NSP Insperity, Inc. - 10-K

Item 1A.  Risk Factors.

The statements in this section describe the known material risks to our business and should be considered carefully.

Economic Risks

Adverse economic conditions or changes in the employment levels could negatively affect our industry, business, and results of operations.

The small and medium-sized business market is sensitive to changes in economic activity levels as well as the credit markets. As a result, the demand for the outsourced HR services we provide clients could be adversely impacted by weak economic conditions or difficulty obtaining credit at favorable rates or at all. Current and prospective clients may respond to such conditions by reducing employment levels, compensation levels, employee benefit levels and outsourced HR services. In addition, during periods of weak economic conditions, current clients may have difficulty meeting their financial obligations to us and may select alternative HR services at more competitive rates than we offer. Further, our growth is partially dependent on hiring of new employees by our existing clients, which may be negatively impacted during periods of tight labor markets, such as the low unemployment environment experienced during 2022 and 2023, and during economic slowdowns, such as the high unemployment levels experienced during 2020. Such developments could adversely impact our financial condition, results of operations, and future growth rates.

In addition, our growth is impacted by the hiring and termination of employees by our existing clients. Emerging technologies, including AI, may reduce the need for our clients to hire for certain roles or lead to automation of tasks previously performed by clients’ employees. As a result, our clients may hire fewer employees or replace existing positions with AI-driven solutions, which would impact the growth of our worksite employees. Such developments could adversely impact our business, financial condition, and results of operations.

If the claims that we made for employee retention tax credits under COVID relief programs are disallowed, our business, financial condition, and results of operations could be materially adversely affected.

In connection with certain COVID relief programs, PEO clients were dependent on their PEO to process employee retention tax credits (“ERC”) on a consolidated basis, including through amending previously filed payroll tax forms with the IRS. The IRS has experienced significant backlogs in processing amended tax forms from employers seeking ERC refunds and we are currently awaiting IRS review of a number of ERC claims with respect to our PEO clients. While the deadline to submit any ERC claims for relevant periods in 2021 was April 2025, the OBBB that became law in July 2025 retroactively accelerated the deadline for all claims to January 31, 2024. If any of the ERC claims that we made on behalf of our clients were denied or otherwise deemed insufficient, we may not be able to perfect our filings on a timely basis. Further, eligibility for the ERC is dependent on certain operational information of our clients. The lack of guidance from the IRS on the application of deferred payroll taxes under COVID relief programs may also impact the amount of ERC refunds received on behalf of our clients if those deferred payroll taxes are deducted from ERC funds received or delay our receipt of the ERC funds. Further, if the IRS were to determine that any of our clients were not eligible for the ERC requested on their behalf or we do not perfect our filings on a timely basis, the IRS may conclude that we are responsible for those claims. Furthermore,if the IRS were to otherwise challenge the claims we requested, we could face penalties or other liabilities. If any those events were to occur, our clients may seek recourse against us or choose not to renew. As a result of the foregoing, our business, results of operations and financial condition could be materially adversely affected.

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

We use a U.S.-based global systemically important bank (or G-SIB) for our PEO operations, including our cash balances associated with that portion of our business. All of our cash deposits are held by Federal Deposit Insurance Corporation (“FDIC”) insured banks, which deposits may exceed the FDIC insurance limits. Through various overnight “sweep account” programs, we also invest a significant portion of our cash balances in U.S. Treasury-based funds, which are invested through brokerage firms affiliated with the banks at which our deposits are held. The failure of a bank or related brokerage firm that we use, or events involving limited liquidity, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, may lead to disruptions in access to our cash balances, adversely impact our liquidity, including our ability to borrow under our credit facility, or limit our ability to process transactions related to our clients. In the event of a failure of a bank or other financial institution that holds our cash deposits, there can be no assurance that our deposits in excess of

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the FDIC or other comparable insurance limits will be recoverable or, even if ultimately recoverable, there may be significant delays in our ability to access those funds. Furthermore, bank failures, non-performance, or other adverse developments that affect financial institutions could impair the ability of one or more of the banks participating in our credit facility from honoring their commitments. Such events could have a material adverse effect on our financial condition or results of operations.

Similarly, our clients may be adversely affected by any bank failure or other event affecting financial institutions. For example, in early 2023, some of our clients had deposits with banks that were placed into receivership. If those clients had been unable, or if our clients in the future are unable, to meet their obligations to us as a result of a bank failure or other event affecting financial institutions, we may be exposed to potential risks that could impact our financial condition or results of operations. If we were to fail to pay the liabilities that we have assumed associated with our WSEEs, we may be subject to fines or other penalties.

Labor shortages, increasing competition for highly skilled workers, and evolving employee expectations regarding the workplace could have a material adverse effect on our business, financial condition or results of operations.

The success of our business is heavily dependent on our ability to attract and retain a skilled workforce, including in our service and sales positions. Several factors may limit the labor force available to us or increase our labor costs, including high employment levels, strong macroeconomic conditions, federal unemployment subsidies, and other governmental regulation. For example, as macroeconomic conditions improved from 2021 through 2023, the labor market tightened, resulting in increased employee turnover and skilled labor shortages. Increasing competition for highly skilled and talented workers may make it increasingly difficult and expensive for us to attract and retain a service team capable of supporting our clients or a sales team that is effective in selling our complex service offerings to clients. An overall or prolonged labor shortage, increased turnover, or labor inflation could have a material adverse impact on our growth plans, client service delivery, results of operations and financial condition.

Inflation may reduce our profitability.

Inflationary pressure could adversely impact our profitability. Our operating costs could increase, due to inflation. We may not be able to fully offset these cost increases by raising prices for our services, particularly because our client agreements generally fix our pricing for a period of time, which could result in downward pressure on our profit margins. Further, our clients may choose to reduce their business with us if we increase our pricing. Please also read “ — Increases in health insurance costs or our inability to secure replacement health insurance coverage on competitive terms could have a material adverse effect on our business, financial condition or results of operations .”

Geographic market concentration makes our results of operations vulnerable to regional economic factors.

Our New York, California and Texas markets accounted for approximately 10%, 15% and 17% (including 8% in Houston), respectively, of our WSEEs for the year ended December 31, 2025. Accordingly, unless we are successful in expanding in our current markets and into new markets, which we believe will take additional time, for the foreseeable future, a significant portion of our revenues may be subject to economic, statutory, and regulatory factors specific to New York, California, and Texas.

We are subject to covenants under our credit facility that may restrict our business and financing activities. Our failure to comply with these covenants may result in an acceleration of our indebtedness, which could have a material adverse effect on our business, financial condition or results of operations.

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

• incur additional indebtedness,

• sell material assets,

• retire, redeem or otherwise reacquire our capital stock,

• acquire the capital stock or assets of another business,

• enter into new lines of business,

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• make investments, and

• pay dividends.

In addition, we are required to maintain certain financial covenants. Our ability to comply with the financial covenants may be affected by financial, business, economic, regulatory and other factors beyond our control.

Our failure to comply with these covenants, or any other terms of our indebtedness, could result in a default that may limit our ability to borrow additional amounts under our credit facility, which may adversely affect our liquidity. In addition, a default may allow our lenders to accelerate our obligation to repay the outstanding amounts under our credit facility. If we were unable to repay or refinance the accelerated indebtedness on favorable terms, then our business, financial condition and results of operations would be materially adversely affected.

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

The spread of a highly infectious or contagious disease could create significant volatility, uncertainty and economic disruption, including as a result of actions taken by businesses and governments in response to such a pandemic that may result in a significant reduction in commercial activity, such as occurred during the COVID-19 pandemic. The extent to which future pandemics impact our business, operations, financial results and financial condition will depend on numerous evolving factors that are highly uncertain and that we may not be able to accurately predict. While such a pandemic is continuing and even after it has subsided, we may experience material adverse impacts to our business, operations and financial results due to any existing or continuing negative economic impact, including a recession, depression, or periods of supply shortages or high inflation, such as experienced in 2022 following the COVID-19 pandemic. Additionally, future pandemics may change how and when we incur health insurance costs under our health insurance contract with United, such as changes in quarterly levels and timing of both medical and pharmaceutical health insurance claims and processing payment patterns. Accordingly, future pandemics may present, material uncertainty and risk with respect to our business, and may have a material adverse effect on our financial condition, results of operations, cash flows and business.

PEO HR Solutions Risks

We assume liability for WSEE payroll, payroll taxes, benefits costs and workers’ compensation costs and are responsible for their payment regardless of the amount billed to or paid by our clients.

Under the CSA, we become a co-employer of WSEEs and assume the obligations to pay the salaries, wages and related benefits costs and payroll taxes of such WSEEs. Our obligations include responsibility for the following even if our costs exceed the fees the client pays us and the amounts collected from WSEEs:

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

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

• providing one or more benefits to WSEEs

• providing workers’ compensation coverage to WSEEs

Further, the increase in remote work, including by WSEEs, has complicated the calculation of payroll and unemployment taxes applicable to those individuals. We are dependent on our PEO HR Solutions clients to properly report the locations in which WSEEs perform services. If a regulatory authority were to determine that we did not properly calculate or transmit these amounts, then we could be subject to fines, penalties, or other liabilities, which we may not be able to recover from our clients. We may also need to devote additional resources and incur additional costs to modify our systems to address any such compliance issues.

If a client does not pay us, if the costs of services we provide to WSEEs exceed the fees a client pays us, or if we incur fines and penalties as a result of an adverse determination related to our payroll and unemployment tax calculations, our ultimate liability for WSEE payroll, payroll taxes, workers’ compensation and/or benefits costs, as well as any fines or penalties, could have a material adverse effect on our financial condition or results of operations.

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Increases in health insurance costs or our inability to secure replacement health insurance coverage on competitive terms could have a material adverse effect on our business, financial condition or results of operations.

Maintaining health insurance plans that cover WSEEs is a significant part of our business. Our primary health insurance contract expires on December 31, 2028, subject to cancellation by either party upon 180 days’ notice. We believe that there are a limited number of health insurance providers with the national coverage necessary to support our approach to providing healthcare benefits. In the event we are unable to secure replacement contracts on competitive terms, significant disruption and harm to our business could occur.

Health insurance costs are in part determined by our plans’ claims experience and comprise a significant portion of our direct costs. Our health insurance coverage is provided under policies or service contracts that are fully insured. United is the carrier that insures the majority of our coverage. Although all of our carriers remain responsible to pay all covered claims, under our health insurance contract with United, we retain an obligation to United to fund the cost of the plan. The profitability of our PEO HR Solutions is affected by the overall expenses associated with the cost of delivering our services, one of the largest of which is the cost of our health insurance. Our ability to accurately anticipate the expenses associated with the plans, including claims costs on a quarterly or annual basis, can impact our results of operations. If the plans experience an unexpected increase in the number or severity of claims, our associated health insurance costs could increase beyond anticipated levels, as we have experienced in the past, most recently in 2025. These costs are further impacted by a number of factors, including coverage options elected by employees, macro-economic changes, proposed and enacted regulatory changes, wide-spread health-related outbreaks, increased utilization of new pharmaceuticals, and the use of AI-based billing solutions by healthcare providers. Contractual arrangements and competitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs associated with the plans, which could substantially impair our financial condition or results of operations. Further, if the overall pricing of our services includes cost assumptions based on inaccurate forecasts of plan expenses, our profitability or our ability to attract and retain clients may be adversely impacted. As a result, if we do not accurately forecast the costs of our plans, our business, financial condition or results of operations may be materially adversely affected. For additional information related to our health insurance costs, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Benefits Costs.”

Health care reform could affect our health insurance plan and could lead to a significant disruption in our business.

Many of our clients select a PEO HR Solution pursuant to which we offer the health and welfare benefit plans sponsored by us to the WSEEs co-employed by those clients. The future impact and direction of healthcare reform, including future legislative or executive actions, is unknown and, if any such developments were to reduce our ability to make health care benefits available to WSEEs or were to make our offerings less attractive to our clients, then our business, financial condition, and results of operations may be materially adversely affected.

Supporters in various states have advocated and continue to advocate for adoption of health care-related reforms at the state level, which has the potential to significantly change the insurance marketplace for small and medium-sized businesses and how employers provide insurance to employees. Additionally, guidance by the IRS and the U.S. Department of Health and Human Services (“HHS”) has not addressed or in some instances is unclear as to the application of certain aspects of federal health care reform laws in the PEO relationship or whether such provisions should be applied at the PEO or client level.

Various states have adopted or are considering reforms that may impact the requirements for or availability of PEO-sponsored health plans. At this time, the insurance market reforms have not had a material adverse impact on our business operations, and if any future changes impact our ability to attract and retain clients, or our ability to increase service fees to offset any increased costs, then our business may be materially adversely affected.

Subsequent changes resulting from action that may be taken at the federal or state level may impact our benefit plans, business model and future results of operations, including repeal or repeal and replacement of current healthcare reform provisions as has been advocated by some in the Presidential administration and Congressional leaders. In future periods, changes may result in increased costs to us and could affect our ability to attract and retain clients. Additionally, contractual arrangements and competitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs. We are currently unable to determine whether potential future healthcare reform changes or other regulatory action, including at the state level, may adversely affect our business or market conditions.

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A determination that we are not the employer of our WSEEs and an inability to offer alternate benefit plans could have a material adverse effect on our business.

In order to qualify for favorable tax treatment under the Code, employee benefit plans must be established and maintained by an employer for the exclusive benefit of its employees. Generally, an entity is an “employer” of individuals for federal employment tax purposes if an employment relationship exists between the entity and the individuals under the common law test of employment. In addition, the officers of a corporation are deemed to be employees of that corporation for federal employment tax purposes. The common law test of employment, as applied by the IRS, involves an examination of approximately 20 factors to ascertain whether an employment relationship exists between a worker and a purported employer. Generally, the test is applied to determine whether an individual is an independent contractor or an employee for federal employment tax purposes and not to determine whether each of two or more companies is a “co-employer.” Substantial weight is typically given to the question of whether the purported employer has the right to direct and control the details of an individual’s work. Among the factors that appear to have been considered more important by the IRS are:

• the employer’s degree of behavioral control (the extent of instructions, training and the nature of the work)

• the financial control or the economic aspects of the relationship

• the intended relationship of the parties (whether employee benefits are provided, whether any contracts exist, whether services are ongoing or for a project, whether there are any penalties for discharge/termination, and the frequency of the business activity)

Employee retirement and welfare benefit plans are also governed by ERISA. ERISA defines “employer” as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.” ERISA defines the term “employee” as “any individual employed by an employer.” The United States Supreme Court has held that the common law test of employment must be applied to determine whether an individual is an employee or an independent contractor under ERISA. A definitive judicial interpretation of “employer” in the context of a PEO or employee leasing arrangement has not been established.

If Insperity were found not to be an employer with respect to WSEEs for ERISA purposes, our plans would not comply with ERISA and/or the Code. Further, as a result of such finding, Insperity and our plans would not enjoy, with respect to WSEEs, the preemption of state laws provided by ERISA and could be subject to varying state laws and regulations as well as to claims based upon state common laws. In addition, if Insperity were found not to be the employer sponsoring a single-employer plan under ERISA for purposes of our health benefits plan, we could be subject to additional requirements under state and federal laws that could restrict our ability to provide benefits to our WSEEs in the same manner that we do today, which could negatively impact our business. In the case of any such events, we would endeavor to make available similar benefits at comparable costs in a manner that complied with applicable state laws. However, if we were unable to promptly transition our benefit plans to a compliant structure with terms that were acceptable to our clients and at a comparable cost to us, then our business, financial condition, and results of operations could be materially adversely affected.

Increases in workers’ compensation costs or our inability to secure replacement coverage on competitive terms could lead to a significant disruption and harm to our business.

Our workers’ compensation coverage has been provided through an arrangement with Chubb since 2007. Under our current arrangement with Chubb for claims incurred on or before September 30, 2019, we have a financial responsibility to Chubb for the first $1 million layer of claims per occurrence and for claims over $1 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed the first $1 million. Effective for claims incurred on or after October 1, 2019, our financial responsibility increased as we have financial responsibility to Chubb for the first $1.5 million layer of claims per occurrence and for claims over $1.5 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1.5 million. Chubb bears the financial responsibility for all claims in excess of these levels. The Chubb Program is a fully insured program whereby Chubb has the responsibility to pay all claims incurred under the policies regardless of whether we satisfy our responsibilities. For additional discussion of our policy with Chubb, please read Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Workers’ Compensation Costs.”

Workers’ compensation costs are a significant portion of our direct costs and contractual arrangements and competitive market conditions may limit or delay our ability to increase service fees to offset any associated potential increased costs. If we were to experience an unexpected large increase in the number or severity of claims, our workers’ compensation

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costs could increase, which could have a material adverse effect on our results of operations or financial condition. Further, if the overall pricing of our services includes cost assumptions based on inaccurate forecasts of our workers’ compensation costs, our profitability or our ability to attract and retain clients may be adversely impacted.

The current workers’ compensation coverage with Chubb expires on September 30, 2026. In the event we are unable to secure replacement coverage on competitive terms, significant disruption to our business could occur.

Our ability to adjust and collect service fees for increases in unemployment or other tax rates may be limited.

We record our SUI expense based on taxable wages and tax rates assigned by each state. SUI tax rates vary by state and are determined, in part, based on prior years’ compensation experience in each state. Prior to the receipt of final rate notices, we estimate our expected SUI rate in those states for which rate notices have not yet been received for purposes of forecasting and pricing. In a period of adverse economic conditions, state unemployment funds may experience a significant increase in the number of unemployment claims. Accordingly, SUI rates would likely increase substantially. Some states have the ability under law to increase SUI rates retroactively to cover deficiencies in the unemployment fund. In addition, FUTA may be retroactively increased in certain states in the event the state fails to timely repay federal unemployment loans, as we recently experienced with California and New York in 2024 and California in 2025.

Generally, our contractual agreements allow us to incorporate such statutory increases into our service fees upon the effective date of the rate change. However, this right does not extend to our former clients and, even with respect to our existing clients, our ability to fully adjust service fees in our billing systems and collect such increases over the remaining term of the clients’ contracts could be limited, resulting in a potential increase not being fully recovered. As a result, such increases could have a material adverse effect on our financial condition or results of operations.

Many of our contracts for our PEO HR Solutions may be canceled on short notice. Our inability to renew client contracts or attract new clients could materially and adversely affect our financial condition or results of operations.

Our standard CSA can generally be canceled by us or the client with 30 days’ notice. Accordingly, the short-term nature of the CSA makes us vulnerable to potential cancellations by existing PEO HR Solutions clients, which could materially and adversely affect our financial condition or results of operations. Our middle market sector, which we generally define as those companies with employees ranging from approximately 150 to 5,000 WSEEs, represented 26% of our average paid WSEEs, and clients with an average number of WSEEs that exceed 1,000 WSEEs represented 2% during 2025 . Our new HR Scale solution targets larger clients and could increase the number of clients with over 1,000 WSEEs. In the event we have large clients that terminate or an increase in terminating clients from our middle market client base, the financial impact of such an event could be significant. Also, our results of operations are dependent in part upon our ability to retain or replace our clients upon the termination or cancellation of the CSA. Our client attrition rate was approximately 17% in 2025 . There can be no assurance that the number of contract cancellations will continue at these levels and such cancellations may increase in the future due to various factors, including economic conditions in the markets we operate. Clients electing to purchase our services or electing an alternative solution often do so at the beginning of the calendar year. As a result, we typically experience our largest concentration of new client additions and attrition in the first quarter of each year.

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

As part of our PEO HR Solutions, in addition to our health insurance carriers, we contract with other insurance carriers to provide workers’ compensation insurance and employment practices liability insurance. In addition, we obtain insurance coverage for various commercial risks in our business such as property insurance, errors and omissions insurance, cyber liability insurance, general liability insurance, fiduciary liability insurance and ERISA bond coverage, automobile liability insurance, and directors’ and officers’ liability insurance. The failure of any insurance carrier with respect to a previous workers’ compensation insurance provider, providing such coverage could leave us exposed to uninsured risk and could have a material adverse effect on our business and results of operations. In addition, in the event that our primary health carriers in any key market make material changes to their network of health care providers or facilities, such as the discontinuation of prominent hospital networks in key markets on occasion by a carrier in connection with their ongoing negotiations with those networks, then our ability to attract and retain clients in that market may be adversely affected, which could have a material adverse effect on our business and results of operations. Further, we have experienced an increase in insurance premiums for our corporate policies as well as an increase in the deductible amounts for which we retain liability and a decrease in coverage limits. If these premiums or deductible amounts continue to increase, or

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coverage limits continue to decrease we would have increased exposure with respect to costs and insurance claims, which could have a material adverse effect on our business and results of operations.

A determination that a client is liable for employment taxes not paid by a PEO may discourage clients from contracting with us in the future.

Under the CSA, we assume sole responsibility and liability for paying federal employment taxes imposed under the Code with respect to wages and salaries we pay our WSEEs. There are essentially three types of federal employment tax obligations:

• income tax withholding requirements

• FICA

• FUTA

Under the Code, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of these taxes. The SBEA clarifies that a CPEO is treated as the employer for purposes of federal payroll taxes on wages it pays to WSEEs. Most states impose similar employment tax obligations on the employer. While the CSA provides that we have sole legal responsibility for making these tax contributions, the applicable state taxing authority could conclude that such liability cannot be completely transferred to us. Accordingly, in the event that we fail to meet our tax withholding and payment obligations, the client may be held jointly and severally liable for those obligations. While this interpretive issue has not, to our knowledge, discouraged clients from enrolling with Insperity, a definitive adverse resolution of this issue may discourage clients from enrolling in the future.

New and higher federal, state and local taxes could have a material adverse impact on our financial condition and results of operations.

In times of economic slowdowns, the federal government and states and municipalities in which we operate may experience reductions in tax revenues and corresponding budget deficits. In response to budget shortfalls, such as those experienced during the COVID pandemic, the federal government and many states and municipalities have in the past and may in the future increase or enact new taxes on businesses operating within their tax jurisdiction, including business activity taxes and income taxes. In addition, federal, state and local taxing agencies may increase their audit activity in an effort to identify additional tax revenues. New tax assessments on our operations could result in increased costs. Our ability to adjust our service fees and incorporate additional tax assessments into our billing system could be limited. As a result, such higher taxes could have a material adverse impact on our financial condition or results of operations.

We may be subject to liabilities for client and employee actions.

As a co-employer in the PEO relationship, we assume or share many of the employer-related responsibilities and assist our clients in complying with many employment-related governmental regulations. A number of legal issues remain unresolved with respect to the co-employment arrangement between a PEO and its WSEEs, including questions concerning the ultimate liability for violations of employment, payroll, discrimination, and workplace safety laws. Our CSA establishes the contractual division of responsibilities between Insperity and our clients for various human capital management matters, including compliance with and liability under various governmental regulations. Also, we maintain an employment practices liability insurance policy for our clients.

Because we act as a co-employer, we may be subject to liability for violations of various employment, payroll, discrimination, privacy and biometric consent, and workplace safety laws despite these contractual provisions, even if we do not participate in such violations. AI-based technologies may also facilitate the ability of WSEEs, either on their own or with the assistance of counsel, to bring claims, which could impact the cost of the employment practices liability insurance that we provide or result in increased costs to us if we are also named in any such claims. Although the CSA generally requires the client to indemnify us for certain liabilities attributable to the client’s conduct and for the deductible under our employment practices liability insurance policy that we maintain on their behalf, we may not be able to collect on such a contractual indemnification claim and thus may be responsible for satisfying such liabilities to the extent that such liabilities are not covered or insured against under our insurance policies. These amounts could be significant and could result in increased insurance premiums for us, any of which could impact our business, financial condition or results of operations.

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Changes in federal, state and local regulation or our inability to obtain licenses under new regulatory frameworks could have a material adverse effect on our results of operations or financial condition.

As a major employer, our operations are affected by numerous federal, state and local laws and regulations relating to labor, tax, benefit, insurance and employment matters. By entering into a co-employer relationship with employees assigned to work at client locations, we assume certain obligations and responsibilities of an employer under these laws. However, many of these current laws (such as the Act, ERISA, and some state insurance codes and employment tax laws) do not specifically address the obligations and responsibilities of non-traditional employers such as PEOs, and the definition of “employer” under these laws is not uniform despite the SBEA having provided clarification under federal employment tax laws for CPEOs. Some governmental programs and incentives designed to assist businesses and employees require us to make changes to our processes and systems in order to comply as an employer or to enable our clients and our WSEEs to benefit from these programs. For example, during the COVID pandemic, the CARES Act allowed companies to defer certain payroll taxes, which were reflected in the payrolls we processed for those clients and required us to make certain changes, without clear regulatory guidance. If we are unable to meet these requirements or make these changes, we could be subject to governmental fines or penalties or we may not meet client expectations, any of which could have a material adverse effect on our business, financial condition or results of operations.

In addition, many of the states in which we operate have not addressed the PEO relationship for purposes of compliance with applicable state laws governing the employer/employee relationship or PEO health insurance plans. Any adverse application of, or adverse legislative/regulatory response to, new or existing federal or state laws to the PEO relationship with our WSEEs and client companies could have a material adverse effect on our results of operations or financial condition.

While some states do not explicitly regulate PEOs, 42 states have passed laws that have recognition, licensing, certification or registration requirements for PEOs and several other states are considering such regulation. Such laws vary from state to state, but generally provide for monitoring the fiscal responsibility of PEOs, and in some cases codify and clarify the co-employment relationship for unemployment, workers’ compensation and other purposes under state law. In addition, the SBEA provides certain benefits for companies that qualify as a CPEO. While we generally support licensing regulation because it serves to validate the PEO relationship, we may not be able to satisfy licensing requirements or other applicable regulations for all states. In addition, there can be no assurance that we will be able to renew our licenses in all states or that we will be able to maintain our CPEO designation.

Certain state and federal regulators are more closely evaluating the existing regulatory framework governing money services businesses and money transmitters in their jurisdictions, particularly following the high-profile failures in 2019 of several national payroll companies. While we maintain that we are not a money services business or money transmitter, the adoption of new, or changes in interpretations of existing, state and federal money transmitter or money services business statutes, or disagreements by regulatory authorities with our interpretation of such statutes or regulations, could subject us to registration or licensing or result in limitations on our business activities until we are appropriately licensed, and such additional regulation and the actions of the regulatory authorities could have a material adverse effect on our results of operations or financial condition. These occurrences could also require changes to the manner in which we conduct some aspects of our business. In addition, should any state or federal regulators make a determination that we have operated as an unlicensed money services business or money transmitter, we could be subject to civil and criminal fines, penalties, costs, legal fees, reputational damage or other negative consequences, which could be material.

Further, if we were to be deemed to be subject to other regulatory requirements applicable to other businesses, such as rules or regulations applicable to new services that we may offer such as earned wage access, then we may need to hire additional personnel, incur additional costs in order to maintain compliance, or be subjected to fines, penalties, or other liabilities, which could be material.

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Competition and other developments in the HR services industry, including the impact of AI, may impact our growth and/or profitability.

The human resources services industry, including the PEO industry, is highly fragmented. Many PEOs have limited operations and fewer than 2,500 WSEEs, but there are several industry participants that are comparable to our size or larger. We also encounter competition from “fee for service” companies such as payroll processing firms, insurance companies, human resources consultants and human resources technology solutions as well as web-based self-service bundled human resources offerings. Our competitors include the PEO divisions of large business services companies, such as Automatic Data Processing, Inc. and Paychex, Inc., and other national PEOs such as TriNet Group, Inc., Vensure, and Rippling. In many cases, these competitors offer a reduced service PEO offering at a lower price than our PEO HR Solutions. We expect that as the PEO industry grows and its regulatory framework becomes better established, well organized competition with greater resources than we have may enter the PEO market, possibly including large “fee for service” companies currently providing a more limited range of services. In addition, competitors may be able to offer or develop new technology-based lower service models that may require us to make substantial investments in order to effectively compete. Further, AI may accelerate the ability of new competitors to enter the market with a lower cost or different business model, or may reduce the need of our clients and target market for the types of services that our PEO HR Solutions provide.

We offer a lower priced reduced service level PEO offering referred to as HR 360 Select Edition in response to certain middle market client needs and the evolving PEO marketplace. As of December 2025 , approximately 16% of our WSEEs were co-employed by HR 360 Select Edition clients. In the event we were to experience a significant increase in the number of clients using the HR 360 Select Edition offering or increased pricing pressures in the PEO marketplace without corresponding reductions in operating costs, our operating margins may decline, which could have a material adverse impact on our financial condition or results of operations.

Technology Risks

Evolving regulations, market trends and client expectations require us to constantly enhance and expand our service and technology offerings.

The HR services industry is experiencing rapid technological advances, including as a result of AI, to meet client expectations and expanding regulations. As new regulations are adopted, we must modify our systems to address these changes in the law, such as our efforts to implement the assistance provided to businesses and employees under the Covid relief programs, Secure 2.0 Act of 2022, and the OBBB. In order to make these types of modifications, we may be required to reallocate resources, potentially resulting in delays to planned competitive improvements to our systems. If we do not successfully or timely deploy these types of modifications, we may be unable to comply with regulations, which could subject us to penalties, damage our reputation or result in decreased sales. Further, in order to effectively compete in this environment, we must identify and predict trends, and adapt our technology and service offerings accordingly, including by leveraging AI in our solutions. In addition, if a larger portion of our client base falls within the middle market segment, we must also develop different technology and services to meet the more complex needs and demands of this key group, including by developing our new HR Scale solution that is based on our proprietary Workday-based client tenant. (Please see “— We may not fully realize the anticipated benefits of our strategic partnership and joint solution with Workday, which could have a material adverse impact on our financial condition or results of operations . ” below for a further discussion.) These efforts may require us to devote substantial resources to develop new functionality, or to integrate third-party solutions, into our offerings. If we fail to respond successfully to these developments or we make investments in enhancements that are not accepted by the market, then the demand for our solutions and services may diminish.

Disruptions of our information technology systems could damage our reputation and materially disrupt our business operations.

Many of the HR services offerings we provide to clients are conducted through a technology infrastructure using both internally developed and purchased commercial software, a wide variety of hardware infrastructure technologies, and a multi-carrier wide area network. The processing of payroll, benefits and other transactions is dependent upon this complex infrastructure, some of which is provided by third-party vendors. We must manage all of these systems, and are dependent on third parties to manage the systems that we obtain from them, including any upgrades, replacements or enhancements, to ensure that they continue to support our services. For example, in connection with our HR Scale offering, we developed a joint solution that utilizes a proprietary instance of Workday’s HCM solution that is integrated with

2025 Form 10-K

RISK FACTORS

third parties and with our proprietary systems for our PEO HR Solutions. We also continue to monitor and make changes to our proprietary system for our PEO HR Solutions for compliance and modernization. Any delays or failures resulting from network outages; planned upgrades, enhancements, or replacements of software, hardware, or other systems, including in connection with our HR Scale offering or any updated for compliance and modernization of systems; or other data processing disruptions, even for a brief period of time, could result in our inability to timely process transactions. The speed with which we, or third-party vendors, are able to address significant cybersecurity incidents may be influenced by the cooperation of certain government agencies. We may also incur significant costs in the future to protect against damage or disruptions that could be caused by cybersecurity incidents or to address privacy violations. If such failures cause us to not meet client service expectations or to breach our obligations to our clients, we may lose existing clients, have difficulty attracting new clients, incur regulatory penalties or liability to our clients, or suffer other financial losses, which may have a material adverse effect on our business and financial condition.

We could be subject to reduced revenues, increased costs, liability claims, or harm to our competitive position as a result of data theft, cyberattacks or other security vulnerabilities.

In connection with our offerings, we collect, use, transmit and store large amounts of personal and business information about our WSEEs, employees paid under our traditional payroll solution, and clients, including payroll information, personal and business financial data, social security numbers, bank account numbers, tax information and other sensitive personal and business information. Attacks on information technology systems continue to grow in frequency and sophistication (including the use of emerging artificial intelligence (“AI”) technologies), and we and our third-party vendors are targeted by unauthorized parties using malicious tactics, code and viruses. Hardware or applications we develop or procure from third-party vendors may contain defects in design or other problems that could unexpectedly compromise the confidentiality, integrity or availability of data or our systems. Because the techniques used to obtain unauthorized access and disable or sabotage systems change frequently and may be difficult to detect for long periods of time, we and our third-party vendors may be unable to anticipate these techniques or implement adequate preventive measures. Further, increased reliance by us and our clients on remote workforces impacts our control over cybersecurity protection and service stability and performance, which increases our exposure to cybersecurity and privacy issues. As these threats continue to evolve, we may be required to invest significant additional resources to modify and enhance our information security and controls or to investigate and remediate any security vulnerabilities. We have limited ability to monitor the implementation of similar safeguards by our vendors and do not have the ability to monitor such implementation by our clients or their employees, including WSEEs.

In addition, our services also involve the use and disclosure of personal and business information to us that could be used by a malicious party to commit identity theft or otherwise gain access to the data or funds of our clients or their employees, including WSEEs. If any person, including any corporate employee or WSEE, misappropriates or misuses such funds, documents or data, we may have liability for damages, and our reputation could be substantially harmed and we may have other liabilities that could have a material adverse effect on our business.

We also use a variety of tools to assist with our targeted digital marketing efforts, which is one of our principal means of identifying and engaging with prospective clients. Evolving and expanding privacy laws may limit our ability to attract new clients and our violation of these laws could subject us to litigation, fines and penalties, which could be substantial.

Further, we increasingly rely on third-party hosted solutions as part of our operations. We have limited ability to ensure that these parties are maintaining adequate cybersecurity safeguards or that they are using our data, which could include personal information of WSEEs, in accordance with our contract and their privacy policy. In the event of a misappropriation of private WSEE information in possession of the third parties, we may be liable to the WSEEs and subject to governmental fines and penalties, any of which could be material, and we may be limited in our ability to seek indemnity or reimbursement from the third party.

Any cyberattack, unauthorized intrusion, malicious software infiltration, network disruption, denial of service attack, ransomware attack, corruption of data, theft of private or other sensitive information, or similar malicious act by a party (including our corporate employees or WSEEs), or inadvertent acts or omissions by our vendors or clients, our own corporate employees or WSEEs, could result in the loss, disclosure or misuse of confidential or proprietary information, and could have a material adverse effect on our business operations or that of our clients, result in liability or regulatory sanction, or cause a loss of confidence in our ability to serve clients. We may not have adequate insurance coverage to compensate us for losses from a security incident. Accordingly, the impact of a data security incident could have a material adverse effect on our business, results of operations and financial condition.

2025 Form 10-K

RISK FACTORS

Failure to comply with privacy, data protection, biometric, AI, and cybersecurity laws and regulations could have a material adverse effect on our reputation, results of operations or financial condition, or have other adverse consequences.

We are subject to various laws, rules and regulations relating to the collection, use, transmission and security and privacy of personal and business information. Most states and the District of Columbia have enacted notification rules that may require notification to regulators, clients or employees in the event of a privacy breach. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate our costs. It is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our data practices. If so, in addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have a material adverse effect on our business. Complying with these various laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. For example, we incurred additional costs and reallocated internal resources in order to comply with the requirements of the California Privacy Rights Act (“CPRA”), which amended the California Consumer Privacy Act of 2018 (“CCPA”) and became effective on January 1, 2023, which has required us to reallocate additional resources in order to manage compliance in light of the changes implemented by the CPRA. Other states have adopted or are currently contemplating additional privacy requirements. Some states have also adopted laws regarding the use of biometric data, which laws may be applicable to us or our clients that use timeclocks or other HR technology with biometric scanners. Also, in recent years, legislation that creates obligations with respect to the development and/or use of AI has been adopted or is under consideration in the U.S. at both the federal and state level. As a result, current or future laws (including product liability regimes), regulatory or self-regulatory requirements or ethical considerations, including our own published, guiding ethical principles regarding AI and machine learning, could restrict or impose burdensome and costly requirements on our ability to leverage data and/or these technologies in innovative ways. Generally, these laws do not address the co-employment relationship, which requires us to make determinations as to the requirements applicable to our WSEEs and our PEO HR Solutions clients. The future enactment of similar laws, rules or regulations, or an adverse determination as to the applicability of these laws, rules, or regulations to us, could have a material adverse impact on us through increased costs or restrictions on our businesses and noncompliance could result in regulatory penalties and significant liability. Additionally, any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities for us.

The failure of third-party providers, such as financial institutions, data centers, or cloud-service providers, could have a material adverse effect on us.

In conjunction with providing services to clients, we communicate and rely on financial institutions to electronically transfer funds for the collection of our comprehensive service fee as well as the payment of wages and associated payroll tax withholdings. Communication failures or other failures involving these financial institutions, for any reason, could cause material interruptions to our operations, impact client retention, and result in significant penalties or liabilities to us.

We lease hosting facilities for our data centers at two separate facilities with one facility acting as our primary data center. These facilities host our internally-developed business applications, telecommunications equipment, information security infrastructure, and network equipment. If our data centers experience any interruptions or outages, and our business continuity plan is delayed or fails, then our operations may be materially impacted, which could result in our failure to meet our obligations to our clients, WSEEs, tax authorities, and/or other vendors, which could damage our reputation, subject us to liability, and have a material adverse effect on our business and financial condition.

In addition, many of our systems and services rely upon third-party technology. For example, Insperity HR Scale that is under development with Workday utilizes Workday’s HCM. Other examples include the human capital management system on which our HR Core solution is based, the data analytics solution on which our Insperity People Analytics solution is based, and the payroll tax calculation and reporting tools that provide the rates used to calculate payroll taxes for our PEO HR Solutions, among others. Any failure by these service providers to deliver their services in a timely manner and in compliance with applicable laws could result in material interruptions to our operations; subject us to substantial fines, penalties, and other liabilities; damage our reputation; and result in a loss of clients.

2025 Form 10-K

RISK FACTORS

Other Operational Risks

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

We have announced a strategic partnership and are developing a joint solution with Workday known as Insperity HR Scale. In 2025, we announced that we had entered into agreements with clients for our HR Scale solution, our joint solution with Workday, commencing in the first quarter of 2026. Insperity HR Scale involves, among other things, the offering of our PEO services using Workday’s human capital management solution, as well as joint marketing and sales efforts. The joint solution also requires integration with other third-party vendors and with our proprietary system for our PEO HR Solutions. The success of the strategic partnership and Insperity HR Scale will depend on many factors, and we may not realize all, or any, of the anticipated benefits. We have devoted substantial resources and incurred significant costs to develop Insperity HR Scale, and expect to continue to devote additional substantial resources and to spend additional significant amounts. The strategic partnership and development of Insperity HR Scale involve numerous risks, including that we may be unable to complete the implementation of Insperity HR Scale, or that implementation of Insperity HR Scale may be more difficult, time-consuming, or costly than expected, including due to difficulties with integrations with third party vendors. We may also not receive the expected sales, marketing, and other benefits from the strategic partnership.

The full benefit of the strategic partnership requires the cooperation of the two companies on sales, marketing, and technology matters, as well as our ability to successfully integrate and implement Insperity HR Scale with our other processes and systems in a manner that allows us to maintain compliance as a professional employer organization and incorporate appropriate financial and management systems and controls. In addition, we may fail to effectively market or sell Insperity HR Scale, or there may be less demand than anticipated for Insperity HR Scale. The strategic partnership and implementation of Insperity HR Scale, may divert the attention of our technology, service, compliance, marketing, sales, management, and other teams away from our existing business solutions, which could result in the loss of existing or prospective clients or fines, penalties, or other liabilities if our existing business solutions and compliance are disrupted. We may also have conflicts or disagreements with Workday, which could disrupt the strategic partnership, could impact the development of Insperity HR Scale, and could lead to termination of the strategic partnership.

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

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

We have adopted a strategy to market and sell additional solutions within and outside of our PEO HR Solutions. As part of this strategy, periodically we make strategic long-term decisions to partner with (including as a reseller arrangement), invest in and/or acquire new companies, business units or assets in order to offer new or enhanced solutions. Offering new solutions involves a number of risks such as entering markets or businesses in which we have no prior experience and that may be highly regulated; failing to integrate the new solution into our product and service offerings; diversion of technology, service, compliance, marketing, sales, management and other teams from other business concerns; in the case of a partnership or reseller arrangement, reliance on the service and technology of the third party; in the case of an investment or acquisition, over-valuation of the targeted business; and litigation or government action resulting from the activities of an acquired company or of our partner or from offering the new solution in a non-compliant manner. The occurrence of one or more of these events could result in the loss of existing or prospective clients or employees, not achieving anticipated revenues or profitability, impairment of acquired assets, and substantial liability. Such developments could have a material impact to our business, financial condition, results of operations, and future growth rates, and could also result in reputational damage that could negatively impact our sales and retention efforts.

2025 Form 10-K

OTHER INFORMATION

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this annual report. Historical results are not necessarily indicative of trends in operating results for any future period.

The statements contained in this annual report that are not historical facts are forward-looking statements that involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this annual report could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are the risks and uncertainties discussed in Item 1A. Risk Factors and the uncertainties set forth from time to time in our other public reports and filings and public statements.

Executive Summary

Overview

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

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

HR 360. Insperity’s HR 360 solution, our largest source of revenue, is offered to small and medium-sized businesses seeking a comprehensive people strategy. From payroll and employment administration, employee benefits, workers’ compensation, government compliance, performance management to training and development, our HR 360 solution offers a full range of services empowering clients to achieve a sophisticated HR function. HR 360 provides access to our web-based human capital management platform, Insperity Premier TM .

HR 360 Select Edition. Insperity’s HR 360 Select Edition solution, which generally is offered only to our middle market client segment, is a lower cost offering with a typically longer commitment that includes the same compliance and administrative services as HR 360 and allows those clients to select, for an additional fee, from the strategic HR products and services that are included with HR 360. HR 360 Select Edition provides access to our web-based human capital management platform, Insperity Premier.

HR Scale. Insperity’s HR Scale solution is our newest service offering that we jointly developed through our strategic partnership with Workday, Inc. (“Workday”). Insperity’s HR Scale solution is intended for growing and middle market companies and provides access to the advanced capabilities of Workday Human Capital Management (“HCM”). Our HR Scale solution, which is priced higher than our HR 360 offering, is designed to combine the HR expertise of our HR 360 solution with the advanced capabilities of Workday HCM, with a focus on affordability, ease and speed of deployment, and agility as companies scale. Insperity’s HR Scale solution is under development and we expect an initial group of clients to begin using our HR Scale solution in the first quarter of 2026.

HR Core. We also offer a comprehensive traditional payroll and human capital management solution, known as Insperity HR Core TM (formerly Workforce Acceleration TM ), which we refer to as our “Traditional HR Solution” as discussed in Item 1. Business — Other Product and Services Offerings — Comprehensive Traditional Payroll and Human Capital Management Solution ”.

We also offer a number of other business performance solutions, including Talent Acquisition Services, Retirement Services, Insurance Services, Contractor Management, and Perks+. These other products and services generally are offered only with our other solutions as discussed in Item 1. Business — Other Product and Services Offerings .

2025 Performance

• Average number of WSEEs paid per month increased 1% to 310,089. Revenues increased 4% on a 3% increase in revenue per WSEE.

2025 Form 10-K

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

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

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

• Gross profit decreased 14% to $900 million. The decrease was primarily due to a 15% decrease in gross profit per WSEE, which was partially offset by a 1% increase in the average number of WSEEs paid per month. Gross profit per WSEE paid per month reflected, in part, a 3% pricing increase offset by a 6% increase in direct costs per WSEE. The increase in direct costs per WSEE was primarily attributable to a 9% increase in benefits costs per participant.

• Operating expenses decreased 3% in 2025 to $910 million, and included decreases in professional services, travel and event costs, and salary and wages. On a per WSEE per month basis, operating expenses decreased from $253 in 2024 to $245 in 2025.

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

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

• Adjusted EBITDA decreased 51% to $131 million.

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

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

• We ended 2025 with working capital of $102 million.

• During 2025, we paid $90 million in dividends, repurchased approximately 232,000 shares of our common stock at a cost of $19 million and paid $31 million in capital expenditures.

Please read “ Non-GAAP Financial Measures ” for a reconciliation of adjusted EBITDA, adjusted net income, and adjusted EPS to their most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States (“GAAP”).

Revenues

We account for our revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers . Our PEO HR Solutions gross billings to clients include the payroll cost of each WSEE at the client location and a markup computed as a percentage of each WSEEs payroll cost. We invoice the gross billings concurrently with each periodic payroll of our WSEEs. Revenues, which exclude the payroll cost component of gross billings, and therefore, consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite. This markup includes pricing components associated with our estimates of payroll taxes, benefits and workers’ compensation costs, plus a separate component related to our HR services. Revenues that have been recognized but not invoiced represent unbilled accounts receivable included in accounts receivable, net on our Consolidated Balance Sheets.

Our revenues are primarily dependent on the number of clients enrolled, the resulting number of WSEEs paid each period and the number of WSEEs enrolled in our benefit plans. Because our total markup is computed as a percentage of payroll cost, certain revenues are also affected by the payroll cost of WSEEs, which may fluctuate based on the composition of the WSEE base, inflationary effects on wage levels and differences in the local economies of our markets.

Direct Costs

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

• employment-related taxes (“payroll taxes”)

• costs of employee benefit plans

2025 Form 10-K

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

• workers’ compensation costs

Payroll taxes consist of the employer’s portion of Social Security and Medicare taxes under FICA, federal unemployment taxes and state unemployment taxes. Payroll taxes are generally paid as a percentage of payroll cost. The federal unemployment tax rates are defined by federal regulations. State unemployment tax rates are subject to claim histories and vary from state to state.

Employee benefits costs are comprised primarily of health insurance premiums and claims costs (including dental and pharmacy costs), but also include costs of other employee benefits such as life insurance, vision care, disability insurance, education assistance, adoption assistance, a flexible spending account program and an employee well-being program.

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

Gross Profit

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Solutions clients, which are subject to pricing arrangements that are typically renewed annually. We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

Operating Expenses

• Salaries, wages and payroll taxes — Salaries, wages and payroll taxes (“salaries”) are primarily a function of the number of corporate employees, their associated average pay and any additional cash incentive compensation. Our corporate employees include client services, sales and marketing, benefits, legal, finance, information technology, administrative support personnel and those associated with our other products and services.

• Stock-based compensation — Our stock-based compensation relates to the recognition of non-cash compensation expense over the requisite service period of time-based and performance-based incentive plan awards.

• Commissions — Commissions expense consists primarily of amounts paid to sales managers and other sales personnel, including BPAs as well as channel referral fees. Commissions are based on new accounts sold and a percentage of revenue generated by such personnel.

• Advertising — Advertising expense primarily consists of media advertising and other business promotions in our current and anticipated sales markets, including the Insperity Invitational™ presented by UnitedHealthcare® sponsorship.

• General and administrative expenses — Our general and administrative expenses primarily include:

◦ rent expenses related to our service centers and sales offices

◦ outside professional service fees related to legal, consulting and accounting services

◦ administrative costs, such as postage, printing and supplies

◦ employee travel and training expenses

◦ facility costs, including repairs and maintenance

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

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

2025 Form 10-K

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

Other Income (Expense)

Other income (expense) includes interest charges incurred in connection with borrowings under our credit facility and interest income earned on our cash, cash equivalents, marketable securities, restricted cash and deposits. Please read “—Liquidity and Capital Resources” for additional information.

Income Taxes

Our provision for income taxes typically differs from the U.S. statutory rate of 21%, due primarily to state income taxes, non-deductible expenses, vesting of equity awards and various tax credits. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant items resulting in deferred income taxes include prepaid assets, accruals for workers’ compensation expenses, stock-based compensation, software development costs, accrued incentive compensation, operating lease assets and liabilities and depreciation. Changes in these items are reflected in our financial statements through a deferred income tax provision. Please read Note 7 to the Consolidated Financial Statements, “Income Taxes,” for additional information.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to health and workers’ compensation insurance claims experience, client bad debts, income taxes, property and equipment, goodwill and other intangibles, and contingent liabilities. We base these estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

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

The health insurance contract with United provides the majority of our health insurance coverage. As a result of certain contractual terms, we have accounted for this program since its inception using a partially self-funded insurance accounting model. Accordingly, we record the costs of the United program, including an estimate of the incurred claims, taxes and administrative fees (collectively the “Program Costs”), as benefits expense in the Consolidated Statements of Operations. The estimated incurred but not reported claims are based upon: (1) the level of claims processed during the quarter; (2) estimated completion rates based upon recent claim development patterns under the program; and (3) the number of participants in the program, including both active and COBRA enrollees. Each reporting period, changes in the estimated ultimate costs resulting from claim trends, plan design and migration, participant demographics and other factors are incorporated into benefits costs.

Effective January 1, 2020 through December 31, 2025, our financial responsibility with United was limited to the first $1 million of paid claims per claimant per year. Beginning January 1, 2026, we have the option to annually elect to limit our responsibility for each participant’s claim costs to $500,000, $750,000, or $1,000,000 per year, which we elect based on the cost of the limit and our estimate of the benefit of that level of limit. For 2026, we have elected to limit our financial responsibility with United to the first $500,000 of paid claims per claimant per year.

Since the program’s inception, under the terms of the contract, United establishes cash funding rates 90 days in advance of the beginning of a reporting quarter. If the Program Costs for a reporting quarter are greater than the premiums paid and owed to United, a deficit in the program would be incurred and we would accrue a liability for the excess costs on our Consolidated Balance Sheets. On the other hand, if the Program Costs for the reporting quarter are less than the premiums paid and owed to United, a surplus in the program would be incurred and we would record an asset for the excess premiums in our Consolidated Balance Sheets. The terms of the arrangement with

2025 Form 10-K

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

United require us to maintain an accumulated cash surplus in the program of $9 million, which is reported as long-term prepaid insurance. As of December 31, 2025, Program Costs were more than the net premiums paid and owed to United by $18 million, which is included in accrued health insurance costs, a current liability on our Consolidated Balance Sheets. In addition, the premiums owed to United at December 31, 2025, were $7 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets. Our benefits costs incurred included an increase of $11 million in 2025 and a decrease of $29 million in 2024 for changes in estimated run-off related to prior periods, net of Individual Claims Limit.

We believe that recent claim development patterns are representative of incurred but not reported claims costs during the reporting period. The estimated completion rate used to compute incurred but not reported claims involves a significant level of judgment. Accordingly, an increase (or decrease) in the completion rate used to estimate the incurred claims would result in an increase (or decrease) in benefits costs and net income would decrease (or increase) accordingly.

The following table illustrates the sensitivity of changes in the completion rate on our estimate of total benefits costs of $3.2 billion in 2025:

Change in

Completion Rate

Change in

Benefits Costs

(in millions)

Change in

Net Income

(in millions)

• Workers’ compensation costs — Since 2007, our workers’ compensation coverage has been provided through an arrangement with Chubb. The Chubb Program is fully insured in that Chubb has the responsibility to pay all claims incurred under the policy regardless of whether we satisfy our responsibilities. Under the Chubb Program for claims incurred on or before September 30, 2019, we have financial responsibility to Chubb for the first $1 million layer of claims per occurrence and, for claims over $1 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1 million. Effective for claims incurred on or after October 1, 2019, we have financial responsibility to Chubb for the first $1.5 million layer of claims per occurrence and, for claims over $1.5 million, up to a maximum aggregate amount of $6 million per policy year for claims that exceed $1.5 million.

Because we bear the financial responsibility for claims up to the levels noted above, such claims, which are the primary component of our workers’ compensation costs, are recorded in the period incurred. Workers’ compensation insurance includes ongoing health care and indemnity coverage whereby claims are paid over numerous years following the date of injury. Accordingly, the accrual of related incurred costs in each reporting period includes estimates, which take into account the ongoing development of claims and therefore requires judgment.

We utilize a third-party actuary to estimate our loss development rate, which is primarily based upon the nature of WSEEs’ job responsibilities, the location of WSEEs, the historical frequency and severity of workers’ compensation claims, and an estimate of future cost trends. Each reporting period, changes in the actuarial assumptions resulting from changes in actual claims experience and other trends are incorporated into our workers’ compensation claims cost estimates. During the years ended December 31, 2025 and 2024, we reduced accrued workers’ compensation costs by $29 million and $32 million, respectively, for changes in estimated losses related to prior reporting periods. Workers’ compensation cost estimates are discounted to present value at a rate based upon the U.S. Treasury rates that correspond with the weighted average estimated claim payout period (the average discount rate was 3.9% in 2025 and 4.3% in 2024) and are accreted over the estimated claim payment period and included as a component of direct costs in our Consolidated Statements of Operations.

Our claim trends could be greater than or less than our prior estimates, in which case we would revise our claims estimates and record an adjustment to workers’ compensation costs in the period such determination is made. If we were to experience any significant changes in actuarial assumptions, our loss development rates could increase (or decrease), which would result in an increase (or decrease) in workers’ compensation costs and a resulting decrease (or increase) in net income reported in our Consolidated Statements of Operations.

2025 Form 10-K

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

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

Change in Loss Development Rate

Change in Workers’ Compensation Costs

(in millions)

Change in

Net Income

(in millions)

At the beginning of each policy period, the workers’ compensation insurance carrier establishes monthly funding requirements comprised of premium costs and funds to be set aside for payment of future claims (“claim funds”). The level of claim funds is primarily based upon anticipated WSEE payroll levels and expected workers’ compensation loss rates, as determined by the insurance carrier. Monies funded into the program for incurred claims expected to be paid within one year are recorded as restricted cash, a short-term asset, while the remainder of claim funds are included in deposits, a long-term asset in our Consolidated Balance Sheets. In 2025, we received $29 million for the return of excess claim funds related to the workers’ compensation program, which decreased deposits – workers’ compensation. As of December 31, 2025, we had restricted cash of $82 million and deposits – workers’ compensation of $148 million. We have estimated and accrued $184 million in incurred workers’ compensation claim costs as of December 31, 2025. Our estimate of incurred claim costs expected to be paid within one year is recorded as accrued workers’ compensation costs and is included in short-term liabilities, while our estimate of incurred claim costs expected to be paid beyond one year is included in long-term liabilities in our Consolidated Balance Sheets.

New Accounting Pronouncements

We believe that we have implemented the accounting pronouncements with a material impact on our financial statements and do not believe there are any new or pending pronouncements that will materially impact our financial position or results of operations. Please read Note 1 to the Consolidated Financial Statements, “Accounting Policies,” for additional information.

2025 Form 10-K

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

Results of Operations

Key Financial and Statistical Data

(in millions, except per share, WSEE, and statistical data)

Year Ended December 31,

% Change

Financial data:

Revenues (1)

Gross profit

Operating expenses

Operating income

Other income (expense), net

Net income (loss)

Diluted EPS

Non-GAAP financial measures (2) :

Adjusted net income

Adjusted EBITDA

Adjusted EPS

Average WSEEs paid

Statistical data (per WSEE per month) :

Revenues (3)

Gross profit

Operating expenses

Operating income

Net income (loss)

Adjusted EBITDA (2)

(1) Revenues are comprised of gross billings less WSEE payroll costs as follows:

Year Ended December 31,

(in millions)

Gross billings

Less: WSEE payroll cost

Revenues

(2) Please read “ Non-GAAP Financial Measures ” for a reconciliation of the non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP.

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

Year Ended December 31,

(per WSEE per month)

Gross billings

Less: WSEE payroll cost

Revenues

2025 Form 10-K

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

Key Operating Metrics

We monitor certain key metrics to measure our performance, including:

• WSEEs

• Adjusted EBITDA

• Adjusted EPS

Our growth in the number of WSEEs paid is affected by three primary sources: new client sales, client retention and the net change in WSEEs paid at existing clients through new hires and employee terminations.

• During 2025 , the average number of WSEEs paid from new client sales increased 1% from 2024. Average client retention increased from 81% in 2024 to 83% in 2025 . The net change in our client base also increased when compared to 2024.

• During 2024, the average number of WSEEs paid from new client sales increased 2% from 2023. Average client retention declined from 83% in 2023 to 81% in 2024, while the net change in our client base remained positive, although lower than 2023.

Average WSEEs Paid and

Year-over-Year Growth Percentage

2025 Form 10-K

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

Net Income (Loss) and

Year-over-Year Growth Percentage

(in millions)

EPS and

Year-over-Year Growth Percentage

(amounts per share)

2025 Form 10-K

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

Adjusted EBITDA and

Year-over-Year Growth Percentage

(in millions)

Adjusted EPS and

Year-over-Year Growth Percentage

(amounts per share)

Revenues

2025 Compared to 2024

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

• Average WSEEs paid increased 1%.

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

2024 Compared to 2023

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

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

We provide our PEO HR Solutions to small and medium-sized businesses throughout the United States. PEO HR Solutions revenue distribution by region follows:

2025 Form 10-K

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

PEO HR Solutions Revenue by Region

(in millions)

Note: Texas is included in the Southwest region.

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

Significant Markets

Gross Profit

In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, our operating results are significantly impacted by our ability to accurately estimate our direct costs relative to the revenues derived from the markup component of our gross billings.

Our gross profit per WSEE is primarily determined by our ability to accurately estimate direct costs and our ability to incorporate changes in these costs into the gross billings charged to PEO HR Solutions clients, which are subject to pricing arrangements that are typically renewed annually. We use gross profit per WSEE per month as our principal measurement of relative performance at the gross profit level.

2025 Form 10-K

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

Gross Profit and

Year-over-Year Growth Percentage

(in millions)

Gross Profit per WSEE per Month and

Year-over-Year Growth Percentage

(per WSEE per month)

2025 Compared to 2024

Our pricing objectives attempt to achieve a level of revenue per WSEE that matches or exceeds changes in primary direct costs and operating expenses. Our revenues per WSEE per month increased $46 due to higher average pricing of 3%.

The net increase in direct costs between 2025 and 2024 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $43 million as discussed below. The $89 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Benefits costs

• The cost of group health insurance and related employee benefits increased $61 per WSEE per month, or 9.2% on a cost per covered employee basis.

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

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

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

2025 Form 10-K

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

Workers’ compensation costs

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

• Workers’ compensation costs increased 15%, or $3 per WSEE per month, in 2025 compared to 2024.

• As a percentage of non-bonus payroll cost, workers’ compensation costs were 0.26% in 2025 and 0.24% in 2024.

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

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

Payroll tax costs

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

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

2024 Compared to 2023

The net decrease in direct costs between 2024 and 2023 attributable to the changes in cost estimates for benefits and workers’ compensation totaled $15 million as discussed below. The $45 per WSEE per month increase in direct costs is due primarily to the direct cost component changes as follows:

Benefits costs

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

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

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

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

Workers’ compensation costs

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

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

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

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

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

Payroll tax costs

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

2025 Form 10-K

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

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

Operating Expenses

2025 Compared to 2024

The following table presents certain information related to our operating expenses:

Year Ended December 31,

per WSEE

(in millions, except per WSEE)

% Change

% Change

Salaries

Stock-based compensation

Commissions

Advertising

General and administrative:

Amortization of SaaS implementation costs

Workday SaaS licensing and implementation expenses

All other general and administrative

Total general and administrative

Depreciation and amortization

Total operating expenses

• General and administrative expenses for 2025 decreased 9% to $203 million, or $4 per WSEE per month, compared to 2024. The decrease was primarily due to lower professional services fees, resulting from the capitalization in 2025 of a portion of the expenses related to the development of our HRScale solution. Additionally, we incurred lower travel and training costs and amortization of SaaS implementation costs, partially offset by accelerated lease costs associated with the consolidation of sales offices in 2025 and software licensing and maintenance costs.

2025 Form 10-K

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

2024 Compared to 2023

The following table presents certain information related to our operating expenses:

Year Ended December 31,

per WSEE

(in millions, except per WSEE)

% Change

% Change

Salaries

Stock-based compensation

Commissions

Advertising

General and administrative:

Amortization of SaaS implementation costs

Workday SaaS licensing and implementation expenses

All other general and administrative

Total general and administrative

Depreciation and amortization

Total operating expenses

Operating expenses for 2024 increased 14% to $935 million compared to $818 million in 2023. Operating expenses per WSEE per month for 2024 increased 16% to $253 compared to $219 in 2023.

• Salaries of corporate and sales staff for 2024 increased 13% to $521 million, or $18 per WSEE per month, compared to 2023. The increase was primarily due to a 5% increase in BPA, service, technology and support headcount and staff compensation levels in 2024 compared to 2023.

• Stock-based compensation expense for 2024 increased 15% to $61 million, or $3 per WSEE per month, compared to 2023. The increase was primarily due to time-based restricted stock unit awards issued under our incentive plan. Please read Note 1 “Accounting Policies” and Note 9 “Incentive Plans,” to the Consolidated Financial Statements for additional information.

• General and administrative expenses for 2024 increased 27% to $224 million, or $12 per WSEE per month, compared to 2023. The increase was primarily due to increased professional services fees, which includes expenses related to the implementation of our Workday strategic partnership, software licensing and maintenance costs, and amortization of SaaS implementation costs.

Other Income (Expense)

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

In 2025, the decrease in other income from 2024 was due to lower deposits and interest rates on overnight investments. In 2024 and 2023, the increase in other income was due to an increase in interest rates on our marketable securities investments and workers’ compensation deposits, which was partially offset by an increase in interest expense related to higher average interest rates on borrowings under our credit facility. Please read Note 2 to the Consolidated Financial Statements, “Other Balance Sheet Information,” for additional information.

Income Tax Expense

Our effective income tax rate was (75)% in 2025, 28% in 2024 and 24% in 2023. Our provision for income taxes differed from the U.S. statutory rate of 21% primarily due to state income taxes, non-deductible expenses, and excess tax expense of $2 million associated with the vesting of equity compensation in 2025, and excess tax benefits associated with the vesting of equity compensation of less than $1 million and $5 million, in 2024 and 2023, respectively. Please read Note 1 “ Accounting Policies ” and Note 7 “Income Taxes,” to the Consolidated Financial Statements for additional

2025 Form 10-K

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

information.

On July 4, 2025, H.R.1, which is known as the “One Big Beautiful Bill Act,” was signed into federal law. This law includes significant changes to federal tax law and other regulatory provisions that may impact us. ASC 740, “Income Taxes”, requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. We have evaluated the provisions of H.R.1 and the potential effects on our financial position, results of operations, and cash flows. Although there is no impact to our effective tax rate, we are accelerating tax deductions for unamortized software development costs.

2025 Form 10-K

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

Non-GAAP Financial Measures

Non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used to their most directly comparable GAAP financial measures as provided in the tables below.

Non-GAAP Measure

Definition

Benefit of Non-GAAP Measure

Non-bonus payroll cost

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

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

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

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

Adjusted cash, cash equivalents and marketable securities

Excludes funds associated with:

•  federal and state income tax withholdings,

•  employment taxes,

•  other payroll deductions, and

•  client prepayments.

We believe that the exclusion of the identified items helps us reflect the fundamentals of our underlying business model and analyze results against our expectations, against prior periods, and to plan for future periods by focusing on our underlying operations. We believe that the adjusted results provide relevant and useful information for investors because they allow investors to view performance in a manner similar to the method used by management and improves their ability to understand and assess our operating performance. Adjusted EBITDA is used by our lenders to assess our leverage and ability to make interest payments.

EBITDA

Represents net income computed in accordance with GAAP, plus:

•  interest expense,

•  income tax expense,

•  depreciation and amortization expense, and

•  amortization of SaaS implementation costs.

Adjusted EBITDA

Represents EBITDA plus:

•  non-cash stock-based compensation.

Adjusted net income

Represents net income computed in accordance with GAAP, excluding:

•  non-cash stock-based compensation.

Adjusted EPS

Represents diluted net income per share computed in accordance with GAAP, excluding:

•  non-cash stock-based compensation.

2025 Form 10-K

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

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

(in millions, except per WSEE per month)

Year Ended December 31,

Per WSEE

Per WSEE

Per WSEE

Payroll cost

Less: Bonus payroll cost

Non-bonus payroll cost

Payroll cost % change year over year

Non-bonus payroll cost % change year over year

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

(in millions)

December 31, 2025

December 31, 2024

Cash, cash equivalents and marketable securities

Less:

Amounts payable for withheld federal and state income taxes, employment taxes and other payroll deductions

Client prepayments

Adjusted cash, cash equivalents and marketable securities

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

Year Ended December 31,

(in millions, except per WSEE per month)

Per WSEE

Per WSEE

Per WSEE

Net income (loss)

Income tax expense

Interest expense

Amortization of SaaS implementation costs

Depreciation and amortization

EBITDA

Stock-based compensation

Adjusted EBITDA

Net income (loss) % change year over year

Adjusted EBITDA % change year over year

2025 Form 10-K

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

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

Year Ended December 31,

(in millions)

Net income (loss)

Non-GAAP adjustments:

Stock-based compensation

Tax effect

Total non-GAAP adjustments, net

Adjusted net income

Net income (loss) % change year over year

Adjusted net income % change year over year

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

Year Ended December 31,

(amounts per share)

Diluted EPS

Non-GAAP adjustments:

Stock-based compensation

Tax effect

Total non-GAAP adjustments, net

Adjusted EPS

Diluted EPS % change year over year

Adjusted EPS % change year over year

Liquidity and Capital Resources

We periodically evaluate our liquidity requirements, capital needs and availability of resources in view of, among other things, our expansion plans, stock repurchases, potential acquisitions, debt service requirements and other operating cash needs. To meet short-term liquidity requirements, which are primarily the payment of direct costs and operating expenses, we rely primarily on cash from operations. Longer-term projects, large stock repurchases or significant acquisitions may be financed with public or private debt or equity. We have a revolving credit facility (“Facility”) with a syndicate of financial institutions with a current revolving credit commitment of $750 million. The Facility is available for working capital and general corporate purposes, including acquisitions and stock repurchases. We have in the past sought, and may in the future seek, to raise additional capital or take other steps to increase or manage our liquidity and capital resources.

As of December 31, 2025, we had outstanding letters of credit and borrowings totaling $370 million under the Facility. Please read Note 6 to the Consolidated Financial Statements, “ Long-Term Debt ,” for additional information.

We had $660 million in cash, cash equivalents and marketable securities at December 31, 2025, of which approximately $468 million was payable in early January 2026 for withheld federal and state income taxes, employment taxes and other payroll deductions. Approximately $135 million represented client prepayments that were invoiced in January 2026. At December 31, 2025, we had working capital of $102 million compared to $155 million at December 31, 2024. We currently believe that our cash on hand, marketable securities, cash flows from operations, and availability under the Facility will be adequate to meet our liquidity requirements for 2026. We intend to rely on these same sources, as well as public and private debt or equity financing, to meet our longer-term liquidity and capital needs.

2025 Form 10-K

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

Cash Flows from Operating Activities

Net cash used in operating activities in 2025 was $278 million. Our primary source of cash from operations is the comprehensive service fee and payroll funding we collect from our clients. Our cash and cash equivalents, and thus our reported cash flows from operating activities, are significantly impacted by various external and internal factors, which are reflected in part by the changes in our balance sheet accounts. These include the following:

• Timing of client payments / payroll taxes — We typically collect our comprehensive service fee, along with the client’s payroll funding, from clients no later than the same day as the payment of WSEE payrolls and associated payroll taxes. Therefore, the last business day of a reporting period has a substantial impact on our reporting of operating cash flows. For example, many WSEEs are paid on Fridays; therefore, operating cash flows decrease in the reporting periods that end on a Friday or a Monday. In the year ended December 31, 2025, the last business day of the reporting period was a Wednesday, client prepayments were $135 million and employment taxes and other deductions were $468 million. In the year ended December 31, 2024, the last business day of the reporting period was a Tuesday, client prepayments were $91 million and employment taxes and other deductions were $830 million, which included $440 million of funds related to client employee retention tax credits received on their behalf from the Internal Revenue Service that were distributed to clients in early 2025.

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

• Medical plan funding — Our health care contract with United establishes participant cash funding rates 90 days in advance of the beginning of a reporting quarter. Therefore, changes in the participation level of the United program have a direct impact on our operating cash flows. In addition, changes to the funding rates, which are solely determined by United based primarily upon recent claim history and anticipated cost trends, also have a significant impact on our operating cash flows. As of December 31, 2025, Program Costs were more than the net premiums paid and owed to United by $18 million, which is included in accrued health insurance costs, a current liability on our Consolidated Balance Sheets at December 31, 2025. In addition, the premiums owed to United at December 31, 2025, were $7 million, which is also included in accrued health insurance costs, a current liability, on our Consolidated Balance Sheets.

• Operating results — Our net income (loss) and adjusted net income has a significant impact on our operating cash flows. Our net income (loss) and adjusted net income decreased 108% and 71% to $(7) million and $39 million in 2025, respectively, compared to $91 million and $135 million in 2024, respectively. Please read “ Results of Operations .”

Cash Flows from Investing Activities

Net cash flows used in investing activities were $31 million for the year ended December 31, 2025, primarily due to property and equipment purchases.

Cash Flows from Financing Activities

Net cash flows used in financing activities were $90 million for the year ended December 31, 2025. We paid $90 million in dividends and repurchased or withheld $19 million in stock. In addition, client funds liability and other financing activities increased by $19 million.

Seasonality, Inflation and Quarterly Fluctuations

Our quarterly earnings are impacted by the seasonal nature of our medical claims costs and payroll taxes. Typically, medical claims costs tend to increase throughout the year with the fourth quarter being the period with the highest costs, which has a negative impact on our fourth quarter earnings. This trend is primarily the result of many WSEEs’ medical plan deductibles being fully met by the fourth quarter, which increases our liability with respect to those claims. We have also experienced variability on a quarterly basis in medical claims costs based on the unpredictable nature of large claims. Payroll taxes and associated billings are computed based on an employee’s annual taxable wage base. The annual payroll tax wage bases are frequently met in the first two quarters of each year depending on the employee’s compensation levels. As a result, the gross profit contribution from payroll taxes is typically higher in the first two quarters and declines in the latter half of each year. These historical trends may change and other seasonal trends may develop in

2025 Form 10-K

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

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

We believe the effects of inflation have not had a significant impact on our results of operations or financial condition; however, inflationary pressure could adversely impact our profitability in the future.

2025 Form 10-K

QUANTITATIVE AND QUALITATIVE DISCLOSURES