Paychex Inc (NASDAQ: PAYX) Q3 2020 Earnings Call Transcript

Paychex Inc  (NASDAQ: PAYX) Q3 2020 Earnings Conference Call
Mar. 25, 2020

Corporate Participants:

Martin Mucci — President and Chief Executive Officer

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Analysts:

Ramsey El-Assal — Barclays — Analyst

Kevin McVeigh — Credit Suisse — Analyst

Bryan Keane — Deutsche Bank — Analyst

David Togut — Evercore ISI — Analyst

Steven Wald — Morgan Stanley — Analyst

Kartik Mehta — Northcoast Research — Analyst

Bryan Bergin — Cowen & Company — Analyst

Andrew Nicholas — William Blair — Analyst

Jeff Silber — BMO Capital Markets — Analyst

Samad Samana — Jefferies — Analyst

Peter Christiansen — Citigroup — Analyst

Lisa Ellis — MoffettNathanson — Analyst

Mark Marcon — Baird — Analyst

Tim Singh — JP Morgan — Analyst

Jason Kupferberg — BofA Securities — Analyst

David Grossman — Stifel Nicolaus — Analyst

Presentation:

Operator

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Paychex’s Third Quarter Earnings 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’s third quarter fiscal 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 third quarter ended February 29, 2020, you can access our earnings release on our Investor Relations webpage. Our Form 10-Q will be filed with the SEC within the next few days and 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 overview of how we are responding to COVID-19, and then review business highlights for the third quarter, and Efrain will review our third quarter financial results and discuss our guidance for fiscal 2020, including our current thinking and the potential impacts of COVID-19 and our business, and then we’ll open it up for your questions.

First and foremost, I want to address the evolving situation we are currently facing with COVID-19. Our number one priority is the safety and well-being of our employees and serving our clients and their employees. Our business continuity plan was implemented, and our teams are working around the clock to ensure that we take the necessary steps to ensure our employee’s safety while continuing to support our clients through this unprecedented time.

Early on, we instituted travel restrictions and began to reduce the number of employees working in our offices. At this time all employees, unless designated as critical onsite person, now that’s less than 5%, are now working from home, and our service metrics and client response time has been excellent. In fact, our average answer performance yesterday was seven seconds. Extremely proud of this team and the work they’ve done in a very fast period of time.

I’m incredibly proud of how the whole leadership team and employees have responded to this situation. Because of their hard work and efforts, we’ve been able to complete all of these transitions without any service disruptions. We continue to help our clients navigate the significant amount of information and changing regulations from state and federal governments, including the Families First Coronavirus Response Act.

Our compliance team also remains in contact with federal, state and local government authorities on a real time basis, to ensure we are aware of and offering support and ideas on any new regulations or support initiatives related to COVID-19 that could impact our clients.

So far, we’ve seen minimal changes in our key metrics. However, with the expanding shutdowns of businesses throughout the nation, we do expect that this will be particularly challenging time for small and mid-sized businesses. This will have impact on our results, and Efrain will provide some color when he discusses our current outlook.

The federal government has taken a number of steps to stabilize these issues and is considering more relief actions as we speak. I’m sure you’re all aware of the at least Handshake Agreement last night and we’re working through those detailed changes as we see how the vote and the presidential approval goes probably today.

Small businesses in particular are in need of aid to be able to stay in business and pay their employees. The speed in which relief actions are put in place will impact the severity of the economic impacts resulting from this virus.

Last weekend, we were part of a small group that sent a letter to Congress, supporting the Small Business Loan program to help businesses continue to pay their employees, and offered our assistance as a payroll processor to do that in the most effective and timely way. We continue to monitor leading indicators to gauge the changes in the small business environment.

We believe we are well prepared to navigate our way through these uncertain times. The significant investments we’ve made in our technology, and in particular our mobile app, and our expanded product and features in our service model options, allow us to support our clients in any environment. And as you are well aware, we maintain a strong balance sheet and cash position.

We will continue to focus on our business objectives and invest in our people and our clients. This is a rapidly evolving situation, but we will keep you informed on the expected impacts as events continue to unfold.

Now, I will update you on our business and financial results for the third quarter, which reflect good progress on our key initiatives. Total revenue growth was 7% for the quarter. Management Solutions revenue grew 6% and PEO and Insurance Solutions revenues grew 10%.

Through the third quarter, we have continued to see strong execution in operations with record high net promoter scores and client retention. In addition, we have had strong results in our virtual sales divisions, digital marketing efforts and mid-market sales through the selling season.

As we have discussed on previous calls this fiscal year, we had a slower start than anticipated on the integration of Oasis. We believe we have addressed these issues and sales. We are now fully staffed and have a new leadership team in place. For service, staffing levels are stabilized and the focus can now — continues to be on servicing our clients with less need to work on integration of the clients into the platform. The business has strong fundamentals that will drive growth over the long-term. And we remain very positive about the continued strong demand for HR and Insurance support and PEO services, particularly in this difficult environment.

As the largest 401(k) record keeper in the U.S., Paychex was prepared to respond to the SECURE Act, which was enacted in December of 2019. This legislation provides incentives for employers to offer retirement savings plans and provisions to improve savings for millions of Americans. With our strong expertise in retirement plans and our award-winning retirement services participant portal, we are well positioned to assist small and mid-sized businesses and their employees as they navigate this new legislation and plan for retirement.

We launched Pay-on-Demand in December, which improves the employee experience by offering them flexible access to wages they have already earned before payday, helping them manage their personal cash flow. This is a valuable tool for employers to help attract and retain talent. Other companies in the industry offer similar services on a smaller scale, but our solution is unique in that it provides our clients with flexible payment options including direct deposit, pay card and digital payment into Amazon or PayPal accounts. We also believe that Pay-on-Demand will see increased usage in this current environment with employers needing a more flexible workforce that will need much more flexible pay options and probably more immediate pay.

We were excited to launch the first of our wearable apps as well, which we demonstrated in October at HR Tech Paychex Time for the Apple Watch was launched in January for Flex customers. This allows clients’ employees the flexibility and convenience of punching in and out on the Apple Watch. We also launched Paychex Flex Help Center, which provides dozens of training resources and how to tutorials for assistance using Flex technology from within the application itself.

Help center allows customers to access help materials that are relevant and easy to consume via their individual preferred learning method whether that is video tutorial, step-by-step instructions or chat. The latest product releases included significant enhancements to existing features, which continue to add value by making things simple for our clients and allowing users flexibility and choice. These enhancements include electronic signature capabilities in our document management tool, improved visibility into labor cost and employee data with live reports and additional integrations with some of the top HR, finance, time and attendance and benefit solutions in our Paychex integrations solution.

While the — while Flex, Paychex Flex does provide a full suite of HR solutions, the open platform allows customers the flexibility they may need to integrate with other tools if they so choose or if they already have them and don’t want to switch out of them. Products like learning management services with online training, electronic signature capabilities of document management will support the needs of clients in this time of remote workforces. Our real-time payments offering was introduced — will be introduced in April. We believe we are one of the first to offer this capability to customers and this will allow employers to pay employees faster, which can help attract talent, can also help quickly resolve any issues with payroll.

Our technology roadmap continues to focus on the area of emerging technologies such as wearables, real-time payments, product integration options, data analytics and AI, all of which will play an important role in helping clients in this current environment. We are proud that Paychex’s commitment to technology innovation has been recognized by industry experts. Our Flex — our Paychex Flex Assistant was selected as a Stevie Award Winner for best use of technology in customer service. Flex Assistant answers over 250 questions, covering the breadth and depth of the Paychex payroll and HR suite. What differentiates our technologies that it seamlessly connects to a live specialist in real-time if the user wants more assistance and the entire live transaction is visible to that specialists, so no repetition is needed. Both Paychex and sure payroll also received Stevie Awards for our excellent customer service.

As a critical business partner for many of our clients, we pride ourselves on doing business with integrity. It is ingrained in our corporate culture and very evident in the last few weeks as we quickly implemented our business continuity plans for our clients and employees. I’m extremely proud that Paychex is once again been recognized by Ethisphere as one of the 2020 World’s Most Ethical Companies, the 12 time we received this recognition.

And in summary, as we navigate these unprecedented times, we continue to support our clients, our employees, our communities and our shareholders. We have invested heavily in making our technology solutions and service flexible and mobile and we are more prepared than ever to handle this current environment.

I would like to thank our IT, sales, service, compliance, marketing and HR teams who have worked diligently to ensure regular communication to our employees and our clients, and that all employees have the equipment they need to work remotely and stay connected with each other and our clients. Also, thank you to our employees who have maintained diligence and flexibility during these transitions in the way we all work.

I will now turn the call over to Efrain Rivera to review our financial results for the third quarter. Efrain?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Marty. Good morning. I’d like to remind everyone that today’s conference call will contain forward-looking statements that refer to future events such involve risks. Please refer to the customary disclosures in our earnings release. In addition, I’ll periodically refer to non-GAAP measures such as EBITDA, adjusted net income, adjusted diluted earnings per share. Again refer to the press release.

Before I start, I hope that as we speak, you all are safe and in good health. That’s the most important thing at times like this. If you have loved ones who are affected by the virus and its impacts, please accept our thoughts and prayers for you and for your family. Being human at this time is the most important thing we can do.

So now let’s talk finance. I’ll start by providing some of the key highlights for the quarter and then follow-up with some greater detail in certain areas. I’ll wrap with the review of fiscal 2020 outlook and some high level commentary on fiscal 2021. Yes, some high level commentary on fiscal 2021, stay tuned, based on preliminary looks into next fiscal year. Total revenue, as you saw, grew 7% for the third quarter to $1.1 billion. Oasis contributed about 1% to this growth, expenses increased 5% to the third quarter to $673 million. Increases in compensation costs and PEO direct insurance costs contributed the total expense growth, partially driven by the acquisition of Oasis.

Op income increased 10% to $470 million. Op margin was 41.1% for the third quarter compared to 40.1% for the third quarter of fiscal year ’19. EBITDA increased 8% to $520 million. EBITDA margin was 45.6% compared to 45% for the same period last year, very strong results. Other expense net for the quarter of $6 million includes interest expense related to long-term borrowings.

Our effective income tax was 23.6% for the third quarter compared to 23.7% for the same period last year. Net income and adjusted net income for the third quarter both increased 9% to $355 million and $351 million respectively. Diluted earnings per share and adjusted earnings per share each increased 9% to 98% — $0.98, sorry, per share and $0.97 per share respectively. We received approximately $0.01 of benefit from stock-based comp payments during the third quarter, which is included for GAAP, but excluded in our adjusted diluted EPS.

Let me provide some additional color in selected areas. Service revenue increased 7% for the third quarter to $1.1 billion. Within service revenue, Management Solutions revenue increased 6% to $850 million. PEO and Insurance Solutions increased 10% to $272 million. So you saw, through the third quarter continued strong performance on Management Solutions. This was primarily driven by increases in our client base across many of our services, along with growth in revenue per client, revenue per client improved as a result of higher price realization, increased penetration of our suite of solutions, particularly retirement services, time and attendance in HR outsourcing.

PEO and Insurance Solutions revenue growth of 10% was driven by the growth in clients across our PEO businesses, Insurance Solutions revenue benefited from an increase in the number of health and benefit applicants, partially offset as we’ve been saying all year by the impact of softness in workers’ compensation premiums. Interest on interest on funds held for clients decreased 7% for the third quarter, primarily as a result of lower interest rates earned, partially offset by higher average interest investment balances, I should say, and realized gains. Funds held for clients average investment balances were impacted by wage inflation and increases within our client base offset by changes in client base mix and timing of collections and remittances. These results, obviously, do not include the impact of two March rate cuts by the Federal Reserve.

Turning to our investment portfolio. We continue to invest in high quality credit securities. Long term portfolios have an average yield of 2.1%, and average duration of 3.1 years. Combined portfolios have earned an average rate of return of 1.8% for the third quarter, down from 2% last year.

Now, year-to-date. Total revenue increased 12% to $3.1 billion. Service revenue increased 12% with Management Solutions reflecting growth of 6% to $2.3 billion, and PEO and Insurance Solutions reflecting growth of 36% to $763 million.

Oasis contributed approximately 28% to the growth. Interest on funds held for clients grew 6% to $62 million. Operating income increased 10% to $1.2 billion. Net income and diluted earnings per share, each increased 9% to $877 million and $2.43 per share, respectively. Adjusted net income and adjusted diluted earnings per share both increased 8% to $863 million and $2.39 per share, respectively.

Let me talk about our financial position, which I think is really, really important in a time like this. It remains obviously very, very strong with cash, restricted cash and total corporate investments of $930 million as of February 29, 2020.

Funds held for clients as of February 29, 2020 was $4.4 billion compared to $3.8 billion as of May 31. Funds held for clients, as you know, vary widely on a day-to-day basis and averaged $4.5 billion for the third quarter.

Total available-for-sale investments, including corporate investments and funds held for clients, reflected net unrealized gains of $84 million as of February 29, 2020 compared with $20 million as of May 31, 2019. And as interest rates oscillate, that number changes very, very significantly.

Total stockholders’ equity was $2.8 billion as of February 29, reflecting $667 million in dividends paid and $172 million of shares repurchased during the first nine months. Our return on equity in the past 12 months was a very robust 42%.

Cash flows from operations were $1.1 billion for the first nine months, an increase of 3% over the same period last year. The increase was driven by higher net income offset by timing fluctuations in working capital.

Let me just summarize our financial position, because it’s very, as I said, important. We are very solid with — our cash position is strong. We have $900 million in cash. We have an undrawn revolver. We have the highest cash generation of our peer group. We have the highest dividend and we have confidence that we will weather the storm for both our clients, our employees and our shareholders.

Now, I turn to guidance for the current fiscal year ended May 31, 2020. Firstly, I want to provide context. As you know, there are new events unfolding daily and we are constantly incorporating this information. Our guidance reflects our assumptions as of today, based on the information that we have regarding the potential effects on the business. This guidance also reflects the impact of 150 basis points of interest rate cuts that have occurred in March.

Our guidance for the full year fiscal 2020, as you saw in the press release now, is that we anticipate Management Solutions to grow approximately 4%, PEO now about 24% for the full year, interest on funds held for clients is anticipated now to decline in the range of 2% to 3%, and total revenue is now anticipated to grow in the range of 8% to 9%.

Op income as a percent of total revenue is anticipated to be approximately 36%. EBITDA margin for the full year 2020 is expected to be approximately 41%. Other expense, net, is expected to be in the range of $22 million to $24 million, and the effective income tax rate is expected to be in the range of 23.5% to 24%.

Net income, diluted earnings per share growth are now anticipated to increase approximately 7%, and adjusted net income and adjusted diluted earnings per share are expected to grow approximately 6%.

For the fourth quarter, as you can do it when you plug in your models, you can see that the guidance implies we are anticipating that total revenue will decrease modestly, and operating margins will be approximately 32%.

We monitor a variety of leading internal business indicators to drive this estimate. Let me just provide some thought on that, and then I’m going to talk about next year.

So, we look at leading indicators. And as I’m sitting here, I have a 42-page document from our data and analytics group that tells me a lot of stuff about what’s going on in the business, not everything. Can’t forecast all of the future, but we see what’s happening in real time. We, through the middle of March, we’re not seeing significant impacts. Martin mentioned earlier that we were monitoring key metrics, didn’t really seeing significant drops. And then, towards the last — the second half of March, we started to see the impacts on the business roll through.

We’ve incorporated as much of that into the guidance in the fourth quarter. As we can, we think we have a reasonably good handle on what’s going on. But you also temper that with experience of both what happened in 9/11, because that was an endogenous shock that was more short-lived, and then you also balance that against the ’08, ’09 recession. So, all of those ideas are part of the information we’re triangulating to get not only the fourth quarter, but to the year that — the next year, which I’ll talk about in a second.

It is for many of you, as you know, it’s as though we are on the LA Expressway, on our way to the beaches, and you know there is — the traffic is flowing smoothly, but you know there is a stop ahead. What you don’t know is, those of us who’ve been caught there, whether it’s a two-hour stop, a three-hour stop or something longer. And so, we know a stop is coming. We expect that impacts will be felt in April, in May for the remainder of this year. We’ve estimated them as best we can, but circumstances can change, especially as more states decide to go on full lock down.

So, with that analogy and with the caveats that I just — I’m about to mention, let me talk about next year. We typically give at least a preview of where we expect next year to be, and we won’t bail out and say it’s too early to say anything. We know some things and we’ll tell you what we know.

We will give guidance during our fiscal 2020 and the fourth quarter call in June. So, our intent is to provide you with guidance that’s more complete then. But let me tell you about our thought process based on everything that we’re monitoring. And again, we’re early on in the process and subject to change. By the way, shout-out to Accenture. They went first. They said what they could, and obviously circumstances have changed. I am certain that when others report later, circumstances will have changed. They’ll be in possession of better information, but this is what we have at this point and we’ll share it with you.

So, based on the leading indicators that we have, and then based on modeling on the impacts to the business and other business contractions on a very preliminary basis, our thought process is that total revenue is going to be flattish to down low-single digits for fiscal 2021. This scenario, remember, includes the impact of the most recent cuts to interest rates. And so, that will impact total revenue growth next year. We’re anticipating at this point that that impact will be somewhere in the range of about $20 million off of where we end this year. That part, we have some understanding up, but obviously if the Fed decides to go negative, we’ll have a conversation to that — about that.

Looking very preliminary, we would anticipate that operating margins will be somewhere in the range of about 35%. We would obviously manage the business to that and our tax rate before discrete items will remain consistent with fiscal year ’20. I just can’t emphasize enough that this is preliminary subject to change. At this point, the scenario that we see unfolding is significant impact in Q1, followed by some improvement in Q2, moderate improvement through Q3 and then more of the recovery in Q4 that is consistent with the shock that we saw when we went through 9/11. We continue to update our information every day literally, and I wanted to give you at least an understanding of how our thought process is going at this point.

So with that, I will turn it back to Marty. One thing I would say is we want, we — I get a lot of questions at the end, why don’t you guys just stop taking questions at certain point? We will not do that. We’ll answer every single question you’ve got. The only issue I would ask is that you keep them brief and focused. If someone asked the question before, unless you need clarification on it, please, please don’t repeat the question, so everyone can have a chance to to talk before our voices give out.

So with that, I’ll turn it back to Marty.

Martin Mucci — President and Chief Executive Officer

Great. Thank you. Melissa, if you could now open the call to questions.

Questions and Answers:

Operator

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

Ramsey El-Assal — Barclays — Analyst

A question and for taking a stab at guidance in a really difficult environment. I appreciate that. I wonder if you could go into a little bit more detail in terms of the expense levers and the different levers you have in your business to sort of manage, to protect the bottom line in adverse scenarios. What do you have that you can kind of dial that you have — that you can crank to kind of get ready to get to?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yeah. So you know like most service businesses, 65% of your costs are people costs and 35% are variable. We obviously will go right after as much variable costs as we can and then we’ll look at where there are other opportunities. I think that’s the order in which we’ll do it.

Martin Mucci — President and Chief Executive Officer

Yeah. I think with the changes, when you look back to the financial crisis of ’08 and ’09, we were very quick to react there and yet keep full employment of the people that we had given some of the turnover that we have and so forth. I think we have a pretty flexible ability to keep a focus on the margins, as we always have, as Efrain said. We’ve always led by far the industry in margins and we certainly keep a close eye on that.

Ramsey El-Assal — Barclays — Analyst

Okay. And my second one is on the PEO and Insurance segment in the quarter. Can you parse out what growth would have been there without the Oasis stub? And then just more broadly, in the insurance part of your business, can you talk about sort of risk management strategies in the context of the environment we’re in and I’ll hop back in the queue after that?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Okay. So I’m going to ask you to repeat the second question to clarify what you’re asking. But because I think the way you asked it, I can answer it in a variety of different ways. But if you look at PEO and Insurance — I’m sorry, the PEO business we would have grown about mid-single-digits, I’d say in the PEO business in the third quarter. The second question I didn’t get. I didn’t understand.

Ramsey El-Assal — Barclays — Analyst

It was just basically in terms of the insurance part of the business. Maybe I’ll rephrase the question and just sort of ask it as, how do you see that business sort of — have you seen preliminary signs in that business of any type of deterioration in terms of leading indicators? And how do you go about managing risk in that side of the business throughout a downturn? Maybe I’ll leave it to you to answer it as you would.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yeah, yeah. Let me just explain why I’m pausing. So PEO and Insurance, I’ve mentioned this to many of you, is both the brokered insurance business, which is roughly, call it, 18% to 20% of revenues in that category in the PEO business. So that causes sometimes confusion when people look at it. On the brokered business, we bear no risk. So the short answer to your question, which I don’t think is what you’re asking is that it really doesn’t have much of an impact.

The softness in the insurance, I keep calling out, is really the softness in the workers’ comp insurance portion of the brokered business, not in the PEO. I think what you’re asking is, if I understand the question is, how are we monitoring the at-risk portion of the insurance in the PEO? I think that’s the issue.

Ramsey El-Assal — Barclays — Analyst

That’s correct.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yeah, okay. So the short answer to that is that it’s predominantly in the State of Florida, that’s one. So number two, we look at medical loss ratios and they have been running very favorable. And the third, which requires a much more understanding of the way we operate the PEO, we don’t anticipate that we will make insurance — make a profit on the insurance portion of the at-risk, particularly health insurance. What that means is that, we are very cautious and very conservative in the amount of reserves that we provide.

So the short answer to your question is that we have stress tested that population, which again is primarily in the State of Florida within — by the way, just if you want to know, the average age of that population of worksite employees is about 38. What would happen if the medical loss ratio increased by 10%, which would be significant. We are still in good shape from a reserve standpoint.

So the short answer is, we’re constantly monitoring our medical loss ratios in that population. We are — we adjust reserves as we think appropriate based on the experience we’re having. And at this stage, we feel we’re in pretty good shape. If you are relying on that portion of the — of your portfolio to generate profits, you put yourself in a more complicated situation because your reserves may be lower than you need at this point in time. So that’s my explanation.

Martin Mucci — President and Chief Executive Officer

Yeah. I think the only thing I’d add to that is, any initial view on the PEO side is actually very active on the HR and insurance side. So — and we’ve done I think a very good job on the diligence of the underwriting and that’s going to certainly continue. And so we haven’t seen any uptick in claims. And Efrain said, how well we managed that and are very tight on that to begin with. But we’ve actually seen a lot of interest on the HR side, obviously with the complexity of the regulations that are coming out. Both the PEO and ASO part of our business, our HR outsourcing, we’re the only one with 600 plus HR specialists around the country that are handling these clients, and it is — the interest has grown very quickly.

So the initial piece is, there is going to be a lot of need for the HR support, not only at the beginning of this, in case I have to shut down temporarily etc, but how do I handle the support payments, how do I handle small business loans, how do I — what do I do with payroll taxes and all of those things.

Ramsey El-Assal — Barclays — Analyst

That’s tremendously helpful. Thanks so much.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

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 so much and thanks for taking a shot of 2021 obviously in a fluid environment. Hey Efrain or Marty, just a couple of thoughts on kind of some metrics. How — because obviously it feels like just the shock is much more broad. Is there any way to think about if somebody gets furloughed versus laid off, how that impacts kind of the business model? That was my first one. And then just what type of kind of unemployment rates are you assuming in that 2021 if there is any thoughts around that?

Martin Mucci — President and Chief Executive Officer

Yeah. Let me start on the first one. I think it is really important. Right now, we’re able — with our new Flex technology, we’re able to actually survey clients who are in our app and we’ve had tremendous response just in the last four days asking them what’s the impact to them. And we’re seeing that the vast majority of small businesses and mid-sized businesses is the fact that, about 50% — over 50% have had minimal impact at this point. And then another 40% have basically furloughed. So, our hope and our word tracks from our payroll specialists on the service side, our salespeople are, “Hey, if you can stay in business and keep somehow either furlough or keep paying your employees, if you can, there is going to be support.” Certainly, looks like there’s going to be help coming, whether it’d be the Small Business Loan project. That’s why we pushed also to offer our assistance. We have all that information. We know the direct deposit accounts in the bank. We could quickly continue to help our clients pay their employees 6 weeks, 8 weeks, whatever the government wants to do. And then, just take that money from a government loan fund versus the client. And I think that’s the quickest way to keep these businesses in business.

So, it is really important. And I’m seeing right now, at least leading indicator, is that small businesses are trying to hold it together, maybe lay off or furlough a few people but maintain their business model. So, that kind of depending on how long this is going to go. And if it doesn’t go too long, they’ll be able to bounce back. Remember, just two weeks ago, we had full employment and it was — the biggest challenge for small businesses was finding people to fulfill the demand. I don’t think that the demand in many places will actually change and I think it will bounce — I think it’ll bounce back fairly quickly. People are going to want to get out. They’re going to want to get back to restaurants and new services, may do it a little bit differently and how they stand close to people, but I think they still want to get out a new services, and so these small businesses are trying to hold on to their employees. And that’s going to make a big difference in how many clients are lost and how many checks we’re cutting.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Hey, the second question, Kevin, so let me just say broadly, many of our clients. If you look at our, on the payroll side — I’m sorry, Management Solutions side, and you ask yourself when you look at our revenue, how much of it is based on a PEPM model, what percentage of revenues, versus subscription? In our case, and there’s certain — there’s a general rule of thumb is about a 1/3 is PEPM and 2/3 is subscription.

We assume that in the next several months, the drop in pays per control will become — will be severe, will be pretty significant, I should say. I don’t know, severe — I know you’re asking the question that everyone is, is unemployment probably go to 20% to 25%? I don’t have a good crystal ball and no one else does. But I can tell you that the way we’ve modeled it, we see some significant contraction coming in the upcoming months. We’ll see how long it lasts. We’ve done the modeling and think we’ve got at least a reasonable handle on it. So, I would say significant over the next several months.

Kevin McVeigh — Credit Suisse — Analyst

Great. Thanks again. Be safe.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

You’re welcome.

Operator

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

Bryan Keane — Deutsche Bank — Analyst

Hi, guys. Just want to ask about a bridge, maybe going from the 6% or so organic growth level that we’re at today, down to the slightly negative growth in the fourth quarter and then for next year. Just thinking about what’s in those assumptions, including bankruptcies and other things that drives it to those levels?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Our assumption is that there will be client losses in the base. That there will be lowered pays per control. And we’ve modeled it based on what we’ve seen in prior recessions. And then we got to figure my bad LA analogy is just simply to figure out what’s the duration of the traffic jam until that that resolves. Then the question is, what’s sharp rebound? How sharp the rebound is? And we think it ends up coming back towards the end of the year.

There’s — Bryan, I can’t give you a bridge that said it’s 6% this, 3% that, because frankly the modeling is early on that. All I can say is that we’ve looked at the client base, stressed it, assumed certain impacts, particularly for some of our payroll client base, compared that against what we saw in previous recessions and come up with our best estimate. But we do anticipate that there obviously is going to be an impact to the client base and there’s going to be an impact on pays per control. And I would just caveat it with one thing, which Marty said earlier: To the extent that the downturn is severe but more short duration, then our assumption starts to change. And to the extent that the downturn is both severe, short term and the government stimulus, which they’re working through now, helps to keep some of those businesses in place. It also helps our projections.

I don’t have any way yet of being able to figure all of that out. We’ll see in the upcoming days what it looks like. That could have — and I emphasize could have some impact, but it’s too early to tell.

Martin Mucci — President and Chief Executive Officer

And then of course Efrain already mentioned the interest rate changes is in that as well. That’s a known.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes.

Martin Mucci — President and Chief Executive Officer

It’s more of a known item.

Bryan Keane — Deutsche Bank — Analyst

Yes. I was going to ask. And my follow-up is, how did you account for the stimulus? They’re doing a lot for SMBs to try to prop them up and keep them alive. So, is that modeled in as well or do you just model in as if there would be no stimulus?

Martin Mucci — President and Chief Executive Officer

I think it was pretty high level, Bryan. We modeled some. I think we’re trying to be a little more conservative on who would go out of business and on the checks because of that. But it was pretty — it’s pretty high level. And you didn’t know where the stimulus is going to be and how long it’s going to take. I think that the thing it’s so important that we try to get across, I think the government has taken some great steps very quickly. This one, it could go faster. If you do use someone like the payroll processors, I think could be very quick. Or if you have to go through a loan program, it could take weeks. Those weeks are very important to how this happens, I think, to keep people employed and being paid, and businesses in session.

So, I’m very hopeful that they will do something faster and because of the way they’ve done it already, and that that keeps these businesses running.

Bryan Keane — Deutsche Bank — Analyst

Okay. Thanks for the comments. Stay healthy.

Martin Mucci — President and Chief Executive Officer

Okay, thanks. You too.

Operator

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

David Togut — Evercore ISI — Analyst

Thank you. Appreciate the preliminary 2021 outlook, could you dimension for us your revenue exposure to some of the most affected industries like restaurants, just broadly food service, so we can think through 2021 in terms of the framework that you gave?

Martin Mucci — President and Chief Executive Officer

Yes. Let me start, then Efrain can jump in. I think it’s definitely — I’d say, restaurants in general and those groups are probably around 5% or 6% of our base. And so, it’s not as big as some might expect. So, I think that’s going to be helpful and those are the industries that you’re seeing obviously the most impact in some place like New York State and other states that shut down the restaurants completely.

It also depends, as Efrain have said a couple of times, how long does that happen? Do we try to start to open those back up in a few weeks with even the partial — with a 50% rule or something else? How do you — how long do you keep them in business? But I think it’s around that number roughly on a client base.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. David, so there’s been fair amount of talk about how this endogenous shock is affecting the industries. Martin is right that the — if you look at, essentially hospitality and foodservices, that’s about 6% of our client base. So, obviously that’s impacted pretty significantly both on the payroll side and on the PEO side, but it’s 6%. If you look at everything else, for example, oil and gas is 1% and everything else is distributed in a distribution that looks pretty similar to what the broad economy looks like. So, we don’t have significant exposures to one industry or the other on our payroll client base.

Martin Mucci — President and Chief Executive Officer

Yes, one of the real positives, as Efrain mentioned about our model and our financial strength is we don’t have any direct — any large percentage in one industry, SIC code or region. And so, that allows us a lot more diversity across the base, the type of businesses and so forth.

David Togut — Evercore ISI — Analyst

Understood. Just a quick final question. You noted that the business really started to experience impacts in the second half of this month versus the first half. Can you share your — what you saw in the second half in terms of quantifying the impact on KPIs?

Martin Mucci — President and Chief Executive Officer

Yes. So, what we — it was, we — so I was looking at — we were looking at people running payroll and we weren’t seeing any impacts. And it looked like clients to us were either staying at current — with their current processing routine or in some cases they were accelerating their processing, because they were in the process of either downsizing or in some cases closing. But that didn’t give us enough data, so we went back into the other data that we had on time and attendance systems, we triangulated time and attendance systems, we triangulated marketing lead sales activity and we saw significant drops starting as we rollout of state closures or state lockdowns accelerated. So that’s where we saw the impact.

Now, the good thing about that is that we can see what the impact is and we can see the change in the demand environment. The question is how quickly we come up out of that, obviously New York is not going to come out of that quickly. Question is what other — what happens with other states that have gone into place?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. The interesting point, one of the interesting things is while we’ve seen leads drop — drop off on the front end, but there — but then there has been other pieces that have picked up. So there definitely down, but they’re not, they’re not like shut down. They’re down double-digits but not as much as you might have even thought. So people are still looking for and maybe because of this looking for payroll support, HR support, insurance, those kind of things. So there are also finding that frankly, this is the time that they better go with an outsourcer and that they would want to go with somebody who is national and has the support and service teams that we have that are segregated across the entire country and that can provide great answer performance and support even with 15,000 people working from home. So I think there is some benefits to the strength of who we are in our experience level at this point in time.

David Togut — Evercore ISI — Analyst

Thanks so much. Stay healthy.

Martin Mucci — President and Chief Executive Officer

And you too.

Operator

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

Steven Wald — Morgan Stanley — Analyst

Good morning. Thanks for taking my question. I appreciate you trying to provide as much guidance as you can here. Just, maybe, following up on some of the conversations that you just mentioned about the down double-digit on a lead [Phonetic] but things aren’t completely frozen. As we think about the developing competitive environment as we go through the trough and come out of this. How are you guys thinking about positioning that obviously you’ve made a lot of investments on the Oasis side to get that fully staffed up in the sales side, but when we think about things like waving fees right now to offset pressure declines, may be receiving or the fact that you may have some pricing competition from the very crowded market. How are you guys thinking about that over the next 12 months?

Martin Mucci — President and Chief Executive Officer

Yes. I think it’s a lot more about are you positioned to help the clients through this difficult time. That’s what they’re looking for. Some clients are going to be looking for, hey, can you do something to help me in the short-term on price. But our prices, frankly as a cost to of a small business or mid size business is not that big compared to the other things that they’re concerned about. What we are finding is our strength in telesales for example, is making a big difference. So we’ve been selling telephonically for some time generating leads that are then picked up and handled telephonically with the conversation, the demo and the sale all being done over the phone and even to some degree when you look at your payroll online all by the client and self-service mode, we’ve retrained and added training to the field sales force and handling those calls remotely. So being able to talk to clients that don’t want to meet in person, but to do that over the phone to be able to demo the product and sell and complete the sale, and of course, with some of the features that we have with document management, we’ve had for some time. Everything can be done electronically, electronic signatures moving the documents back and forth and of course electronically on boarding someone to start them up, frankly and as a matter of a few hours.

So I think what we’re focusing on is all right all of our marketing and so forth is how we can help you through this. Here’s the service model we can give you. Here is the product and feature set that can help you, when you think of how strong our mobile app is. We’re seeing increases in mobile app utilization because, now clients — many clients employees are remote and they are able to use the mobile app. The investments that we’ve made are really paying off from that standpoint of mobile app learning management on site, they can give training through their employees online. Of course, direct deposit pay on demand can help them with their only part time or they’re in short shifts and they need cash, so we’re positioning, this is more of the value that we’re providing. And then if there’s something that comes up specifically we’ll talk to the client, but it’s not been as much about price as it is, hey, are you the full service provider that can help me through this period of time versus someone else that I have that’s not as experienced and not as strong financially.

Steven Wald — Morgan Stanley — Analyst

Got it. That’s helpful. And then just maybe a quick sort of two-parter. I know Efrain you mentioned the 42-page report you have sort of running through how to think about this. If we go back to the prior downturn, I believe retention rates drop towards the mid to high 70s. How are you thinking about that relative to the great financial crisis but also someone had asked previously about the exposure to industries and how you’re thinking about it versus prior downturns, but if we cross section it and say a restaurant in the Permian Basin that’s more than just being exposed to oil and gas. How are you guys thinking about this?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. So good question Steven, and I would say it will go into more details and analysis of that type. As we’re going through the plan process. We are right in the middle of it right now. So we’ll do more work in that way. And by the way the analysis we have looks at exactly those kinds of things. But coming back to your question, when we in previous downturns, and I’m going to go back to ’08 or ’09, we started from a retention place that was lower than — it was lower than where it is now. If we would have continued on the same track we were on through the third quarter, we would have had record retention, I mean we were aiming towards of really, really significantly — significant improvement in retention through the third quarter.

And if you would have said to me when I started nine years ago that we would hit that number, I would’ve been surprised, because we were typically in the high 70s. So we start from a good place. So that’s the first part. But you have to stress it based on the change that you saw in different environments. And we’ve taken our best estimated what that will be. So that’s where we’re at right now. Looking at it versus the modeling of — or the actual experience of previous recessions, I think we’ve got a good handle on dimensioning the range and then we can overlay what will happen by industry. But to Marty’s point, I think there is a — there was a — there is an assumption that we’re very exposed to restaurant. So we certainly have a certain amount of those in the base, but it’s not all of the clients that we service by a long shot. Now, I will say that — that’s for payroll. It’s a little bit different for period [Phonetic].

Martin Mucci — President and Chief Executive Officer

And Steven, I guess I just add, it is sold and determined on what Efrain said about the length of how long this goes and then is the stimulus package going to help them through the first couple of months. And then does it go another two months, three months or so forth, with the financial crisis, it went a longer, certainly I think seven quarters or so. And so if there is something that can hold them on and they can still get business even if it’s take out and they can lower a few people but get support on their payroll it could make a huge difference. So we’ve done some initial modeling. But we really need to see kind of how the next couple of weeks even play out.

Steven Wald — Morgan Stanley — Analyst

Got it. Thanks and stay healthy.

Martin Mucci — President and Chief Executive Officer

Thank you.

Operator

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

Kartik Mehta — Northcoast Research — Analyst

Hey Efran and Marty. Hey Efran, thanks for at least trying to put together FY ’21 guidance and I’m wondering if you could just give some of the assumptions you’re making on pays for control or retention, some of the metrics that you usually talk about to get an idea of what the backdrop is for your FY ’21 guidance?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Kartik, I can’t get too specific about that at this point, but I would say that with generally, I’ll give you a kind of a framework that we’re modeling drops and pays per control consistent with some of the effects that we saw in the previous two contraction. So, we’re using that as a guide for what, at least the next three, four or so months, look like. And as I said, I think we’re going to have severe impacts absent whatever the buffer that stimulus provides through the — certainly through the summer, into the early fall. So, that’s one.

And then in terms of clients, we’ve used that data as a reference point for how we’re trying to think about or create a framework for next year. I think many of you have that data, understand what I’m referring to when I say that. So, we’ve incorporated that and obviously we need to have a framework as we go into next year. So that’s, I would say, at a general level, that’s what we’re using.

Kartik Mehta — Northcoast Research — Analyst

And then, Efrain, at the beginning, you and Marty talked about the balance sheet. I think the one benefit you have is you have an excellent balance sheet. And I’m wondering your thoughts on share repurchase. Would you — do you feel comfortable enough that you would want to go back when it’s appropriate in the market to buy back shares? Or are you at this point or want to wait and see how things progress for the next couple of quarters before you would want to go in the market and buy back shares?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Kartik, so one of the things that’s challenging in an environment like this is, in the absence of any other concerns, you would think that now is the time to start getting very constructive on share repurchase. Because we obviously think that the business will bounce back and we’re highly confident that that’s going to occur.

So, that’s the one side of the thought process. And I would say, by the way, this also, my thought — the thought’s I’m expressing also apply to the portfolio. But you have to, and I’ve been through this before, where we had an endogenous shock in my prior life. You have to worry about making sure that there are absolutely no questions about your liquidity, and I mean absolutely. We — people depend on the dividend in this company. We protect that and don’t want anyone to think that there is an issue there. And so, shorter term, until you have a very clear perspective on where you are, you protect the liquidity in the short term, you ensure that capital markets are functioning the way they should, and then you make decisions.

So, there are those considerations that we play through. And I would say right now we are ensuring that there are no issues on that, not that would be given our cash flow generation. But it also, Kartik, extends to things like extending the duration of the portfolio in order to get more yield. Right now, we are not assuming that we’re going to do that, because at this stage of the equation, we put a premium on liquidity, not that we have any issues with that. I just — would just reiterate, we have undrawn revolver. We have almost $1 billion worth of cash. And so, there’s no issues there. But you got to balance all of those pieces in terms of before you start thinking about getting constructed on share repurchase. There may be a time. We’ll talk with the Board at the appropriate time and have that conversation probably. It’s not now.

Kartik Mehta — Northcoast Research — Analyst

And then just one last question, Marty. Marty, when you looked at the previous recessions, was there — when we came out of it, did you see more small businesses wanting to go with an outsource provider either because of what happened or they’re looking to save money? So, in another words, as we come out of this, could you see maybe an acceleration in sales because you have businesses that are not using outsourced services wanting to use the service?

Martin Mucci — President and Chief Executive Officer

I don’t think we saw — I don’t remember seeing that much of it, Kartik, at that point. But there’s a couple of things that are very different in this shock that I think can help. One is the government stimulus packages and the regulation changes are very complex. And I think more businesses will say, “If I’m going to take advantage of that, I’m going to start my business or reignite my business and take advantage of some of the things that are out there. I cannot follow that. I need outside support.” And so, I think that’s going to help more businesses say, “If I have an outsourced before or if I’ve outsourced to a small provider that can provide that kind of guidance like we can, hey, I’m going to go with — I’m going to go with somebody.”

Second, it’s so different from a technology perspective, as everyone knows. Back then it was not all of the mobile apps, imagine where we were 10 years ago, there was no mobile apps, really there was no remote working, very little remote working. All of the things that businesses now — and by the way, their employees are getting used to and those that you might employ or retain are getting used to, what can you do with the mobile app? Can you provide online training? Can you provide pay-on-demand? Can you provide your 401k balances and loans online? Can you do all these things online, connect with your employees? It’s such a different environment. And I think this is going to change the workforce permanently to say, “Wow, I’ve seen these things that I can do remotely and through self-service. I want part of that. I don’t want to necessarily do old school, somebody writing a check or handing me a check even.” I think all of these things are going to get people used to a whole new world, which are going to drive more people to the technology investments that we’ve made.

So, I think there’s two very positive impacts here as we come out of this that could say more new business start-ups and existing businesses that reignite are going to be looking for someone like us.

Kartik Mehta — Northcoast Research — Analyst

Hey, thanks, Marty. I really appreciate it. Thank you both of you.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

All right, Kartik. Take care.

Operator

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

Bryan Bergin — Cowen & Company — Analyst

Hi, guys. Thanks to the other guy for sharing [Phonetic]. Efrain, I appreciate the LA analogy. Thank you for that one.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

All I ask all of you is to remember when I was wrong that I at least tried. I led with my chin.

Bryan Bergin — Cowen & Company — Analyst

Hey, yes. I wanted to ask, just from a business mix standpoint, can you just give us some color on where you are expecting the most and the least pressure? As we think about PEO and Management Solutions, and then the various offerings within Management Solutions that are most and least insulated here?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. So, one thing I think we should mention, I think it’s been, it’s part of the, I guess, the backdrop. I mean, just take off from what Marty said, build on what he said. You know, we’re a very different business than we were in ’08 or ’09. At the end of this year, about half of our revenue or less than half of our revenue will be payroll.

If you split our business, about 80% of our client base is under 20. Our revenue is split pretty evenly below 20 and above 20, 50:50. So, that’s a very different animal than we were in the ’08, ’09 timeframe. And while we do apply that thought process to how we’re looking at the future, there are some differences.

I think we could see, we could very well see, to Marty’s point, increased demand for anything HR services related. And by the way, if I slice now the Rubik’s cube — you can’t slice the Rubik’s cube. But if I slice our revenue, about 50% of our revenue is derived from HR related products. So, you could very well see an increase in demand, to Marty’s point, given the complexity of what Congress is about to unleash. And let me tell you something, e-mails fly every single night here about what’s in the bill, what’s out, what the implications are? There’s lots of good things in that bill for businesses, but it requires interpretation.

So I would say from an HR standpoint, you could see increased demand, which Marty has been talking about. And then, on where we see more stress is on the smaller businesses, who, if they don’t get a lifeline over the next six to eight weeks, are going to be severely impacted and stressed.

So, I would say in broad strokes, higher demand for HR and related services. That could include PEO, by the way, because we would include that in, and more impact on smaller client simply because of the depth and the severity of this correction.

Bryan Bergin — Cowen & Company — Analyst

Okay. And then just payroll tax holiday implications. We’ve got the question, so curious here, how we think about the impact from a potential payroll tax holiday that might be in this final stimulus bill?

Martin Mucci — President and Chief Executive Officer

Yes. I don’t think — from a standpoint of interest on client funds that we withdraw and then pay those. It’s pretty small, of course, we won’t earn much on it anyway, because there is no interest. So I don’t think it will be a very big impact at all.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. So I thought you were talking about what the business impact whether we think that alone would drive some significant improvement. I think you’re going to have to go deeper than that to really make an impact for most clients but Marty’s right. If that’s a question related to interest on funds held for clients, I think the Fed’s kind of help us there. If we are backhanded way. So it’s not going to impact very much.

Bryan Bergin — Cowen & Company — Analyst

Okay, thanks guys.

Operator

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

Andrew Nicholas — William Blair — Analyst

Hi, good morning. I just wanted to talk a little bit about kind of the administrative challenges tied to effecting fiscal stimulus. I’m just curious, given how close you are to that market, what thoughts you might have on the most effective way for the federal government to handle that initiative. What would seemingly be a very difficult task given just the sheer number of small businesses in the US and obviously it’s important how fast handled. So I’m just interested in your thoughts on the challenges of affecting that change?

Martin Mucci — President and Chief Executive Officer

Yes. I think if you look back at like 2008 – ’09 and of course, not even close to the amount of stimulus that is being done now, things took, I think the average time it took to get a check or money to small businesses was like 50 days, we went back and looked at it. So it was roughly a couple of months that needs to be so much faster now, because of, in particular the shut downs that have occurred in many states of small businesses. They need to pay their rent. They need to pay employer — employees to keep them with them, which, because you’re going to come back I think to a pretty good employment. Two weeks ago I said it’s amazing. Their biggest issue was how do I find employees to fill my jobs. And now I want to keep them. So I think, speed is such an essence and — of such an essence. And I do think that we could — payroll processors could be such a help because we could immediately continue to pay that payroll that we paid last week or the week before and then just look for those funds from a government program, the SBA whoever.

I mean, however, they do it is fine with me as long as they give that backstop and it does look like they’re going to do that to give that payroll. But if it’s a long SBA loan process that takes paperwork that, etc, etc, that’s not going to help us many, many you’ve seen of already laid off employees across the country, whether they’d be hotels or whatever. And I think they got to move really quick. Administratively one of the great things with our size and our experience is that we have over 200 compliance specialists. Our compliance people have been on the phone with the federal government, Congress, the treasury, the IRS, the SBA, you name it and are working with them not only to answer their questions about what could be done but also trying to help say this could be the fastest way to do something and so forth, and so we’re very supportive of the work that the government is doing and we’re very much in touch with them. And we think we could turn it around pretty quickly.

We have a lot of resources. 1,500 people in IT and we’ve been talking daily and they understand that depending on what comes out, we’re going to — everything gets turned to that, our first thing is to comply with these regulations and be sure our employees and our clients and their employees are taking care of.

Andrew Nicholas — William Blair — Analyst

Great. Thank you. That’s encouraging. And then as my follow-up, obviously there’s a lot of moving pieces right now. But I just wanted to get your sense for the impact social distancing and working from home may have on your sales force ability to sell new business particularly within PEO where we have enough white space that may be a material slowdown in new business starts is less of a headwind. I’m just curious if you’d expect sales cycle to lengthen to slow considerably. Just on account of let’s face to face interaction, all else equal?

Martin Mucci — President and Chief Executive Officer

Yes. It’s kind of a mixed — it’s a mixed situation. While we said leads were down a little bit. There is still pretty strong lead flow coming in for payroll and HR and because we’ve had so many years of virtual selling, we have a lot of experience in selling which I mentioned earlier, we have now taken that training that have been used for virtual sales, which by the way is virtual sales is lower cost in pretty productive from a web lead perspective. And so we’re now training the field sales force. Hey, here’s a way if you have to do it remotely and someone doesn’t want to meet, here’s how we demo the product, we can use the same tools for the field sales force where they would have demoed something in person. Here’s how you can do some things online and here — and the good news is everything can be done electronically. So you don’t have to be in front of a client to have them sign something. Necessarily a lot of the document management can all be done electronically and kind of a DocuSign kind of features and then all of that sent to remote on boarding specialist who can set up the client in a very short period of time.

So it certainly is going to — it has some impact in clients, not wanting to focus on it right now or meet in person. But I do think that we have a vast amount of experience in a very effective virtual sales team that that will continue to grow frankly, and the field sales force is finding ways to get in touch with their clients, get in front of their clients through e-mail, through chat, through calls and they’re very receptive to that and appreciative that we’re here. It’s amazing that many clients or prospects think that because you’re home, they’re not going to be able to reach you, that is not the case at all. We’ve never lost any contact with anybody. And as I said, our IT team has done a tremendous job in moving 15,000 people remote and then being able to handle it.

Andrew Nicholas — William Blair — Analyst

Great. Thanks a lot for taking the questions and stay healthy.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Thank you. You too.

Operator

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

Jeff Silber — BMO Capital Markets — Analyst

Thanks so much. And Efrain really appreciated your remarks at the beginning, especially the segue from being human to talking about finance. Just one quick question. You talked about how I guess your business or your customer facing business is different now. I’m just wondering, internally, when we compare your business to the prior shocks or the prior recession. Is there anything different, or is that more of a variable cost structure than you had before. Any color would be great.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. And I’ll let Marty, talk about what substantively is different in terms of how we operate. But I think, look, if you’re going to service business. I said 65% people and 35% production at variable — which is the comparison in 65% people and 35% other, not all of that is variable. I would say that that we’ve moved the cost structure in such a way that more of that cost structure supports the other parts of the business. I would say that structure, you guys who are you — so that you guys, but you who are analyzing it now that that’s the way most the split of cost that most businesses have is distributed differently. And so, the implication of that is that we don’t have as many cost tied up in one part of the business that that we had during the last downturn that we’ve got a little bit more diversification across the cost base. So that we support more business that is not purely payroll. Nothing wrong with supporting payroll.

But as I said before, half of our business now is HR related. So I’ll let Martin talk.

Martin Mucci — President and Chief Executive Officer

I mean, I think just from an internal flexibility, we’re on a unified what we call unified communication system that we’ve installed over the last number of years and so we can easily move calls all across the country even to which we have never tested before having all of these people work from home which is an incredible technology different than it was in the last, and you have a lot of flexibility to have teams in different areas and move teams around and so forth. So there is a lot of flexibility here as to how you control costs, how you look at the — your employee base and give them support tools and we’ve always been good obviously controlling our cost and I think having a great focus on margin and we’ll continue to do that, and there is probably as much or more flexibility now than there ever was.

Jeff Silber — BMO Capital Markets — Analyst

Okay. That’s helpful. Thanks so much.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Okay. Thank you.

Operator

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

Samad Samana — Jefferies — Analyst

Hi, good morning and thanks for taking all of our questions. Really appreciate it. I know it’s running kind of long Efrain, maybe just one question for you. I know you guys mentioned a couple of different anecdotal comments about what you’ve seen in maybe the second half of March. But if I could maybe triangulate a little more precisely on new booked business, what have you seen happen in terms of new bookings over the last couple of weeks? And then, what new bookings type of assumptions are you making for fiscal ’21? Thanks again for taking my questions and hopefully everybody’s families are safe and healthy.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Hey, Samad. So, we wouldn’t give you — we wouldn’t give precise info on bookings, and then we wouldn’t typically give precise bookings on what we anticipate. But I think we all know that given lead flow, bookings are down. And given what we expect in the remainder of the quarter, we also expect them to be down. Do we expect it to be — fall off a cliff? Absolutely not, for many of the reasons that Marty said.

If the stimulus gives a jolt, it may actually be helpful. There are things in that package that may cause the businesses that are there to book other services, even if they’re not booking based payroll. But this is a challenging environment for sure.

Samad Samana — Jefferies — Analyst

Maybe if I could ask just one from a competitive standpoint. It sounds like price was able to stick during the F3Q. I’m curious if you’ve seen a change in competitive behavior, either pricing more aggressively to capture as much business as possible before the gears start to slow down? Or maybe just how are your competitors reacting from a pricing perspective in the current environment?

Martin Mucci — President and Chief Executive Officer

Yes, not seeing — there is some free months here and there, first three months of this service or that service. But not seeing too much, too aggressive yet. Does it get more aggressive? It may. On the other hand, I think when you look at it, again as I mentioned earlier, I think businesses are worried about a lot more than — when you think about our average business that might pay a couple of thousand dollars a year, 2,400 a year, 2,500 a year, they’re looking for whether they save 200 bucks or 500 bucks is not that critical to them right now. It’s, hey, can you give me the service, and can you give me the service that I need — the service — excuse me, and the products that I need to survive in this environment?

So, I’m sure we’ll see a little bit more discounting here and there, but frankly it’s a little bit misguided in the back of what clients are looking for, in my opinion.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes, to Marty’s point, you know, we, it’s easy to overlook it. But when you have a response time measured in seconds, I’d ask you to ask all of our competitors what their response time are. Service may not seem like it’s all that important in other environments. I can tell you based on the interactions we’re having, we could post all of the comments that we’ve gotten from clients about how responsive we’ve been on the website, it’s going to become very, very critical. One of the things that we’re very proud of, Marty said it earlier, is that we moved everyone to work from home and our service times have been tremendous and our response times to clients have been tremendous. And they are asking a lot of questions. And if the — if you can’t get to them and you can’t service them, they’re probably going to have some second thoughts about whether they continue with you.

Samad Samana — Jefferies — Analyst

Great. Thanks again for taking my questions. Be well.

Martin Mucci — President and Chief Executive Officer

Okay. Thank you. You too.

Operator

Your next question comes from the line of Pete Christiansen with Citi.

Peter Christiansen — Citigroup — Analyst

Good morning, gentlemen. Thank you for the update and certainly for your appointment — pointed sentiments earlier. Good news I think we’re hearing that in the bailout so far the stimulus is providing $10 million — up to $10 million for individual businesses and provided no layoffs. So, perhaps there is some upside to the outlook here. So, fingers crossed. Appreciate your thoughts, the double-B in the details. But I was just hoping if we can go back to the Rubik’s Cube very quickly and if we can quantify your exposure between hourly workers versus salaried workers and perhaps what you’ve seen earlier?

And then as a follow-up, looking back to the last downturn, it looks like the dividend rate was held steady for quite a bit at risk of pulling the cart in front of the horse here. How should we think about that? Would we expect to see something similar at least over the near term? Thank you.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes, Pete, I don’t have much for you on hourly versus salary. I’d have to get that breakdown and figure that out, so. And don’t have a precise answer on that. With respect to the dividend, look, our earnings amply support the dividend we have. Whether we should increase it, will depend in part on the discussion that we have with the Board and where we are when we present the plan. We try to peg it around 80% or so. Obviously, in some situations that might be a little bit higher. So, we’ll have to go through that conversation with the Board in terms of what level they want to set it out.

Peter Christiansen — Citigroup — Analyst

Thank you, gentlemen. Best of luck and be well.

Martin Mucci — President and Chief Executive Officer

Okay, thank you. You too.

Operator

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

Lisa Ellis — MoffettNathanson — Analyst

Hi. Good morning, guys, and thanks for squeezing me in.

Martin Mucci — President and Chief Executive Officer

Hi, Lisa. Sure.

Lisa Ellis — MoffettNathanson — Analyst

Couple of questions on workers’ compensation, actually. I know we are, I guess, presumably going from an abrupt period where workers comp claims and premiums were very low to probably the inverse of that. Can you just remind us, I know the premium going up will actually be a tailwind to your insurance business, but in general, how does that kind of dramatic shift impact you? Thanks.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes, it would be a tailwind to the insurance business. It would also have a modest impact on our PEO business from a revenue standpoint. So, both of those would be positive. On the other hand, where we are, where we have some at-risk exposure in — on the workers comp side in the PEO, we’d have to monitor that, so. So, I think it’s on balance more to the positive side of the ledger, and then you’ve just got to manage reserves appropriately.

Lisa Ellis — MoffettNathanson — Analyst

Yes. And then on that point is the follow-up, because I know we get questions about that. Can you just remind us, I was looking in the K, it looks like your reserve level and workers’ comp is something like $170 million or so in total across like short-term and long term?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes.

Lisa Ellis — MoffettNathanson — Analyst

And then, how is that capped or reinsured again? Can you just remind us like how much actual risk exposure do you really have? Is that the way to think about it, it’s kind of that number or how does that work exactly?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes, I’d have to look back. I think we say in the K what we have in terms of exposure. I think it’s around $1 million, I want to say, per case. $1 million workers’ comp case is a very, very unusual case in my experience. It’s capped there. But beyond that, by the way, that’s only part of the equation. What you have to look at is the development of claims, which we look at on a quarterly basis and add to reserves as they’re needed.

So, our typical workers’ comp adjustments are modest, and generally we end up in a positive reserve situation, so. So, we should be able to manage well. There’ll be no change in terms of the way we manage. We don’t anticipate a significant impact at this point.

Lisa Ellis — MoffettNathanson — Analyst

Got it. Okay. And then just a quick follow-up, one on the attrition. I think you’ve said in the past that about 9 points of your attrition each year are come from businesses going out of business, just in like a normal period. Is that about the right number? And then, can you just dimension like how much worse that got back in ’09 or after 9/11?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. So, what you’re doing is taking about half of the 18% that we would average. I think it’s close — it’s somewhere between 8%, 9%. You can — we’ll see a spike, I can’t call it yet, Lisa. But if we go back, back to ’08, ’09, it spiked up to about 23%, 24%.

Martin Mucci — President and Chief Executive Officer

Yes.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

But our base was about 20%, 21%. Most of that 3% to 4% was coming from —

Martin Mucci — President and Chief Executive Officer

Yes, other business. Yes. No, it’s exactly what Efrain said. It’s — most of that came from out of business and — but please remember, that one went longer. So this one is just kind of hard to measure because we think we’re going to have depending on the stimulus that could hold the front here for a couple of months if it really could help them quickly and then how long does it go before they open back up or give up and go out of business. It’s going to be very interesting. It doesn’t feel like it’s going to be is bad as’08-’09 because that went on for seven quarters in businesses couldn’t survive. These hopefully, they could furlough they could come back, I don’t — I really, it’s obviously hard to predict a few weeks into this, but I don’t think it’s going to be, we wouldn’t expect that would be that bad. It might be more, it’s going to be more of a shock in the first probably maybe first quarter of next year, but then bounce back pretty quickly. We would think at this point.

Lisa Ellis — MoffettNathanson — Analyst

Terrific, thank you. Thanks for the color.

Martin Mucci — President and Chief Executive Officer

Okay, thank you.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

You are welcome.

Operator

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

Mark Marcon — Baird — Analyst

Hi, Marty and Efrain. Thanks for squeezing me in and best wishes to you and your families. With regards to you know the stimulus what what elements that you’ve heard discussed around the stimulus are you most excited about that it could potentially have a positive impact?

Martin Mucci — President and Chief Executive Officer

Well, definitely the small loan program. The small business loan program. Anything that, as I’ve mentioned it would keep paying employees of small businesses and keep them in place is really important depending on how long as this goes. If it’s shorter than if it’s shorter rather than longer that could make a big difference as the weather our business goes out of business or not. And they keep their employees employed.

I think also the unemployment benefits is also another way that of small business might say, hey, I’m going to furlough you, I might pay you. There has been different rules discussed about paying half and there is certain rules that are out there about sharing a job where you could fully you could pay someone you could keep two people instead of laying off. We got to people instead of laying off one and keeping one you could have them job share and then make it up with unemployment that could have some impact depending on where they how they handle those regulations. I think anything around supporting small business and employees with their wages is the most important to make. Hey, the Direct Checks can hurt, but I’m not sure what that’s going to do as much as from a business standpoint is keeping businesses going, that’s kind of how I think of it any way at this stage based on what we’ve seen.

Mark Marcon — Baird — Analyst

What’s your level of confidence that that’s — that those elements that you cited are going to go through based on alll the interactions that you’ve had?

Martin Mucci — President and Chief Executive Officer

Pretty strong. I think there has been a very little disagreement on the small business loan program. There has been, we still don’t know how they’re going to — it’s procedurally enacted that is important, but that’s not clear yet, but I do think based on all the discussion, they’re are going to try to do it is quickly as possible with as little red tape as possible, and that will be very important, but feel pretty good that those things are going to get enact that they haven’t been argued much at all, it’s been more of the large business stimulus giving money to the airlines, etc, that seems to have the bigger arguments.

Mark Marcon — Baird — Analyst

What sort of a marketing program could you put in place in order to take advantage of that because that obviously your capabilities to deal with something like that would be far greater than any independent companies.

Martin Mucci — President and Chief Executive Officer

Yes, very much sort of already positioned the marketing to even over a week ago about how we can help you. And we’ve had webinars that have been kind of blowing the doors off from the number of people and CPA’s that join those webinars because they want to know about it. So I think we’re well positioned from a marketing and training perspective for our clients and prospects to take advantage of those.

Mark Marcon — Baird — Analyst

Great. If I could shift gears, just for the follow-up component. Can you just talk about the percentage of business that you have in New York in California and the states that have gone through the shutdowns and what you ended up seeing in those states during the [Technical Issues] days?

Martin Mucci — President and Chief Executive Officer

Yes. If there is a — there is a number of businesses not all of them are the small businesses. But I think I do think it’s — might be up around the 40 year. Well I think California alone, I don’t have that data for all of the states that are shut down, which includes New Jersey, Illinois and California, New York. Of course, we kind of follow the population. So it’s probably around 50% or so that are in those, but again they’re not all small businesses that are necessarily impacted by the shutdowns and partial shutdowns that you’re seeing.

Mark Marcon — Baird — Analyst

Okay. And what were you seeing in the states that are shut down in terms of like the very recent trends?

Martin Mucci — President and Chief Executive Officer

Very early, but mostly, we’re seeing more of the — I’d say — I’m furloughing — I’m standing open, I’m doing like restaurants and again restaurants being 5% or 6%, but that’s where you’re seeing the most impact. They’re saying hey, I’m going to try to furlough people. I’m going to try to keep my employees, maybe only keep three of them out of six or and 10 out of 20, but I’m staying open so far. And again, are those people in flex in that survey that I mentioned early on, we’ve gotten the huge response on that and it’s still been 50% our minimal impact at this point, and another 40% are saying, I’ve done some layoffs or furloughs, but I’m continuing to run. That’s all been very good news.

What we don’t have a great handle on yet is any losses, because you’re going to see those more probably next week or end of this week, if they’re completely going out of business. But more of the feeling is and I’m going to try to hang on you’re see with the stimulus is, try to furlough my employees so I keep them and continue to do what I can with minimal staff.

Mark Marcon — Baird — Analyst

Great and then one last one. Will you come about what you’re

Martin Mucci — President and Chief Executive Officer

Mark, you’re breaking up there. Could you try that again?

Mark Marcon — Baird — Analyst

Yes. Just the portfolio composition with regards to the float balance. What do you seeing there?Securities in the oil industry or your muni portfolio.

Martin Mucci — President and Chief Executive Officer

Yes. They are solid. We haven’t had any issues, haven’t had seen any impairments of any securities. Obviously we we we invest in very highly liquid and and highly say security. So we had a few in the oil industry, but, but we haven’t had any impairments. But it’s very small part of the portfolio.

Mark Marcon — Baird — Analyst

Great, thank you.

Martin Mucci — President and Chief Executive Officer

Okay. Thanks, Mark. Stay safe.

Mark Marcon — Baird — Analyst

You too.

Operator

Your next question comes from the line of Tim Singh with JP Morgan.

Tim Singh — JP Morgan — Analyst

Hi, thanks. Thanks so much for the hard work here. Just on the margins. Just wanted to clarify, it looks like you’re guiding to I think 35% versus the 36% this year, is that just a function of the detrimental margin of, sorry, I forgot.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yeah. So yeah, just want to preliminarily we see it around 35. Yeah, what’s happening Tim Singh is right now, my assumption is the portfolio is down around $20 million maybe at that higher that portfolio drop straight to the bottom line without a lot of expense offsets that we assume that we’re going to take actions to obviously offset expenses in other areas. But it’s hard to — it’s hard in the short term. At this point offer 6 weeks of data to say here’s how we go after after replacing some of that margin. I would say we’re pretty good at it. If you remember, ’08 or ’09, we took a tremendous hit on the drop in the portfolio. Nowhere near as severe here and found a way over time to make it up, but yes that’s one component of what creates the drop in margin.

Tim Singh — JP Morgan — Analyst

Okay that makes sense. So you’re being conservative here. If things get a little bit worse, there is room to do more, but you just see it calling it as you see it and then you can move on. Got it. And then just really quickly, I know a lot of people ask good questions on the outsourcing. What happens on the recovery. How about on PEO. I’m curious if we could see a shift there, if people want to manage their medical side a little bit better, but also I guess, the risk that carriers my prices in anticipation of higher cost, but also in that might price out others. I’m trying to better understand how you think about PEO here given that you’ve put some more capital into that business in the last three years.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Contingent. I mean, it’s a great question. So here’s how at least some preliminary thinking on that. If you have a lot of costs rippling through your health care plans, you may not feel them at first, but eventually you’re going to feel them and then clients are going to be impacted to one extent or another. Through the course of this year and as we have managed the integration of Oasis, what we’ve seen is a tremendous opportunity to operate a PEO, ASO hybrid model, where were you have an ASO with the provision of benefits from our insurance agency and in some ways — and sometimes it’s better for you to go through our insurance agency on the PEO, instead of being on some sort of PEO master plan.

So, I think you’re going to have to figure out some — be flexible and agile in terms of what you provide on the benefit side and what solutions you provide, either one-off through an insurance agency, a master plan or some other arrangement.

So, I think what we’ve seen is that ASO and PEO kind of converging, and in some cases full PEO is the better model for some clients, in some cases ASO the better model for other clients. So, you could see shifts between those categories, depending on what happens in each of those markets as we go through the year.

Martin Mucci — President and Chief Executive Officer

Yes, I think that’s exactly right. You brought up the right thing. We don’t know what’s going to happen to insurance, right? It depends on how many claims are filed and whether you have a lot of claims, there’s a lot of costs that are going to be covered, like the testing and so forth. So, it’s kind of early to tell, but it will be that balance. But as Efrain said, I think then that can shift toward ASO model. But I think the PEO model will still be pretty strong. I think this is bringing awareness of insurance plans and employees.

There’s going to be this fight for employees again, in finding them for your businesses. And I think insurance could be an even stronger selling point, now, as an employer who is trying to hire people. So, that may bring even more cloud to the PEO, it’s going to be — it’s going to be an interesting balance as we come out of this. We’re well positioned, obviously, with both ASO and PEO to do that.

Tim Singh — JP Morgan — Analyst

Yes. You got them both. Yes, I trust you guys would be right on that. Thank you all for the candor. It’s very comforting. Thanks.

Martin Mucci — President and Chief Executive Officer

Thank you.

Operator

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

Jason Kupferberg — BofA Securities — Analyst

Hey, guys. Glad you’re healthy. I was just curious as it relates to revenue sensitivity, the changes in certain key metrics, like ADP as talked in the past though, 1% change in client retention has about 6 times the revenue impact as a 1% change in bookings, just as an example. I mean, should we assume kind of similar types of relationships hold for Paychex? Or any specifics you feel comfortable sharing, just so we can think about the way forward?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. Hey, I would just say broadly a drop of — a change in our loss rate of about 1%, yields about $25 million of impact — is it $25 million? Well, $2.5 million I’m sorry, $2.5 million. Checks or pays per control are really the most important. So, it sounds like they’re somewhat similar to what we are, so. But we’ll see as we work through our plan.

Jason Kupferberg — BofA Securities — Analyst

Okay. And then I just wanted to go back Efrain, to, I think, answer to an earlier question. It sounded like you guys are assuming a similar amount of deteriorate expert [Phonetic] client and in client retention as you saw the past couple of recession. So, is the reason you’re not assuming anything deeper than that just because of the change in mix since those last recessions, like the HR and the PEO mix? Or are there other factors?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes, Jason. That’s the impact. I mentioned earlier and just providing some color, if you look at our business, 50% of our revenues are with clients that are 20, and under 50% are clients 20 and over. That’s a different mix than we had during the last recession. Of course, there are scenarios where it could get a lot worse than that, depending on how long the downturn lasts. But at this point, that’s our best guess on the modeling.

Martin Mucci — President and Chief Executive Officer

Yes. Again, on the timing, and obviously not knowing that timing, but you could have this larger drop in checks in the first half of the year, fiscal year, and then come back. And that’s kind of how we’re thinking that over that period of time, I think over the fiscal year, it might balance out like recessions have been. So, it might be a little stronger in the early part, but I think if the bounce back — everybody has a different view, but if it’s a bounce back in the second half, that could be a pretty strong bounce back in checks.

Jason Kupferberg — BofA Securities — Analyst

Right, right. So maybe a deeper trough, but I hear what you’re saying. And then just last one real quickly. [Technical Issues] refunding certain fees to help customers stay afloat or defer price increases or anything along those lines?

Martin Mucci — President and Chief Executive Officer

Well, we’re looking at it. Again, we haven’t had that much of a push from that’s what they’re concerned about and we want to — we’re focusing really on what they need at this point to survive and get through all of the stimulus packages and the downturn and so forth and the shutdowns. So, that hasn’t been that critical from a client perspective. Obviously, we’re looking at the price increase and I think it’s going to be prudent to push that out a little bit and we’ll continue to watch that as we go month-to-month.

Jason Kupferberg — BofA Securities — Analyst

Okay. Thanks again.

Martin Mucci — President and Chief Executive Officer

Okay. All right, Jason.

Operator

Your final question comes from the line of David Grossman with Stifel.

David Grossman — Stifel Nicolaus — Analyst

Great, thank you. I know it’s pretty late here. Just one really quick question.

Martin Mucci — President and Chief Executive Officer

It’s early for you David.

David Grossman — Stifel Nicolaus — Analyst

That’s one way to look at it, I guess. But, yes, just quickly on your commentary about your mix of PEPM versus subscription. I think you said 1/3 PEPM and 2/3 subscription. Can you just help us understand how you get at that?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

How you get at that?

David Grossman — Stifel Nicolaus — Analyst

Yes. How you get those percentages? Like — because it seems like a large percentage of mix is really driven by the number of employees, so just want to better understand that.

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

Yes. I think it has to do with the composition of our client base, David, so. And when you’re smaller, you tend to have more on the subscription side of the equation. For example, we don’t separately disclose SurePayroll, but SurePayroll is purely subscription. So, PEPM has no impact on it. And then it’s an estimate on other clients, how much of what they’re getting is based on PEPM revenue, and that’s what it ends up being. When you’re smaller, your proportion tends to be more subscription, larger tends to be more on the PEPM side.

David Grossman — Stifel Nicolaus — Analyst

So, what, just as an example, what are the services you’re including in that subscription bucket?

Efrain Rivera — Senior Vice President, Chief Financial Officer and Treasurer

It’s just primarily payroll. So, but that’s a big chunk of the Management Solutions revenue.

David Grossman — Stifel Nicolaus — Analyst

Got it. All right. That’s it from me. Thanks again.

Martin Mucci — President and Chief Executive Officer

All right, David. Thank you.

Operator

And there are no further questions.

Martin Mucci — President and Chief Executive Officer

All right. Thank you. At this point, we will close the call. We do wish the best to all of your — yourselves and your families. And good health to all of you. Thank you for participating in this call. It will be archived for approximately 30 days. And again, we appreciate your participation and interest in Paychex, and stay safe everyone. Thank you.

Operator

[Operator Closing Remarks]