What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-11 compared with 2025-02-11 · 156 added, 126 removed, 376 unchanged (43% of the section changed)

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Executive Summary

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 solution, our Insperity Premier TM platform.

Our overall operating results can be measured in terms of revenues, gross profit or adjusted EBITDA per WSEE per month.

We often use the average number of WSEEs paid during a period as our unit of measurement in analyzing and discussing our results of operations.

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, our traditional payroll solution.

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

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

2024 Highlights

• Average number of WSEEs paid per month decreased 2% to 307,261.

Revenues increased 1% on a 3% increase in revenue per WSEE, partially offset by the 2% decrease in average WSEEs paid.

• We ended 2024 averaging 309,093 paid WSEEs in the fourth quarter of 2024 , which represents a 2% decrease over the fourth quarter of 2023.

• Approximately 26% of our average paid WSEEs were in our middle market sector for the years ended December 31, 2024 and 2023, which is generally defined as companies with 150 to 5,000 WSEEs.

• Gross profit increased 1% to $1.1 billion.

The increase was primarily due to a 3% increase in gross profit per WSEE, which was partially offset by a 2% decline in the average number of WSEEs paid per month.

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

Our comprehensive HR services offerings are provided through our Insperity ® HR 360 solution (formerly Workforce Optimization ® ), our Insperity ® HR 360 Select Edition solution (formerly Workforce Synchronization TM ), and our Insperity ® HR Scale solution (together, our “PEO HR Solutions”) which encompass a broad range of HR functions as discussed in Item 1.

Business — Service Offerings — PEO HR Solutions .

Insperity’s HR 360 solution, our largest source of revenue, is offered to small and medium-sized businesses seeking a comprehensive people strategy.

From payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management to training and development, our HR 360 solution offers a full range of services empowering clients to achieve a sophisticated HR function.

HR 360 provides access to our web-based human capital management platform, Insperity Premier TM .

HR 360 Select Edition.

Insperity’s HR 360 Select Edition solution, 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 HR 360 and allows those clients to select, for an additional fee, from the strategic HR products and services that are included with HR 360.

HR 360 Select Edition provides access to our web-based human capital management platform, Insperity Premier.

Insperity’s HR Scale solution is our newest service offering that we jointly developed through our strategic partnership with Workday, Inc.

Insperity’s HR Scale solution is intended for growing and middle market companies and provides access to the advanced capabilities of Workday Human Capital Management (“HCM”).

Our HR Scale solution, which is priced higher than our HR 360 offering, is designed to combine the HR expertise of our HR 360 solution with the advanced capabilities of Workday HCM, with a focus on affordability, ease and speed of deployment, and agility as companies scale.

Insperity’s HR Scale solution is under development and we expect an initial group of clients to begin using our HR Scale solution in the first quarter of 2026.

We also offer a comprehensive traditional payroll and human capital management solution, known as Insperity HR Core TM (formerly Workforce Acceleration TM ), which we refer to as our “Traditional HR Solution” as discussed in Item 1.

Business — Other Product and Services Offerings — Comprehensive Traditional Payroll and Human Capital Management Solution ”.

We also offer a number of other business performance solutions, including Talent Acquisition Services, Retirement Services, Insurance Services, Contractor Management, and Perks+.

These other products and services generally are offered only with our other solutions as discussed in Item 1.

Business — Other Product and Services Offerings .

2025 Performance

• Average number of WSEEs paid per month increased 1% to 310,089.

Revenues increased 4% on a 3% increase in revenue per WSEE.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• We ended 2025 averaging 312,377 paid WSEEs in the fourth quarter of 2025, which represents a 1% increase over the fourth quarter of 2024.

• Approximately 26% of our average paid WSEEs were in our middle market sector for both the years ended December 31, 2025 and 2024, which is generally defined as companies with 150 to 5,000 WSEEs.

• Gross profit decreased 14% to $900 million.

The decrease was primarily due to a 15% decrease in gross profit per WSEE, which was partially offset by a 1% increase in the average number of WSEEs paid per month.

Gross profit per WSEE paid per month reflected, in part, a 3% pricing increase offset by a 6% increase in direct costs per WSEE.

The increase in direct costs per WSEE was primarily attributable to a 9% increase in benefits costs per participant.

• Operating expenses increased 14% in 2024 to $935 million, and included increases in travel and event costs, salary and wages, and the implementation of our Workday strategic partnership.

On a per WSEE per month basis, operating expenses increased from $219 in 2023 to $253 in 2024 .

• Net income and diluted earnings per share (“Diluted EPS”) decreased 47% and 46% to $91 million and $2.42, respectively.

• Adjusted net income and adjusted EPS decreased 36% and 35% to $135 million and $3.58, respectively.

• Operating expenses decreased 3% in 2025 to $910 million, and included decreases in professional services, travel and event costs, and salary and wages.

On a per WSEE per month basis, operating expenses decreased from $253 in 2024 to $245 in 2025.

• Net income (loss) and diluted earnings (loss) per share (“Diluted EPS”) both decreased 108% to $(7) million and $(0.19), respectively.

• Adjusted net income and adjusted EPS both decreased 71% to $39 million and $1.03, respectively.

• Adjusted EBITDA decreased 51% to $131 million.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Our net income per WSEE per month decreased 46% from $46 in 2023 to $25 in 2024 .

• Our net income (loss) per WSEE per month decreased 108% from $25 in 2024 to $(2) in 2025.

• Our adjusted EBITDA per WSEE per month decreased 52% from $73 in 2024 to $35 in 2025.

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We account for our revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers .

Our PEO HR Outsourcing Solutions gross billings to clients include the payroll cost of each WSEE at the client location and a markup computed as a percentage of each WSEEs payroll cost.

Our PEO HR Solutions gross billings to clients include the payroll cost of each WSEE at the client location and a markup computed as a percentage of each WSEEs payroll cost.

We invoice the gross billings concurrently with each periodic payroll of our WSEEs.

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Because our total markup is computed as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

The primary direct costs associated with revenue-generating activities for our PEO HR Outsourcing Solutions are:

The primary direct costs associated with revenue-generating activities for our PEO HR Solutions are:

• employment-related taxes (“payroll taxes”)

• costs of employee benefit plans

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• workers’ compensation costs

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Workers’ compensation costs include administrative and risk charges paid to the insurance carrier, and claims costs, which are driven primarily by the frequency and severity of claims.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Outsourcing Solutions clients, which are subject to pricing arrangements that are typically renewed annually.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Solutions clients, which are subject to pricing arrangements that are typically renewed annually.

We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Operating Expenses

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◦ facility costs, including repairs and maintenance

◦ technology costs, including software-as-a-service (“SaaS”) subscription costs, amortization of SaaS implementation costs, and costs associated with the development and implementation of the Workday joint solution.

• Depreciation and amortization — Depreciation and amortization expense is primarily a function of our capital investments in corporate facilities, service centers, sales offices, software development and technology infrastructure.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other Income (Expense)

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The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate these estimates, including those related to health and workers’ compensation insurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities.

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We believe the following accounting policies are critical and/or require judgments and estimates used in the preparation of our Consolidated Financial Statements:

• Benefits costs — We provide group health insurance coverage under a single-employer plan that covers both our WSEEs in our PEO HR Outsourcing Solutions and our corporate employees and utilizes a national network of carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Harvard Pilgrim Health Care, formerly known as Tufts, all of which provide fully insured policies or service contracts.

• Benefits costs — We provide group health insurance coverage under a single-employer plan that covers both our WSEEs in our PEO HR Solutions and our corporate employees and utilizes a national network of carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii, and Harvard Pilgrim Health Care, all of which provide fully insured policies or service contracts.

The health insurance contract with United provides the majority of our health insurance coverage.

As a result of certain contractual terms, we have accounted for this plan since its inception using a partially self-funded insurance accounting model.

Accordingly, we record the costs of the United plan, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Plan Costs”), as benefits expense in the Consolidated Statements of Income.

As a result of certain contractual terms, we have accounted for this program since its inception using a partially self-funded insurance accounting model.

Accordingly, we record the costs of the United program, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Program Costs”), as benefits expense in the Consolidated Statements of Operations.

The estimated incurred but not reported claims are based upon:

(1) the level of claims processed during the quarter;

(2) estimated completion rates based upon recent claim development patterns under the plan;

and (3) the number of participants in the plan, including both active and COBRA enrollees.

(2) estimated completion rates based upon recent claim development patterns under the program;

and (3) the number of participants in the program, including both active and COBRA enrollees.

Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into benefits costs.

Our financial responsibility with United is limited to the first $1 million of paid claims per claimant per year.

Additionally, since the plan’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter.

If the Plan Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the plan would be incurred and we would accrue a liability for the excess costs on our Consolidated Balance Sheets.

On the other hand, if the Plan Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the plan would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets.

The terms of the arrangement with United require us to maintain an accumulated cash surplus in the plan of $9 million, which is reported as long-term prepaid insurance.

As of December 31, 2024, Plan Costs were more than the net premiums paid and owed to United by $5 million.

As this amount is less than the agreed-upon $9 million surplus maintenance level, the $14 million difference is included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets.

In addition, the premiums owed to United at December 31, 2024, were less than $1 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

Effective January 1, 2020 through December 31, 2025, our financial responsibility with United was limited to the first $1 million of paid claims per claimant per year.

Beginning January 1, 2026, we have the option to annually elect to limit our responsibility for each participant’s claim costs to $500,000, $750,000, or $1,000,000 per year, which we elect based on the cost of the limit and our estimate of the benefit of that level of limit.

For 2026, we have elected to limit our financial responsibility with United to the first $500,000 of paid claims per claimant per year.

Since the program’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter.

If the Program Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the program would be incurred and we would accrue a liability for the excess costs on our Consolidated Balance Sheets.

On the other hand, if the Program Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the program would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets.

The terms of the arrangement with

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

United require us to maintain an accumulated cash surplus in the program of $9 million, which is reported as long-term prepaid insurance.

As of December 31, 2025, Program Costs were more than the net premiums paid and owed to United by $18 million, which is included in accrued health insurance costs, a current liability on our Consolidated Balance Sheets.

In addition, the premiums owed to United at December 31, 2025, were $7 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

Our benefits costs incurred included an increase of $11 million in 2025 and a decrease of $29 million in 2024 for changes in estimated run-off related to prior periods, net of Individual Claims Limit.

We believe that recent claim development patterns are representative of incurred but not reported claims costs during the reporting period.

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(1.0)% (13) 10

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Workers’ compensation costs — Since 2007, our workers’ compensation coverage has been provided through an arrangement with Chubb.

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Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S.

Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate was 4.3% in both 2024 and 2023) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Income.

Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate was 3.9% in 2025 and 4.3% in 2024) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.

Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims estimates and record an adjustment to workers’ compensation costs in the period such determination is made.

If we were to experience any significant changes in actuarial assumptions, our loss development rates could increase (or decrease), which would result in an increase (or decrease) in workers’ compensation costs and a resulting decrease (or increase) in net income reported in our Consolidated Statements of Income.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers’ compensation costs totaling $87 million in 2025:

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Our estimate of incurred claim costs expected to be paid within one year is recorded as accrued workers’ compensation costs and is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities in our Consolidated Balance Sheets.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

New Accounting Pronouncements

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Please read Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

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Other income (expense), net 6 9 6 (33) % 50 %

Net income 91 171 179 (47) % (4) %

Net income (loss)

(7) 91 171 (108) % (47) %

(0.19) 2.42 4.47 (108) % (46) %

Non-GAAP financial measures (2) :

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(3) 32 58 (109) % (45) %

Net income 25 46 51 (46) % (10) %

Net income (loss)

(2) 25 46 (108) % (46) %

Adjusted EBITDA (2)

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(3) Revenues per WSEE per month are comprised of gross billings per WSEE per month less WSEE payroll costs per WSEE per month as follows:

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Year Ended December 31,

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Revenues $ 1,831 $ 1,785 $ 1,732

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Key Operating Metrics

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• During 2025 , the average number of WSEEs paid from new client sales increased 1% from 2024.

Average client retention increased from 81% in 2024 to 83% in 2025 .

The net change in our client base also increased when compared to 2024.

• During 2024, the average number of WSEEs paid from new client sales increased 2% from 2023.

Average client retention declined from 83% in 2023 to 81% in 2024, while the net change in our client base remained positive, although lower than 2023.

• During 2023, the average number of WSEEs paid from new client sales and the net change in our client base declined compared to 2022.

Average client retention also declined from 85% in 2022 to 83% in 2023.

Average WSEEs Paid and

Year-over-Year Growth Percentage

Net Income and

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Income (Loss) and

Year-over-Year Growth Percentage

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Our revenues for 2025 were $6.8 billion, an increase of 4%, primarily due to the following:

• Revenues per WSEE per month increased 3%, or $53, partially offset by a 2% decrease in average WSEEs paid.

2023 Compared to 2022

Our revenues for 2023 were $6.5 billion, an increase of 9%, primarily due to the following:

• Average WSEEs paid increased 1%.

• Revenues per WSEE per month increased 3%, or $46.

2024 Compared to 2023

Our revenues for 2024 were $6.6 billion, an increase of 1%, primarily due to the following:

• Revenues per WSEE per month increased 3%, or $53, partially offset by a 2% decrease in average WSEEs paid.

We provide our PEO HR Solutions to small and medium-sized businesses throughout the United States.

PEO HR Solutions revenue distribution by region follows:

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We provide our PEO HR Outsourcing Solutions to small and medium-sized businesses throughout the United States.

PEO HR Outsourcing Solutions revenue distribution by region follows:

PEO HR Outsourcing Solutions Revenue by Region

PEO HR Solutions Revenue by Region

(in millions)

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Texas is included in the Southwest region.

The percentage of total PEO HR Outsourcing Solutions revenues in our significant markets include the following:

The percentage of total PEO HR Solutions revenues in our significant markets include the following:

Significant Markets

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As a result, our operating results are significantly impacted by our ability to accurately estimate our direct costs relative to the revenues derived from the markup component of our gross billings.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Solutions clients, which are subject to pricing arrangements that are typically renewed annually.

We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

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Our revenues per WSEE per month increased $46 due to higher average pricing of 3%.

The net decrease in direct costs between 2024 and 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $15 million as discussed below.

The net increase in direct costs between 2025 and 2024 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $43 million as discussed below.

The $89 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

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• The percentage of WSEEs covered under our health insurance plans was 63% in 2025 compared to 64% in 2024.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $ 29 million, or $8 per WSEE per month, in 2024 compared to a decrease in costs of $ 13 million, or $3 per WSEE per month, in 2023.

• Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $11 million, or $3 per WSEE per month, in 2025 compared to a decrease in costs of $29 million, or $8 per WSEE per month, in 2024.

Please read “ —Critical Accounting Policies and Estimates—Benefits Costs ” for a discussion of our accounting for health insurance costs.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Workers’ compensation costs

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• We recorded a reduction in workers’ compensation costs of $29 million, or 0.09% of non-bonus payroll costs, in 2025 compared to a reduction of $32 million, or 0.10% of non-bonus payroll costs, in 2024, primarily as a result of closing out claims at lower than expected costs.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Please read “ —Critical Accounting Policies and Estimates—Workers' Compensation Costs ” for a discussion of our accounting for workers’ compensation costs.

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• Payroll taxes increased 5% on a 4% increase in payroll costs, or $25 per WSEE per month.

• Payroll taxes as a percentage of payroll costs increased to 7% in 2024 compared to 6% in 2023.

• Payroll taxes as a percentage of payroll costs were to 7% in both 2025 and 2024.

2024 Compared to 2023

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• The cost of group health insurance and related employee benefits increased $20 per WSEE per month, or 4.3% on a cost per covered employee basis.

• The percentage of WSEEs covered under our health insurance plans was 65% in both 2023 and 2022.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $ 13 million, or $3 per WSEE per month, in 2023 compared to an increase in costs of $12 million, or $3 per WSEE per month, in 2022.

• The percentage of WSEEs covered under our health insurance plans was 64% in 2024 compared to 65% in 2023.

• Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $29 million, or $8 per WSEE per month, in 2024 compared to a decrease in costs of $13 million, or $3 per WSEE per month, in 2023.

Please read “ —Critical Accounting Policies and Estimates—Benefits Costs ” for a discussion of our accounting for health insurance costs.

Workers’ compensation costs

Our continued discipline around our client selection, workplace safety and claims management contributed to the small increase in our cost per WSEE and, as a result, has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

Our continued discipline around our client selection, workplace safety and claims management has allowed for claims within our policy periods to be closed out at amounts below our original cost estimates.

• Workers’ compensation costs increased 2%, or $1 per WSEE per month, in 2024 compared to 2023.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both 2023 and 2022.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.24% in 2024 and 0.23% in 2023.

• We recorded a reduction in workers’ compensation costs of $32 million, or 0.10% of non-bonus payroll costs, in 2024 compared to a reduction of $33 million, or 0.11% of non-bonus payroll costs, in 2023, primarily as a result of closing out claims at lower than expected costs.

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• Payroll taxes increased 2% on a 1% increase in payroll costs, or $24 per WSEE per month.

• Payroll taxes as a percentage of payroll costs were 6% in both 2023 and 2022.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• Payroll taxes as a percentage of payroll costs were 7% in 2024 and 6% in 2023.

Operating Expenses

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Amortization of SaaS implementation costs

5 11 (55) % 1 3 (67) %

Workday SaaS licensing and implementation expenses

20 29 (31) % 5 8 (38) %

All other general and administrative

178 184 (3) % 50 49 2 %

Total general and administrative 203 224 (9) % 56 60 (7) %

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Total operating expenses $ 910 $ 935 (3) % $ 245 $ 253 (3) %

Operating expenses for 2024 increased 14% to $935 million compared to $818 million in 2023.

Operating expenses per WSEE per month for 2024 increased 16% to $253 compared to $219 in 2023.

• Salaries of corporate and sales staff for 2024 increased 13% to $521 million, or $18 per WSEE per month, compared to 2023.

The increase was primarily due to a 5% increase in BPA, service, technology and support headcount and staff compensation levels in 2024 compared to 2023.

• Stock-based compensation expense for 2024 increased 15% to $61 million, or $3 per WSEE per month, compared to 2023.

The increase was primarily due to time-based restricted stock unit awards issued under our incentive plan.

Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• General and administrative expenses for 2024 increased 27% to $224 million, or $12 per WSEE per month, compared to 2023.

The increase was primarily due to increased professional services fees, which includes expenses related to the implementation of our Workday strategic partnership, software licensing and maintenance costs, and amortization of SaaS implementation costs.

• General and administrative expenses for 2025 decreased 9% to $203 million, or $4 per WSEE per month, compared to 2024.

The decrease was primarily due to lower professional services fees, resulting from the capitalization in 2025 of a portion of the expenses related to the development of our HRScale solution.

Additionally, we incurred lower travel and training costs and amortization of SaaS implementation costs, partially offset by accelerated lease costs associated with the consolidation of sales offices in 2025 and software licensing and maintenance costs.

2025 Form 10-K

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General and administrative:

Amortization of SaaS implementation costs

11 6 83 % 3 2 50 %

Workday SaaS licensing and implementation expenses 29 — — 8 — —

All other general and administrative 184 171 8 % 49 46 7 %

Total general and administrative

224 177 27 % 60 48 25 %

Depreciation and amortization 44 43 2 % 12 11 9 %

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• Salaries of corporate and sales staff for 2024 increased 13% to $521 million, or $18 per WSEE per month, compared to 2023.

The increase was primarily due to an increase in BPA, service and support headcount and staff compensation levels, which was partially offset by lower incentive compensation expense in 2023 compared to 2022.

• Stock-based compensation expense for 2023 increased 6% to $53 million, but remained flat on a per WSEE per month basis, compared to 2022.

The increase was primarily due to awards issued under our long-term incentive and restricted stock unit programs.

The increase was primarily due to a 5% increase in BPA, service, technology and support headcount and staff compensation levels in 2024 compared to 2023.

• Stock-based compensation expense for 2024 increased 15% to $61 million, or $3 per WSEE per month, compared to 2023.

The increase was primarily due to time-based restricted stock unit awards issued under our incentive plan.

Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• Commissions expense for 2023 increased 2% to $47 million, but remained flat on a per WSEE per month basis, compared to 2022.

The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, as well as an increase in the amount of sales channel referral fees paid during 2023.

• General and administrative expenses for 2024 increased 27% to $224 million, or $12 per WSEE per month, compared to 2023.

The increase was primarily due to increased travel and event costs, software licensing and maintenance costs, and amortization of SaaS implementation costs.

• Depreciation and amortization expense for 2023 increased 5% to $43 million, but remained flat on a per WSEE per month basis, compared to 2022.

The increase was primarily due to increased capital expenditures related to computer hardware and software and software development costs.

Other Income (Expense)

Other income (expense) was net income of $9 million and $6 million in 2024 and 2023, respectively, and net expense of $5 million in 2022.

Other income (expense) was net income of $6 million, $9 million, and $6 million in 2025, 2024 and 2023, respectively.

In 2025, the decrease in other income from 2024 was due to lower deposits and interest rates on overnight investments.

In 2024 and 2023, the increase in other income was due to an increase in interest rates on our marketable securities investments and workers’ compensation deposits, which was partially offset by an increase in interest expense related to higher average interest rates on borrowings under our credit facility.

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Our provision for income taxes differed from the U.S.

statutory rate of 21% primarily due to state income taxes and non-deductible expenses, offset by excess tax benefits associated with the vesting of equity compensation of less than $1 million, $5 million and less than $1 million, in 2024, 2023 and 2022, respectively.

Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional information.

statutory rate of 21% primarily due to state income taxes, non-deductible expenses, and excess tax expense of $2 million associated with the vesting of equity compensation in 2025, and excess tax benefits associated with the vesting of equity compensation of less than $1 million and $5 million, in 2024 and 2023, respectively.

Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On July 4, 2025, H.R.1, which is known as the “One Big Beautiful Bill Act,” was signed into federal law.

This law includes significant changes to federal tax law and other regulatory provisions that may impact us.

ASC 740, “Income Taxes”, requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted.

We have evaluated the provisions of H.R.1 and the potential effects on our financial position, results of operations, and cash flows.

Although there is no impact to our effective tax rate, we are accelerating tax deductions for unamortized software development costs.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Non-GAAP Financial Measures

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Non-bonus payroll cost Non-bonus payroll cost is a non-GAAP financial measure that excludes the impact of bonus payrolls paid to our WSEEs.

Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program.

Our management refers to non-bonus payroll cost in analyzing, reporting and forecasting our workers’ compensation costs.

Bonus payroll cost varies from period to period, but has no direct impact to our ultimate workers’ compensation costs under the current program.

We include these non-GAAP financial measures because we believe they are useful to investors in allowing for greater transparency related to the costs incurred under our current workers’ compensation program.

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• non-cash stock-based compensation.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP):

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Bonus payroll cost 5,516 1,482 5,101 1,383 4,978 1,329

5,101 1,383 4,978 1,329 4,960 1,401

Non-bonus payroll cost $ 33,237 $ 8,932 $ 32,070 $ 8,698 $ 31,677 $ 8,458

$ 32,070 $ 8,698 $ 31,677 $ 8,458 $ 29,228 $ 8,256

Payroll cost % change year over year 4 % 3 % 1 % 3 % 7 % 1 %

Non-bonus payroll cost % change year over year 4 % 3 % 1 % 3 % 8 % 2 %

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP):

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Adjusted cash, cash equivalents and marketable securities $ 57 $ 134

Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Following is a reconciliation of net income (loss) (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP):

Year Ended December 31,

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Per WSEE Per WSEE Per WSEE

Net income $ 91 $ 25 $ 171 $ 46 $ 179 $ 51

Net income (loss)

$ (7) $ (2) $ 91 $ 25 $ 171 $ 46

Income tax expense 3 1 35 8 54 14

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Adjusted EBITDA $ 131 $ 35 $ 270 $ 73 $ 354 $ 94

Net income % change year over year (47) % (46) % (4) % (10) % 44 % 24 %

Net income (loss) % change year over year

(108) % (108) % (47) % (46) % (4) % (10) %

Adjusted EBITDA % change year over year (51) % (52) % (24) % (22) % 1 % (6) %

Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP):

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of net income (loss) (GAAP) to adjusted net income (non-GAAP):

Year Ended December 31,

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2025 2024 2023

Net income $ 91 $ 171 $ 179

Net income (loss)

$ (7) $ 91 $ 171

Non-GAAP adjustments:

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Adjusted net income $ 39 $ 135 $ 212

Net income % change year over year (47) % (4) % 44 %

Net income (loss) % change year over year

(108) % (47) % (4) %

Adjusted net income % change year over year (71) % (36) % (2) %

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP):

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Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity.

We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a current borrowing capacity of $650 million.

We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a current revolving credit commitment of $750 million.

The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases.

We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

We had $1.1 billion in cash, cash equivalents and marketable securities at December 31, 2024, of which approximately $390 million was payable in early January 2025 for withheld federal and state income taxes, employment taxes and other payroll deductions, approximately $91 million represented client prepayments that were payable in January 2025, and $440 million of funds we received in late December 2024 from the Internal Revenue Service related to employee retention tax credits claimed by our PEO clients under COVID relief programs that are expected to be distributed to clients in early 2025.

As of December 31, 2025, we had outstanding letters of credit and borrowings totaling $370 million under the Facility.

Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information.

We had $660 million in cash, cash equivalents and marketable securities at December 31, 2025, of which approximately $468 million was payable in early January 2026 for withheld federal and state income taxes, employment taxes and other payroll deductions.

Approximately $135 million represented client prepayments that were invoiced in January 2026.

At December 31, 2025, we had working capital of $102 million compared to $155 million at December 31, 2024.

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We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

As of December 31, 2024, we had outstanding letters of credit and borrowings totaling $370 million under the Facility.

Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information.

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cash Flows from Operating Activities

Net cash provided by operating activities in 2024 was $ 520 million.

Net cash used in operating activities in 2025 was $278 million.

Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients.

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therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday.

In the year ended December 31, 2024, the last business day of the reporting period was a Tuesday, client prepayments were $91 million and employment taxes and other deductions were $830 million, which included $ 440 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that are expected to be distributed to clients in early 2025.

In the year ended December 31, 2023, the last business day of the reporting period was a Friday, client prepayments were $28 million and employment taxes and other deductions were $510 million.

2024 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In the year ended December 31, 2025, the last business day of the reporting period was a Wednesday, client prepayments were $135 million and employment taxes and other deductions were $468 million.

In the year ended December 31, 2024, the last business day of the reporting period was a Tuesday, client prepayments were $91 million and employment taxes and other deductions were $830 million, which included $440 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that were distributed to clients in early 2025.

• Workers’ compensation plan funding — During 2025 and 2024, we received $29 million and $39 million, respectively, for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital.

• Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter.

Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows.

Therefore, changes in the participation level of the United program have a direct impact on our operating cash flows.

In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows.

As of December 31, 2024, Plan Costs were more than the net premiums paid and owed to United by $5 million, which is $14 million less than our agreed-upon $9 million surplus maintenance level.

The $14 million difference is therefore reflected as a current liability and $9 million is reflected as a long-term asset on our Consolidated Balance Sheet at December 31, 2024.

In addition, the premiums owed to United at December 31, 2024, were less than $1 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheet.

• Operating results — Our net income and adjusted net income has a significant impact on our operating cash flows.

Our net income and adjusted net income decreased 47% and 36% to $91 million and $135 million in 2024, respectively, compared to $171 million and $212 million in 2023, respectively.

In addition, the premiums owed to United at December 31, 2025, were $7 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

• Operating results — Our net income (loss) and adjusted net income has a significant impact on our operating cash flows.

Our net income (loss) and adjusted net income decreased 108% and 71% to $(7) million and $39 million in 2025, respectively, compared to $91 million and $135 million in 2024, respectively.

Please read “ Results of Operations .”

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We paid $90 million in dividends and repurchased or withheld $19 million in stock.

In addition, client funds liability and other financing activities decreased by $21 million.

In addition, client funds liability and other financing activities increased by $19 million.

Seasonality, Inflation and Quarterly Fluctuations

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As a result, the gross profit contribution from payroll taxes is typically higher in the first two quarters and declines in the latter half of each year.

These historical trends may change and other seasonal trends may develop in the future.

These historical trends may change and other seasonal trends may develop in

2025 Form 10-K

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For further information related to our health insurance costs, please read “—Critical Accounting Policies and Estimates—Benefits Costs.”

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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 7. Management’s Discussion and Analysis