What changed in this filing

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Item 1. Business

2023-02-10 compared with 2022-02-11 · 57 added, 66 removed, 414 unchanged (23% of the section changed)

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Our long-term strategy is to provide the best small and medium-sized businesses in the United States with our specialized human resources service offering and to leverage our buying power and expertise to provide additional valuable services to clients.

Our most comprehensive HR services offerings are provided through our Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing solutions”), which encompass a broad range of human resources functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management platform, Insperity Premier TM .

Our most comprehensive HR services offerings are provided through our Workforce Optimization ® and Workforce Synchronization TM solutions (together, our “PEO HR Outsourcing Solutions”), which encompass a broad range of human resources functions, including payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management, and training and development services, along with our cloud-based human capital management platform, our Insperity Premier TM platform.

Workforce Optimization is our most comprehensive HR outsourcing solution and is our primary offering.

Workforce Synchronization, which generally is offered only to our middle market client segment, is a lower cost offering with a typically longer commitment that includes the same compliance and administrative services as Workforce Optimization and allows those clients to select, for an additional fee, from the strategic HR products and services that are included with Workforce Optimization.

In addition to our PEO HR Outsourcing solutions, we offer our Workforce Acceleration TM solution, a comprehensive service that includes traditional payroll and human capital management solutions.

We also offer a number of other business performance solutions, Performance Management, Organizational Planning, Recruiting Services, Employment Screening, Retirement Services and Insurance Services, many of which are offered as a cloud-based software solution.

These other products and services are offered separately or along with our PEO HR Outsourcing solutions or with Workforce Acceleration.

In addition to our PEO HR Outsourcing Solutions, we offer a comprehensive traditional payroll and human capital management solution, known as our Workforce Acceleration TM solution.

We also offer a number of other business performance solutions, including Recruiting Services, Employment Screening, Retirement Services, and Insurance Services.

These other products and services generally are offered only with our other solutions.

Our PEO HR Outsourcing Solutions are designed to improve the productivity and profitability of small and medium-sized businesses.

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Under the CSA, we assume responsibility for personnel administration and assist our clients in complying with employment-related governmental regulations, while the client retains the employees’ services in its business and remains the employer for other purposes.

We charge a comprehensive service fee

We charge a comprehensive service fee (“comprehensive service fee” or “gross billing”), which is invoiced concurrently with the processing of payroll

2022 Form 10-K

(“comprehensive service fee” or “gross billing”), which is invoiced concurrently with the processing of payroll for the WSEEs of the client.

for the WSEEs of the client.

The comprehensive service fee consists of the payroll of our WSEEs plus an additional amount reflected as a percentage of the payroll cost of the WSEEs.

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• payroll and benefits administration

• general HR advice

• health and workers’ compensation insurance programs

• personnel records management

• 401(k) retirement plan sponsored by us

• employer liability management

• assistance with government compliance

• general HR advice

• personnel records management

• access to Insperity Premier for employees, managers, and client owners

• 401(k) retirement plan sponsored by us

Our Workforce Optimization solution also provides additional services that our Workforce Synchronization clients can purchase for an additional fee, including the following:

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• training and development services

2022 Form 10-K

Our PEO HR Outsourcing Solutions are designed to attract and retain high-quality employees, while relieving client owners and key executives of many employer-related administrative and regulatory burdens.

Among the employment-related laws and regulations that may affect a client are the following:

2021 Form 10-K

• Internal Revenue Code (the “Code”) • Occupational Safety and Health Act (OSHA)

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• a 401(k) retirement plan

• an employee well-being program

2022 Form 10-K

• cafeteria plans for group health and health savings account contributions

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• an adoption assistance program

2021 Form 10-K

• group term life insurance

• group universal life insurance

• accidental death and dismemberment insurance

• paid family leave, where required by law

• COBRA administration

The group health plan includes medical, dental, vision and prescription drug coverage, as well as an employee well-being program.

• critical illness and accident insurance

The group health plan includes medical, dental, vision and prescription drug coverage.

All benefit plans are provided to eligible employees based on the specific eligibility provisions of each plan.

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• access to view, edit, and change a range of employee profile information

• online check stubs, pay history, W-2s, W-4 forms, and other state forms

• employee-specific benefits content, including summary plan descriptions, enrollment status, and tools to assist with benefits selection for Insperity-sponsored plans

2022 Form 10-K

• online check stubs, pay history, W-2 forms, W-4 forms, and other state forms

• employee-specific benefits content, including summary plan descriptions, enrollment status, and tools to assist with benefits selection for Insperity-sponsored plans

• access to 401(k) retirement plan information for covered plans

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• professional development and issues-oriented training

• diversity, equity and inclusion training

• employee coaching and counseling

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As part of our comprehensive service, we also maintain employment practice liability insurance coverage for ourselves and our clients, monitor developments in HR-related laws and regulations, and notify clients of the potential effect of such changes on employer liability.

2022 Form 10-K

MarketPlace SM provided by Insperity ® .

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We believe the middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, has historically been under-served by the PEO industry.

Currently, we have a dedicated sales management, service personnel and consulting staff who concentrate solely on the

2021 Form 10-K

middle market sector.

Although our average number of WSEEs per month in our middle market sector increased 4.2% from 2020, the middle market sector as a percentage of our overall WSEE count declined over this period, representing approximately 23.8% and 24.4% of our total average paid WSEEs during 2021 and 2020, respectively.

Currently, we have a dedicated sales management, service personnel and consulting staff who concentrate solely on the middle market sector.

Our average number of WSEEs per month in our middle market sector in 2022 increased 23.3% from 2021, and the middle market sector as a percentage of our overall WSEE count also increased over this period, representing approximately 24.9% and 23.8% of our total average paid WSEEs during 2022 and 2021, respectively.

Clients with an average number of WSEEs exceeding 1,000 paid WSEEs represented 5.4% and 1.9% of our total average paid WSEEs during 2022 and 2021, respectively.

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We also strive to leverage our relationships with our customers to enable cross-selling of our various products and services.

During 2021 and 2020, revenues from our other products and services offerings as a percentage of our total revenues were 0.9% in both periods.

During 2022 and 2021, revenues from our other products and services offerings as a percentage of our total revenues were 0.7% and 0.9%, respectively.

Following are the key components of our other products and services, which are offered separately or as a bundle:

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Our Insperity Workforce Acceleration solution is a comprehensive human capital management and payroll services solution for clients that do not choose our PEO HR Outsourcing Solutions.

This solution combines a cloud-based human resources software suite that provides integrated payroll, HR administration and employee onboarding, benefits administration, performance management, and time and attendance functionality with HR guidance and tools, as well as reporting and analytics.

This solution combines a third-party cloud-based human resources software suite that provides integrated payroll, HR administration and employee onboarding, benefits administration, performance management, and time and attendance functionality with HR guidance and tools, as well as reporting and analytics.

In addition, through a strategic partner, Workforce Acceleration clients have access to a national, licensed insurance brokerage that specializes in the insurance needs of small businesses.

Performance Management.

Our Performance Management products and services provide human resources software offerings including Insperity ® PerformSmart ® a performance management cloud-based offering.

Insperity PerformSmart is available to both our Workforce Optimization and Workforce Synchronization clients.

For customers utilizing PerformSmart in conjunction with our PEO HR Outsourcing solutions, we provide access through Insperity Premier.

Performance Management products are sold through online subscription arrangements and through various reseller arrangements.

Organizational Planning.

Organizational Planning offers cloud-based software used by companies to facilitate the creation, management and communication of detailed organizational management charts.

For customers utilizing OrgPlus RealTime in conjunction with our PEO HR Outsourcing solutions, we provide access through Insperity Premier.

Recruiting Services.

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The CSA provides for an ongoing relationship between Insperity and the PEO HR Outsourcing Solutions client.

For most clients, the CSA generally establishes pricing for a period

For most clients, the CSA generally establishes pricing for a period of one year and is subject to termination by Insperity or the client upon 30 days’ written notice or upon shorter notice in the event of default.

CSAs for our middle market clients generally establish pricing for two years and are subject

2022 Form 10-K

of one year and is subject to termination by Insperity or the client upon 30 days’ written notice or upon shorter notice in the event of default.

CSAs for our middle market clients generally establish pricing for two years and are subject to termination by clients upon payment of a termination fee or otherwise by the parties upon an event of default.

to termination by clients upon payment of a termination fee or otherwise by the parties upon an event of default.

The CSA establishes our comprehensive service fee, which is subject to periodic adjustments to account for changes in the composition of the client’s workforce, employee benefit election changes, and statutory changes that affect our costs.

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• Workers’ compensation compliance, procurement, management and reporting

• Compliance with the Code, COBRA, HIPAA and ERISA for Insperity-sponsored employee benefit plans, as well as monitoring changes in other governmental laws and regulations governing the employer/employee relationship and updating the client when necessary

• Offering benefits under Insperity-sponsored employee benefit plans that comply with PPACA requirements

• Employee benefits administration of plans sponsored solely by Insperity

• Compliance with the Code, COBRA, ERISA and PPACA for Insperity-sponsored employee benefit plans, as well as monitoring changes in other governmental laws and regulations governing the employer/employee relationship and updating the client when necessary

• Offering benefits under Insperity-sponsored employee benefit plans

• Administration of Insperity-sponsored employee benefit plans

Client Responsibilities

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• Professional licensing requirements, fidelity bonding, and professional liability insurance

2021 Form 10-K

• Ownership and protection of all client intellectual property rights

• COBRA, HIPAA, PPACA, the Code and ERISA compliance for client-sponsored employee benefit plans

• the Code, COBRA, PPACA, and ERISA compliance for client-sponsored employee benefit plans

2022 Form 10-K

• For clients electing payroll tax deferrals and claiming tax credits under the FFCRA, the CARES Act, PPP, CAA, and ARPA (collectively, the “COVID Relief Programs”), the client has sole responsibility for determining eligibility under the programs and depositing deferred payroll tax amounts with the U.S.

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We serve clients and WSEEs located throughout the United States.

2021 Form 10-K

By region, our revenue distribution for the year ended December 31, 2022, was as follows:

Please read Note 1 “Accounting Policies,” to the Consolidated Financial Statements for additional information related to the change in revenues by region.

2022 Form 10-K

Please read Note 1 to the Consolidated Financial Statements, “ Accounting Policies ,” for additional information related to the change in revenues by region.

All prospective PEO HR Outsourcing Solutions clients are evaluated on the basis of a comprehensive analysis of employer-related risks entailing many factors, including (where permitted) industry and operations, workplace safety and workers’ compensation, unemployment history, operating stability, group medical information, human resources practices and other employer risks.

As part of our client selection strategy, we strive to minimize offering our PEO HR Outsourcing Solutions to businesses falling within certain specified NAICS (North American Industry Classification System) codes for those industries that we believe present a higher employer risk such as employee injury, high turnover or litigation.

2021 Form 10-K

Our PEO HR Outsourcing Solutions client base is broadly distributed throughout a wide variety of industries as follows:

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We focus heavily on client retention.

During 2021 and 2020, our retention rate was approximately 82% in both years.

During 2022 and 2021, our retention rate was approximately 85% and 82%, respectively.

For all PEO HR Outsourcing Solutions clients, the average annual retention rate over the last five years was approximately 84%.

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We identify markets using a systematic market evaluation and selection process.

We continue to evaluate a broad range of factors in the selection process, using a market selection model that weighs various criteria that, based on our experience, we believe are reliable predictors of successful penetration.

We continue to evaluate a broad range

2022 Form 10-K

of factors in the selection process, using a market selection model that weighs various criteria that, based on our experience, we believe are reliable predictors of successful penetration.

Among the factors we consider are:

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• existing relationships within a given market, such as vendor or client relationships

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• expansion cost issues, such as advertising and overhead costs

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The process can be extended during economic downturns.

We have implemented cross-selling channels between our PEO HR Outsourcing solutions business and our other products and services.

This cross-selling strategy focuses on using our PEO HR Outsourcing solutions to increase market penetration in each of our other products and services and using our other product and service offerings as a source of leads for our PEO HR Outsourcing solutions.

The cross-selling channels attempt to reduce barriers to selling our products and services and allow us to tailor service packages to better meet the specific needs of the business.

We have implemented a sales process that allows our BPAs to offer our PEO HR Outsourcing Solutions or Workforce Acceleration, our traditional payroll solution, to each prospective client with which they meet.

This strategy allows us to leverage the same sales force for all of our primary offerings and increases the ability of our BPAs to add clients to our Workforce Acceleration solution when the client is not prepared for PEO HR Outsourcing Solutions.

This dual channel approach to selling attempts to reduce barriers to a company becoming a client and allows us to offer solutions better tailored to the specific needs of the business, including at renewal.

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We provide a value-added, full-service human resources solution through our PEO HR Outsourcing Solutions, which we believe is most suitable to a specific segment of the small and medium-sized business community.

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During the same three-year period, our gross profit per WSEE and operating income per WSEE exceeded industry averages by 144% and 223%, respectively.

2021 Form 10-K

Competition in the PEO industry revolves primarily around quality of services, scope of services, choice and quality of benefits packages, reputation, and price.

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and (3) large regional PEOs in certain areas of the country.

As Insperity and other large PEOs expand nationally, we expect that competition may intensify.

Vendor Relationships

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The current workers’ compensation coverage with Chubb expires on September 30, 2023.

Chubb has committed to certain expense and premium terms for two additional policy years (through September 30, 2024) subject to certain customary terms and conditions.

Chubb has committed to certain expense and premium terms for one additional policy year (through September 30, 2024) subject to certain customary terms and conditions.

In the event we are unable to secure replacement coverage on competitive terms, significant disruption to our business could occur.

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Insperity utilizes a variety of information technology capabilities to provide its PEO HR Outsourcing Solutions and business performance improvement services to its clients and WSEEs and for its own administrative and management information requirements.

2022 Form 10-K

Insperity’s PEO HR Outsourcing Solutions information systems, which include Insperity Premier, are a proprietary mix of applications that includes both internally developed software, licensed software applications and cloud-based services.

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• time and attendance collection and administration

2021 Form 10-K

• payroll processing

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Insperity has hosting facilities located at two separate leased facilities, one of which serves as our primary facility.

These facilities host the majority of our business applications, information security infrastructure and network equipment.

These facilities host the majority of our business applications, information security and network infrastructure.

Each hosting facility houses a mix of primary production applications, disaster recovery, replication and back-up applications, and pre-production environments.

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Currently, the federal government and 42 states have passed laws that either recognize PEOs, require licensing or registration of PEOs, or provide voluntary certification programs for PEOs, and several others are considering such regulation.

The SBEA established a voluntary certification program and created a federal regulatory framework for the payment of wages to WSEEs and for the reporting and remittance of federal payroll taxes on those wages paid by CPEOs.

The SBEA established a voluntary certification program and created a federal regulatory framework for the payment of wages to WSEEs and for the reporting and remittance of federal payroll

2022 Form 10-K

taxes on those wages paid by CPEOs.

Our PEO subsidiary, Insperity PEO Services, L.P., is a CPEO.

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Subject to the issues discussed below, we believe that our operations are in compliance, in all material respects, with all applicable federal statutes and regulations.

2021 Form 10-K

Employee Benefit Plans

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These plans include:

• a group health plan, which includes medical, dental, vision and prescription drug coverage, as well as an employee well-being program

• a group health plan, which includes medical, dental, vision and prescription drug coverage

• a 401(k) retirement plan

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• a health savings account program

• a welfare benefits plan, which includes life, disability, and accidental death and dismemberment coverage

• a welfare benefits plan, which includes life, disability, accidental death and dismemberment, critical illness, and accident insurance, as well as an employee well-being program

• a health care flexible spending account plan

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Employer Status and Employee Benefit Plans.

We are the sponsor of the employee benefit plans, participation in which, we offer to our WSEEs.

We are the sponsor of the employee benefit plans that we offer to eligible WSEEs.

Our plans are governed by ERISA and the Code.

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401(k) Retirement Plans.

Our 401(k) Retirement Plan for WSEEs are operated pursuant to guidance provided by the IRS under Revenue Procedure 2002-21 and Revenue Procedure 2003-86, each of which provides guidance for the operation of defined contribution plans maintained by PEOs that benefit WSEEs.

Our 401(k) Retirement Plan for WSEEs is operated pursuant to guidance provided by the IRS under Revenue Procedure 2002-21 and Revenue Procedure 2003-86, each of which provides guidance for the operation of defined contribution plans maintained by PEOs that benefit WSEEs.

This guidance provides qualification standards for PEO plans that, if met, negate the inquiry of common law employer status for purposes of the exclusive benefit rule.

All of Insperity’s 401(k) Retirement Plans have received determination letters from the IRS confirming the qualified status of the plans.

2022 Form 10-K

Employment Taxes

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• withholding of income tax requirements governed by Code Section 3401, et seq.

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• obligations under FICA, governed by Code Section 3101, et seq.

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Under these Code sections, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of these taxes.

The SBEA provides a CPEO shall be treated as the employer under Subtitle C – Employment Taxes of the Code and shall be responsible for reporting federal employment taxes rather than the CPEO clients.

The SBEA provides a CPEO shall be treated as the employer under Subtitle C – Employment Taxes of the Code and shall be responsible for reporting federal employment taxes on remuneration paid by the CPEO rather than the CPEO clients.

For any client CSA that is not a CPEO contract, Code Section 3401, which applies to federal income tax withholding requirements, contains an exception to the general common law test applied to determine whether an entity is an “employer” for purposes of federal income tax withholding.

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These interpretive uncertainties may also impact our ability to report employment taxes on our own account rather than the accounts of our clients.

Clients who elected social security deferrals under the recent CARES Act have sole responsibility for reporting and depositing deferred amounts with the U.S.

Clients who elected to defer the employer portion of social security under the recent CARES Act have sole responsibility for reporting and depositing deferred amounts with the U.S.

Unemployment Taxes

We record our state unemployment insurance (“SUI”) tax expense based on taxable wages and tax rates assigned by each state.

State unemployment tax rates vary by state and are determined, in part, based on Insperity’s prior years’ compensation experience in each state.

Certain rates are determined, in part, by each client’s own compensation experience.

State unemployment tax rates vary by state and are determined, in part, based on Insperity’s prior years’ compensation and unemployment experience in each state.

Certain rates are determined, in part, by each client’s own compensation and unemployment experience.

In addition, states have the ability under law to increase unemployment tax rates, including retroactively, to cover deficiencies in the unemployment tax funds.

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Regardless of whether a state has licensing, registration or certification requirements for PEOs, we must comply with a number of other state and local regulations that could impact our operations.

2022 Form 10-K

Human Capital

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Our human capital management objective is to attract, develop, and retain qualified corporate employees as appropriate to support our growth, client service initiatives, and technology investments, while furthering our commitment to our culture, mission, and values.

2021 Form 10-K

We had approximately 4,100 corporate employees as of December 31, 2022.

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the Insperity MVP (Mission Values Performance) employee recognition program;

support during the COVID-19 pandemic, including flexible remote working arrangements;

flexible remote working arrangements;

and employee benevolence programs to provide additional assistance to corporate employees in times of need.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business