Paychex, Inc. (PAYX) Q4 2023 Earnings Call
Paychex, Inc. (NASDAQ:PAYX) Q4 2023 Earnings Conference Call June 29, 2023 9:30 AM ET
Company Participants
John Gibson - President and Chief Executive Officer
Efrain Rivera - Senior Vice President, Chief Financial Officer
Conference Call Participants
Ramsey El-Assal - Barclays
Eric Dray - Bank of America
Rayna Kumar - UBS
Andrew Nicholas - William Blair
Kevin McVeigh - Credit Suisse
Bryan Bergin - TD Cowen
Bryan Keane - Deutsche Bank
Scott Wurtzel - Wolfe Research
Kartik Mehta - Northcoast Research
Eugene Simuni - Masset Makinson
Peter Christiansen - Citigroup
Tien-Tsin Huang - J.P. Morgan Securities, LLC
James Faucette - Morgan Stanley
Samad Samana - Jefferies
Operator
Good day, everyone, and welcome to today's Paychex Fourth Quarter and Fiscal Year-end Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note, this call maybe recorded. I will be standing by should need any assistance.
It is now my pleasure to turn the conference over to Mr. John Gibson, President and CEO. Please go ahead.
John Gibson
Thank you, Stephanie. Thank you, everyone, for joining us for our discussion of the Paychex fourth quarter and fiscal year '23 earnings release. Joining me today is Efrain Rivera, our Chief Financial Officer. This morning, before the market opened, we released our financial results for the fourth quarter and full fiscal year ended May 31. You can access our earnings release on our Investor Relations website. Our Form 10-K will be filed with the SEC before the end of July.
This teleconference is being broadcast over the Internet and will be archived and available on our website for approximately 90 days. I will start with -- the call today with an update on the business highlights for the fourth quarter and fiscal year. Efrain will review our financial results for fiscal '23 and our outlook for '24. We'll then open it up for your questions.
We finished fiscal year '23 with solid financial results and momentum heading into fiscal year 2024. Total revenue grew 9% for the full year and we hit a major milestone for the company with over $5 billion in total revenue. I was personally reflecting on this last night when I joined the company, we were just over $2 billion. It took us 6 years to go from $2 billion to $3 billion, 3 years to go to $3 billion to $4 billion, and it took us 3 years to go to $4 billion to $5 billion, but I remind everybody that was during the global pandemic. So certainly very proud of those results.
In addition to the revenue growth at 9%, adjusted diluted earnings per share grew 13% to $4.27 and operating margins finished at 41% as we continue to benefit from our continued investments in technology, our focus on driving digitalization in all aspects of our business, and our long standing tradition of operating excellence. These results are due to the hard work and dedication of our more than 16,000 employees. I'm very proud of what we've achieved this fiscal year.
Our industry leading technology and advisory solutions have made a positive impact on our clients and their employees. And in return, they continue to reward us with additional business and their continued loyalty. Momentum in sales has continued with solid growth in new annualized revenue for both the fourth quarter and the full fiscal year.
HR solutions and retirement were areas of particular strength with double-digit growth. We are well-positioned in terms of our staffing levels and rep tenure heading into the new year. Revenue retention finished the year near record levels as we continue to focus on retaining and increasing our share of wallet with our high value customer segments.
Client retention was impacted by higher losses due to out of business, concentrate mainly in newly formed businesses in the last 2 years and financial distress in the lower revenue small clients. We continue to see strong demand for our HR outsourcing solutions with worksite employee growth over 10% year-over-year.
For the year we achieved record level worksite employee retention due to our strong and unique value proposition of our leading HR technology and advisory capabilities. Businesses of all sizes continue to navigate the challenges of a very complicated regulatory environment, a competitive labor market and now tightening credit.
Demand for our solutions remains strong due to the depth and breadth of our integrated offerings, including HR technology, designed to deliver efficiency for both the employer and the employee, our comprehensive HR outsourcing which leverages the strength of our technology and the experience of a trained HR professional and our outstanding compliance organization and the need for businesses to offer quality benefits including retirement to compete for talent.
Our retirement solutions are benefiting from the growing expectations of a retirement plan as a core benefit offering for small and midsize businesses. Recent passages -- passage of the SECURE Act 2.0 legislation and various state mandates requiring employers to provide retirement services to the employees or making 401(k) the key benefit for small and midsized businesses. With more state mandates expected to take effect in the future, we expect a strong market for retirement to continue for the foreseeable future, and we are well-positioned as a leader to take advantage of this opportunity.
The SMB credit environment has continued to feel demand for our employee retention tax credit service. Our full service ERTC offerings has helped tens of thousands of businesses obtain tax credits, and gaining access to funds they need to keep their businesses running and growing. We continue to communicate this opportunity to existing clients and prospects.
Industry recognition continues to reinforce the competitive strength of our technology solutions. For the fourth consecutive year, Paychex Flex earned an HR Tech Award for Best Small and Midsized Business focused Solutions in the Core HR category. Our consistency and winning these awards and being placed repeatedly in the leadership quadrant of respected technology analysts rankings, speaks to our market leadership in HR technology. I’m not only very proud of these results in the performance of the team, but I'm also equally proud of how we achieved these results.
We have been consistently recognized as one of the world's most admired, most ethical and most innovative companies. In addition, we've been ranked as one of the best place -- places to work for people in sales, for women, for diversity, and for our outstanding training and investment in our employees development. These awards are a testament to how our employees not only get the job done, but do it the right way and we are constantly looking for new ways we can make ourselves and our communities better.
As we move into fiscal year '24, we will continue our focus on developing leading customer experiences that combine our technology, our advisory capabilities and our partnerships to deliver superior value to our customers. Paychex is uniquely positioned to help small and midsize businesses navigate the challenges they face in a complex and ever changing and evolving world. We remain committed to our purpose, and that is to help businesses succeed. And we'll continually strive to have a positive impact on our clients, our employees, our communities and our shareholders.
Now I'll turn it over to Efrain, who will take you through our financial results for the fourth quarter and the fiscal year as well as our guidance for fiscal year '24. Efrain?
Efrain Rivera
Thanks, John, and good morning to all of you. I hope you're indoors on this smoky Thursday. I thought we're past it, but like not quite. I would like to remind everyone that today's commentary will contain forward-looking statements referred to the customary disclosures that we make. I'm going to start by providing a summary of our fourth quarter financial results, talk about full year results and then finish with a review of our fiscal 2024 outlook.
Just before I start, I also wanted to add that the joining us in the room today, this morning is Bob Schrader, VP of Finance and IR. Many of you have met Bob.
Okay, for the fourth quarter, you saw total revenue increased 7% to $1.2 billion. Management solutions revenue was up [indiscernible], a little bit over 909 driven by additional product penetration. HR ancillary services, which currently mostly ERTC and also price realization. We continue to see strong attachment of our HR solutions, retirement and time and attendance products.
Demand for our ERTC service remains strong as John mentioned, and it contributed approximately 1% to 2% to total revenue growth for the full year. Demand for this service along with our internal execution that continues to exceed our expectations, while ERTC has been a tailwind and we expect demand to continue into fiscal year '24. It will become a moderate headwind next year, especially in the back half of the year where it will become more of a headwind.
PEO and Insurance Solutions revenue increased 5% to $300 million driven by higher revenue per client and growth in average worksite employees. The rate of growth was tempered a bit by lower medical plan sales and participant volumes along with continued preference for ASO in this environment. We expect these trends will start to normalize as we progress through fiscal 2024, though it won't be evident, necessarily in Q1. I'll talk about that in a little bit.
Interest on funds held for clients increased 69% to $25 million, primarily due to higher average interest rates partially offset by realized losses taken in Q4 as we reposition the portfolio heading into the back half of this year.
Total expenses increased 3% of $776 million. Expense growth was largely attributable to higher headcount, wage rates and general costs to support growth in the business. Operating income increased 15% to $453 million with an operating margin of just under 37%, a 240 basis point expansion over the prior year period. Diluted earnings per share increased 18% to $0.97 per share and adjusted diluted earnings per share increased 20% for the quarter to again $0.97 per share.
Let me quickly summarize our full year results. Total revenue increased 9% to $5 billion and total service revenue increased 8% to $4.9 billion as you are all aware we raised guidance a number of times during the year. Management solutions increased 8% to $3.7 billion; PEO and insurance increased 6% to $1.2 billion. Total expenses were up 7% to $3 billion.
Operating income increased 10% with a margin of 40.6%. John mentioned this earlier, at the 70 basis point expansion over the prior year. The leverage in the model was pretty evident. Other income, net increased by over $30 million due to higher average interest rates and average investment balances within the corporate investment portfolio. Diluted earnings per share increased 12% to $4.30 per share and adjusted diluted earnings per share increased 13% for $4.27 per share.
Our financial position remains rock solid, with cash restricted cash and total corporate investments of more than $1.6 billion and total borrowings of approximately $808 million as of May 2023.
Cash flow from operations was $1.7 billion for the fiscal year, an increase of 13% from the prior year, driven by higher net income and changes in working capital. Free cash flow generated for the year was $1.5 billion or 50% year-over-year. And while it's easy to gloss [ph] over those numbers, I think it's really important that when we -- to note that when we report numbers, the quality of our earnings and our quality of our cash is very, very strong as noted by some of you.
Not only do we deliver on the top line, but we deliver in a quality way for them on the bottom line, and we intend to continue to do that. We paid out a total of $1.2 billion in dividends during fiscal 2023 or 70% of our net income, 12 month rolling return on equity with the stellar 48% with an arrow pointing up.
Now, let me turn to guidance for the upcoming fiscal year ending May 2024. Our current outlook as you saw is as follows. Management Solutions is expected to grow in the range of 5% to 6%. PEO and Insurance Solutions expected to grow in the range of 6% to 9%, the [indiscernible] net of debt just to accommodate the fact that sometimes attachment on insurance can vary from quarter-to-quarter and from year-to-year as we saw last year. Interest on funds held for clients is expected to be in the range of $135 million to $145 million.
Total revenue is expected to grow in the range of 6% to 7%. Operating income margin is expected to be in the range of 41% to 42%. Other income, net is expected to be income in the range of $30 million to $35 million, and then our effective income tax rate is expected to be in the range of 24% to 25%. Adjusted diluted earnings per share expected to grow in the range of 9% to 10%. This outlook assume current macroeconomic environment, which as you know, has some uncertainty surrounding future interest rate changes in the economy,
We have better visibility in the first half of fiscal 2024. As each quarter progresses, we have a little better visibility into the remaining quarters in the year. For the first half of fiscal 2024 and the first quarter, we expect total revenue growth to be approximately 6%. That's the first half and first quarter. We anticipate operating margins for the first quarter to be approximately 41% will help do a little bit on your modeling. And we expect PEO and Insurance Solutions revenue to be below the low end of the range for the first quarter, then it'll be solidly in the range. That's our expectation at this point.
Before you ask me the question, I will answer the first quarter was actually the strongest quarter of the year on PEO last year. And as a consequence the compare will be a little bit tougher than we expect, the business build as we go through the year. Of course, all of this is subject to our current assumptions and they can change. We'll update you again on the first quarter call.
There's a number of questions because it's of course, the time when we give guidance. So if I could just ask for your forbearance on something which is to say, ask a question and limit yourself to one follow-up. Now, I will say I understand some of those questions will be compound questions, but it's a five part compound question that violated the rules. So -- but just so we can get through the call without going excessively long.
With all of that, I refer you to our investor slides on our website for additional information. And I'll turn the call back over to John.
John Gibson
Okay. Now with all the conditions and restrictions that Efrain has laid out for you, we will now open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question will come from Ramsey El-Assal with Barclays.
Ramsey El-Assal
Hi. Thanks so much for taking my question this morning. Can you comment on the pricing environment? You called it out a little bit in the press release. And I guess the question is, are you seeing sort of a window right now for more aggressive pricing adjustments just given the inflationary environment? Or is this sort of -- are you feeling now that you're in sort of a steady state, kind of continual trajectory when it comes to pricing?
John Gibson
Yes, Ramsey, thanks for the question. Yes, I would say we're more in a steady state. I feel good about where we are. I think the value of our products and services, I think what we see, when we talk about price inside our customer base, they're rewarding us, they're seeing the value we're getting. And as we did last year, we believe we have a pricing of power inside the base and we'll continue to avail ourselves of that. And then in terms in new clients and prospects in the competitive environment, hey, we've always been in a competitive market, and I see stable pricing. And I think as we go through this year, we'll continue to do what we need to do to be competitive in the marketplace. So I don't see any major shifts of change on either side of the pricing equation.
Ramsey El-Assal
Okay. And I wanted to ask also about retention. Obviously, retentions at healthy record levels. At the same time, you called out a little bit of where you were seeing a little bit of headwind, I think it was from out of business, from newly formed businesses, and I think there was some other color that Efrain provided. If you could just elaborate on that a little bit, I'd appreciate it.
John Gibson
Yes, Ramsey, I think we've been pretty consistent. And I think on all the prior calls I've said, probably as we expected. So we continue to really focus our efforts on the high-end part of our valuable clients, particularly in HR outsourcing there. We continue to maintain both in the PEO and ASO, record retention from a revenue and client perspective there. Where we did see and we have near record retention overall across the business, again, because of that focus that we're having the things we're doing from driving value in our high value customer segments.
As we expected, we did see some other business and when I pull that back, what you're seeing is exactly what I thought we'd see we had a very high number of new business starts 2 years ago. And almost every model, and I don't care whether we're in a recession, good times, or bad times, a business starts in the first 2 years, half of them are gone. And so I'm not surprised when we're saying we kind of expected that to be the case and that's what we saw on kind of the client retention side. But again, even if you look at the client retention side, we're back to where we were pre-pandemic levels. So nothing dramatic there. So I'd say that's more stabilizing and we kind of expect that kind of more typical stable kind of client attrition to occur as we're going into '24.
Ramsey El-Assal
Got it. Thanks so much.
Operator
Thank you. Our next question will come from Jason Kupferberg with Bank of America.
Eric Dray
Hi. This is Eric Dray on for Jason. Thanks for taking the question. I had a question just kind of high-level. We've seen small businesses be really resilient kind of seems like the macro may avoid a hard landing. But curious about kind of trends you're seeing among different client groups. Anything to call out maybe blue collar versus white collar, any color you can add there?
John Gibson
Yes. Look, I think, again, not seeing anything, Eric, that's out of the norm. I think generally, we've continued to see the hospitality when you go back and look at our jobs index. Hospitality has probably been the laggard. Leisure and hospitality have been the laggard through the course of the recession. What we've seen there is they really made a good strong comeback, I would say in the back half of this fiscal year for us and are getting back to what I've kind of level -- employment levels of the other segments. Not really seeing anything, specifically out of the ordinary. Certainly in the low end of the market, you're seeing a lot more of the small companies get back to what we said on the retention side. We were startups, smaller company, finding more pressure relative to inability to pass price, instead of being [indiscernible] by inflation, and then also the credit, the credit situation.
Eric Dray
Okay, great. Thanks. And then on the -- this one is for Efrain. On the float guidance, kind of two parts. What are you thinking about burn interest rates? And then, what are your thoughts on kind of managing duration. I know the question comes up every call, but thought I'd ask. Thanks.
Efrain Rivera
What we're thinking, and then how we're managing, I will break those two. I mentioned in previous calls that I was really concerned about a sharp decline in rates in the first half '24 and the end of this year, calendar year. I don't think that's likely to happen. So at this point, our thinking is that there'll be a couple of rate increases, as we go through the first half of the year, and likely to see some rate decreases as we enter next year. Certainly Jerome Powell's comments recently would seem to indicate that's where we're growing. But I think -- we think our assumption is that in the first half of calendar year '24, our second half, you're going to see rate decreases. So net-net, that's what's incorporated in our guidance. So while we could adjust and play games in terms of where we are with futures, that that's what our thinking is. And as we get through the year in the back half of the year, we'll update kind of where we're at. So as to position in the portfolio, my bias is to go along, as we go through the year to mitigate what in '24 is likely to be a set of rate decreases. I can't call it any closer than that. I think that our numbers kind of support that kind of scenario.
John Gibson
Stephanie?
Operator
Thank you. Our next question will come from Rayna Kumar with UBS.
Rayna Kumar
Good morning. Thanks for taking my question. Can you talk about what booking was?
John Gibson
Hi, Rayna.
Rayna Kumar
Hello. Can you talk a little bit about bookings in the quarter, anything that call out on different customer sizes and products where you're seeing strengths or weaknesses?
John Gibson
Yes. So, look, we actually saw strong demand continuing. I would say, actually, the -- we actually saw some acceleration in the fourth quarter when you look at it. And the back half of the fiscal year was actually stronger than the first half, which it was a pleasant thing. HR services, or HR solutions continue to resonate retirement. We saw a pickup in the rolling digital end of our business in the fourth quarter, which was nice to see. And in fact, I would say the PEO had improvement in Q4 as well, which was an encouraging sign that some of the changes and approach that we've been working on are beginning to get traction. It's early they're and the key part of that season is in the first quarter, which leads into the second quarter. But again, very pleased with the strong demand that we saw across the platforms. I think we got a good set of products and services through strong demand in this environment across all the market segments.
Rayna Kumar
That is very helpful. And then just a quick, really quick follow-up to stay within Efrain's guidelines here. Can you call up the ERTC contribution just for the fourth quarter?
Efrain Rivera
No, we didn't. We think we're going to stick with -- it's 1% to 2% on growth for the full year or so. And then that convert from a tailwind into a headwind next year, that's as far as we go.
Rayna Kumar
Got it. Okay. Thank you.
John Gibson
You're welcome.
Operator
Thank you. Our next question will come from Andrew Nicholas with William Blair.
Andrew Nicholas
Hi, good morning. Thanks for taking my questions. I was going to ask first on kind of M&A within Paychex. If you could just kind of give us an update on your ambitions both in the near-term and medium-term. This is definitely a compound question. But preference between HCM and PEO and anything you could say on valuations?
John Gibson
Yes, Andrew, thanks for the question. Our ambitions remain the same. We're trying to find opportunities to meet our strategic objectives and at the same time, make sense financially. The latter has been more challenging in the environment, I'd say over the past few years. But I think we certainly began to see some change in the market dynamics and our pipeline is beginning to expand with opportunities that I think are more realistic for us to consider.
I don't think our focus has really changed. We're going to continue to look for tuck-ins. That help us kind of add scale in the markets or expand our product suite. We are looking for capability enhancements, particularly in the digital areas, digital capabilities, data, data analytics, HR, HR analytics. And then again, we're constantly looking at numerous adjacencies as the market continues to evolve, and looking for new growth platforms that are adjacent to our current suite of solutions and really help us continue to deliver that, that value proposition with small, medium sized businesses to help them succeed. So again, smart tuck-ins, capability enhancements in the growth platforms. That's our areas of focus. And we're going to continue to be mindful of making sure we're getting good deals [indiscernible].
Andrew Nicholas
That's helpful. Thank you. And then for my follow-up, I just wanted to ask on kind of the margin guide for next year. I think last quarter you spoke to a preliminary target of 25 to 50 basis points. I think, the 41% to 42% range you put out this morning is a decent bit higher at the midpoint. So if you could just kind of unpack that a little bit what -- what's changed in terms of your outlook, if anything? Or if it's just a matter of rounded numbers? And that's totally fine as well, just trying to get a little bit more insight there. Thank you.
Efrain Rivera
Yes, I guess I'd answer that in a couple of ways. Look, March is preliminary, mean that we haven't gone through a plan. I think that John's continued a tradition that that we've had in the company, which is to say, where we can find sources of leverage in the P&L. So obviously, mix has an impact on that, Andrew, as you're aware. As you get more opportunity and more management solutions, that gives you more opportunity. But I would say we went through pretty disciplined process in the planning process to see where there were opportunities to leverage uncover them. And that that's what you're seeing in the guidance.
I'd say one other thing that's really important. The process of planning a year is a 365 days activity. If we get through the first quarter, because we see opportunities both on the investment side, and also on the cost side, we go for it. And we challenge ourselves to find those opportunities. So I think that in addition to the fact that that was a byproduct [indiscernible] byproduct, but a theme of the planning process. We think in those terms, and so because you'd have to go into the year with multiple levers to find leverage if you need it. So we're, as we speak, thinking about okay, how can we even do better or offset any potential issues that might come up in the year. So it means that there's a little bit around -- a little bit of planning and a little bit of DNA.
Andrew Nicholas
Perfect. Thank you.
Efrain Rivera
Yes.
Operator
Thank you. Our next question will come from Kevin McVeigh with Credit Suisse.
Kevin McVeigh
Great, thanks.
John Gibson
Hey, Kevin.
Kevin McVeigh
I'll just have one to make up some time. Hey, Efrain -- hey, pardon me, you talked a little bit about I think, kind of revenue retention versus client retention and revenue retention being an all-time high despite kind of, I think, a little shift in client. Can you help us frame what the delta is there kind of what it is today, and kind of where that's been historically, and I would imagined, probably narrowed over time. But is there any way to frame that a little bit more?
Efrain Rivera
Yes, yes. So, look when it was approaching the mid 80s during the pandemic, but that really is in some ways kind of an outlier. When we reported last year, it's kind of like 1 year post the midpoint of the pandemic, sorry, the midpoint of the pandemic, we were between 83 and 84 and this year we are between 82 and 83. So as John mentioned, we saw some larger losses on the low end of the market. I will frame that in one second. That 82, 83 is consistent with where we've been in prior years, there's nothing unusual about that.
What was unusual during the pandemic was that the number of bankruptcies or what we call involuntary losses was much lower than it normally has been. And there's obvious reasons, I don't need to tell everyone on the call about PPT. So a lot of those clients kind of got through the client base to John's point. What was going on was that you had a pent up [ph] group of very small clients, that were being propped up a bit by funding in some way the losses were higher because of that. And I think we're now back to a more normalized environment in terms of losses.
But I want to make an important point and John referenced it. We put a lot of emphasis on revenue retention, especially among high value clients and what's not different or what is different from pandemic is that our revenue retention is higher than it was pre-pandemic. So we're at record retention levels from revenue, that's where we put our -- that's where we put a lot of our focus on, and I can -- I won't do it, but we could cite many, many efforts that go into retaining our highest clients. So we can deliver approximately 88% revenue retention, that's important. That's an important number for us.
And so while in the past, we talk a lot about unit retention, nothing wrong with that, you want that. The reality is that was becoming -- become much more important that you save, and you retain your highest valued clients. And so while on -- while our unit retention is in line with what it was pre-pandemic, our revenue retention was higher, and it has remained higher and will be an area of focus going forward.
John Gibson
Yes, Kevin, the thing I would add to that, I will remind everybody I go back and -- we go back and look at this over the last 4 to 5 years, when we say pre-pandemic levels, you go back to '19, you got our transcript, what you would also hear in '19 is that on a client retention, we were aligned, we actually had historical high client retention back in '19 as well. So we're returning on the client side to levels that historically, for Paychex would have been historical highs into client retention and then as Efrain pointed out, we've had a lot of focus on what we need to do to drive better retention in our high value segments and we've been very successful to do that. And I think coming out of the pandemic, the value that we've demonstrated to those clients in terms of both our technology enhancements as well as the advisory support that we've given them through very challenging times, I think they rewarded us -- they rewarded by buying more from us. They rewarded us by giving us the opportunity to have a better pricing for those products and services because they see the value and they reward this with the loyalty.
Kevin McVeigh
Very helpful. Thank you.
Operator
Thank you. Our next question will come from Bryan Bergin with TD Cowen.
Bryan Bergin
Hey guys, good morning. Thank you. I wanted to dig into management solutions here a bit more and maybe some of the underlying growth driver assumptions for '24. When we look here, this year, in '23, I see total company client growth of like a .5 in '23. And you're citing increased product penetration, price realization. Can you kind of roll that forward for us here? Can you give us a sense on how you're thinking about the pieces here across the client growth versus pricing versus product with that?
Efrain Rivera
Yes, yes, I would say, Bryan, two things is that we have said that typical client growth in the year is going to be in the 1% to 3% range. We're on the low end of that range, we expect to be middle or higher next year. So that's part of the equation on the pricing side. We're typically in the 2% to 4% range, although on recent years higher than that. We’re on the mid to maybe perhaps a little bit higher than mid-level on the pricing on site. Those are sort of the basic elements, and then you got mix and additional product penetration driving the remainder of that. Now if you start reconciling me, I got to take the negatives too. And the negative is, I'm going to get some headwinds from ERTC, which you will see in -- on the management solution side. So that when you triangulate all those pieces, that's where you get to our 5% to 6% growth.
Bryan Bergin
Okay. How about client employment there? So and I got specifically in 4Q you had [multiple speakers] 3Q and then for '24 as well.
Efrain Rivera
Sorry, I started talking over [indiscernible]. You were saying 3Q and Q4, what were you saying then?
Bryan Bergin
Yes. So when -- as you think about client employment, curious about how you're factoring that for '24. But also, I think you guys were assuming 4Q was going to be relatively flattish from 3Q. Did that play out or was that different too?
Efrain Rivera
Yes, yes, that played out and going into next year, we expect to be flattish. I will say that, I mean, you always have to have an element of caution on the impact of higher rates. I mean, they share the level of their -- that would cause me to get a little bit [indiscernible] concern that I have right now. So we'll have to play that out. And that definitely would have an impact on worksite employee growth. I think it's manageable and we've taken that into account in our plan. But at this point, we're not expecting that is going to change [indiscernible] sure.
Bryan Bergin
Okay, makes sense. Thank you very much.
Efrain Rivera
Thanks.
Operator
Thank you. Our next question will come from Bryan Keane with Deutsche Bank.
Bryan Keane
Hi, guys. Good morning. Hi, how you doing?
Efrain Rivera
Good morning. Go ahead.
Bryan Keane
I just want to -- yes, I just wanted to follow-up on the client growth question. It sounds like you expect it to go up a little bit, higher than it was on the low end of the range, and then it will go up. Is that a function of what you're seeing in the sales channel or is that a little bit of retention just given that maybe some of the smaller clients that turned off during the pandemic, you won't have that same issue as you go into this year?
Efrain Rivera
Yes, Brian, to answer that, as John mentioned, that's generally the level of detail. But we saw a pretty strong unit growth as we -- in the back half of the year. So it wasn't a sales driven issue, it's really more of a retention driven issue based on the factors that we talked about earlier in the call. I -- just to go one level deeper, we all remember that one of the anomalies in the pandemic was that the business starts really, really accelerated. And I think to this day [indiscernible] could completely explain it. And so we benefited from that, that unit growth but as John said, we know a number of those clients are going to go out of business. And after 2 years, we did the analysis that we all looked at, and a lot of those clients did not survive once the PTP [ph] and other government stimulus went out of business -- I'm sorry, once that stimulus was gone. So at that primarily driver, somewhat of a normal situation, I think that will, return to more traditional patterns as we get into next year. That's our expectation.
Bryan Keane
Got it. And the guidance looks pretty consistent. As you look at the revenue and the margins, you're not wildly off from the first half, the second half and sometimes there's bigger changes there. Any kind of key macro factors that you watch that we should be watching that could move it up or down, that could change at least maybe as we get into the second half as we think about the macro?
Efrain Rivera
Yes, I'll let John talk about it too, but what I'd say, Bryan, is look, everyone on the call was worried about a crash landing [indiscernible] '23. And, look, I mean, there was skepticism in the market as to whether we're going to be able to hit our numbers. [Indiscernible] conversations with investors and I assured them with one thing that continues to be the factor that are the environment that we're seeing now, which we're not seeing dramatic changes in the environment, and we would start to see them and exercise the appropriate level of caution as we did. So we're going to look at what's the impact of these interest rates at this point. Small businesses seem to be absorbing them. They seem to be getting what they need to be able to fund their businesses, we don't think that will last forever. Their rates at which it's going to prove to be difficult, I would say what's happening on the macro is really important. The internal stuff, we can manage that, we will manage that. And I’ve said to many people that, look, we have to pivot inside the base, there's a lot opportunity inside the base, we'll pivot inside the base if the external environment doesn't give opportunities for growth. John, do you want to add anything?
John Gibson
Yes. No, I think the other thing that, I think to keep in mind a little bit about the macro, again, we'll get back to the macro side, I look at our small business index, I look at the start of this calendar year, we went the first 3 months, the index actually went up every month. So went up for three consecutive months, and then it sort of stabilized. So we continue to see that. As Efrain said, we probably expected in the fourth quarter, and we're always kind of sitting there waiting for employment to go down and [indiscernible]. So actually, I would say I was actually a little pleasantly surprised at where we were on checks and where we were on worksite employee growth inside the base of clients that we had. So continuing to see that hiring is also an issue. And staffing, it continues to be an issue of our HR concern. So we look at what are the questions and issues that are coming in to our HR consultants, we continue to see that to be an issue.
And I do think you're going to see something [indiscernible] we probably not seeing. Small midsize business owners are scarred by their experience of employment over the last several years and they fought to get back to staffing levels. I think what's going to be interesting is they're going to be very hesitant to let go, because I think they remember what it was like trying to find talent and just simply not enough labor supply here. So I think it's going to be very interesting, who kind of wins this tug of war, back and forth relative to employment.
The other thing that we see is we're seeing a lot of nontraditional labor being tapped by a business as gig workers, contract workers, maybe a little bit more part time. And what I -- what I'm curious about to see are will those be the first things to go. With that [indiscernible] a small business owner is going to let go permanent staffing that they've got, that they're paying every week, are they going to try to write it out by tightening in other areas such as this nontraditional gig employment that's kind of sprung up. So the labor market is a very, very interesting thing I think for us to look at and study right now. And I don't think it sets up for traditional recessionary models that people have built. So that's just my pontification based upon my conversations with what we're hearing from clients and what we see in our data.
Bryan Keane
Super helpful. Thanks, guys.
Operator
Thank you. Our next question will come from Scott Wurtzel with Wolfe Research.
Scott Wurtzel
Hey, good morning, guys and thanks for taking my questions. Just on the expense side, wanted to see if you guys can just go over maybe what some of your top investment priorities are over the next 12 months and sort of folding into that, how you're thinking about maybe incorporating generative AI into your business as well.
John Gibson
Yes, so the investments are in growth and growth those are probably the top two. And then you mentioned digital, I mean, we've been making a lot of investments in the digital area, both in terms of our sales and what we're doing from a go-to-market perspective, which we're very happy with and how we're leveraging technology AI in the back office. And I'm very pleased with several things that we've got going on. So we've been actively leveraging AI for several years across every area of the business, driving efficiency, delivering a lot of our large clients. And one of the things I keep telling people was, we're one of the few players in this industry to have the size of data set that we have.
And I do think in these types of AI, you've got to have a large data set. We're using it in customer service, we're using it in risk, we're using it in finance, we're using it in our HR outsourcing advisory capacity, we're building it into our products, and our retention insights products. So there's a lot of investment that we're making and a lot of learnings that we have in terms of how we can digitize the front office and the front of house and kind of the back office of our business. And so those are -- that's going to be an area that we continue to invest and continue to explore.
Scott Wurtzel
Got it. It's very helpful. And then Efrain just a quick clarification on the [indiscernible] income side with the guidance. I'm wondering if you could maybe help us out with how you're thinking about client balanced growth for the year?
John Gibson
Client balanced growth, roughly in line with wage inflation, which is to say low single-digit.
Scott Wurtzel
Okay. Thanks, guys.
Operator
Thank you. Our next question will come from Kartik Mehta with Northcoast Research.
Kartik Mehta
Hey, good morning.
Efrain Rivera
Hey, Kartik. Are you battling with smoke there in Cleveland too?
Kartik Mehta
Yesterday was a lot worse than it is today. So it's a little bit better today. But thank you for asking, Efrain.
John Gibson
You [indiscernible] Kartik.
Kartik Mehta
Will do so. I'm wondering, just on [indiscernible] control, Efrain I know they've come down obviously from pretty high levels. And I'm wondering if what your expectations are for FY '24, not only for the payroll business, but also the PEO and if you're seeing anything different?
Efrain Rivera
Yes, two good questions. So flattish, I guess is the short answer to what we expect for '24. Don't expect too much in terms of inclined base growth and that's a mix. I think our larger clients are doing fine. And in some cases, adding employees, we look at it. Smaller clients less so and then you got to factor in what your anticipated losses are. So you always tend to lose a little bit higher than what you gain in a given year. And then you expect your incline, your decline from the base to grow the worksite employees. But this is an environment where I don't think it's going to be robust in terms of hiring, in part because of what John said earlier, which is that that many businesses would like to hire that just simply aren't the people who were there -- were available and also figured out how to do it without people, but probably won't be, as John mentioned, less inclined to perhaps get rid of them.
On the PEO, and I'd say also the ASO side, our worksite employee, we have worksite employee growth this year. We expect that to continue into next year. You could see solid works and [indiscernible] growth as the key or rebound going into next year. But overall, and I think that Bryan asked this question, it's not going to be a significant driver of revenue growth, perhaps in PEO, but not on the HCM side.
Kartik Mehta
And then just one follow-up. John, I'd be interested in your thoughts on kind of job openings. We see all these numbers jolts numbers, but seems like employee -- employers have become cautious. So just your perspective on what you really think job openings are as you look at your customers versus maybe what we see in the news.
John Gibson
Yes, I go back to what I said before, we continue to have clients that are wanting to fill open positions. And I don't -- I have not seen that change. I would say that they're being more successful in filling and filling those positions. So we've certainly seen that and we've seen some recovery. I mentioned, leisure and hospitality, in particular, which was well behind and had good recovery in the back half of our fiscal year here. I do think relative to [indiscernible] maybe opening up as many positions, I would also tell you that one of the things that I think did happen is when we were in the great resignation, which was probably a few months ago, seems like forever now, but really only 18 months ago, pretty much a lot of business owners were thinking every position I have needs to be posted, because I've got to assume that I'm going to potentially lose those positions. So I think there was a lot of postings for jobs that people were passively looking for. And I think some of the contraction that we've seen in the postings are more of business owners being a little more disciplined about what am I actually going to hire and being out in the market and focus on that. I don't know if that makes sense or helps you.
Kartik Mehta
It does. Thank you both. I Really appreciate it.
John Gibson
Yes, you’re welcome.
John Gibson
I may add that those individuals that are using our onboarding and recruiting experience inflexed are realizing about a 20% improvement in their time to hire. So just if there's any customers or prospects on the phone.
Operator
Thank you. Our next question will come from Eugene Simuni with Masset Makinson.
Eugene Simuni
Thank you. Hi. Good morning. I wanted to ask a question about the PEO. So, we expected the kind of the deceleration here. And you highlighted again, insurance, health care insurance attach rates is one of the drivers. So I was wondering if you can elaborate a little bit on that kind of where are you seeing softness in health care insurance attach? What kind of businesses I think that'll be helpful to hear just because there's so much variability about around I feel like the PEO industry in terms of this health care insurance rate attached? And it would be helpful to hear specifically in your client base, what you're seeing. And then related to that, as we are looking for the reacceleration in the PEO and as you kind of guiding to that, what gives you confidence that this -- there will be pivot there over the next 12 months?
Efrain Rivera
Hey, Eugene. Let me start and John will provide additional comments. With us, it's less about verticals, although I'll caveat that in a second. It's really more about where we derive revenue on the health care side that flows through the P&L. And that's in state of Florida. So for us on the PEO health care, as it relates to revenue, really, it's a Florida game primarily, and the anomaly and when you talk about Florida, you know immediately that you're going to over index [indiscernible] hospitality. So a bit of what's going on is it depends on new clients coming into the base and whether customers in leisure and hospitality are really interested in offering health care to clients. [Indiscernible] and that's not all clients in Florida to be fair, that's probably too much of a generalization. But it was more of a regional issue than it was I would say, as an effected revenue than it was something else.
So why do we feel more comfortable? Because we have put a tremendous amount of focus on it. And that's not to say that guarantee success. But I would say as we saw what was going on, we took a lot of measures to improve that that aren't going to necessarily again be evident in first quarter but should be evident beyond that. And there were things in which we talked about in prior calls, I won't repeat that. We are somewhat anomalous that we saw people actually in the PEO decided they didn't want health care insurance. We thought our hypothesis was they were feeling some pressure from a wage perspective and perhaps decided that from a total compensation perspective, they were not going to offer health care. But we've taken a number of actions that we think will create better momentum going next year. I'll let John talk about that issue.
John Gibson
Yes. Not much to add, Eugene. I do think it's important to understand on the insurance component there was a trend that we saw happen not just in the field, but also in our insurance agency. In the health and benefits area, which it's not just the client, there's two decision points here. One is the client deciding they're going to offer benefits. And second is an employee deciding they're going to enroll and pay their fair share. And we saw in both cases that clients, particularly clients, [indiscernible] clients were adding an insurance, that's one part of it, right. You should certainly can go and try to get someone to switch from their existing insurance [indiscernible], we saw less people adding insurance -- health insurance as an option.
And then when you look inside, when we went through our normal enrollment period, we found that less of the employees that were offered insurance elected to sign up for it. And so all the things Efrain just said, we saw that happening -- happened in both areas that caused us to go back. And what you can do is you can go back and look at your plan designs, you can look at [indiscernible] plans, you can look at different plans, all of those things. We went through an exhaustive review of every one of our core peer markets to look at every one of our plan designs and look at every one of our offerings to make sure we have the broadest suite. Now those decisions are made.
We're actively out in the market, selling clients on those today, those will go in the July timeframe, if you will. And remember, our enrollment for PEO begins in that July timeframe, it really goes through the January timeframe. So you want to kind of that picked up of that going on. So we've looked at every aspect of it. We've made some modifications and changes where we think it makes sense. We know that the HR outsourcing value proposition is still strong because it's growing at 10%. And we saw strong demand in the second half of the year.
We know that the PEO value proposition is strong because of our record retention and the clients that can afford it and have it are doing well. So we have [indiscernible] some early signs, as I said earlier in the fourth quarter of improvement there. And now we're getting into the heart of it and we'll see that that kind of builds as we go into the second, third and fourth quarter of this coming fiscal year. So, again, we got -- we feel confident that we have the right plans in place. And now we'll go out and execute that in the marketplace and see how it goes.
Eugene Simuni
Got it. Super helpful. And then quick follow-up on some of the comments you made earlier on retention bookings, and client growth tied altogether. So when we're thinking about your guidance for next fiscal year, and Efrain you mentioned that you expect client growth to pick up from the kind of 1.5% level with so this year. Would that be a result of both improved retention and improved sales? Or is it primarily one or the other that will drive improvement in client growth?
Efrain Rivera
No, you got to do both. I mean, over relying on one -- long story short, both sides of that equation pretty powerful incentives to make sure that they occur. You don't always hit it a 100%. Sometimes you hit it more, but you got to get both sides -- to both sides to work to get the right net client gaining number.
John Gibson
Yes, And I'll add on to that. Again, I would say the second half was stronger than the first half from a sales unit perspective. And if you dig under our retention numbers first half to second half, our controllable losses improved in the second half. So, again, what we can control and I do believe that there's a degree of what I call flushing out of the bankruptcies from 2 years ago in terms of us looking at clients that are kind of on the financial edge, and whether or not we want to continue to or feel confident we can continue to do business with them, those type of things are kind of flushed out of the system.
We've been investing a lot in what we can do to control, what we can control, regardless of the environment. It talks about AI. We've been deploying a lot of very sophisticated AI models inside our service organization, and inside our client base that are giving us very strong indications of where we may have a client at risk. And we're demonstrating success and demonstrate success in the back half of the year of being able to intercept those and turn those situations in the positive retention story. So, when I look at the retention story and the sales story, first half back half of last fiscal year, I feel good about the progress we're making there.
Eugene Simuni
Got it. Thank you very much.
Efrain Rivera
Welcome.
Operator
Thank you. Our next question will come from Peter Christiansen with Citigroup.
Peter Christiansen
Thank you. Good morning.
John Gibson
Thanks for your question. How are you doing?
Peter Christiansen
Good. Efrain, I was curious about the portfolio repositioning and not [indiscernible] large, but should we expect I guess future maybe operating outperformance to be reinvested for portfolio repositioning, maybe layering to rates faster. And then as a follow-up to that may be looking at prior cycles, is there a relationship between interest rates and competitive pricing? I would imagine this float income becomes more a bigger part of the business model that gives more leeway for competitors to be more aggressive on the pricing side. Any comment there would be helpful. Thank you.
Efrain Rivera
Those are two absolutely fantastic questions, literally. I mean, wow. Okay. So let me take one. Part of what you do, part of what you work with the team is to understand what you need to deliver and understand what your degrees of freedom in delivering them are. When you perform at a certain level, you have more degrees of freedom, not surprising. So it's all my colleague CFOs out there who struggle sometimes because they don't have the degrees of freedom, I feel it.
When you do have the opportunity to reposition because performance gives you that option to look at it and figure out, we're pretty disciplined here is the NPV of doing that better than the NPV of not doing that. And so, in the fourth quarter, we thought there was a positive NPV to that approach. When we do it in the future, I would have to see there's other [indiscernible] issues that come into play, which is how much -- what do you want your max duration to be, and are you picking the right time. You never get it right, because you're trying to predict other behaviors. But I think that we've done a good job.
To your point, this is really kind of the interesting question that we're wrestling with is, so we don't know -- I can give you a sense of what happens when interest rates get to 6%. I know because I studied that pretty extensively when I came into the job now 12 years ago. And two things you got to worry about or be concerned about there. Number one is that you can attempt to be pretty aggressive on pricing in that kind of environment. So if interest rates are high, you can take it as a signal the price high. But what I find at least in our history was when you did that, and when you get that overly aggressive in pricing in '07, '08, you're going to pay a price on retention, it just it follows. And at least that's the conviction that I have.
Now maybe you leave some money on the table by not pricing even more aggressively, but I think that there's a balancing act that -- there for clients, because you're trying to create a level of trust in terms of the value that you've delivered to them and there is a tipping point at which that level of trust gets breached. So we need to look at that closely. The second part is, as interest rates are now creeping up, if they were to go over 6% now that starts to becoming a threshold where it becomes more difficult for small businesses and many medium sized businesses to operate from a financing perspective. They got to look for other options. That's one thing by the way that we look -- we're looking at very closely, how do we help clients. ERTC was a great example of how we did that this year. That's why we think it did so well within the base. But you got to play those two elements off each other in determining what the price and how to help the clients navigate to an environment where interest rates are high. So hopefully that answers your question.
Peter Christiansen
Yes, certainly it does, the balance. That's certainly a challenge. I would imagine, I don't envy you. But thanks for the insight. Very helpful.
Efrain Rivera
Yes. You’re welcome.
Operator
Thank you. Our next question comes from Tien-Tsin Huang with J.P. Morgan.
Tien-Tsin Huang
Hi. Thanks. Good morning, John, Efrain. Just want to ask on PEO. Again, I know it was growing in line with peers in the quarter here, are you looking for some acceleration? You talked through that with Eugene. How much of the acceleration again, just to simplify is coming from volume versus rate versus mix, just want to make sure I understand the components?
Efrain Rivera
Well, I will take that Tien-Tsin. So, look, I want to kind of clarify something to start, which is that we have worksite employee growth in the PEO. It's not as though we contracted in that area. We think we're off to a pretty strong start actually in terms of at least our bookings activity. But we expect relative to last year, for health care attachment to be higher than it was. The contribution from health care attachment will be higher than it was last year. We just couldn't hit the numbers that we hit last year. We had also seen simultaneously that the base business [indiscernible] was going down [indiscernible] in very difficult challenging. So we expect growth in the business, growth in clients, we expect growth in attachment that's what's really kind of driving the [indiscernible] less so Tien-Tsin, I think that's less of an issue. Typically, just to remind everyone, our PEO clients are typically upper 20s and low 30s. In terms of clients, we're not trying to go down [indiscernible] necessarily. But it's really going to come from more clients that are [indiscernible].
John Gibson
And we're just really not expecting any type of major pricing increases either on the health side or on the general administrative fee side and it's going to be well within our normal course. Although I would mention that on the health care side, our normal course is in the single digits, which far [indiscernible] on an historical basis with health care inflation. So that's a benefit and a retention benefit for our clients. The other thing probably we haven't talked about, we have a thesis around is if we had very good HR outsourcing growth, and one of the things that we saw because of the insurance anomaly was a tilt towards our ASO product. And so we look on the aggregate, we’ve very, very solid year, our HR outsourcing offerings, ASO and [indiscernible] and PEO, but we tilted towards one versus the other. We're actually -- we actually, I look at that now and say, wait a minute, I now have more clients that love our technology, love our HR and now it's just a matter of finding the right health care solution and going back and upselling them into the PEO.
We have a pretty concentrated effort on that. Actually that’s another area where we're using AI where we are actually analyzing the deduction feeds from existing payroll and ASO customers so that we can triangulate what we think they are currently paying for health care. And then using the demographic data that we have to do AI-based underwriting to give us a computer based targeted list of clients that we can approach within a really almost prepackaged value proposition that says hey, we think we can help you save money on your insurance. If you join our PEO, you're already a ASO client of ours, so we're just getting -- we've been working on that model for 9 months as part of our efforts and that's an area to that we think there's opportunity inside our base to go back with our insurance value proposition in the PEO and see if we [indiscernible] some clients over.
Tien-Tsin Huang
And that's the beauty of Paychex having both ASO and PEO. So I guess as my follow-up, any change in your appetite on the whole self insured versus the fully guaranteed PEO model to the extent that you can better maybe control the insurance packages. And I know Efrain [indiscernible] try to trick you guys answer the consolidation question, but I'll ask it to. So right appetite to do acquisitions on the PEO side? I know it's been, what 5 years since you did [indiscernible]. You said tuck-ins, but I know there's been some news in the market around consolidation, I know that probably is a multi part question. So I'm on the bad guys.
Efrain Rivera
No, no Tien-Tsin.
Tien-Tsin Huang
Just get anyway, thank you.
Efrain Rivera
[Indiscernible]. Hey, let me answer the first one. I get that question and I think investors are sensitive to the level of balance sheet [indiscernible]. So when we originally did this a number of years ago, I said I don't want to be recorded quarters when we blew up the balance sheet because we were doing the wrong things on the insurance side. I was -- [indiscernible] resourced. What I mean by that is just taking excessive risks. So everyone knows what they get when they invest in a company. And we have managed that without any hiccup because two things help us. One is that even though we don't risk, we don't make money, we make very little money on health care insurance. And that removes the incentive to necessarily push insurance, cheap insurance as a way of selling PEO, that's a fool's game. We don't play it, we will never play it.
Having said that, as we get to a certain density in markets and many of people on the call know what the big markets are, we look at that we evaluate whether a -- [indiscernible] risk and insurance in a market would make sense, I won't forestall that we would not, but it will be subject to the same very tight criteria. And the other part is the reason for doing it would not be necessarily to increase revenue, but for us to capture share in that market. So nothing imminent, but that's our thought process. I think we've got that have a track record in terms of managing it in an appropriate way. I'll let John talk to PEO and M&A.
John Gibson
Yes, just to add to that, I don't think that our current approach to insurance in the PEO was a driver to what we saw last year. And so I don't think taking more risk is necessarily the solution. I think that our current approach has demonstrated that we can grow at industry rates without exposing ourselves to additional risk. And so to Efrain's point, I don't see that as a magic [indiscernible]. I don't think you need that to grow the PEO value proposition to Efrain's point to the degree in which we thought it could accelerate growth in some way and the risk could be balanced. It's something to consider, but not something that we're looking at.
I mean, I think in terms of the PEO M&A front, we haven't done much in 5 years. It's obviously a very attractive industry for private equity to pay very high multiples for which -- for in my opinion, not much capability. When we made the acquisition of Oasis, we were looking at those getting significant scale on the PEO and capability. We got that with Oasis. We were typically a smaller kind of regional PEO and we [indiscernible] national scale to get there, we're now top player in the industry. So I think what we would be looking forward is tuck-ins in markets. Would that make sense? If we were going to add a capability, right, but a capability in terms of something different in the PEO that's interesting. But, again, when I continue to see as we're involved in and know about almost every deal in the industry, I still think the multiples are a little high for what they would bring value and we have enough organic and inside the base opportunity for us to continue to invest our dollars.
Tien-Tsin Huang
Awesome. Thanks for the complete answer. I promise just one question. Thank you guys.
Operator
Thank you. Our next question comes from James Faucette with Morgan Stanley.
James Faucette
Hey, good morning. Just a couple of quick follow-up. Hey, thanks. Just a couple of quick follow-up for me. On the out of business commentary, I understand kind of the conditions there where you maybe were below normal, especially during the height of the pandemic, and that's normalized. I'm just wondering, if right now you would characterize that out of business run rate as being more elevated still, or is it kind of come back more into line with what you would expect to be kind of normal?
John Gibson
It's back to normal. And again, I go back to say, it's back to normal pre-pandemic '19, which again were at reasonably, historically low levels for us, if you went back historically before that. So, look, there was a big surge in new business starts, right at the start of the pandemic. And we knew in our models, whether or not there was recession, whether or not interest rates were 1% or 6%, those businesses, a fair number of them were not going to survive after 2 years. And so we didn't know whenever it's going to come, but I think we knew what was going to come, I think we've seen that begin to flush through, we've kind of returned back to what I would say are more normal business start levels. And again, business starter is still reasonably solid. We're not seeing a dip in business starts. Again, the big spike, we're now back to where we were kind of pre-pandemic, which again were very, very solid and conducive numbers for growth in our business before the pandemic.
James Faucette
Yes, yes. No, that makes sense. Appreciate that. And then just a quick question to make sure that we're thinking about business sensitivities correctly. If we were to see macro deteriorate further, which of the underlying verticals, whether it be payroll, HCM software, retirement, HR management solutions would be hit hardest versus what would be most resilient. I think we have some ideas there. But I just want to make sure we're thinking about that correctly.
Efrain Rivera
Yes, I'd say -- so you got two points of comparison, kind of what happened in 2007, and '08 and then what happened during the pandemic. What we saw during the pandemic was that on the PEO side, PEO was our base, at least, a PEO client shed employees more quickly. I was surprised by the speed with which they did it. I think you'd see more of an impact there on the PEO, if you saw more of a sharp downturn. And a garden variety of softness, probably not. And then second, James, it will see but it would go back certainly due to pandemic you saw employers start to shed clients and shed employers, I should say, shed employees. Interestingly enough, what was a little bit anomalous during the pandemic, we didn't see huge client losses. But what we did see them drop employees. And so when -- then you'd see an impact, I'd remind everyone that our model is not a pure people model, subscription plus people. And so we have some insulation in the event that there's a downturn and overall unemployment levels fall. And finally, last caveat, we do have the ability to pivot in the base, which we did during the pandemic, which helped to mitigate the impact of what was going on in the economy as a whole.
John Gibson
Yes, and I would probably say we're actually more effective in terms of both our capabilities, [indiscernible] to be able to target inside the base, our capabilities from a sales and marketing and digital perspective inside the base than we were in any of the -- in the prior downturn. And we just have gotten very, very effective in driving product penetration and identifying opportunities within our client base where we can add additional value with a pretty broad set of products and services.
James Faucette
That's great. Appreciate it.
Operator
Thank you. Our next question comes from Mark Marcon with Baird.
Unidentified Analyst
Its [indiscernible] on for Mark. Thank you for taking our questions. So I'll just leave it at one. Retirement solutions continues to see strong growth and clearly has some nice tailwinds. Can you talk about some of the measures you're taking to capitalize on the opportunity provided by both the SECURE Act as well as state mandates?
John Gibson
Yes, so as you know we're a leader in small and midsized businesses in terms of the number of plans we manage more retirement plans than any other company. For the [indiscernible] year, we actually have prepared and supportive businesses, more businesses than any other provider. So we are actively already educating our existing customers, and have a variety of digital marketing programs in the market. I think you'll continue to see more aggressive positioning of Paychex in the 401(k).
We're looking at how it can play a bigger role in our bundles, and all of our payroll bundles as well, because again, what we're finding is given both the state mandate coupled with the SECURE -- the SECURE Act 2.0 we're literally, if you're a company of 20 employees, and we're working on trying to make some changes to that legislation that actually drop it down even lower than that, we can start up a 401(k) plan, and basically at no cost to you and you can then provide up to $1,000 of match to your employees, and get that money back as well.
So when you -- this is like one of those ERTC moments where our value proposition of what we can go to a small business owner and say, you can have a valuable benefit that's going to help you retain your employees, help you attract employees and [indiscernible] it's not going to cost you anything to get it started. We think there's a powerful value proposition. And like I said, we're already the largest -- we already know how to do this. We already have the sales and marketing capabilities and operational capabilities to do this in a very efficient and effective way. And so we're going to continue to capitalize on this as we go into this fiscal year.
Unidentified Analyst
Great. Thank you for the color.
Operator
Thank you. Our final question will come from Samad Samana with Jefferies.
Samad Samana
Hi. Great. Thanks for -- hey, good morning, guys. Thanks for squeezing me in. So I just wanted to ask on maybe your own sales organization. Can you help us think through just between the last couple of years being strong and then us entering, let's say, a slightly different environment, maybe looking forward. How maybe the sales organization performing versus quota [ph] in fiscal '23? And maybe what assumptions around quota you're thinking for fiscal '24 in terms of that quota increases for your sales organization?
John Gibson
Well, as I said, we were very pleased with the record setting year that we had in sales execution. It really was a stellar year from a sales performance perspective, my hat's off to the entire team. And as I said, the back half was stronger than the front half. And given that momentum we have coming out of there, the investments we made in the fourth quarter in terms of marketing, also a lot of work on what I would say is go-to-market support for our sales teams. The things we're doing relative to sales training and sales effectiveness tools that we invested in the fourth quarter, given the momentum, we've seen our sales team, it's readily and happily accepted higher quotas for fiscal year '24.
Samad Samana
Appreciate that. Efrain, I'd love to ask you another PEO follow-up question, but I'll [indiscernible].
Efrain Rivera
Go ahead. I will give you one.
Samad Samana
I’m joking. I’m going to [indiscernible] question. You guys have a great day. [Indiscernible]. Thanks, guys.
Efrain Rivera
Yes, thanks.
Operator
Thank you. There are no additional questions at this time. We'd like to now turn it back to our presenters for any closing remarks.
John Gibson
Okay. Well, I'd like to thank everybody for being with us today. I know probably many of you are starting to head or intended or about to head to the 4th of July weekend. Hope you have a great time with your family. Thank you for your questions and support. I want to reflect again on this past fiscal year, certainly a transition year for me. Coming in -- into the new position as CEO, an absolutely phenomenal year for the company. The employees did a great job navigating a very complex fiscal year, and for the company to achieve that $5 billion milestone is really a testament to their hard work. And to do it, it's the speed we did it during the global pandemic.
It's something to say, I was reflecting last night as I was looking back over the last 5 year results across the board and I go back and anchor myself the fiscal year '19, which is hard to remember that was before the pandemic and I looked at our fourth quarter and I looked at our full year statistics and when you go down there and see we had better revenue growth, better profit growth, better retention metrics that are HR outsourcing metrics, that are new sales revenue, better new sales unit rates of growth in the fourth quarter of this past fiscal year and the full year than we had in fiscal year '19.
We not only weathered the pandemic, but I think we actually came out of the pandemic in a stronger position across the board. And I just want to thank the 16,000 employees at Paychex for making that happen. And hope you all have a very nice 4th of July weekend. Thank you very much. Have a great day.
Operator
Thank you, ladies and gentlemen. That conclude today’s presentation. You may now disconnect.
