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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 an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one keys on your touchtone phone. Please note that this call is being recorded and that I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Mr. Martin Musi, Chairman and Chief Executive Officer. Sir, please begin.
Martin Musi
Thank you, and thank you for joining us for our discussion of the Paycheck's fourth quarter and fiscal year 2022 earnings release. Joining me today are Efren Rivera, our Chief Financial Officer, and John Gibson, our President and Chief Operating Officer. This morning, before the market opened, we released our financial results for the fourth quarter and full year ended May 31, 2022. You can access earnings release on the Investor Relations website, and a 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 the website for about 90 days. We will start today's call with an update on business highlights for fourth quarter and the fiscal year. Efren will review our financial results and outlook for fiscal 2023, and we will then open it up for your questions or comments. We are very pleased to close out our fiscal year with yet another strong quarter. Our successful fiscal 2022 results reflect strong execution across the company. This includes our sales teams highlighting our value proposition, our service teams in retaining clients, our cross-functional partnership to get new products in front of clients quickly, and a solid success in HR outsourcing and in the mid-market. Our adjusted diluted earnings per share growth of 24%. reflects both strong revenue growth and margin expansion to an operating margin of approximately 40% for fiscal 2022. Our focus on cost control, lower discretionary spend, and operating efficiencies has allowed us to both invest in our business and expand operating margins. Macroeconomic trends have been positive this year, but with inflation at a 40-year high, there are concerns for potential of a recession in the near future. We continue to monitor key leading indicators for any signs of a change in the macroeconomic environment, but have not seen any signs of deterioration at this time. Typically, the first signs of a macroeconomic recession would be a decline in employment levels at existing clients, an uptick in non-processing clients, or a slowdown in sales activities. These indicators continue to trend in a positive direction. The latest Paychex IHS Small Business Employment Watch reflected a 12th consecutive month of increasing hourly earnings gains, though we did notice slowing a bit of the pace of job growth in May. However, this is more reflective of being near full employment and the difficulty of finding employees. Job growth at U.S. small businesses remains strong in the face of a tight labor market and inflation pressures. Earlier this year, John Gibson was appointed President and Chief Operating Officer. John has been leading our service operations since 2013, and we're glad to introduce you to him on this call and have him participate. I will now turn it over to John, who will give us an update on our sales and service performance. John? Thank you, Marty.
John Gibson
I'm happy to be joining all of you today on this call. and provide an update on our performance both for the fourth quarter and full fiscal year 22. We finished the year with over 730,000 total payroll clients with growth driven by both strong sales and retention. In addition, we now service approximately 2 million worksite employees to our ASO and PO offerings with 18% growth in the fiscal year. We had a record level of new sales revenue for both the fourth quarter and full fiscal year. Our sales teams truly executed across the board, from digital sales in the low end and continuing momentum in the mid-market and very particularly strong demand in HR outsourcing and retirement. This reflects the strength of our value proposition and was aided by the improved sales productivity by our continued investments in demand generation and sales tools. Our service teams have worked tirelessly to both support our clients and our sales growth throughout the year. We are very pleased with our revenue retention, which was comparable to our pre-pandemic record of last year. We have continued to make strong progress in hiring, and we actually accelerate some hiring into the fourth quarter to ensure we are fully staffed and ready to execute our goals in fiscal year 23. We believe that by partnering with our clients and remaining agile and flexible in how we meet those needs, we will provide them the ability to focus on running their business and increase their success in navigating today's very complex business environment. Their ability to rely on paychecks to make the complex, simple result and their continued success and will, of course, then lead to continued elevated retention that benefits everyone. I'll now turn the call back over to Marty.
Martin Musi
Thanks, Jen. We continue to help our clients deal with the issues they consider most pressing. We were recently recognized for doing just that by receiving the HR Tech Award from Lighthouse Research and Advisory for the best SMB-focused solution in the core HR workforce category for the third consecutive year. What stood out about Paychex Flex was our ability to rapidly respond to changing conditions, delivering a product that is consistently up-to-date on the latest requirements. We have been able to help clients navigate challenges, including recruiting and retaining talent during the great resignation, gaining access to government stimulus programs like the Employee Retention Tax Credit, enhancing benefit offerings, and transitioning to a digitally-enabled distributed work environment. Our strong and resilient product suite of HR, payroll, insurance, retirement, and PEO have been strategically designed to help businesses maximize every opportunity presented to them. We continue to see expanded utilization of our recruiting and applicant tracking solutions designed to help businesses find talent in a low unemployment environment. Our deep integration with Indeed is helping our clients gain access to a strong set of candidates. Over 70% of the client employees hired Through our Flex Recruiting and Applicant Tracking module, we're sourced from Indeed, the world's largest job posting site. Our retirement solutions are also experiencing record demand due to state mandates and the need for differentiated benefit offerings to retain top talent. The introduction of our pooled employer plan further differentiates our solution set. We now help over 104,000 businesses and over 1.3 million client employees save for a dignified retirement with industry-leading mobile technology, which allows employees to enroll in their retirement in just four clicks. HR has historically been tasked with helping businesses stay compliant and manage their talent. With PaychexHR, we deliver on these goals while also helping businesses operate more efficiently. PaychexHR helps businesses replace paper with modern, easy-to-use digital processes through our cloud-enabled FlexMobile technology. Given current challenges with hiring and the rising costs brought on by inflation, we address head-on the need for businesses to operate more efficiently. Over 1.7 million client employees were onboarded through a completely digital experience during fiscal 22. Maximum gains in efficiency are obtained when the leading technology we bring to payroll, HR, and time collection and scheduling are brought together. Paychecks pre-check debuted in January, and the early adopters of pre-check have benefited from the proactive approach of letting their employees preview and approve their checks prior to processing. Prospects have been excited about the time savings and problem avoidance that comes with PreCheck. We also continue to innovate in the PEO space. Paycheck's PEO offers a continuum of benefits that is unique to our clients, from traditional health, dental, and vision funded by the client, to comprehensive employee volunteer packages, including options for employees to purchase anything from critical illness policies to pet insurance, to new and emerging benefit offerings like student loan subsidies, robust benefit offerings designed for part-time employees, telemedicine, and mental health counseling. Our Paychex PEO provides a differentiated approach to benefits designed to help our clients attract and retain top talent. Managing cash flow is also a top priority for businesses as they are struggling to address the impact of supply chain issues and rising inflation. We continue to find ways for customers to access government stimulus and including helping our clients gain access to over $8 billion in employee retention and paid leave tax credits. This builds on the momentum of our $65 billion of PPP loan program initiative in 2020. Our award-winning PPP forgiveness tool has been instrumental in helping our clients transition 96% of those loans to full loan forgiveness. At Paychex, we know our employees are critical to who we are and what we do, and I believe that our focus on employees and their well-being is helped us manage through the competitive labor market. We are identified as one of the America's Best Employers for Diversity by Forbes Magazine, and we're recognized by Business Group on Health for offering one of the nation's top health and well-being programs with the Best Employers Excellence in Health and Well-Being Award. As fiscal 22 came to a close, I'm very proud of the excellent results we had for the year and excited about our continued growth. I want to thank our 16,000 employees who are key to our success and have done a tremendous job in this ever-changing environment. With that, I will now turn the call over to Efren Rivera to review our financial results for the fourth quarter and fiscal year, as well as our guidance for fiscal 2023. Efren.
Jen
Thanks, Marty, and good morning to all of you. It's great. to join you at the end of one of the most successful years in the company's history. Despite the success, what you have from us and will always have is a team that's grounded and will continue to work to deliver shareholder returns that lead the market. I'd like to remind everyone that today's conference call will contain forward-looking investment statements. Refer to the customary disclosures. I'll periodically refer to some non-GAAP measures. Please refer to the press release and investor presentation for more information. They're pretty modest adjustments. I'll start by providing a summary of our fourth quarter financial results, quickly hit on full-year results, and then provide some guidance for fiscal 23. For the fourth quarter of fiscal 22, as you saw, both service revenue and total revenue increased 11% to $1.1 billion. Management Solutions had another strong quarter, increasing to 12% to $845 million, driven by higher revenue per client and growth in our payroll client base. The higher revenue per client reflects product attachment across our HCM suite, higher employment levels within our base, pricing revenue from ancillary services, including our ERTC service. ERTC revenue reached approximately 1% of total service revenue. That's for the year. While we do not anticipate this revenue stream to continue at that level, there still remains a significant opportunity both inside and outside our base. PEO and insurance solutions revenue increased 10% to $284 million driven primarily by higher average worksite employees and health insurance revenue. Interest on funds held for clients increased just 2% for the quarter to $15 million due primarily to growth and average investment balances. Note that while recent rate hikes did not have a significant impact on the fiscal quarter, they will provide a tailwind for next year. Total expenses increased 11% to $750 million. The growth in expenses resulted primarily from higher compensation costs due to increased headcount to support our growing client base, wage rates, and performance-based compensation. In addition, we continue to invest in our products, technology, and marketing. And I just want to call out the margin in the quarter. We made very deliberate choices in the fourth quarter to invest back in our client base and among our employees. That's why all of the flow-through did not go down to the bottom line, and that was a deliberate choice that we think leads to the future sustainability of the business, and we think we're positioned very well as a result of those choices. Operating income increased 11% to $394 million with an operating margin of 34.4%. Adjusted operating margin was flat for the reasons I just said, and we anticipated some hiring and marketing spend and pulled that into Q4. Net income increased 13% for the quarter to $296 million and diluted earnings per share increased 12% to $0.82 per share despite all of that investment. Adjusted net income and adjusted diluted earnings per share both increased 13% for the quarter to $295 million and $0.81 per share respectively. As I said, the adjustments were relatively modest. Full year fiscal 22. Let me touch on that quickly. You saw total service revenue and total revenues both increased 14% to $4.6 billion. Expenses, including one-time costs incurred during the prior year, increased 8%. Operating income and adjusted operating income increased 26% and 23% respectively to $1.8 billion. Adjusted operating margin was 39.9% and expansion of 310 basis points over the prior year. And I just call that out. you will search high and low to find companies that are at that level. We delivered that. We delivered that while investing in the company because we think that we're not playing a game for the next quarter or the next year. We're playing a game for the long haul. That's what you do when you're that kind of company. Diluted earnings per share increased 27% to 384 per share. Adjusted diluted earnings per share increased 24% to 377 per share. I'm really proud of our financial position. We delivered all of that, and our financial position remains rock solid with cash, restricted cash and total corporate investments of $1.3 billion. Total borrowings were $806 million as of May 31. Cash flow from operations was $1.5 billion during the fiscal year. We translate earnings into cash. That's what we do. Free cash flow generated for the year was $1.3 billion. up 20% year-over-year. So earnings and cash flow were really strong this year. Given the strong performance and our commitment to returning capital to shareholders, in May, we increased our quarterly dividend 20% to 79 cents per share. And as many of you know, we have one of the leading dividends certainly in our sector and industry. And during fiscal 22, we paid out a total of $1 billion in dividends And we also repurchased 1.2 million shares of Paychex common stock for $145 million. Our 12-month rolling return on equity was a superb 45%. Now, let's talk about 23. I'm going to turn to the upcoming fiscal year. And our current guidance is as follows. Management solutions revenue expected to grow in the range of 5% to 7%. PEO and insurance solutions is expected to grow in the range of 8 to 10%. Interest on funds held for clients is expected to be in the range of 85 to 95 million. And let me just call out that this reflects increases in line with what we understand the Fed is saying through the end of this calendar year. What does that mean specifically? It means that we think that interest rates by the end of calendar year are 2022 will be approximately three and a quarter, give or take, and we are assuming that in our plans at this stage. Total revenue is expected to grow in the range of seven to eight percent. Adjusted operating income margin is expected to be in the range of 40 to 41 percent. Not only did we deliver a 300 basis point increase. We are committing to additional leverage as we go into next year, despite having made a lot of investments in the business as we've gone along. Adjusted EBITDA margin is expected to be another stellar 44%. Other expense net is expected to be in the range of 5 to 10 million, just so you all remember. That is a combination of both interest expense less the gain, the income on the portfolio. That's why it's 5 to 10. We expect that we will see income from the portfolio offset some of the interest expense. Our effective income tax is expected to be in the range of 24 to 25%, and adjusted diluted earnings per share at this point. We expect to grow in the range of 9 to 10%. This outlook assumes the current macro environment, which, as all of you know, has some uncertainty. We, like you, week to week struggle to understand sometimes what are the signals that are coming out of the federal government. I want to reiterate something that Marty said. The indicators in our business are strong as we exit the year, so that's not a concern, certainly, in the first half of the year. in as much as we see it right now. Second half, we will see. So where's inflation gonna be? Don't know that. What is the Fed exactly going to do? We think we have some indicators. We will see what they end up doing. We obviously, given all of those comments, have better visibility into the first half of fiscal 23 than the second half. So here's what we think about the first half. In the first half of the year, at this stage, we expect total revenue growth to be in the range of 8 to 9% with an operating margin of approximately 39%. That's what we think will happen in the first half. And then for the first quarter, getting a little closer, we currently are anticipating total revenue growth will be in the range of 9 to 10% with adjusted operating margin in the range of 39 to 40%. Of course, all of this is subject to current assumptions, which are subject to change, and we'll update you again on the first quarter call. Let me refer you to the investor slides on our website for additional information. And with that, I will turn the call back to Marty. Thank you, Efren.
Martin Musi
Operator, we'll now open it up for questions or comments.
Operator
Yes, sir. At this time, if you would like to ask a question, please press the star and one keys on your touchtone phone. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is star one to ask a question. And our first question will come from David Toggett with Evercore ISI.
David Toggett
Thank you. Good morning. I appreciate all the helpful call-outs, Efren, on fourth quarter margin impacts. Could you frame in your fiscal 23 revenue margin – revenue and margin guidance specifically three things? First, what impact are you assuming from inflation on wage and other expenses? Second, if you could quantify your fiscal 23 price increase. And third, if you could bracket for us your expectations on – Client revenue retention, you know, we're coming down from the pandemic-driven peak. How should we think about year-over-year change in client revenue retention, FY23 versus FY22?
Jen
Thanks. Okay. Hey, David, thanks for the questions. By the way, that triple header there could take us about 30 minutes. We'll try to make it. So I'm going to let Marty talk to the inflation question, because I think that's a good one. And and kind of how we think about it in the year. It's baked into the numbers, obviously. We won't quantify a specific number, but we'll tell you about what we're thinking about with respect to inflation and how it's affecting us, how we expect it will affect us.
Martin Musi
Yeah, I'll touch on it, David, and Efren can jump in any place. I think, you know, from an inflation, most of us, most of our expenses obviously are wage. We're not really impacted, obviously, by a lot of material impacts, which is very good for us. Wage stuff we've captured in these numbers, we think the wage increases are a little higher. As Evan mentioned, we took some steps in the fourth quarter that some were one-time, other were wages that we built in a little bit higher from a competitive market standpoint. The one-time things were some year-end bonuses and so forth that we did given our very successful year for employees. So we think we've captured it very well. Wages are a little bit higher than than we would normally go. That's expectation. That happens in this first quarter, basically, that the wages hit, and we think we've captured them well. Other than that, really not an overall large impact. We've controlled expenses very tightly, even coming out of the pandemic. Things that we learned and experienced there with Working from home, having sales remote, much less T&E costs, we've been able to continue that trend yet still invest in the business. So I think the guidance you have there is very strong from a standpoint that we've got those inflationary numbers in there.
Jen
Yeah, so I think the thing I wanted to call out that Marty mentioned is that we – in the fourth quarter took a lot of actions that we think position us very well for 23. So I think we've captured as much as we know right now. There's always some room to make further adjustments, but the adjustments from an inflationary standpoint are really around wages for us. So I think we've captured that. On the price increase, we have always said that we're in the 2% to 4% range. I would say this is a year that certainly was at the high end of that range. and it varies depending on the product. I think the key thing there is to get the right mixture of value and price, and it's not just about raising prices. It's also about delivering better value. So I think we're good there. And then on the client retention, we had a really good year. John mentioned earlier that our pandemic high was approximately, was a record, and it was approximately 88%. When we closed the books this year, we were at approximately 88%. So we had a really good year from a revenue retention standpoint. There's lots of elements to that, but I think we made a lot of strides from where we were probably three, four, five years ago. So those are the answers to your question, David.
David Toggett
And then, Efren, what are you assuming for FY23 client retention? Can you sustain the 88 or are you assuming some step down?
Jen
I think it's comparable. I got to say that, you know, it wouldn't be surprising to see a little bit of slippage from that number simply because I think we're transitioning into a more normalized environment where you're going to see lots of competition. Our assumption is in our plan is that discounting will go up a bit because of the level of competition. So everyone's come out of the pandemic swinging. I think some people are in better shape. Others are wobblier. We think we're in pretty good shape, and we're in a position to defend pretty well. The other thing I would say on that that's really helped us in the year is we had a really strong year in the mid-market. and I'll let Marty talk to kind of what happened there because that's really helped us too.
Martin Musi
Yeah, on the revenue retention side, it's a good point to make that we'll make probably a couple times on this call. The mid-market really picked up, and, you know, as we said probably a year ago, there was kind of a pent-up demand that we saw a year ago where people had not made some decisions. That opened back up, and we've been winning a lot mid-markets. The strongest year we've hit in mid-market probably in our history, and I think it's a great combination of sales execution, the products, and the full suite of products that we're offering that is really tailored to exactly what clients are looking for now. So we've had a lot of success there, which certainly helps on the revenue retention from a go-forward standpoint. Not only are we selling better in that mid-market, but we're retaining in a very strong way as well.
David Toggett
Understood. Thank you very much. Thank you.
Operator
Our next question will come from Kevin McVey with Credit Suisse.
Kevin McVey
Great. Thanks so much and congratulations. Hey, I don't know if this is for Marty or Efren, but clearly the retention feels like it's structurally at a higher level. Like it may have been flowed within a higher level of range. So maybe just help us understand kind of what drove that. Was that kind of just the service post-COVID or? more robust product offering. Is there any way to kind of think about what drove the structural? And again, realizing it probably comes off, but it feels like you're in a structurally higher level clearly than where you were in kind of 07.
Martin Musi
Yeah, I'll start. I definitely think, Kevin, that it You know, there's consistency there. So I think structurally you're right. We've seen really better from a controllable perspective. We've definitely seen a trend of continued strength there. I think part of it is really the product side. Certainly I'll take it from the product side and then have John talk about the rest of it. The products have just been very responsive and the continued use by the clients and their employees has have made the retention stick. You know, we've talked about that for many years, but I don't think that's ever been stronger, and it really accelerated during the pandemic as people were much more distributed in a workforce, remote workforces, really got to use and had to use the technology more, the mobile app, for example, in online use as well. But the mobile app really got clients and their employees to use it more. That leads to better retention because clients and employees don't want to give it up because of things like pre-check. They're seeing their check before it's cut. Hey, they are seeing what their time is that they've turned in. Everything looks good. They know what they're going to get paid. they're able to change their retirement or see their retirement funds on the mobile app and change everything. They're able to onboard in a paperless fashion. And so they're making their own direct deposit changes, their bank changes and other things. So all of that, as we talked about over the last few years, I think has led to that structural improvement, which is, hey, the employees of my client want to stay with Paychex because they're invested in us, not just the client's payroll or HR person. So I'll ask John to add to that as well, but I think that's a big piece of it.
John Gibson
Yeah, no, Marty. And Kevin, I would say this is probably a multi-year story. You go back before COVID. Things we've been doing in our service model to differentiate our service focus, things we're doing relative to competitive retention triggers, using AI and analytics to anticipate where we may have issues. All of those things have really led to us getting a better handle on our controllable losses. And if you look, you go back to 18 or fiscal year 19, you can really begin to see that dramatic piece. I would tell you, particularly to Marty's point, not only what we've done from a service perspective with relationship management and the upper market, things we're doing there in our HR outsourcing pieces, but we know that product attachment, particularly in retirement, particularly in HR, particularly attachment and utilization of our flex product and technology tools, lead to stickiness, and we've been very aggressive in introducing our clients to that capability. And so that's also creating a degree of stickiness. I mean, just, you know, I look at this all the time, and in fact, our price value losses were actually less this past fiscal year than they were at the record year. And if I go back to 18 and 19, it's about half of what we would typically have seen historically. So, There's a structural component to this that we're going to continue to execute. There's more we can be doing there. And I feel good about what we can do on the controllable side. The uncontrollable is always the thing we're monitoring and watching.
Kevin McVey
Got it. And then just one quick follow-up, Efren. I'll ask, I don't know if you could tell us, like in terms of the fourth quarter investment, it sounds like it was a little more variable. Is there any way to kind of frame what that was? And I'd imagine it was more kind of, variable as opposed to fixed costs that would kind of repeat in 2023. Is that fair?
Jen
Well, I guess so, Kevin. Let me answer it in a slightly different way, and then hopefully it's responsive to what you're saying. So there were a mixture of one-time things that we did that were variable. There were things that we did structurally to increase wages in certain areas, and then there were things that we put in place for long-term incentives so you know I would say one of them was was one of those with respect to employees was more one time and the other two were structural and will be their longer term there were some other items that were not wage related that were also that were also variable that we did in the fourth quarter so It was a mix of both. I wouldn't characterize it one way or the other in terms of percentages, but there were three buckets there that ended up being part of the expense base.
Martin Musi
And I think as Efren said, all of that obviously is in the guidance of increasing the margin. So even though some were more structural and ongoing wage expense, or bonus expense, that's all in the increasing operating margin over 40%, you know, next year in the guidance. Yeah, that's important.
Kevin McVey
Super. Thank you all. Okay. Thanks, Kevin.
Operator
Thank you. Our next question will come from Brian Bergen with Cowen.
Brian Bergen
Hi, guys. Good morning. Thank you. So, commentary on 4Q is broadly positive here, but I'm hoping you could dig in more specifically on some of those key lending client indicators and what those have been telling you in recent weeks. So, can you give us a sense on what you're specifically measuring there?
Jen
Yeah. So, Brian, what we did was we kind of dusted off forward indicators that we were looking at during COVID. So, we go down to... Daily punches by employee, what are daily punches? I'm talking about daily hours clocked by employees at our clients. So obviously we have access to that information. We're looking at that on a daily, weekly, monthly basis to understand what are the trends. We look at sales and we look at losses. That's pretty obvious. And then we look at other micro indicators in terms of engagement with our systems and platforms. We put all of that together and look at those indicators to tell us, are we seeing any sharp changes? On top of all of that, Marty mentioned, we have the IHS employment index that we're looking at 350,000 clients, what's happening with that base. And when you put that all in the blender at the moment, it doesn't look significantly different. than the trends we've been seeing in the first half of the year. So, you know, look, you guys are looking at a ton of different pieces of information. All I can say is with respect to our corner of the HCM world and our corner of this part of the economy, things are looking about the way they look. And at this point, neither inflation nor the sharp drop beginning to be sharp rises in interest rates seem to be slowing things down. Having said that, I will temper, as you all know, with a note of caution. Things could change, but at this point we're not seeing it.
Martin Musi
Yeah, the thing that's consistent, Brian, is the demand, you know, that small and mid-sized businesses still seeing a great demand for products and services, and it's finding people. So job growth, if anything, if it's slowed in the index, this is under 50 employees as Efren said, you know, the growth is still there, but it's slowed a little bit. It's more because you're not being able to find the employees. Everybody knows that you're hearing particularly frontline leisure and hospitality and other service functions trying to find people. The demand is still there, so there's a hunger for the need. And you'll hear it over and over, the reason that ASO and PEO have performed so well in sales and and client retention is because there is such a need for HR support in recruiting, in hiring, in engaging, in training. I mean, there is just a huge need for not only our technology in the HCM space, but our over 650 HR specialists who are there to help them with those things.
Brian Bergen
Okay. And then as we think about fiscal 23 and the forecast you built, can you unpack, you know, within management solutions specifically, are you still anticipating ASL retirement and some of these other areas to grow double digits versus kind of the payroll and HCM? Can you just help us with the underlying business areas in that segment and how you're thinking about growth in 23?
Jen
Yeah, that's about right. I think that we see strong demand in those areas continuing through 23. Obviously, on the HCM side, which we haven't said specifically, but which is implicit, you're not going to see the macro uplift in terms of the number of employees on the payroll. That just is part of the recovery from the pandemic. That's normalized partly based on some of the things that Marty has said. But demand for all of the other management solution services is still very, very robust, I'd say. And we're very bullish on all of those other businesses.
Martin Musi
Yeah, the other thing that we hadn't mentioned yet is that the work that we did, I mentioned employee retention tax credits and the paycheck protection loans. The employee retention tax credit service, you know, that we really, the teams really got down this to a very tight process, and we were very successful in getting $8 billion between those credits and other credits to our clients. That has helped actually spur additional sales where they said, hey, now that you've given me all this value, I think the average person you know, employee retention tax credit was around $180,000 per pretty small business at times. You know, that generated a need to say, hey, let me try your HR service. Let me do some other things. And we see that continue, that we'll continue to have success with ERTC in this year. We're already off to a good start this year. So a lot of clients still finding a huge benefit from getting that government subsidy.
Brian Bergen
All right. Thank you.
Martin Musi
Okay, you're welcome.
Operator
Thank you. Our next question will come from Ramsey LSL with Barclays.
Ramsey LSL
Thanks for taking my question this morning. I was wondering if you could give us an update on the sort of mix of your sales channels. I know that digital is clearly a highlight of the model. I'm just curious in terms of how the various contributions from your different sales channels have trended over time.
John Gibson
Yeah, as you can imagine, we've continued to use and seen digital sales continue to increase, particularly in the pandemic. What I would tell you both in terms of our SurePayroll.com and Paychex.com, we've seen good attach rate there and good traction there. But I would also say really across all of our sales channels, we've seen very strong demand characteristics. And we're finding clients doing more hybrid shopping, so starting off maybe on Paychex.com and then ending up in a discussion about how we can help them with ERTC and then other products and services. So I think our sales team has done a very good job of pivoting when the pandemic hit, adjusting to the new reality of how people are buying, and we continue to see and find ways that we can adopt that to drive not only more sales but also sales productivity. That's the other thing that we've seen really increase through this.
Ramsey LSL
Okay. And also, if you wouldn't mind commenting on the competitive environment kind of coming out of the pandemic, I'm curious if you perceive any changes, whether you're running into fewer competitors out there in the marketplace or more, or how would you characterize how the competitive landscape has evolved?
Martin Musi
Yeah, it's Marty. I think we're seeing it fairly consistent, although I would say that things like the ability to offer the PEP plan in retirement. We were the first out of the gate with the PEP plan. We've had great success with the pooled employer plan for retirement. Other competitors have not offered that yet, not all competitors, so we've really jumped the market on that one and did very well. I think, again, if you go back to us going to the client and prospect and saying, hey, we have employment retention tax credits that we think you can receive, and let me go through that with you. We've jumped the gun over a lot of competition with that. I'm surprised at the lack, frankly, of participation in that market. We've done very well with that, which has helped our sales and bring value to prospects and current clients. So I think generally the competitive environment is the same, but I also think that some of our product improvements and introductions have really positioned us a little bit stronger. I think particularly in the mid-market, you know, mid-market that we haven't been as strong, I think, if you went back four or five years ago as we wanted to be, the introduction of the products over the last three years really positioned us to have a really strong sales performance. response this last year, and it's continuing into the first quarter, so we're feeling very good about the mid-market in particular.
Ramsey LSL
Got it. All right. Thank you very much.
Martin Musi
Okay. Thanks, Ramzi.
Operator
Thank you. Our next question will come from Jason Kupferberg with Bank of America.
Jason Kupferberg
Good morning, guys. I just wanted to start on HR management. I know you mentioned increased attach rates there, and I'm wondering if you can provide any quantification perhaps on that front for certain products that are driving that dynamic?
Jen
Yeah. Hey, Jason. Hi. We'll update the number of clients in the 10K. So you'll see that we're approaching, we're between 40 and 50,000 clients. You'll see a pretty strong double-digit growth in the number of clients there too. We'll give you an exact number that you can look at when we file the 10-K in a few weeks.
Martin Musi
And John mentioned, I think, that, you know, we've hit over 2 million worksite employees in the HR space between our products and HR outsourcing. And also, you know, great attachment to things like time and attendance. So, you know, we've been, you know, even something that, We don't talk about as much time and attendance. We've introduced the new latest technology, iris scan clocks. These are clocks, whether you're wearing a mask or not, they're non-touch. They're kiosks that you just use your iris, your eyes to scan. Between that and the mobile punch in and punch out, we've seen very good attachment in time and attendance. When you have time and attendance and flex, you now can use PreCheck. So PreCheck is now sending a note, as I said, to employees and saying, okay, we've got you recording this many hours of working. This is your check. Do you see any issues with it? If you don't see issues, let us know that you confirmed it. If you have issues, let your employer know. We're seeing about 5% of the time that they're finding some issue that their employer didn't catch something right. and that's resolving the issue before the payroll is cut. That is a huge benefit. So you're seeing more attachment and use, again, by employees of clients, and so the attachment of time and attendance and pre-check and retirement, all those things are making better retention, and we're seeing attachment go up.
Jason Kupferberg
Okay. Thanks for that. I wanted to ask a follow-up just on float income. It looks like that's forecasted to be up about $30 million year over year. And assuming you get 100% float through on that, it looks like that would drive about 60 bps of margin expansion, if our math is right. And that would basically get you to the midpoint or roughly the midpoint of your margin guide for fiscal 23, which would kind of suggest flattish margins in the core business. So I wanted to check on all that, see if you agree with that general idea. assessment. And also, I guess just wondering if you can remind us a bit on duration of the portfolio, just, you know, given the magnitude and trajectory of rate hikes, you know, perhaps some would have thought even, you know, a bigger increase in float income for this upcoming year. Thanks.
Jen
Yeah, interesting math. I think that I wouldn't probably dispute the math, Jason. I would say that the only comment I would make with respect to looking at the business that way is that when you put a plan together what you're doing is making choices around a lot of different investments even in a plan where we choose to increase margins 50 basis points there are investment choices being made in that process so while I think your math is probably not far off that doesn't indicate that there isn't leverage underlying leverage in the business it's just that we chose to deploy that in different parts of the business could have had greater flow through. Some of it was some of the choices that we made with respect to wages and other items that we discussed previously. The second thing I'd say on everything we do, especially in the area of how we look at the portfolio, there's an element of conservatism in the way we think about it. This is an unusual year in the sense that the Fed has said certain things. They change it, but they've been saying certain things, and we have to incorporate the outlook that they have given. To the extent that that changes, then we'd come back and have different discussions, which could in some ways impact other parts of the P&L. But we'll have to walk through that when we get there. We have ways to get more leverage if we choose to use it. Then the final point is that right now the duration is a little bit over three and our portfolio is positioned about half and half short term and long term. We have a lot of levers to pull there if we want to adjust duration on the portfolio, either to go longer or even shorter if we wanted to. So I wouldn't quibble with your math. I just would quibble with your conclusion a little bit about the underlying leverage in the business.
Jason Kupferberg
Good caller. Yeah, I appreciate that. Thanks, Efren. Sure.
Operator
Thank you. Our next question will come from Brian Keene with Deutsche Bank.
Brian Keene
Hi, guys. Good morning. Efren, how would you compare the preliminary guidance for fiscal year 23, I think you gave last quarter, high single-digit revenue growth to 50 basis points of margin expansion with the detailed guidance. Just wanted to figure out if there were some adjustments you made either due to macro or some other factors.
Jen
Yeah, I'd say, Brian, kind of if I was looking at it, you know, I think we said approximately seven or so. So this is a little bit stronger. The The thing that I called out at 3Q was we knew ERTC was not going to recur. I called that out as 1% of this year's revenue. So that was a little bit of a hurdle that we were going to have to overcome. I think we've overcome that to a significant degree, although it won't be as high as it was last year. You know, the other factor really was around what happens with employment levels. That really is the tough part. Marty called it out. There's demand there for people, but there are unfortunately not as many people to fill those jobs. So what we're seeing, by the way, in the market is – more creative use of things like part-time employees to fill jobs that otherwise would have been filled by full-time. That's not a bad thing for us from a wage perspective, but it's a little bit different than the way maybe we would have thought about it two or three years ago. And then the final point is that, look, the Fed and you are looking at this just like we are. There's a lot of variability there, let's just put it that way. And so we haven't assumed anything beyond about three and a quarter percent increase. The back half of the year is going to be very interesting from our perspective just in terms of what happens with whether there's a soft landing or not. So we've tried to create a plan that gets us through what we understand the current environment to be. And then, so this set of, this guidance that you see here is a little bit stronger on the interest side than I was, than we were when we said this in March, April, because the Fed's changed some of its thinking. Hey, having said all of that, that word salad basically says a lot of stuff could change, so we'll uptake you. But I would say in terms of the macro, it's probably as changeable as any of the you know, 11 or 12 plans I've been involved with here.
Brian Keene
Got it, got it. And then just at a high level as, you know, there's a lot of worry about a movement towards an economic slowdown and a recession. How does the model hold up just on a high level in the recessionary environment or, you know, what are some of the variables that could impact the model if we do see a recession in the U.S. and globally?
Jen
Yeah, I think we called that in the comments, I think, in Marty's You know, where we would see it, obviously, is you'd see less clients processing. That's the first part that you'd see, even before you saw slowdown in demand. But there's an interesting offset, Brian, that we saw during the pandemic is that it actually sometimes retention picks up in those kinds of environments. So what's the net of that? I don't have a crystal ball on that. I think it would help to offset some of the softness on the – on the revenue side, and it depends also what's happening with interest rates. If interest rates remain at current levels or because of a slowdown, the Fed decides, well, we're going to just ratchet them down, that would have an immediate impact from a revenue standpoint. I think if it's gradual, we'll manage through it, and I think we certainly will manage through it. We have a good shot at managing through on the bottom line. I think that we're prepared to handle that. If it's abrupt, it's really tough to manage through those kinds of situations.
Brian Keene
Got it. Very helpful. Thanks, guys.
Jen
Okay. Thanks, Brett.
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 wanted to follow up on that last comment you made, Efren. Maybe spend a bit more time, if you could, on the flexibility of the expense base in a more challenging economic environment. Where are some of the areas where you have a bit more leeway to manage that bottom line relative to an environment that you've been in here over the past year or two where margins are at very strong levels?
Jen
Well, I'd say three things. So the first thing is, In an environment like this, you have to have the appropriate level of areas in the P&L to go if you see a slowdown. We assume that we'll manage through the current environment as it is, and if it gets a little bit worse, we can handle that. We've taken appropriate precautions, is what I would say on that. That's the first thing. The second thing is that You know, we have a unique model where we – and we do this quite a bit. We don't talk about it, but we do it. To the extent that the client base doesn't flex up in the way we do, we simply don't do the hiring that we expect to do. So if we don't do the hiring, then you get the benefit of the 60% to 65% of – on the 60% to 65% of the wages that are in the – that are in the plan, and then the third thing is we have flexibility in terms of adjustments on the portfolio to address duration, depending on what we're seeing in terms of the macro environment. I think with those tools, if you will, in the toolkit, and there are others, by the way, we should be able to manage through at least any of the environments that are right in front of us. Now, there are certainly environments That could prove a lot more challenging. I just point this out. One thing is that history is no guide, but in terms of precedent, I remember being here in April of 20 when everyone was gone and the stock went down to $48 and everyone thought that we were not going to be able to manage through. I would say history has shown that to be incorrect.
Martin Musi
Yeah, and I think the other thing, you know, during some of those times that could – depending on the recession, there will be a need for even more needs for many clients for HR support. How do I manage my costs down? How do I – and I think we showed during the pandemic that we could respond to that very well. So we're really quite – brought in the way that if the economy is going fast and you need to hire and you need growth and you need help with your HR, we're there to help you with the technology and the people to support you. If things turn and it's a recession and you've got to manage people out or costs down, we have the products, the technology, and the people to help you do that as well. And I think we showed that, as Efren said, in the pandemic when people thought, geez, I don't know, will they be able to keep their margins? We did extremely well. And so we've learned a lot from that and, frankly, probably got a few more levers out of the pandemic that we could use during a recessionary period, which is, one, obviously not hiring, as Efren mentioned, but also drive some other costs out through the fact that we have very remote hybrid workforces now that give you more flexibility even than before. and where you hire, too.
Andrew Nicholas
Great. No, that's all very helpful. Thank you. And then for the fourth quarter, just a quick question there that I want to clean up. Can you talk a little bit more on kind of the performance of the PEO business specifically relative to the insurance within that segment? Thank you.
Jen
So do you mean insurance in the PEO or insurance as part of the PEO segment? revenue stream?
Andrew Nicholas
Yeah, the latter. Thank you.
John Gibson
Just so I understand the question, you're talking about the attachment of insurance within the PO and how the insurance is performing.
Andrew Nicholas
Yeah, I guess I'm just – within that segment, if you could just kind of break down the PEO business relative to the insurance business on a standalone basis, that would be helpful.
John Gibson
Yeah, so I would say this. I think in the last call we talked about it. The PEO business continues to perform very well, double-digit growth, insurance slightly below that growth rate. Again, but that's really the tale of two cities. I would say, again, back to what we said, Strong demand for clients to increase benefits to attract and keep employees they have, particularly in the small segment where they're trying to compete against larger employers. They have to be able to put together a portfolio of benefits that are going to attract and keep their employees. So in health and benefits, we continue to see good growth there and good demand there. P&C, again, it's been a soft market for a long time, so that's a little bit more of a rate issue. but still see good attachment there, historical attachment that we've always seen in our base. So still strong performance at the PEO, insurance right behind it, predominantly led by the demand for health and benefits.
Martin Musi
And the other thing I mentioned in my comments was the broad, you know, in the PEO, we worked really hard, you know, John's team to broaden the PEO offering. So it's not just about health and dental in vision now. It's really, as John said, this broader offering that the PEO can bring to small businesses in particular to say, hey, you can offer other things in insurance and you can offer more mental health support that is very hot right now. and you can offer other plans that you would not be able to do by yourself. So that has really supported the PEO growth with the creativity that the team has shown and the offerings that we can give them.
John Gibson
Yeah, and that's what I thought maybe the other part of the question was. The attachment that we saw in the PEO and the attachment in general that we're seeing from our clients, as Marty said, 401K, health and benefits, gravitating towards these technology tools that they want to be able to provide their employees, Those things have really been, across the board, very, very well received. In our comments, we stated one of the things that we've seen now is the opportunity for us to even add to that attachment. When you think about now, we're going to add a whole other set of voluntary benefits that we're going to go back and be able to offer to all of our PO and all of our insurance clients over the course of the open enrollment period, which will start in October. Those all will generate revenue. Offering more benefits to the clients and their employees is another way that not only does that help the retention, but it also helps the revenue as well. We're seeing good demand in the marketplace there.
Jen
Yeah, sorry, Andrew. As John said, the revenue growth on the insurance side obviously was lower than PEO based on the fact that workers' comp continues to be a very, very slow market over a number of years.
Andrew Nicholas
Now, that's helpful. You did a much better job answering it than I did asking it, so I appreciate it.
Jen
No, no, no, no. Thanks.
Operator
Thank you. Our next question comes from Kartik Mehta with North Coast Research.
Kartik Mehta
Good morning. Marty, maybe I know you've talked a little bit about our session and gave a good answer on how you might manage a business, but I'm wondering, Marty, based on some of the slowdowns you've seen, Would you manage paychecks any different? I mean, would you think that you could continue hiring or investing? Would this time be different than in the past based on what you've learned?
Martin Musi
Well, Cardick, right now, as I mentioned, we're not really seeing that slowdown. So, yeah, I mean, we really got behind at the beginning of last year in hiring because it was difficult on the service side in particular, and we actually made great headway in the last half of the year John and the HR team to get ahead of that and we're actually over staffed right now a little bit going into the fiscal year so we're very pleased with that so we're making still strong hiring decisions the investments that we made in in compensation and benefits are attracting now we're getting back on track and attracting more not only service but sales individuals and our retention is looking better so yeah I don't think you know I think What we learned, as I mentioned, out of the pandemic, though, was that we could manage in a lot of different ways and more remote and hybrid work, handling sales differently. There's more flexibility in where those sales forces are and how they're selling. More digital sales are coming in through the marketplace, and we're well prepared for that. So, yeah, I think you're always learning, and we certainly learned during the pandemic, and we were very successful. It's all about having the right people in place and making decisions those right decisions, and I think we've made some good ones. Obviously, we're very pleased with the record-breaking year that we had, and we're certainly well set up for fiscal 23 to have another one.
Kartik Mehta
And then just, Efren, you know, one of the areas I think you've had success in is programs like California kind of retire mandates that they've had for SMBs. I'm wondering, you know, how successful that plan has been, and maybe you can talk about if you continue to expect growth in that business.
Martin Musi
Yeah, I'll take that, Cardick. It's Marty. I think that that was very successful. We were a little early on some of the advertising last summer because the mandate, you know, businesses don't always respond to mandates that are going to have a penalty effective really this month. And so we were a little bit early on that. But what we found was the advertising that we did had really generated a lot of understanding that Paychex is a retirement provider to small businesses. And even fighting against free, California had a very basic retirement IRA plan for free. We've done very well. So retirement, we've had the fastest growth in retirement sales in California, obviously, in our history. And so we see the approach that we made there. Maybe we've learned a little on timing of marketing and advertising, but the approach that we made there has been very successful, and we think that will certainly carry to other states as and maybe even a federal mandate if it comes out on retirement as well in the SECURE Act and so forth.
Kartik Mehta
Thank you. Thanks, Marty. I appreciate it.
Martin Musi
All right, Carter.
Operator
Thank you. Our next question will come from Peter Christensen with Citi.
Peter Christensen
Good morning, gentlemen. Thanks for the question and real nice trends here. I was just wondering, I know you called it out a little bit before, activity in the staffing industry, your staffing clients. I know sometimes that's been a leading indicator at both ends of the cycle. Just wondering if we could dig into a little bit of the color you're seeing there and maybe some implications that you're thinking about around that.
Jen
Yeah, that's a really interesting question, and some of you are staffing analysts, so I defer a little bit to you. But here's what we do, just to level set with everyone. What we do, and we've had a very, very successful year of doing it this year, is provide funding for typically small, medium-sized, some larger staffing firms. So we have a window into that. what is happening with staffing trends in the business. And right now, the staffing businesses are doing very, very well. So there's a lot of demand for services. And you can argue, well, why is that? It seems that in portions of the economy, certain portions of the economy in skilled labor, You're seeing a lot of demand. Many of you probably know this, but skilled occupations like nursing and other technical disciplines, there's a lot of temp labor that is used in that part of the business. But what's been surprising, I would say, over the last three to six months has been the rebound in what's called light industrial. So that's more typically blue-collar work. The demand is robust, and it's projected to continue to do that through the end of the year. It could be argued that perhaps people are starting to position themselves for more flexibility on the workforce, but we don't have any indications of that. What we know is that the number in absolute terms of temp workers is up, and that we're benefiting from that demand.
Peter Christensen
That's helpful, Efren. And then, again, back on things like the PEP plan, where you just had phenomenal growth there. And I realize, like, products, attached products like that, you know, certainly help things like retention and value-based pricing, for sure. But is there any way you could frame what type of contribution, like, a product like that is, has had to overall growth, I guess, in the last year?
Jen
Yeah, so I called it out because I think it's fair to say it's not. I'm going to characterize it two ways. The first way I'd say it's been a little bit above 1% of revenue for the year. So it obviously was a great product, but I would highlight something that Marty said. The great thing about a product like that is the profound impact it has on clients. And we had a review of it. If you saw the stories, they're really, really important. And they're important not just because you feel good about them. That's good. It's good to feel good. But the reality is that it had a lot of impact on the clients that got it, and the testimonials are amazing. But I think the second part of it is Marty mentioned that There's still opportunity in the base, so we expect that this year We're going to continue to get a benefit not not the same level of benefit We got last year, but we'll continue to get everyone just to clarify.
Martin Musi
I think you're talking about ERTC He might have said pep. Did you say pep Peter?
Jen
Yeah Okay, everybody Apologize yeah pep is a little bit different so but the final point I would say on that simply is that Whether it's pep or ERTC There's a set or a suite of services that we provide to clients that really are very important in terms of cementing their relationship with paychecks. This year it's ERTC, last year it was PEP. We're constantly on the lookout for opportunities to cement that relationship with clients. That's what I'd say. Sorry. I thought you were talking about ERTC.
John Gibson
I apologize. I would also probably add to that, Peter. Those things are cousins in somewhat of an innovation machine that we're driving with our nearly 700 HR professionals who are out there talking to our clients on a daily basis. And I say that because for whatever reason, other companies are deciding not to be as supportive in these tax credit areas and in the PEP plan, which is really resonating with small business owners because of some of the complexities that it reduces from a traditional 401k plan. And so again, I look at this very closely. Those are two products that when I look at the clients that are attaching those, we see a measurable improvement in our overall retention. and more ability to price. Price, as you said, the price value package that we can get from those clients is much greater as well. And they're appreciative because there's not a lot of other places they can go to get that assistance. So it's a combination of us leveraging our technology and then also having the individuals in the field to help really advise and support them in building a package and getting that done that's really resonating. And again, they're just real appreciative. I mean, Efren mentioned the stories I mean, I have people calling me and thanking me for saving their business with ERTC, and we hear the stories about how well the PEP plan is helping our clients.
Jen
Yeah, just sorry about that. I heard PEP and I interpreted it to be ERTCP. The other thing I would say is that the quantification of that is that it's part of the growth and management solutions. If you take what happened to our retirement business pre-PEP and post-PEP, We took that business from kind of mid-single digits up for single digits and approaching 10% growth on a revenue basis. And it's been really driven on the back of the ability to offer a PEP solution. So sorry about the digression into ERTC.
Peter Christensen
No worries. That's great color. And, John, I really like the innovation machine cousins. I might steal that. Last one for me, Efren, you mentioned it earlier before, or maybe John did, that price-to-value losses have been really minimal, but you are seeing ramping up discounting promotional activity from some peers in the market. Just overall your sense for across the market for pricing elasticity and whether that's different pre-pandemic versus today.
Martin Musi
I think it feels, you know, we feel pretty good, obviously, about prices. I think Ephraim mentioned earlier on the price increase. It's toward the higher end, but it depends on the product and the bundle and so forth. But I think we feel very good about the fact that other than how strong the recession impacts that, but right now we feel very good that the things that John is talking about, you know, and that we've been saying – those products are driving much more retention and less focus on price. The price value losses have come down, as John mentioned, and it's been very much because of the value that we're adding, I think, with the other products, the value that we added by bringing an employee retention tax credit to them or helping them get their PPP loan forgiven very quickly and easily. You know, those things have really impacted the the price elasticity in the fact that hey I'm this is driving value for me and therefore it's well worth it and we really I think we really as a company seized the opportunity during the pandemic to show much more value than we probably had in the past. You know, we took that opportunity that we were given that we could be there for them through a difficult pandemic time to help them retain people, hire people, handle their teams remotely with paperless digital solutions. You know, all of that really benefited us and is continuing as we kind of come out of that period as well.
Peter Christensen
Thank you, gentlemen. I appreciate the detail. Thanks. All right, Peter.
Operator
Thank you. Our next question will come from James Fawcett with Morgan Stanley.
James Fawcett
Hey, guys. It's Jonathan on for James. You know, how does your strategy around M&A change in a recessionary environment, particularly if we were to get a material drop in private valuations and you see attractive opportunities?
Martin Musi
Well, we'd love that. You know, we're always on the hunt. And, you know, You know, I think the valuations have not caught up on that private side at all that we've seen. We still see some nice opportunities in various markets that we've talked about in the past, but the valuations don't seem to quite happen yet. So we're expecting, you know, typically it does kind of follow behind the public side of it. We'll see what happens. But, you know, with the cash that Efren talked about, we're well positioned to take advantage of opportunities that come up. whether it's a recession or just kind of a repricing on some of the valuations that I think will happen because you can see it already in the private markets where there's a lot of cost-cutting and a lot of much more conservative approaches to things to get themselves positioned better to make sure they don't lose so much on the valuation. We're watching very closely. We're continuing to talk to those companies that we've talked to in the past, and we'll keep an eye on valuations, but I think it gives even a better opportunity.
James Fawcett
I'd appreciate that perspective. You called out further investment, product development, and IT. Where are you focused on improving from a product portfolio or tech perspective?
Martin Musi
I think it just continues to be, from a digital standpoint... Particularly, I think, on the sales side, you know, it's obvious that the buying process is much more about being able to do it themselves. I think John mentioned earlier that it is still a combination of doing the research, some going through and buying themselves, and we have that availability, whether it's Flex or Shure. And then there's also those that go so far and then need a sales rep or want a sales rep involved, whether it's digital format, whether it's on the web, or whether it's in person or bringing in a sales engineer on the web or in person for a demo. So I think those investments, you know, those investments will continue. Product investments also, you know, roadmaps are planned out for the next, you know, two years to lay out much more flexibility on the way we pay. Certainly from a pay access and pay on demand, we offer that today through partnership as well. But I think that will continue to expand. You know, earned wage access is something that we see continuing to expand. And just the overall product availability and the ability also to choose who you want to be connected with. So we're very busy from an API standpoint expanding our set of APIs to if you want to keep certain portions of the business but really gain the power of FlexHR, you have that opportunity. A lot of investment levels have continued, and, you know, actually we're very proud of the fact that we can produce the margins that we show and that Efren has talked about and guided to while we're still significantly investing in a digital product set.
James Fawcett
Thanks for the call, guys.
Martin Musi
You're welcome.
Operator
Thank you. Our next question comes from Mark Marcon with Baird.
Mark Marcon
Hey, good morning, Marty, Efren, and John. Wondering, you know, this question's been asked a little bit, but I want to ask it a different way. If you hadn't, if you didn't see all the macro headlines that are out there, and you're obviously, you're all experienced, you're all aware of, you know, the impact of higher rates ultimately from a macro perspective. If we didn't see higher rates and if you didn't see all the macro headlines, How would the guidance have been different?
Jen
I would say this, Mark. If I just kind of desegregate that question and say, I'm looking at the indicators, or we're looking at the indicators, because it's not me, it's a team of people that are looking at them, and we say, These are the indicators we're presented with before we put together a plan. It's just hard to say that the plan would be that much different than the plan that we saw. You'd have lower interest rates, you might push a little bit more on the operating side, but it wouldn't be significantly different. remind people, share this with the leadership team. Pre-pandemic, leading into the pandemic, we were at about a 5% CAGR growth rate. Actually, it's a little bit. We were trending up, but if you take the end of the pandemic, our CAGR was about 5% on the top line and 10% on the bottom line. We've come out of the pandemic growing faster than that because going into the pandemic, before all of these things occurred, all of the pandemic related impacts occurred, we had made a lot of investments in automating, digitalizing, digitizing, you name it, we did it all. And we're still doing that. And so the business was on an uptrend. And so I would have expected if we were looking at this year, that a lot of those actions that are part of the DNA of the way Marty and the team has operated the company would continue. And you deliver something like upper single-digit growth and pretty close to double-digit bottom line, which, by the way, there's a long track record of doing in the company. So I guess that's my answer to the question.
Martin Musi
Yeah, and I would just add, you know, Mark, when you look at it, so if you assume interest rates go up, and obviously there's a tailwind, as Efren mentioned, from the interest rates. On the other hand, that could slow the housing market some, and there's a lot of small business around housing. So that's offsetting it. So there's offsets that we had to take into account, that we take into account as well. And I think overall, as Efren said, we've – you know, we've really come up through the pandemic and out of the pandemic with a higher growth rate that's been consistent whether the interest rates, before the interest rates were changing. We'll take the tailwind, but we also know that there's some risk that comes with that for small business development and growth.
Mark Marcon
That's great, Marty. I mean, I just, my sense is that you probably took into account, you know, the macro headlines and, you know, probably were a little bit more conservative than you would have been had you not seen all those macro headlines. Is that a correct assumption?
Jen
Hey, Mark, let me answer it this way, so just to be more specific. The challenge that we have, and I think we've been very transparent with the street, is that we tell you exactly what we know when we say it. And when it isn't right, we call it out. And I'm not saying other competitors don't. Of course they do. The issue is we have a fair amount of consistency and predictability in the business, not just because that's the way the business is, but that's the way we run the business. So the specific answer to your question is we can see the first half of the year. We feel pretty good about where the first half of the year is. Here's where it gets cloudier. It's the second half of the year where it's a little bit cloudier. And there's macro factors that will impact that. To Marty's point, we had to take into effect the fact that we're not going to have the same kind of second half of the year. The macro isn't lining up exactly the way it was this year. So we looked at the first half. We feel pretty good about that. The second half, as we go through the year, we'll update it. I think we've got a pretty good view. of what it looks like based on everything we know now. But, you know, I don't need to remind you that even the Fed is struggling to understand what the macro indicators they're looking at.
Mark Marcon
Yep, understood. And then, hey, with regards to bookings, can you break down the bookings that you ended up seeing with regards to the fourth quarter and how the pipeline's looking? And specifically, how would you characterize, you know, Micro versus SPS versus mid-market. And then to what extent are you seeing growth in terms of, you know, new logos versus upsells?
Martin Musi
Yeah, I think across the board, pretty strong. Mid-market in particular, though, we've called out a couple times, has really been strong. I think we've done very well, you know, in last fiscal year and starting off this first quarter as well as continued. I think the execution on the sales side, the product and everything, has really driven very strong results in the mid-market. And we feel we're doing very well against the competition that I think might be struggling a little bit today. you know, with the things that we're putting out. On the small market, you know, continues to be okay. I think, you know, they're the ones that are probably struggling a little bit more. And then on the micro, you know, continues to be very strong. SURE in particular continued to have very solid growth, and we had growth on the flex side. So really across the board, you know, I think in good shape and heading into the quarter, frankly, in good shape. Sales fully staffed, a little bit of growth from the rep side. But, you know, across the board, I mean, sales had their best year ever, and that was pretty much across the board, whether you're talking about the payroll side, retirement, HR, ASO, PEO, you know, really most every area.
Mark Marcon
Great. And what percentage of the bookings are upsells versus new logos?
Martin Musi
Oh. I would say, you know, particularly on the payroll side, it's still about the same. I'd say roughly half is new business. And, you know, we really haven't seen, you know, new businesses have slowed somewhat, but we've still had a very good track record on winning new business. It's still about 50% of the sales coming in on the payroll side.
Mark Marcon
Terrific. Thank you.
Martin Musi
Okay.
Operator
Thank you. Our last question will come from Scott Wurzel with Wolf Research.
Scott Wurzel
Hey, good morning, guys. Thanks for taking my questions. Just wanted to ask on margins. We thought the guide for the full year was pretty encouraging, but just wanted to look at the first half. It looks like you're guiding for adjusted operating margins to be down a little bit relative to the first half last year. So just wondering what the puts and takes were on that. Is it mostly due to sort of the wage inflation and increased headcount that you've sort of taken, or are there any other impacts there?
Jen
Yeah, what you're seeing when you dig underneath that is that in the first half of the year, our margins were stronger in part because our employment levels were lower. So I kept saying last year that we were adequately staffed and not fully staffed. And we are fully staffed in the first half of the year in addition to the wage actions that we took. So that has an impact of driving margins in the first half down. And then you... you get the benefit in the back half.
Scott Wurzel
Got it. Got it. Thank you. And then, um, just sorry if I may have missed this, I don't know if it was discussed, but is there any way you can maybe unpack on the, uh, client fund interest income guidance? Just what's the puts and takes between sort of, um, like balance growth and what you're expecting on yield?
Jen
Yeah, we're, we're expecting modest balance growth. We've had pretty strong balance growth, um, this year. Um, So the growth is really being driven by our anticipation of what the Fed's going to do between now and end of year. So it's really more interest rate driven. But we are expecting client balance growth, too, based on wage inflation.
Scott Wurzel
Got it. Thanks, guys.
Jen
You're welcome.
Operator
Thank you. This does conclude the question and answer session of today's call. I would like to turn it back over to our speakers.
Martin Musi
All right, thank you. At this point, we will close the call. If you're interested in replaying the webcast of this conference call, it's archived for approximately 90 days. And thank you for taking the time to participate in our very strong fourth quarter earnings release conference call and your interest in paychecks. I hope you all enjoy a safe and happy summer. Talk to you soon. Thank you.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call, and we appreciate your participation. You may disconnect at any time.
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