Paychex fiscal Q1 2027 revenue rose 5.9% to $1.63B and diluted EPS 14% to $1.21, helped by lower Paycor deal costs; adjusted EPS grew 9.8% as PEO revenue climbed 11.7% and core payroll 4.3%.
Revenue
$1.6B
+5.9% YoY
Net income
$430M
+12.0% YoY
Diluted EPS
$1.21
+14.2% YoY
Operating margin
38.0%
Overview
Paychex, which runs payroll, HR and benefits for small and mid-sized US businesses, grew total revenue 5.9% to $1.63 billion in its fiscal Q1 2027 (the three months ended August 31, 2026). Profit grew about twice as fast as sales: GAAP operating income rose 14% to $619.2 million and diluted EPS rose 14% to $1.21. A good part of that profit acceleration came from something other than the underlying business: costs tied to the April 2025 purchase of Paycor fell from $84.8 million to $65.5 million. Stripping those out, operating income grew 9% (the company's own adjusted measure). That is still clearly faster than revenue, which means the core business itself got more profitable.
This is also the first quarter where the comparison is like-for-like: Paycor was already fully inside the prior-year quarter (June–August 2025), so the 5.9% revenue growth is essentially organic, not boosted by the acquisition.
Key metrics
Metric
Fiscal Q1 2027
Fiscal Q1 2026
YoY Change
Total revenue
$1,630.5M
$1,540.0M
+5.9%
Management Solutions revenue
$1,213.1M
$1,163.3M
+4.3%
PEO and Insurance Solutions revenue
$367.6M
$329.1M
+11.7%
Interest on funds held for clients
$49.8M
$47.6M
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Operating margin is the share of revenue left after running the business, before interest and tax. "Adjusted" figures are Paychex's own non-GAAP measures that exclude Paycor acquisition costs (and, for EPS, certain stock-compensation tax effects).
Where the revenue came from
Management Solutions (+4.3%, $1.21 billion): the core payroll and HR software business, about three-quarters of revenue. The filing attributes the growth to "higher revenue per client resulting from price realization and product penetration". In plain terms: price increases and clients buying more add-on products. It does not cite growth in the number of clients as a driver, so this segment is growing by selling more to existing customers rather than by adding many new ones.
PEO and Insurance Solutions (+11.7%, $367.6 million): the fastest-growing line. A PEO (professional employer organization) is an arrangement where Paychex becomes the co-employer of a client's staff and handles payroll, benefits and workers' compensation insurance for them. Growth came from more average worksite employees (the people covered under these arrangements) and higher PEO insurance volumes. The 10-Q does not disclose worksite-employee or client counts. This growth has a cost attached: PEO direct insurance costs rose 10% to $152.9 million, roughly in step with the segment's revenue.
Interest on funds held for clients (+4.6%, $49.8 million): Paychex collects clients' payroll and tax money before paying it out, and earns interest on it in the meantime (often called "float"). Average client fund balances were flat at $5.40 billion, so the increase came entirely from the yield rising to 3.7% from 3.5%.
Why profit grew faster than revenue
Total expenses rose just 1% ($1,011.3 million vs. $998.1 million) while revenue rose 5.9%. The filing's expense breakdown shows why:
Expense line
Fiscal Q1 2027
Fiscal Q1 2026
YoY Change
Compensation-related
$526.8M
$530.0M
-1%
PEO direct insurance costs
$152.9M
$138.6M
+10%
Depreciation and amortization
$52.9M
$48.2M
+10%
Other expenses
$213.2M
$196.5M
+8%
Paycor acquisition-related costs
$65.5M
$84.8M
-23%
Two things stand out. First, pay costs for Paychex's own staff fell slightly even as revenue grew, which is the main source of the underlying margin improvement. Second, acquisition costs fell by $19.3 million: Paycor integration-related compensation (severance, retention bonuses, replacement awards) dropped to $8.5 million from $18.7 million, and other deal costs to $0.1 million from $5.0 million. The largest piece, $56.9 million of amortization of acquired Paycor intangibles (a non-cash accounting charge that spreads part of the purchase price over several years), will keep recurring. Spending went up in "other expenses" (+8%), which the filing attributes to "higher technology and selling investments", and in depreciation (+10%) from more capitalized client-facing software.
Below the operating line: a drag hidden in the EPS number
Net income grew 12%, slower than operating income's 14%, for two reasons:
Other income fell 54% to $10.9 million from $23.8 million. Interest earned on Paychex's own corporate cash and investments dropped to $10.2 million from $18.7 million, because the average corporate balance shrank 30% (to $1.24 billion from $1.78 billion) and its yield fell to 3.3% from 4.2%.
The tax rate rose to 24.0% from 22.9%, mainly because a stock-compensation tax benefit shrank (a $0.3 million windfall versus $7.2 million a year earlier).
Partly offsetting those, interest expense fell $3.1 million to $65.1 million on lower debt balances. EPS then grew faster than net income (14% vs. 12%) because the diluted share count fell 1.5% to 356.6 million after buybacks; Paychex repurchased 1.1 million shares at an average $145.59 during the quarter.
Takeaway: The 14% GAAP EPS jump overstates the underlying momentum. The cleaner read is adjusted EPS growth of 9.8% on 5.9% revenue growth: a business growing mid-single digits organically, widening margins by holding its own staff costs flat, and relying on price increases and add-on products rather than client growth in its core payroll segment.
Cash and capital returns
Operating cash flow was $413.5 million, down from $718.4 million a year earlier. The filing attributes the swing mainly to timing items (PEO collections versus payroll-tax settlements, lower refunds owed to clients for COVID-era CARES Act tax credits, and payment of fiscal 2026 year-end bonuses) rather than weaker earnings. Dividends paid rose 9% to $424.1 million ($1.19 per share vs. $1.08), more than operating cash flow this quarter. Cash, restricted cash and corporate investments stood at $1.0 billion against $4.6 billion of long-term borrowings, with $2.0 billion of unused credit capacity.
Outlook
The 10-Q does not restate Paychex's full-year fiscal 2027 guidance (management publishes that separately in its earnings materials). What the filing does show for the rest of the year:
Float income tailwind: the Federal Reserve raised its target range to 3.75%–4.00% on September 17, 2026, after quarter-end. With $5.4 billion of average client funds, higher short-term rates should lift interest on client funds in the coming quarters. The flip side: rising rates pushed the unrealized loss on Paychex's bond portfolio to about $151.2 million as of September 23, from $92.4 million at August 31. That loss runs through equity, not earnings, and Paychex says it doesn't intend to sell those bonds before they recover.
Shrinking acquisition drag: with integration pay and deal costs close to running off, the gap between GAAP and adjusted earnings is narrowing toward the recurring intangible amortization (about $57 million this quarter). That will keep flattering GAAP growth comparisons through fiscal 2027.
What to watch: whether Management Solutions can grow faster than about 4% without relying mainly on pricing; whether PEO insurance costs keep pace with PEO revenue rather than outrunning it; and whether next quarter's operating cash flow confirms that this quarter's weakness was timing.