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

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Paragraph-level year-over-year comparison of TRINET GROUP, 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.

+352 added−355 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-15)

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

352 paragraphs added · 355 removed · 273 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

83 edited+18 added−24 removed66 unchanged
Biggest changeIn some cases, these laws and regulations codify and clarify the co-employment relationship for certain payroll, unemployment, workers' compensation and other employment-related purposes or require specific client contractual terms and/or WSE disclosures. We believe we comply in all material respects with the applicable PEO laws and regulations in each state and jurisdiction in which we provide PEO services.
Biggest changeWhile these laws and regulations can vary widely, most regulators monitor the financial health and other relevant business information of PEOs on an annual or quarterly basis. In some cases, these laws and regulations codify and clarify the co-employment relationship for certain payroll, unemployment, workers' compensation and other employment-related purposes or require specific client contractual terms and/or WSE disclosures.
We manage the deductible risk that we assume in connection with these policies by being selective in the types of businesses that we take on as new clients, and by monitoring claims data and the performance of our carriers and third-party claims management service providers.
We manage the deductible risk that we assume in connection with these policies by being selective in the types of businesses that we take on as new clients, and by monitoring claims data and performance of our carriers and third-party claims management service providers.
The Impact of Seasonality on Our Business Our business is affected by seasonality in client business activity, hiring and benefit selections, health claims costs and payroll taxes: • PEO clients generally change their payroll service providers at the beginning of the payroll tax and benefits enrollment year; as a result, we have historically experienced our highest volumes of new clients and terminating clients in the month of January.
The Impact of Seasonality on Our Business Our business is affected by seasonality in client business activity, hiring and benefit selections, health claims costs and payroll taxes: • PEO clients generally change their payroll service providers at the beginning of the payroll tax and benefits enrollment year; as a result, we have historically experienced our highest volumes of new clients joining and terminating clients in the month of January.
The division of responsibilities under our client service agreements is typically as follows: TriNet Responsibilities We generally assume responsibility for, and manage certain risks associated with: • payments of salaries, wages and certain other compensation to WSEs from our own bank accounts (based on client reports and payments), including the processing of garnishment and wage deduction orders, • reporting of wages, withholding and deposit of associated payroll taxes as the employer of record, • provision and maintenance of workers' compensation insurance and workers' compensation claims processing, • access to, and administration of, group health, welfare, and retirement benefits to WSEs under TriNet-sponsored benefit plans, • compliance with applicable law for certain TriNet-sponsored employee benefits offered to WSEs, • administration of unemployment claims, and • provision of various HR policies and agreements, including employee handbooks and worksite employee agreements describing the co-employment relationship.
The division of responsibilities under our client service agreements is typically as follows: TriNet Responsibilities We generally assume responsibility for, and manage certain risks associated with: • payments of salaries, wages and certain other compensation to WSEs from our own bank accounts (based on client reports and payments), including the processing of garnishment and wage deduction orders, • reporting of wages, withholding and deposit of associated payroll taxes as the employer of record, • provision and maintenance of workers' compensation insurance and workers' compensation claims processing, • access to, and administration of, group health, welfare, and retirement benefits to WSEs under TriNet-sponsored benefit plans, • compliance with applicable law for certain TriNet-sponsored employee benefits offered to WSEs, • administration of unemployment claims and post-employment COBRA benefits, and • provision of various HR policies and agreements, including employee handbooks and worksite employee agreements describing the co-employment relationship.
Our professionals assist our clients in implementing HR best practices to help avoid and reduce the cost of employment-related liabilities. Our preferred outside employment law firms defend covered EPLI claims. Technology Platform We use separate technology platforms for our PEO and HRIS clients.
Our professionals assist our clients in implementing HR best practices to help avoid and reduce the cost of employment-related liabilities. Our preferred outside employment law firms defend covered EPLI claims. Technology Platform We currently use separate technology platforms for our PEO and HRIS clients.
We have seen a growing trend, particularly at the federal level, of using payroll tax credits, deferrals and other related payroll tax programs as a mechanism for incentivizing SMB development and/or economic recovery.
We have seen a growing trend, particularly at the federal level, of using payroll tax credits, deferrals and other related payroll tax programs as a mechanism for incentivizing SMB development and economic recovery.
TRINET 5 2022 FORM 10-K BUSINESS Table of Contents Our Services Our comprehensive HR solutions include the following capabilities: HR CONSULTING EXPERTISE BENEFIT OPTIONS PAYROLL SERVICES RISK MITIGATION TECHNOLOGY PLATFORM HR Consulting Expertise We use the collective knowledge and experience of our teams of HR, benefits, payroll, risk management and compliance professionals to help our PEO and HRIS clients manage many of the administrative, regulatory and practical requirements associated with being employers.
TRINET 5 2023 FORM 10-K BUSINESS Table of Contents Our Services Our comprehensive HR solutions include the following capabilities: HR CONSULTING EXPERTISE BENEFIT OPTIONS PAYROLL SERVICES RISK MITIGATION TECHNOLOGY PLATFORM HR Expertise We use the collective knowledge and experience of our teams of HR, benefits, payroll, risk management and compliance professionals to help our PEO and HRIS clients manage many of the administrative, regulatory and practical requirements associated with being employers.
TRINET 8 2022 FORM 10-K BUSINESS Table of Contents For our PEO services, we also assume responsibility for payment and liability for the withholding and remittance of federal and state income and employment taxes with respect to salaries, wages and certain other compensation paid to WSEs, although we reserve the right to seek recourse against our clients for any liabilities arising out of their conduct.
TRINET 8 2023 FORM 10-K BUSINESS Table of Contents For our PEO services, we also assume responsibility for payment and liability for the withholding and remittance of federal and state income and employment taxes with respect to salaries, wages and certain other compensation paid to WSEs, although we reserve the right to seek recourse against our clients for any liabilities arising out of their conduct.
Moreover, all 50 U.S. states, the District of Columbia, Guam, Puerto Rico, the Virgin Islands and Canada have enacted data breach notification laws that may require us to notify WSEs, HRIS Users, clients, colleagues, third parties or regulators in the event of unauthorized access to or disclosure of personal or confidential information.
Also, all 50 U.S. states, the District of Columbia, Guam, Puerto Rico, the Virgin Islands and Canada have enacted data breach notification laws that may require us to notify WSEs, HRIS Users, clients, colleagues, third parties or regulators in the event of unauthorized access to or disclosure of personal or confidential information.
TRINET 6 2022 FORM 10-K BUSINESS Table of Contents Payroll Services We help our PEO and HRIS clients manage their employee compensation by providing multi-state payroll processing, tax administration and tax credit services and other payroll-related services, such as time and attendance management, time off and overtime tracking, and expense management solutions.
TRINET 6 2023 FORM 10-K BUSINESS Table of Contents Payroll Services We help our PEO and HRIS clients manage their employee compensation by providing multi-state payroll processing, tax administration and tax credit services and other payroll-related services, such as time and attendance management, time off and overtime tracking, and expense management solutions.
Further significant changes to health care statutes, regulations and policy at the federal, state and local levels could occur in 2023 and beyond, including the potential further modification or amendment of the ACA, and we may need to adapt the manner in which we conduct our business as a result of any such changes.
Further significant changes to health care statutes, regulations and policy at the federal, state and local levels could occur in 2024 and beyond, including the potential further modification or amendment of the ACA, and we may need to adapt the manner in which we conduct our business as a result of any such changes.
" Other Employment Regulations We must also comply with labor and employment laws, which can change frequently at the federal, state and local level.
" Other Employment Regulations We must also comply with labor and employment laws, which change frequently at the federal, state and local level.
The CARES Act and FFCRA Act introduced payroll tax credit and employer Social Security deferral programs that allowed SMBs to receive payroll tax reductions and refunds or to defer the employer portion of Social Security based on qualifications and employment practices. We act as the employer of record for federal payroll tax reporting for our PEO clients.
The CARES Act and FFCRA Act introduced payroll tax credits and employer Social Security deferral programs that allowed SMBs to receive payroll tax reductions and refunds or to defer the employer portion of Social Security based on qualifications and employment practices. We act as the employer of record for federal payroll tax reporting for our PEO clients.
Standards for determining independent contractor and joint employer status vary from law to law and state to state, and changes to and new interpretations of these standards can limit the client workers to which we can provide services and increase claims that we are an employer or joint employer of client WSEs or HRIS Users.
Standards for determining independent contractor and joint employer status vary from law to law and state to state, and changes to and new interpretations of these standards can limit the client workers to which we can provide services and increase the likelihood of claims that we are a joint employer of client WSEs or an employer of HRIS Users.
We believe that a key reason why our PEO services are attractive to SMBs is because of our ability to provide access to a broad range of TriNet-sponsored workers compensation, health insurance and other benefits programs on a cost-effective basis.
We believe that a key reason why our PEO services are attractive to SMBs is because of our ability to provide access to a broad range of workers compensation, health insurance and other benefits programs on a cost-effective basis.
For additional information on the privacy and security of the confidential, sensitive and personal information and PHI we possess and the potential impact to our business if we fail to protect such information, refer to each of the risk factors included in Part I, Item 1A.
For additional information on the privacy and security of the confidential, sensitive and personal information and PHI we possess and the potential impact to our business if we fail to protect such information, refer to Part I, Item 1C. Cybersecurity and each of the risk factors included in Part I, Item 1A.
For further discussion of our insurance programs, including policies where we reimburse our carriers for certain amounts relating to claims, refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K. We also offer PEO clients the option to obtain their own client-sponsored benefits through our IOM product.
For further discussion of our insurance programs, including policies where we reimburse our carriers for certain amounts relating to claims, refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K. We also offer PEO clients the option to obtain their own client-sponsored benefits through our OMS product family.
Alternatively, the public may access these reports at the SEC's website at www.sec.gov. The contents of these websites are not incorporated into this report and are not part of this report. TRINET 16 2022 FORM 10-K RISK FACTORS Table of Contents
Alternatively, the public may access these reports at the SEC's website at www.sec.gov. The contents of these websites are not incorporated into this report and are not part of this report. TRINET 16 2023 FORM 10-K RISK FACTORS Table of Contents
We do this by: • offering competitive compensation and benefits packages, including comprehensive health benefits and our 401(k) retirement savings plan, with an immediately vested employer match of up to 4% of cash compensation, • supporting a pay for performance culture through the use of cash and equity incentives tied to the performance of our company and individual performance, • offering an ESPP that allows our colleagues to purchase our shares at a discount to market value, which fosters a stronger sense of ownership and aligns the interests of our colleagues with our stockholders, • investing in the professional growth of our colleagues with tuition and continuing education reimbursement, wellbeing programs, and comprehensive training and development activities and opportunities both inside and outside of our company, • creating and maintaining a diverse and inclusive colleague base by, for example, the use of colleague-led resource groups and a diversity and inclusion training curriculum for our colleagues, and TRINET 15 2022 FORM 10-K BUSINESS Table of Contents • supporting workplace flexibility for our colleagues by adopting remote work policies, and providing access to telemedicine services.
We do this by: • offering competitive compensation and benefits packages, including comprehensive health benefits and our 401(k) retirement savings plan, with an immediately vested employer match of up to 4% of cash compensation, • supporting a pay for performance culture through the use of cash and equity incentives tied to the performance of our company and individual performance, • offering an ESPP that allows our colleagues to purchase our shares at a discount to market value, which fosters a stronger sense of ownership and aligns the interests of our colleagues with our stockholders, • investing in the professional growth of our colleagues with tuition and continuing education reimbursement, wellbeing programs, and comprehensive training and development activities and opportunities both inside and outside of our company, • creating and maintaining a diverse and inclusive colleague base by, for example, the use of colleague-led resource groups and a diversity and inclusion training curriculum for our colleagues, and • supporting workplace flexibility for our colleagues by adopting remote work policies, and providing access to telemedicine services.
We intend to continue to pursue acquisitions, where appropriate, that will enable us to add new clients, WSEs or HRIS Users, expand our presence in certain geographies or industry verticals, or expand our HCM technology capabilities and services offerings.
We intend to continue to pursue acquisitions, where appropriate, that will enable us to add new clients, WSEs or HRIS Users, expand our presence in certain geographies or industry verticals, or expand our technology capabilities or services.
As an employer of WSEs, we must manage our benefit plans in accordance with ERISA requirements, which can impact how we fulfill plan obligations, how we price services, whether and how we use discretionary credits, the features of our benefit plans, and how we administer and operate our plans.
As an employer of WSEs, we must manage our benefit plans in accordance with ERISA requirements, which can impact how we fulfill plan obligations, how we price services, the features of our benefit plans, and how we administer and operate our plans.
Our Competitors We face competition from: • PEOs that compete directly with us, • HRIS software providers that compete directly with us, • payroll processing agents and other HCM services providers that do not use a PEO model, TRINET 10 2022 FORM 10-K BUSINESS Table of Contents • HR and information systems departments and personnel of companies that administer employee benefits, payroll and HR for their companies in-house, • providers of certain endpoint HR services, including payroll, employee benefits, business process outsourcers with high-volume transaction and administrative capabilities, and other third-party administrators, and • insurance brokers who allow third-party HR systems to integrate with their technology platform.
Our Competitors We face competition from: • PEOs that compete directly with us, • HRIS software providers that compete directly with us, • payroll processing agents and other HCM services providers that do not use a PEO model, • HR and personnel of companies that administer employee benefits, payroll and HR for their companies in-house, • providers of certain endpoint HR services, including payroll, employee benefits, business process outsourcers with high-volume transaction and administrative capabilities, and other third-party administrators, and • insurance brokers who allow third-party HR systems to integrate with their technology platform.
Our tax credit services face competition from large CPA firms, such as PWC, E&Y, Moss Adams, and KPMG and smaller software companies and CPA firms, such as alliantgroup, Ardius, Cherry Bekaert and Eide Bailly.
Our tax credit services face competition from large CPA firms, such as PwC, Ernst &Young, Moss Adams, and KPMG and smaller software companies and CPA firms, such as alliantgroup, Ardius, Cherry Bekaert and Eide Bailly.
We have recently experienced the largest proportion of WSE benefit changes in the first and second quarters. • Health claims costs tend to increase throughout the year as the utilization of medical services above each WSE's deductible causes our insurance costs to increase.
We generally experience the largest proportion of WSE benefit changes in the first and second quarters. • Health claims costs tend to increase throughout the year as the utilization of medical services above each WSE's deductible causes our insurance costs to increase.
Our HRIS services do not include access to our co-employment services, or access to our TriNet sponsored health benefit plans. These services can also include tax credit support via our Clarus R+D team and cloud-based software.
Our HRIS services do not include access to our co-employment services, or access to our TriNet sponsored health benefit plans. However, these services can also include tax credit support via our TriNet Clarus R+D team, additional cloud-based software integrations and incremental administrative services.
In most cases, our PEO clients may cancel these contracts with 30 days' notice to us and we may cancel these contracts with 30 days' notice. Our HRIS clients execute contracts with monthly or annual terms and clients can typically cancel these contracts with 30 days’ notice to us. In some cases, our clients may incur early termination fees.
In most cases, our PEO clients may cancel these contracts with 30 days' notice to us and we may cancel these contracts with 30 days' notice to our clients. Our HRIS clients execute contracts with monthly or annual terms and clients can typically cancel these contracts with 30 days’ notice to us.
Our Owned and Licensed Intellectual Property We own or license from third parties various software, as well as other intellectual property rights, used in our business. Generally, we protect our intellectual property rights through the use of confidentiality and non-disclosure agreements and policies with our employees and third-party partners and vendors.
Our Owned and Licensed Intellectual Property We own or license from third parties various software and other intellectual property rights, used in our business. We protect our intellectual property rights through the use of confidentiality and non-disclosure agreements with our colleagues and third-party partners and vendors as well as policies incorporated and enforceable by contract.
Events include our 3 rd Annual TriNet PeopleForce conference, and informational webinars periodically throughout the year on a wide variety of business topics relevant to our SMB prospects and clients.
Events include our 4 th TriNet PeopleForce conference, and informational webinars periodically throughout the year on a wide variety of business topics relevant to our SMB prospects and clients.
In particular for our PEO services, regulatory focus on the classification of employers, employees and independent contractors has the potential to significantly change how we and other PEOs operate and the services that we and other PEOs can provide to our clients and WSEs. For example, California AB5 could potentially reclassify client independent contractors.
In particular for our PEO services, regulatory focus on the classification of employers, employees and independent contractors has the potential to significantly change how we and other PEOs operate and the services that we and other PEOs can provide to our clients and WSEs.
TRINET 12 2022 FORM 10-K BUSINESS Table of Contents Data Privacy and Security Regulations We collect, store, use, retain, disclose, transfer and otherwise process a significant amount of confidential, sensitive and personal information from and about our actual and potential clients, WSEs, HRIS Users and colleagues, and we are subject to a variety of federal, state and foreign laws, rules, and regulations in connection with such activities.
Data Privacy and Security Regulations We collect, store, use, retain, disclose, transfer and otherwise process a significant amount of confidential, sensitive and personal information from and about our actual and potential clients, WSEs, HRIS Users and colleagues, and we are subject to a variety of federal, state and international laws, rules, and regulations in connection with such activities.
Risk Factors , of this Form 10-K, under the heading - " Data Privacy and Security Risks". Licensing Laws Nearly all states have adopted laws and regulations for licensing, registration, certification or recognition of PEOs and the IRS has implemented a voluntary federal certification program for PEOs.
Risk Factors , of this Form 10-K, under the heading - "Data Privacy and Security Risks". Licensing Laws Nearly all states have adopted laws and regulations for licensing, registration, certification or recognition of PEOs and the IRS has implemented a voluntary federal certification program for PEOs. We expect states without such laws and regulations to adopt them in the future.
WSEs also separately acknowledge the co-employment relationship and the allocation of employment-related responsibilities between TriNet and our clients.
WSEs also separately acknowledge the co-employment relationship and the allocation of employment-related responsibilities between TriNet and the client co-employer.
HRIS Services Our HRIS services primarily consist of our TriNet Zenefits solutions, which offer clients access to our self-directed, cloud-based HRIS software solution to manage their HR needs and the option to add additional services such as payroll processing and benefits management tools to provide HCM solutions that grow dynamically over time based on the needs of our clients.
HRIS Services Our HRIS services primarily consists of our self-directed, cloud-based HRIS software solution which allows clients to manage their HR needs and the option to add tools such as payroll processing and benefits management to provide HCM solutions that flex dynamically over time based on the needs of our clients.
By providing PEO and HRIS services, we believe that we can support a wider range of SMBs and create a pipeline of HRIS clients that may be able to benefit from and transition to TriNet’s higher-touch PEO services at future points in their business lifecycle. Since our founding in 1988, TriNet has served, and continues to serve, thousands of SMBs.
By providing PEO and HRIS services, we believe that we can support a wider range of SMBs and create a pipeline of HRIS clients that may be able to benefit from and transition to TriNet’s higher-touch PEO services at future points in their business lifecycle.
These programs are popular because they allow SMBs, which often have business income tax losses, to realize benefits via payroll tax reductions, rather than business income tax reductions. As a result, many of our SMB clients require that we support these programs.
These programs are popular because they allow SMBs, which often have business income tax losses, to realize benefits via payroll tax reductions, rather than business income tax reductions. As a result, many of our SMB clients require that we support these programs. Examples of these programs include the federal 2015 PATH Act, CARES Act and FFCRA Act.
Our IOM clients receive PEO services like HR, payroll, payroll tax, and risk management from TriNet while obtaining client-sponsored health benefits from a third-party broker. Our HRIS clients use our HRIS software solution to manage their own selected group health plans.
Our OMS clients receive PEO services like HR, payroll, payroll tax, and risk management from TriNet while sponsoring their own health benefits obtained through a broker. Our HRIS clients use our HRIS software solution to manage their own selected group health plans.
SMBs do not need to use TriNet’s PEO or HRIS services to use Clarus R+D. Risk Mitigation We monitor employment-related legal and regulatory developments at the federal, state, and local levels to help our PEO and HRIS clients comply with employment laws and mitigate many of the risks associated with being an employer.
Risk Mitigation We monitor employment-related legal and regulatory developments at the federal, state, and local levels to help our PEO and HRIS clients comply with employment laws and mitigate many of the risks associated with being an employer.
We have aligned our PEO sales organization by industry vertical and unique product offerings with the goal of growing profitable market share in targeted industries. Our PEO vertical approach deepens our network of relationships and gives us an understanding of the unique HR needs facing SMBs in those industries.
We have aligned our PEO sales organization by industry vertical with the goal of growing profitable market share in targeted industries. Our PEO vertical approach deepens our network of relationships and gives us an understanding of the unique HR needs facing SMBs in those industries. Our sales representatives are supported by marketing, lead generation efforts, and referral sources and networks.
The new services we provide through our HRIS software and Clarus R+D also creates a potential pipeline of SMB clients that may benefit from, and transition to, TriNet’s higher-touch PEO services at future points in their lifecycle. Our Clients and Geographies Our clients are distributed across a variety of industries.
The services we provide through our HRIS and TriNet Clarus R+D software platforms create a potential pipeline of SMB clients that may benefit from, and transition to, TriNet’s higher-touch PEO services at future points in their lifecycle.
Employer Status under ERISA and State Laws As part of our PEO services, we sponsor employee benefit plan offerings as the employer of our WSEs under the Internal Revenue Code of 1986, as amended (the "Code"), ERISA and applicable state law.
Risk Factors , of this Form 10-K, under the heading - " Legal and Compliance Risks". Employer Status under ERISA and State Laws As part of our PEO services, we sponsor employee benefit plan offerings as the employer of our WSEs under the Internal Revenue Code of 1986, as amended (the "Code"), ERISA and applicable state law.
We typically sponsor and participate in associations and events around the country to promote our PEO and HRIS services and we also utilize these forums to target specific vertical and geographic markets.
We increasingly use technology and remote communication tools to engage with customers and prospects virtually. We typically sponsor and participate in associations and events around the country to promote our PEO and HRIS services and we also utilize these forums to target specific vertical and geographic markets.
Other states are considering, or have adopted, in the case of Alabama and Louisiana, new regulations or guidance changing the definition of employers, employees and independent contractors and such change in these definitions may impact our ability to provide certain PEO and HRIS services or products to certain employers or employees.
States continue to consider, or have adopted, changing regulations or guidance around the definition of employers, employees and independent contractors and any change in these definitions may impact our ability to provide certain PEO and HRIS services to certain employers or employees.
For more information about how we help our PEO and HRIS clients manage their own human capital resources and satisfy their own HR-related needs, see the section above titled “ Our Services ”. Our Approach to Acquisitions Historically, we have pursued acquisitions to expand our service capabilities, technology offerings, and supplement our growth.
For more information about how we help our PEO and HRIS clients manage their own human capital resources and satisfy their own HR-related needs, see the section above titled “ Our Services ”.
Payroll Taxes, Unemployment Taxes and Payroll Tax Credits We must also comply with the federal and state payroll tax and unemployment tax requirements that apply where our clients are located.
TRINET 13 2023 FORM 10-K BUSINESS Table of Contents Payroll Taxes, Unemployment Taxes and Payroll Tax Credits We must also comply with the federal and state payroll tax and unemployment tax requirements that apply where our clients are located.
Although these programs have expired, processing backlogs at the IRS have resulting in many SMBs, including some of our clients, continuing to wait to receive their tax credits. In some cases, SMB may also still participate in these programs retroactively via payroll tax filing amendments.
Although these programs have expired, processing backlogs and a temporary halt in September 2023 in processing new ERTC claims at the IRS have resulted in many SMBs, including some of our clients, continuing to wait to receive their tax credits. In many cases, SMBs still participated in these programs retroactively via payroll tax filing amendments.
In 2022, we processed $73 billion in payroll and payroll taxes for our clients and ended the year with approximately 22,000 clients, 348,700 WSEs and 248,500 HRIS Users primarily in the U.S.
In 2023, we processed $72 billion in payroll and payroll taxes for our clients and ended the year with approximately 22,600 clients, 347,500 WSEs and 200,800 HRIS Users primarily in the U.S.
Our PEO clients are typically looking for high-touch HR compliance and services support, TriNet sponsored employee benefits, TriNet responsibility for processing payroll and payroll taxes as a co-employer, and access to EPLI claims support and other substantial HR services.
Our PEO clients are typically looking for high-touch HR compliance and services support, TriNet sponsored employee benefits, TriNet responsibility for processing payroll and payroll taxes, and access to EPLI claims support and other substantial HR services. By contrast, many of our HRIS clients are looking for more self-directed, focused and less expensive HRIS services.
Our Technology and Service Development Efforts We continued to make significant investments in our PEO technology platform and HRIS software with projects intended to provide our clients, WSEs, and HRIS Users with enhanced functionality, ease of use, HR management options, security and an overall enhanced experience. We intend to continue making these and other similar investments in 2023 and beyond.
These investments are intended to provide our clients, WSEs, and HRIS Users with enhanced functionality, ease of use, HR management options, security and an optimized user experience. We intend to continue making these and other similar investments in 2024 and beyond.
PEO services remain our core business and other PEOs continue to represent our most significant competition. Our PEO service competitors include large PEOs such as the TotalSource unit of Automatic Data Processing, Inc., the PEO operations of Paychex, Inc. and Insperity, Inc., as well as numerous specialized and smaller PEOs and similar HR service providers with PEO operations.
Our PEO service competitors include large PEOs such as the TotalSource unit of Automatic Data Processing, Inc., the TRINET 10 2023 FORM 10-K BUSINESS Table of Contents PEO operations of Paychex, Inc. and Insperity, Inc., as well as numerous specialized and smaller PEOs and similar HR service providers with PEO operations.
SMBs are increasingly using digital tools like tele-presence and web engagements and we work to engage with SMBs in these TRINET 11 2022 FORM 10-K BUSINESS Table of Contents ways. In 2022, we launched numerous digital channels for engagement, including conversational marketing enhancements on our website in response to customers' changing preferences.
SMBs are increasingly using digital tools like tele-presence and web engagements and we work to engage with SMBs in these ways. In 2023, we continued to use numerous digital channels for engagement, including conversational marketing enhancements on our website.
We deliver our services through two primary models, higher-touch PEO services and our more self-directed HRIS services. PEO Services TriNet has focused almost exclusively on the PEO business since its formation and PEO services remain our core business.
We deliver our services through two primary models, higher-touch PEO services and our more self-directed HRIS services. PEO Services TriNet has historically focused almost exclusively on the PEO business and PEO services remain our core business. Our PEO services offer clients our most complete HCM solution generally including all of the services described below.
Meanwhile, New York regulators also requested data from insurance carriers on PEO health insurance practices. State regulations on PEO health plans can limit our options for providing TriNet sponsored benefits to our PEO clients or eliminate those benefits entirely, so we devote substantial time and resources to monitor and respond to these developments.
State regulations on PEO health plans can limit our options for providing TriNet sponsored benefits to our PEO clients or eliminate those benefits entirely, so we devote substantial time and resources to monitor and respond to these developments. We expect to continue to see similar legislative and regulatory efforts across the country.
Meanwhile, the National Labor Relations Board (NLRB) has proposed a new rule for determining whether two businesses are joint employers under the National Labor Relations Act (NLRA). We do not believe that we are a joint employer under any law or rule, or that these rule changes impact our status as a co-employer.
Meanwhile, the NLRB also modified its own independent contractors test in June 2023 and issued a new standard for determining whether two businesses are joint employers under the NLRA in October 2023. We do not believe that we are a joint employer under any law or rule, or that these rule changes impact our status as a co-employer.
As a result, our HRIS product competes with a wider array of HCM companies and HRIS providers outside of the PEO industry. For additional information about our competition, please refer to Part I, Item 1A.
We do not co-employ our HRIS Users and do not provide TriNet sponsored health benefits, workers’ compensation, or EPLI coverage. As a result, our HRIS services competes with services provided by a wider array of HCM companies and HRIS providers outside of the PEO industry. For additional information about our competition, please refer to Part I, Item 1A.
We have seen increased focus at every level of government inside and outside of the United States on regulating the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information, such as the California CCPA and CPRA and new data privacy rules in Colorado, Connecticut, Virginia and Utah, all of which become effective in 2023.
We have seen increased focus at every level of government inside and outside of the United States on regulating the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information, as well as the growing use of artificial intelligence.
We support these different clients using our suite of HCM offerings, including our industry-tailored vertical approach for our PEO services and our HRIS software and services. Our PEO clients generally execute annual service contracts with us that automatically renew.
Our Clients and Geographies Our clients are distributed across a variety of industries. We support these different clients using our suite of HCM offerings. Our PEO clients generally execute annual service contracts with us that automatically renew.
Examples of these programs include the federal 2015 PATH Act, and the more recent CARES Act and FFCRA Act. The PATH Act allows SMBs to use R&D tax credits submitted on the SMB’s business income tax return to reduce SMB payroll taxes.
The PATH Act allows SMBs to use R&D tax credits submitted on the SMB’s business income tax return to reduce certain payroll taxes.
The higher level of responsibility that our PEOs assume, and risks that our PEOs manage, for our PEO clients is a key differentiator between our PEO and HRIS services. Market Trends and Developments Affecting Our Business in 2022 The U.S. economy experienced significantly slower growth in 2022 than 2021.
The higher level of responsibility that our PEOs assume, and risks that our PEOs manage, for our PEO clients is a key differentiator between our PEO and HRIS services. Market Trends and Developments Affecting Our Business in 2023 The U.S. economy grew modestly during 2023 with unemployment remaining low while inflation began to abate over the year.
Every state regulates insurance practices conducted within their jurisdiction. While we do not broker insurance, certain of our PEO and HRIS services involve assisting our clients in obtaining and managing employee benefits We partner with brokers to provide these services and have elected to obtain state insurance licenses as a result.
We believe we comply in all material respects with the applicable PEO laws and regulations in each state and jurisdiction in which we provide PEO services. Every state regulates insurance practices conducted within their jurisdiction. While we do not broker insurance, certain of our PEO and HRIS services involve assisting our clients in obtaining and managing employee benefits.
This lack of uniformity, which we expect to continue as other states enact data privacy laws, creates significant legal complexities for companies like TriNet that operate nationwide and are required to comply with a patchwork of privacy laws.
Lack of uniformity of laws and regulations, which we expect will increase as various states and countries enact data privacy laws, creates significant legal complexities for companies like TriNet that operate nationwide and in India and Canada.
As the state privacy laws becomes increasingly complex, we expect the cost of complying with all of the requirements and the likelihood of compliance failures to rise.
As the patchwork of laws becomes increasingly complex, we expect the effort and cost of complying with all of the requirements to also increase and the likelihood of compliance failures to rise. • PEO Benefit Plan Legislation. We saw an increase in state efforts to regulate PEO health plans.
The Laws and Regulations that Affect Our Business Our business operates in a complex legal and regulatory environment due to a myriad of federal, state and local laws and regulations that impact our business. Below is a summary of what we believe are the most important legal and regulatory issues specific to our business.
TRINET 11 2023 FORM 10-K BUSINESS Table of Contents The Laws and Regulations that Affect Our Business Our business operates in a complex legal and regulatory environment due to a myriad of federal, state and local laws and regulations that impact our business.
We believe this enables us to expand the SMBs we serve and dynamically service SMBs throughout a larger portion of their lifecycle. Additionally, our Clarus R+D cloud-based tax support software allows us to better serve our existing SMB clients and to serve SMBs that may not need our PEO or HRIS services.
Additionally, our TriNet Clarus R+D cloud-based software platform allows us to serve our existing SMB clients and to serve SMBs that are not currently a client of our PEO or HRIS services with tax credit support services.
We believe our vertical approach is a key differentiator for us and creates additional value for our clients by addressing their industry-specific HR needs. We offer six industry-tailored vertical PEO services: TriNet Financial Services, TriNet Life Sciences, TriNet Main Street, TriNet Nonprofit, TriNet Professional Services, and TriNet Technology.
We leverage our scale and industry HR experience to deliver our PEO service offerings tailored for SMBs in specific industry verticals. We believe our vertical approach is a key differentiator for us and creates additional value for our clients by addressing their industry-specific HR needs.
Through our recently acquired Clarus R+D business, we also help SMBs take advantage of federal and state payroll tax credits, particularly PATH Act R&D tax credits, one of the largest payroll tax incentives available to US businesses. Clarus R+D uses its own software solution and payroll tax experts to support clients and help them determine their tax credits.
While all of our PEO clients receive payroll and payroll tax administration tax services, our HRIS clients can choose whether to manage these services themselves. Through TriNet Clarus R+D, we also help SMBs take advantage of federal and state payroll tax credits, particularly PATH Act R&D tax credits, one of the largest payroll tax incentives available to US businesses.
We expect that the federal government’s approach to data privacy and security will continue to evolve in the coming years. At the state and local level, there is increased focus on regulating the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information.
TRINET 12 2023 FORM 10-K BUSINESS Table of Contents At the state and local level, there is increased focus on regulating the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information.
Our Human Capital Resources As of December 31, 2022, we had approximately 348,700 WSEs, 248,500 HRIS Users and 3,600 colleagues. Oversight and Management At TriNet, we power the success of small and medium-sized business supporting their growth and enabling their people. Together, we strive to become the most trusted advisor to SMBs by harnessing the power of scale.
Oversight and Management At TriNet, we power the success of SMBs by supporting their growth and enabling their people. Together, we strive to become the most trusted advisor to SMBs by harnessing the power of scale.
These programs have generally not been designed with the PEO industry in mind and these programs are subject to broad agency interpretations given their complexity.
This means that we file client tax credit claims, and pass the associated tax credit refunds to our clients based on information supplied by our clients, which we do not control. These programs have generally not been designed with the PEO industry in mind and these programs are subject to broad agency interpretations given their complexity.
Our HRIS software allows our HRIS clients to manage most of the same functions as our PEO technology platform and it is optimized to provide HRIS clients with customizable and flexible reporting tools and analytics to fit specific client needs. Clarus R+D uses its own cloud-based software platform to simplify and support various state and federal tax credits for SMBs.
Our online tools also incorporate workforce analytics, allowing PEO clients to generate HR, payroll, total compensation and other custom reports. Our HRIS software allows our HRIS clients to manage most of the same functions as our PEO technology platform and it is optimized to provide HRIS clients with customizable and flexible reporting tools and analytics to fit specific client needs.
For additional information on the impact of these and other laws and regulations on our business and results of operations, refer to Part I, Item 1A. Risk Factors , of this Form 10-K, under the heading - " Legal and Compliance Risks".
Below is a summary of what we believe are the most important legal and regulatory issues specific to our business. For additional information on the impact of these and other laws and regulations on our business and results of operations, refer to Part I, Item 1A.
As each state’s licensing requirements differ, maintaining current licenses is complex and we are subject to insurance audits, investigations and fines if we fail to comply with insurance license requirements. Other state regulatory authorities impose licensing requirements on companies involved in the transmission of cash, such as banks, and other money transmitters.
We partner with brokers to provide these services and have elected to obtain state insurance licenses as a result. As each state’s licensing requirements differ, maintaining current licenses is complex and we are subject to insurance audits, investigations and fines if we fail to comply with insurance license requirements.
We do not believe that our current activities require any such licenses, but we and others in our industry have received inquiries from regulatory authorities in the past and could receive them in the future. TRINET 13 2022 FORM 10-K BUSINESS Table of Contents For additional information on the impact of licensing laws, refer to Part I, Item 1A.
Other state regulatory authorities impose licensing requirements on companies involved in the transmission of cash, such as banks, and other money transmitters. We do not believe that our current activities require any such licenses, but we and others in our industry have received inquiries from regulatory authorities in the past and could receive them in the future.
We expect to continue to see similar legislative and regulatory efforts across the country. For more information regarding the developments above, refer to Part II, Item 7. MD&A in this Form 10-K, and Part I, Item 1A. Risk Factors .
TRINET 9 2023 FORM 10-K BUSINESS Table of Contents For more information regarding the developments above, refer to Part II, Item 7. MD&A in this Form 10-K Part I, Item 1A. Risk Factors , and Part I, Item 1C. Cybersecurity . Our Technology and Service Development Efforts We continued to make significant investments in our PEO and HRIS technology platforms.
Our top five PEO markets are California, New York, Florida, Texas and Massachusetts, which account for approximately 65% of our total WSEs for the year ended December 31, 2022. Nearly all of our revenues are generated within the United States and its territories and substantially all our long-lived assets are located in the United States.
In some cases, our clients may incur fees associated with early termination. Our top five PEO markets are California, New York, Florida, Texas and Massachusetts, which account for approximately 64% of our total WSEs for the year ended December 31, 2023.
For example, at the federal level the DOL recently proposed a new rule for determining independent contractor status and the DOL also indicated that it may propose new regulations that address white collar minimum TRINET 14 2022 FORM 10-K BUSINESS Table of Contents wage and overtime exemptions under the FLSA.
For example, In January 2024, the DOL proposed a new rule for determining independent contractor status and in August 2023, the DOL proposed new regulations that address the salary requirements for white collar minimum wage and overtime exemptions under the FLSA.
TRINET 7 2022 FORM 10-K BUSINESS Table of Contents Our PEO Co-Employment Model Our PEO services operate using a co-employment model, under which employment-related responsibilities are allocated by contract between us and our PEO clients. The co-employment model allows WSEs to receive the full benefit of our services, including providing WSEs with access to TriNet-sponsored employee benefit plan offerings.
The co-employment model allows WSEs to receive the full benefit of our services, including providing WSEs with access to TriNet-sponsored employee benefit plan offerings.
We are also subject, among other applicable federal laws, rules and regulations, to the rules and regulations promulgated under the authority of the Federal Trade Commission. Several federal and state agencies have issued or are considering rules, regulations or other forms of guidance that may impact the privacy and security obligations and disclosures that apply to our operations.
We are also subject, among other applicable federal laws, rules and regulations, to the rules and regulations promulgated under the authority of the Federal Trade Commission. We expect that the federal government’s approach to data privacy and security rules and regulations will continue to evolve in the coming years.
Many of the key economic assistance programs that SMBs relied on during the COVID-19 pandemic expired before 2022, including FFCRA paid leave and tax credit programs, CARES Act employee retention tax credit programs, and PPP loan programs.
These higher costs over the year were and continue to be reflected in 2023 health claims. • Tax Credit Backlogs . Many of the key economic assistance programs that SMBs relied on during the COVID-19 pandemic have now expired, including the Employee Retention Tax Credit (ERTC).
New Mexico regulators published rules that will, starting in 2024, treat PEO health plans as multiple employer welfare arrangements (MEWAs) and prohibit PEOs from allowing WSEs of small group SMBs to participate in PEO sponsored large group market health plans; the New Mexico legislature is considering a bill that will eliminate this prohibition for PEOs that register as MEWAs under state law.
For example, new legislation and proposed rules in New Mexico seek to prevent WSEs of small group employers from participating in PEO-sponsored large group market health plans, with the exception for plans the PEOs register as MEWAs under state law.
Risk Factors , of this Form 10-K, under the heading - " The definition of employers, employees and independent contractors is evolving. Changes to the laws and regulations that govern what it means to be an employer or an employee may require us to make significant changes in our operations and may negatively affect our business".
Changes to the laws and regulations that govern what it means to be an employer or an employee may require us to make significant changes in our operations and may negatively affect our business". Our Human Capital Resources As of December 31, 2023, we had approximately 347,500 WSEs, 200,800 HRIS Users and 3,600 colleagues.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDespite our efforts and those of our service providers, we cannot fully eliminate the possibility of such cyber-attacks, breaches, disclosures and other data-related incidents, whether intentional or inadvertent and whether internal or external and TRINET 23 2022 FORM 10-K RISK FACTORS Table of Contents we, our clients or our service providers may not discover a cyber-attack, breach, disclosure or other data-related incident for a significant period of time after the incident occurs.
Biggest changeMoreover, we, our clients or our service providers also may not discover a cyber-attack, breach, disclosure or other data-related incident for a significant period of time after the incident occurs. For more information regarding our cybersecurity risk management framework and governance, refer to Part I, Item 1C. Cybersecurity .
However, these programs have generally not been designed with the PEO industry in mind and rely on calculations contained in client income tax returns (which PEOs do not process in their role as the co-employer) and/or other client data that cannot be verified by a PEO, even though the resulting tax benefits are processed through the PEO’s payroll tax returns.
However, these programs have generally not been designed with the PEO industry in mind and rely on calculations contained in client income tax returns which PEOs do not process in their role as the co-employer or other client data that cannot be verified by a PEO, even though the resulting tax benefits are processed through the PEO’s payroll tax returns.
We cannot predict how these positions will ultimately be resolved and if they are resolved unfavorably, we may be forced to discontinue supporting some or all of these programs, incur tax expenses that we cannot recover from our clients, and divert management’s attention to defending our positions, any one of which could have a material adverse effect our ability to attract and retain SMB clients or on our business, financial condition and results of operations.
We cannot predict how these positions will ultimately be resolved and if they are resolved unfavorably, we may be forced to discontinue supporting some or all of these programs, incur tax expenses that we cannot recover from our clients, and divert management’s attention to defending our positions, any one of which could have a material adverse effect on our ability to attract and retain SMB clients or on our business, financial condition and results of operations.
Any such outcome or adjustment would require significant investment in time, cost and management attention and would have a material impact on our clients and WSEs and the type of products and services we provide to them, which could have a material adverse effect on our business and results of operations.
Any such outcome or adjustment would require significant investment in time, cost and management attention and would have a material impact on our clients and WSEs and the type of products and services we provide to them, which could have a material adverse effect on our business and results of operations.
Any state regulations that change existing definitions and classifications of employers, employees and independent contractors could affect the types of client employees we can support through our HRIS and PEO offerings, the way in which we provide TriNet-sponsored benefits to our WSEs, the way in which we report and remit payroll taxes to tax authorities, and our legal liability for the actions and inactions of our clients, which may negatively impact client demand for the services we provide, require us to modify or change how we operate our business and have a material adverse effect on our business and results of operations.
Any state regulations that change existing definitions and classifications of employers, employees and independent contractors could affect the types of client employees we can support through our PEO and HRIS services, the way in which we provide TriNet-sponsored benefits to our WSEs, the way in which we report and remit payroll taxes to tax authorities, and our legal liability for the actions and inactions of our clients, which may negatively impact client demand for the services we provide, require us to modify or change how we operate our business and have a material adverse effect on our business and results of operations.
After review, our security team determined that no security compromises had occurred within TriNet’s systems related to any of these incidents, but this is no guarantee that a future vulnerability or incident would not result in a security compromise. New software vulnerabilities are identified regularly, by organizations like the U.S. Cybersecurity and Infrastructure Security Agency (CISA).
After review, our security team determined that no security compromises had occurred within TriNet's systems related to any of these incidents, but this is no guarantee that a future vulnerability or incident would not result in a security compromise. New software vulnerabilities are identified regularly, by organizations like the U.S. Cybersecurity and Infrastructure Security Agency.
These laws and regulations cover a diverse range of topics, including employer status, employee and independent contractor classifications, employee benefits, health and retirement plans, workers' compensation, baking and money transmission, employment and payroll tax, worksite safety, insurance and banking, wage and hour, anti-discrimination, and many topics specific to the industries of our clients.
These laws and regulations cover a diverse range of topics, including employer status, employee and independent contractor classifications, employee benefits, health and retirement plans, workers' compensation, banking and money transmission, employment and payroll tax, worksite safety, insurance, wage and hour, anti-discrimination, and many topics specific to the industries of our clients.
Any of the above could have a material adverse effect on our business, financial condition and results of operations. For example, we have seen a growing trend, particularly at the federal level, of using payroll tax credits, deferrals and other related payroll tax programs as a mechanism for incentivizing SMB development and/or economic recovery.
Any of the above could have a material adverse effect on our business, financial condition and results of operations. For example, we have seen a growing trend, particularly at the federal level, of using payroll tax credits, deferrals and other related payroll tax programs as a mechanism for incentivizing SMB development and economic recovery.
Our future operating results and stock price are subject to fluctuations and quarterly variations based upon a variety of factors, many of which are not within our control, including, without limitation: • the volume and severity of health and workers' compensation insurance claims made by our WSEs, recorded as part of our insurance costs, and the timing of related claims information provided by our insurance carriers, • the amount and timing of our insurance premiums and other insurance costs, operating expenses and capital expenditures, • the number of our new clients and the number of WSEs or HRIS Users employed by each new client, • the retention or loss of existing clients, for any reason, including third-party acquisition, • a reduction in the number of WSEs or HRIS Users employed by existing clients, • a reduction in the rate of WSE or HRIS User hiring by existing clients, • the timing of client payments and payment defaults by clients, • the costs associated with our acquisitions of companies, assets and technologies, TRINET 29 2022 FORM 10-K RISK FACTORS Table of Contents • any payments or draw downs on our credit facility, • any unanticipated expenses, such as litigation or other dispute-related settlement payments and compliance expenses arising from changes in regulations or regulatory enforcement, • any expenses we incur for geographic and service expansion and service enhancements, • any changes in laws or adverse interpretation or enforcement of laws, which may require us to change the manner in which we operate and/or increase our regulatory compliance costs, • any changes in our effective tax rate, • the issuance of common stock or debt to pay for future acquisitions, which could dilute our stockholders or subject us to significant debt service obligations, • the repurchase of our common stock under our stock repurchase program or otherwise, which could impact earnings per share and increase the ownership percentage of non-participating stockholders, • amortization expense, or the impairment of intangible assets and goodwill, associated with past or future acquisitions, and • the impact of new accounting pronouncements.
Our future operating results and stock price are subject to fluctuations and quarterly variations based upon a variety of factors, many of which are not within our control, including, without limitation: • the volume and severity of health and workers' compensation insurance claims made by our WSEs, recorded as part of our insurance costs, and the timing of related claims information provided by our insurance carriers, • the amount and timing of our insurance premiums and other insurance costs, operating expenses and capital expenditures, • the number of our new clients and the number of WSEs or HRIS Users employed by each new client, • the retention or loss of existing clients, for any reason, including third-party acquisition, • a reduction in the number of WSEs or HRIS Users employed by existing clients, • a reduction in the rate of WSE or HRIS User hiring by existing clients, • the timing of client payments and payment defaults by clients, • the costs associated with our acquisitions of companies, assets and technologies, • any payments or draw downs on our credit facility, • any unanticipated expenses, such as litigation or other dispute-related settlement payments and compliance expenses arising from changes in regulations or regulatory enforcement, • any expenses we incur for geographic and service expansion and service enhancements, • any changes in laws or adverse interpretation or enforcement of laws, which may require us to change the manner in which we operate and/or increase our regulatory compliance costs, • any changes in our effective tax rate, • the issuance of common stock or debt to pay for future acquisitions, which could dilute our stockholders or subject us to significant debt service obligations, TRINET 28 2023 FORM 10-K RISK FACTORS Table of Contents • the repurchase of our common stock under our stock repurchase program or otherwise, which could impact earnings per share and increase the ownership percentage of non-participating stockholders, • amortization expense, or the impairment of intangible assets and goodwill, associated with past or future acquisitions, and • the impact of new accounting pronouncements.
We have experienced elevated sales force attrition in the past and may experience it in the future, for a variety of reasons, including due to changes in industry or client focus, compensation structure, third-party competition for sales talent and other factors.
For example, for a variety of reasons, including due to changes in industry or client focus, compensation structure, third-party competition for sales talent and other factors we have experienced elevated sales force attrition in the past and may experience it in the future.
These centers and systems have been, and could be disrupted by equipment failures, computer server or systems failures, network outages, ransomware attacks and other malicious acts, software errors or defects, vendor performance problems, power failures, natural disasters, terrorist actions or similar events.
These centers and systems have been, and could be disrupted by equipment failures, computer server or systems failures, network outages, ransomware attacks and other malicious acts, software errors or defects, vendor performance problems, banking failures, power failures, natural disasters, terrorist actions or similar events.
While regulations governing HRIS services and tax support services do not involve the complexity of a co-employment relationship, these services are in some ways also highly regulated and such regulations can, and do, change regularly at the federal, state and local levels.
While regulations governing HRIS services and tax credit support services do not involve the complexity of a co-employment relationship, these services are in some ways also highly regulated and such regulations can, and do, change regularly at the federal, state and local levels.
If were to experience either outcome in the future, it could have a material adverse effect on our business, financial condition and results of operation. Higher-than-expected insurance costs result in lower net income.
If we were to experience either outcome in the future, it could have a material adverse effect on our business, financial condition and results of operation. Higher-than-expected insurance costs result in lower net income.
While we have no current DOL audit on-going, this issue and the MEWA publication above may arise in future audits of TriNet plans or the plans of other PEOs in our industry.
While we have no current DOL audit on-going, this issue and the MEWA publication referenced above may arise in future audits of TriNet plans or the plans of other PEOs in our industry.
We and our service providers have experienced disruption to, or unauthorized access to, our networks, applications, bank accounts and other key systems in the past and similar events may occur again in the future.
Similarly, we and our service providers have experienced disruption to, or unauthorized access to, our networks, applications, bank accounts and other key systems in the past and similar events may occur again in the future.
Any such consequence may result in a material adverse effect on our business and results of operations. We have seen increased state efforts to regulate PEO health plans in 2022.
Any such consequence may result in a material adverse effect on our business and results of operations. We have seen increased state efforts to regulate PEO health plans.
Refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K for further discussion of these policies. Under our risk-based health insurance policies, which make up the majority of our health plans and claims p aid in 2022, we assume the risk of variability in future health claims costs for our enrollees.
Refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K for further discussion of these policies. Under our risk-based health insurance policies, which make up the majority of our health plans and claims p aid in 2023, we assume the risk of variability in future health claims costs for our enrollees.
Business, of this Form 10-K, whether they apply to employers generally or specifically to PEOs or to our co-employment relationships could: • reduce or eliminate the value and benefits that clients realize by using our services, • change or eliminate the types of services we provide, • require us to make significant changes to how we do business and provide services, • require us to modify our current business practices or operations, • affect the extent and type of employee benefits that employers and co-employers can or must provide employees, • alter the amount, timing and type of taxes employers, co-employers, clients, WSEs, and HRIS Users are required to pay and that we must manage for and collect from our clients, • increase the cost and complexity of the licensing requirements for our business operations, • create or increase our liability and responsibilities to our clients and WSEs, HRIS Users, and/or TRINET 25 2022 FORM 10-K RISK FACTORS Table of Contents • mandate new compliance requirements, disclosures or services.
Business, of this Form 10-K, whether they apply to employers generally or specifically to PEOs or to our co-employment relationships could: • reduce or eliminate the value and benefits that clients realize by using our services, • change or eliminate the types of services we provide, • require us to make significant changes to how we do business and provide services, • require us to modify our current business practices or operations, • affect the extent and type of employee benefits that employers and co-employers can or must provide employees, TRINET 24 2023 FORM 10-K RISK FACTORS Table of Contents • alter the amount, timing and type of taxes employers, co-employers, clients, WSEs, and HRIS Users are required to pay and that we must manage for and collect from our clients, • increase the cost and complexity of the licensing requirements for our business operations, • create or increase our liability and responsibilities to our clients and WSEs, HRIS Users, and/or • mandate new compliance requirements, disclosures or services.
If we are unable to satisfy the evolving technology and service expectations and regulatory requirements, then we would experience lower client satisfaction, fewer new clients and higher client attrition, which could have a material adverse effect on our business.
If we are unable to satisfy the evolving technology and service expectations and regulatory requirements, then we may experience lower client satisfaction, fewer new clients and higher client attrition, which could have a material adverse effect on our business.
As a result, we cannot guarantee that our efforts will achieve our goals in a timely or cost-effective manner or at all, and we cannot guarantee that we can carry out these projects without a negative impact on our day-to-day operations and client satisfaction.
We cannot guarantee that our efforts will achieve our goals in a timely or cost-effective manner or at all, and we cannot guarantee that we can carry out these projects without a negative impact on our day-to-day operations and client satisfaction.
Acquisitions, including our 2022 acquisitions of Zenefits and Clarus R+D, involve numerous risks, some of which we have experienced in the past and which we may experience in the future, including: • over-valuing and over-paying for businesses and technologies, • increased operating costs and unanticipated costs to successfully integrate the clients, WSEs and HRIS Users, operations, systems, technologies, services and personnel of the acquired business, • establishing or maintaining required internal controls, procedures and policies for the acquired business, • unanticipated costs and risks arising from the unique corporate culture and risk appetite of acquired businesses, • diversion of management’s attention from other business concerns, • litigation resulting from the activities of the acquired business, • insufficient revenues, insurance or seller indemnification to offset increased expenses associated with the acquisitions and unanticipated liabilities of the acquired businesses, • entering markets in which we have no prior experience and may not succeed, and • potential loss of key employees or key clients of the acquired business as a result of the acquisition or integration of the acquired business.
Acquisitions involve numerous risks, some of which we have experienced in the past and which we may experience in the future, including: • over-valuing and over-paying for businesses and technologies, • increased operating costs and unanticipated costs to successfully integrate the clients, WSEs and HRIS Users, operations, systems, technologies, services and personnel of the acquired business, • establishing or maintaining required internal controls, procedures and policies for the acquired business, • unanticipated costs and risks arising from the unique corporate culture and risk appetite of acquired businesses, • diversion of management’s attention from other business concerns, • litigation resulting from the activities of the acquired business, • insufficient revenues, insurance or seller indemnification to offset increased expenses associated with the acquisitions and unanticipated liabilities of the acquired businesses, • entering markets in which we have no prior experience and may not succeed, and • potential loss of key employees or key clients of the acquired business as a result of the acquisition or integration of the acquired business.
As of January 31, 2023, Atairos beneficially owned approximately 36% of our outstanding common stock, and all of our directors, executive officers and their affiliates, including Atairos, beneficially own, in the aggregate, approximately 37% of our outstanding common stock.
As of January 31, 2024, Atairos beneficially owned approximately 36% of our outstanding common stock, and all of our directors, executive officers and their affiliates, including Atairos, beneficially own, in the aggregate, approximately 37% of our outstanding common stock.
The New Mexico proposed rules, and any other new or changed regulations that treat PEO health plans as multiple employer plans, restrict PEO fees with carriers or that limit the availability of PEO benefit plans, if upheld to be legally valid and applicable to our PEO health plans, would likely require us to adjust our business model in the states with such rules, including the manner in which we provide employee health benefits to WSEs and price our services, and could result in material fines or penalties.
These rules, and legislation, and any other new or changed rules that treat PEO health plans as multiple employer plans, restrict PEO fees with carriers or that limit the availability of PEO benefit plans, if upheld to be legally valid and applicable to our PEO health plans, would likely require us to adjust our business model in the states with such rules, including the manner in which we provide employee health benefits to WSEs and price our services, and could result in material fines or penalties.
These credits were based on TriNet health insurance costs over specified periods and we announced them to assist in the economic recovery of our SMB clients during the COVID-19 pandemic, to promote client loyalty and incentivize client retention, and to differentiate TriNet from its peers in the PEO industry and in other competing HR services industries.
These credits were based on TriNet health insurance costs over specified periods and were intended to assist in the economic recovery of our SMB clients during the COVID-19 pandemic, to promote client loyalty and incentivize client retention, and to differentiate TriNet from its peers in the PEO industry and in other competing HR services industries.
We have reported data breaches to regulators, affected individuals, clients and other third parties in the past and we expect to do so in the future.
We have reported data breaches to regulators, affected individuals, clients and other third parties in the past and we expect to do so in the future as appropriate.
As discussed above, the costs associated with any cyber-attacks, breaches, disclosure or other data-related incidents could result in a material adverse effect on our financial condition and results of operations.
The costs associated with any cyber-attacks, breaches, disclosure or other data-related incidents could result in a material adverse effect on our financial condition and results of operations.
Similarly, in 2022, the DOL revised an existing publication regarding regulation of multiple employer welfare arrangements (MEWAs) and added a new section stating its view that a PEO arrangement offering health coverage to more than one client is a MEWA under Section 3(40) of ERISA.
Similarly, in 2022, the DOL revised an existing publication regarding regulation of MEWAs and added a new section stating its view that a PEO arrangement offering health coverage to more than one client is a MEWA under Section 3(40) of ERISA.
Managing these projects also typically requires changes to our internal operational, financial and management controls and reporting systems and procedures.
Managing these projects also typically requires changes to our internal operational, financial and management controls as well as our reporting systems and procedures.
These laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts, requiring attention to changing regulatory requirements.
Depending on the applicable jurisdiction, these laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts, requiring attention to changing regulatory requirements.
As an employer of WSEs under ERISA, we must manage our plans in accordance with ERISA requirements, which could impact how we fulfill plan obligations, how we price services, whether and how we use discretionary credits, the features of our benefit plans, and how we administer and operate our plans.
As an employer of WSEs under ERISA, we must manage our plans in accordance with ERISA requirements, which could impact how we fulfill plan obligations, how we price services, the features of our benefit plans, and how we administer and operate our plans.
For example, we have significant concentrations of PEO clients in California, New York, Florida, Texas and Massachusetts, which account for approximately 65% in aggregate of our paid WSEs for the year ended December 31, 2022.
For example, we have significant concentrations of PEO clients in California, New York, Florida, Texas and Massachusetts, which account for approximately 64% in aggregate of our paid WSEs for the year ended December 31, 2023.
Businesses similar to TriNet Zenefits have been subject to such licensing requirements in the past and although we believe that our operations have been designed to be compliant and avoid such requirements, we cannot guarantee that all regulators will agree.
Businesses similar to our HRIS services have been subject to such licensing requirements in the past and although we believe that our operations have been designed to be compliant and avoid such requirements, we cannot guarantee that all regulators will agree.
As a result, any such disruption could cause us to lose clients, negatively impact our ability to attract new clients, and reduce our revenues and increase our costs, any of which could result in a material adverse effect on our reputation, business and results of operations. Our announced discretionary credits had significant costs.
As a result, any such disruption could cause us to lose clients, negatively impact our ability to attract new clients, and reduce our revenues and increase our costs, any of which could result in a material adverse effect on our reputation, business and results of operations.
As a result, we may be required to incur significant, unexpected compliance costs and we may be exposed to significant penalties or liability for non-compliance, the possibility of fines, lawsuits (including class action privacy litigation), regulatory investigations, criminal or civil sanctions, audits, adverse media coverage, public censure, other claims, significant costs for remediation and damage to our reputation, all of which could have a material adverse effect on our business and operations.
Given the rapid development of cybersecurity and data privacy laws, we may be required to incur significant, unexpected compliance costs and we may be exposed to significant penalties or liability for non-compliance, the possibility of fines, lawsuits (including class action privacy litigation), regulatory investigations, criminal or civil sanctions, audits, adverse media coverage, public censure, other claims, significant costs for remediation and damage to our reputation, all of which could have a material adverse effect on our business and operations.
We have changed our operations and client service processes in recent periods in order to improve our operational effectiveness and resiliency, and we will continue to do so in the future. For example, over the course of 2022 and 2023 we have been upgrading and rolling out a new company-wide enterprise resource planning (ERP) system.
We have changed our operations and client service processes in recent periods in order to improve our operational effectiveness and resiliency, and we will continue to do so in the future. For example, over the course of 2022 and 2023 we upgraded and released a new company-wide enterprise resource planning (ERP) system.
Our top five PEO markets, California, New York, Florida, Texas and Massachusetts, accounted for approximately 65% in aggregate of our paid WSEs for the year ended December 31, 2022.
Our top five PEO markets, California, New York, Florida, Texas and Massachusetts, accounted for approximately 64% in aggregate of our paid WSEs for the year ended December 31, 2023.
In order to attract and retain clients, we believe that we must compete in our industry effectively on the basis of the value proposition that we deliver to our clients, which includes • client experience and satisfaction, • the relevance and cost-effectiveness of our PEO benefit plans, • our PEO vertical market expertise, • our service and product pricing, • our brand awareness and reputation, • our ability to innovate and respond to client needs and regulatory mandates rapidly, • the performance of our online and mobile solutions, software and technology platforms, and • our human resources subject matter expertise.
In order to attract and retain clients, we believe that we must compete in our industry effectively on the basis of the value proposition that we deliver to our clients, which includes TRINET 19 2023 FORM 10-K RISK FACTORS Table of Contents • client experience and satisfaction, • the relevance and cost-effectiveness of our PEO benefit plans, • our PEO vertical market expertise, • our service and product pricing, • our brand awareness and reputation, • our ability to innovate and respond to client needs and regulatory mandates rapidly, • the performance of our online and mobile solutions, software and technology platforms, and • our human resources subject matter expertise.
In addition, in response to COVID-19, many states have also implemented assistance programs, such as mandatory employee leave requirements and other employment- and employment tax-related incentives.
In addition, many states have also implemented assistance programs, such as mandatory employee leave requirements and other employment- and employment tax-related incentives.
For details regarding these data privacy and security laws and regulations discussed above and that apply to our operations, refer to Part I, Item 1. Business , of this Form 10-K, under the heading “ The Laws and Regulations that affect Our Business: Data Privacy and Security Regulations” .
TRINET 23 2023 FORM 10-K RISK FACTORS Table of Contents For details regarding these data privacy and security laws and regulations discussed above and that apply to our operations, refer to Part I, Item 1. Business , of this Form 10-K, under the heading “ The Laws and Regulations that affect Our Business: Data Privacy and Security Regulations” .
Yet, we may be subject to liability for violations of labor and employment laws, workers' compensation laws, industry-specific laws that apply to the businesses our clients operate, and other laws that apply to our clients or to employers generally.
Our ability to control the workplace environment of our clients is limited. Yet, we may be subject to liability for violations of labor and employment laws, workers' compensation laws, industry-specific laws that apply to the businesses our clients operate, and other laws that apply to our clients or to employers generally.
We and our third-party service providers and subcontractors collect, store, use, retain, disclose, transfer and process a significant amount of confidential, sensitive and personal information from and about our actual and potential clients, WSEs, HRIS Users and colleagues, including bank account numbers, social security numbers, tax information, PHI, health claim information, retirement account information, and payroll data.
TRINET 21 2023 FORM 10-K RISK FACTORS Table of Contents We and our third-party service providers and subcontractors collect, store, use, retain, disclose, transfer and process a significant amount of confidential, sensitive and personal information from and about our actual and potential clients, WSEs, HRIS Users and colleagues, including bank account numbers, social security numbers, tax information, PHI, health claim information, retirement account information, and payroll data.
Our SMB clients are particularly affected by volatility in the economic environment. Small and medium-size businesses can be particularly susceptible to changes in the level of overall economic activity in the markets in which they operate.
Our SMB clients are particularly affected by volatility in the economic environment. SMBs can be particularly susceptible to changes in the level of overall economic activity in the markets in which they operate.
We, our clients and our service providers have been the victims of cyber-attacks, breaches, disclosure or other data-related incidents, in the past, and we, our clients and our service providers expect to be victims again in the future.
We, our clients and our service providers have been the victims of cyber-attacks, breaches, disclosure or other data-related incidents, in the past that led to disclosure of the confidential, sensitive or personal information we possess, and we, our clients and our service providers expect to be victims again in the future.
TRINET 22 2022 FORM 10-K RISK FACTORS Table of Contents Any such cyber-attacks, breaches, disclosures or other data-related incidents, could result in material financial liability by • resulting in material fines, penalties, orders, sanctions and proceedings or actions against us or our service providers by regulatory authorities, clients and other third parties, • requiring us to indemnify clients and other third parties, • damaging our reputation, • forcing us to incur significant expenses to defend our actions and practices, • delaying product and service development plans, • resulting in unrelated compliance breaches as a result of system failures or management distraction, and • increasing our costs of doing business.
Any such cyber-attacks, breaches, disclosures or other data-related incidents, could result in material financial liability by: • causing us to incur material fines, penalties, orders, sanctions and proceedings or actions against us or our service providers by regulatory authorities, clients and other third parties, • requiring us to indemnify clients and other third parties, • damaging our reputation, • causing us to incur significant expenses to defend our actions and practices, • delaying product and service development plans, • causing unrelated compliance breaches through system failures or management distraction, and • increasing our costs of doing business.
Angelakis or another designee of Atairos reasonably acceptable to our Nominating and Corporate Governance Committee for election at future annual meetings until Atairos’ beneficial ownership falls below 15% of our common stock.
Angelakis, the Chairman and CEO of Atairos, to our board of directors and agreed to nominate Mr. Angelakis or another designee of Atairos reasonably acceptable to our Nominating and Corporate Governance Committee for election at future annual meetings until Atairos’ beneficial ownership falls below 15% of our common stock.
Joint employment is not the same as co-employment, and we do not believe that we are a joint employer under any law or rule, or that these rule changes impact our status as a co-employer.
Standards for determining joint employer status vary from law to law and state to state. Joint employment is not the same as co-employment, and we do not believe that we are a joint employer under any law or rule, or that these rule changes impact our status as a co-employer.
If we fail to comply with applicable data privacy regulations in the countries in which we send and receive personal data, we may be exposed to regulatory action and fines, which could have a material adverse effect on our business.
Due to our international footprint, we have customers and colleagues outside of the United States. If we fail to comply with applicable data privacy regulations in the countries in which we send and receive personal data, we may be exposed to regulatory action and fines, which could have a material adverse effect on our business.
We expect to see additional, similar TRINET 28 2022 FORM 10-K RISK FACTORS Table of Contents expansions of PEO responsibility and we cannot guarantee that we will be able to recover the costs to comply with such changes from our clients, which could have a material adverse effect on our business.
We expect to see additional, similar expansions of PEO responsibility and we cannot guarantee that we will be able to recover the costs to comply with such changes from our clients, which could have a material adverse effect on our business.
If that were to happen, we may not be able to repay all of the amounts that would become due under TRINET 30 2022 FORM 10-K RISK FACTORS Table of Contents our indebtedness or refinance our debt, which could materially harm our business and force us to seek bankruptcy protection.
If that were to happen, we may not be able to repay all of the amounts that would become due under our indebtedness or refinance our debt, which could materially harm our business and force us to seek bankruptcy protection.
TRINET 31 2022 FORM 10-K PROPERTIES, LEGAL PROCEEDINGS AND MINE SAFETY DISCLOSURES Table of Contents
TRINET 30 2023 FORM 10-K PROPERTIES, LEGAL PROCEEDINGS AND MINE SAFETY DISCLOSURES Table of Contents
Atairos, our largest stockholder, may have significant influence over our Company, and the ownership of capital stock, and thus the voting control, of our Company remains concentrated in our executive officers, directors and their affiliates, which limits your ability to influence corporate matters. On February 1, 2017, an entity affiliated with Atairos Group, Inc.
Atairos, our largest stockholder, may have significant influence over our Company, and the ownership of capital stock, and thus the voting control, of our Company remains concentrated in our executive officers, directors and their affiliates, which limits your ability to influence corporate matters.
In addition, we require those vendors and service providers to undertake additional security measures according to the inherent risk of the system access or processing activity contemplated in the contract. We typically require documentation of vendor and service provider security and privacy obligations through contract provisions.
In addition, we require those vendors and service providers to undertake additional security measures according to the inherent risk of the system access or processing activity contemplated in the contract.
In order to sponsor some of our most important employee benefit plan offerings for WSEs, including health plans, we must qualify as an employer of WSEs, and our plans must qualify as employer-sponsored plans, under TRINET 26 2022 FORM 10-K RISK FACTORS Table of Contents applicable provisions of the Code and ERISA.
In order to sponsor some of our most important employee benefit plan offerings for WSEs, including health plans, we must qualify as an employer of WSEs, and our plans must qualify as employer-sponsored plans, under applicable provisions of the Code and ERISA.
We lose clients for many reasons that we cannot control or easily predict and, generally, our clients sign service agreements that they can cancel on short notice. TRINET 18 2022 FORM 10-K RISK FACTORS Table of Contents Our standard client service agreements can generally be canceled by our clients with 30 days’ prior written notice.
We lose clients for many reasons that we cannot control or easily predict and, generally, our clients sign service agreements that they can cancel on short notice. Our standard client service agreements can generally be canceled by our clients with 30 days’ prior written notice.
The tax support services that Clarus R+D provides are also subject to federal, state and local regulations regarding tax preparation and practice that limit the services they can provide to SMBs.
The tax credit support services we provide are also subject to federal, state and local regulations regarding tax preparation and practice that limit the services we can provide to SMBs.
Due to the size and complexity of our technology platform and services, the amount of confidential, sensitive and personal information that we store and the number of clients, WSEs, HRIS Users, colleagues and service providers with access to this information, we and our service providers are potentially susceptible to a variety of intentional or inadvertent cyber-attacks, breaches, disclosures and other data-related incidents and threats.
Due to the size and complexity of our technology platform and services, the amount of confidential, sensitive and personal information that we store, we and our service providers are potentially susceptible to a variety of intentional or inadvertent cyber-attacks, breaches, disclosures and other data-related incidents and threats. Cybersecurity threats can take a variety of forms.
If we are not recognized as an employer of our worksite employees, and if our benefit plans are deemed to not satisfy plan requirements, under federal and state regulations, we and our clients could be adversely impacted.
TRINET 25 2023 FORM 10-K RISK FACTORS Table of Contents If we are not recognized as an employer of our worksite employees, and if our benefit plans are deemed to not satisfy plan requirements, under federal and state regulations, we and our clients could be adversely impacted.
These businesses are often exposed to credit and cash liquidity risks that larger businesses may be able to avoid, and during periods of weak economic conditions, including periods of increased inflation and increased borrowing costs, small business failures tend to increase, and employment levels tend to decrease.
These businesses are often exposed to credit and cash liquidity risks, including exposure as a result of the failure of their financial institutions, that larger businesses may be able to avoid, and during periods of weak economic conditions, including periods of increased inflation and increased borrowing costs, SMB failures tend to increase, and employment levels tend to decrease.
We have implemented policy, procedural, technical, physical, and administrative controls with the aim of protecting our networks, applications, bank accounts, and the confidential, sensitive and personal information entrusted to us, including bank account numbers, social security numbers, tax information, certain medical information, certain health claim information, retirement account information, payroll data and other PHI, from cyber-attacks, breaches, disclosures and other data-related incidents.
We have implemented policy, procedural, technical, physical, and administrative controls with the aim of protecting our networks, applications, bank accounts, and the confidential, sensitive and personal information entrusted to us, from cyber-attacks, breaches, disclosures and other data-related incidents.
However, continuing uncertainty regarding independent contractor and joint employer status could still result in increased regulatory and worker claims, which could divert management attention and cause us to incur additional and potentially material costs to defend. Remote work has increased dramatically across the country in the wake of the COVID-19 pandemic.
However, continuing uncertainty regarding independent contractor and joint employer status could still result in increased regulatory and worker claims, which could divert management attention and cause us to incur additional and potentially material costs to defend. Remote work continues to be widely used by employers across the country.
Changes in our insurance coverage, or in our relationships with key insurance carriers, could harm our business. Our success depends in part on our ability to maintain competitive health and workers' compensation coverage options and insurance rates through well-known insurance carriers.
Our success depends in part on our ability to maintain competitive health and workers' compensation coverage options and insurance rates through well-known insurance carriers.
For example, while the amount of medical claims we experienced increased in 2022, our insurance costs remained below expectations. Under our fully insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer).
For example, while the amount of medical claims we experienced in 2023 increased as compared to 2022, our insurance costs remained slightly below expectations, which still had a significant impact on our results due to volume. Under our fully insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer).
In addition, most of our PEO clients operate in a relatively small number of verticals, including the technology, professional services, financial services, life sciences and not-for-profit verticals.
TRINET 18 2023 FORM 10-K RISK FACTORS Table of Contents In addition, most of our PEO clients operate in a relatively small number of verticals, including the technology, professional services, financial services, life sciences and not-for-profit verticals.
Our co-employment relationship with our worksite employees exposes us to unique business risks. We are the co-employer of client WSEs. As a co-employer of WSEs, we assume some of the risks and obligations of an employer.
TRINET 17 2023 FORM 10-K RISK FACTORS Table of Contents Our co-employment relationship with our worksite employees exposes us to unique business risks. As a co-employer of client WSEs, we assume some of the risks and obligations of an employer.
Despite our efforts, in the future we may be unable to make required changes and modifications to our TRINET 24 2022 FORM 10-K RISK FACTORS Table of Contents business practices in a commercially reasonable manner, or at all.
Despite our efforts, in the future we may be unable to make required changes and modifications to our business practices in a commercially reasonable manner, or at all.
We could lose market share if our competitors develop superior technologies and services or satisfy client or regulatory demands before we are TRINET 20 2022 FORM 10-K RISK FACTORS Table of Contents able to do so.
We could lose market share if our competitors develop superior technologies and services or satisfy client or regulatory demands before we are able to do so.
Our efforts to improve our operational effectiveness and resiliency require significant time, resources and costs and if these efforts fail or significantly divert management attention, our business and results of operations may suffer.
Any such outcome could result in a material adverse effect on our business, financial condition and results of operations. Our efforts to improve our operational effectiveness and resiliency require significant time, resources and costs and if these efforts fail or significantly divert management attention, our business and results of operations may suffer.
Malicious actors may also direct social engineering, phishing, credential stuffing, ransomware, denial or degradation of service attacks and similar types of attacks against any or all of us, our clients and our service providers.
Malicious actors may develop and deploy viruses, worms and other malicious software programs that attack our networks and data centers or those of our service providers. Malicious actors may also direct social engineering, phishing, credential stuffing, ransomware, denial or degradation of service attacks and similar types of attacks against any or all of us, our clients and our service providers.
Moreover, the IRS' 401(k) guidance and qualification requirements are not applicable to the operation of our cafeteria plans.
TRINET 26 2023 FORM 10-K RISK FACTORS Table of Contents Moreover, the IRS' 401(k) guidance and qualification requirements are not applicable to the operation of our cafeteria plans.
If our new technologies and services perform poorly, or fail to satisfy regulatory requirements, we could experience client dissatisfaction, adverse publicity, loss of sales, and client claims against us, any of which could materially harm our business.
If our new technologies and services perform poorly, or fail to satisfy regulatory requirements, we could experience client dissatisfaction, adverse publicity, loss of sales, and client claims against us, any of which could materially harm our business. For example, like other PEOs, our federal R&D tax credit programs require the IRS to provide tax credit refunds for our clients.
Because minimal guidance exists in the statutes that create these programs, they are subject to broad agency interpretation and confusion. In addition, the processes used to evaluate payroll tax filings are designed with individual taxpayers in mind, not PEOs that aggregate the filings of many clients, which can further increase agency confusion and make it difficult to predict agency interpretations.
In addition, the processes used to evaluate payroll tax filings are designed with individual taxpayers in mind, not PEOs that aggregate the filings of many clients, which can further increase varied interpretation by agencies and make it difficult to predict their interpretation and application.
The work location and residence of an employee can create confusion regarding the federal, state and local laws that apply, including labor and employment, payroll and payroll tax, and unemployment laws.
Other employees may work at home in one state or city some of the time and in an office in another state or city at other times. The work location and residence of an employee can create confusion regarding the federal, state and local laws that apply, including labor and employment, payroll and payroll tax, and unemployment laws.
For example, we rely on software systems to process payroll, payroll tax and benefits data and make related payments, and to access insurance carrier networks and databases that manage WSE and HRIS User benefits and claims. These software systems run on computer hardware that we or our service providers house in various service centers.
For example, we rely on software systems, including the software systems used by our banking institutions, to process payroll, payroll tax and benefits data and make related payments, and to access insurance carrier networks and databases that manage WSE and HRIS User benefits and claims.
TriNet does not provide broker insurance, but we do maintain producer licenses in all 50 states and select U.S. territories for our HRIS services and for our IOM PEO product, which offers clients the option to receive PEO services from TriNet while obtaining client-sponsored health benefits from third-party brokers.
TriNet TRINET 27 2023 FORM 10-K RISK FACTORS Table of Contents does not provide broker insurance, but we do maintain producer licenses in all 50 states and select U.S. territories for our HRIS services and for our OMS product family, which offers clients the option to receive PEO services from TriNet while sponsoring their own health benefits obtained through brokers.
If our current and future projects are delayed or unsuccessful, client satisfaction may suffer, we may lose clients or fail to onboard new clients at expected rates, and we may incur substantial unanticipated costs to complete these projects. Any of these outcomes could have a material adverse effect on our business, financial condition and results of operations.
If our current and future projects are delayed or unsuccessful, of if any changes to our controls, reporting systems, or procedures are deficient, client satisfaction may suffer, we may lose clients or fail to onboard new clients at expected rates, and we may incur substantial unanticipated costs to complete these projects.
However, the IRS uses its own complex, multi-factor test to ascertain whether an employment relationship exists between a worker and a purported employer. Although we believe that we qualify as an employer of WSEs under the Code, we cannot assure you that the IRS will not challenge our position or continue to provide favorable determination letters.
Although we believe that we qualify as an employer of WSEs under the Code, we cannot assure you that the IRS will not challenge our position or continue to provide favorable determination letters.
Any new laws, changes in existing laws, or any adverse application, interpretation or enforcement of new or existing laws, including those described in Part I, Item 1.
This change would negatively impact SMBs by terminating the availability of the ERTC early. Any new laws, changes in existing laws, or any adverse application, interpretation or enforcement of new or existing laws, including those described in Part I, Item 1.
As the patchwork of state privacy laws becomes increasingly complex, the cost of complying with all of the requirements will rise. We are working to comply with all applicable state requirements, but we cannot guarantee that we will not incur significant costs to comply with these requirements or that our efforts will be successful.
As the patchwork of privacy laws to which we are subject becomes increasingly complex, the cost of complying with all of the requirements will rise and we cannot guarantee our compliance efforts will be successful.
For example, in certain states, PEOs are responsible for paying salaries, wages and related payroll taxes of WSEs, even if our clients have not timely remitted payments to us. WSEs work in our clients' workplaces. Our ability to control the workplace environment of our clients is limited.
For example, in certain states, PEOs are responsible for paying salaries, wages and related payroll taxes of WSEs, even if our clients have not timely remitted payments to us whether due to insolvency, their bank going into receivership, or other events that may be out of our control. WSEs work in our clients' workplaces.
These costs will not be recovered if we fail to achieve the business goals for which the credits were designed, which could result in a material adverse effect on our business, results of operation and financial condition. We have offered various discretionary credits to eligible clients in 2020, 2021 and 2022.
Discontinuing our discretionary credit program could result in a material adverse effect on our business, results of operation and financial condition. We offered various discretionary credits to eligible clients in 2020, 2021 and 2022.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe total remaining authorization for future stock repurchases under our stock repurchase program was $245 million as of December 31, 2022. The program does not have an expiration date. (2) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of restricted stock units granted pursuant to approved plans.
Biggest change(2) Includes shares surrendered by employees to us to satisfy tax withholding obligations that arose upon vesting of restricted stock units granted pursuant to approved plans. (3) We repurchased a total of approximately $13 million of our outstanding stock during the three months ended December 31, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders of Record Our common stock is traded on the New York Stock Exchange under the symbol “TNET”. As of February 8, 2023, we had 93 holders of record of our common stock per Computershare Trust Company N.A., our transfer agent.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information and Holders of Record Our common stock is traded on the New York Stock Exchange under the symbol “TNET”. As of February 8, 2024, we had 70 holders of record of our common stock per Computershare Trust Company N.A., our transfer agent.
The cumulative return is based on the assumption that $100 had been invested in TriNet Group, Inc. common stock, the Standard & Poor's 500 Stock Index (S&P 500) and common stock of members of a Peer Group Index, all on December 31, 2017 and that all quarterly dividends were reinvested.
The cumulative total return is based on the assumption that $100 had been invested in TriNet Group, Inc. common stock, the Standard & Poor’s 500 Stock Index (S&P 500) and common stock of members of a Peer Group Index, all on December 31, 2018 and that all dividends were reinvested.
Financial Statements and Supplementary Data, of this Form 10-K), capital requirements, business prospects and other factors our board of directors may deem relevant. Performance Graph The graph on the following page compares the cumulative return on our common stock since December 31, 2017 with the cumulative return on the S&P 500 Index and a Peer Group Index.
Financial Statements and Supplementary Data, of this Form 10-K), capital requirements, business prospects and other factors our board of directors may deem relevant. Performance Graph The graph below compares the cumulative total return on our common stock since December 31, 2018 with the cumulative total return on the S&P 500 Index and a Peer Group Index.
Dividend Policy We did not declare or pay cash dividends in 2022 or 2021. Payment of cash dividends in the future, if ever, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions under our credit facility (refer to Note 8 in Part II, Item 8.
Dividend Policy We did not declare or pay cash dividends in 2023 or 2022. The decision to pay cash dividends in the future is made at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions under our credit facility (refer to Note 8 in Part II, Item 8.
TRINET 34 2022 FORM 10-K STOCK ACTIVITIES Table of Contents Our stock repurchases are subject to certain restrictions under the terms of our credit facility. For more information about our stock repurchases and the restrictions imposed by our credit facility, refer to Note 8 and Note 11 in Part II, Item 8.
For more information about our stock repurchases and the restrictions imposed by our credit facility, refer to Note 8 and Note 11 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K. TRINET 34 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents
Issuer Purchases of Equity Securities The following table provides information about our purchases of TriNet common stock during the fourth quarter of 2022: Period Total Number of Shares Purchased (1) Weighted Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans (2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (in millions) (3) October 1 - October 31, 2022 170,280 $ 65.34 169,971 $ 173 November 1 - November 30, 2022 179,654 $ 65.09 133,141 $ 165 December 1 - December 31, 2022 1,776,500 $ 71.19 1,675,744 $ 245 Total 2,126,434 1,978,856 (1) In May 2014, our board of directors approved a stock repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934.
TRINET 33 2023 FORM 10-K STOCK ACTIVITIES Table of Contents Issuer Purchases of Equity Securities The following table provides information about our purchases of TriNet common stock during the fourth quarter of 2023: Period Total Number of Shares Purchased (2) Weighted Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (in millions) (3) October 1 - October 31, 2023 98,722 $ 109.78 98,390 $ 435 November 1 - November 30, 2023 77,037 $ 109.28 24,717 $ 433 December 1 - December 31, 2023 75,899 $ 118.96 — $ 433 Total 251,658 123,107 (1) In May 2014, our board of directors approved a stock repurchase program pursuant to which we are authorized to repurchase our common stock in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Securities Exchange Act of 1934.
(3) We repurchased a total of approximately $139 million of our outstanding stock during the three months ended December 31, 2022. We use our stock repurchase program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plans and employee purchase plan.
We use our stock repurchase program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plans and employee purchase plan. As part of our stock repurchase program, we repurchased approximately $1.1 billion of our common stock in 2023.
TRINET 33 2022 FORM 10-K STOCK ACTIVITIES Table of Contents COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN Among TriNet Group, Inc., the S&P 500 Index, and a Peer Group (1) (1) The Peer Group Index used in the chart above consists of the following companies: Automatic Data Processing, Inc. Insperity, Inc. Paychex, Inc. Barrett Business Services, Inc. Intuit, Inc.
The cumulative dollar total returns shown on the graph represent the value that such investments would have had at each year end. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN Among TriNet Group, Inc., the S&P 500 Index, and a Peer Group (1) (1) The Peer Group Index used in the chart above consists of the following companies: Automatic Data Processing, Inc.
From time to time, our board of directors authorizes increases to our stock repurchase program and has approved an aggregate total of $1,451 million as of December 31, 2022, which includes the approval of aggregate increases of $300 million and $200 million in February 2022 and November 2022, respectively.
From time to time, our board of directors authorizes increases to our stock repurchase program and has approved an aggregate total of $2,715 million as of December 31, 2023. The total remaining authorization for future stock repurchases under our stock repurchase program was $433 million as of December 31, 2023. The program does not have an expiration date.
As part of our stock repurchase program, we repurchased approximately $519 million of our common stock in 2022. We plan to use current cash and cash generated from ongoing operating activities to fund our stock repurchase program.
We plan to use current cash and cash generated from ongoing operating activities to fund our stock repurchase program. Under our previously announced tender offer which concluded in the third quarter of 2023, we purchased 5,981,308 of our shares for an aggregate cost of approximately $640 million, including fees and expenses.
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The cumulative dollar returns shown on the graph represent the value that such investments would have had at each year end.
Added
Insperity, Inc. Paychex, Inc. Barrett Business Services, Inc. Intuit, Inc.
Removed
Under our previously announced tender offers, we purchased 3,653,690 of our shares for an aggregate cost of approximately $319 million, including fees and expenses, in March 2022, and we purchased 1,515,258 of our shares for an aggregate cost of approximately $111 million, including fees and expenses, in December 2022.
Added
Concurrently, through a purchase agreement with our largest stockholder, Atairos Group, Inc we purchased 3,364,486 of our shares for approximately $360 million, including fees and expenses. Our stock repurchases are subject to certain restrictions under the terms of our credit facility.
Removed
Financial Statements and Supplementary Data, of this Form 10-K. TRINET 35 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents

Item 7. Management's Discussion & Analysis

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

81 edited+42 added−26 removed36 unchanged
Biggest changeTRINET 46 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents (in millions) $746 2021 Operating Expense +39 COPS increased, driven primarily by additional hiring to support more WSEs and incremental costs related to our HRIS Cloud Services. +40 S&M increased, driven primarily by increased compensation, technology spend, travel and entertainment and partially offset by a reduction in broker referral commissions. +65 G&A increased, driven primarily by the $42 million of transaction and integration costs related to the Zenefits and Clarus R+D acquisitions, higher compensation, technology services expenses to improve our systems and processes, and to enhance our service offerings, and impairments related to underutilized office space, partially offset by lower payroll tax and related assessments. +23 SD&P increased, driven primarily by increased compensation and technology service expenses as we continue to work to improve our client experience and our systems and processes. +10 D&A increased, due to the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions. $923 2022 Operating Expenses The primary spend type drivers to the changes in our OE are presented below: TRINET 47 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Other Income (Expense) Other income (expense) consists primarily of interest and dividend income from investments, interest expense under our previous credit facility and interest on our 3.50% Senior Notes due 2029 (our 2029 Notes) issued in February 2021.
Biggest changeTRINET 46 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents (in millions) $923 2022 Operating Expense +4 COPS increased, driven primarily by higher compensation expense to support WSEs and incremental costs related to our HRIS cloud services. +43 S&M increased, driven primarily by higher compensation from the growth in our sales force, together with higher advertising, conference and events expenses, technology spend and broker commissions. -30 G&A decreased, driven primarily by lower transaction and integration expenses as well as lower costs in consulting and facilities expenses. -8 SD&P decreased, driven primarily by lower net compensation and consulting expenses due to higher capitalization of internally developed software. +8 D&A increased, due to the amortization of intangible assets recognized for the Zenefits and Clarus R+D acquisitions as well as higher amortization related to recently deployed software. $940 2023 Operating Expenses The primary spend type drivers to the changes in our OE are presented below: TRINET 47 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Other Income (Expense) Other income (expense) consists primarily of interest income from cash and investments and interest expense on our outstanding debt.
Our cash flow related to WSE payroll and benefits is generally matched by advance collection from our clients. To minimize the credit risk associated with remitting the payroll and associated taxes and benefits costs, we require PEO clients to prefund the payroll and related payroll taxes and benefits costs.
Our cash flow related to WSE payroll and benefits is generally matched by advance collection from our PEO clients. To minimize the credit risk associated with remitting the payroll and associated taxes and benefits costs, we require PEO clients to prefund the payroll and related payroll taxes and benefits costs.
Corporate Operating Cash Flows • Net cash provided by (used in) operating activities, excluding the effects of: - Assets associated with WSEs (accounts receivable, unbilled revenue, prepaid expenses and other current assets) and - Liabilities associated with WSEs (client deposits and other client liabilities, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health benefit costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities). • Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs. • Enhances comparisons to prior periods and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.
Corporate Operating Cash Flows • Net cash provided by (used in) operating activities, excluding the effects of: - Assets associated with WSEs (accounts receivable, unbilled revenue, prepaid expenses, other payroll assets and other current assets) and - Liabilities associated with WSEs (client deposits and other client liabilities, accrued wages, payroll tax liabilities and other payroll withholdings, accrued health insurance costs, accrued workers' compensation costs, insurance premiums and other payables, and other current liabilities). • Provides information that our stockholders and management can use to evaluate our cash flows from operations independent of the current assets and liabilities associated with our WSEs. • Enhances comparisons to prior periods and, accordingly, used as a liquidity measure to manage liquidity between corporate and WSE related activities, and to help determine and plan our cash flow and capital strategies.
Insurance Costs Insurance costs include insurance premiums for coverage provided by insurance carriers, payments for claims costs and expenses for other risk management services, reimbursement of claims payments made by insurance carriers or third-party administrators below a predefined deductible limit, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.
Insurance Costs Insurance costs include insurance premiums for coverage provided by insurance carriers, payments for claims costs and expenses for other risk management and administrative services, reimbursement of claims payments made by insurance carriers or third-party administrators below a predefined deductible limit, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.
We review and evaluate these judgments and the associated recommendations in concluding the adequacy of accrued costs. Our quarterly reserving process involves the collaboration of our qualified actuaries and our actuarial and finance departments to approve a single point best estimate.
We review and evaluate these judgments and the associated recommendations in concluding the adequacy of accrued costs. Our quarterly reserving process involves the collaboration of our internal qualified actuaries and our actuarial and finance departments to approve a single point best estimate.
Approximately 84% of our group health insurance costs relate to risk-based plans in which we agree to reimburse our carriers for any claims paid within an agreed-upon per-person deductible layer up to a maximum aggregate exposure limit per policy. These deductible dollar limits and maximum limits vary by carrier and year.
Approximately 86% of our group health insurance costs relate to risk-based plans in which we agree to reimburse our carriers for any claims paid within an agreed-upon per-person deductible layer up to a maximum aggregate exposure limit per policy. These deductible dollar limits and maximum limits vary by carrier and year.
For additional information about our accounting policies, refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K. The following items require significant estimation or judgment: Insurance Costs We purchase workers' compensation and health benefits coverage for our employees and WSEs.
For additional information about our accounting policies, refer to Note 1 in Part II, Item 8. Financial Statements and Supplementary Data, of this Form 10-K. The following items require significant estimation or judgment: Insurance Costs We purchase workers' compensation and health benefits coverage for our colleagues and WSEs.
Decreases in insurance costs below our projections, reflected as a lower ICR, result in higher net income, but can be an indicator that insurance costs are developing more slowly than our projections, which are reflected in our fees, and this can have a negative impact on client retention and new sales.
Decreases in insurance costs below our projections, reflected as a lower ICR, result in higher net income, but can be an indicator that insurance costs are developing more slowly than our projections, which are reflected in our fees, and this can have a negative impact over time on client retention and new sales.
If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could materially decrease net income and result in lower asset values on our consolidated balance sheet.
If we are required to retroactively adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could materially decrease net income and result in lower asset values on our consolidated balance sheets.
(1) Non-GAAP effective tax rate is 25.5% for 2022, 2021 and 2020, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions and nonrecurring benefits or expenses from federal legislative changes. (2) Non-cash interest expense represents amortization and write-off of our debt issuance costs and loss on a terminated derivative.
(1) Non-GAAP effective tax rate is 25.6% for 2023, and 25.5% for 2022 and 2021, which excludes the income tax impact from stock-based compensation, changes in uncertain tax positions, and nonrecurring benefits or expenses from federal legislative changes. (2) Non-cash interest expense represents amortization and write-off of our debt issuance costs and loss on a terminated derivative.
We measure goodwill as the excess of the fair value of consideration transferred over the net of the estimated fair values of the identifiable assets acquired and liabilities assumed. Refer to Note 1 6 in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K .
We measure goodwill as the excess of the fair value of consideration transferred over the net of the estimated fair values of the identifiable assets acquired and liabilities assumed. Refer to Note 16 in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K .
The Indenture governing the 2029 Notes includes restrictive covenants limiting our ability to: (i) create liens on certain assets to secure debt; (ii) grant subsidiary guarantees of certain debt without also providing a guarantee of the 2029 Notes; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person, subject, in each case, to certain customary exceptions.
The indenture governing our 2029 Notes and 2031 Notes each includes restrictive covenants limiting our ability to: (i) create liens on certain assets to secure debt; (ii) grant a subsidiary guarantee of certain debt without also providing a guarantee of the 2029 Notes or 2031 Notes, as applicable; and (iii) consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of our assets to, another person, subject, in each case, to certain customary exceptions.
The following table illustrates the sensitivity of changes in completion factors on our year end estimate of insurance costs (in millions of dollars): Change in completion factors Change in insurance costs -0.75% $18 -0.50% $12 -0.25% $6 +0.25% $(6) +0.50% $(12) +0.75% $(18) Business Combinations Under the acquisition method of accounting we generally recognize the identifiable assets acquired and the liabilities assumed in an acquiree at their estimated fair values as of the date of acquisition.
The following table illustrates the sensitivity of changes in completion factors on our year end estimate of insurance costs (in millions of dollars): Change in completion factors Change in insurance costs -0.75% $19 -0.50% $13 -0.25% $6 +0.25% $(6) +0.50% $(13) +0.75% $(19) Business Combinations Under the acquisition method of accounting we generally recognize the identifiable assets acquired and the liabilities assumed in an acquiree at their estimated fair values as of the date of acquisition.
We use the following measures to analyze changes in ISR: • Volume - the percentage change in period over period Average WSEs, • Rate - the weighted average percentage change in fees associated with each of our insurance service offerings, • Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings (health plan enrollment), and • Credit - the weighted average amounts recognized for our Recovery Credits.
We use the following measures to analyze changes in ISR: • Volume - the percentage change in period over period co-employed Average WSEs, • Rate - the weighted average percentage change in fees associated with each of our insurance service offerings, • Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings (health plan enrollment), and • Credit - the weighted average amounts recognized for our 2022 Credits.
The ratio of OE to total revenues was 19% and 16% in 2022 and 2021, respectively. % represents portion of compensation related expense included in operating expenses We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and D&A. The charts below provide a view of the expenses of the business functions.
The ratio of OE to total revenues was 19% in 2023 and 2022. % represents portion of compensation related expense included in operating expenses We analyze and present our OE based upon the business functions COPS, S&M, G&A and SD&P and D&A. The charts below provide a view of the expenses of the business functions.
TRINET 50 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Investing Activities Cash used in investing activities for the periods presented below primarily consisted of purchases of investments, capital expenditures and acquisition of subsidiaries, partially offset by proceeds from the sale and maturity of investments.
TRINET 50 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Investing Activities Cash used in investing activities for the periods presented below primarily consisted of purchases of investments, capital expenditures and acquisition of business, partially offset by proceeds from the sale and maturity of investments.
The following table illustrates the sensitivity of changes in the LDFs on our year end estimate of insurance costs (in millions of dollars): Change in loss development factor Change in insurance costs -5.0% ($32) -2.5% ($18) +2.5% $20 +5.0% $39 Accrued Health Insurance Costs We sponsor and administer a number of employee benefit plans for our WSEs, including group health, dental, vision and life insurance as an employer plan sponsor under section 3(5) of the ERISA.
The following table illustrates the sensitivity of changes in the LDFs on our year end estimate of insurance costs (in millions of dollars): Change in loss development factor Change in insurance costs -5.0% ($31) -2.5% ($18) +2.5% $19 +5.0% $38 Accrued Health Insurance Costs We sponsor and administer a number of employee benefit plans for our WSEs, including group health, dental, vision and life insurance as an employer plan sponsor under section 3(5) of the ERISA.
Such factors include, but are not limited to: the timing of the emergence of claims, volume, severity and complexity of claims, social and judicial trends, medical treatment trends, the extent of our historical loss data versus industry information, rates of participant turnover, the impact of MCT and seasonal trends, the impact of setting prices in advance of benefit periods, and the impact of unanticipated events like the COVID-19 pandemic.
Such factors include but are not limited to: the timing, volume, severity and complexity of claims, social and judicial trends, medical treatment trends, the extent of our historical loss data versus industry information, rates of participant turnover, the impact of MCT and seasonal trends, the impact of setting prices in advance of benefit periods, and the impact of unanticipated events.
In addition to focusing on growing our Average WSE and Total WSE counts, we also focus on pricing strategies, benefit participation and service differentiation to expand our revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.
In addition to focusing on growing our Average WSE and Total WSE counts, we also focus on pricing strategies, benefit participation and service differentiation to expand the value we provide to our clients and our resulting revenue opportunities. We report the impact of client and WSE participation differences as a change in mix.
We also use the following measures to further analyze changes in total revenue: • Volume - the percentage change in period over period Average WSEs, • Rate - the combined weighted average percentage changes in service fees for each vertical service and changes in service fees associated with each insurance service offering, • Mix - the change in composition of Average WSEs within our verticals combined with the composition of our enrolled WSEs within our insurance service offerings and the composition of products and services our clients receive, including Clarus R+D, • Credit - the weighted average change in amounts recognized for our Recovery Credits, and • HRIS - incremental HRIS cloud services revenue from our acquisition of Zenefits in February 2022.
We also use the following measures to further analyze changes in total revenue: • Volume - the percentage change in period over period co-employed Average WSEs, • Rate - the combined weighted average percentage changes in service fees for each vertical service and changes in service fees associated with each insurance service offering, • Mix - the change in composition of Average WSEs within our verticals combined with the composition of our enrolled WSEs within our insurance service offerings and the composition of products and services our clients receive, including Clarus R+D, • Credit - the weighted average change in amounts recognized for our 2022 Credits, and • HRIS - incremental HRIS cloud services revenue.
TRINET 51 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Financing Activities Net cash provided by (used in) financing activities in the years ended December 31, 2022 and 2021 consisted of our debt and equity-related activities.
TRINET 51 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Financing Activities Net cash used in financing activities in the years ended December 31, 2023 and 2022 consisted of our debt and equity-related activities.
TRINET 53 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents We use a combination of loss development, expected loss ratio and frequency/severity methods which include the following inputs, assumptions and analytical techniques: • Historical volume and severity of workers' compensation cost experience, exposure data and industry loss experience related to TriNet’s insurance policies, • inputs of WSEs’ job responsibilities and location, • estimates of future cost trends, • expected loss ratios for the latest accident year or prior accident years, adjusted for the loss trend, the effect of rate changes and other quantifiable factors, and • LDFs to project the reported losses for each accident year to an ultimate basis.
We use a combination of loss development, expected loss ratio and frequency/severity methods which include the following inputs, assumptions and analytical techniques: • Historical volume and severity of workers' compensation cost experience, exposure data and industry loss experience related to TriNet’s insurance policies, • inputs of WSEs’ job responsibilities and location, • estimates of future cost trends, • expected loss ratios for the latest accident year or prior accident years, adjusted for the loss trend, the effect of rate changes and other quantifiable factors, and • LDFs to project the reported losses for each accident year to an ultimate basis.
Recent Accounting Pronouncements Refer to Note 1 in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information related to recent accounting pronouncements. TRINET 55 2022 FORM 10-K QUANTITATIVE AND QUALITATIVE DISCLOSURES Table of Contents
TRINET 55 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Recent Accounting Pronouncements Refer to Note 1 in Part II, Item 8, Financial Statements and Supplementary Data, of this Form 10-K for additional information related to recent accounting pronouncements. TRINET 56 2023 FORM 10-K QUANTITATIVE AND QUALITATIVE DISCLOSURES Table of Contents
The table below presents a reconciliation of Net income to Adjusted Net Income: Year Ended December 31, (in millions) 2022 2021 2020 Net income $ 355 $ 338 $ 272 Effective income tax rate adjustment 5 (10) (6) Stock based compensation 62 50 43 Amortization of other intangible assets, net ( ¹ ) 18 12 5 Non-cash interest expense 1 3 1 Transaction and integration costs 37 — — Income tax impact of pre-tax adjustments (30) (17) (12) Adjusted Net Income $ 448 $ 376 $ 303 (1) Amount includes impairment of customer relationship intangibles in 2021.
The table below presents a reconciliation of Net income to Adjusted Net Income: Year Ended December 31, (in millions) 2023 2022 2021 Net income $ 375 $ 355 $ 338 Effective income tax rate adjustment (2) 5 (10) Stock based compensation 59 62 50 Amortization of other intangible assets, net ( ¹ ) 20 18 12 Non-cash interest expense 2 1 3 Transaction and integration costs 17 37 — Income tax impact of pre-tax adjustments (25) (30) (17) Adjusted Net Income $ 446 $ 448 $ 376 (1) Amount includes impairment of customer relationship intangibles in 2021.
The table below presents a reconciliation of net cash provided by operating activities to Corporate Operating Cash Flows: Year Ended December 31, (in millions) 2022 2021 2020 Net cash provided by operating activities $ 562 $ 218 $ 546 Less: Change in WSE related other current assets (149) (51) 10 Less: Change in WSE related liabilities 214 (146) 198 Net cash (used in) provided by operating activities - WSE $ 65 $ (197) $ 208 Net cash provided by operating activities - Corporate $ 497 $ 415 $ 338 TRINET 39 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Operating Metrics Worksite Employees (WSE) Average WSE growth is a volume measure we use to monitor the performance of our business.
The table below presents a reconciliation of net cash provided by operating activities to Corporate Operating Cash Flows: Year Ended December 31, (in millions) 2023 2022 2021 Net cash provided by operating activities $ 545 $ 562 $ 218 Less: Change in WSE related other current assets (329) (149) (51) Less: Change in WSE related liabilities 335 214 (146) Net cash (used in) provided by operating activities - WSE $ 6 $ 65 $ (197) Net cash provided by operating activities - Corporate $ 539 $ 497 $ 415 TRINET 39 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Operating Metrics Worksite Employees (WSE) Average WSE change is a volume measure we use to monitor the performance of our PEO business.
TRINET 38 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Reconciliation of GAAP to Non-GAAP Measures The table below presents a reconciliation of Net income to Adjusted EBITDA: Year Ended December 31, (in millions) 2022 2021 2020 Net income $ 355 $ 338 $ 272 Provision for income taxes 127 103 85 Stock based compensation 62 50 43 Interest expense, bank fees and other (1) 39 20 21 Depreciation and amortization of intangible assets (2) 64 54 47 Amortization of cloud computing arrangements 4 — — Transaction and integration costs 37 — — Adjusted EBITDA $ 688 $ 565 $ 468 Adjusted EBITDA Margin 14.1 % 12.5 % 11.6 % (1) Amount includes $17M of realized investments losses on sales and impairments related to AFS securities in 2022.
TRINET 38 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Reconciliation of GAAP to Non-GAAP Measures The table below presents a reconciliation of Net income to Adjusted EBITDA: Year Ended December 31, (in millions) 2023 2022 2021 Net income $ 375 $ 355 $ 338 Provision for income taxes 126 127 103 Stock based compensation 59 62 50 Interest expense, bank fees and other (1) 40 39 20 Depreciation and amortization of intangible assets (2) 72 64 54 Amortization of cloud computing arrangements 8 4 — Transaction and integration costs 17 37 — Adjusted EBITDA $ 697 $ 688 $ 565 Adjusted EBITDA Margin 14.2 % 14.1 % 12.5 % (1) 2022 Interest expense, bank fees and other includes $17M of realized investments losses on sales and impairments related to AFS securities.
Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 16, 2021.
Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 15, 2023.
The following table summarizes our workers' compensation obligations, gross of collateral, as of December 31, 2022, Payments Due by Period (in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years Workers' compensation obligations (1) $ 189 $ 56 $ 57 $ 25 $ 51 (1) Represents estimated payments that are expected to be made to carriers for various workers' compensation programs under the contractual obligations.
The following table summarizes our workers' compensation obligations, gross of collateral, as of December 31, 2023, Payments Due by Period (in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years Workers' compensation obligations (1) $ 175 $ 51 $ 54 $ 23 $ 47 (1) Represents estimated payments that are expected to be made to carriers for various workers' compensation programs under the contractual obligations.
Costs covered by these insurance plans generally develop on average within three to six months so insurance costs and accrued health insurance costs include estimates of reported losses and claims incurred but not yet paid (IBNP). Data is grouped and analyzed by insurance carrier.
Costs covered by these insurance plans generally develop on average within three to six months so insurance costs and accrued health insurance costs include estimates of claims IBNP. Data is grouped and analyzed by insurance carrier.
TRINET 54 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents The following table illustrates the sensitivity of changes in the medical cost trend on our year end estimate of insurance costs (in millions of dollars): Change in medical cost trend Change in insurance costs +3.0% $20 +2.0% $14 +1.0% $7 -1.0% $(7) -2.0% $(14) -3.0% $(20) Completion factors are an actuarial estimate based on historical experience and analysis of current trends, of paid costs to carriers as a percentage of the expected ultimate costs to carriers.
The following table illustrates the sensitivity of changes in the MCT on our year end estimate of insurance costs (in millions of dollars): Change in medical cost trend Change in insurance costs +3.0% $21 +2.0% $14 +1.0% $7 -1.0% $(7) -2.0% $(14) -3.0% $(21) Completion factors are an actuarial estimate based on historical experience and analysis of current trends, of paid costs to carriers as a percentage of the expected ultimate costs to carriers.
Year Ended December 31, (in millions) 2022 2021 Investments: Purchases of investments $ (410) $ (444) Proceeds from sale and maturity of investments 469 349 Acquisition of subsidiaries (229) — Cash used in investments $ (170) $ (95) Capital expenditures: Software and hardware $ (47) $ (33) Office furniture, equipment and leasehold improvements (9) (7) Cash used in capital expenditures $ (56) $ (40) Cash used in investing activities $ (226) $ (135) Investments We invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our balance sheets as investments.
Year Ended December 31, (in millions) 2023 2022 Investments: Purchases of investments $ (281) $ (410) Proceeds from sale and maturity of investments 286 469 Acquisition of subsidiaries — (229) Cash provided by (used in) investments $ 5 $ (170) Capital expenditures: Software and hardware $ (70) $ (47) Office furniture, equipment and leasehold improvements (5) (9) Cash used in capital expenditures $ (75) $ (56) Cash used in investing activities $ (70) $ (226) Investments We invest a portion of available cash in investment-grade securities with effective maturities less than five years that are classified on our balance sheets as investments.
Capital Expenditures During 2022, we continued to make investments in software and hardware and we enhanced our existing service offerings and technology platform. We expect capital investments in our software and hardware to continue in the future.
Capital Expenditures During the twelve months ended December 31, 2023 and 2022, we continued to make investments in software and hardware as we enhanced our existing service offerings and technology platform. We expect capital investments in our software and hardware to continue in the future.
Although we are not subject to regulatory restrictions that require us to do so, we distinguish and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy our employer obligations associated with our WSEs as follows: TRINET 48 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents December 31, 2022 2021 (in millions) Corporate WSE Total Corporate WSE Total Current assets: Cash and cash equivalents $ 354 $ — $ 354 $ 612 $ — $ 612 Investments 76 — 76 135 — 135 Restricted cash, cash equivalents and investments 22 1,241 1,263 19 1,176 1,195 Other current assets 78 555 633 91 406 497 Total current assets $ 530 $ 1,796 $ 2,326 $ 857 $ 1,582 $ 2,439 Total current liabilities 192 1,796 $ 1,988 $ 157 $ 1,582 $ 1,739 Working capital $ 338 $ — $ 338 $ 700 $ — $ 700 As of December 31, 2022, we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Although we are not subject to regulatory restrictions that require us to do so, we distinguish and manage our corporate assets and liabilities separately from those current assets and liabilities held by us to satisfy our employer obligations associated with our WSEs as follows: TRINET 48 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents December 31, 2023 2022 (in millions) Corporate WSE Total Corporate WSE Total Current assets: Cash and cash equivalents $ 287 $ — $ 287 $ 354 $ — $ 354 Investments 65 — 65 76 — 76 Restricted cash, cash equivalents and investments 22 1,247 1,269 22 1,241 1,263 Other current assets 73 884 957 78 555 633 Total current assets $ 447 $ 2,131 $ 2,578 $ 530 $ 1,796 $ 2,326 Total current liabilities 332 2,131 $ 2,463 $ 192 $ 1,796 $ 1,988 Working capital $ 115 $ — $ 115 $ 338 $ — $ 338 As of December 31, 2023, we did not have any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
To estimate accrued health benefits costs we use a number of inputs, assumptions and analytical techniques: • historical loss claims payment patterns and medical cost trend rates related to TriNet’s insurance policies, • current period claims costs and claims reporting patterns (completion factors), and • plan enrollment.
To estimate accrued health benefits costs we use a number of inputs, assumptions and analytical techniques: • historical loss claims payment patterns and MCT rates related to TriNet’s insurance policies, • current period claims costs and claims reporting patterns (completion factors), and • plan enrollment. MCT rates are a significant factor we use in developing our accrued health insurance costs.
Critical Accounting Judgments and Estimates TRINET 52 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Our consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities.
Critical Accounting Judgments and Estimates Our consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities.
TRINET 44 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents We use the following measures to analyze changes in insurance costs: • Volume - the percentage change in period over period Average WSEs, • Rate - the weighted average percentage change in cost trend associated with each of our insurance service offerings, and • Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings (health plan enrollment).
We use the following measures to analyze changes in insurance costs: • Volume - the percentage change in period over period co-employed Average WSEs, • Rate - the weighted average percentage change in cost trend associated with each of our insurance service offerings, and • Mix - all other changes including the composition of our enrolled WSEs within our insurance service offerings (health plan enrollment).
Such factors include, but are not limited to: the timing of the emergence of claims, volume, severity and complexity of claims, social and judicial trends, medical treatment trends, the extent of our historical loss data versus industry information, rates of participant turnover, the impact of MCT and seasonal trends, the impact of setting prices in advance of benefit periods, new treatment options, and the impact of unanticipated events like the COVID-19 pandemic.
Such factors include, but are not limited to: the timing of the emergence of claims, volume, TRINET 54 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents severity and complexity of claims, social and judicial trends, medical treatment trends, the extent of our historical loss data versus industry information, rates of participant turnover, the impact of MCT and seasonal trends, the impact of setting prices in advance of benefit periods, new treatment options, and the impact of unanticipated events.
Year Ended December 31, % Change (in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Balance Sheet Data: Cash and cash equivalents $ 354 $ 612 $ 301 (42) % 103 % Working capital 338 700 290 (52) % 141 % Total assets 3,443 3,309 3,043 4 % 9 % Debt 496 495 369 — % 34 % Total stockholders’ equity 775 881 607 (12) % 45 % TRINET 37 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents A discussion regarding our financial condition and results of operations for 2021 compared to 2020 can be found under Part II, Item 7.
Year Ended December 31, % Change (in millions) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Balance Sheet Data: Cash and cash equivalents $ 287 $ 354 $ 612 (19) % (42) % Working capital 115 338 700 (66) % (52) % Total assets 3,693 3,443 3,309 7 % 4 % Debt 1,093 496 495 120 % — % Total stockholders’ equity 78 775 881 (90) % (12) % TRINET 37 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents A discussion regarding our financial condition and results of operations for 2022 compared to 2021 can be found under Part II, Item 7.
Under our fully-insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer). The ultimate cost of the workers’ compensation services provided cannot be known until all the claims are settled.
TRINET 41 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Under our fully-insured workers' compensation insurance policies, we assume the risk for losses up to $1 million per claim occurrence (deductible layer). The ultimate cost of the workers’ compensation services provided cannot be known until all the claims are settled.
Year Ended December 31, % Change (in millions, except operating metrics data) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 Income Statement Data: Professional service revenues $ 754 $ 639 $ 544 18 % 17 % Insurance service revenues 4,131 3,901 3,490 6 12 Total revenues 4,885 4,540 4,034 8 13 Insurance costs 3,463 3,339 2,979 4 12 Operating expenses 923 746 687 24 9 Total costs and operating expenses 4,386 4,085 3,666 7 11 Operating income 499 455 368 10 24 Other income (expense): Interest expense, bank fees and other (39) (20) (21) 95 (5) Interest income 22 6 10 267 (40) Income before provision for income taxes 482 441 357 9 24 Income taxes 127 103 85 23 21 Net income $ 355 $ 338 $ 272 5 % 24 % Cash Flow Data: Net cash provided by operating activities 562 218 546 158 % (60) % Net cash used in investing activities (226) (135) (151) 67 (11) Net cash provided by (used in) financing activities (536) 12 (208) (4,567) (106) Non-GAAP measures (1) : Adjusted EBITDA 688 565 468 22 21 % Adjusted Net income 448 376 303 19 24 Corporate Operating Cash Flow 497 415 338 20 23 Operating Metrics: Insurance Cost Ratio 84 % 86 % 85 % (2) 1 % Average WSEs 348,543 340,067 323,672 2 5 Total WSEs 348,652 364,940 331,908 (4) 10 Average HRIS Users (2) 248,496 N/A N/A N/A N/A (1) Refer to Non-GAAP measures definitions and reconciliations from GAAP measures under the heading " Non-GAAP Financial Measures ".
Year Ended December 31, % Change (in millions, except operating metrics data) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Income Statement Data: Professional service revenues $ 756 $ 754 $ 639 — % 18 % Insurance service revenues 4,166 4,131 3,901 1 6 Total revenues 4,922 4,885 4,540 1 8 Insurance costs 3,513 3,463 3,339 1 4 Operating expenses 940 923 746 2 24 Total costs and operating expenses 4,453 4,386 4,085 2 7 Operating income 469 499 455 (6) 10 Other income (expense): Interest expense, bank fees and other (40) (39) (20) 3 95 Interest income 72 22 6 227 267 Income before provision for income taxes 501 482 441 4 9 Income taxes 126 127 103 (1) 23 Net income $ 375 $ 355 $ 338 6 % 5 % Cash Flow Data: Net cash provided by operating activities 545 562 218 (3) % 158 % Net cash used in investing activities (70) (226) (135) (69) 67 Net cash provided by (used in) financing activities (546) (536) 12 2 (4,567) Non-GAAP measures (1) : Adjusted EBITDA 697 688 565 1 % 22 % Adjusted Net income 446 448 376 — 19 Corporate Operating Cash Flow 539 497 415 8 20 Operating Metrics: Insurance Cost Ratio 84 % 84 % 86 % — % (2) % Average WSEs (2) 331,423 348,543 340,067 (5) 2 Total WSEs (2) 347,542 348,652 364,940 — (4) Average HRIS Users (3) 215,295 248,496 N/A (13) N/A (1) Refer to Non-GAAP measures definitions and reconciliations from GAAP measures under the heading " Non-GAAP Financial Measures ".
We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from corporate operating activities and the potential issuance of debt or equity securities.
We use our available cash and cash equivalents to satisfy our operational and regulatory requirements and to fund capital expenditures. We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from corporate operating activities and the potential issuance of debt or equity securities.
The following table summarizes our purchase obligations as of December 31, 2022, Payments Due by Period (in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years Purchase obligations (1) $ 172 $ 131 $ 37 $ 4 $ — (1) Our purchase obligations primarily consist of software licenses, consulting and maintenance agreements, and sales and marketing events pertaining to various agreements.
The following table summarizes our purchase obligations as of December 31, 2023, Payments Due by Period (in millions) Total Less than 1 year 1-3 years 3-5 years More than 5 years Purchase obligations (1) $ 120 $ 79 $ 40 $ 1 $ — (1) Our purchase obligations primarily consist of software licenses, consulting and maintenance agreements, and future sales and marketing events.
TRINET 43 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Insurance Service Revenues ISR consists of insurance services-related billings and administrative fees collected from PEO clients and withheld from WSE payroll for health benefits and workers' compensation insurance provided by third-party insurance carriers.
Insurance Service Revenues ISR consists of insurance services-related billings and administrative fees collected from PEO clients and withheld from WSE payroll for health benefits and workers' compensation insurance provided by third-party insurance carriers.
Cash Flows The following table presents our cash flow activities for the stated periods: Year Ended December 31, (in millions) 2022 2021 Corporate WSE Total Corporate WSE Total Net cash provided by (used in): Operating activities $ 497 $ 65 $ 562 $ 415 $ (197) $ 218 Investing activities (214) (12) (226) (119) (16) (135) Financing activities (536) — (536) 12 — 12 Effect of exchange rate changes on cash and cash equivalents (1) — (1) — — — Net increase (decrease) in cash and cash equivalents, unrestricted and restricted $ (254) $ 53 $ (201) $ 308 $ (213) $ 95 Cash and cash equivalents, unrestricted and restricted: Beginning of period $ 660 $ 1,078 $ 1,738 $ 352 $ 1,291 $ 1,643 End of period $ 406 $ 1,131 $ 1,537 $ 660 $ 1,078 $ 1,738 Net increase (decrease) in cash and cash equivalents: Unrestricted $ (258) $ — $ (258) $ 311 $ — $ 311 Restricted 4 53 57 (3) (213) (216) Operating Activities Components of net cash provided by (used in) operating activities are as follows: Year Ended December 31, (in millions) 2022 2021 Net cash provided by operating activities $ 562 $ 218 Net cash provided by operating activities - Corporate $ 497 $ 415 Net cash provided by (used in) operating activities - WSE $ 65 $ (197) The year-over-year change in net cash provided by (used in) operating activities for WSE purposes was primarily driven by timing of client payments, payments of payroll and payroll taxes, settlement of the Recovery Credits and insurance claim activities.
Cash Flows The following table presents our cash flow activities for the stated periods: Year Ended December 31, (in millions) 2023 2022 Corporate WSE Total Corporate WSE Total Net cash provided by (used in): Operating activities $ 539 $ 6 $ 545 $ 497 $ 65 $ 562 Investing activities (65) (5) (70) (214) (12) (226) Financing activities (546) — (546) (536) — (536) Effect of exchange rate changes on cash and cash equivalents — — — (1) — (1) Net increase (decrease) in cash and cash equivalents, unrestricted and restricted $ (72) $ 1 $ (71) $ (254) $ 53 $ (201) Cash and cash equivalents, unrestricted and restricted: Beginning of period $ 406 $ 1,131 $ 1,537 $ 660 $ 1,078 $ 1,738 End of period $ 334 $ 1,132 $ 1,466 $ 406 $ 1,131 $ 1,537 Net increase (decrease) in cash and cash equivalents: Unrestricted $ (67) $ — $ (67) $ (258) $ — $ (258) Restricted (5) 1 (4) 4 53 57 Operating Activities Components of net cash provided by operating activities are as follows: Year Ended December 31, (in millions) 2023 2022 Net cash provided by operating activities $ 545 $ 562 Net cash provided by operating activities - Corporate $ 539 $ 497 Net cash provided by operating activities - WSE $ 6 $ 65 The year-over-year change in net cash provided by operating activities for WSE purposes was primarily driven by timing of client payments, payments of payroll and payroll taxes, settlement of our previously announced 2022 Credits, and insurance claim activities.
Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total WSEs due to pricing differences across our HR solutions and services and the degree to which clients and WSEs elect to participate in our solutions during future periods.
Anticipated revenues for future periods can diverge from the revenue expectation derived from Average WSEs or Total WSEs due to pricing differences across our HCM solutions and services and the degree to which clients and TRINET 40 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents WSEs elect to participate in our solutions during future periods.
Medical cost trend rates are a significant factor we use in developing our accrued health insurance costs. Medical cost trends are developed through an analysis of claims incurred in prior months, provider pricing and indicators of health care utilization, including pharmacy utilization trends, and outpatient and inpatient utilization. Many factors may cause medical cost trend to vary from our estimates.
MCT are developed through an analysis of claims incurred in prior months, provider pricing and indicators of health care utilization, including pharmacy utilization trends, and outpatient and inpatient utilization. Many factors may cause MCT to vary from our estimates.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Operational Highlights Our consolidated results for 2022 reflect our continuing efforts to serve our clients through the current economic uncertainty and investing in our platform.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Operational Highlights Our consolidated results for 2023 reflect our continuing efforts to serve our clients, attract new clients and invest in our platform.
Total WSEs can be used to estimate our beginning WSEs for the next period and, as a result, can be used as an indicator of our potential future success in generating revenue, growing our business and retaining clients.
This market trend was partially offset by strong new client additions and improved client retention in 2023. Total WSEs can be used to estimate our beginning WSEs for the next period and, as a result, can be used as an indicator of our potential future success in generating revenue, growing our business and retaining clients.
We believe our existing corporate cash and cash equivalents and positive working capital will be sufficient to meet our working capital expenditure needs for at least the next twelve months.
We believe our existing corporate TRINET 49 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents cash and cash equivalents and positive working capital will be sufficient to meet our working capital expenditure needs for at least the next twelve months.
(2) For the twelve months ended December 31, 2022, reflects HRIS Users from February 15, 2022, the date on which we acquired Zenefits, to the end of the period. The following table summarizes our balance sheet data as of December 31, 2022, 2021 and 2020.
For details, refer to the heading "Operating Metrics – Worksite Employees (WSEs).” (3) For the year ended December 31, 2022, reflects HRIS Users from February 15, 2022, the date on which we acquired Zenefits, to the end of the period. The following table summarizes our balance sheet data as of December 31, 2023, 2022 and 2021.
PSR represents fees charged to clients for processing payroll-related transactions on behalf of our PEO and HRIS clients, access to our HR expertise, employment and benefit law compliance services, other HR-related services and fees charged to access our cloud-based HRIS services. Starting in the third quarter of 2022, PSR includes revenues from Clarus R+D.
PSR represents fees charged to clients for processing payroll-related transactions on behalf of our PEO and HRIS clients, access to our HR expertise, employment and benefit law compliance services, other HR-related and tax credit filing services and fees charged to access our cloud-based HRIS services .
HRIS Users Average HRIS Users is a volume measure we use to monitor the performance of our cloud-based HRIS services. Average HRIS Users for the period ended December 31, 2022 was 248,496, which reflects average HRIS Users from February 15, 2022, the date on which we acquired Zenefits, to the end of the period.
HRIS Users Average HRIS Users is a volume measure we use to monitor the performance of our cloud-based HRIS services. Average HRIS Users for the period ended December 31, 2023 and 2022 was 215,295 and 248,496, respectively.
Our 2021 Credit Agreement includes a $500 million revolving credit facility. The 2021 Credit Agreement includes negative covenants that limit our ability to incur indebtedness and liens, sell assets and make restricted payments, including dividends and investments, subject to certain exceptions. In addition, the 2021 Credit Agreement also contains other customary affirmative and negative covenants and customary events of default.
The 2021 Credit Agreement includes negative covenants that limit our ability to incur indebtedness and liens, sell assets and make restricted payments, including dividends and investments, subject to certain exceptions.
The data is segmented by class and state and analyzed by policy year, and states where we have small exposure are aggregated into a single grouping.
We use actuaries to evaluate, review and recommend accrued workers' compensation costs on a quarterly basis. The data is segmented by class and state and analyzed by policy year, and states where we have small exposure are aggregated into a single grouping.
As workers' compensation costs for a particular period are not known for many years after the losses have occurred, these costs represent our best estimate of unpaid claim losses and loss adjustment expenses within the deductible layer in accordance with our insurance policies. We use actuaries to evaluate, review and recommend accrued workers' compensation costs on a quarterly basis.
As workers' compensation costs for a particular period are not known for many years after the losses have occurred, these costs represent our best estimate of unpaid claim TRINET 53 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents losses and loss adjustment expenses within the Deductible Layer in accordance with our insurance policies.
We expect the changes in restricted cash and cash equivalents to correspond to WSE cash provided by (used in) operations as we manage our obligations associated with WSEs through restricted cash. Our corporate operating cash flows in 2022 increased when compared to 2021 due to the increase in our net income and the timing of our payments of corporate obligations.
We expect the changes in restricted cash and cash equivalents to correspond to WSE cash provided by (or used in) operations as we manage our obligations associated with WSEs through restricted cash.
We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities. These investments are classified on our balance sheets as restricted cash, cash equivalents and investments. We review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers' compensation liabilities and anticipated claims payment trend.
We consider industry and issuer concentrations in our investment policy. We also invest funds held as collateral to satisfy our long-term obligation towards workers' compensation liabilities. These investments are classified on our balance sheets as restricted cash, cash equivalents and investments.
We also analyze changes in PSR with the following measures: • Volume - the percentage change in period over period Average WSEs, • Rate - the weighted average percentage change in fees for each vertical, • Mix - the change in composition of Average WSEs across our verticals, and the composition of products and services our clients receive, including Clarus R+D, • Credit - the weighted average change in amounts recognized for our Recovery Credits, and • HRIS - incremental HRIS cloud services revenue from our acquisition of Zenefits in February 2022.
TRINET 43 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents PSR from PEO Services customers and HRIS cloud services clients was as follows: (in millions) 2023 2022 PEO Services $ 704 $ 711 HRIS Cloud Services 52 43 Total $ 756 $ 754 We also analyze changes in PSR with the following measures: • Volume - the percentage change in period over period co-employed Average WSEs, • Rate - the weighted average percentage change in fees for each vertical, • Mix - the change in composition of Average WSEs across our verticals and the composition of products and services our clients receive, including TriNet Clarus R+D, and • HRIS - incremental HRIS cloud services revenue.
Refer to Note 2 in Part II, Item 8. Financial Statements and Supplemental Data, in this Form 10-K for a summary of these funds.
As of December 31, 2023, we held approximately $1.9 billion in restricted and unrestricted cash, cash equivalents and investments, of which $287 million was unrestricted cash and cash equivalents and $208 million was unrestricted investments. Refer to Note 2 in Part II, Item 8. Financial Statements and Supplemental Data, in this Form 10-K for a summary of these funds.
ISR consists of insurance-related billings and administrative fees collected from clients and withheld from WSEs for workers' compensation insurance and health benefit insurance plans provided by third-party insurance carriers. During 2022, we recognized $75 million in reductions to revenue resulting from our 2022 Credits.
ISR consists of insurance-related billings and administrative fees collected from PEO clients and withheld from WSEs for workers' compensation insurance and health benefit insurance plans provided by third-party insurance carriers. Monthly total revenues per Average WSE is a measure we use to monitor our PEO pricing strategies. This measure increased 6% in 2023 compared to 2022.
TRINET 40 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents We purchase workers' compensation and health benefits coverage for our colleagues and WSEs. Under the insurance policies for this coverage, we bear claims costs up to a defined deductible amount.
We believe that ICR promotes an understanding of our insurance cost trends and our ability to align our relative pricing to risk performance. We purchase workers' compensation and health benefits coverage for our WSEs. Under the insurance policies for this coverage, we bear claims costs up to a defined deductible amount.
Our insurance costs include insurance premiums for coverage provided by insurance carriers, reimbursement of claims payments made by TRINET 42 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents insurance carriers or third-party administrators, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.
Our insurance costs include insurance premiums for coverage provided by insurance carriers, expenses for claims costs and risk management and administrative services, and changes in accrued costs related to contractual obligations with our workers' compensation and health benefit carriers.
Working capital for corporate purposes Corporate working capital as of December 31, 2022 decreased $362 million from December 31, 2021, primarily driven by a $258 million decrease in corporate unrestricted cash and cash equivalents driven by cash outflows to repurchase our stock and acquire Zenefits and Clarus R+D.
Working capital for corporate purposes Corporate working capital as of December 31, 2023 decreased $223 million from December 31, 2022, primarily due to the $109 million increase in current liabilities from our borrowings under our 2021 Revolver and the $67 million decrease in corporate unrestricted cash and cash equivalents.
TRINET 36 2022 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Results of Operations The following table summarizes our results of operations for the three years ended December 31, 2022, 2021 and 2020. For details of the critical accounting judgments and estimates that could affect the Results of Operations, see the Critical Accounting Judgments and Estimates section within MD&A.
For details of the critical accounting judgments and estimates that could affect the Results of Operations, see the Critical Accounting Judgments and Estimates section within MD&A.
Compensation costs for our colleagues include payroll, payroll taxes, SBC, bonuses, commissions and other payroll- and benefits-related costs. Compensation-related expense represented 63% and 62% of our OE in 2022 and 2021, respectively. Transaction and integration costs associated with our acquisition of Zenefits and Clarus R+D are included in G&A.
Compensation-related expense represented 65% and 63% of our OE in 2023 and 2022, respectively. Transaction and integration costs associated with our 2022 acquisitions of Zenefits and Clarus R+D are included in G&A. These costs include advisory, legal, employee retention costs tied to ongoing employment. In 2023, we experienced OE growth of 2% compared to 2022.
We use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan. In February 2022 and December 2022, we announced tender offers to purchase for cash up to $300 million and $250 million, respectively, in value of our issued and outstanding common stock.
In July 2023, our board of directors authorized a further $1 billion incremental increase to this stock repurchase program. We use this program to return value to our stockholders and to offset dilution from the issuance of stock under our equity-based incentive plan and employee purchase plan.
Performance Highlights Our results for 2022 when compared to 2021 are noted below: $4.9B $499M 84% Total revenues Operating income Insurance cost ratio 8 % increase 10 % increase (2) % decrease $355M $5.61 $448M Net income Diluted EPS Adjusted Net income * 5 % increase 11 % increase 19 % increase 348,543 348,652 248,496 Average WSE Total WSE Average HRIS Users 2 % increase (4) % decrease * Non-GAAP measure.
TRINET 35 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents Performance Highlights Our results for 2023 when compared to 2022 are noted below: $4.9B $469M 84% Total revenues Operating income Insurance cost ratio 1 % increase (6) % decrease 0 % flat $375M $6.56 $446M Net income Diluted EPS Adjusted Net income * 6 % increase 17 % increase 0 % flat 331,423 347,542 215,295 Average WSE ** Total WSE ** Average HRIS Users (5) % decrease 0 % flat (13) % decrease * Non-GAAP measure.
In addition to focusing on retaining and growing our WSE base, we continue to review acquisition opportunities that would add appropriately to our scale. We continue to invest in efforts intended to enhance client experience and manage attrition, through operational and process improvements.
We continue to invest in efforts intended to enhance client experience, improve our new sales performance, and manage client attrition, through product development as well as operational and process improvements.
The 2021 Credit Agreement also contains a financial covenant that requires the Company to maintain certain maximum total net leverage ratios. We were in compliance with all financial covenants under our 2021 Credit Agreement at December 31, 2022.
We were in compliance with all financial covenants under our 2021 Credit Agreement, 2029 Notes and 2031 Notes at December 31, 2023.
(in millions) 2022 2021 2020 Insurance costs $ 3,463 $ 3,339 $ 2,979 Insurance service revenues 4,131 3,901 3,490 Insurance Cost Ratio 84 % 86 % 85 % ICR decreased for the year as insurance costs grew at a higher rate than ISR in 2022. Insurance costs increased due to higher volume from higher Average WSEs and rate increases.
(in millions) 2023 2022 2021 Insurance costs $ 3,513 $ 3,463 $ 3,339 Insurance service revenues 4,166 4,131 3,901 Insurance Cost Ratio 84 % 84 % 86 % ICR was approximately flat when comparing 2023 to 2022 as health insurance costs grew at a faster rate than health ISR, partially offset by favorable workers' compensation prior period claims development.
As of December 31, 2022, approximately $245 million remained available for repurchase under all authorizations by our board of directors. We plan to use current cash and cash generated from ongoing operating activities to fund this stock repurchase program.
We plan to use current cash and cash generated from ongoing operating activities to fund this stock repurchase program. In March 2023, to ensure that we maintained liquidity during the regional banking liquidity challenges, we drew down the available $495 million of capacity under our 2021 Revolver.
Year Ended December 31, (in millions) 2022 2021 Financing activities Repurchase of common stock, net of issuance $ (536) $ (109) Proceeds from issuance of 2029 Notes — 500 Repayment of borrowings — (370) Payment of debt issuance costs — (7) Payment of long-term financing fees — (2) Cash provided by (used in) financing activities $ (536) $ 12 During the year ended December 31, 2022, we repurchased 6,398,279 shares of our common stock for approximately $519 million under our tender offers in March 2022 and December 2022 and our ongoing stock repurchase program.
Year Ended December 31, (in millions) 2023 2022 Financing activities Repurchase of common stock, net of issuance costs $ (1,137) $ (536) Proceeds from issuance of 2031 Notes 400 — Payment of long-term financing fees and debt issuance costs (9) — Draw down from revolving credit agreement borrowings 695 — Repayment of borrowings under revolving credit agreement (495) — Cash used in financing activities $ (546) $ (536) In February 2023, our board of directors authorized a $300 million incremental increase to our ongoing stock repurchase program initiated in May 2014.
PSR ISR - % represents proportion of insurance service revenues to total revenues *Total revenues generated from PEO services only The growth in total revenues was primarily driven by a growth in rate, higher Average WSEs, favorable change in our vertical mix and higher health plan enrollment, and the addition of HRIS cloud services revenue following the acquisition of Zenefits.
TRINET 42 2023 FORM 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS Table of Contents PSR ISR - % represents proportion of insurance service revenues to total revenues *Total revenues generated from PEO services only The increase in total revenue for the year was primarily driven by inflationary rate increases.
The 2021 ETR was also impacted by a one-time benefit associated with a favorable adjustment of our previously disputed receivable from the IRS. Liquidity and Capital Resources Liquidity Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.
The decrease in rates was primarily due to an increase in excludable income for state tax purposes and an increase in tax benefits related to stock-based compensation. Liquidity and Capital Resources Liquidity Liquidity is a measure of our ability to access sufficient cash flows to meet the short-term and long-term cash requirements of our business operations.
(in millions) $455 2021 Operating Income +345 Higher total revenues primarily driven by the addition of HRIS cloud services revenue, rate increases and higher Average WSEs, partially offset by higher reductions in revenue from our 2022 Credits. -124 Higher insurance costs primarily as a result of higher Average WSEs and higher medical services utilization. -177 Higher OE primarily as a result of increased G&A driven by the Zenefits and Clarus R+D acquisitions, together with higher compensation to support initiatives to improve client experience, enhance service offerings, upgrade our software and technology platforms, and improve our internal processes. $499 2022 Operating Income Professional Service Revenues Our PEO and HRIS clients are primarily billed on a fee per WSE or HRIS User per month per transaction.
(in millions) $499 2022 Operating Income +37 Higher total revenues primarily driven by rate increases and due to no reduction in revenue being recognized in 2023 related to our 2022 Credits, partially offset by lower health plan enrollment and lower Average WSEs. -50 Higher insurance costs primarily as a result of higher rates, partially offset by lower health plan enrollment and lower volume due to lower Average WSEs. -17 Higher OE primarily as a result of higher compensation, S&M and technology spend to improve client experience, enhance service offerings, and improve processes, including a full year of supporting the HRIS product, together with higher sales and marketing expenses to support sales efforts.
At December 31, 2022, our investments had a weighted average duration of less than two years and an average S&P credit rating of AA+. As of December 31, 2022, we held approximately $2.0 billion in restricted and unrestricted cash, cash equivalents and investments, of which $354 million was unrestricted cash and cash equivalents and $227 million was unrestricted investments.
We review the amount and the anticipated holding period of these investments regularly in conjunction with our estimated long-term workers' compensation liabilities and anticipated claims payment trend. At December 31, 2023, our investments had a weighted average duration of less than two years and an average S&P credit rating of AA.
Insurance Cost Ratio (ICR) ICR is a performance measure calculated as the ratio of insurance costs to insurance service revenues. We believe that ICR promotes an understanding of our insurance cost trends and our ability to align our relative pricing to risk performance.
This decline is being driven by both higher client attrition as compared to new client additions and lower hiring by HRIS clients similar to SMB hiring trends that we have observed in our PEO business.] Insurance Cost Ratio (ICR) ICR is a performance measure calculated as the ratio of insurance costs to insurance service revenues.
Average WSEs increased 2% when comparing 2022 to 2021, primarily due to increased hiring by our PEO clients in 2021, which created a higher installed base to start 2022. This was partially offset by net client attrition from larger clients, lower-than expected new client additions in 2022, and reduced hiring by our PEO clients in the second half of 2022.
The decrease in Average WSEs was primarily due to the cumulative impact of lower hiring in our installed base during the past twelve months, particularly within our Technology vertical, which did not offset our attrition. This trend was partially offset by stronger new client additions and retention during the year.
In February 2023, our board of directors authorized another $300 million incremental increase to our ingoing stock repurchase program initiated in May 2014. Capital Resources As of December 31, 2022, $500 million aggregate principal of our 2029 Notes was outstanding.
In February of 2024, our board of directors declared a cash dividend of $0.25 per share, for a total payment of approximately $13 million. Capital Resources As of December 31, 2023, $500 million and $400 million aggregate principal of our 2029 Notes and 2031 Notes was outstanding, respectively.
Provision for Income Taxes Our effective tax rate (ETR) was 26% and 23% for 2022 and 2021, respectively. The change in ETR was primarily attributable to increases in nondeductible expenses and charges to valuation allowances. In addition, we realized a decrease in tax benefits related to stock-based compensation.
In addition, we incurred additional interest expense earlier in 2023 related to our temporary draw-down under our 2021 Revolver following the Silicon Valley Bank failure. Provision for Income Taxes Our effective tax rate (ETR) was 25% and 26% for 2023 and 2022, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+1 added−0 removed2 unchanged
Biggest changeWe attempt to limit our exposure to interest rate risk and credit risk by investing in instruments that meet the minimum credit quality, liquidity, diversification and other requirements of our investment policy. Our investments consist of liquid, investment-grade securities. The risk of rate changes on investment balances was not material at December 31, 2022 and 2021.
Biggest changeWe attempt to limit our exposure to interest rate risk and credit risk by investing in instruments that meet the minimum credit quality, liquidity, diversification and other requirements of our investment policy. Our investments consist of liquid, investment-grade securities. The risk of rate changes on investment balances was not material at December 31, 2023 and 2022.
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Added
As of December 31, 2023, we had drawn down $200 million under our floating rate 2021 Revolver. The impact of a 100 basis point increase or decrease in market interest rates to interest expense on our 2021 Revolver as of December 31, 2023 over the next twelve months was approximately $2 million.

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