,000


25% each April in 2005 through 2008October 2006


2,033,000


$
37.32



1,410,000


20% each October in 2007 through 2011       Weighted-averageShares subject

Weighted-average

remaining

Aggregate intrinsicto options

exercise price

contractual term

value(1)(thousands)

per share

(years)

(thousands)Outstanding as of May 31, 2006


13,510


$
31.61Granted


5,710


$
37.03Exercised


(1,848
)

$
23.37Forfeited


(976
)

$
36.26Expired


(128
)

$
37.45Outstanding as of May 31, 2007


16,268


$
34.12Granted


971


$
40.99Exercised


(1,974
)

$
29.77Forfeited


(854
)

$
36.84Expired


(103
)

$
38.38Outstanding as of May 31, 2008


14,308


$
35.00Granted


1,007


$
30.10Exercised


(371
)

$
23.41Forfeited


(591
)

$
36.11Expired


(350
)

$
37.56Outstanding as of May 31, 2009


14,003


$
34.84



5.9


$
1,702Exercisable as of May 31, 2009


8,763


$
34.38



5.0


$
1,627     (1)
    
    Market price of the underlying stock as of May 31, 2009
    less the exercise price. 49




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year ended May 31,In thousands, except per share amounts

2009


2008


2007Weighted-average grant-date fair value of stock options granted
    (per share)

$
6.52


$
9.84


$
11.65Total intrinsic value of stock options exercised

$
2,576


$
25,154


$
29,508Total fair value of stock options vested

$
25,842


$
32,340


$
24,614     Year ended May 31,2009


2008


2007Risk-free interest rate


3.2
%


4.3
%


4.8
%Dividend yield


3.6
%


2.9
%


1.9
%Volatility factor


.28



.26



.30Expected option life in years


6.3



6.0



6.1       Restricted stock awards:
   50




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Weighted-averagegrant-dateRestricted

fair valueIn thousands, except per share amounts

shares

per shareNonvested as of May 31, 2006






Granted


106


$
36.87Vested






Forfeited


(1
)

$
36.87Nonvested as of May 31, 2007


105


$
36.87Granted


134


$
43.91Vested


(33
)

$
36.87Forfeited


(16
)

$
41.09Nonvested as of May 31, 2008


190


$
41.48Granted


140


$
31.76Vested


(66
)

$
39.82Forfeited


(19
)

$
36.81Nonvested as of May 31, 2009


245


$
36.74   Restricted stock units:
    Weighted-averagegrant-datefair valueIn thousands, except per share amounts

RSUs

per shareNonvested as of May 31, 2007






Granted


499


$
40.60Vested






Forfeited


(29
)

$
40.60Nonvested as of May 31, 2008


470


$
40.60Granted


607


$
28.30Vested


(93
)

$
40.60Forfeited


(44
)

$
34.65Nonvested as of May 31, 2009


940


$
32.93   Non-compensatory employee benefit
    plan:
 51




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note D 
    Basic and
    Diluted Earnings Per Share    Year ended May 31,In thousands, except per share amounts

2009


2008


2007Basic earnings per share:Net income

$
533,545


$
576,145


$
515,447Weighted-average common shares outstanding


360,783



368,420



381,149Basic earnings per share

$
1.48


$
1.56


$
1.35Diluted earnings per share:Net income

$
533,545


$
576,145


$
515,447Weighted-average common shares outstanding


360,783



368,420



381,149Dilutive effect of common share equivalents at average market
    price


202



1,108



1,653Weighted-average common shares outstanding, assuming dilution


360,985



369,528



382,802Diluted earnings per share

$
1.48


$
1.56


$
1.35Weighted-average anti-dilutive common share equivalents


13,503



6,465



7,188       Note E 
    Funds
    Held for Clients and Corporate Investments    May 31, 2009Gross


Grossunrealized


unrealized


FairIn thousands

Cost


gains


losses


valueType of issue:Money market securities and other cash equivalents

$
1,816,278


$



$



$
1,816,278Available-for-sale
    securities:General obligation municipal bonds


849,594



32,698



(136
)


882,156Pre-refunded municipal bonds


527,864



21,334



(24
)


549,174Revenue municipal bonds


336,675



12,818



(32
)


349,461Variable rate demand notes














U.S. agency securities














Other equity securities


20



42







62Total
    available-for-sale
    securities


1,714,153



66,892



(192
)


1,780,853Other


7,477







(1,288
)


6,189Total funds held for clients and corporate investments

$
3,537,908


$
66,892


$
(1,480
)

$
3,603,320  52




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##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  May 31, 2008Gross


Grossunrealized


unrealized


FairIn thousands

Cost


gains


losses


valueType of issue:Money market securities and other cash equivalents

$
714,907


$



$



$
714,907Available-for-sale
    securities:General obligation municipal bonds


812,611



12,732



(287
)


825,056Pre-refunded municipal bonds


504,377



7,724



(489
)


511,612Revenue municipal bonds


444,852



5,298



(295
)


449,855Variable rate demand notes


1,536,911



67







1,536,978U.S. agency securities


30,000







(36
)


29,964Other equity securities


20



59







79Total
    available-for-sale
    securities


3,328,771



25,880



(1,107
)


3,353,544Other


10,143



426



(410
)


10,159Total funds held for clients and corporate investments

$
4,053,821


$
26,306


$
(1,517
)

$
4,078,610     May 31,In thousands

2009


2008Funds held for clients

$
3,501,376


$
3,808,085Corporate investments


19,710



228,727Long-term corporate investments


82,234



41,798Total funds held for clients and corporate investments

$
3,603,320


$
4,078,610   A-1/P-1
  sub-prime
 53




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  available-for-sale available-for-sale available-for-sale
  Less than 12 months

More than 12 monthsGross



Grossunrealized

Fair

unrealized

FairIn thousands

loss

value

loss

value2009

$
(181
)

$
36,348


$
(11
)

$
3,0102008

$
(1,107
)

$
243,572


$



$
   other-than-temporarily other-than-temporarily available-for-sale other-than-temporarily
    Year ended May 31,In thousands

2009


2008


2007Gross realized gains

$
1,269


$
7,161


$
2,175Gross realized losses


(134
)


(711
)


(46
)Net realized gains

$
1,135


$
6,450


$
2,129   available-for-sale
  May 31, 2009FairIn thousands

Cost


valueMaturity date:Due in one year or less

$
292,553


$
294,784Due after one year through three years


669,332



693,522Due after three years through five years


513,810



541,047Due after five years


238,438



251,438Total

$
1,714,133


$
1,780,791   Note F 
    Fair
    Value Measurements   54




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Quotedprices in





SignificantCarrying


active


Significant other


unobservablevalue


markets


observable inputs


inputsIn thousands

(Fair value)


(Level 1)


(Level 2)


(Level 3)Assets:Available-for-sale
    securities

$
1,780,853


$
62


$
1,780,791


$
Other securities

$
6,189


$
6,189


$



$
LiabilitiesOther long-term liabilities

$
6,197


$
6,197


$



$
   available-for-sale available-for-sale
     55




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note G 
    Property
    and Equipment, Net of Accumulated Depreciation    May 31,In thousands

2009


2008Land and improvements

$
4,033


$
3,617Buildings and improvements


83,386



84,723Data processing equipment


180,448



166,893Software


165,959



98,513Furniture, fixtures, and equipment


143,638



136,330Leasehold improvements


88,509



76,244Construction in progress


4,034



52,078Total property and equipment, gross


670,007



618,398Less: Accumulated depreciation and amortization


395,477



343,101Property and equipment, net of accumulated depreciation

$
274,530


$
275,297       Note H 
    Goodwill
    and Intangible Assets, Net of Accumulated Amortization      May 31,In thousands

2009


2008Client lists and associate offices license agreements

$
194,887


$
170,984Other intangible assets


5,675



5,675Total intangible assets, gross


200,562



176,659Less: Accumulated amortization


123,921



102,159Intangible assets, net of accumulated amortization

$
76,641


$
74,500    56




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##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    In thousandsYear ending May 31,

Estimated amortization expense2010

$
20,9782011

$
18,0002012

$
15,2752013

$
9,4292014

$
5,616   Note I 
    Business
    Acquisition Reserves    Balance as of

Utilization

Additions

Balance as ofIn thousands

May 31, 2008

of reserve

to reserve

May 31, 2009Severance costs

$
149


$
(203
)

$
203


$
149Redundant lease costs

$
742


$
(554
)

$
287


$
475     Note J 
    Income
    Taxes    May 31,In thousands

2009


2008Deferred tax assets:Litigation reserve

$
7,637


$
8,165Compensation and employee benefit liabilities


14,412



14,298Other current liabilities


8,974



9,109Tax credit carry forward


17,491



13,874Depreciation


10,025



7,271Stock-based compensation


20,770



14,774Other


6,121



4,503Gross deferred tax assets


85,430



71,994Deferred tax liabilities:Capitalized software


26,711



20,804Intangible assets


25,529



19,825Revenue not subject to current taxes


10,896



10,338Unrealized gains on
    available-for-sale
    securities


24,710



8,773Other


849



762Gross deferred tax liabilities


88,695



60,502Net deferred tax (liability)/asset

$
(3,265
)

$
11,492  57




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##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year ended May 31,In thousands

2009


2008


2007Current:Federal

$
256,030


$
252,623


$
235,086State


24,366



22,334



9,124Total current


280,396



274,957



244,210Deferred:Federal


(1,313
)


4,036



(15,502
)State


(553
)


(323
)


(886
)Total deferred


(1,866
)


3,713



(16,388
)Provision for income taxes

$
278,530


$
278,670


$
227,822     Year ended May 31,2009


2008


2007Federal statutory tax rate


35.0
%


35.0
%


35.0
%Increase/(decrease) resulting from:State income taxes, net of federal benefit


1.9



1.7



0.7Tax-exempt municipal bond interest


(2.6
)


(4.1
)


(5.2
)Other items










0.2Effective income tax rate


34.3
%


32.6
%


30.7
%         In thousandsBalance as of May 31, 2008

$
25,673Additions for tax positions of the current year


10,749Adjustments for tax positions of prior years


(167
)Settlements with tax authorities


(102
)Expiration of the statute of limitations


(345
)Balance as of May 31, 2009

$
35,808    58




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##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Note K 
    Other
    Comprehensive Income    Year ended May 31,In thousands

2009


2008


2007Unrealized holding gains

$
42,965


$
46,127


$
9,315Income tax expense related to unrealized holding gains


(16,357
)


(16,235
)


(3,273
)Reclassification adjustment for the net gain on sale of
    available-for-sale
    securities realized in net income


(1,135
)


(6,450
)


(2,129
)Income tax expense on reclassification adjustment for net gain
    on sale of
    available-for-sale
    securities


420



2,266



752Other comprehensive income

$
25,893


$
25,708


$
4,665     Note L 
    Supplemental
    Cash Flow Information    Note M 
    Employee
    Benefit Plans  401(k) plan:
 59




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Deferred compensation plans:
    Note N 
    Commitments
    and Contingencies  Lines of credit:
  Financial institution

Amount available


Expiration dateJP Morgan Chase Bank, N.A.

$
350 million



February 2010Bank of America, N.A.

$
250 million



February 2010PNC Bank, National Association

$
150 million



February 2010Wells Fargo Bank, National Association

$
150 million



February 2010      60




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Credit facility:
        Letters of credit:
  Contingencies:
    Brunskill
    Associates, Inc. v. Rapid Payroll, Inc. et al
 61




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form 10-K.
    Lease commitments:
  In thousandsYear ending May 31,

Minimum lease payments2010

$
44,0022011

$
37,2142012

$
25,7122013

$
16,6862014

$
10,345Thereafter

$
8,679     Other commitments:
  In thousandsYear ending May 31,

Minimum payment obligation2010

$
39,8012011

$
13,0462012

$
5,8612013

$
2022014

$
139Thereafter

$
765    62




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Note O 
    Related
    Parties   63




---



##### Table of Contents



PAYCHEX,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Note P 
    Quarterly
    Financial Data (Unaudited) In thousands, except per share
    amounts
  Three Months EndedFiscal 2009

August 31


November 30


February 28


May 31


Full YearService revenue

$
509,867


$
504,383


$
512,196


$
480,859


$
2,007,305Interest on funds held for clients


24,218



19,777



16,385



15,074



75,454Total revenue


534,085



524,160



528,581



495,933



2,082,759Operating income


221,585



211,900



197,401



174,314



805,200Investment income, net


3,051



1,932



1,067



825



6,875Income before income taxes


224,636



213,832



198,468



175,139



812,075Income taxes


75,927



73,590



67,678



61,335



278,530Net income

$
148,709


$
140,242


$
130,790


$
113,804


$
533,545Basic earnings per
    share(1)

$
0.41


$
0.39


$
0.36


$
0.32


$
1.48Diluted earnings per
    share(1)

$
0.41


$
0.39


$
0.36


$
0.32


$
1.48Weighted-average common shares outstanding


360,629



360,812



360,821



360,892



360,783Weighted-average common shares outstanding, assuming dilution


361,040



360,977



360,913



361,034



360,985Cash dividends per common share

$
0.31


$
0.31


$
0.31


$
0.31


$
1.24Total net realized
    gains(2)

$
300


$
405


$
173


$
257


$
1,135   Three Months EndedFiscal 2008

August 31


November 30


February 29


May 31


Full YearService revenue

$
474,815


$
477,039


$
494,845


$
487,837


$
1,934,536Interest on funds held for clients


32,315



30,754



37,327



31,391



131,787Total revenue


507,130



507,793



532,172



519,228



2,066,323Operating income


210,588



209,476



210,399



197,804



828,267Investment income, net


12,237



7,503



3,597



3,211



26,548Income before income taxes


222,825



216,979



213,996



201,015



854,815Income taxes


71,750



69,867



71,522



65,531



278,670Net income

$
151,075


$
147,112


$
142,474


$
135,484


$
576,145Basic earnings per
    share(1)

$
0.40


$
0.40


$
0.39


$
0.38


$
1.56Diluted earnings per
    share(1)

$
0.40


$
0.40


$
0.39


$
0.38


$
1.56Weighted-average common shares outstanding


380,539



369,914



361,178



360,420



368,420Weighted-average common shares outstanding, assuming dilution


382,255



371,404



361,770



361,053



369,528Cash dividends per common share

$
0.30


$
0.30


$
0.30


$
0.30


$
1.20Total net realized
    gains(2)

$
143


$
390


$
3,309


$
2,608


$
6,450     (1)
    
    Each quarter is a discrete period and the sum of the four
    quarters basic and diluted earnings per share amounts may
    not equal the full year amount.(2)
    
    Total net realized gains on the combined funds held for clients
    and corporate investment portfolios. 64




---



##### Table of Contents



Schedule II 
    Valuation and Qualifying Accounts  PAYCHEX,
    INC.
    CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
    FOR THE YEAR ENDED MAY 31,
    In thousands
  Balance as of


Additions





Balance asbeginning


charged to


Costs and


of endDescription

of year


expenses


deductions(1)


of year2009Allowance for doubtful accounts

$
4,083


$
2,910


$
2,961


$
4,032Reserve for client fund losses

$
2,888


$
4,379


$
4,079


$
3,1882008Allowance for doubtful accounts

$
3,285


$
3,044


$
2,246


$
4,083Reserve for client fund losses

$
2,543


$
4,214


$
3,869


$
2,8882007Allowance for doubtful accounts

$
2,530


$
2,548


$
1,793


$
3,285Reserve for client fund losses

$
2,521


$
3,795


$
3,773


$
2,543     (1)
    
    Uncollectible amounts written off, net of recoveries.  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Disclosure Controls and Procedures and Internal Control
    Over Financial Reporting:
  Evaluation of Disclosure Controls and
    Procedures: Rules 13a-15(e) 15d-15(e)
  Changes in Internal Controls Over Financial
    Reporting:
  Form 10-K.
  Item 9B.
    Other
    Information   65




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Name

Age

Position and business experienceJonathan J. Judge

55

Mr. Judge became President and Chief Executive Officer of the
    Company in October 2004. Prior to joining the Company, from
    October 2002 through December 2003, he served as President and
    Chief Executive Officer of Crystal Decisions, Inc., an
    information management software company. From 1976 to 2002, he
    worked for IBM in a variety of sales, marketing, and executive
    management positions, most recently as General Manager of
    IBMs Personal Computing Division, a $10 billion business
    unit offering a broad range of products, services, and
    solutions, including IBMs Thinkpad brand of mobile
    computers. Mr. Judge serves as a member of the Upstate New York
    Regional Advisory Board (UNYRAB) of the Federal Reserve Bank of
    New York. He also serves as a director of the Company, and is
    also a member of the boards of directors of PMC-Sierra, Inc. and
    Dun & Bradstreet Corporation.John M. Morphy

61

Mr. Morphy joined the Company in October 1995 and was named
    Senior Vice President in October 2002. He was named Chief
    Financial Officer and Secretary in October 1996. Prior to
    joining the Company, he served as Chief Financial Officer and in
    other senior management capacities for over ten years at Goulds
    Pumps, Incorporated, a pump manufacturer.Martin Mucci

49

Mr. Mucci joined the Company in March 2002 as a consultant on
    operational issues of the Company, including responsibility for
    implementation of the Advantage Payroll Services Inc.
    acquisition, and was appointed Senior Vice President, Operations
    in October 2002.Jennifer Vossler

46

Ms. Vossler joined the Company in May 2009 as Vice President and
    Controller. Prior to joining the Company, she served as Vice
    President and Corporate Controller, and held various executive
    and senior management positions during her eleven years at
    Bausch & Lomb Incorporated.  Previously in her career, she
    held leadership roles with a global facilities management
    outsourcing company and a public accounting firm.William G. Kuchta, Ed. D

62

Mr. Kuchta joined the Company in February 1995 and was named
    Vice President, Organizational Development in April 1996. From
    1993 to 1995, he was principal of his own consulting firm, and
    from 1989 to 1993, he served as Vice President of Human
    Resources of Fisons Corporation, a pharmaceutical company.    66




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##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Form 10-K,
    Number ofsecuritiesNumber of



remaining availablesecurities to be



for future issuanceissued upon

Weighted-average

under equityexercise of

exercise price of

compensationIn thousands

outstanding options

outstanding options

plansEquity compensation plans approved by security holders


13,453



$35.01



14,300Equity compensation plans not approved by security holders


550



$30.68



Total


14,003



$34.84



14,300   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   67




---



##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  1.

Financial Statements and Supplementary DataSee Financial Statements and Supplementary Data Table of
    Contents at page 34.2.

Financial statement schedules required to be filed by
    Item 8 of this
    Form 10-K
    include Schedule II  Valuation and Qualifying
    Accounts. See Financial Statements and Supplementary Data Table
    of Contents at page 34. All other schedules are omitted as
    the required matter is not present, the amounts are not
    significant, or the information is shown in the financial
    statements or the notes thereto.3.

Exhibits   (3)(a)


Restated Certificate of Incorporation, incorporated herein by
    reference to Exhibit 3(a) to the Companys
    Form 10-K
    filed with the Commission on July 20, 2004.(3)(b)


Bylaws, as amended, incorporated herein by reference to
    Exhibit 3(b) to the Companys
    Form 10-K
    filed with the Commission on July 21, 2006.#


(10.1)


Paychex, Inc. 1998 Stock Incentive Plan, incorporated herein by
    reference to Exhibit 4.1 to the Companys Registration
    Statement on
    Form S-8,
    No. 333-65191.#


(10.2)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005), incorporated herein by
    reference to Exhibit 4.1 to the Companys Registration
    Statement on
    Form S-8,
    No. 333-129572.#


(10.3)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Award Agreement for
    Non-Qualified Stock Options, incorporated herein by reference to
    Exhibit 10.3 to the Companys
    Form 8-K
    filed with the Commission on October 17, 2005.#


(10.4)


Paychex, Inc. Non-Qualified Stock Option Agreement, incorporated
    herein by reference to Exhibit 4.1 to the Companys
    Registration Statement on
    Form S-8,
    No. 333-129571.#


(10.5)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) 2008 Master Restricted Stock
    Award Agreement, incorporated herein by reference to Exhibit
    10.2 to the Companys
    Form 8-K
    filed with the Commission on July 18, 2007.#


(10.6)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Restricted Stock Award
    Agreement, incorporated herein by reference to Exhibit 10.3
    to the Companys
    Form 8-K
    filed with the Commission on July 18, 2007.#


(10.7)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Amended and Restated 2007
    Master Restricted Stock Award Agreement, incorporated herein by
    reference to Exhibit 10.4 to the Companys
    Form 8-K
    filed with the Commission on July 18, 2007.#


(10.8)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) 2008 Master Restricted
    Stock Award Agreement for Directors, incorporated herein by
    reference to Exhibit 10(m) to the Companys
    Form 10-K
    filed with the Commission on July 20, 2007.#


(10.9)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) 2007 Master Restricted
    Stock Unit Award Agreement, incorporated herein by reference to
    Exhibit 10.1 to the Companys
    Form 10-Q
    filed with the Commission on September 26, 2007.#


(10.10)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Restricted Stock Award
    Agreement, incorporated herein by reference to Exhibit 10.1
    to the Companys
    Form 8-K
    filed with the Commission on July 16, 2008.#


(10.11)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Non-Qualified
    Stock Option Award Agreement, incorporated herein by reference
    to Exhibit 10.2 to the Companys
    Form 8-K
    filed with the Commission on July 16, 2008.#


(10.12)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Restricted Stock
    Unit Award Agreement, incorporated herein by reference to
    Exhibit 10(n) to the Companys
    Form 10-K
    filed with the Commission on July 18, 2008.#


(10.13)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Restricted Stock
    Unit (Cliff Vest) Award Agreement, incorporated herein by
    reference to Exhibit 10(o) to the Companys
    Form 10-K
    filed with the Commission on July 18, 2008. 68




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#


(10.14)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Restricted Stock
    Award Agreement for Directors, incorporated herein by reference
    to Exhibit 10(p) to the Companys
    Form 10-K
    filed with the Commission on July 18, 2008.#


(10.15)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Non-Qualified
    Stock Option Agreement for Directors, incorporated herein by
    reference to Exhibit 10(q) to the Companys
    Form 10-K
    filed with the Commission on July 18, 2008.*#


(10.16)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Restricted Stock
    Award Agreement (Officer).*#


(10.17)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) 2009 Non-Qualified Stock
    Option Award Agreement (Special Grant).*#


(10.18)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of Restricted Stock Award
    Agreement (Board).*#


(10.19)


Paychex, Inc. 2002 Stock Incentive Plan (as amended and restated
    effective October 12, 2005) Form of
    2009-2010
    Officer Performance Incentive Award Agreement (Quantitative
    Component).*#


(10.20)


CEO Incentive Program  Fiscal 2010.*#


(10.21)


Senior Vice President Incentive Program  Fiscal 2010.*#


(10.22)


Vice President Incentive Program  Fiscal 2010.#


(10.23)


Form of Indemnification Agreement for Directors and Officers,
    incorporated herein by reference to Exhibit 10.1 to the
    Companys
    Form 10-Q
    filed with the Commission on March 21, 2003.#


(10.24)


Paychex, Inc. Indemnification Agreement with B. Thomas Golisano,
    incorporated herein by reference to Exhibit 10(g) to the
    Companys
    Form 10-K
    filed with the Commission on July 20, 2004.#


(10.25)


Paychex, Inc. Indemnification Agreement with Walter Turek,
    incorporated herein by reference to Exhibit 10(h) to the
    Companys
    Form 10-K
    filed with the Commission on July 20, 2004.#


(10.26)


Paychex, Inc. Chairman of the Board Compensation Arrangement
    with B. Thomas Golisano, effective October 1, 2004, for
    service as Chairman of the Board of Directors, incorporated
    herein by reference to Exhibit 10(j) to the Companys
    Form 10-K
    filed with the Commission on July 22, 2005.#


(10.27)


Paychex, Inc. Indemnification Agreement with Jonathan J. Judge,
    incorporated herein by reference to Exhibit 10(k) to the
    Companys
    Form 10-K
    filed with the Commission on July 22, 2005.#


(10.28)


Paychex, Inc. Employment Agreement with Jonathan J. Judge dated
    November 30, 2007, incorporated herein by reference to
    Exhibit 10.1 to the Companys
    Form 8-K
    filed with the Commission on December 4, 2007.*#


(10.29)


Paychex, Inc. Board Deferred Compensation Plan.*#


(10.30)


Paychex, Inc. Employee Deferred Compensation Plan.*


(21.1)


Subsidiaries of the Registrant.*


(23.1)


Consent of Independent Registered Public Accounting Firm.*


(24.1)


Power of Attorney.*


(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.     *
    
    Exhibit filed with this report#
    
    Management contract or compensatory plan 69




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SIGNATURES    PAYCHEX,
    INC.
  
       
      
                    
  Attorney-in-Fact
 70