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What changed in INSPERITY, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of INSPERITY, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+277 added−279 removedSource: 10-K (2024-02-09) vs 10-K (2023-02-10)

Top changes in INSPERITY, INC.'s 2023 10-K

277 paragraphs added · 279 removed · 221 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

90 edited+26 added−28 removed129 unchanged
Biggest changeOur 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: • 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 • providing workers’ compensation coverage to WSEEs If a client does not pay us, or if the costs of services we provide to WSEEs exceed the fees a client pays us, our ultimate liability for WSEE payroll, payroll taxes, workers’ compensation and/or benefits costs could have a material adverse effect on our financial condition or results of operations.
Biggest changeOur 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: • 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 21 2023 Form 10-K RISK FACTORS • providing workers’ compensation coverage to WSEEs Further, the increase in remote work, including by WSEEs, has complicated the calculation of payroll and unemployment taxes applicable to those individuals.
Industry Regulations The operations for our PEO HR Outsourcing Solutions are affected by numerous federal, state, and local laws relating to tax, insurance and employment matters. By entering into a co-employer relationship with our WSEEs, we assume certain obligations and responsibilities of an employer under these federal and state laws.
Industry Laws and Regulations The operations for our PEO HR Outsourcing Solutions are affected by numerous federal, state, and local laws and regulations relating to tax, insurance and employment matters. By entering into a co-employer relationship with our WSEEs, we assume certain obligations and responsibilities of an employer under these federal and state laws and regulations.
Insperity Premier provides role-based access to a wide range of human capital management functions, along with personalized content to the managers, owners and WSEEs of our PEO HR Outsourcing Solutions clients, including: For managers and client owners: • WebPayroll for the submission, approval, and reporting of payroll data • mobile access to review and approve payroll transactions and employee time entry • tools to manage the onboarding of new employees • employee administration functions such as viewing or changing information about employees • access to client-specific compliance-related information relevant to many HR areas • reporting and analytics tools to create, view, save, and export reports and data about employees and to perform more complex analysis and visualization of their workforce data with the Insperity People Analytics solution • ability to manage employee time and attendance information, absences, and paid time off • access to talent management tools in the areas of recruiting, performance management, and learning management • access to a library of online human resources forms • access to a wide range of best-practices human resources management content For WSEEs: • access to view, edit, and change a range of employee profile information 6 2022 Form 10-K BUSINESS • 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 • e-learning web-based training • links to benefits providers and other key vendors • performance management tools including self-reviews and review history, if offered by client • ability to submit time and attendance information, absences, and paid time off requests, if offered by client • mobile access to perform a wide range of employee-specific activities such as reporting time and attendance and paid time off, view pay stubs, insurance coverage and ID cards, view 401(k) balances and other commonly accessed data People Management .
Insperity Premier provides role-based access to a wide range of human capital management functions, along with personalized content to the managers, owners and WSEEs of our PEO HR Outsourcing Solutions clients, including: For managers and client owners: • WebPayroll for the submission, approval, and reporting of payroll data • mobile access to review and approve payroll transactions and employee time entry • tools to manage the onboarding of new employees • employee administration functions such as viewing or changing information about employees • access to client-specific compliance-related information relevant to many HR areas • reporting and analytics tools to create, view, save, and export reports and data about employees and to perform more complex analysis and visualization of their workforce data with the Insperity People Analytics solution • ability to manage employee time and attendance information, absences, and paid time off • access to talent management tools in the areas of recruiting, performance management, and learning management • access to a library of online human resources forms • access to a wide range of best-practices human resources management content For WSEEs: • access to view, edit, and change a range of employee profile information • 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 6 2023 Form 10-K BUSINESS • e-learning web-based training • links to benefits providers and other key vendors • performance management tools including self-reviews and review history, if offered by client • ability to submit time and attendance information, absences, and paid time off requests, if offered by client • mobile access to perform a wide range of employee-specific activities such as reporting time and attendance and paid time off, view pay stubs, insurance coverage and ID cards, view 401(k) balances and other commonly accessed data People Management .
While the COVID-19 pandemic is continuing and even after it has subsided, we may experience material adverse impacts to our business, operations and financial results due to any existing or continuing negative economic impact, including a recession, depression, or periods of supply shortages or high inflation, such as experienced in 2022.
While such a pandemic is continuing and even after it has subsided, we may experience material adverse impacts to our business, operations and financial results due to any existing or continuing negative economic impact, including a recession, depression, or periods of supply shortages or high inflation, such as experienced in 2022 following the COVID-19 pandemic.
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. Treasury. Unemployment Taxes We record our state unemployment insurance (“SUI”) tax expense based on taxable wages and tax rates assigned by each state.
Clients who elected to defer the employer portion of social security under the CARES Act have sole responsibility for reporting and depositing deferred amounts with the U.S. Treasury. Unemployment Taxes We record our state unemployment insurance (“SUI”) tax expense based on taxable wages and tax rates assigned by each state.
Through our many alliances with best-of-class providers, Insperity’s MarketPlace is an e-commerce portal that brings a wide range of products and services to our clients, WSEEs and their families. Through MarketPlace, which is provided through Insperity Premier, our clients also have the opportunity to offer their products and services to other clients and WSEEs. Middle Market Solutions.
Through our many alliances with best-in-class providers, Insperity’s MarketPlace is an e-commerce portal that brings a wide range of products and services to our clients, WSEEs and their families. Through MarketPlace, which is provided through Insperity Premier, our clients also have the opportunity to offer their products and services to other clients and WSEEs. Middle Market Solutions.
We have an agreement with the Professional Golf Association Champions Tour to be the title sponsor of the annual Insperity Invitational ™ presented by UnitedHealthcare ® professional golf tournament held annually in The Woodlands, Texas (a suburb of Houston). In addition, we have an arrangement with Jim Nantz, a sports commentator, to serve as our national spokesperson.
We have an agreement with the Professional Golf Association Champions Tour to be the title sponsor of the Insperity Invitational ™ presented by UnitedHealthcare ® professional golf tournament held annually in The Woodlands, Texas (a suburb of Houston). In addition, we have an arrangement with Jim Nantz, a sports commentator, to serve as our national spokesperson.
Further, our growth is partially dependent on hiring of new employees by our existing clients, which may be negatively impacted during periods of tight labor markets, such as the low unemployment environment experienced during 2022, and during economic slowdowns, such as the high unemployment levels experienced during 2020.
Further, our growth is partially dependent on hiring of new employees by our existing clients, which may be negatively impacted during periods of tight labor markets, such as the low unemployment environment experienced during 2022 and 2023, and during economic slowdowns, such as the high unemployment levels experienced during 2020.
Through the investor relations section of our website, we make available electronic copies of the documents that we file or furnish to the SEC, the charters of the standing committees of our Board of Directors and other documents related to our corporate governance, including our Code of Conduct.
Through the investor relations section of our website, we make available electronic copies of the documents that we file or furnish to the SEC, the charters of the standing committees of our Board of Directors (“Board”) and other documents related to our corporate governance, including our Code of Conduct.
Because many of these federal and state laws were enacted prior to the development of nontraditional employment relationships, such as PEOs, temporary employment and outsourcing arrangements, many of these laws do not specifically address the obligations and responsibilities of nontraditional employers.
Because many of these federal and state laws and regulations were enacted prior to the development of nontraditional employment relationships, such as PEOs, temporary employment and outsourcing arrangements, many of these laws and regulations do not specifically address the obligations and responsibilities of nontraditional employers.
The specific division of applicable responsibilities under our CSAs generally is as follows: Insperity Responsibilities • Payment of wages and salaries as reported by the client and related tax reporting and remittance (local, state and federal withholding, FICA, FUTA, state unemployment) • Workers’ compensation compliance, procurement, management and reporting • 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 • Payment, through Insperity, of commissions, bonuses, vacations, paid time off, sick pay, paid leaves of absence, and severance payments • Payment and related tax reporting and remittance of non-qualified deferred compensation and equity-based compensation • Products produced and/or services provided • Compliance with OSHA regulations, EPA regulations, FLSA, FMLA, WARN, USERRA, and state and local equivalents and compliance with government contracting provisions • Compliance with federal, state, and local pay or play health care mandates and all such other similar federal, state and local legislation • Compliance with the National Labor Relations Act (“NLRA”), including all organizing efforts and expenses related to a collective bargaining agreement and related benefits • Professional licensing requirements, fidelity bonding, and professional liability insurance • Ownership and protection of all client intellectual property rights • the Code, COBRA, PPACA, and ERISA compliance for client-sponsored employee benefit plans 9 2022 Form 10-K BUSINESS • 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.
The specific division of applicable responsibilities under our CSAs generally is as follows: Insperity Responsibilities • Payment of wages and salaries as reported by the client and related tax reporting and remittance (local, state and federal withholding, FICA, FUTA, state unemployment) • Workers’ compensation compliance, procurement, management and reporting • 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 • Payment, through Insperity, of commissions, bonuses, vacations, paid time off, sick pay, paid leaves of absence, and severance payments • Payment and related tax reporting and remittance of non-qualified deferred compensation and equity-based compensation • Products produced and/or services provided • Compliance with OSHA regulations, EPA regulations, FLSA, FMLA, WARN, USERRA, and state and local equivalents and compliance with government contracting provisions • Compliance with federal, state, and local pay or play health care mandates and all such other similar federal, state and local legislation • Compliance with the National Labor Relations Act (“NLRA”), including all organizing efforts and expenses related to a collective bargaining agreement and related benefits • Professional licensing requirements, fidelity bonding, and professional liability insurance • Ownership and protection of all client intellectual property rights • Compliance with the Code, COBRA, PPACA, and ERISA for client-sponsored employee benefit plans • 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.
Our ability to accurately anticipate the expenses associated with the plans, including claims costs on a quarterly or annual basis, can impact our results of operations. If the plans experience an unexpected increase in the number or severity of claims, our associated health insurance costs could increase beyond anticipated levels, as we experienced in 2019 and 2021.
Our ability to accurately anticipate the expenses associated with the plans, including claims costs on a quarterly or annual basis, can impact our results of operations. If the plans experience an unexpected increase in the number or severity of claims, our associated health insurance costs could increase beyond anticipated levels, as we experienced in 2021 and 2023.
Both hosting facilities have the capacity to run all of our critical business applications and have sufficient capacity to handle all of our operations on a stand-alone basis, if required. We have an active Business Continuity Plan, which includes information technology capabilities and we utilize a variety of measures to ensure our Business Continuity Plan remains effective and available.
These hosting facilities have the capacity to run all of our critical business applications and have sufficient capacity to handle all of our operations on a stand-alone basis, if required. We have an active Business Continuity Plan, which includes information technology capabilities and we utilize a variety of measures to ensure our Business Continuity Plan remains effective and available.
We believe the key factors driving demand for PEO services include: • the focus on growth and productivity of the small and medium-sized business community in the United States, utilizing outsourcing to concentrate on core competencies • the need to provide competitive health care and related benefits to attract and retain employees • the increasing costs associated with health and workers’ compensation insurance coverage, workplace safety programs, employee-related complaints and litigation • complex regulation of payroll, payroll tax and employment issues and the related costs of compliance, including the allocation of time and effort to such functions by owners and key executives • the significant costs, time and specialized knowledge required to purchase or develop the technology infrastructure to administer benefits, HR and payroll processing on an integrated basis 3 2022 Form 10-K BUSINESS A significant factor in the development of the PEO industry has been increasing recognition and acceptance of PEOs and the co-employer relationship by federal and state governmental authorities.
We believe the key factors driving demand for PEO services include: • the focus on growth and productivity of the small and medium-sized business community in the United States, utilizing outsourcing to concentrate on core competencies • the need to provide competitive health care and related benefits to attract and retain employees • the increasing costs associated with health and workers’ compensation insurance coverage, workplace safety programs, employee-related complaints and litigation • complex regulation of payroll, payroll tax and employment issues and the related costs of compliance, including the allocation of time and effort to such functions by owners and key executives • the significant costs, time and specialized knowledge required to purchase or develop the technology infrastructure to administer benefits, HR and payroll processing on an integrated basis A significant factor in the development of the PEO industry has been increasing recognition and acceptance of PEOs and the co-employer relationship by federal and state governmental authorities.
Our primary health insurance contract expires on December 31, 2026, subject to cancellation by either party upon 180 days’ notice. In the event we are unable to secure replacement contracts on competitive terms, significant disruption to our business could occur.
Our primary health insurance contract expires on December 31, 2026, subject to cancellation by either party upon 180 days’ notice. In the event we are unable to secure replacement contracts on competitive terms, significant disruption and harm to our business could occur.
Both of our PEO HR Outsourcing Solutions offer the following: • payroll and benefits administration • general HR advice • health and workers’ compensation insurance programs • 401(k) retirement plan sponsored by us • employer liability management • assistance with government compliance • personnel records management • access to Insperity Premier for employees, managers, and client owners Our Workforce Optimization solution also provides additional services that our Workforce Synchronization clients can purchase for an additional fee, including the following: • employee recruiting and support • employee performance management • training and development services 4 2022 Form 10-K BUSINESS 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.
Both of our PEO HR Outsourcing Solutions offer the following: • payroll and benefits administration • general HR advice • health and workers’ compensation insurance programs • 401(k) retirement plan sponsored by us • employer liability management • assistance with government compliance • personnel records management • access to Insperity Premier for employees, managers, and client owners Our Workforce Optimization solution also provides additional services that our Workforce Synchronization clients can purchase for an additional fee, including the following: • employee recruiting and support • employee performance management • training and development services 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 factors we consider are: • market size, in terms of small and medium-sized businesses engaged in selected industries that meet our risk profile • market receptivity to PEO services, including the regulatory environment and relevant history with other PEO providers • existing relationships within a given market, such as vendor or client relationships • expansion cost issues, such as advertising and overhead costs • direct cost issues that bear on our effectiveness in controlling and managing the cost of our services, such as workers’ compensation and health insurance costs, unemployment risks, and various legal and other factors • a comparison of the services we offer to alternatives available to small and medium-sized businesses in the relevant market, such as the cost to the target clients of procuring services directly or through other PEOs • long-term strategy issues, such as the general perception of markets and our estimate of the long-term revenue growth potential of the market We develop a mix of national and local advertising media and a placement strategy tailored to each individual market.
Among the factors we consider are: • market size, in terms of small and medium-sized businesses engaged in selected industries that meet our risk profile • market receptivity to PEO services, including the regulatory environment and relevant history with other PEO providers • existing relationships within a given market, such as vendor or client relationships 12 2023 Form 10-K BUSINESS • expansion cost issues, such as advertising and overhead costs • direct cost issues that bear on our effectiveness in controlling and managing the cost of our services, such as workers’ compensation and health insurance costs, unemployment risks, and various legal and other factors • a comparison of the services we offer to alternatives available to small and medium-sized businesses in the relevant market, such as the cost to the target clients of procuring services directly or through other PEOs • long-term strategy issues, such as the general perception of markets and our estimate of the long-term revenue growth potential of the market We develop a mix of national and local advertising media and a placement strategy tailored to each individual market.
Increases in workers’ compensation costs or inability to secure replacement coverage on competitive terms could lead to a significant disruption to our business. Our workers’ compensation coverage has been provided through an arrangement with Chubb since 2007.
Increases in workers’ compensation costs or inability to secure replacement coverage on competitive terms could lead to a significant disruption and harm to our business. Our workers’ compensation coverage has been provided through an arrangement with Chubb since 2007.
We are currently unable to determine whether potential future changes to the Act or other regulatory action, including at the state level, may adversely affect our business or market conditions. A determination that we are not the employer of our WSEEs and an inability to offer alternate benefit plans could have a material adverse effect on our business.
We are currently unable to determine whether potential future healthcare reform changes or other regulatory action, including at the state level, may adversely affect our business or market conditions. A determination that we are not the employer of our WSEEs and an inability to offer alternate benefit plans could have a material adverse effect on our business.
We maintain several benefit plans for eligible WSEEs including the following: • a group health plan • a health savings account program • a health care flexible spending account plan • a 401(k) retirement plan • an employee well-being program 5 2022 Form 10-K BUSINESS • cafeteria plans for group health and health savings account contributions • short-term and long-term disability insurance • an educational assistance program • an adoption assistance program • group term life insurance • accidental death and dismemberment insurance • critical illness and accident insurance The group health plan includes medical, dental, vision and prescription drug coverage.
We maintain numerous benefit plans for eligible WSEEs including the following: • a group health plan • a health savings account program • a health care flexible spending account plan • a 401(k) retirement plan • an employee well-being program • cafeteria plans for group health and health savings account contributions • short-term and long-term disability insurance 5 2023 Form 10-K BUSINESS • an educational assistance program • an adoption assistance program • group term life insurance • accidental death and dismemberment insurance • critical illness and accident insurance The group health plan includes medical, dental, vision and prescription drug coverage.
Among the employment-related laws and regulations that may affect a client are the following: • Internal Revenue Code (the “Code”) • Occupational Safety and Health Act (OSHA) • Federal Income Contribution Act (FICA) • Worker Adjustment and Retraining Notification Act (WARN) • Federal Unemployment Tax Act (FUTA) • Uniformed Services Employment and Reemployment Rights Act (USERRA) • Fair Labor Standards Act (FLSA) • State unemployment and employment security laws • Employee Retirement Income Security Act, as amended (ERISA) • State workers’ compensation laws • Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) • Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”) • Immigration Reform and Control Act (IRCA) • Patient Protection and Affordable Care Act (PPACA) • Title VII (Civil Rights Act of 1964) • State and local law equivalents of the foregoing • Health Insurance Portability and Accountability Act (HIPAA) • The Families First Coronavirus Response Act (FFCRA) • Age Discrimination in Employment Act (ADEA) • The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act • Americans with Disabilities Act (ADA) • The Consolidated Appropriations Act, 2021 (CAA) • The Family and Medical Leave Act (FMLA) • The American Rescue Plan Act of 2021 (ARPA) • Genetic Information Nondiscrimination Act of 2008 • Paycheck Protection Program and Healthcare Enhancement Act (PPP) • Drug-Free Workplace Act These laws and regulations are complex, and in some instances overlapping.
Among the employment-related laws and regulations that may affect a client are the following: 4 2023 Form 10-K BUSINESS • Internal Revenue Code (the “Code”) • Occupational Safety and Health Act (OSHA) • Federal Income Contribution Act (FICA) • Worker Adjustment and Retraining Notification Act (WARN) • Federal Unemployment Tax Act (FUTA) • Uniformed Services Employment and Reemployment Rights Act (USERRA) • Fair Labor Standards Act (FLSA) • State unemployment and employment security laws • Employee Retirement Income Security Act, as amended (ERISA) • State workers’ compensation laws • Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) • Health Care and Education Reconciliation Act of 2010 (the “Reconciliation Act”) • Immigration Reform and Control Act (IRCA) • Patient Protection and Affordable Care Act (PPACA) • Title VII (Civil Rights Act of 1964) • State and local law equivalents of the foregoing • Health Insurance Portability and Accountability Act (HIPAA) • The Families First Coronavirus Response Act (FFCRA) • Age Discrimination in Employment Act (ADEA) • The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act • Americans with Disabilities Act (ADA) • The Consolidated Appropriations Act, 2021 (CAA) • The Family and Medical Leave Act (FMLA) • The American Rescue Plan Act of 2021 (ARPA) • Genetic Information Nondiscrimination Act of 2008 • Paycheck Protection Program and Healthcare Enhancement Act (PPP) • Drug-Free Workplace Act • SECURE 2.0 Act of 2022, as part of The Consolidated Appropriations Act, 2023 These laws and regulations are complex, and in some instances overlapping.
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. Other Product and Services Offerings We offer other product and services offerings on a stand-alone basis and to our PEO HR Outsourcing Solutions clients.
Clients with an average number of WSEEs exceeding 1,000 paid WSEEs represented 5.5% and 5.4% of our total average paid WSEEs during 2023 and 2022, respectively. Other Product and Services Offerings We offer other product and services offerings on a stand-alone basis and to our PEO HR Outsourcing Solutions clients.
These plans include: • a group health plan, which includes medical, dental, vision and prescription drug coverage • a 401(k) retirement plan • cafeteria plans under Code Section 125 • a health savings account program • 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 • an educational assistance program • an adoption assistance program • a commuter benefits program Generally, employee benefit plans are subject to provisions of the Code, ERISA, and COBRA.
These plans include: • a group health plan, which includes medical, dental, vision and prescription drug coverage 15 2023 Form 10-K BUSINESS • a 401(k) retirement plan • cafeteria plans under Code Section 125 • a health savings account program • 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 • an educational assistance program • an adoption assistance program • a commuter benefits program Generally, employee benefit plans are subject to provisions of the Code, ERISA, and COBRA.
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. We had approximately 4,100 corporate employees as of December 31, 2022. We believe our relations with our corporate employees are good.
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. We had approximately 4,400 corporate employees as of December 31, 2023. We believe our relations with our corporate employees are good.
In addition, various states have adopted or are considering reforms that may impact the requirements for or availability of PEO-sponsored health plans.
Various states have adopted or are considering reforms that may impact the requirements for or availability of PEO-sponsored health plans.
These systems manage a wide range of transactions and information specific to our PEO HR Outsourcing Solutions, to Insperity and to our clients and WSEEs, including: • WSEE enrollment • human resources management and employee administration • benefits and defined contribution plan administration • time and attendance collection and administration • payroll processing • client invoicing and collection • management information and reporting • sales bid calculations Central to these systems are transaction processing capabilities that allow us to process a high volume of employee enrollment, employee administration, payroll, invoice and bid transactions that meet the specific needs of our clients and prospects.
These systems manage a wide range of transactions and information specific to our PEO HR Outsourcing Solutions, to Insperity and to our clients and WSEEs, including: • WSEE enrollment • human resources management and employee administration • benefits and defined contribution plan administration • time and attendance collection and administration 14 2023 Form 10-K BUSINESS • payroll processing • client invoicing and collection • management information and reporting • sales bid calculations Central to these systems are transaction processing capabilities that allow us to process a high volume of employee enrollment, employee administration, payroll, invoice and bid transactions that meet the specific needs of our clients and prospects.
Treasury as they become due Concurrent Responsibilities • Implementation of policies and practices relating to the employee/employer relationship • Internal compliance with all federal, state and local employment laws, including Title VII of the Civil Rights Act of 1964, ADEA, Title I of ADA, the Consumer Credit Protection Act and immigration laws and regulations We maintain employment practice liability insurance coverages (including coverages for our clients) to manage our exposure for various employee-related claims.
Treasury as they become due Concurrent Responsibilities • Implementation of policies and practices relating to the employee/employer relationship 9 2023 Form 10-K BUSINESS • Internal compliance with all federal, state and local employment laws, including Title VII of the Civil Rights Act of 1964, ADEA, Title I of ADA, the Consumer Credit Protection Act and immigration laws and regulations We maintain employment practice liability insurance coverages (including coverages for our clients) to manage our exposure for various employee-related claims.
Geographic market concentration makes our results of operations vulnerable to regional economic factors. Our New York, California and Texas markets accounted for approximately 10%, 16% and 18% (including 7% in Houston), respectively, of our WSEEs for the year ended December 31, 2022.
Geographic market concentration makes our results of operations vulnerable to regional economic factors. Our New York, California and Texas markets accounted for approximately 10%, 15% and 18% (including 7% in Houston), respectively, of our WSEEs for the year ended December 31, 2023.
We utilize a variety of information technology capabilities to deliver our PEO HR Outsourcing Solutions, including Insperity Premier through which we, along with our clients and WSEEs, manage employee administration, payroll, payroll tax, benefits, retirement solutions and other HR-related information, creating efficiencies for all parties. As of December 31, 2022, we had 74 physical office locations in 43 markets.
We utilize a variety of information technology capabilities to deliver our PEO HR Outsourcing Solutions, including Insperity Premier through which we, along with our clients and WSEEs, manage employee administration, payroll, payroll tax, benefits, retirement solutions and other HR-related information, creating efficiencies for all parties. As of December 31, 2023, we had 83 physical office locations in 45 markets.
We target successful businesses with approximately 10 to 5,000 employees that recognize the advantage in the strategic use of high-performance human resources practices. We have set a long-term goal to serve approximately 10% of the overall small and medium-sized business community in terms of WSEEs. We serve clients and WSEEs located throughout the United States.
We target successful businesses with approximately 10 to 5,000 employees that recognize the advantage in the strategic use of high-performance human resources practices. We have set a long-term goal to serve approximately 10% of the overall small and medium-sized business community in terms of WSEEs.
We believe that additional regulatory burdens placed on employers can increase the demand for our services because small and medium-sized businesses are especially challenged in their efforts to comply with governmental regulations due to limited resources and a lack of expertise.
We believe that additional regulatory burdens placed on employers can increase the demand for our services because small and medium-sized businesses are especially challenged in their efforts to comply with governmental regulations due to limited resources and a lack of expertise. Employer Status and Employee Benefit Plans.
We also strive to leverage our relationships with our customers to enable cross-selling of our various products and services. 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.
We also strive to leverage our relationships with our customers to enable cross-selling of our various products and services. During 2023 and 2022, revenues from our other products and services offerings as a percentage of our total revenues were 0.8% and 0.7%, respectively.
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. 16 2022 Form 10-K BUSINESS Human Capital We believe that our ability to attract and retain highly motivated and skilled corporate employees with diverse backgrounds and experiences is critical to our continued success.
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. Human Capital We believe that our ability to attract and retain highly motivated and skilled corporate employees with diverse backgrounds and experiences is critical to our continued success.
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 and network infrastructure. Each hosting facility houses a mix of primary production applications, disaster recovery, replication and back-up applications, and pre-production environments.
Insperity operates from two separate leased hosting facilities, one of which serves as our primary facility. 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.
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 14 2022 Form 10-K BUSINESS taxes on those wages paid by CPEOs. Our PEO subsidiary, Insperity PEO Services, L.P., is a CPEO. Please read Item 1. “Business—PEO Industry” for further information.
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. Our PEO subsidiary, Insperity PEO Services, L.P., is a CPEO. Please read Item 1. “Business—PEO Industry” for further information.
Based on an analysis of the 2019 through 2021 annual NAPEO surveys of the PEO industry, we have successfully leveraged our full-service approach into significantly higher returns for Insperity on a per WSEE per month basis. During the three-year period from 2019 through 2021, our staff support ratio averaged 55% higher than the PEO industry average.
Based on an analysis of the 2020 through 2022 annual NAPEO surveys of the PEO industry, we have successfully leveraged our full-service approach into significantly higher returns for Insperity on a per WSEE per month basis. During the three-year period from 2020 through 2022, our staff support ratio averaged 57% higher than the PEO industry average.
This practice aligns clients’ payments to us with our obligations to make payments to tax authorities, which are higher in the earlier part of the year and decrease as limits on wages subject to payroll tax are reached. The CSA also establishes the division of responsibilities between us and the client as co-employers.
This practice aligns clients’ payments to us with our obligations to make payments to tax authorities, which are higher in the earlier part of the year and decrease as limits on wages subject to payroll tax are reached. 8 2023 Form 10-K BUSINESS The CSA also establishes the division of responsibilities between us and the client as co-employers.
Insperity and other industry leaders, in concert with the National Association of Professional Employer Organizations (“NAPEO”), have worked with the relevant governmental entities for the establishment of a regulatory framework that protects clients and employees, discourages unscrupulous and financially unsound PEOs, and promotes further development of the industry.
Insperity and other industry leaders, in concert with the National Association of Professional Employer Organizations (“NAPEO”), have worked with the relevant governmental entities for the establishment of a regulatory framework that protects clients and employees, discourages 3 2023 Form 10-K BUSINESS unscrupulous and financially unsound PEOs, and promotes further development of the industry.
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. 7 2022 Form 10-K BUSINESS MarketPlace SM provided by Insperity ® .
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. MarketPlace SM provided by Insperity ® .
Marketing and Sales As of December 31, 2022, we had 92 sales offices located in 43 markets. Our sales offices typically consist of seven to nine Business Performance Advisors (“BPAs”), a district sales manager, and an office administrator. To take advantage of economic efficiencies, multiple sales offices may share a physical location.
Marketing and Sales As of December 31, 2023, we had 98 sales offices located in 45 markets. Our sales offices typically consist of seven to nine Business Performance Advisors (“BPAs”), a district sales manager, and an office administrator. To take advantage of economic efficiencies, multiple sales offices may share a physical location.
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.
At this time, the insurance market reforms have not had a material adverse impact on our 22 2023 Form 10-K RISK FACTORS 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.
We identify markets using a systematic market evaluation and selection process. We continue to evaluate a broad range 11 2022 Form 10-K BUSINESS 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 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.
For additional information related to our health insurance costs, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Benefits Costs.” 21 2022 Form 10-K RISK FACTORS Health care reform could affect our health insurance plan and could lead to a significant disruption in our business.
For additional information related to our health insurance costs, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Benefits Costs.” Health care reform could affect our health insurance plan and could lead to a significant disruption in our business.
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.
Effective for claims incurred on or after 23 2023 Form 10-K RISK FACTORS 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.
To take advantage of economic efficiencies, multiple sales offices may share a physical location. In addition, we had four regional service centers along with human resources and client service personnel located in a majority of our 43 sales markets, which serviced an average of 307,506 WSEEs per month in the fourth quarter of 2022.
To take advantage of economic efficiencies, multiple sales offices may share a physical location. In addition, we had four regional service centers along with human resources and client service personnel located in a majority of our 45 sales markets, which serviced an average of 315,072 WSEEs per month in the fourth quarter of 2023.
We refer to BPAs who have been employed for two months and completed initial sales training as “trained BPAs.” During 2022 and 2021, the average number of BPAs were 669 and 650, respectively, while the average number of trained BPAs were 601 and 596, respectively.
We refer to BPAs who have been employed for two months and completed initial sales training as “trained BPAs.” During 2023 and 2022, the average number of BPAs were 748 and 669, respectively, while the average number of trained BPAs were 685 and 601, respectively.
The future impact of the following provisions or changes to the provisions of the Act, or 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 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.
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 middle market sector.
We believe the middle market sector, which we generally define as those companies with employee populations 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 7 2023 Form 10-K BUSINESS solely on the middle market sector.
CSAs for our middle market clients generally establish pricing for two years and are subject 8 2022 Form 10-K BUSINESS to termination by clients upon payment of a termination fee or otherwise by the parties upon an 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.
The CARES Act allowed companies to defer certain payroll taxes, which were reflected in the payrolls we processed for clients electing deferrals.
For example, the CARES Act allowed companies to defer certain payroll taxes, which were reflected in the payrolls we processed for those clients.
The small and medium-sized business market is sensitive to changes in economic activity levels as well as the credit markets. As a result, the demand for the outsourced HR services we provide clients could be adversely impacted by weak economic conditions or difficulty obtaining credit.
Economic Risks Adverse economic conditions could negatively affect our industry, business, and results of operations. The small and medium-sized business market is sensitive to changes in economic activity levels as well as the credit markets. As a result, the demand for the outsourced HR services we provide clients could be adversely impacted by weak economic conditions or difficulty obtaining credit.
We provide group health insurance coverage to our WSEEs through a national network of carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii and Tufts, all of which provide fully insured policies or service contracts.
We provide group health insurance coverage to our WSEEs through a national network of carriers including United, UnitedHealthcare of California, Kaiser Permanente, Blue Shield of California, HMSA BlueCross BlueShield of Hawaii and Tufts (known as Harvard Pilgrim Health Care (HPHC) beginning in 2024), all of which provide fully insured policies or service contracts.
The COVID Relief Programs created various programs and incentives to assist businesses and individuals managing through the COVID-19 pandemic. Certain of these programs and incentives have required us to make changes to our systems that manage leave, payroll and payroll-related tax calculation, and invoicing and collection of service fees, COBRA participation, and client reporting.
A number of governmental programs and incentives were created to assist businesses and individuals during the COVID-19 pandemic. Certain of these programs and incentives have required us to make changes to our systems that manage leave, payroll and payroll-related tax calculation, invoicing and collection of service fees, COBRA participation, and client reporting.
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.
Our average number of WSEEs per month in our middle market sector in 2023 increased 10.5% from 2022, and the middle market sector as a percentage of our overall WSEE count also increased over this period, representing approximately 26.1% and 24.9% of our total average paid WSEEs during 2023 and 2022, respectively.
During the same three-year period, our gross profit per WSEE and operating income per WSEE exceeded industry averages by 144% and 223%, respectively. Competition in the PEO industry revolves primarily around quality of services, scope of services, choice and quality of benefits packages, reputation, and price.
During the same three-year period, our gross profit per WSEE and operating income per WSEE exceeded industry averages by 142% and 208%, respectively. 13 2023 Form 10-K BUSINESS Competition in the PEO industry revolves primarily around quality of services, scope of services, choice and quality of benefits packages, reputation, and price.
As macroeconomic conditions improved throughout 2022 and 2021, the labor market tightened, resulting in increased employee turnover and skilled labor shortages.
As macroeconomic conditions improved from 2021 through 2023, the labor market tightened, resulting in increased employee turnover and skilled labor shortages.
The elimination of the penalty associated with the individual mandate and 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 the Act as has been advocated by some Congressional leaders.
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.
We accomplish the objectives of our PEO HR Outsourcing Solutions through a “high-touch/high-tech” approach to service delivery. In advisory areas, such as recruiting, employee performance management and employee training, we employ a high-touch approach designed to ensure that our clients receive the personal attention and expertise needed to create a customized human resources solution.
In advisory areas, such as recruiting, employee performance management and employee training, we employ a high-touch approach designed to ensure that our clients receive the personal attention and expertise needed to create a customized human resources solution.
By region, our revenue distribution for the year ended December 31, 2022, was as follows: 10 2022 Form 10-K BUSINESS Please read Note 1 to the Consolidated Financial Statements, “ Accounting Policies ,” for additional information related to the change in revenues by region.
We serve clients and WSEEs located throughout the United States. 10 2023 Form 10-K BUSINESS By region, our revenue distribution for the year ended December 31, 2023, was as follows: Please read Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information related to the change in revenues by region.
We offer numerous programs and benefits in furtherance of our human capital management objective, including: competitive compensation and benefits; corporate 401(k) retirement plan with a matching component; employee stock purchase program; leadership development programs; the Insperity MVP (Mission Values Performance) employee recognition program; flexible remote working arrangements; and employee benevolence programs to provide additional assistance to corporate employees in times of need.
We offer numerous programs and benefits in furtherance of our human capital management objective, including: competitive compensation and benefits; corporate 401(k) retirement plan with a matching component; employee stock purchase program; leadership development programs; the Insperity MVP (Mission Values Performance) employee recognition program; flexible remote working arrangements; and employee benevolence programs to provide additional assistance to corporate employees in times of need. 17 2023 Form 10-K BUSINESS We monitor and evaluate the effectiveness of our human capital management efforts by seeking formal and informal feedback from our corporate employees, including periodic surveys of our corporate employees to obtain their opinions on key topics.
The Chubb Program is a fully insured program whereby Chubb has the responsibility to pay all claims incurred under the policies regardless of whether we satisfy our responsibilities. The current workers’ compensation coverage with Chubb expires on September 30, 2023.
The Chubb Program is a fully insured program whereby Chubb has the responsibility to pay all claims incurred under the policies regardless of whether we satisfy our responsibilities. The current workers’ compensation coverage with Chubb expires on September 30, 2024. In the event we are unable to secure replacement coverage on competitive terms, significant disruption to our business could occur.
In addition, various states and localities and the federal government may enact further legislation that may require further changes to our processes and systems or that may expand the coverage afforded to WSEEs under our health and workers’ compensation programs.
In addition, further legislation may be enacted at the federal, state or local level that may require further changes to our processes and systems or that may expand the coverage afforded to WSEEs under our health and workers’ compensation insurance programs.
The common law test of employment, as applied by the IRS, involves an examination of approximately 20 factors to ascertain whether an employment relationship exists between a worker and a purported employer.
In addition, the officers of a corporation are deemed to be employees of that corporation for federal employment tax purposes. The common law test of employment, as applied by the IRS, involves an examination of approximately 20 factors to ascertain whether an employment relationship exists between a worker and a purported employer.
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: • incur additional indebtedness, • sell material assets, • retire, redeem or otherwise reacquire our capital stock, • acquire the capital stock or assets of another business, • enter into new lines of business, • make investments, and • pay dividends.
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. 20 2023 Form 10-K RISK FACTORS 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: • incur additional indebtedness, • sell material assets, • retire, redeem or otherwise reacquire our capital stock, • acquire the capital stock or assets of another business, • enter into new lines of business, • make investments, and • pay dividends.
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.
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. 11 2023 Form 10-K BUSINESS Our PEO HR Outsourcing Solutions client base is broadly distributed throughout a wide variety of industries as follows: This diverse client base lowers our exposure to downturns or volatility in any particular industry.
The spread of the COVID-19 virus has changed, and future pandemics may change further, how and when we incur health insurance costs under our health insurance contract with United. We have experienced, and may continue to experience, changes in quarterly levels and timing of both medical and pharmaceutical health insurance claims and processing payment patterns.
Additionally, future pandemics may change how and when we incur health insurance costs under our health insurance contract with United, such as changes in quarterly levels and timing of both medical and pharmaceutical health insurance claims and processing payment patterns.
An overall or prolonged labor shortage, increased turnover, or labor inflation could have a material adverse impact on our growth plans, client service delivery, results of operations and financial condition. Inflation may reduce our profitability. Inflationary pressure could adversely impact our profitability. Our operating costs have increased, and may continue to increase, due to the recent growth in inflation.
An overall or prolonged labor shortage, increased turnover, or labor inflation could have a material adverse impact on our growth plans, client service delivery, results of operations and financial condition.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Workers’ Compensation Costs .” Information Technology 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. 13 2022 Form 10-K BUSINESS 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.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Workers’ Compensation Costs .” Information Technology 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.
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.
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.
In order to qualify for favorable tax treatment under the Code, employee benefit plans must be established and maintained by an employer for the exclusive benefit of its employees.
In order to qualify for favorable tax treatment under the Code, employee benefit plans must be established and maintained by an employer for the exclusive benefit of its employees. Generally, an entity is an “employer” of individuals for federal employment tax purposes if an employment relationship exists between the entity and the individuals under the common law test of employment.
The spread of the COVID-19 virus has created significant volatility, uncertainty and economic disruption, including actions taken by businesses and governments in response to the pandemic that have resulted or could result in a significant reduction in commercial activity.
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.
We believe that our trademarks as a whole are of considerable importance to our business. 17 2022 Form 10-K RISK FACTORS Item 1A. Risk Factors. The statements in this section describe the known material risks to our business and should be considered carefully. Economic Risks Adverse economic conditions could negatively affect our industry, business, and results of operations.
Intellectual Property Insperity currently has registered trademarks, copyrights and other intellectual property. We believe that our trademarks as a whole are of considerable importance to our business. 18 2023 Form 10-K RISK FACTORS Item 1A. Risk Factors. The statements in this section describe the known material risks to our business and should be considered carefully.
The remote work environment that was implemented during the pandemic also has had an impact on the expectations of our employees and, as a result, many of our departments have now switched to a “hybrid” mode in which remote work is permitted one or more days per week.
In addition, following the remote work environment that we implemented during the COVID-19 pandemic and a resulting shift in the expectations of our employees, many of our departments have now switched to a “hybrid” mode in which remote work is permitted one or more days per week. These changes may impact productivity or have other material impacts on our operations.
In addition, PEO clients are dependent on the PEO to process Employee Retention Tax Credits (“ERC”) on a consolidated basis, including amending previously filed payroll tax forms with the IRS. The IRS has experienced significant backlogs of amended tax forms from employers seeking ERC refunds.
Further, PEO clients are dependent on their PEO to process Employee Retention Tax Credits (“ERC”) on a consolidated basis, including through amending previously filed payroll tax forms with the IRS.
We focus heavily on client retention. 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%.
For all PEO HR Outsourcing Solutions clients, the average annual retention rate over the last five years was approximately 85%.
We charge a comprehensive service fee (“comprehensive service fee” or “gross billing”), which is invoiced concurrently with the processing of payroll 2 2022 Form 10-K BUSINESS 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.
We charge a comprehensive service fee (“comprehensive service fee” or “gross billing”), which is invoiced concurrently with the processing of payroll for the WSEEs of the client.
Our ability to sponsor these plans, to have them governed by ERISA, and to receive favorable tax treatment under the Code is dependent on our status as “employer” of the WSEEs. Employer status is determined under various rules, regulations, and interpretations. While we believe that we qualify as employer under applicable laws, please read Item 1.A.
We are the sponsor of the employee benefit plans that we offer to eligible WSEEs. Our plans are governed by ERISA and the Code. Our ability to sponsor these plans, to have them governed by ERISA, and to receive favorable tax treatment under the Code is dependent on our status as “employer” of the WSEEs.
In addition, supporters in various states are advocating for adoption of health care-related reforms at the state level, including those states that have enacted individual mandates. Collectively, these items have the potential to significantly change the insurance marketplace for small and medium-sized businesses and how employers provide insurance to employees.
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. Additionally, guidance by the IRS and the U.S.
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. 12 2022 Form 10-K BUSINESS Competition 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.
Competition 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.
All of Insperity’s 401(k) Retirement Plans have received determination letters from the IRS confirming the qualified status of the plans. 15 2022 Form 10-K BUSINESS Employment Taxes As a co-employer, Insperity generally assumes responsibility and liability for the payment of federal and state employment taxes with respect to wages and salaries paid to our WSEEs.
Employment Taxes As a co-employer, Insperity generally assumes responsibility and liability for the payment of federal and state employment taxes with respect to wages and salaries paid to our WSEEs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdjusted EPS Represents diluted net income per share computed in accordance with GAAP, excluding: • non-cash stock based compensation. 50 2022 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): Year Ended December 31, (in thousands, except per WSEE per month) 2022 2021 2020 Per WSEE Per WSEE Per WSEE Payroll cost $ 34,188,092 $ 9,657 $ 28,345,623 $ 9,420 $ 23,881,607 $ 8,497 Less: Bonus payroll cost 4,959,987 1,401 4,719,217 1,568 3,238,284 1,152 Non-bonus payroll cost $ 29,228,105 $ 8,256 $ 23,626,406 $ 7,852 $ 20,643,323 $ 7,345 % Change year over year 23.7 % 5.1 % 14.5 % 6.9 % 3.1 % 3.7 % Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP): (in thousands, except per WSEE per month) Year Ended December 31, 2022 2021 2020 Per WSEE Per WSEE Per WSEE Net income $ 179,350 $ 51 $ 124,080 $ 41 $ 138,237 $ 49 Income tax expense 66,075 19 44,238 15 51,033 19 Interest expense 14,207 4 7,458 2 8,016 3 Amortization of SaaS implementation costs 1,923 1 — — — — Depreciation and amortization 40,660 11 38,547 13 31,189 11 EBITDA 302,215 86 214,323 71 228,475 82 Stock-based compensation 50,080 14 40,623 14 60,145 21 Adjusted EBITDA $ 352,295 $ 100 $ 254,946 $ 85 $ 288,620 $ 103 % Change year over year 38.2 % 17.6 % (11.7) % (17.5) % 15.4 % 17.0 % Following is a reconciliation of cash, cash equivalents and marketable securities (GAAP) to adjusted cash, cash equivalents and marketable securities (non-GAAP): December 31, (in thousands) 2022 2021 Cash, cash equivalents and marketable securities $ 765,896 $ 607,603 Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions 504,817 424,800 Client prepayments 36,800 20,054 Adjusted cash, cash equivalents and marketable securities $ 224,279 $ 162,749 51 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP): Year Ended December 31, (in thousands) 2022 2021 2020 Net income $ 179,350 $ 124,080 $ 138,237 Non-GAAP adjustments: Stock-based compensation 50,080 40,623 60,145 Tax effect of non-GAAP adjustments (13,483) (10,677) (17,068) Total non-GAAP adjustments, net 36,597 29,946 43,077 Adjusted net income $ 215,947 $ 154,026 $ 181,314 % Change year over year 40.2 % (15.1) % 7.0 % Following is a reconciliation of diluted EPS (GAAP) to adjusted EPS (non-GAAP): Year Ended December 31, (amounts per share) 2022 2021 2020 Diluted EPS $ 4.64 $ 3.18 $ 3.54 Non-GAAP adjustments: Stock-based compensation 1.30 1.04 1.54 Tax effect of non-GAAP adjustments (0.35) (0.27) (0.44) Total non-GAAP adjustments, net 0.95 0.77 1.10 Adjusted EPS $ 5.59 $ 3.95 $ 4.64 % Change year over year 41.5 % (14.9) % 11.8 % Liquidity and Capital Resources We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, stock repurchases, potential acquisitions, debt service requirements and other operating cash needs.
Biggest changeFollowing is a reconciliation of payroll cost (GAAP) to non-bonus payroll costs (non-GAAP): (in thousands, except per WSEE per month) Year Ended December 31, 2023 2022 2021 Per WSEE Per WSEE Per WSEE Payroll cost $ 36,655,495 $ 9,787 $ 34,188,092 $ 9,657 $ 28,345,623 $ 9,420 Less: Bonus payroll cost 4,978,439 1,329 4,959,987 1,401 4,719,217 1,568 Non-bonus payroll cost $ 31,677,056 $ 8,458 $ 29,228,105 $ 8,256 $ 23,626,406 $ 7,852 % Change year over year 8.4 % 2.4 % 23.7 % 5.1 % 14.5 % 6.9 % 54 2023 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): (in thousands) December 31, 2023 December 31, 2022 Cash, cash equivalents and marketable securities $ 708,778 $ 765,896 Less: Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions 510,092 504,817 Client prepayments 27,592 36,800 Adjusted cash, cash equivalents and marketable securities $ 171,094 $ 224,279 Following is a reconciliation of net income (GAAP) to EBITDA (non-GAAP) and adjusted EBITDA (non-GAAP): Year Ended December 31, (in thousands, except per WSEE per month) 2023 2022 2021 Per WSEE Per WSEE Per WSEE Net income $ 171,382 $ 46 $ 179,350 $ 51 $ 124,080 $ 41 Income tax expense 53,696 14 66,075 19 44,238 15 Interest expense 27,137 7 14,207 4 7,458 2 Amortization of SaaS implementation costs 5,711 2 1,923 1 — — Depreciation and amortization 42,708 11 40,660 11 38,547 13 EBITDA 300,634 80 302,215 86 214,323 71 Stock-based compensation 52,996 14 50,080 14 40,623 14 Adjusted EBITDA $ 353,630 $ 94 $ 352,295 $ 100 $ 254,946 $ 85 % Change year over year 0.4 % (6.0) % 38.2 % 17.6 % (11.7) % (17.5) % Following is a reconciliation of net income (GAAP) to adjusted net income (non-GAAP): Year Ended December 31, (in thousands) 2023 2022 2021 Net income $ 171,382 $ 179,350 $ 124,080 Non-GAAP adjustments: Stock-based compensation 52,996 50,080 40,623 Tax effect (12,643) (13,483) (10,677) Total non-GAAP adjustments, net 40,353 36,597 29,946 Adjusted net income $ 211,735 $ 215,947 $ 154,026 % Change year over year (2.0) % 40.2 % (15.1) % 55 2023 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): Year Ended December 31, (amounts per share) 2023 2022 2021 Diluted EPS $ 4.47 $ 4.64 $ 3.18 Non-GAAP adjustments: Stock-based compensation 1.38 1.30 1.04 Tax effect (0.33) (0.35) (0.27) Total non-GAAP adjustments, net 1.05 0.95 0.77 Adjusted EPS $ 5.52 $ 5.59 $ 3.95 % Change year over year (1.3) % 41.5 % (14.9) % Liquidity and Capital Resources We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, stock repurchases, potential acquisitions, debt service requirements and other operating cash needs.
The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers, as well as an increase in the amount of sales channel referral fees paid during 2022. • Advertising expense increased 28.9% to $37.5 million, or $1 per WSEE per month, compared to 2021.
The increase was primarily due to commissions associated with our PEO HR Outsourcing Solutions, including a new incentive program for our BPAs and sales managers, as well as an increase in the amount of sales channel referral fees paid during 2022. • Advertising expense for 2022 increased 28.9% to $37.5 million, or $1 per WSEE per month, compared to 2021.
Therefore, changes in the participation level of the United plan have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are determined solely by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows.
Therefore, changes in the participation level of the United plan 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.
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 Operations.
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 and Comprehensive Income.
Please read Note 1 “ Accounting Policies ” and Note 7 “ Income Taxes ,” to the Consolidated Financial Statements for additional information. Non-GAAP Financial Measures Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies.
Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional information. Non-GAAP Financial Measures Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies.
Please read “—Critical Accounting Policies and Estimates—Benefits Costs” for a discussion of our accounting for health insurance costs.
Please read “ —Critical Accounting Policies and Estimates—Benefits Costs ” for a discussion of our accounting for health insurance costs.
Operating expenses remained flat on a per WSEE per month basis compared to 2021. • Salaries of corporate and sales staff increased 13.7% to $430.9 million, but decreased $4 on a per WSEE per month basis, compared to 2021 on a 17.7% increase in WSEEs paid per month.
Operating expenses remained flat on a per WSEE per month basis compared to 2021. • Salaries of corporate and sales staff for 2022 increased 13.7% to $430.9 million, but decreased $4 on a per WSEE per month basis, compared to 2021 on a 17.7% increase in WSEEs paid per month.
In 2022, the increase in other income was due to an increase in interest income on our marketable securities investments and workers’ compensation deposits, which was offset by an increase in interest expense related to higher average interest rates on borrowings under our credit facility.
In 2023 and 2022, 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.
The increase was primarily due to increased travel, event and software licensing costs. • Depreciation and amortization expense increased 5.5% to $40.7 million, but decreased $2 on a per WSEE per month basis, compared to 2021.
The increase was primarily due to increased travel, event and software licensing costs. • Depreciation and amortization expense for 2022 increased 5.5% to $40.7 million, but decreased $2 on a per WSEE per month basis, compared to 2021.
As this amount is less than the agreed-upon $9.0 million surplus maintenance level, the $5.3 million difference is included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets.
As this amount is less than the agreed-upon $9.0 million surplus maintenance level, the $32.5 million difference is included in accrued health insurance costs, a current liability, in our Consolidated Balance Sheets.
The percentage of total PEO HR Outsourcing Solutions revenues in our significant markets include the following: Significant Markets 45 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Gross Profit In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin.
The percentage of total PEO HR Outsourcing Solutions revenues in our significant markets include the following: Significant Markets 48 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Gross Profit In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin.
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 Operations.
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 and Comprehensive Income.
We believe the following accounting policies are critical and/or require significant 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 Tufts, all of which provide fully insured policies or service contracts.
We believe the following accounting policies are critical and/or require significant 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 Tufts (known as Harvard Pilgrim Health Care (HPHC) beginning in 2024), all of which provide fully insured policies or service contracts.
For further information related to our health insurance costs, please read “—Critical Accounting Policies and Estimates—Benefits Costs.” We believe the effects of inflation have not had a significant impact on our results of operations or financial condition, however, inflationary pressure could adversely impact our profitability in the future. 54 2022 Form 10-K QUANTITIVE AND QUALITATIVE DISCLOSURES
For further information related to our health insurance costs, please read “—Critical Accounting Policies and Estimates—Benefits Costs.” We believe the effects of inflation have not had a significant impact on our results of operations or financial condition; however, inflationary pressure could adversely impact our profitability in the future. 57 2023 Form 10-K QUANTITATIVE AND QUALITATIVE DISCLOSURES
Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires a significant level of judgment.
Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires judgment.
In addition, the premiums owed to United at December 31, 2022, were $46.4 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. We believe that recent claim development patterns are representative of incurred but not reported claims costs during the reporting period.
In addition, the premiums owed to United at December 31, 2023, were $6.5 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. We believe that recent claim development patterns are representative of incurred but not reported claims costs during the reporting period.
Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the years ended December 31, 2022 and 2021, we reduced accrued workers’ compensation costs by $42.2 million and $41.7 million, respectively, for changes in estimated losses related to prior reporting periods.
Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the years ended December 31, 2023 and 2022, we reduced accrued workers’ compensation costs by $33.5 million and $42.2 million, respectively, for changes in estimated losses related to prior reporting periods.
Commissions are based on new accounts sold and a percentage of revenue generated by such personnel. • Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets, including the Insperity Invitational™ presented by UnitedHealthcare® sponsorship. • General and administrative expenses — Our general and administrative expenses primarily include: ◦ rent expenses related to our service centers and sales offices ◦ outside professional service fees related to legal, consulting and accounting services ◦ administrative costs, such as postage, printing and supplies ◦ employee travel and training expenses 39 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ◦ facility costs, including repairs and maintenance ◦ technology costs, including software-as-a-service (“SaaS”) subscription costs and amortization of SaaS implementation costs • 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.
Commissions are based on new accounts sold and a percentage of revenue generated by such personnel. • Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets, including the Insperity Invitational™ presented by UnitedHealthcare® sponsorship. • General and administrative expenses — Our general and administrative expenses primarily include: ◦ rent expenses related to our service centers and sales offices ◦ outside professional service fees related to legal, consulting and accounting services ◦ administrative costs, such as postage, printing and supplies ◦ employee travel and training expenses ◦ facility costs, including repairs and maintenance ◦ technology costs, including software-as-a-service (“SaaS”) subscription costs and amortization of SaaS implementation costs • 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.
The terms of the arrangement with United require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. As of December 31, 2022, Plan Costs were more than the net premiums paid and owed to United by $3.7 million.
The terms of the arrangement with United require us to maintain an accumulated cash surplus in the plan of $9.0 million, which is reported as long-term prepaid insurance. As of December 31, 2023, Plan Costs were more than the net premiums paid and owed to United by $23.5 million.
The primary direct cost components changed as follows: Benefits costs • The cost of group health insurance and related employee benefits decreased $9 per WSEE per month, but increased 1.2% on a per covered employee basis. • The percentage of WSEEs covered under our health insurance plan was 65.4% in 2022 and 67.0% in 2021. • Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $12.1 million, or $3 per WSEE per month, in 2022 compared to an increase in costs of $4.9 million, or $2 per WSEE per month, in 2021.
The $12 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows: Benefits costs • The cost of group health insurance and related employee benefits decreased $9 per WSEE per month, but increased 1.2% on a per covered employee basis. • The percentage of WSEEs covered under our health insurance plans was 65.4% in 2022 compared to 67.0% in 2021. • Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $12.1 million, or $3 per WSEE per month, in 2022 compared to an increase in costs of $4.9 million, or $2 per WSEE per month, in 2021.
The $5.3 million difference is therefore reflected as a current liability and $9.0 million is reflected as a long-term asset on our Consolidated Balance Sheets at December 31, 2022.
The $32.5 million difference is therefore reflected as a current liability and $9.0 million is reflected as a long-term asset on our Consolidated Balance Sheets at December 31, 2023.
In addition, the premiums owed to United at December 31, 2022, were $46.4 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. • Operating results — Our adjusted net income has a significant impact on our operating cash flows.
In addition, the premiums owed to United at December 31, 2023, were $6.5 million, which is included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. • Operating results — Our adjusted net income has a significant impact on our operating cash flows.
Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays and at month-end; therefore, operating cash flows decrease in the reporting periods that end on a Friday.
Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday.
As of December 31, 2022, Plan Costs were more than the net premiums paid and owed to United by $3.7 million, which is $5.3 million less than our agreed-upon $9.0 million surplus maintenance level.
As of December 31, 2023, Plan Costs were more than the net premiums paid and owed to United by $23.5 million, which is $32.5 million less than our agreed-upon $9.0 million surplus maintenance level.
As a result, our gross profit per WSEE and our operating results are significantly impacted by our ability to accurately estimate, control and manage our direct costs relative to the revenues derived from the markup component of our gross billings.
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.
Gross Profit and Year-over-Year Growth Percentage (in thousands) Gross Profit per WSEE per Month and Year-over-Year Growth Percentage 2022 Compared to 2021 Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses. Our revenues per WSEE per month increased $25 due to higher average pricing.
Gross Profit and Year-over-Year Growth Percentage (in thousands) Gross Profit per WSEE per Month and Year-over-Year Growth Percentage (per WSEE per month) 2023 Compared to 2022 Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses.
Operating Expenses 2022 Compared to 2021 The following table presents certain information related to our operating expenses: Year Ended December 31, per WSEE (in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change Salaries $ 430,945 $ 379,171 13.7 % $ 122 $ 126 (3.2) % Stock-based compensation 50,080 40,623 23.3 % 14 14 — Commissions 45,672 34,922 30.8 % 13 12 8.3 % Advertising 37,503 29,097 28.9 % 11 10 10.0 % General and administrative 156,134 124,413 25.5 % 44 40 10.0 % Depreciation and amortization 40,660 38,547 5.5 % 11 13 (15.4) % Total operating expenses $ 760,994 $ 646,773 17.7 % $ 215 $ 215 — Operating expenses for 2022 increased 17.7% to $761.0 million compared to $646.8 million in 2021.
The increase was primarily due to increased capital expenditures related to computer hardware and software and software development costs. 52 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2022 Compared to 2021 The following table presents certain information related to our operating expenses: Year Ended December 31, per WSEE (in thousands, except per WSEE) 2022 2021 % Change 2022 2021 % Change Salaries $ 430,945 $ 379,171 13.7 % $ 122 $ 126 (3.2) % Stock-based compensation 50,080 40,623 23.3 % 14 14 — Commissions 45,672 34,922 30.8 % 13 12 8.3 % Advertising 37,503 29,097 28.9 % 11 10 10.0 % General and administrative 156,134 124,413 25.5 % 44 40 10.0 % Depreciation and amortization 40,660 38,547 5.5 % 11 13 (15.4) % Total operating expenses $ 760,994 $ 646,773 17.7 % $ 215 $ 215 — Operating expenses for 2022 increased 17.7% to $761.0 million compared to $646.8 million in 2021.
(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: 43 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, (per WSEE per month) 2022 2021 2020 Gross billings $ 11,335 $ 11,073 $ 10,022 Less: WSEE payroll cost 9,657 9,420 8,497 Revenues $ 1,678 $ 1,653 $ 1,525 Key Operating Metrics We monitor certain key metrics to measure our performance, including: • WSEEs • Adjusted EBITDA • Adjusted EPS Our growth in the number of WSEEs paid is affected by three primary sources: new client sales, client retention and the net change in existing clients through WSEE new hires and terminations. • During 2022, the average number of WSEEs paid from new client sales increased 16.4% from 2021.
(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: Year Ended December 31, (per WSEE per month) 2023 2022 2021 Gross billings $ 11,519 $ 11,335 $ 11,073 Less: WSEE payroll cost 9,787 9,657 9,420 Revenues $ 1,732 $ 1,678 $ 1,653 46 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Key Operating Metrics We monitor certain key metrics to measure our performance, including: • WSEEs • Adjusted EBITDA • Adjusted EPS Our growth in the number of WSEEs paid is affected by three primary sources: new client sales, client retention and the net change in WSEEs paid at existing clients through new hires and employee terminations. • During 2023, the average number of WSEEs paid from new client sales and the net gain (loss) in our client base declined compared to 2022.
The following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers’ compensation costs totaling $66.1 million in 2022: Change in Loss Development Rate Change in Workers’ Compensation Costs (in thousands) Change in Net Income (in thousands) (5.0)% $ (4,006) $ 2,929 (2.5)% (2,003) 1,464 2.5% 2,003 (1,464) 5.0% 4,006 (2,929) At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”).
The following table illustrates the sensitivity of changes in the loss development rate on our estimate of workers’ compensation costs totaling $74.1 million in 2023: Change in Loss Development Rate Change in Workers’ Compensation Costs (in thousands) Change in Net Income (in thousands) (5.0)% $ (3,926) $ 2,987 (2.5)% (1,963) 1,494 2.5% 1,963 (1,494) 5.0% 3,926 (2,987) At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”).
To meet short-term liquidity requirements, which are primarily the payment of direct costs and operating expenses, we rely primarily on cash from operations. Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity. We have a $650 million revolving credit facility (“Facility”) with a syndicate of financial institutions.
To meet short-term liquidity requirements, which are primarily the payment of direct costs and operating expenses, we rely primarily on cash from operations. Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity.
Significant items resulting in deferred income taxes include prepaid assets, accruals for workers’ compensation expenses, stock-based compensation, software development costs, accrued incentive compensation, operating lease assets and liabilities and depreciation. Changes in these items are reflected in our financial statements through a deferred income tax provision.
Significant items resulting in deferred income taxes include prepaid assets, accruals for workers’ compensation expenses, stock-based compensation, software development costs, accrued incentive compensation, operating lease assets and liabilities and depreciation. Changes in these items are reflected in our financial statements through a deferred income tax provision. Please read Note 7 to the Consolidated Financial Statements, “Income Taxes,” for additional information.
We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level. Operating Expenses • Salaries, wages and payroll taxes — Salaries, wages and payroll taxes (“Salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional cash incentive compensation.
We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level. 41 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Expenses • Salaries, wages and payroll taxes — Salaries, wages and payroll taxes (“salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional cash incentive compensation.
The increase was primarily due to a 7.9% increase in corporate headcount, as well as higher incentive compensation accruals in 2022. • Stock-based compensation increased 23.3% to $50.1 million, but remained flat on a per WSEE per month basis, compared to 2021. The increase was primarily due to awards issued under our long-term incentive and restricted stock programs.
The increase was primarily due to a 7.9% increase in corporate headcount, as well as higher incentive compensation accruals in 2022. • Stock-based compensation expense for 2022 increased 23.3% to $50.1 million, but remained flat on a per WSEE per month basis, compared to 2021.
Please read “—Critical Accounting Policies and Estimates—Benefits Costs” for a discussion of our accounting for health insurance costs. 46 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Workers’ compensation costs Our continued discipline around our client selection, safety and claims management contributed to the reduction 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 costs estimates. • Workers’ compensation costs decreased 4.1%, or $4 per WSEE per month, in 2022 compared to 2021. • As a percentage of non-bonus payroll cost, workers’ compensation costs in 2022 were 0.23% compared to 0.29% in 2021. • As a result of closing out claims incurred in prior periods at lower than expected costs, we recorded a reduction in workers’ compensation costs of $42.2 million, or 0.14% of non-bonus payroll costs, in 2022 compared to a reduction of $41.7 million, or 0.18% of non-bonus payroll costs, in 2021.
Workers’ compensation costs Our continued discipline around our client selection, safety and claims management contributed to the reduction 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. • Workers’ compensation costs decreased 4.1%, or $4 per WSEE per month, in 2022 compared to 2021. • As a percentage of non-bonus payroll cost, workers’ compensation costs in 2022 were 0.23% compared to 0.29% in 2021. • As a result of closing out claims incurred in prior periods at lower than expected costs, we recorded a reduction in workers’ compensation costs of $42.2 million, or 0.14% of non-bonus payroll costs, in 2022 compared to a reduction of $41.7 million, or 0.18% of non-bonus payroll costs, in 2021.
Payroll tax costs • Payroll taxes increased 23.0% on a 20.6% increase in payroll costs, or $27 per WSEE per month. • Payroll taxes as a percentage of payroll cost increased to 6.4% in 2022 compared to 6.3% in 2021. 2021 Compared to 2020 The net increase in direct costs between 2021 and 2020 attributable to changes in cost estimates for benefits and workers’ compensation totaled $5.5 million as discussed below.
Payroll tax costs • Payroll taxes increased 8.9% on a 7.2% increase in payroll costs, or $18 per WSEE per month. • Payroll taxes as a percentage of payroll costs increased to 6.5% in 2023 compared to 6.4% in 2022. 2022 Compared to 2021 The net increase in direct costs between 2022 and 2021 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $6.7 million as discussed below.
Because our total markup is computed as a percentage of payroll 38 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
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 2022 period costs include the impact of a 2.9% discount rate used to accrue workers’ compensation loss claims, compared to a 0.6% discount rate used in the 2021 period. Please read “—Critical Accounting Policies and Estimates—Workers’ Compensation Costs” for a discussion of our accounting for workers’ compensation costs.
The 2022 period costs include the impact of a 2.9% discount rate used to accrue workers’ compensation loss claims, compared to a 0.6% discount rate used in the 2021 period. 50 2023 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.
We had $765.9 million in cash, cash equivalents and marketable securities at December 31, 2022, of which approximately $504.8 million was payable in early January 2023 for withheld federal and state income taxes, employment taxes and other payroll deductions, and $36.8 million were client prepayments that were payable in January 2023.
We had $708.8 million in cash, cash equivalents and marketable securities at December 31, 2023, of which approximately $510.1 million was payable in early January 2024 for withheld federal and state income taxes, employment taxes and other payroll deductions, and approximately $27.6 million represented client prepayments that were payable in January 2024.
Average client retention improved from 82% in 2021 to 85% in 2022, while the net gain in our client base continued, although at lower levels than 2021, a period when many clients were rehiring employees as the pandemic conditions improved. • During 2021, the average number of WSEEs paid from new client sales increased 8.8% from 2020.
Average client retention improved from 82% in 2021 to 85% in 2022, while the net gain in our client base continued, at higher than historical levels, although lower than 2021, a period when many clients were rehiring employees as the pandemic conditions improved.
As a result, the gross profit contribution from payroll taxes is typically higher in the first two quarters and declines in the latter 53 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS half of each year. These historical trends may change and other seasonal trends may develop in the future.
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.
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 $0.2 million, $2.6 million and $2.1 million, in 2022, 2021 and 2020, respectively.
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 53 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS excess tax benefits associated with the vesting of equity compensation of $4.9 million, $0.2 million and $2.6 million, in 2023, 2022 and 2021, respectively.
The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs. 48 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • General and administrative expenses increased 25.5% to $156.1 million, or $4 per WSEE per month, compared to 2021.
The increase was primarily due to increases in radio, print and digital advertising and sponsorship costs. • General and administrative expenses for 2022 increased 25.5% to $156.1 million, or $4 per WSEE per month, compared to 2021.
Please read Note 7 to the Consolidated Financial statements, “ Income Taxes ,” for additional information. Critical Accounting Policies and Estimates 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.
Critical Accounting Policies and Estimates 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.
In 2021, the decrease in interest expense was due to a decrease in the average interest rate. Please read Note 2 to the Consolidated Financial Statements, “ Other Balance Sheet Information ,” for additional information. Income Tax Expense Our effective income tax rate was 26.9% in 2022, 26.3% in 2021 and 27.0% in 2020.
Please read Note 2 to the Consolidated Financial Statements, “Other Balance Sheet Information,” for additional information. Income Tax Expense Our effective income tax rate was 23.9% in 2023, 26.9% in 2022 and 26.3% in 2021.
The increase was primarily due to the completion of a new facility on our corporate campus and increased capital expenditures related to software development costs. 49 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other Income (Expense) Other income (expense) was a net expense of $4.8 million, $5.0 million, and $5.4 million in 2022, 2021 and 2020, respectively.
The increase was primarily due to the completion of a new facility on our corporate campus during 2021 and increased capital expenditures related to software development costs. Other Income (Expense) Other income (expense) was a net income of $6.5 million in 2023 and net expense of $4.8 million and $5.0 million in 2022 and 2021, respectively.
If the Plan Costs for 40 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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.
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.
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.
The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and 42 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS expenses, and related disclosure of contingent assets and liabilities.
These other products or services generally are offered only with our other solutions. 2022 Highlights • Average number of WSEEs paid per month increased 17.7% to 295,005.
These other products or services generally are offered only with our other solutions. 2023 Highlights • Average number of WSEEs paid per month increased 5.8% to 312,102.
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 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.
Results of Operations The following table summarizes our key financial and statistical information related to our results of operations: (in thousands, except per share and statistical data) Year Ended December 31, % Change 2022 2021 2020 2022 v 2021 2021 v 2020 Financial data: Revenues (1) $ 5,938,818 $ 4,973,070 $ 4,287,004 19.4 % 16.0 % Gross profit 1,011,233 820,102 806,854 23.3 % 1.6 % Operating expenses 760,994 646,773 612,165 17.7 % 5.7 % Operating income 250,239 173,329 194,689 44.4 % (11.0) % Other income (expense) (4,814) (5,011) (5,419) (3.9) % (7.5) % Net income 179,350 124,080 138,237 44.5 % (10.2) % Diluted EPS 4.64 3.18 3.54 45.9 % (10.2) % Non-GAAP financial measures (2) : Adjusted net income $ 215,947 $ 154,026 $ 181,314 40.2 % (15.1) % Adjusted EBITDA 352,295 254,946 288,620 38.2 % (11.7) % Adjusted EPS 5.59 3.95 4.64 41.5 % (14.9) % Average WSEEs paid 295,005 250,745 234,223 17.7 % 7.1 % Statistical data (per WSEE per month) : Revenues (3) $ 1,678 $ 1,653 $ 1,525 1.5 % 8.4 % Gross profit 286 273 287 4.8 % (4.9) % Operating expenses 215 215 218 — (1.4) % Operating income 71 58 69 22.4 % (15.9) % Net income 51 41 49 24.4 % (16.3) % Adjusted EBITDA (2) 100 85 103 17.6 % (17.5) % ___________________________________ (1) Revenues are comprised of gross billings less WSEE payroll costs as follows: Year ended December 31, (in thousands) 2022 2021 2020 Gross billings $ 40,126,910 $ 33,318,693 $ 28,168,611 Less: WSEE payroll cost 34,188,092 28,345,623 23,881,607 Revenues $ 5,938,818 $ 4,973,070 $ 4,287,004 (2) Please read “—Non-GAAP Financial Measures” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP.
Please read Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information. 45 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Key Financial and Statistical Data (in thousands, except per share, WSEE, and statistical data) Year Ended December 31, % Change 2023 2022 2021 2023 v 2022 2022 v 2021 Financial data: Revenues (1) $ 6,485,871 $ 5,938,818 $ 4,973,070 9.2 % 19.4 % Gross profit 1,036,803 1,011,233 820,102 2.5 % 23.3 % Operating expenses 818,254 760,994 646,773 7.5 % 17.7 % Operating income 218,549 250,239 173,329 (12.7) % 44.4 % Other income (expense), net 6,529 (4,814) (5,011) 235.6 % (3.9) % Net income 171,382 179,350 124,080 (4.4) % 44.5 % Diluted EPS 4.47 4.64 3.18 (3.7) % 45.9 % Non-GAAP financial measures (2) : Adjusted net income $ 211,735 $ 215,947 $ 154,026 (2.0) % 40.2 % Adjusted EBITDA 353,630 352,295 254,946 0.4 % 38.2 % Adjusted EPS 5.52 5.59 3.95 (1.3) % 41.5 % Average WSEEs paid 312,102 295,005 250,745 5.8 % 17.7 % Statistical data (per WSEE per month) : Revenues (3) $ 1,732 $ 1,678 $ 1,653 3.2 % 1.5 % Gross profit 277 286 273 (3.1) % 4.8 % Operating expenses 219 215 215 1.9 % — Operating income 58 71 58 (18.3) % 22.4 % Net income 46 51 41 (9.8) % 24.4 % Adjusted EBITDA (2) 94 100 85 (6.0) % 17.6 % ____________________________________ (1) Revenues are comprised of gross billings less WSEE payroll costs as follows: Year Ended December 31, (in thousands) 2023 2022 2021 Gross billings $ 43,141,366 $ 40,126,910 $ 33,318,693 Less: WSEE payroll cost 36,655,495 34,188,092 28,345,623 Revenues $ 6,485,871 $ 5,938,818 $ 4,973,070 (2) Please read “ Non-GAAP Financial Measures ” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP.
In 2022, we received $30.2 million for the return of excess claim funds related to the workers’ compensation program, which decreased deposits. As of December 31, 2022, we had restricted cash of $49.8 million and deposits of $196.4 million. We have estimated and accrued $229.4 million in incurred workers’ compensation claim costs as of December 31, 2022.
In 2023, we received $46.3 million for the return of excess claim funds related to the workers’ compensation program, which decreased deposits – workers’ compensation. As of December 31, 2023, we had restricted cash of $57.4 million and deposits – workers’ compensation of $198.2 million.
In the year ended December 31, 2021, which ended on a Friday, client prepayments were $20.1 million and amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions was $424.8 million. • Workers’ compensation plan funding — In 2022 and 2021, we received $30.2 million and $35.1 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.
In the year ended December 31, 2022, the last business day of the reporting period was also a Friday, client prepayments were $36.8 million and employment taxes and other deductions were $504.8 million. • Workers’ compensation plan funding — During 2023 and 2022, we received $46.3 million and $30.2 million, respectively, for the return of excess claim funds related to the workers’ compensation program, which resulted in an increase in working capital. 56 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • 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.
Revenues increased 19.4% on the 17.7% WSEE growth and a 1.5% increase in revenue per WSEE. • We ended 2022 averaging 307,506 paid WSEEs in the fourth quarter of 2022, which represents a 14.3% increase over the fourth quarter of 2021.
Revenues increased 9.2% on the 5.8% WSEE growth and a 3.2% increase in revenue per WSEE. • We ended 2023 averaging 315,072 paid WSEEs in the fourth quarter of 2023, which represents a 2.5% increase over the fourth quarter of 2022.
On a per WSEE per month basis, operating expenses remained flat at $215 in both 2021 and 2022. • Net income and diluted earnings per share (“Diluted EPS”) increased 44.5% to $179.4 million and 45.9% to $4.64, respectively. • Adjusted EBITDA increased 38.2% to $352.3 million. 37 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Adjusted net income increased 40.2% to $215.9 million. • Adjusted EPS increased 41.5% to $5.59. • Our adjusted EBITDA per WSEE per month increased 17.6% from $85 in 2021 to $100 in 2022. • We ended 2022 with working capital of $158.5 million. • During 2022, we paid $76.6 million in dividends, repurchased approximately 770,000 shares of our common stock at a cost of $73.3 million and paid $30.4 million in capital expenditures.
On a per WSEE per month basis, operating expenses increased from $215 in 2022 to $219 in 2023. • Net income and diluted earnings per share (“Diluted EPS”) decreased 4.4% and 3.7% to $171.4 million and $4.47, respectively. • Adjusted EBITDA increased 0.4% to $353.6 million. 40 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • Adjusted net income decreased 2.0% to $211.7 million. • Adjusted EPS decreased 1.3% to $5.52. • Our adjusted EBITDA per WSEE per month decreased 6.0% from $100 in 2022 to $94 in 2023. • We ended 2023 with working capital of $159.0 million. • During 2023, we paid $84.2 million in dividends, repurchased approximately 1,259,000 shares of our common stock at a cost of $131.5 million and paid $40.1 million in capital expenditures.
Workers’ compensation costs Our continued discipline around our client selection, safety and claims management contributed to the reduction 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 costs estimates. • Workers’ compensation costs increased 4.7%, but remained flat on a per WSEE per month basis, in 2021 compared to 2020. 47 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS • As a percentage of non-bonus payroll cost, workers’ compensation costs in 2021 were 0.29% compared to 0.32% in 2020. • As a result of closing out claims incurred in prior periods at lower than expected costs, we recorded a reduction in workers’ compensation costs of $41.7 million, or 0.18% of non-bonus payroll costs, in 2021 compared to a reduction of $42.1 million, or 0.20% of non-bonus payroll costs, in 2020.
Please read “ — Critical Accounting Policies and Estimates — Benef its Costs ” for a discussion of our accounting for health insurance costs. 49 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. • Workers’ compensation costs increased 12.1%, or $1 per WSEE per month, in 2023 compared to 2022. • As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.23% in both 2023 and 2022. • We recorded a reduction in workers’ compensation costs of $33.5 million, or 0.11% of non-bonus payroll costs, in 2023 compared to a reduction of $42.2 million, or 0.14% of non-bonus payroll costs, in 2022, primarily as a result of closing out claims at lower than expected costs.
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. We invoice the gross billings concurrently with each periodic payroll of our WSEEs.
Revenues 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 primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our PEO HR Outsourcing Solutions clients. Cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts.
Our cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts.
Please read Note 1 “ Accounting Policies ” and Note 9 “ Incentive Plans ,” to the Consolidated Financial Statements for additional information. • Commissions expense increased 30.8% to $45.7 million, or $1 per WSEE per month, compared to 2021.
The increase was primarily due to awards issued under our long-term incentive and restricted stock unit programs. Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information. • Commissions expense for 2022 increased 30.8% to $45.7 million, or $1 per WSEE per month, compared to 2021.
Our direct costs per WSEE per month increased $12 due primarily to changes in our direct costs components as described below. The net increase in direct costs between 2022 and 2021 attributable to changes in cost estimates for benefits and workers’ compensation totaled $6.7 million as discussed below.
Our revenues per WSEE per month increased $54 due to higher average pricing of 3.2%. The net decrease in direct costs between 2023 and 2022 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $16.4 million as discussed below.
We expect the average number of paid WSEEs per month to be between 317,000 and 326,000 for the full year 2023, an increase of 7.5% to 10.5%. • Approximately 24.9% and 23.8% of our average paid WSEEs were in our middle market sector for the years ended December 31, 2022 and 2021, respectively, which is generally defined as companies with 150 to 5,000 WSEEs. • Gross profit increased 23.3% to $1.0 billion, primarily due to the 17.7% growth in the average number of WSEEs paid per month and a 4.8% increase in gross profit per WSEE. • Our average gross profit per WSEE per month increased from $273 in 2021 to $286 in 2022. • Operating expenses increased 17.7% in 2022 to $761.0 million, and included increases in salary and wages, marketing, travel and event costs and the implementation of a CRM solution.
We expect the average number of paid WSEEs per month to be between 318,350 and 321,500 for the full year 2024, an increase of 2% to 3%. • Approximately 26.1% and 24.9% of our average paid WSEEs were in our middle market sector for the years ended December 31, 2023 and 2022, respectively, which is generally defined as companies with 150 to 5,000 WSEEs. • Gross profit increased 2.5% to $1.0 billion.
In the year ended December 31, 2022, the last business day of the reporting period ended on a Friday, client prepayments were $36.8 million and amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions was $504.8 million.
In the year ended December 31, 2023, the last business day of the reporting period was a Friday, client prepayments were $27.6 million and employment taxes and other deductions were $510.1 million.
Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite. This markup includes pricing components associated with our estimates of payroll taxes, benefits and workers’ compensation costs, plus a separate component related to our HR services.
We invoice the gross billings concurrently with each periodic payroll of our WSEEs. Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite.
Typically, medical claims costs tend to increase throughout the year with the fourth quarter being the period with the highest costs, which has a negative impact on our fourth quarter earnings. This trend is primarily the result of many WSEEs’ medical plan deductibles being fully met by the fourth quarter, which increases our liability with respect to those claims.
This trend is primarily the result of many WSEEs’ medical plan deductibles being fully met by the fourth quarter, which increases our liability with respect to those claims. We have also experienced variability on a quarterly basis in medical claims costs based on the unpredictable nature of large claims .
The following table illustrates the sensitivity of changes in the completion rate on our estimate of total benefits costs of $2.6 billion in 2022: Change in Completion Rate Change in Benefits Costs (in thousands) Change in Net Income (in thousands) (2.5)% $ (25,675) $ 18,762 (1.0)% (10,270) 7,505 1.0% 10,270 (7,505) 2.5% 25,675 (18,762) • Workers’ compensation costs — Since 2007, our workers’ compensation coverage has been provided through an arrangement with Chubb.
The following table illustrates the sensitivity of changes in the completion rate on our estimate of total benefits costs of $3.0 billion in 2023: Change in Completion Rate Change in Benefits Costs (in thousands) Change in Net Income (in thousands) (2.5)% $ (29,871) $ 22,744 (1.0)% (11,948) 9,098 1.0% 11,948 (9,098) 2.5% 29,871 (22,744) 43 2023 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.
Revenues 2022 Compared to 2021 Our revenues for 2022 were $5.9 billion, an increase of 19.4%, primarily due to the following: • Average WSEEs paid increased 17.7%. • Revenues per WSEE per month increased 1.5%, or $25. 44 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2021 Compared to 2020 Our revenues for 2021 were $5.0 billion, an increase of 16.0%, primarily due to the following: • Average WSEEs paid increased 7.1%. • Revenues per WSEE per month increased 8.4%, or $128, primarily due to 5.1% higher average pricing, as well as the non-recurrence of the 2020 FICA deferral credits of $121.3 million, or $43 per WSEE per month, and the 2020 comprehensive service fee credits of $11.6 million, or $4 per WSEE per month.
Average WSEEs Paid and Year-over-Year Growth Percentage (in thousands) Adjusted EBITDA and Year-over-Year Growth Percentage (in thousands) Adjusted EPS and Year-over-Year Growth Percentage (amounts per share) Revenues 2023 Compared to 2022 Our revenues for 2023 were $6.5 billion, an increase of 9.2%, primarily due to the following: • Average WSEEs paid increased 5.8%. • Revenues per WSEE per month increased 3.2%, or $54. 47 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2022 Compared to 2021 Our revenues for 2022 were $5.9 billion, an increase of 19.4%, primarily due to the following: • Average WSEEs paid increased 17.7%. • Revenues per WSEE per month increased 1.5%, or $25.
Revenues that have been recognized but not invoiced represent unbilled accounts receivable included in accounts receivable, net on our Consolidated Balance Sheets. Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans.
Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans.
Commissions are primarily due to commissions associated with our PEO HR Outsourcing Solutions, including an increase in the amount of sales channel referral fees paid during 2021. • Advertising expense increased 35.0% to $29.1 million, or $2 per WSEE per month, compared to 2020.
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 2023 increased 13.8% to $177.7 million, or $4 per WSEE per month, compared to 2022.
Our gross billings charged to our PEO HR Outsourcing Solutions clients 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.
We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.
Operating expenses per WSEE per month for 2021 decreased 1.4% to $215 compared to $218 in 2020. • Salaries of corporate and sales staff increased 7.3% to $379.2 million, but remained flat on a per WSEE per month basis, compared to 2020.
Operating expenses per WSEE per month for 2023 increased 1.9% to $219 compared to $215 in 2022. • Salaries of corporate and sales staff for 2023 increased 6.9% to $460.7 million, or $1 per WSEE per month, compared to 2022.
Both the 2021 and 2020 periods costs include the impact of a 0.6% discount rate used to accrue workers’ compensation loss claims. Please read “—Critical Accounting Policies and Estimates—Workers’ Compensation Costs” for a discussion of our accounting for workers’ compensation costs.
Please read “ —Critical Accounting Policies and Estimates—Workers' Compensation Costs ” for a discussion of our accounting for workers’ compensation costs.
Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information. 52 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cash Flows from Operating Activities Our net cash flows from operating activities in 2022 were $347.7 million.
Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information. Cash Flows from Operating Activities Net cash provided by operating activities in 2023 was $198.5 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients.
We currently believe that our cash on hand, marketable securities, cash flows from operations and availability under our Facility will be adequate to meet our liquidity requirements for 2023. 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.
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, 2023, we had outstanding letters of credit and borrowings totaling $370.4 million under the Facility.
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. • Contingent liabilities — We accrue and disclose contingent liabilities in our Consolidated Financial Statements in accordance with ASC 450-10, Contingencies .
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. 44 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS New Accounting Pronouncements We believe that we have implemented the accounting pronouncements with a material impact on our financial statements and do not believe there are any new or pending pronouncements that will materially impact our financial position or results of operations.
Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate was 2.9% in 2022 and 0.6% in 2021) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations. 41 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 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.
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.
The increase was primarily due to technology SaaS licensing costs and professional services related to the implementation of a CRM solution, partially offset by decreases in travel costs. • Depreciation and amortization expense increased 23.6% to $38.5 million, or $2 per WSEE per month, compared to 2020.
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 5.0% to $42.7 million, but remained flat on a per WSEE per month basis, compared to 2022.
Our adjusted net income increased 40.2% to $215.9 million in 2022 from $154.0 million in 2021. Please read “Results of Operations.” Cash Flows from Investing Activities Our net cash flows used in investing activities were $32.1 million during 2022, primarily due to $30.4 million in property and equipment purchases.
Please read “ Results of Operations .” Cash Flows from Investing Activities Net cash flows used in investing activities were $21.7 million for the year ended December 31, 2023, primarily due to property and equipment purchases of $40.1 million, partially offset by $18.4 million of marketable securities maturities and dispositions, net of purchases.
Our healthcare claim activity in 2021 included a continued variability in claim incurral patterns, combined with incremental costs related to COVID-19 testing, vaccination administration, and treatment costs, which were driven by further COVID-19 variants. • The percentage of WSEEs covered under our health insurance plan was 67.0% in 2021 and 67.9% in 2020. • Reported results include changes in estimated claims run-off related to prior periods, which was an increase in costs of $4.9 million, or $2 per WSEE per month, in 2021 compared to a decrease in costs of $0.2 million, while remaining flat on a per WSEE per month basis, in 2020.
The $63 per WSEE per month increase in direct costs is due primarily to the direct cost components changes as follows: Benefits costs • The cost of group health insurance and related employee benefits increased $44 per WSEE per month, or 6.6% on a cost per covered employee basis. • The percentage of WSEEs covered under our health insurance plans was 65.0% in 2023 compared to 65.4% in 2022. • Reported results include changes in estimated claims run-off related to prior periods, which was a decrease in costs of $13.0 million, or $3 per WSEE per month, in 2023 compared to an increase in costs of $12.1 million, or $3 per WSEE per month, in 2022.
Please read Note 1 “ Accounting Policies ” and Note 9 “ Incentive Plans ,” to the Consolidated Financial Statements for additional information. • Commissions expense increased 6.4% to $34.9 million, but remained flat on a per WSEE per month basis, compared to 2020.
The increase was primarily due to awards issued under our restricted stock unit program, partially offset by a decrease in the number of stock awards anticipated to be earned related to performance-based awards granted under our long-term incentive plans based on our lower than expected operating results in 2023.Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information. • Commissions expense for 2023 increased 2.6% to $46.8 million, but remained flat on a per WSEE per month basis, compared to 2022.
The increase was primarily due to the completion of a new facility on our corporate campus during 2021 and increased capital expenditures related to software development costs. 2021 Compared to 2020 The following table presents certain information related to our operating expenses: Year Ended December 31, per WSEE (in thousands, except per WSEE) 2021 2020 % Change 2021 2020 % Change Salaries $ 379,171 $ 353,273 7.3 % $ 126 $ 126 — Stock-based compensation 40,623 60,145 (32.5) % 14 21 (33.3) % Commissions 34,922 32,835 6.4 % 12 12 — Advertising 29,097 21,556 35.0 % 10 8 25.0 % General and administrative 124,413 113,167 9.9 % 40 40 — Depreciation and amortization 38,547 31,189 23.6 % 13 11 18.2 % Total operating expenses $ 646,773 $ 612,165 5.7 % $ 215 $ 218 (1.4) % Operating expenses for 2021 increased 5.7% to $646.8 million compared to $612.2 million in 2020.
Payroll tax costs • Payroll taxes increased 23.0% on an 20.6% increase in payroll costs, or $27 per WSEE per month. • Payroll taxes as a percentage of payroll costs increased to 6.4% in 2022 compared to 6.3% in 2021. 51 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating Expenses 2023 Compared to 2022 The following table presents certain information related to our operating expenses: Year Ended December 31, per WSEE (in thousands, except per WSEE) 2023 2022 % Change 2023 2022 % Change Salaries $ 460,715 $ 430,945 6.9 % $ 123 $ 122 0.8 % Stock-based compensation 52,996 50,080 5.8 % 14 14 — Commissions 46,847 45,672 2.6 % 13 13 — Advertising 37,324 37,503 (0.5) % 10 11 (9.1) % General and administrative 177,664 156,134 13.8 % 48 44 9.1 % Depreciation and amortization 42,708 40,660 5.0 % 11 11 — Total operating expenses $ 818,254 $ 760,994 7.5 % $ 219 $ 215 1.9 % Operating expenses for 2023 increased 7.5% to $818.3 million compared to $761.0 million in 2022.
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COVID-19 Pandemic The effects of the COVID-19 pandemic, including actions taken by businesses and governments, have resulted in significant changes in U.S. economic activity and to the workplace in general.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe hosting facilities house the majority of our business applications, telecommunications equipment and network equipment. The facilities, located in Allen, Texas, and Bryan, Texas, are under lease until 2028 and 2024, respectively. Service Centers We currently have four regional service centers located in Atlanta, Dallas, Houston and Los Angeles.
Biggest changeThe hosting facilities house the majority of our business applications, telecommunications equipment and network equipment. The facilities, located in Allen, Texas, Austin, Texas, and Bryan, Texas, are under lease until 2028, 2030, and 2024, respectively. Service Centers We currently have four regional service centers located in Atlanta, Dallas, Houston and Los Angeles.
In addition to the service center operations, the facility also contains sales operations. The Houston service center, which currently services approximately 23% of our WSEE base, is located on our corporate campus. The Los Angeles service center, which currently services approximately 21% of our WSEE base, is located in a 39,000 square foot facility under lease until 2029.
In addition to the service center operations, the facility also contains sales operations. The Houston service center, which currently services approximately 22% of our WSEE base, is located on our corporate campus. The Los Angeles service center, which currently services approximately 21% of our WSEE base, is located in a 39,000 square foot facility under lease until 2029.
In addition, we have placed certain client service personnel in a majority of our sales markets to provide high-quality, localized service to our clients in those major markets. We expect to continue placing client service personnel in sales markets as a critical mass of clients is attained in each market. 31 2022 Form 10-K LEGAL PROCEEDINGS
In addition, we have placed certain client service personnel in a majority of our sales markets to provide high-quality, localized service to our clients in those major markets. We expect to continue placing client service personnel in sales markets as a critical mass of clients is attained in each market. 33 2023 Form 10-K LEGAL PROCEEDINGS
This 33-acre company-owned office campus includes 700,000 square feet of office space and approximately 6 acres of undeveloped land for future expansion. Development and support operations are located in the Kingwood facility. We currently operate two hosting facilities, totaling approximately 2,000 square feet, that are in different locations.
This 33-acre company-owned office campus includes 700,000 square feet of office space and approximately 6 acres of undeveloped land for future expansion. Development and support operations are located in the Kingwood facility. We currently lease three hosting facilities, totaling approximately 2,300 square feet, that are in different locations.
As of December 31, 2022, we had 92 sales offices in these 43 markets. To take advantage of economic efficiencies, multiple sales offices may share a physical location. Each sales office is typically staffed by seven to nine BPAs, a district sales manager and an office administrator.
As of December 31, 2023, we had 98 sales offices in these 45 markets. To take advantage of economic efficiencies, multiple sales offices may share a physical location. Each sales office is typically staffed by seven to nine BPAs, a district sales manager and an office administrator.
In addition to the service center operations, the facility also contains sales operations. Sales and Service Offices As of December 31, 2022, we had sales and service personnel in 74 facilities located in 43 sales markets throughout the United States. All of the facilities are leased and some are shared by multiple sales offices and/or client service personnel.
In addition to the service center operations, the facility also contains sales operations. Sales and Service Offices As of December 31, 2023, we had sales and service personnel in 83 facilities located in 45 sales markets throughout the United States. All of the facilities are leased and some are shared by multiple sales offices and/or client service personnel.
The Atlanta service center, which currently services approximately 34% of our WSEE base, is located in a 47,800 square foot facility under lease until 2024. The Dallas service center, which currently services approximately 22% of our WSEE base, is located in a 48,100 square foot facility under lease until 2023.
The Atlanta service center, which currently services approximately 35% of our WSEE base, is located in a 47,800 square foot facility under lease until 2035. The Dallas service center, which currently services approximately 22% of our WSEE base, is located in a 45,000 square foot facility under lease until 2031.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to our business that we believe would not have a material adverse effect on our financial condition or results of operations, except as discussed in Note 12 to the Consolidated Financial Statements, “ Commitments and Contingencies ,” which is incorporated herein by reference. 32 2022 Form 10-K MINE SAFETY DISCLOSURES
Biggest changeWe are not a party to any material pending legal proceedings other than ordinary routine litigation incidental to our business that we believe would not have a material adverse effect on our financial condition or results of operations, except as discussed in Note 12 to the Consolidated Financial Statements, “Commitments and Contingencies,” which is incorporated herein by reference. 34 2023 Form 10-K MINE SAFETY DISCLOSURES

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeSharp has served as a member of the Accounting Practices Committee of NAPEO. Mr. Sharp is also a certified public accountant. Daniel D. Herink has served as Executive Vice President of Legal, General Counsel and Secretary since July 2022. Mr. Herink joined Insperity in 2000 as Assistant General Counsel and was promoted to Associate General Counsel in 2002.
Biggest changeSharp has served as a member of the Accounting Practices Committee of NAPEO. Mr. Sharp is also a certified public accountant. James D. Allison has served as Executive Vice President of Comprehensive Benefits Solutions & Chief Profitability Officer since May 2023. Mr.
Sarvadi has served as Chairman of the Board and Chief Executive Officer since August 2003. Mr. Sarvadi co-founded Insperity in 1986 and served as Vice President and Treasurer of Insperity from its inception in 1986 through April 1987, as Vice President from April 1987 through 1989 and as President and Chief Executive Officer from 1989 to August 2003.
Sarvadi has served as Chairman of the Board & Chief Executive Officer since August 2003. Mr. Sarvadi co-founded Insperity in 1986 and served as Vice President and Treasurer of Insperity from its inception in 1986 through April 1987, as Vice President from April 1987 through 1989 and as President and Chief Executive Officer from 1989 to August 2003.
Steve Arizpe was promoted to President and Chief Operating Officer in May 2019 from the position of Executive Vice President of Client Services and Chief Operating Officer, which he had held since August 2003.
Steve Arizpe was promoted to President & Chief Operating Officer in May 2019 from the position of Executive Vice President of Client Services and Chief Operating Officer, which he had held since August 2003.
He served as Senior Vice President of Finance, Chief Financial Officer and Treasurer from May 2008 to July 2022. He served as Vice President of Finance, Chief Financial Officer and Treasurer from August 2003 until May 2008. Mr. Sharp joined Insperity in January 2000 as Vice President of Finance and Controller.
He served as Senior Vice President of Finance, Chief Financial Officer and Treasurer from May 2008 to May 2022. He served as Vice President of Finance, Chief Financial Officer and Treasurer from August 2003 until May 2008. Mr. Sharp joined Insperity in January 2000 as Vice President of Finance and Controller.
Arizpe graduated from Texas A&M University in 1979, earning his degree in Business Management. he currently serves as director of Somebody Cares America, a nonprofit organization that engages in disaster response, compassionate outreach and leadership development. Douglas S. Sharp has served as Executive Vice President of Finance, Chief Financial Officer and Treasurer since July 2022.
Arizpe graduated from Texas A&M University in 1979, earning his degree in Business Management. he currently serves as director of Somebody Cares America, a nonprofit organization that engages in disaster response, compassionate outreach and leadership development. Douglas S. Sharp has served as Executive Vice President of Finance, Chief Financial Officer & Treasurer since May 2022.
Mr. Allison joined Insperity in 1997 and has held positions of increased responsibility, including Manager of Financial Reporting, Director of Accounting, Managing Director of Planning and Analysis, Managing Director of Finance, Senior Vice President of Pricing and Cost Analysis, and Senior Vice President of Gross Profit Operations. Mr.
Allison joined Insperity in 1997 and has held positions of increased responsibility, including Manager of Financial Reporting, Director of Accounting, Managing Director of Planning and Analysis, Managing Director of Finance, and Senior Vice President of Pricing and Cost Analysis.
Item 4. Mine Safety Disclosures. Not applicable. 33 2022 Form 10-K EXECUTIVE OFFICERS Item S-K 401 (b). Executive Officers of the Registrant. The following table sets forth the names, ages (as of February 2, 2023) and positions of Insperity’s executive officers: Name Age Position Paul J. Sarvadi 66 Chairman of the Board and Chief Executive Officer A.
Item 4. Mine Safety Disclosures. Not applicable. 35 2023 Form 10-K EXECUTIVE OFFICERS Item S-K 401 (b). Executive Officers of the Registrant. The following table sets forth the names, ages (as of February 1, 2024) and positions of Insperity’s executive officers: Name Age Position Paul J. Sarvadi 67 Chairman of the Board & Chief Executive Officer A.
Allison has served on the Accounting Practices Committee of NAPEO and, prior to joining Insperity, he worked in the audit practice of Ernst & Young LLP. Mr. Allison earned his Bachelor of Business Administration and Master in Professional Accounting degrees from the University of Texas and is a certified public accountant. 34 2022 Form 10-K STOCK ACTIVITIES PART II
Allison has served on the Accounting Practices Committee of NAPEO and, prior to joining Insperity, he worked in the audit practice of Ernst & Young LLP. Mr. Allison earned his Bachelor of Business Administration and Master in Professional Accounting degrees from the University of Texas and is a certified public accountant. Christian P.
Steve Arizpe 65 President and Chief Operating Officer Douglas S. Sharp 61 Executive Vice President of Finance, Chief Financial Officer and Treasurer Daniel D. Herink 56 Executive Vice President of Legal, General Counsel and Secretary James D. Allison 54 Executive Vice President of Gross Profit Operations Paul J.
Steve Arizpe 66 President & Chief Operating Officer Douglas S. Sharp 62 Executive Vice President of Finance, Chief Financial Officer & Treasurer James D. Allison 55 Executive Vice President of Comprehensive Benefits Solutions & Chief Profitability Officer Christian P. Callens 52 Senior Vice President of Legal, General Counsel & Secretary Paul J.
Removed
He was promoted and elected to Vice President of Legal, General Counsel and Secretary in May 2007. He served as Senior Vice President of Legal, General Counsel and Secretary from May 2008 to July 2022. Mr. Herink previously served as an attorney at Rodriguez, Colvin & Chaney, L.L.P. and McGinnis, Lochridge & Kilgore, L.L.P.
Added
In May 2018, he was promoted to Senior Vice President of Gross Profit Operations and served in such capacity until his subsequent promotion to Executive Vice President of Gross Profit Operations in May 2022. Mr.
Removed
He earned his Bachelor of Science degree in business administration from the University of Nebraska and a Doctorate of Jurisprudence from The University of Texas School of Law, where he was a member of the Texas Law Review and The Order of the Coif. James D. Allison has served as Executive Vice President of Gross Profit Operations since July 2022.
Added
Callens has served as Senior Vice President of Legal, General Counsel & Secretary since January 2024. Mr. Callens joined Insperity in January 2014 as Managing Counsel and Assistant Secretary, in which role he led the Transactions and Corporate Law Practice Group. He was promoted to Deputy General Counsel, Managing Counsel & Assistant Secretary in October 2022.
Added
Prior to joining Insperity in 2014, Mr. Callens was counsel in the corporate practice of Skadden, Arps, Slate, Meagher & Flom LLP. He also previously held an executive position at a privately-held technology company. Mr. Callens began his legal career as a law clerk for the Honorable John Minor Wisdom of the United States Fifth Circuit Court of Appeals.
Added
He holds a Bachelor of Arts degree from The University of Texas at Austin and a Juris 36 2023 Form 10-K EXECUTIVE OFFICERS Doctor degree from Tulane University Law School, where he was senior managing editor of the Tulane Law Review and a member of The Order of the Coif. 37 2023 Form 10-K STOCK ACTIVITIES PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities The following table provides information about our purchases of Insperity common stock during the three months ended December 31, 2022: Period Total Number of Shares Purchased (1)(2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program (1) Maximum Number of Shares that may yet be Purchased under the Program (1) 10/01/2022 —10/31/2022 38,285 $ 101.95 38,285 1,085,160 11/01/2022 — 11/30/2022 — — — 1,085,160 12/01/2022 — 12/31/2022 53,055 112.36 53,000 1,032,160 Total 91,340 $ 108.00 91,285 __________________________________ (1) Our Board has approved a program to repurchase shares of our outstanding common stock.
Biggest changeIssuer Purchases of Equity Securities The following table provides information about purchases by Insperity during the three months ended December 31, 2023 of equity securities that are registered by Insperity pursuant to Section 12 of the Exchange Act: Period Total Number of Shares Purchased (1)(2) Average Price Paid per Share Total Number of Shares Purchased Under Announced Program (2) Maximum Number of Shares Available for Purchase under Announced Program (2) 10/01/2023 — 10/31/2023 120 $ 98.29 — 1,969,562 11/01/2023 — 11/30/2023 — — — 1,969,562 12/01/2023 — 12/31/2023 287 116.80 — 1,969,562 Total 407 $ 111.34 — ____________________________________ (1) During the three months ended December 31, 2023, 407 shares of stock were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock units.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Insperity, Inc., the S&P Smallcap 600 Index, the S&P Midcap 400 Index and the S&P Composite 1500 – Human Resource and Employment Services Index *$100 invested on 12/31/17 in Insperity stock or in the specified index, including reinvestment of dividends. Fiscal year ending December 31.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Insperity, Inc., the S&P Smallcap 600 Index, the S&P Midcap 400 Index and the S&P Composite 1500 – Human Resource and Employment Services Index *$100 invested on 12/31/18 in Insperity stock or in the specified index, including reinvestment of dividends. Fiscal year ending December 31.
The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2017.
The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2018.
This number does not include stockholders for whom shares were held in “nominee” or “street name.” Dividend Policy During 2022, we paid dividends of $76.6 million. The payment of dividends is made at the discretion of our Board and depends upon our operating results, financial condition, capital requirements, general business conditions and such other factors as our Board deems relevant.
This number does not include stockholders for whom shares were held in “nominee” or “street name.” Dividend Policy During 2023, we paid dividends of $84.2 million. The payment of dividends is made at the discretion of our Board and depends upon our operating results, financial condition, capital requirements, general business conditions and such other factors as our Board deems relevant.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “NSP.” As of February 2, 2023, there were 64 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Stock Our common stock is traded on the New York Stock Exchange under the symbol “NSP.” As of February 1, 2024, there were 61 holders of record of our common stock.
Copyright© 2023 Standard & Poor's, a division of S&P Global.
Copyright© 2024 Standard & Poor's, a division of S&P Global.
These shares are not subject to the repurchase program described above. 35 2022 Form 10-K STOCK ACTIVITIES Performance Graph The following graph compares our cumulative total stockholder return since December 31, 2017, with the S&P Smallcap 600 Index, the S&P Midcap 400 Index, and the S&P Composite 1500 – Human Resource & Employment Services Index.
Unless terminated earlier by resolution of our Board, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the repurchase program. 38 2023 Form 10-K STOCK ACTIVITIES Performance Graph The following graph compares our cumulative total stockholder return since December 31, 2018, with the S&P Smallcap 600 Index, the S&P Midcap 400 Index, and the S&P Composite 1500 – Human Resource & Employment Services Index.
All rights reserved. 12/17 12/18 12/19 12/20 12/21 12/22 Insperity, Inc. 100.00 164.21 153.12 148.29 222.70 218.43 S&P Smallcap 600 100.00 91.52 112.37 125.05 158.59 133.06 S&P Midcap 400 100.00 88.92 112.21 127.54 159.12 138.34 S&P Composite 1500 – Human Resource & Employment Index 100.00 83.73 102.81 103.69 156.71 117.07 This graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.
All rights reserved. 12/18 12/19 12/20 12/21 12/22 12/23 Insperity, Inc. 100.00 93.25 90.31 135.62 133.02 139.98 S&P Smallcap 600 100.00 122.78 136.64 173.29 145.39 168.73 S&P Midcap 400 100.00 126.20 143.44 178.95 155.58 181.15 S&P Composite 1500 – Human Resource & Employment Services 100.00 122.79 123.83 187.16 139.81 148.84 This graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filing.
During the three months ended December 31, 2022, 91,285 shares were repurchased under the program. As of December 31, 2022, we were authorized to repurchase an additional 1,032,160 shares under the program. Unless terminated earlier by resolution of the Board, the repurchase program will expire when we have repurchased all the shares authorized for repurchase under the repurchase program.
During the three months ended December 31, 2023, no shares were repurchased under the program. As of December 31, 2023, we were authorized to repurchase an additional 1,969,562 shares under the program.
(2) During the three months ended December 31, 2022, 55 shares were withheld to satisfy tax-withholding obligations arising in conjunction with the vesting of restricted stock. The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date.
The required withholding is calculated using the closing sales price reported by the New York Stock Exchange on the date prior to the applicable vesting date. These shares are not subject to the repurchase program. (2) Our Board of Directors has approved a program to repurchase shares of our outstanding common stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved]. 36 2022 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this annual report.
Biggest changeItem 6. [Reserved]. 39 2023 Form 10-K MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this annual report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

23 edited+12 added−1 removed68 unchanged
Biggest changeOther Operational Risks Failure to integrate or realize the expected return on future product offerings, including through acquisitions and investments, could have a material adverse impact on our financial condition or results of operations. 28 2022 Form 10-K RISK FACTORS We have adopted a strategy to market and sell additional solutions within and outside of our PEO HR Outsourcing Solutions.
Biggest changeThe 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. 29 2023 Form 10-K RISK FACTORS 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.
If our data centers experience any interruptions or outages, and our business continuity plan fails, then our operations may be materially impacted, which could result in our failure to meet our obligations to our clients, WSEEs, tax authorities, and/or other vendors, which could damage our reputation, subject us to liability and have a material adverse effect on our business and financial condition.
If our data centers experience any interruptions or outages, and our business continuity plan is delayed or fails, then our operations may be materially impacted, which could result in our failure to meet our obligations to our clients, WSEEs, tax authorities, and/or other vendors, which could damage our reputation, subject us to liability, and have a material adverse effect on our business and financial condition.
Offering new solutions involves a number of risks such entering markets or businesses in which we have no prior experience and that may be highly regulated; failing to integrate the new solution into our product and service offerings; diversion of technology, service, marketing, management and other teams from other business concerns; 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.
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; failing to integrate the new solution into our product and service offerings; diversion of technology, service, compliance, marketing, sales, management and other teams from other business concerns; 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.
Our competitors include the PEO divisions of large business services companies, such as Automatic Data Processing, Inc. and Paychex, Inc., and other national PEOs such as TriNet Group, Inc. In many cases, these competitors offer a reduced service PEO offering at a lower price than our PEO HR Outsourcing Solutions.
Our competitors include the PEO divisions of large business services companies, such as Automatic Data Processing, Inc. and Paychex, Inc., and other national PEOs such as TriNet Group, Inc., Vensure, and Rippling. In many cases, these competitors offer a reduced service PEO offering at a lower price than our PEO HR Outsourcing Solutions.
In addition, FUTA may be retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans, as we recently experienced with California, Connecticut, Illinois, and New York in 2022. Generally, our contractual agreements allow us to incorporate such statutory increases into our service fees upon the effective date of the rate change.
In addition, FUTA may be retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans, as we recently experienced with California and New York in 2023. Generally, our contractual agreements allow us to incorporate such statutory increases into our service fees upon the effective date of the rate change.
Our client attrition rate was approximately 15% in 2022. There can be no assurance that the number of contract cancellations will continue at these levels and such cancellations may increase in the future due to various factors, including economic conditions in the markets we operate.
Our client attrition rate was approximately 17% in 2023. There can be no assurance that the number of contract cancellations will continue at these levels and such cancellations may increase in the future due to various factors, including economic conditions in the markets we operate.
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. 29 2022 Form 10-K OTHER INFORMATION
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. 30 2023 Form 10-K OTHER INFORMATION Item 1B.
Our middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, represented 25% of our average paid WSEEs and clients with an average number of WSEEs that exceed 1,000 WSEEs represented 5% during 2022.
Our middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, represented 26% of our average paid WSEEs and clients with an average number of WSEEs that exceed 1,000 WSEEs represented 6% during 2023.
However, many of these current laws (such as the Act, ERISA, and some state insurance codes and employment tax 25 2022 Form 10-K RISK FACTORS laws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and the definition of “employer” under these laws is not uniform despite the SBEA having provided clarification under federal employment tax laws for CPEOs.
However, many of these current laws (such as the Act, ERISA, and some state insurance codes and employment tax laws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and the definition of “employer” under these laws is not uniform despite the SBEA having provided clarification under federal employment tax laws for CPEOs.
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 protect against damage or disruptions that could be caused by cybersecurity incidents.
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 27 2023 Form 10-K RISK FACTORS protect against damage or disruptions that could be caused by cybersecurity incidents.
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, damage our reputation, and result in a loss of clients.
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; subject us to substantial fines, penalties, and other liabilities; damage our reputation; and result in a loss of clients.
Further, if the overall pricing of our services includes cost assumptions based on inaccurate forecasts of our workers’ compensation costs, our profitability or our ability to attract and retain clients may be adversely impacted. 23 2022 Form 10-K RISK FACTORS The current workers’ compensation coverage with Chubb expires on September 30, 2023.
Further, if the overall pricing of our services includes cost assumptions based on inaccurate forecasts of our workers’ compensation costs, our profitability or our ability to attract and retain clients may be adversely impacted. The current workers’ compensation coverage with Chubb expires on September 30, 2024.
Competition and other developments in the HR services industry may impact our growth and/or profitability. The human resources services industry, including the PEO industry, is highly fragmented. Many PEOs have limited operations and fewer than 2,500 WSEEs, but there are several industry participants that are comparable to our size or larger.
The human resources services industry, including the PEO industry, is highly fragmented. Many PEOs have limited operations and fewer than 2,500 WSEEs, but there are several industry participants that are comparable to our size or larger.
As of December 2022, approximately 13% of our WSEEs were co-employed by Workforce Synchronization clients.
As of December 2023, approximately 14% of our WSEEs were co-employed by Workforce Synchronization clients.
As new regulations are adopted, we must modify our systems to address these changes in the law, such as 26 2022 Form 10-K RISK FACTORS our recent efforts to implement the assistance provided to businesses and employees under the Covid Relief Programs.
As new regulations are adopted, we must modify our systems to address these changes in the law, such as our recent efforts to implement the assistance provided to businesses and employees under the Covid Relief Programs and Secure 2.0 Act of 2022.
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, automobile liability insurance, and directors’ and officers’ liability insurance.
In addition, we obtain insurance coverage for various commercial risks in our business such as property insurance, errors and 24 2023 Form 10-K RISK FACTORS omissions insurance, cyber liability insurance, general liability insurance, fiduciary liability insurance and ERISA bond coverage, automobile liability insurance, and directors’ and officers’ liability insurance.
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. 27 2022 Form 10-K RISK FACTORS 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.
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.
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.
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.
For example, we incurred additional costs and reallocated internal resources in order to comply with the requirements of the California Privacy Rights Act (“CPRA”), which amended the California Consumer Privacy Act of 2018 (“CCPA”) and became effective on January 1, 2023, and we expect to incur additional costs and reallocate additional resources when the final regulations under the CPRA are released.
For example, we incurred additional costs and reallocated internal resources in order to comply with the requirements of the California Privacy Rights Act (“CPRA”), which amended the California Consumer Privacy Act of 2018 (“CCPA”) and became effective on January 1, 2023, which has required us to reallocate additional resources in order to manage compliance in light of the changes implemented by the CPRA.
Other states have adopted or are currently contemplating additional privacy requirements. The future enactment of similar laws, rules or regulations could have a material adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant liability.
The future enactment of similar laws, rules or regulations, or an adverse determination as to the applicability of these laws, rules, or regulations to us, could have a material adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant liability.
Under the CSA, we assume sole responsibility and liability for paying federal employment taxes imposed under the Code with respect to wages and salaries we pay our WSEEs.
A determination that a client is liable for employment taxes not paid by a PEO may discourage clients from contracting with us in the future. Under the CSA, we assume sole responsibility and liability for paying federal employment taxes imposed under the Code with respect to wages and salaries we pay our WSEEs.
Because we act as a co-employer, we may be subject to liability for violations of various employment, payroll, discrimination, and workplace safety laws despite these contractual provisions, even if we do not participate in such violations.
Our CSA establishes the contractual division of responsibilities between Insperity and our clients for various human capital management matters, including compliance with and liability under various governmental regulations. 25 2023 Form 10-K RISK FACTORS Because we act as a co-employer, we may be subject to liability for violations of various employment, payroll, discrimination, and workplace safety laws despite these contractual provisions, even if we do not participate in such violations.
If these premiums or deductible amounts continue to increase, or coverage limits continue to decrease we would have increased exposure with respect to costs and insurance claims, which could have a material adverse effect on our business and results of operations. 24 2022 Form 10-K RISK FACTORS A determination that a client is liable for employment taxes not paid by a PEO may discourage clients from contracting with us in the future.
If these premiums or deductible amounts continue to increase, or coverage limits continue to decrease we would have increased exposure with respect to costs and insurance claims, which could have a material adverse effect on our business and results of operations.
Removed
Our CSA establishes the contractual division of responsibilities between Insperity and our clients for various human capital management matters, including compliance with and liability under various governmental regulations.
Added
Further, if we were to be deemed to be subject to other regulatory requirements applicable to other businesses, such as rules or regulations applicable to new services that we may offer such as earned wage access, then we may need to hire additional personnel, incur additional costs in order to maintain compliance, or be subjected to fines, penalties, or other liabilities, which could be material. 26 2023 Form 10-K RISK FACTORS Competition and other developments in the HR services industry may impact our growth and/or profitability.
Added
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.
Added
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.
Added
Other states have adopted or are currently contemplating additional privacy requirements. Generally, these laws do not address the coemployment relationship, which requires us to make determinations as to the requirements applicable to our 28 2023 Form 10-K RISK FACTORS WSEEs and our PEO Outsourcing Solutions clients.
Added
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. (“Workday”).
Added
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.
Added
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.
Added
We may also not receive the expected sales, marketing, and other benefits from the strategic partnership.
Added
The full benefit of the strategic partnership requires the cooperation of the two companies on sales, marketing, and technology matters, as well as our ability to successfully integrate and implement the Workday-based solution with our other processes and systems in a manner that allows us to maintain compliance as a professional employer organization and incorporate appropriate financial and management systems and controls.
Added
In addition, we may fail to effectively market or sell the joint solution, or there may be less demand than anticipated for the joint solution.
Added
The initiatives related to the strategic partnership, including the development of the joint solution, may divert the attention of our technology, service, compliance, marketing, sales, management, and other teams away from our existing business solutions, which could result in the loss of existing or prospective clients or fines, penalties, or other liabilities if our existing business solutions and compliance are disrupted.
Added
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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, we had outstanding letters of credit and borrowings totaling $370.4 million under the Facility. Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information.
Biggest changeAs of December 31, 2023, we had outstanding letters of credit and borrowings totaling $370.4 million under the Facility. Please read Note 6 to the Consolidated Financial Statements, “Long-Term Debt,” for additional information.

Other NSP 10-K year-over-year comparisons