Paylocity Holding
An Illinois company that runs payroll, HR, expense and IT software for about 44,400 mid-sized American employers, sold mostly through their benefits brokers.
The scores
Growth3/4 →
Recurring revenue grew 12.2% in fiscal 2026, client count 7% and revenue per client 5%, but guidance points to about 8%.
Business quality3/4 →
Retention above 92% rests on payroll switching costs and beats Paycom's, but margins trail the cohort and Rippling sells the same scope.
Financial position4/4 →
Net cash of about $190M, $81M drawn on a $1.75B revolver due 2031, and operating cash flow of $533M.
Execution record4/4 →
Raised its guide after Q1, Q2 and Q3 of fiscal 2026, beat the original top by 2.4%, and grew clients about 7%.
Per share capture3/4 ↑
Buybacks cut diluted shares 3.1% in fiscal 2026, but stock pay of 7.8% of revenue absorbs much of the spending.
Potential3/4 →
About 3% of firms in its size band, with spend and IT products to cross-sell, but the gains depend on winning clients, none committed.
Risk profile3/4 →
No client above 1% of revenue, but rate-sensitive client-fund income, per-employee fees exposed to AI cuts, and a named private rival.
Valuation3/4 ↓
About 18 times trailing free cash flow pays for the current business and modest growth; after stock pay it is fuller.
Evidence quality3/4 →
Filed facts carry the numbers, but retention is only a floor and revenue per client and the AI pricing plans are management's words.
The Verdict
We rate Paylocity neutral. It runs payroll and HR software for mid-sized American employers, and the business is solid: payroll is risky to move, so more than 92% of revenue comes back each year, and the company keeps adding clients and selling each one more. The price is fair, not cheap: it asks for modest growth, but the cash it is measured on was lifted by a one-time tax break, and paying staff in shares takes a large slice. The view hinges on whether Paylocity again beats its own cautious forecast. Another year like the last would make today's price cheap.
The long caseWith US hiring flat, Paylocity grows by winning clients from older payroll firms and selling each one more software; both must keep going.
The evidence under this - 8 claims
- Free cash flow less stock pay was $289.1M, a 3.7% yield, which needs about 5.3% growth a year at the same return.
- Fiscal 2026 free cash flow was lifted by a one-time tax benefit (C12), so the trailing base flatters the multiple.
- The 9% required return is an assumption; at 10% the implied growth is about 4.5%.
The same arithmetic on the August 2025 guide implied about 9% and the year delivered 12.2%, so the implied slowdown may be caution rather than a forecast.
The company
Every employer has to pay its staff correctly and send the right taxes to the right agencies on time. Paylocity sells mid-sized American employers, typically with 10 to 5,000 staff, one online system for this, plus hiring, benefits, time sheets, expenses and IT logins.
About 44,400 clients use it, averaging over 150 employees. The alternative is an older payroll firm such as ADP, separate tools, or a clerk and a spreadsheet. More than a quarter of new business arrives through benefits brokers, because Paylocity sells no insurance against them.
The evidence under this - 4 claims
How it makes money
Clients pay a monthly fee for the products they use, mostly scaled to how many employees they have. That is 93% of revenue. The other 7% is interest: Paylocity holds client payroll money for a few days before paying it out and earns interest on about $3.3B, so that part falls when interest rates fall.
Revenue grows two ways: more clients, up about 7% a year, and more spent by each, up about 5% last year.
The evidence under this - 5 claims
Recurring revenue over average clients gives about $38,400, so the company's measure uses a definition it does not disclose; the direction is consistent with recurring revenue outgrowing clients.
Where the money comes from, stream by stream
| Stream | Share of sales (FY2026) | How it earns it |
|---|---|---|
| Recurring and other revenue | 93.2% | Monthly fees for payroll, tax filing, HR, time, benefits, Airbase spend and IT products, priced by products bought and employee count, plus implementation fees. |
| Interest on funds held for clients | 6.8% | Interest earned on client payroll and tax money held between collection and payment, so it moves with short-term rates. |
| Implementation fees (within recurring and other) | not disclosed | One-off set-up fees deferred over up to 24 months; not reported separately. |
Who runs it
Toby Williams, finance chief from 2017, has run the company alone since August 2024. Steven Beauchamp, chief executive from 2007, is executive chairman, and Ryan Glenn is finance chief. The founder, Steven Sarowitz, owns 15.6% and insiders 19.4% in all. Bonuses pay on recurring revenue and a cash profit measure; nothing rewards cash generated per share.
The evidence under this - 3 claims
Why it wins, and who could beat it
Why customers come back
Most clients could leave on 60 days' notice, yet more than 92% of revenue stays each year. Moving payroll means moving years of pay and tax history, retraining every manager and running two payrolls side by side, and a single late tax payment costs the employer an IRS penalty of 2% to 15% of the amount.
So employers stay unless service fails. Paycom, a rival selling to the same employers, keeps about 90% to 91% by its own measure, so Paylocity's hold looks at least as good.
The evidence under this - 5 claims
Clients average over 150 employees, not exactly 150, so the true figure per employee is somewhat lower; management's own revenue per client is about $37,200, a different definition.
The threat
Rippling, a private company valued at $16.8B in 2025, sells the same idea: payroll, HR, IT and spending in one system. Paycom and ADP chase the same employers. The market's newer fear is AI: if software agents let clients cut office staff, a business paid per employee earns less, even if nobody rebuilds its tax engine.
The evidence under this - 3 claims
The rivals: PAYC, ADP, PAYX, and 1 more that is private, in-house or listed abroad.
Who else does this, rival by rival
| Ticker | Rival | How far along | Priced against it |
|---|---|---|---|
| Private | RipplingPriced against it: Private | On sale | Private |
| PAYC | PaycomPriced against it: Yes | On sale | Yes |
| ADP | ADP Workforce NowPriced against it: Yes | On sale | Yes |
| PAYX | PaychexPriced against it: Yes | On sale | Yes |
How big it could get
How big this could get
The Census Bureau counts about 1.33 million American firms with 10 to 4,999 employees, employing 73.3 million people. At the roughly $248 a year Paylocity earns per client employee, that is about $18.2B of spending a year.
Paylocity's clients are about 3% of those firms and employ about 9% of those workers, so there is room. But American jobs grew only 0.31% in the past year, so growth has to come from winning clients from rivals and selling them more.
The evidence under this - 4 claims
Clients average over 150 employees, not exactly 150, so the true figure per employee is somewhat lower; management's own revenue per client is about $37,200, a different definition.
The Census count is from 2022 and the client count from 2026, and some clients sit outside the size band, so both ratios are approximate.
The results
The numbers
Sales grew 11% in the year to Jun 2026, about the same pace as the 14% in the year before.
Operating margin is 22%, up from 13% in the year to Jun 2023.
Running costs take 47¢ of each sales dollar, down from 56¢ in the year to Jun 2022.
Each dollar put into the business earns 20% a year after tax, about where it was (16%) in the year to Jun 2022.
It turned 28% of sales into free cash, $497M over the year.
It holds $272M of cash against $81.2M of debt, $191M more cash than it owes.
The share count fell 3.0% in 4.0 years, and pay in shares costs 7.8% of sales.
All the numbers
Filed figures from the company's 10-K and 10-Q, read 2026-10-07. Fiscal years end in June.
| Jun 2022 | Jun 2023 | Jun 2024 | Jun 2025 | Jun 2026 | |
|---|---|---|---|---|---|
| Size and growth | |||||
| Sales | $853M | $1.17B | $1.40B | $1.60B | $1.77B |
| Sales growth | +34% | +38% | +19% | +14% | +11% |
| Profit | |||||
| Gross margin | 66% | 69% | 69% | 69% | 69% |
| Operating margin | 9.9% | 13% | 19% | 19% | 22% |
| Net margin | 11% | 12% | 15% | 14% | 15% |
| What growth costs, per sales dollar | |||||
| Research and development | 12% | 14% | 13% | 13% | 12% |
| Sales and marketing | 25% | 25% | 24% | 23% | 22% |
| General and admin | 19% | 16% | 13% | 13% | 13% |
| Pay in shares | 11% | 13% | 10% | 9.0% | 7.8% |
| Capital spending | 2.1% | 1.9% | 1.3% | 0.8% | 2.0% |
| Cash | |||||
| Cash from operations | $155M | $283M | $385M | $418M | $533M |
| Free cash flow | $137M | $261M | $367M | $405M | $497M |
| Balance sheet | |||||
| Cash and short-term investments | $140M | $289M | $402M | $398M | $272M |
| Debt | - | - | $0 | $162M | $81.2M |
| Net cash | - | - | $402M | $236M | $191M |
| Returns and shares | |||||
| Return on capital | 16% | 19% | 21% | 18% | 20% |
| Shares (diluted) | 56.4M | 56.6M | 57.0M | 56.5M | 54.8M |
What growth costs
Growth has been getting cheaper. From fiscal 2024 to 2026, selling, office and development costs each took a smaller share of sales, so the operating margin rose from 18.5% to 21.8% even as growth slowed. The cost the margin hides is pay in shares, near 8% of sales.
The evidence under this - 3 claims
The last report (4 Aug)
Quarter ended June 2026, filed figures.
In fiscal 2026, the year to June, recurring revenue grew 12.2% to $1.65B and quarterly growth rose to 12.4% by the fourth quarter. Free cash flow reached 24% of revenue.
Then management forecast about 8% recurring growth for fiscal 2027 and about 7% for total revenue, because interest on client money should fall as rates are cut. The forecast implies growth near 7.5% after the first quarter. Part of next year's profit gain is an accounting change that spreads sales commissions over eight years instead of seven.
What it did to the thesisIt confirmed the business is steady: clients grew, retention held and growth beat the forecast all year. It did not show faster growth ahead, since the new forecast slows sharply and part of next year's profit gain is accounting. The view stays neutral.
The quarter in detail
Sales growth from the previous quarter, filed figures.
Earnings per share $1.84 against $1.62 expected.
The evidence under this - 6 claims
- The fiscal 2026 guide began at about 9% recurring growth and ended at 12.2% (C08), so this guide may again prove cautious.
- Interest on client funds is guided down to about $103M from $120.0M, so total growth trails recurring by about a point.
The same arithmetic on the August 2025 guide implied about 9% and the year delivered 12.2%, so the implied slowdown may be caution rather than a forecast.
What management did with the money
Paylocity spent $398M buying back its own shares in fiscal 2026, yet the share count fell only 3.1%, because it also pays staff about $139M a year in shares. It bought Airbase for expenses in 2024 with borrowed money, since repaid, and small AI tools in 2026.
Insiders in 2026Q3: 33 purchases and 65 sales, from their Form 4 filings.
The evidence under this - 4 claims
The price, and where we disagree
In short. Fair. The price asks for modest growth, below what the company forecasts, but the cash it is measured on was flattered by a one-time tax break and large pay in shares.
In February 2026, after strong results, the shares fell 7.2% in a day as investors feared AI would shrink HR software, and they bottomed at $95.10 in April. As results held up they recovered to about $146.
Analysts now expect revenue at the top of the company's forecast, so the easy recovery is done. The next test is the first-quarter report on 3 November.
The evidence under this - 5 claims
- The fiscal 2026 guide began at about 9% recurring growth and ended at 12.2% (C08), so this guide may again prove cautious.
- Interest on client funds is guided down to about $103M from $120.0M, so total growth trails recurring by about a point.
How we read the multiple
Investors pay about $7.76B for Paylocity. What has to be true:
1. Last year it produced $427.8M of spare cash, so the price is about 18 times that cash. 2. A buyer wanting 9% a year, a common yardstick, then needs that cash to grow about 3.5% a year for ever. 3. Subtract the $139M paid in shares and the need rises to about 5.3% a year.
Both are below the forecast 8%, but last year's cash was lifted by a one-time tax break, so the real base is lower.
Against its own history. Buyers pay less for each dollar of sales than a year ago, though the business per share grew; the AI scare cut the rating and only part came back.
The evidence under this - 5 claims
- Free cash flow less stock pay was $289.1M, a 3.7% yield, which needs about 5.3% growth a year at the same return.
- Fiscal 2026 free cash flow was lifted by a one-time tax benefit (C12), so the trailing base flatters the multiple.
- The 9% required return is an assumption; at 10% the implied growth is about 4.5%.
Priced against its rivals
The competitors its own annual report names, each confirmed against the rival's filing. Measured on price for each $1 of spare cash, cheapest first:
| Ticker | Company | price for each $1 of spare cash |
|---|---|---|
| PAYC | Paycom Software | 13.3× |
| PCTY | Paylocity Holding | 17.6× |
| PAYX | Paychex | 17.9× |
| ADP | Automatic Data Processing | 21.2× |
The middle of the other 3 is 17.9. Paylocity Holding Corporation is 2nd cheapest of 4.
Rivals' figures come from a data provider, so read the spread of the group rather than any single pair.
It sits in the middle of its listed payroll rivals on cash, cheaper than its faster growth suggests but dearer on reported profit.
Private or foreign rivals that cannot be priced: Dayforce, Inc., Ultimate Kronos Group.
Where we disagree with the market
The AI scare was overdone; Paylocity is a steady compounder that will beat its forecast again, and analysts already expect revenue at its top.
Growth of 8% to 10% is likely, but the cash the price rests on is flattered, so the shares are fair rather than cheap.
The market expects another year like the last. We agree the business is steady, but last year's spare cash got a one-time tax boost, pay in shares takes about a third of it, and part of next year's profit gain is accounting.
We would be wrong if recurring growth stays at 11% or more through fiscal 2027 with retention above 92% and spare cash held near $430M; then today's price is cheap.
What analysts say, and the evidence
The evidence under this - 7 claims
Management guided low last year and the margin rose 120 basis points instead of the 20 first guided, so the underlying margin may again rise.
What could go wrong, and how we would know
The risks
- Clients can walk. Most contracts end on 60 days' notice, and Rippling, Paycom and ADP sell the same system to the same employers.
- AI could shrink headcounts. Fees rise with client employees, and US job growth is near zero; offices cutting staff with AI would cut its fees.
- Rates cut interest income. About 7% of revenue is interest on client money, guided to fall from $120M to about $103M as rates come down.
- Pay in shares is heavy. Near 8% of sales, it absorbs much of the buyback spending, and the company's own target is 5%.
- Growth is forecast to slow. The company's own forecast implies about 7.5% recurring growth after the first quarter, down from 12.4%.
- Insiders only sell. In the past year insiders sold 75 times and bought nothing, though almost all sales were scheduled in advance.
The evidence under this - 8 claims
US payroll employment grew only 0.31% in the year to September 2026 (C28), and any cut in office staff at clients would reduce per-employee fees.
The same arithmetic on the August 2025 guide implied about 9% and the year delivered 12.2%, so the implied slowdown may be caution rather than a forecast.
What we still do not know
- Retention is published only as 'above 92%', so a slide from 96% to 93% would not show.
- How much revenue is charged per employee rather than per product, and so how much AI job cuts at clients would cost.
- How many clients use the Airbase expense product, against a target of 10% to 20%.
- How many mid-sized clients Rippling has won, since it publishes no figures.
The evidence under this - 4 claims
Recurring revenue over average clients gives about $38,400, so the company's measure uses a definition it does not disclose; the direction is consistent with recurring revenue outgrowing clients.
No penetration figure has been disclosed, and the target is the generic one management applies to every new product.
What would change our view
- Neutral→AttractiveA cheaper price on unchanged execution
It needs all of:
- ○The shares fall to 15 times last year's spare cash, with this year's forecast still being met.about $122.67 today, 16% below the last close
- ○Recurring revenue grows 10% or more in the first quarter of fiscal 2027.checked at the next results, due by 3 Nov
- Neutral→AttractiveGrowth holds above the guide
It needs all of:
- ○Recurring revenue grows 11% or more in the first quarter of fiscal 2027.checked at the next results, due by 3 Nov
- ○The company raises its fiscal 2027 recurring growth forecast to 10% or more.checked at the next results, due by 3 Nov
- Neutral→UnattractiveClients start leaving or growth stalls
It needs any of:
- ○Recurring revenue growth falls below 7% in any quarter.checked at the next results, due by 3 Nov
- ○Client numbers grow less than 4% in fiscal 2027.checked at the next results, due by 3 Nov
We would also be wrong if
- Revenue retention is no longer reported above 92% for fiscal 2027.
- Fiscal 2027 spare cash falls below $380M.
What is coming
- 3 November 2026 Q1 fiscal 2027 results: Whether recurring revenue beats the $414M to $419M guide by enough to raise the year, as each quarter of fiscal 2026 did.
Every dated event ahead
- 3 November 2026 Q1 fiscal 2027 results: Whether recurring revenue beats the $414M to $419M guide by enough to raise the year, as each quarter of fiscal 2026 did.
- 3 December 2026 Annual meeting: The board's composition after Craig Conway leaves, and any change to pay design.
- February 2027 Q2 fiscal 2027 results, after the January selling season: Whether client wins held through the season most employers switch payroll, with AI fears in the market.
- August 2027 Fiscal 2027 results and 10-K: Whether retention stayed above 92%, and whether free cash flow held once the tax benefit was lapped.
Since we wrote this
- 7 OctThesis writtenNeutral, medium convictionWritten four weeks before Q1 fiscal 2027 results, after a year of beats and a recovery from the AI scare.
Also checked 2 times with nothing new to act on.
Sources 20
Sources - 20
Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.
- S01primarycompany filing2026-08-05business description, client counts, revenue retention, cancellation terms, competitors, referral network, Census market sizing, income statement, cash flow statement, stock pay, buybacks, acquisitions, debtbacksC01C02C03C04C05C10C11C12C13C14C15C17C18C19C23C27C31C40C41
- S02primarycompany release2026-08-04Q4 and full-year results, free cash flow, fiscal 2027 guidance, the commission amortisation change, Ignite AI and GrayscalebacksC05C06C07C08C10C11C14C18C31C38C44
- S03primarytranscript2026-08-04Paylocity Q4 fiscal 2026 earnings call transcriptrevenue per client, client growth, client-fund balances and yield, guidance assumptions, the tax comparison, Airbase target, AI pricing; questions from Baird, TD Cowen, Jefferies and others
which reached roughly $37,200 in fiscal '26 compared to $35,300 in fiscal '25, an increase of more than 5%. We also continue to see significant growth in our client base in fiscal '26 to 44,400 clients
backsC07C12C14C29C30C31C32C38C40 - S04primarycompany release2025-08-05fiscal 2025 results and the first fiscal 2026 guidebacksC08
- S05primarycompany release2025-11-04Q1 recurring revenue, the first raise, updated long-term targetsbacksC06C08
- S06primarycompany release2026-02-05Q2 recurring revenue and the second raisebacksC06C08
- S07primarycompany release2026-05-07Q3 recurring revenue, the third raise, the Grayscale purchase, the $1.0B buyback increasebacksC06C08
- S08primarytranscript2026-02-05Paylocity Q2 fiscal 2026 earnings call transcriptan analyst on the AI selloff, the executive chairman on the service and tax moat
So unlike other software spaces, we've got a pretty big moat around the service component of what we do, whether that's implementation or ongoing service or taxes.
backsC33C34 - S09primarycompany filing2025-10-23director and officer biographies, beneficial ownership at September 30, 2025, the fiscal 2025 bonus, PSU and MSU designbacksC35C36C42
- S10primarycompany filing2026-09-17the $1.75B revolver, its 2031 maturity and its covenantsbacksC15
- S11primarycompany filing2026-02-19a rival's revenue retention, and its naming of Paylocity as a competitorbacksC19C25
- S12primaryother2025-05-09the rival's valuation and its single-platform pitch across HR, IT and spend, in its own words
The financing values the company at $16.8 billion. ... We currently offer over two dozen products across HR, IT, and Spend - everything from payroll and benefits, SSO and identity management, to bill pay and corporate cards. ... Rippling solves this problem by helping companies manage and automate every part of the employee lifecycle in a single platform
backsC26 - S13primaryregulator2026-10-07IRS, Internal Revenue Manual 20.1.4, Failure to Deposit Penalty Internal Revenue Servicewhat a late payroll tax deposit costs an employer
For liability amounts not properly or timely deposited, the penalty rates are as follows. 2 percent for deposits 1-5 days late, 5 percent for deposits 6-15 days late, 10 percent for deposits made more than 15 days late
backsC24 - S14primarygovernment data2026-10-07IRS Data Book FY2025, Table 4-2, Civil Penalties Assessed and Abated, by Type of Tax and Type of Penalty Internal Revenue Servicehow many federal tax deposit penalties the IRS assessed in fiscal 2025
Table 4-2. Civil Penalties Assessed and Abated, by Type of Tax and Type of Penalty ... Employment taxes: Civil penalties, total 4457891 ... Federal tax deposits 1216346
backsC24 - S15primarygovernment data2025-04-10U.S. Census Bureau, Statistics of U.S. Businesses 2022, detailed enterprise employment size table U.S. Census Bureaufirms and employment by firm size, summed over the 10 to 4,999 bands
The Number of Firms and Establishments, Employment, Annual Payroll, and Receipts by State, Industry, and Enterprise Employment Size: 2022 ... United States, Total, 01: Total, 6395635 firms, 135748407 employment ... 04: 10-14 employees, 428589 firms, 5015443 employment ... 25: 2,500-4,999 employees, 2099 firms, 7321331 employment
backsC20 - S16primarygovernment data2026-10-07BLS All Employees, Total Nonfarm (PAYEMS), via FRED U.S. Bureau of Labor Statisticsthe year's change in US payroll employment
All Employees, Total Nonfarm, Thousands of Persons, Monthly, Seasonally Adjusted: 2025-09-01 158548.0; 2026-09-01 159044.0
backsC28 - S17secondaryvendor data2026-10-07Research pack, frozen 2026-10-07 (FMP market data, filed cohort, FINRA short interest)daily closes, the price decomposition, analyst estimates and split, short interest, cohort multiplesbacksC16C17C18C19C33C44C45
- S18primarycompany filing2026-08-21Craig Conway's decision and the expected meeting datebacksC43
- S19primarycompany filing2026-10-07Paylocity insider Form 4 filings read by insider_fetch.py, 2025-11 to 2026-1075 open-market sales, 72 under 10b5-1 plans, no purchasesbacksC37
- S20primarycompany filing2026-08-05cohort membership: both describe payroll and HR outsourcing to the same employersbacksC19