What changed in this filing

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Item 1A. Risk Factors

2025-02-11 compared with 2024-02-09 · 45 added, 43 removed, 292 unchanged (23% of the section changed)

18 unchanged sentences

The IRS has experienced significant backlogs in processing amended tax forms from employers seeking ERC refunds and we are currently awaiting IRS review of a number of ERC claims with respect to our PEO clients.

Currently, the deadline to submit any ERC claims for relevant periods in 2020 is April 2024, and the deadline for relevant periods in 2021 is April 2025.

Currently, the deadline to submit any ERC claims for relevant periods in 2021 is April 2025.

A pending federal bill, The Tax Relief for American Families and Workers Act of 2024 (H.R.

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Further, eligibility for the ERC is dependent on certain operational information of our clients.

If the IRS were to determine that any of our clients were not eligible for the ERC requested on their behalf and conclude that we are responsible for those claims, or if the IRS were to otherwise challenge the claims we requested, we could face penalties or other liabilities.

In either of those events, our clients may seek recourse against us or choose not to renew.

The lack of guidance from the IRS on the application of deferred payroll taxes discussed above may also impact the amount of ERC refunds received on behalf of our clients if those deferred payroll taxes are deducted from ERC funds received or delay our receipt of the ERC funds.

Further, if the IRS were to determine that any of our clients were not eligible for the ERC requested on their behalf or we do not perfect our filings on a timely basis, the IRS may conclude that we are responsible for those claims.

Furthermore,if the IRS were to otherwise challenge the claims we requested, we could face penalties or other liabilities.

If any those events were to occur, our clients may seek recourse against us or choose not to renew.

If we experience rejection of any COVID-19 relief program claims on behalf of clients, are unable to timely make system changes needed to comply with other regulations, incur substantial additional costs in doing so, or are otherwise adversely affected by these requirements, then we may face fines, penalties, other regulatory action, or litigation relating to such failure, and we may not have insurance coverage for all or some of these liabilities.

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As a result of the foregoing, our business, results of operations and financial condition could be materially adversely affected.

2024 Form 10-K

Bank failures or other events affecting financial institutions could have a material adverse effect on our business, results of operations or financial condition, or have other adverse consequences.

We use a U.S.-based global systemically important bank (or G-SIB) for our PEO operations, including our cash balances associated with that portion of our business.

All of our cash deposits are held by Federal Deposit Insurance Corporation

2023 Form 10-K

(“FDIC”) insured banks, which amounts exceed the FDIC insurance limits.

All of our cash deposits are held by Federal Deposit Insurance Corporation (“FDIC”) insured banks, which amounts exceed the FDIC insurance limits.

Through various overnight “sweep account” programs, we also invest a significant portion of our cash balances in U.S.

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Accordingly, unless we are successful in expanding in our current markets and into new markets, which we believe will take additional time, for the foreseeable future, a significant portion of our revenues may be subject to economic, statutory, and regulatory factors specific to New York, California, and Texas.

2024 Form 10-K

We are subject to covenants under our credit facility that may restrict our business and financing activities.

Our failure to comply with these covenants may result in an acceleration of our indebtedness, which could have a material adverse effect on our business, financial condition or results of operations.

2023 Form 10-K

Our credit facility contains, and any future indebtedness of ours likely would contain, covenants that, subject to certain exceptions, impose significant operating and financial restrictions, including restricting our ability to:

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A future outbreak of highly infectious or contagious diseases could have a material and adverse impact on our business, results of operations, financial condition and cash flows.

The spread of a highly infectious or contagious disease could create significant volatility, uncertainty and economic disruption, including as a result of actions taken by businesses and governments in response to such a pandemic that may result in a significant reduction in commercial activity, such as occurred during the COVID-19 pandemic that began in 2020.

The extent to which future pandemics impact our business, operations, financial results and financial condition will depend on numerous evolving factors that are highly uncertain and that we may not be able to accurately predict.

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Under the CSA, we become a co-employer of WSEEs and assume the obligations to pay the salaries, wages and related benefits costs and payroll taxes of such WSEEs.

We assume such obligations as a principal, not as an agent of the client.

Our obligations include responsibility for the following even if our costs to provide such benefits exceed the fees the client pays us and the amounts collected from WSEEs:

Our obligations include responsibility for the following even if our costs exceed the fees the client pays us and the amounts collected from WSEEs:

• payment of the salaries and wages for work performed by WSEEs, regardless of whether the client timely pays us the associated service fee

• withholding and payment of federal and state payroll taxes with respect to wages and salaries reported by Insperity

• providing benefits to WSEEs

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• providing benefits to WSEEs

• providing workers’ compensation coverage to WSEEs

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Many of our clients select a PEO Outsourcing Solution pursuant to which we offer the health and welfare benefit plans sponsored by us to the WSEEs co-employed by those clients.

The future impact and direction of healthcare reform, including future legislative actions, is unknown and, if any such developments were to reduce our ability to make health care benefits available to WSEEs or were to make our offerings less attractive to our clients, then our business, financial condition, and results of operations may be materially adversely affected.

The future impact and direction of healthcare reform, including future legislative or executive actions, is unknown and, if any such developments were to reduce our ability to make health care benefits available to WSEEs or were to make our offerings less attractive to our clients, then our business, financial condition, and results of operations may be materially adversely affected.

Supporters in various states have advocated and continue to advocate for adoption of health care-related reforms at the state level, which has the potential to significantly change the insurance marketplace for small and medium-sized businesses and how employers provide insurance to employees.

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Department of Health and Human Services (“HHS”) has not addressed or in some instances is unclear as to the application of certain aspects of federal health care reform laws in the PEO relationship or whether such provisions should be applied at the PEO or client level.

Various states have adopted or are considering reforms that may impact the requirements for or availability of PEO-sponsored health plans.

At this time, the insurance market reforms have not had a material adverse impact on our

2024 Form 10-K

business operations, and if any future changes impact our ability to attract and retain clients, or our ability to increase service fees to offset any increased costs, then our business may be materially adversely affected.

Subsequent changes resulting from action that may be taken at the federal or state level may impact our benefit plans, business model and future results of operations, including repeal or repeal and replacement of current healthcare reform provisions as has been advocated by some Congressional leaders.

Various states have adopted or are considering reforms that may impact the requirements for or availability of PEO-sponsored health plans.

At this time, the insurance market reforms have not had a material adverse impact on our business operations, and if any future changes impact our ability to attract and retain clients, or our ability to increase service fees to offset any increased costs, then our business may be materially adversely affected.

In future periods, changes may result in increased costs to us and could affect our ability to attract and retain clients.

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Our workers’ compensation coverage has been provided through an arrangement with Chubb since 2007.

Under our current arrangement with Chubb for claims incurred on or before September 30, 2019, we have a financial responsibility to Chubb for the first $1 million layer of claims per occurrence and for claims over $1 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed the first $1 million.

Effective for claims incurred on or after

Under our current arrangement with Chubb for claims incurred on or before September 30, 2019, we have a financial responsibility to

2024 Form 10-K

October 1, 2019, our financial responsibility increased as we have financial responsibility to Chubb for the first $1.5 million layer of claims per occurrence and for claims over $1.5 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1.5 million.

Chubb for the first $1 million layer of claims per occurrence and for claims over $1 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed the first $1 million.

Effective for claims incurred on or after October 1, 2019, our financial responsibility increased as we have financial responsibility to Chubb for the first $1.5 million layer of claims per occurrence and for claims over $1.5 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1.5 million.

Chubb bears the financial responsibility for all claims in excess of these levels.

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Generally, our contractual agreements allow us to incorporate such statutory increases into our service fees upon the effective date of the rate change.

However, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the clients’ contracts could be limited, resulting in a potential increase not being fully recovered.

However, this right does not extend to our former clients and, even with respect to our existing clients, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the clients’ contracts could be limited, resulting in a potential increase not being fully recovered.

As a result, such increases could have a material adverse effect on our financial condition or results of operations.

Many of our contracts for our PEO HR Outsourcing Solutions may be canceled on short notice.

Our inability to renew client contracts or attract new clients could materially and adversely affect our financial conditions or results of operations.

Our inability to renew client contracts or attract new clients could materially and adversely affect our financial condition or results of operations.

Our standard CSA can generally be canceled by us or the client with 30 days’ notice.

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Our loss of insurance coverage, the failure of our insurance carriers or increased insurance costs or deductibles could have a material adverse effect on us.

As part of our PEO HR Outsourcing Solutions, in addition to our health insurance carriers, we contract with other insurance carriers to provide workers’ compensation insurance and employment practices liability insurance.

In addition, we obtain insurance coverage for various commercial risks in our business such as property insurance, errors and

As part of our PEO HR Outsourcing Solutions, in addition to our health insurance carriers, we contract with other

2024 Form 10-K

omissions insurance, cyber liability insurance, general liability insurance, fiduciary liability insurance and ERISA bond coverage, automobile liability insurance, and directors’ and officers’ liability insurance.

insurance carriers to provide workers’ compensation insurance and employment practices liability insurance.

In addition, we obtain insurance coverage for various commercial risks in our business such as property insurance, errors and omissions insurance, cyber liability insurance, general liability insurance, fiduciary liability insurance and ERISA bond coverage, automobile liability insurance, and directors’ and officers’ liability insurance.

The failure of any insurance carrier, such as occurred in 2001 with respect to a previous workers’ compensation insurance provider, providing such coverage could leave us exposed to uninsured risk and could have a material adverse effect on our business and results of operations.

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In times of economic slowdowns, the federal government and states and municipalities in which we operate may experience reductions in tax revenues and corresponding budget deficits.

In response to budget shortfalls, such as those being experienced as a result of the COVID-19 pandemic, the federal government and many states and municipalities have in the past and may in the future increase or enact new taxes on businesses operating within their tax jurisdiction, including business activity taxes and income taxes.

In response to budget shortfalls, such as those experienced during the COVID-19 pandemic, the federal government and many states and municipalities have in the past and may in the future increase or enact new taxes on businesses operating within their tax jurisdiction, including business activity taxes and income taxes.

In addition, federal, state and local taxing agencies may increase their audit activity in an effort to identify additional tax revenues.

New tax assessments on our operations could result in increased costs.

Further, the Biden Administration and Congressional leaders have expressed support for reviewing federal taxes and potential increases in federal tax rates for businesses.

Our ability to adjust our service fees and incorporate additional tax assessments into our billing system could be limited.

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We must manage all of these systems, and are dependent on third parties to manage the systems that we obtain from them, including any upgrades, replacements or enhancements, to ensure that they continue to support our services.

For example, we are currently working on a multi-year project to replace our sales force automation system and our customer relationship management (“CRM”) system with a single CRM solution to be used widely across the company.

We continue to monitor and make changes to our proprietary system for our PEO HR Outsourcing Solutions for compliance and modernization.

For example, in connection with our strategic partnership with Workday, Inc.

(“Workday”), we are currently working to develop a joint solution with Workday that requires integrations with third parties and with our proprietary systems for our PEO HR Outsourcing Solutions.

We also continue to monitor and make changes to our proprietary system for our PEO HR Outsourcing Solutions for compliance and modernization.

Any delays or failures resulting from network outages;

planned upgrades, enhancements, or replacements of software, hardware, or other systems, including in connection with our CRM replacement project or any updated for compliance and modernization of systems;

planned upgrades, enhancements, or replacements of software, hardware, or other systems, including in connection with our project with Workday or any updated for compliance and modernization of systems;

or other data processing disruptions, even for a brief period of time, could result in our inability to timely process transactions.

The speed with which we, or third-party vendors, are able to address significant cybersecurity incidents may be influenced by the cooperation of certain government agencies.

We may also incur significant costs in the future to

2024 Form 10-K

protect against damage or disruptions that could be caused by cybersecurity incidents.

incur significant costs in the future to protect against damage or disruptions that could be caused by cybersecurity incidents.

If such failures cause us to not meet client service expectations or to breach our obligations to our clients, we may lose existing clients, have difficulty attracting new clients, incur regulatory penalties or liability to our clients, or suffer other financial losses, which may have a material adverse effect on our business and financial condition.

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In connection with our offerings, we collect, use, transmit and store large amounts of personal and business information about our WSEEs, employees paid under our traditional payroll solution, and clients, including payroll information, personal and business financial data, social security numbers, bank account numbers, tax information and other sensitive personal and business information.

Attacks on information technology systems continue to grow in frequency and sophistication, and we and our third-party vendors are targeted by unauthorized parties using malicious tactics, code and viruses.

Attacks on information technology systems continue to grow in frequency and sophistication (including the use of emerging artificial intelligence technologies), and we and our third-party vendors are targeted by unauthorized parties using malicious tactics, code and viruses.

Hardware or applications we develop or procure from third-party vendors may contain defects in design or other problems that could unexpectedly compromise the confidentiality, integrity or availability of data or our systems.

Because the techniques used to obtain unauthorized access and disable or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventive measures.

Further, our increased reliance on remote access to our information systems as our employees work remotely impacts our control over cybersecurity protection and service stability and performance, which increases our exposure to cybersecurity and privacy issues.

Further, increased reliance by us and our clients on remote workforces impacts our control over cybersecurity protection and service stability and performance, which increases our exposure to cybersecurity and privacy issues.

As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities.

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In addition, our services also involve the use and disclosure of personal and business information to us that could be used by a malicious party to commit identity theft or otherwise gain access to the data or funds of our clients or their employees, including WSEEs.

If any person, including any corporate employee, misappropriates or misuses such funds, documents or data, we may have liability for damages, and our reputation could be substantially harmed and we may have other liabilities that could have a material adverse effect on our business.

Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service attack, ransomware attack, corruption of data, theft of private or other sensitive information, or similar malicious act by a party (including our employees), or inadvertent acts or omissions by our vendors or our own employees, could result in the loss, disclosure or misuse of confidential or proprietary information, and could have a material adverse effect on our business operations or that of our clients, result in liability or regulatory sanction, or cause a loss of confidence in our ability to serve clients.

If any person, including any corporate employee or WSEE, misappropriates or misuses such funds, documents or data, we may have liability for damages, and our reputation could be substantially harmed and we may have other liabilities that could have a material adverse effect on our business.

Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service attack, ransomware attack, corruption of data, theft of private or other sensitive information, or similar malicious act by a party (including our corporate employees or WSEEs), or inadvertent acts or omissions by our vendors or clients, our own corporate employees or WSEEs, could result in the loss, disclosure or misuse of confidential or proprietary information, and could have a material adverse effect on our business operations or that of our clients, result in liability or regulatory sanction, or cause a loss of confidence in our ability to serve clients.

We may not have adequate insurance coverage to compensate us for losses from a security incident.

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Examples include, the human capital management system on which our Workforce Acceleration solution is based, the data analytics solution on which our Insperity People Analytics solution is based, and the payroll tax calculation and reporting tools that provide the rates used to calculate payroll taxes for our PEO HR Outsourcing Solutions, among others.

In addition, the joint solution that we are developing with Workday will be based on Workday’s human capital management solution.

Any failure by these service providers to deliver their services in a timely manner and in compliance with applicable laws could result in material interruptions to our operations;

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Other Operational Risks

We may not fully realize the anticipated benefits of our strategic partnership and plans to develop a joint solution with Workday, Inc., which could have a material adverse impact on our financial condition or results of operations.

We have announced a strategic partnership and plans to develop a joint solution with Workday, Inc.

We may not fully realize the anticipated benefits of our strategic partnership and plans to develop a joint solution with Workday, which could have a material adverse impact on our financial condition or results of operations.

We have announced a strategic partnership and are developing a joint solution with Workday.

The joint solution would involve, among other things, the offering of our PEO services using Workday’s human capital management solution, as well as joint marketing and sales efforts.

The joint solution also requires integration with other third-party vendors and with our proprietary system for our PEO HR Outsourcing Solutions.

The success of the strategic partnership and joint solution will depend on many factors, and we may not realize all, or any, of the anticipated benefits.

We expect to devote substantial resources and incur significant costs to develop the joint solution.

The strategic partnership and plans to develop a joint solution involve numerous risks, including that we may be unable to complete the development and implementation of the joint solution, or that development and implementation of the joint solution may be more difficult, time-consuming, or costly than expected.

We have devoted substantial resources and incurred significant costs to develop the joint solution, and expect to continue to devote substantial resources and to incur significant costs.

We may also not receive the expected sales, marketing, and other benefits from the strategic partnership.

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We may also have conflicts or disagreements with Workday, which could disrupt the strategic partnership, could impact the development of the joint solution, and could lead to termination of the strategic partnership.

The occurrence of one or more of these events could result in our failure to achieve anticipated growth or revenues, or require us to devote additional resources to the strategic partnership or the development of the joint solution, any of which could result in a material adverse effect on our business, financial condition, and results of operations.

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The occurrence of one or more of these events could result in our failure to achieve anticipated growth or revenues, or require us to devote additional resources to the strategic partnership or the development of the joint solution, or to lose the investments made relating to the development of the joint solution, any of which could result in a material adverse effect on our business, financial condition, and results of operations, as well as reputational damage that could negatively impact our sales and retention efforts.

Failure to integrate or realize the expected return on future product offerings, including through acquisitions, strategic partnerships, and investments, could have a material adverse impact on our financial condition or results of operations.

We have adopted a strategy to market and sell additional solutions within and outside of our PEO HR Outsourcing Solutions.

As part of this strategy, periodically we make strategic long-term decisions to partner with, invest in and/or acquire new companies, business units or assets in order to offer new or enhanced solutions.

As part of this strategy, periodically we make strategic long-term decisions to partner with (including as a reseller arrangement), invest in and/or acquire new companies, business units or assets in order to offer new or enhanced solutions.

Offering new solutions involves a number of risks such as entering markets or businesses in which we have no prior experience and that may be highly regulated;

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diversion of technology, service, compliance, marketing, sales, management and other teams from other business concerns;

in the case of a partnership or reseller arrangement, reliance on the service and technology of the third party;

in the case of an investment or acquisition, over-valuation of the targeted business;

and litigation or government action resulting from the activities of an acquired company or from offering the new solution in a non-compliant manner.

and litigation or government action resulting from the activities of an acquired company or of our partner or from offering the new solution in a non-compliant manner.

The occurrence of one or more of these events could result in the loss of existing or prospective clients or employees, not achieving anticipated revenues or profitability, impairment of acquired assets, and substantial liability.

Such developments could have a material impact to our financial condition, results of operations, and future growth rates.

Such developments could have a material impact to our business, financial condition, results of operations, and future growth rates, and could also result in reputational damage that could negatively impact our sales and retention efforts.

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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 1A. Risk Factors