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Paychex (NASDAQ:PAYX)
Q4 2020 Earnings Call
Jul 07, 2020, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Paychex fourth quarter and year-end results conference call. [Operator instructions] I would now like to turn the call over to Mr.

Martin Mucci, president and chief executive officer. Please go ahead, sir.

Martin Mucci -- President and Chief Executive Officer

Thank you and thank you for joining us for our discussion of the Paychex fourth quarter and fiscal year 2020 earnings release. Joining me today is Efrain Rivera, our chief financial officer. This morning, before the market opened, we released our financial results for the fourth quarter and fiscal year ended May 31, 2020. You can access our earnings release on our investor relations web page, and our Form 10-K will be filed with the SEC before the end of July.

This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately one month. I will start today's call with an update on some of the key metrics in our response to COVID-19 and and then review business highlights for the fourth quarter. Efrain will review our financial results for both the fourth quarter and full year and discuss our guidance for the upcoming fiscal year 2021, and then we'll open it up for your questions or comments. In May, we provided you with an update on our business as we were responding to the impacts of COVID-19.

At that time, we talked about the positive trends we were seeing in our key metrics, but it was still early. Over the past month, we have continued to experience steady improvements across all of our key metrics we are tracking on a weekly basis. We are seeing a steady increase in paid employees and in the number of worksite employees for our HR outsourcing clients. We have also continued to see an increase in sales leads and sales productivity.

One particular bright spot is client retention. Now more than ever, our clients are experiencing their value proposition of Paychex as we help them navigate through this very challenging time. I credit the dedication of our Paychex IT, development, product, marketing and service teams, who have worked tirelessly to ensure a seamless transition to remote working for us while providing the products and service to our -- to support our clients and their CPAs during a time of great concern for their businesses, in fact, many times their business survival. When the paycheck protection program was introduced, we were the first in our industry to release an online payroll report to help simplify the filing of the application for the loan.

As a client of Paychex, we pre-populated the payroll information that you had ahead of time. We have processed this report over half a million times for our clients and their CPAs to assist them. We also partnered with three fintech companies: Biz2Credit, Pondera and Lendio, to provide our clients with direct access to alternative lenders for the PPP loans if they did not want to go through their own banking partner. Over $100 million worth of loans have been processed through these partners by our clients.

On June 5, the paycheck protection program flexibility Act was signed into law, relaxing the original requirements for the -- for businesses using -- use of the PPP loans while continuing to qualify for loan forgiveness. Shortly after, we launched the PPP loan forgiveness estimator. This tool which I feel is the most comprehensive in our market, simplifies the complicated process for our clients and again, pre-populates the Paychex client data and provides a very simple way to add non-payroll data to satisfy the new forgiveness requirements. Our service teams have provided excellent responsiveness to our clients, 7/24, even with much higher call volumes and call complexity, all while maintaining and even improving our client satisfaction and retention performance.

In fact, client retention reached a new all-time high. Throughout this uncertain time, we have seen strong performance in multiple areas of the business. SurePayroll has continued to grow as more prospects are looking for intuitive, do-it-yourself solutions. We have seen similar results in our flex virtual sales efforts.

We are also experiencing increased demand for our outsourced HR services, both PEO and ASO, due to the complex demands of the current environment. Our leading suite of customizable solutions allows us to help any business, large or small, simple or complex, do it yourself or fully outsourced, with today's challenges. The COVID-19 pandemic has been a challenge to our business. However, this challenge confirmed that the investments we have made in the recent past were the right investments.

COVID-19 accelerated many workplace trends, and we have had the right solutions in place to help our clients adapt to their new unexpected environment. Our five-star rated mobile app provides clients and their employees with access to solutions from anywhere on any type of device. This, along with our broad set of human capital management solutions and our comprehensive self-service capabilities, have allowed our clients to effectively manage our remote workforce and maintain productivity. Maintaining employee engagement has been critical for our clients during this time, especially as communications are rarely face to face.

Whether a client needs to capture and track employee issues and requests or simply check in with their people, Paychex makes it simple to stay connected and maintain a productive and engaged workforce. This can occur through our HR conversations tool or HR connect, a tool that recently -- we recently released that allows employees to submit their questions, requests and incidents directly to HR through an easy-to-use workflow. We have also seen an increase in the use of Paychex learning, an online learning platform which allows clients to retain employees by providing them with various training and professional development options, even while not in an office environment. Our comprehensive suite of thorough solutions offers flexible payment options to help address employees' needs or time-sensitive situations.

We provide clients the ability to pay employees on demand for wages earned prior to payday and make real-time payments in minutes for time-sensitive or emergency situations. We continually enhance our data analytics and live report functionality. Faced with a rapidly changing business environment and market uncertainty, providing clients with access to clear, accurate information is critical for them to make decisions about future -- about the future for their businesses. Recent updates to our analytics suite provide additional insights on labor costs and workers' compensation information, workplace illness and injury trends and other HR details such as employee record updates and performance feedback.

Additional new enhancements are geared toward improved organizational collaboration and streamlining processes through digital solutions, such as allowing for electronic workflow in e-signatures on direct deposit and W-4 forms, simplifying the process of adding new workers. We offer many new self-service capabilities for our clients and employees that have streamlined the process for both the employees and the client. We have been a valuable business partner to our clients through this time, providing them with information to navigate legislation, helping them access federal loans and managing a remote workforce. Our extensive number of webinars have exceeded all records of participation with over 100,000 clients and CPAs registering for multiple sessions.

While our solutions were invaluable to clients in adapting to the new environment of a remote workforce, they are also key to helping businesses as they begin to reopen and get back to business. By using digital solutions, it helps clients integrate more contactless processes to reduce infection risk at their business. In regards to our Paychex family, we have an ongoing commitment to our employees to ensure their safety. At this time, we still have over 95% of our workforce continuing to work remotely, and it has been going well.

Given this success, we are accelerating some of our strategies to leverage a more distributed workforce. We are implementing plans to reduce our physical location footprint, among other expense savings initiatives. These plans have recently been announced to our employees, and we are moving forward with these initiatives. As we begin fiscal 2021, we see several reasons for optimism.

Our employees remain engaged and have continued to go above and beyond, reacting in real-time to continue to provide excellent service to our clients. Our record retention and high client satisfaction Net Promoter Scores and client testimonials highlight the value we provide our clients and their advisors as we help them navigate this challenging time. We continue to return capital to our shareholders, and our leading indicators continue to show signs of steady progress. While much uncertainty remains as businesses or states pause or delay reopening as a result of COVID-19, we are confident that the value of our offerings is more relevant to our clients than it has ever been, and we will continue to provide innovative products and services through online offerings or our well-trained and experienced service providers as we get through this together.

I will now turn the call over to Efrain Rivera to review our financial results for the fourth quarter and the fiscal year. Efrain?

Efrain Rivera -- Chief Financial Officer

Thank you Marty, and good morning to everyone. I'll remind you that today's conference contains the customary forward-looking statements that refer to future events and such -- as such involve risks. Please refer to the earnings release for more disclosure on these statements and related factors. In addition, I'll periodically refer to some non-GAAP measures, such as EBITDA, adjusted net income, adjusted diluted earnings per share, etc.

Please refer to the press release and investor presentation for a discussion of these measures and a reconciliation of the fourth quarter and full-year fiscal 2020 to the related GAAP measures. Let me start by providing some of the key points for the quarter. Our fourth-quarter results reflected the impact of conditions resulting from COVID-19. I'll provide a summary of our results and then discuss our full-year fiscal 2020 results.

For the fourth quarter, let's start there, total revenue, as you saw, decreased 7% to $915 million, largely due to volume declines impacting revenue across our HCM solutions. Total service revenue decreased 7% for the fourth quarter to $890 million. Within service revenue, management solutions revenue declined 6% to $662 million and PEO and insurance solutions revenue declined 11% to $228 million. Interest on funds held for clients increased 14% for the fourth quarter to $25 million.

Higher realized gains more than offset lower average investment balances and lower average interest rates earned, and this was part of the portfolio repositioning we discussed on an earlier call. Average balances for interest on funds held for clients declined 8% during the fourth quarter primarily due to the impact of lower checks per client resulting from COVID. Expenses decreased 8% to $615 million. The decline was largely impacted by reductions in discretionary spending as a result of companywide expense control.

Op income decreased 5% to $300 million and reflected an operating margin of 32.7%. EBITDA decreased 5% to $351 million with an EBITDA margin of 38.4%. Other expense net for the fourth quarter includes interest on our long-term borrowings partially offset by corporate investment income which was impacted, as you all know, by lower interest rates. Our effective income tax rate was 24.3% for the fourth quarter compared to 25.8% for the same period last year.

Net income decreased 4% to $221 million and adjusted net income decreased 3% to $221 million for the fourth quarter. Diluted earnings per share decreased 5% to $0.61 for the fourth quarter and adjusted diluted earnings per share decreased 3% again, at $0.61. Let's talk about year-to-date results. Through the first nine months, results were solid.

Our full-year growth though was tempered as a result of COVID in Q4, but the year still reflected solid progress. Total revenue increased 7% to $4 billion. Service revenue increased 7% again to $4 billion, with management solutions growth of 3% to $3 billion and PEO and insurance solutions growth of 22% to $991 million. management solutions benefited from higher revenue per client.

PEO and insurance solutions benefited from higher revenue per client -- I'm sorry, from the full year of Oasis results, while insurance solutions remained challenged by lower workers' comp premiums. Interest on funds held for clients increased 8% to $87 million driven by higher realized gains partially offset by lower average investment balances and lower average interest rates. Op income increased 7% to $1.5 billion. Operating margin was at 36.1% comparable to the prior year.

Net income and diluted earnings per share each increased 6% to $1.1 billion and $3.04 per share, respectively. Adjusted net income increased 5% to $1.1 billion and adjusted diluted earnings per share increased 6% again to $3 per share. Let's talk about investments and income. Our goal, as you know, is to protect principal and optimize liquidity.

We continue to invest in high credit quality securities. Our long-term portfolio has an average yield of 2.1%, average duration is currently 2.9 years. So we're a little bit shorter on the curve. Our combined portfolios have earned an average rate of return of 1.5% and 1.8% for the fourth quarter and fiscal year, respectively.

These are down from 2.1% and 1.9% for the respective periods last year. As you realize, the Fed has cut interest rates a number of times this year. Let's talk about our financial position which we're particularly proud of. It remains strong with cash, restricted cash and total corporate investments of over $1 billion as of May 31, 2020, and it really is -- highlights the strength of the company that we achieved that result during a very challenging time in -- economic time for both us and our clients.

Funds held for clients as of May 31 were $3.4 billion compared to $3.8 billion as of May 31, 2019. Funds held for clients varied widely on a day-to-day basis and averaged $3.8 billion for the fourth quarter and $3.9 billion for the fiscal year. Our total available for sale investments including corporate investments and funds held for clients, reflected net unrealized gains of $100 million as of the end of May 31, 2020. This compares with $20 million as of May 31, 2019.

The increase in net gain position obviously resulted from declines in interest rates. Total stockholders' equity was $2.8 billion as of the end of May 31, 2020 reflecting $889 million in dividends paid and $172 million of shares repurchased during fiscal 2020. Our return on equity for the past 12 years remained strong at 41%. Cash flows from operations were also strong.

We reached $1.4 billion for the fiscal year. That's an increase of 13% from the same period last year. The increase was driven by higher net income, amortization of intangible assets and fluctuations in net working capital. So we ended the quarter in a very, very strong operating position, cash and cash flow.

Let's talk about 2021. The outlook that I'm about to present reflects our current thinking regarding the speed and timing of the economic recovery. I don't need to remind you of how volatile the situation is, and we'll talk about this in terms of, really, the first half and the second half of the year. We expect the impacts on the first half of the year will be significant, and then there will be improving sequential -- we will start improving sequentially, and recovery is going to occur in the second half of the year primarily in the fourth quarter.

This outlook also includes various expense control measures we have implemented which I'll discuss shortly including a one-time charge that we're going to take in the first half of the year. I'll come to that and discuss that more fully in a second. Our outlook is as follows: Management solutions revenue is anticipated to decline in the range of 1% to 4%. PEO and insurance solutions revenue is anticipated currently to decline in a range of 2% to 7%.

Interest on funds held for clients is anticipated to be between $55 million and $65 million. Total revenue is anticipated to decline in the range of 2% to 5%. Adjusted operating income as a percentage of total revenue is anticipated to be between 34% and 35% which excludes, as I mentioned earlier, the impact of one-time costs which I will discuss in a moment. Adjusted EBITDA margin for the full-year 2021 is expected to be between 39% and 40%.

Other expense net is anticipated to be in the range of $30 million to $35 million. And the effective income tax rate for fiscal 2021 is expected to be in the range of 24 and a half to 25%. Just remind you too, that we don't include in any of these projections what we expect benefit from stock comp expense. We adjust that out.

So that could change depending on what benefit we get during the year. Adjusted diluted earnings per share is expected to decline in the range of 6% to 10%. Now as Marty mentioned earlier, given what we've experienced over the last several months, we are accelerating a range of cost savings initiatives. These include head count optimization in addition to reduced discretionary spend.

In addition, we're planning an acceleration of our long-term plan to reduce our geographic footprint, and this is the majority of the charge that I'm about to describe. We anticipate recognizing one-time costs in the neighborhood of $40 million, most of which will be incurred during the first quarter. Our guidance for adjusted operating margin, adjusted EBITDA margin and adjusted diluted EPS which I'll remind you again are non-GAAP measures, excludes these one-time costs. Again, $40 million, we expect it to be primarily in the first quarter, and it is primarily directed at geographic optimization, a plan that we had in place and that we've decided to accelerate given current conditions.

Now I've given you full year, let me give you some color on the gating. One of the things that I would say is we will post on the website our presentation. You can take a look at it. It will provide some detail on this also.

So hopefully, that will be clear once you've read it. But now let me just describe what we're anticipating. We currently expect revenue to be the most impacted during the first quarter of fiscal '21 with each quarter improving sequentially. We view fiscal 2021 in terms of first half and second half of the year.

So let me talk about the first half. We anticipate that in the first half, management solutions revenue will be down mid- to upper single digits and PEO and insurance solutions revenue will be down in the high single digits to low double digits. Adjusted operating margins excluding the one-time costs that I just mentioned, are anticipated to be approximately 32%. Now specifically Q1, I would say this, the greatest impact is going to be felt in that quarter.

And total revenue is anticipated to be down high single to low double-digit range in Q1 and operating margin is anticipated to be approximately 30%. So be sure to bake that into the model. In the back half of the year, we anticipate greater improvement with much of the recovery occurring in the fourth quarter. So we see it accelerating into the fourth quarter.

And in the fourth quarter, it will look much more like a normal quarter pre-COVID. management solutions and PEO and insurance solutions revenues are expected to grow in the low single digits. And when I say low single digits, I mean, low. So it -- the combination of Q3 and Q4, because Q3 is a big revenue quarter, and we still don't anticipate full recovery in Q3 with more of it occurring in Q4 combines to create low single-digit revenue growth.

Adjusted operating margins are anticipated to be approximately 37% reflecting both higher seasonal margins in the third quarter and the improvement that we expect to see in revenue. So I'm talking now about the second half of the year, where we typically see higher margins. Adjusted earnings per share again in the second half are expected to be flat to down low single digits. So let me refer you back to the investor slide, so you can think through all of that gating.

And with that, I will turn it back over to Marty.

Martin Mucci -- President and Chief Executive Officer

Thank you Efrain. And Lisa, we'll now open up for questions, please.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from the line of Ramsey El-Assal with Barclays.

Unknown speaker

Hi. Good morning gentlemen. This is Damian on for Ramsey. So good to see some of the improvement in trends here sequentially.

I guess the big question here for me is on 2021, just how you'd characterize the conservatism in your guidance. In other words, are you assuming some sort of improvement in the key metrics throughout the year or to what extent is it sort of a bottoming out of trends and then you're growing over them? Just some color there I think would be really helpful.

Efrain Rivera -- Chief Financial Officer

Yeah. So that's a fair question. Q1 obviously as I just mentioned, we see the most impact. But if I think about where we have been over the last seven or eight years, we've seen sequentially improvement -- sorry, several years, several weeks, it's felt like years sometimes.

We have sequential -- we've seen sequential improvement week by week. That rate of acceleration is what's a little bit tough to call. But certainly, the bottom is in Q1, and then we expect it to be better, and we expect that to continue through the remainder of the year. I would say relative to what we expected to see three, four weeks ago as we started the year, we're doing better.

So there's lots of -- there are a lot of signs that point that we're seeing a recovery occurring. Now how sustained and how quickly that will occur, we'll see as we go through quarter. So that's the commentary. We certainly think in the back half of the year, you're going to see a substantial recovery.

Unknown speaker

Yeah. That makes sense. And maybe if I were to just zoom out here then, and maybe this is a question for Marty. But can you maybe just give some updated thoughts about the long-term composition of the company's business lines here? Obviously, this pandemic has changed a lot for a lot of people.

But are you looking more seriously to move into adjacent areas or businesses? In five years, does the Paychex model look similar to how it is today or do you think it changes a little bit? Thanks.

Martin Mucci -- President and Chief Executive Officer

Well, I think definitely, we're -- we've continued to move more toward being an HR company. And HR, I think many times, people still think of us as small business payroll. But as you could see, the way the revenues have grown, we've become more and more of an HR services company for small and midsized businesses. I think that will continue.

I think when you see -- we will evolve as -- and we have continued to evolve in the way that that is needed. So HR used to be about kind of HR administration, then it broadened to become more about kind of pushing to the front end of recruiting and staffing of your firm. And now it will become, I think -- even it may become, at least in the short term, for how do you bring people back to a physical location. It certainly has become more about how do you handle remote.

I think the investments we've made in online in our SaaS products and mobility in all of our designs has been very helpful because, as I mentioned, you'll still see us as I think as an HR company. But I guess what I'm saying is it becomes much more all encompassing, and that definition of HR gets broader and broader. And I think we've been able to capture on that, everything from staffing and recruiting to paperless administration, from start to finish of course retirement and insurances, health and workers' comp. And then you'll also see the analytics now playing a bigger role in HR as well in helping people make decisions.

Businesses who can't afford that kind of stuff can come with us to get the data analytics to help them make decisions and so forth. And I think an awful lot of it is -- it also has turned about training and development of employees. And now with our Learning Management System that we offer, that was perfect timing to be able to train new employees and develop employees from a remote location which has been really a critical need for our clients. So I think in five years, Paychex should be known very much as an HR company that delivers HR support of -- includes everything from staffing, recruiting payroll, to retirement, insurances, you name it, but it's constantly evolving what that is defined as.

And I think our technology has positioned us extremely well, now and toward the future.

Unknown speaker

That's great. Thanks guys and hope you stay safe and healthy.

Martin Mucci -- President and Chief Executive Officer

Thank you. You too.

Operator

Your next question comes from the line of David Togut with Evercore ISI.

David Togut -- Evercore ISI -- Analyst

Thank you. Good morning. Could you expand upon the performance of the key performance indicators in the fourth quarter? I think Marty, you talked on the business update call about a number of businesses being on hiatus, suspending their processing. I think as of May 19, checks per payroll were down double digits.

What are you seeing in particular on this KPI? And then my follow-up really relates to new bookings trends in the fourth quarter and how the sales force is operating, still mostly remote, some in-person meetings and so forth.

Martin Mucci -- President and Chief Executive Officer

Sure. David, I'll start with -- on the key metrics. Yes, the -- basically, what we refer to as suspended businesses, so they had not gone out of business, but they had suspended processing, and that is down less than half of where we were at the peak. And continues to come down -- it has continued to come down each -- really each week.

So we're seeing businesses come back. Now I will say that they're not always coming back with full employment that they had before. So if they had 20 or 30 employees, they might have 15 or 20 now. And you can expect obviously that would happen as businesses are at 50% capacity, restaurants and places like that.

But we are seeing -- we've seen more than half of the suspended businesses come back which we think is very good, actually relatively quickly. And we're seeing the checks improve and the worksite employees improve as well in the PEO and ASO offerings. So that change in base basically has happened quite quickly as well. So they're bringing back employees faster than we had expected, and hopefully, that will continue.

But the trend has certainly been continuous improvement. On the sales side, we are still remote for the most part. We are starting to visit clients if they want to be visited and the rep is comfortable visiting. We've taken all the necessary safety protocols.

But we are finding that some clients want to meet in person, but frankly, most clients, the majority of our sales, are coming from a remote online and in discussion over the phone. And that is working very well. I'm actually amazed at the number of final sales we ended up with in the fourth quarter, given the remote workforce that we have. We also permanently shifted a number of our -- double-digit percentage of our SMB, our small business, sales reps to inside sales because it was going so well.

Of course, we've been doing virtual telephonic sales for many years, but we're increasing that number because of the success of it. And the productivity of that and the tools that we had in place already for virtual have continued to work well. So sales productivity coming up, checks per client coming up and suspended clients who are suspended processing have been going down quite dramatically. Efrain, anything you want to add to that?

Efrain Rivera -- Chief Financial Officer

I think in addition to all of those metrics, David, we track a number of other metrics including everything from hours punched, to time recorded, to funds flow through the systems, and they're all showing a pretty significant recovery from the depths of where we were four, five weeks ago.

David Togut -- Evercore ISI -- Analyst

Understood. Thank you. Stay safe and healthy.

Martin Mucci -- President and Chief Executive Officer

OK. Thanks David.

Operator

Your next question comes from the line of Steven Wald with Morgan Stanley.

Steven Wald -- Morgan Stanley -- Analyst

Great. Thanks for taking my question. Marty and Efrain, hope you guys are staying safe and well. Thanks.

Maybe just following up on David's sort of question on the KPIs moving forward toward what you're seeing now. And I believe, Marty, your comment about client retention being up, the highest it's ever been. First, could we get that specific number? I think last we had seen a number there was 82% or just hovering above 82%. And separately, as we think about the revenue dynamics, given client retention is typically a bigger piece for sensitivity on the revenue front, but the revenue guide seems to have stayed roughly the same, the down 2% to 5% sounds like the low to mid-single-digit decline you gave in mid-May.

Would it be fair to say that the bookings activity, although holding up relatively better than what you expected, has gotten slightly worse if the retention has gotten maybe better or were you already assuming that retention would have gone up?

Martin Mucci -- President and Chief Executive Officer

No. I think we assumed that -- the retention is around 83%, so an all-time high for us. Now we're conservative. So when you look at that, and we still have the suspended clients, even though they're less than half of where they were at the peak, this is still rapidly changing.

So we're trying to make sure we understand how many clients are suspended and how many may permanently go out of business. Our retention is the best it's been, but we'd like to give it another month to kind of see if those -- all those clients come back or how many are lost and that kind of thing. Bookings, no, I mean, really, sales have continued to be pretty steady. So we haven't seen any degradation in that in sales.

Look, they're not where they were pre-COVID yet, but they are definitely improving. And so I don't -- I think it's just all in those ranges. I wouldn't say anything. Sales has been improving.

And losses and retention I guess I'd say, is definitely at an all-time high. But we're waiting to kind of make sure over the next 30 to 60 days that all those clients that we retained have really been retained and are not just in a suspended state that then go out of business. Our losses to competitors have been remarkably improved. So I don't think -- and also we found a time where people were not moving.

So they're not moving to competitors to maybe pick up an extra discount or something like that at a time when they need our help, in particular, with the loans and the forgiveness calculators that we've gotten a lot of client testimonials on. So we've held more clients. We definitely have done better in not losing clients for price or to competition. And then I think the conservative nature, Steven, is just kind of watch and what happens here in the next 30 to 60 days.

Steven Wald -- Morgan Stanley -- Analyst

OK. Great. That's a lot of commentary. I appreciate the comments there.

But if I could just quickly follow up on how you guys are thinking about the underlying assumptions. Efrain, I really appreciate the granular look at fiscal '21, the first half, even the first quarter versus the second half. Could you talk to how you're thinking about the underlying employment rate? I mean I don't know if you're able to put a specific number on it, but maybe a range of where it'll be? Sort of as we get to mid-year, maybe the end of the fiscal year? What you're thinking of the exit rate? And also how you're thinking about the disparity between employment in different regions and states driving that? Because clearly, we're seeing very different experiences across states with either -- I don't know whether you want to call it a second wave rising or a continuation of the first wave or some states are really moving toward reopening versus those that are now closing up. Just wondering how you guys are thinking about the underlying assumptions broadly.

Efrain Rivera -- Chief Financial Officer

Yeah. So yeah, let me talk to that, Steven. So when you have a shock like this, the impact is felt -- obviously, you felt that in April and May, and that can -- we knew it would continue into June, July and August which is our first quarter, and I suspect others will report similar impacts or at least in that same range. Our assumption is that as we get through the first quarter, we start to see improvement, but we are not assuming that we see improvement to pre-COVID levels in Q2.

As a matter of fact, we don't see that occurring really until the tail end of Q3 in the forecast. By the time we get to Q4, I would say that we are now looking at an environment that's much closer to where we were, say, in Q3 of this year than where we will have been in the first three quarters of the year. And I would say that part of the reason for that is that we will understand what the recovery of our clients is, what's been happening with checks, what -- where bookings growth is anticipated to be. I think we've done a lot of simulation and modeling to get that reasonably correct.

And so I would say this forecast assumes very modest gradual improvement through the first three quarters of the year. And then in the fourth quarter obviously you have an easier compare. So we expect to see results much better than certainly in the first quarter. And we're going to monitor it.

I think that to your point, we can tell by vertical, who's impacted, we can tell by state. I would say the fact that New York and California are struggling a bit in terms of reopening. Doesn't help the outlook, but it's baked into our thinking. And also, we assume some recovery or in certain states based on verticals that are in that state, for example, Florida and hospitality.

We assume that that's going to take a while to recover, and that we'll start to see that as we head into next year because it makes sense to us that that's what will occur. But I would say in the first three quarters, we are cautious about how quickly that's going to occur.

Steven Wald -- Morgan Stanley -- Analyst

That's much appreciated on all the commentary. Stay safe guys.

Martin Mucci -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Jason Kupferberg with Bank of America.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning guys.

Efrain Rivera -- Chief Financial Officer

Jason.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hi Efrain. Maybe just to pick up on that discussion thread a little bit. I was curious maybe on some of those states that you mentioned that have gone through these partial reclosings, if you will, Florida, Texas, Arizona. Are you seeing any increase in clients that have had to go dormant for a second time because of reclosings?

Martin Mucci -- President and Chief Executive Officer

Jason, let me take the front of that or the first part of it. I think we've seen some, but not too much yet at this point. It's been relatively recent, of course in this month. So we haven't seen too much of that yet.

And the funny thing is, some of the southern states still are performing the best when you look at our small business index, and when you break it down by region, the South, particularly with construction. Now leisure and hospitality gets hurt, and that will be hurt by some of these closings kind of coming back, some of the bars and some of the restaurants. But construction is still doing pretty well, and we have a number of clients in that construction business and that support kind of around construction. So home sales are up, new home sales are up double-digit still.

And a lot of that is the South and then some of the commercial construction is still up in the South and particularly Florida. So I think that won't hurt us quite as much. Obviously, the leisure and hospitality will bounce around a bit. But we haven't seen -- like I -- we haven't seen at least at this point in our indicators when we look weekly any major drop in those states that have seeing some higher recurrence, reoccurrence, I guess or a continuation of occurrence and closures.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. And I wanted to just ask for a little bit more color on the comment about the client retention hitting the all-time high, the 83%. Is that for the fiscal Q4? Was that a full-year fiscal '20 comment? And maybe as part of that, can you sort of break apart the moving pieces of retention? I know you mentioned complete takeaways are down because there's not a lot of switching going on.

So just wanted to understand in the churn that you are seeing, what the kind of mix of out of business versus third-party takeaways, what that's looking like right now? And what you're assuming for the retention number in '21?

Martin Mucci -- President and Chief Executive Officer

Yeah. I think the hard part right now, as I mentioned, was that the suspended accounts. And so it is our best retention, and it has been because there were fewer takeaways, as we said, and less leaving for price. Out of business was up slightly, but overall, I think that was probably pretty consistent, maybe up slightly.

The improvement, it would come from competitive takeaways or price and -- in that scheme of things. Right now, we'd expect that given the really high -- we also are hitting great Net Promoter Scores and client satisfaction. We have got great client testimonials. I really think clients have felt like between the payroll report that help them -- make it easy for them to file for the PPP loan and then the loan forgiveness estimator that is so comprehensive, we've gotten a lot of great feedback.

And I do think that's helped drive the value to our clients even more kind of in a crisis when they really needed us, they found that we were there and very helpful to them and important. So I think that's helped. The only thing that I said is -- we played a little conservative is we'd like to see how the next month or two fall out for the other suspended accounts. Again, they've fallen more than in half of the peak, but we just want to get a sense of do we hold at that level of retention or were these some accounts that were suspended, but they're still in business, but they might not make it longer term? Right now, it all -- by now, I would have thought that many of those would have declared they're out of business.

I don't think the -- there could be an impact from the reclosings. If you're a bar or a restaurant and you were closed, then you opened back up at 50%, but now you've been closed again, does that have an impact or not? We're not sure yet. But right now, we're very positive based on all the facts that we're seeing.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. And just to clarify, the 83% number was for Q4 or that was full-year fiscal...

Martin Mucci -- President and Chief Executive Officer

I'm sorry, full year. Full year, I'm sorry, full year.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. Where did you exit the year on that metric?

Martin Mucci -- President and Chief Executive Officer

Well, 83%.

Efrain Rivera -- Chief Financial Officer

That's it, that's the year.

Martin Mucci -- President and Chief Executive Officer

That's the year, the end of the year.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

As of the end of the year, OK. Thank you guys.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Kevin McVeigh with Credit Suisse.

Kevin McVeigh -- Credit Suisse -- Analyst

Great. Thank you. Hey. I wonder I guess what drove the decision -- Hey Efrain.

Hey Martin. The $40 million charge, I know you were, kind of, in the process of doing that. It sounds like a lot of its occupancy. Is there any way to frame -- is it specific geographies? And is it just kind of the success that you saw having forced to do remotely? Did that kind of drove that decision? I guess just any additional thoughts around that? And then what the margin impact can be longer term from those actions?

Martin Mucci -- President and Chief Executive Officer

Sure. I'll start with it. The -- we've been -- we had a plan in place that -- as you know, we had a number of offices across the country, that was our model. And what we were finding is, as we consolidated, as offices got smaller and we were consolidating to regional service centers, we could put better technology in place and so forth.

And we had a number of people working from home already. And in fact, when we were closed or a kind of a remote office, we would let the experienced people, many of them, work from home from a service perspective because we had all the tools in place. When we saw the -- that 95% of our employees were working from home and that our client satisfaction even went up and our retention was even stronger, we look -- took a look at, is this a way to reduce cost a little bit faster. And we decided to accelerate closing a number of physical locations, allowing people to work from home even in those local areas and -- from a service perspective, and that we could save a tremendous amount of lease expense and rental expense on the physical location.

So that's why we decided to accelerate it. That's already been announced to our employees, and we're already moving forward and taking those steps, and that was the majority of the $40 million. There was also -- as Efrain mentioned, there was also some reduction in force, but it was quite small, less than 2% of our employees. Still painful to do.

But as we work through the closing of certain offices and so forth and some other reorganizations, we also took those actions as well.

Efrain Rivera -- Chief Financial Officer

And on your second question, Kevin, if you take the $40 million, you tax effect the $40 million, you can figure out now what the EPS impact will be. We anticipate that that will be -- that will come out of the cost structure going forward.

Kevin McVeigh -- Credit Suisse -- Analyst

That's helpful. And then just one quick follow-up. The guidance, it assumes kind of no incremental federal stimulus. I guess just -- and obviously, there's been some concern that if some of the states don't get incremental funding, there could be some layoffs, things like that.

Is that embedded in the guidance as well or would that be something that would be another thing that could potentially impact us?

Efrain Rivera -- Chief Financial Officer

Yeah. I don't think we're at that level right now, Kevin. I mean, literally I would say if you were in our management meetings every week, we're looking at different scenarios in terms of both -- what ideas that are coming out of Congress, extension of PPP, what the impact of all of that is. But we're not at a granular level where we're saying hey, if that happens, it's going to result in a bump of x percent.

We're still early to do that.

Kevin McVeigh -- Credit Suisse -- Analyst

OK. Thank you very much.

Efrain Rivera -- Chief Financial Officer

OK.

Operator

Your next question comes from the line of Andrew Nicholas with William Blair.

Andrew Nicholas -- William Blair -- Analyst

Hi. Good morning.

Efrain Rivera -- Chief Financial Officer

Hi Andrew.

Andrew Nicholas -- William Blair -- Analyst

I just hoping you could compare the resiliency of the PEO business to the payroll business in terms of the health of your end clients. Is there any major difference in the way the two client bases have reacted the current environment? And how is that impacting your outlook for each business?

Martin Mucci -- President and Chief Executive Officer

Well, I think I'll start and then ask Efrain if he wants to add something. I think we saw a drop in both obviously with furloughs and things like that. What you saw in the small business on the payroll side, businesses actually shut down or were closed. So you had no employees there.

On the PEO side, usually a little bit larger client base -- a little bit larger average client. And they reduced their employees, their worksite employees. But both have come back pretty well, And the worksite employees, basically, what we refer to as change in base, so change of existing employees being paid within the worksite employees has bounced back I think a little bit better than we expected on the PEO side. There is a great demand for both PEO and ASO.

I think this has helped clients who -- I would say, on the PEO and ASO side, more people have moved toward that HR outsourcing because this is just too difficult for them to handle if they have 25 to 35, 40 employees which is kind of our average size on the PEO client. I think more have moved that way because of the need and the complexity of the regulations. And how do you bring people back? How do you furlough? When do you bring them back? What -- how do you handle all of the changes that have been put in place and for insurances and so forth? And on the small business side, I think we've also seen that come back, but that one's been a little bit more about either being open or closed kind of thing, where the PEO has been kind of stayed open but reduced their employee set. Both are showing improvements though and a little bit better than we expected.

So we certainly hope that that continues.

Efrain Rivera -- Chief Financial Officer

Yeah. Andrew, what I would add is that the nature of our PEO business is a little different than the nature of our SMB business in terms of its geographic scope. And so our PEO has more concentration in the state of Florida, as we've discussed before. And as a consequence, if we just isolate that factor, we would have more exposure to hospitality in some of the industries that have been hard hit.

When we looked at the data, it was pretty clear that they were -- there was almost a hair trigger reaction in terms of reducing employees. But to Marty's point, we started to see them come back. I would say we over-indexed a bit in some parts of the business on hospitality. So we probably have been hit a little harder than perhaps other people, other companies may be.

But we're also now starting to see pretty rapid recovery in terms of worksite employees. I think the state of how your PEO reacts in this environment is going to really depend on where your concentration is. If you're in a concentration in a state or you have a heavy concentration in a state that's been shut down, you're going to end up with one result. If you have one where the -- where a lot of your work's in a place or in a state that remain relatively open, you have a different point.

But just to reiterate what Marty said, so we didn't see clients necessarily stopping their processing, what we saw was clients reducing significantly their processing and now adding employees back.

Andrew Nicholas -- William Blair -- Analyst

Great. Great. That's very helpful. Thank you.

And then sticking with PEO, just wondering if there's any update to how you're viewing the M&A opportunity set there. I mean, how much are you kind of considering the volatility or the variability in the economic backdrop and considering future deals? And are you at a point even now where you might be comfortable moving forward with something like that? Thank you.

Martin Mucci -- President and Chief Executive Officer

Sure. Yeah, we're still very interested. Obviously, we think the PEO business, it's a growing part of our business, and we do think that there's M&A opportunities out there. We're staying in touch.

In the -- in this environment, it's a little bit difficult obviously, one, from a remote working just the due diligence and so forth. But we're staying in touch with certain opportunities, and we're continuing to watch those. It does make it a little bit more difficult, not only the remote piece of diligence, but to understand where they've dropped employees or dropped clients, what's the take now? What's the valuation? And many of the possibilities of acquisitions are also a little bit nervous about selling at this point unless you're -- unless we're willing as a buyer or any buyer is willing to kind of overvalue expecting how it's going to bounce back. So it's a little bit of a tenuous time to buy, but we're staying very close to that market and very interested for the right opportunity.

Andrew Nicholas -- William Blair -- Analyst

Great. Thank you.

Efrain Rivera -- Chief Financial Officer

Sure.

Martin Mucci -- President and Chief Executive Officer

All right Andrew.

Operator

Your next question comes from the line of Bryan Kaene with Deutsche Bank.

Efrain Rivera -- Chief Financial Officer

Hi Bryan.

Bryan Kaene -- Deutsche Bank -- Analyst

Hey guys. Thanks for taking my questions. Just following up on the discussion, thinking about the suspended clients. What percentage of those fall in that bucket still or remain dormant? Is it 10% of the base, 20% of the base? I just don't have a good sense of that.

Martin Mucci -- President and Chief Executive Officer

Much smaller, Brian, much smaller. I don't think we've given out the number. But one, it's dropped in half. Even at its peak, it wasn't anywhere near 10%.

So it's -- yes, that's a good question, actually. So people don't feel like it's too large, it's not that large. We haven't given the number, but it's -- I wouldn't -- it's not even not even 10%. Well, it's probably -- frankly, when you put it all together, where we are now, it might be 1% to 2%.

So we probably over discussed that for the number that are out there.

Bryan Kaene -- Deutsche Bank -- Analyst

Wow, OK. So it's only 1% to 2% that look like they could close down or or fail I guess at this point.

Martin Mucci -- President and Chief Executive Officer

Yes, that are still suspended and suspended as a result of COVID because we always have some suspended but -- that are seasonal and things like that. But we can break out the best we can what are really COVID related in that timing, it's definitely under 2%, probably in that 1% to 2% range.

Bryan Kaene -- Deutsche Bank -- Analyst

And does that include businesses that you've already kind of realized that have failed or turned off?

Martin Mucci -- President and Chief Executive Officer

No.

Bryan Kaene -- Deutsche Bank -- Analyst

Meaning are there another percentage group already that are closed that are basically turned off?

Martin Mucci -- President and Chief Executive Officer

Well, that would be in our loss numbers. So we've already taken those as lost clients, and they're not in the retention numbers. The only thing that's in our client base right now, there is 1% to 2% that are suspended because of COVID, and we're still kind of waiting to see how those kind of end up, if that helps. Anything that went in loss already is out of the client base.

Bryan Kaene -- Deutsche Bank -- Analyst

Yeah. And that loss percentage, is that -- was that -- how does that compare to a normal recession? Just trying to get a sense of how big that percentage was.

Martin Mucci -- President and Chief Executive Officer

Yeah. Really, at this point -- the last recession -- this was so much deeper, but we didn't really -- at this point, we haven't lost I would say anything like the last recession. Now that went longer, and so you lost them over a period of time, probably 18 months. This one was -- we went much deeper.

And I think we handled it very well from a payroll specialist and the relationships that we had. We kind of talked to them about being suspended. So where they may have said hey, I'm going to go lost and if I need to -- if I'm going to start back up I'll call you again. We kept it from going loss, having to sell it again in competition, and it made it much easier for our clients and easier for us.

So it's really been frankly a lot better than I would say the last recession 10 years ago which, really, those losses were larger and came over a longer period of time.

Bryan Kaene -- Deutsche Bank -- Analyst

Got it. Helpful. And then just last question I had, Efrain, just thinking about the 4Q guidance, you said it comes back to more looking like more normal growth. And I guess that's the jump off period as we go into fiscal year '22.

Just thinking about the puts and takes there. With the weaker numbers versus -- or the easier comp piece of that versus does business start to bounce back with new sales, that kind of thing, how do we think about that trajectory as we head into 4Q and then head into fiscal year '22?

Efrain Rivera -- Chief Financial Officer

Well, I guess it looks like a more normalized quarter, Bryan, is what I'd -- the best I can say right now. And I would say this about the second half obviously compared to a normal year, we have less visibility in the second half compared to where we would be otherwise. But I would say by the time we get around to Q4, there's a number of things that we think will be occurring that are going to create a situation where that quarter looks a lot more normalized than certainly the first three quarters. So at this point, I'll just hold talking any more specifically about Q4 until we start getting our sea legs under us in this year.

But I think that we've got reasonably good -- a reasonably good basis for thinking that that's the way the quarter will look.

Bryan Kaene -- Deutsche Bank -- Analyst

No, that's helpful. And then as we get into fiscal year '22, it's just -- there's no reason why it shouldn't be more normalized as well as we jump off at that point?

Efrain Rivera -- Chief Financial Officer

Right. Yes. So we've been talking about non-processing clients, worksite employees being down, checks per payroll, all of that stuff is going to normalize out as we go through. And I think that the point I want to make -- reiterate that Marty has been making in this call is this, we have the right kind of model for the situation we are in.

What I mean by that is, a tech services model in an uncertain environment is the kind of environment -- is the kind of business that you want to have. Now it's great that I say that, it really is irrelevant that I say it. What's more important is the feedback we're getting from clients. We have not -- never gotten as much positive reinforcement for the role we have played over the last several months.

So we think not only do we recover, but we have, in the balance of the year, the ability to gain share in the market because we have the right model in an environment that's very uncertain for the kind of clients that we serve. So we are bullish as we go through the year that as we exit the year, we're going to be not only recovered compared to where we are now, but actually going to -- the strength of our model is going to show, and we could very well end up being in a better place than we were when we entered the COVID era.

Bryan Kaene -- Deutsche Bank -- Analyst

Got it. Super helpful. Stay safe.

Efrain Rivera -- Chief Financial Officer

Yeah. Thanks.

Operator

Your next question comes from the line of Bryan Bergin with Cowen.

Bryan Bergin -- Cowen and Company -- Analyst

Hi. Good morning. Thank you. I wanted to ask on the outlook.

How would you characterize the projected sequential improvement in management solutions as far as it being driven predominantly from the improving check volumes versus some of the increased penetration of retirement and some of the other services you referenced? And Efrain, the high teens check volume decline that you called out on the update call, did you say you did better than that here in 4Q? Curious how you see that playing out in '21.

Efrain Rivera -- Chief Financial Officer

We did I would say a little bit better, Bryan, in 4Q, and we're seeing improvement as we go through Q1. Still early, but that's where we expect. So to the point -- the question that you're asking, yes, we expect that we'll get through Q1. We'll understand what clients didn't make it and then the clients that remain have an opportunity to grow and to build and build up their workforce.

And the combination of a better sales environment and better sales, combined with recovery from our clients, then drives better revenue as we go through the year.

Bryan Bergin -- Cowen and Company -- Analyst

OK. That's helpful. And then on pay offerings. So can you just comment on what you're seeing in the adoption of the real-time pay solution versus the pay on demand offering? And then just as we think about an acceleration of digital payment methods from traditional paper checks, is there a margin story to be had for you as -- potentially through less service or other means?

Martin Mucci -- President and Chief Executive Officer

Well, yeah, I think so. I mean I think it's -- and we're seeing part of the expense reductions that you're seeing is some of that margin, we've become more productive as more clients have gone to online, and we provide a lot of self-service opportunities. So in the past, when you think about us, we would take the information, the employee would go to their HR person or their owner of the business to change their direct deposit or change their address and then go -- they would go to us. And now that's all self-service and so the employee is really able to do all of that themselves.

That saves the client and us. And so you're seeing it much more from that standpoint. On the pay on demand, yes, we're seeing -- it's still early, but we introduced that around December time frame. And I think COVID kind of slowed it down a bit, but we're definitely seeing more and more interest of it.

The process, we have to have the clients sign up for it, and that's been a little bit more challenging in the last couple of months, but I think it's going to pick up the pace again. And there certainly is a lot of interest and there was interest during the last few months in restaurants that would bring someone back and even now they bring someone back to do eight-hour shift and not do 40 hours but work eight hours here or eight hours there. And instead of waiting a few weeks for their paycheck that they were able to use the pay on demand. So I think that has a lot of opportunity going forward.

Does it have a lot of margin opportunity? I think it has some there, but because it's more of a -- there is some self-service involved there and it's less maybe that we have to do. But fundamentally, it's going to be a retention piece too. It's going to be something that -- it's a great product that we have that people want and the clients like and their employees like, and it will help them retain their employees and us retain the client. On real-time payments, yes, I mean, we're still I think the only business in the industry that's offering it.

We've seen a pretty good pickup for just starting it a few months ago. And clients really like it. It's able to get them money in really seconds, minutes, and it's gotten very favorable reviews from our clients, particularly if they have a last-minute change or a mistake that they wanted to correct, they can do that and get it done in minutes instead of waiting for a day to happen or some -- or an ACH or wire transaction.

Bryan Bergin -- Cowen and Company -- Analyst

Thanks guys. Be well.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. On your business update call, you talked a little bit about what was going on, on the workers' comp side. I think you had seen lower rates, but it was offset to some extent by lower healthcare expense because of fewer elective procedures. Can we just get an update on how that's been trending?

Efrain Rivera -- Chief Financial Officer

I think comparable, Jeff, not a lot of changes. We've seen a continuation of those trends into the beginning of the year.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. And it doesn't matter in terms of geographically in certain states that are opening up faster are still pretty steady?

Efrain Rivera -- Chief Financial Officer

Not thus far. So we have a lot of healthcare -- on the PEO side, healthcare exposure. In the state of Florida -- our results in the state of Florida have been good. So thus far, that's good.

We'll update if we see anything different.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Great. And just as a follow-up, forgive me if you mentioned this. Did you talk about the expected cost savings that you think you're going to be getting from some of the one-time costs that you talked about?

Efrain Rivera -- Chief Financial Officer

We said it was embedded in the guidance. We said it was $40 million. We said if you tax effect the $40 million, you can figure out what the benefit will be and that will continue going forward.

Jeff Silber -- BMO Capital Markets -- Analyst

Yeah. I'm sorry, I was talking about the annualized cost savings from these moves.

Efrain Rivera -- Chief Financial Officer

Yeah. So I think if you take the $40 million, and you tax effect it, you'll get the benefit that we expect going forward.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Great. Thanks so much.

Operator

Your next question comes from the line of Lisa Ellis with MoffettNathanson.

Lisa Ellis -- MoffettNathanson -- Analyst

Hi. Good morning guys. Thanks for squeezing me in. First one is just a cadence clarification.

If I understood the cadence right, it looks like 1Q revenues are expected to be a downtick from 4Q, so high single to low double digits, despite a lot of these operating metrics booking. Can you just clarify why that is? Is that because of new sales dipping because of the pandemic or what caused that?

Efrain Rivera -- Chief Financial Officer

Because Lisa, remember, Q4 has one month of pre-COVID results in it and April and May were the COVID months. So Q1 has, you're right, a little bit better results, but unfortunately, it also has one less pre-COVID month than Q4 did.

Lisa Ellis -- MoffettNathanson -- Analyst

Yes. OK. Fair enough. And then second one is just a follow-up question about the competitive dynamic, and Efrain, your comments about Paychex winning share as you're coming through this.

Are you seeing -- I mean I know you compete still with a lot of legacy regional service bureaus and then also some SaaS players that don't have the service component to their model. Are you seeing a notable shift in the competitive dynamic in your space? Meaning are some of these competitors really struggling through the pandemic? Are you seeing increased win rates against some of them? I'm curious, just a little bit more color on that.

Martin Mucci -- President and Chief Executive Officer

Yeah. I think, Lisa, we're seeing -- we're certainly seeing, on the retention side, fewer leaving to go to a competitor. And so that -- we see that as positive from a competitive environment. From a win rate on sales, I would say we definitely are seeing an increase in, for example, like SurePayroll on the low end on the micro end.

And we're still trying to work through whether that's competitive wins which we -- it looks like is some of it where we're winning a little bit more there on the micro end. And also that we're getting more clients that have been doing payroll themselves, coming out and saying hey, I'm going to go to someone, an online processor. Because SurePayroll benefited a lot on their website and on their offering from what we did on the federal side with the payroll report that helped them get the loans, that also has the loan forgiveness and a lot of the webinars. So I think they felt a lot of strength in the SurePayroll and flex opportunity.

And so I think we're also winning some there. So I don't think overall, the competitive environment -- I don't think we've seen any major disruption there I would say at this point, although there has been -- we've seen and heard some furloughs and layoffs of some of the competitors. But I do think that we are winning because of the great tools that we've had for COVID that have supported clients and supported prospects who are looking maybe for the first time to outsource.

Lisa Ellis -- MoffettNathanson -- Analyst

OK. And then last one for me, just non-COVID question. On the election, are there any things in the policy agendas of the candidates for the upcoming elections that you're watching for that might create either opportunities or challenges for you?

Martin Mucci -- President and Chief Executive Officer

Well, I wouldn't really...

Lisa Ellis -- MoffettNathanson -- Analyst

You wouldn't really -- yep, sorry.

Martin Mucci -- President and Chief Executive Officer

Sure. Well, I think always -- if there is a change in the leadership, that change tends to go back to more regulations. Now more regulations in general help us because there's more of a reason to outsource either HR or payroll for that matter. So I don't -- we don't know of -- nothing I've seen yet would say exactly what that opportunity would be.

But I would -- typically, based on history, there's going to be more complexity, more regulations and therefore, it's going to be more difficult for businesses. I also think -- obviously, we're watching corporate taxes. That's more from -- not so much from a product and service opportunity but just from a -- because being a highly profitable company, we're obviously looking to see what will be the -- any tax impact that Biden has already talked about and so forth. So -- but from a product standpoint frankly typically, in a Democratic administration, we would have more regulations, and therefore, it would be fairly positive from a product standpoint.

And I would also think that there's going to be a number of new rules coming out of recovering from COVID, and that will also make it more complicated for businesses to exist and to handle their employees which will drive more demand for our services. And again, as we've said a number of times, the way the investments we've made to be able to really respond to a remote workforce which, no matter who gets in I think is a permanent part of our future. We've made, luckily, the right investments here that have really helped clients and will continue to help clients be remote -- handle remote working, and that I think is going to pay off for us going forward.

Lisa Ellis -- MoffettNathanson -- Analyst

Terrific. Thank you. Thanks guys. Stay safe.

Martin Mucci -- President and Chief Executive Officer

All right.

Efrain Rivera -- Chief Financial Officer

Thanks.

Operator

Your next question comes from the line of Samad Samana with Jefferies.

Samad Samana -- Jefferies -- Analyst

Hi. Great. Thanks for taking my questions. Efrain, maybe one on the retention side.

I know you guys -- the 83% is a -- if I remember correctly, a unit retention number. If we thought about it on a net dollar retention basis...

Efrain Rivera -- Chief Financial Officer

At 4%.

Samad Samana -- Jefferies -- Analyst

You say at 4%?

Efrain Rivera -- Chief Financial Officer

Yeah, revenues.

Samad Samana -- Jefferies -- Analyst

OK. Great.

Efrain Rivera -- Chief Financial Officer

To Marty's point, we also hit a record in terms of -- certainly, since we -- since I've been here, in terms of the level of revenue we've retained. And just to put a bow on that, Samad, that was really pretty extraordinary work by our service providers. And when I say the strength of our model, I think there is a tendency sometimes to think of that as just added cost in the model. You can't get to those numbers without those people on the front lines doing the work they do every single day.

So can you get more efficient? Obviously, we've taken steps to be more efficient, but not in terms of people. We've decided that the infrastructure can be a lot more efficient than it is, and we've made that choice and we decided that the right thing to do in an environment where we expect the business to recover in the back half of the year is not to slash employees. That's not what we decided to do. And we decided to get very efficient in terms of what we're doing.

And I think that in this year, it really has paid off. Now having said all of that, I will add a note of caution that Marty said earlier which is, we need to go through the first quarter of the year to see that -- of the people who remain in, let's call it, suspended status at this stage, how many of them will come back and continue to process. We're optimistic because if you would have polled us when we started the process, we would have thought the number was going to be very high, and it's turning out to be lower, meaning there's fewer of our clients that are going along. So sorry for the lengthy response to the question, but I do think it's important to highlight that those things work together.

And there is a role for tech services here done efficiently, and I think that our margins and our experiences proved that out.

Martin Mucci -- President and Chief Executive Officer

Yeah. And I think I just -- I'd like to play up on that point because we haven't really made it that much that Efrain just brought up one thing and take it a step further. The interesting thing with our model is we've gone to an awful lot of automated self-service and automated responses through chatbots. We can answer over 200 questions in an automated fashion now, and it's made our service people much more productive.

What we saw in the last two months was like a year-end for us which those in the payroll business means your volumes are up like 25% because you're in -- typically, people have bonuses. They have a lot of questions. That's what happened in the last couple of months, April and May in particular, where we had very much higher volumes and longer calls because people had questions. So when everything is going well, we have the tools in place for you to do it quick and efficient, any way you want it.

When you can't get the answer and do something on an automated fashion because you don't understand the regulations or how to do something or how to handle a unique situation like COVID, we had 7/24 service -- experienced service providers that were there to answer the questions. And we got a lot of positive feedback about that. A lot of competitors today have gone a lot of automated or have gone out of the country to provide support that is not at the levels that we've been providing the last couple of months. So it's really a shout out to our service providers who, when you need them and be 7/24/365, they're there, and it really paid off for us.

Samad Samana -- Jefferies -- Analyst

Gotcha. That's very helpful. And then maybe just on $100 million of loans that have been processed by the partners that you mentioned, is there -- is Paychex -- how are you monetizing that? Is there a referral fee that Paychex gets? Is there -- is it just a service you're providing for your customers? How should we think about the path to monetization for that?

Martin Mucci -- President and Chief Executive Officer

Yeah. It's not large, but we get a referral fee based on a loan that is established. And it's, I'd say, a relatively small amount, given our revenue and so forth -- a very small amount, given our revenue and so forth. But it was more of a service to our clients because a number of small businesses don't necessarily have relationships with banks.

And what we were hearing from our clients is that, hey, I don't really have a relationship with a bank, and I can't get to the front of the line. And so we partnered with those three fintech companies, and obviously, it was a need that was out there, and provided a support to them. So small monetary value, but significant client service, I think.

Samad Samana -- Jefferies -- Analyst

Great. Thank you. Very helpful. Thanks again for taking my questions.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

Welcome.

Operator

Your next question comes from the line of Kartik Mehta with North Coast Research.

Kartik Mehta -- North Coast Research -- Analyst

Hey. Good morning Marty and Efrain. Hey Marty and Efrain, you talked about second half obviously being better than the first half. And as you look at the business and, Efrain, as you're modeling it, is that based on kind of what you're seeing in terms of bookings and kind of what you're seeing in your stats or is that more based on just the experience that you guys have in this business and your expectations for how the business will trend?

Efrain Rivera -- Chief Financial Officer

I think it's a little bit of both, Kartik. So I think that obviously when we started this whole journey several months ago, we have had an idea of what a recovery looks like. Once you hit bottom, when we got to mid-May, we said, "Hey, we have hit bottom". And how we're looking at how this progresses, I would say it's behaved pretty similarly to once we understood the depth of the drop, how we expected it to continue.

Now what we're looking at monitoring, as I said before, we have eight to nine weeks of steadily improving metrics. We now are looking for a continuation. I think there've been a number of quotes on -- or questions on the call, does the spread of the infection and some closures, is that having an impact on results? We don't see it yet, but of course, we're monitoring that very carefully. But if current trends continue, and again, they don't necessarily -- it's not necessarily because they will, we think that the way we've laid out the year makes a lot of sense.

So that continued improvement both on bookings which we expect over the next several quarters, record high level of retention are positive, an environment where the value of our services provider -- our technology and our services provided has some ability to win in the marketplace, all of those things we think are going to build to the outlook that we've got, and we're optimistic about the remainder of the year.

Kartik Mehta -- North Coast Research -- Analyst

Efrain, one of the more controversial numbers out there right now is the unemployment rate. And as you look at that rate, do you try to compare it to your business? And is there a way to say where the employment rate has to be to hit the numbers you think you can in the second half?

Efrain Rivera -- Chief Financial Officer

Well, I think we certainly expect that there's going to be improvement starting certainly in the fall. So I think we're in an environment where we're seeing the same levels of elevated unemployment in mid fall, I think that we'll have another conversation about what the impact of that is on plan. It's too early to call that. But -- and even economists disagree as to where things really are.

I would say we look at that, we're informed by that, Kartik. But really, we're informed by our own data. We can tell week by week frankly daily, if we want to, how much people are paying employees. We know what the trend has been.

We know what the recovery from the depths of the shock to where we are right now, and those trends are positive. Now again, there's no guarantee that they'll continue, but we feel that -- or we believe, looking at the data, that it looks like we're on a solid trend.

Martin Mucci -- President and Chief Executive Officer

Yes. I think Efrain makes a great point, it's one piece of data. But there's so much noise in that unemployment number, particularly because it's kind of state -- with a state-by-state way -- procedures and the way they pull those numbers together, it's pretty dicey. We have a great sense I think even our small business index can -- as we got into it, could see -- and I think ADPs as well, there's issues with those kind of the data and the way you look at it, as we saw last month with some of these numbers just because of the way that they're done.

Nothing was really set up for a shock like this in the way we -- it dropped so quickly. And if -- like if you look at our index, it was pretty flat month-to-month, the small business index. And then if you looked at paid employees though and the way they were measured, they were actually up 4%, it would have been an improvement of 4%. So you try to look at a lot of data.

But as Efrain said, we have a lot of very good data these days on what's changing and where it's changing and how quickly. So we tend to rely more on our own than something like that.

Kartik Mehta -- North Coast Research -- Analyst

And then just one last question, Marty. As you entered this environment, how are you managing investing in the business, yet maintaining a margin -- operating margins where you're satisfied with the results?

Martin Mucci -- President and Chief Executive Officer

Well, Kartik, it's always a challenge. But I think even when you go back to tax reform and you look at what happened there, some companies took that right to the bottom line. We worked with the board to reinvest a substantial part of that back into -- some into the employees, but also into the development. And those IT investments, as we look back now, really were the right things to do that positioned us very well for remote workers, more self-service, online, things like our products we've rolled out here with HR connect that allow clients to talk to their employees virtually through the app and be able to do electronic signatures.

So we're looking to continue that investment. We made some -- a small number of reductions here in force, but like I said, it was under 2%. And when you look at IT development, that has continued to grow really, overall, the development side of IT and. Where we've always had savings over the last frankly 10 years or 11 years, we've invested them in IT development to be a real tech-generated service company, and that has paid off well.

So that will continue. Our capitalized -- our capital, our investments look to be the same as last year. We're not looking to cut IT investments in the product that we're making.

Kartik Mehta -- North Coast Research -- Analyst

Thank you very much.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

Thanks Kartik.

Operator

Your next question comes from the line of Tien-Tsin Huang with JP Morgan.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hey. Thanks for taking all these questions guys. I know it's a good use of our time. The bookings question, I know a lot of people have asked about it already, but can we just clarify how did bookings or new sales come in for fiscal '20 versus expectations? And then as we look to fiscal '21, how different is that going to be? Because it sounds like we shouldn't assume a lot of new business starts retention which should be higher, less switching, so is there going to be more selling into existing? Just trying to understand big picture of what bookings might look like and how it'll differ from last year.

Martin Mucci -- President and Chief Executive Officer

Yes. I think I'll start, and I think through nine months, we -- I think Efrain may have mentioned this, we looked pretty good, and we were pretty solid in our growth across pretty much all business lines and -- through the nine months. And then as March, middle of March and -- into March end in April and May, a lot of that was just -- dried up and we were down. Yet when we look back at the fourth quarter, I was amazed that the number of units that we had continued to sell.

And the strength frankly was -- a lot of the strength was SurePayroll which can be sold -- pretty much all of it's sold online or over the telephone. And they did very well and continued very well in the fourth quarter. I think that was the issue of -- where not only were they getting a lot of halo effect from the things that we were doing in the -- what was available online, but also more prospects moving to an outsourcer on a small and on a micro basis. The mid-market through the nine months was very strong.

Mid-market, the product, all the product changes we've introduced have done very well. They certainly hurt a little in the fourth quarter because more of that is face to face, but I think they've really kind of maneuvered and learned how to sell online and very quickly. And then we've given them a lot of support, and they've done well. In the first quarter, we kind of expect the improvements that we're leaving fourth quarter with to kind of continue in the first.

So it's not going to be a banner first quarter because everyone is still remote. But we have learned a lot of tricks of selling remotely and how to do better scheduling, how to do better remote, how to meet with a client if they want to be met with. And that is all kind of picking up steam. So I think first quarter will be OK.

And then we think it will continue to pick up from there. But through the first nine months, we had solid bookings, and we're pretty excited about those, if that helps.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

It does. It does. So as we look forward, and span around to margins, just looking at the guidance, I appreciate the first half, second half dynamics. But it looks like, at least initially, we'll see margins -- your implied margin guidance suggests that pretty much all the decline of revenue is going to flow through here to EBITDA.

I know you have the savings or the payback from the geo shrinkage here. But is there anything else that's impacting margin beyond just the decremental margins of revenue? Do you follow my question? I don't know if I asked it well.

Efrain Rivera -- Chief Financial Officer

Yeah. Yeah. Thanks, Tien-Tsin. So yes, it's primarily revenue driven.

And the impacts on a specific quarter are very highly dependent on the amount of revenue in that quarter. And in Q1, you have more, as you mentioned, of a flow-through of the margin impact. And then revenue starts to build. As you go through that, you see less of it.

And you also see some of the other cost savings initiatives take hold as we go through the year. So yes, you're getting -- that's primarily what you're getting. And again, I just go back to one thing that I mentioned, one of the things that we were very careful about is we didn't want to come out of the -- out of this shock in a weaker state because we thought we needed -- we were going to be in a position where there was going to be opportunity in the back half of the year, and we were going to rebound. So rather than cutting a significant amount of head count in the first half of the year, what we decided, as Marty said, is to optimize the amount of head count that we had.

So you'll see benefits as we go through the year from the actions that we're taking. But in Q1, you have a significant hit to margins because of the flow-through of the revenue.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Got it. It makes a lot of sense. Thank you so much.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Mark Marcon with Baird.

Mark Marcon -- Robert W. Baird -- Analyst

Good morning Marty and Efrain. Just wanted to follow on with regards to the bookings. Could you just -- obviously, April and May would have been down because of COVID. But by the time we got to June and as things started to stabilize, the bookings, how did they compare relative to a year ago? Like what -- were they trending at 90% of prior year or 80%? How would you characterize the level of improvement?

Martin Mucci -- President and Chief Executive Officer

Well, I think what we would say -- and frankly, when you looked at the whole year, we were fairly flat with last year for the whole fiscal year. So I don't want to portray April and May as too negative. They obviously were down substantially. But when you put it all together, we were probably flattish for the year and down slightly for overall par sold.

And if you look at June, you see a sequential improvement over April and May. It's just -- it's still down of course over June of last year. When you've got all your sales folks out and you can't -- it's hard. The hardest thing is frankly reaching prospects and be able to get their attention and so forth.

I do think that will come back as businesses stabilize and get back open and people kind of feel like there's more of a new normal, we'll have -- that will continue to pick up. But we're expecting the first quarter will be certainly down from first quarter of last year. You just don't have the same environment yet.

Mark Marcon -- Robert W. Baird -- Analyst

Got it. And then for the budgeting for this year, are you anticipating that the sales force will basically stay flat or would it be -- would that be part of the optimization as well and potentially be a little bit more compact?

Martin Mucci -- President and Chief Executive Officer

No. I think it's fairly flat overall numbers. It's just we've shifted a little bit more to inside selling and telephonic selling because it's been working well. And -- but overall, I would say the head count numbers are about the same across the board.

Not a lot of growth, we didn't necessarily think that we needed to grow the sales force, but I would say it's roughly about the same number. We didn't really go down either.

Efrain Rivera -- Chief Financial Officer

Yeah. Mark, just a little color to the point that Marty is making. What we found was in making that shift, you actually could get better productivity. And so it did not equate to the fact that we couldn't drive a higher sales activity even though head count was relatively flat year over year because of the -- really a tremendous amount of work that we've done on the digital marketing side and also on our ability to sell, as Marty said, virtually.

We really are just in a different ball game now than we were two, three years ago. And so you can operate with less field-based salespeople and more virtual and drive higher levels of activity.

Mark Marcon -- Robert W. Baird -- Analyst

That's great color. And then, Marty, you made a comment early in the discussion about how a lot of people perceive you as a small business payroll company but you've actually migrated clients up in terms of size and service level. I'm wondering if you could dimensionalize that to a greater extent. Like if we think about where Paychex was a couple of years ago, where you are today and where you think Paychex is going to be a few years from now, just in terms of client size, number of services that the average client takes on, how would you dimensionalize that?

Martin Mucci -- President and Chief Executive Officer

Well I think Mark, if you look at sort of at a high level, the company -- the revenues have doubled in the last 10 years now. So we hit $4 billion. And that was our goal was to be $4 billion. We're not going to exactly hold it unfortunately for a few months here, but we hit $4 billion, up from $2 billion 10 years ago.

If you now look at the distribution of that revenue, you can see that it has moved -- when we were back kind of payroll and HRS before we shifted to management solutions and PEO, payroll had fallen below 50% for the first time, maybe a year or so ago, and if you look at it now, I think the PEO business is 25% PEO and insurance is 25% of the business. It's continually growing and the payroll side is shifting -- payroll and other things in management solutions and I think that that just shows that historically, we've taken the company from what was predominantly small business payroll, and the mid-market is growing faster now and we had a couple of years where that wasn't growing as well. The last couple of years, that has really picked up speed, even with more competition. We've got more products, much more of a technology company and a lot more self service.

And when you look at the size of the offerings from learning management to pay on demand to HR connection and the mobility mapping of five star app. I think it's just -- the company is much more technology and mid-market small and mid-market company. We're not going to leave small, but mid-market is going to become a much faster-growing and the PEO and HR side has certainly been a much faster and growing business. So when I think of Paychex as the original question, in all our five years, sometimes our brand still obviously having been in business almost 50 years.

The brand is still oh, yes, they're a small business payroll company. Well, that's really not true. We're much more of a HR company and the PEO, ASO insurances that we offer is a fast-growing piece of the business. It's now, as I said, just in our financials, 25% of the revenue.

And so I hope that helps. I mean, that's kind of how I see it dimensioning. And HR, the definition of HR has changed quite dramatically and also will change dramatically now with COVID and what that means. And I think we're well positioned to support that changing definition and need for clients of a larger size.

I don't think we're going to -- we're not going to leave the small business. That's still a great opportunity to continue to grow. But that 20 to 100 in particular has really picked up steam for what they need and the revenue per client is obviously picked up as well as they bought more products for their -- to be competitive with each other as clients in their markets.

Mark Marcon -- Robert W. Baird -- Analyst

That's great. And then can I just ask one last small detail question. Just with regards to the first half guidance and particularly the first-quarter guidance as it relates to the PEO side, for down high single-digit to low double digit. Part of that is just a function of the reduced salaries that the worksite employees are getting, correct?

Martin Mucci -- President and Chief Executive Officer

That's correct. That's part of it. Yup. You got it, Mark.

Yup. That's correct.

Mark Marcon -- Robert W. Baird -- Analyst

And so when we're thinking about it more from a unit perspective, it would be more muted than that?

Martin Mucci -- President and Chief Executive Officer

Yes, much more muted than that. You're right.

Mark Marcon -- Robert W. Baird -- Analyst

OK. Great. Thank you.

Martin Mucci -- President and Chief Executive Officer

OK.

Efrain Rivera -- Chief Financial Officer

Thanks Mark.

Operator

Our final question comes from the line of Pete Christiansen with Citi.

Pete Christiansen -- Citi -- Analyst

Good morning gentlemen. Thank you for squeezing me in. I have two connected questions. From your multi-location client employers, are you seeing any footprint change there? And then there was a vertical last week in the journal, I think I was speaking more to the enterprise side that some furloughs are turning more into permanent headcount reductions.

The basis of the two questions is really to ask, if you are seeing any early signs, secondary impacts from the weaker economy? Are you starting to see that flow through some of your KPIS?

Martin Mucci -- President and Chief Executive Officer

Yeah. With the first one, I don't think -- like in multistate employers, we really have not seen that. I haven't seen anything that stands out so that they are reducing their footprint yet. That is not a majority of our clients, certainly, but we have not seen any trend yet.

I wouldn't necessarily be surprised if more are -- like we're doing, reducing our physical footprint and having more work from home and so forth, but that certainly wouldn't surprise me, but we haven't seen much of a trend there. And then the second question, Efrain, was -- can you repeat that second one, sir?

Pete Christiansen -- Citi -- Analyst

Sure. Yeah, it was about furloughs to more...

Martin Mucci -- President and Chief Executive Officer

Yeah, sorry. Haven't really seen -- haven't seen that yet, although the checks are down. So as we've talked about, we're seeing an improvement in checks that -- we're seeing an improvement from the decrease in checks. So -- but the checks are still down.

So yes, there's fewer checks. They -- are they furloughed employees or permanently out? I think it's a little bit too early to see that yet. Efrain, anything -- I don't think I ever see that yet...

Efrain Rivera -- Chief Financial Officer

What we saw early on was that small businesses and midsized businesses tend to make an -- take an action on employee initially and then hire back as opposed to keep them furloughed. I think in the enterprise space, you probably see more furlough action than we see in our client base. And the trends, as Marty was saying earlier, the trends we've been seeing are the opposite which is we've seen people adding back at this point as opposed to reducing. So it's buried in that number but that number is looking more positive.

Pete Christiansen -- Citi -- Analyst

That's helpful. Thank you gentlemen.

Martin Mucci -- President and Chief Executive Officer

OK. Thanks a lot.

Operator

And there are no further questions at this time.

Martin Mucci -- President and Chief Executive Officer

OK. Thank you. At this point, we will close the call. If you're interested in replaying the webcast of this conference call, it will be archived for approximately 30 days.

I do thank you on behalf of Efrain and I, thank you for your time. To participate in our fourth quarter and year-end press release conference call and for your interest in Paychex. Have a great day, and please stay safe.

Operator

[Operator signoff]

Duration: 101 minutes

Call participants:

Martin Mucci -- President and Chief Executive Officer

Efrain Rivera -- Chief Financial Officer

Unknown speaker

David Togut -- Evercore ISI -- Analyst

Steven Wald -- Morgan Stanley -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Kevin McVeigh -- Credit Suisse -- Analyst

Andrew Nicholas -- William Blair -- Analyst

Bryan Kaene -- Deutsche Bank -- Analyst

Bryan Bergin -- Cowen and Company -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Samad Samana -- Jefferies -- Analyst

Kartik Mehta -- North Coast Research -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Mark Marcon -- Robert W. Baird -- Analyst

Pete Christiansen -- Citi -- Analyst

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