10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One) 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-36393

Paycom Software, Inc.

(Exact name of registrant as specified in its charter)

Delaware	80-0957485
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7501 W. Memorial Road

Oklahoma City, Oklahoma 73142

(Address of principal executive offices, including zip code)

(405) 722-6900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	PAYC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☒	Accelerated filer	☐
Non-accelerated filer    ☐	Smaller reporting company	☐

Emerging growth company    ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.            ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒

As of April 21, 2020, there were 58,566,076 shares of common stock, par value of $0.01 per share, outstanding, including 1,132,997 shares of restricted stock.

Paycom Software, Inc.

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	32
Signatures		34

2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Paycom Software, Inc.

Consolidated Balance Sheets

(in thousands, except per share amounts)

	March 31, 2020			December 31, 2019
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	181,827		$	133,667
Accounts receivable		8,059			9,298
Prepaid expenses		17,853			13,561
Inventory		930			1,158
Income tax receivable		—			4,020
Deferred contract costs		50,513			46,618
Current assets before funds held for clients		259,182			208,322
Funds held for clients		1,392,379			1,662,778
Total current assets		1,651,561			1,871,100
Property and equipment, net		254,423			238,458
Goodwill		51,889			51,889
Long-term deferred contract costs		316,768			292,134
Other assets		35,084			33,336
Total assets	$	2,309,725		$	2,486,917
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,694		$	5,051
Income tax payable		15,953			—
Accrued commissions and bonuses		5,662			12,343
Accrued payroll and vacation		21,159			14,870
Deferred revenue		11,660			11,105
Current portion of long-term debt		1,775			1,775
Accrued expenses and other current liabilities		43,633			45,600
Current liabilities before client funds obligation		105,536			90,744
Client funds obligation		1,392,379			1,662,778
Total current liabilities		1,497,915			1,753,522
Deferred income tax liabilities, net		92,609			91,217
Long-term deferred revenue		66,795			65,139
Net long-term debt, less current portion		30,423			30,858
Other long-term liabilities		22,195			19,553
Total long-term liabilities		212,022			206,767
Total liabilities		1,709,937			1,960,289
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000 shares authorized, 61,352 and 61,350 shares issued at March 31, 2020 and December 31, 2019, respectively; 57,622 and 57,660 shares outstanding at March 31, 2020 and December 31, 2019, respectively)		614			613
Additional paid-in capital		275,813			257,501
Retained earnings		639,181			576,166
Treasury stock, at cost (3,730 and 3,689 shares at March 31, 2020 and December 31, 2019, respectively)		(315,820	)		(307,652	)
Total stockholders' equity		599,788			526,628
Total liabilities and stockholders' equity	$	2,309,725		$	2,486,917

See accompanying notes to the unaudited consolidated financial statements.

3

Paycom Software, Inc.

Consolidated Statements of Income

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Revenues
Recurring	$	238,495		$	196,864
Implementation and other		3,873			3,079
Total revenues		242,368			199,943
Cost of revenues
Operating expenses		24,116			24,776
Depreciation and amortization		5,930			4,542
Total cost of revenues		30,046			29,318
Administrative expenses
Sales and marketing		55,018			39,645
Research and development		21,621			18,489
General and administrative		40,134			45,198
Depreciation and amortization		6,285			4,805
Total administrative expenses		123,058			108,137
Total operating expenses		153,104			137,455
Operating income		89,264			62,488
Interest expense		(16	)		(276	)
Other income (expense), net		(930	)		(100	)
Income before income taxes		88,318			62,112
Provision for income taxes		25,303			14,830
Net income	$	63,015		$	47,282
Earnings per share, basic	$	1.09		$	0.82
Earnings per share, diluted	$	1.08		$	0.81
Weighted average shares outstanding:
Basic		57,655			57,357
Diluted		58,440			58,316

See accompanying notes to the unaudited consolidated financial statements.

4

Paycom Software, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

	Common Stock				Additional			Retained		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Shares		Amount			Stockholders' Equity
Balances at December 31, 2018		60,747	$	607	$	203,680		$	395,590		3,470	$	(265,124	)	$	334,753
Vesting of restricted stock		280		2		(2	)		—		—		—			—
Stock-based compensation		—		—		36,187			—		—		—			36,187
Repurchases of common stock		—		—		—			—		110		(19,669	)		(19,669	)
Net income		—		—		—			47,282		—		—			47,282
Balances at March 31, 2019		61,027	$	609	$	239,865		$	442,872		3,580	$	(284,793	)	$	398,553
	Common Stock				Additional			Retained		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Shares		Amount			Stockholders' Equity
Balances at December 31, 2019		61,350	$	613	$	257,501		$	576,166		3,689	$	(307,652	)	$	526,628
Vesting of restricted stock		2		1		(1	)		—		—		—			—
Stock-based compensation		—		—		18,313			—		—		—			18,313
Repurchases of common stock		—		—		—			—		41		(8,168	)		(8,168	)
Net income		—		—		—			63,015		—		—			63,015
Balances at March 31, 2020		61,352	$	614	$	275,813		$	639,181		3,730	$	(315,820	)	$	599,788

See accompanying notes to the unaudited consolidated financial statements.

5

Paycom Software, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities
Net income	$	63,015		$	47,282
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,215			9,347
Accretion of discount on available-for-sale securities		(467	)		(165	)
Amortization of debt issuance costs		9			9
Stock-based compensation expense		15,811			31,071
Cash paid for derivative settlement		(69	)		(1	)
Loss on derivative		1,644			540
Deferred income taxes, net		1,392			3,722
Changes in operating assets and liabilities:
Accounts receivable		1,239			(421	)
Prepaid expenses		(4,292	)		(1,498	)
Inventory		254			(11	)
Other assets		(1,801	)		(702	)
Deferred contract costs		(27,630	)		(23,414	)
Accounts payable		408			(1,251	)
Income taxes, net		19,973			7,488
Accrued commissions and bonuses		(6,681	)		(6,118	)
Accrued payroll and vacation		6,289			3,765
Deferred revenue		2,211			2,860
Accrued expenses and other current liabilities		(1,490	)		7,923
Net cash provided by operating activities		82,030			80,426
Cash flows from investing activities
Purchase of short-term investments from funds held for clients		(177,903	)		(16,800	)
Proceeds from maturities of short-term investments from funds held for clients		20,000			14,500
Purchases of property and equipment		(25,726	)		(14,889	)
Net cash used in investing activities		(183,629	)		(17,189	)
Cash flows from financing activities
Repurchases of common stock		(7,998	)		—
Withholding taxes paid related to net share settlements		(170	)		(19,669	)
Payments on long-term debt		(444	)		(444	)
Net change in client funds obligation		(270,399	)		437,678
Net cash (used in) provided by financing activities		(279,011	)		417,565
(Decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents		(380,610	)		480,802
Cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period		1,641,854			986,464
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	1,261,244		$	1,467,266

See accompanying notes to the unaudited consolidated financial statements.

6

	Three Months Ended March 31,
	2020		2019
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents
Cash and cash equivalents	$	181,827	$	91,307
Restricted cash included in funds held for clients		1,079,417		1,375,959
Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	1,261,244	$	1,467,266
Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	8,251	$	3,384
Stock-based compensation for capitalized software	$	1,601	$	3,329

See accompanying notes to the unaudited consolidated financial statements.

7

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Paycom Software, Inc. (“Software”) and its wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of comprehensive, cloud-based human capital management (“HCM”) software delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.  

We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in the notes to our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”).

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods.  In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for the fair presentation of our consolidated balance sheets as of March 31, 2020 and our consolidated statements of income, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019.  Such adjustments are of a normal recurring nature.  The information in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the Form 10-K.  The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year.

Recently Adopted Accounting Pronouncements

In January 2020, we adopted Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2020, we adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).  ASU No. 2018-13 modifies the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits. The adoption of this guidance did not have a material impact on our consolidated financial statements. 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.

8

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

Seasonality

Our revenues are seasonal in nature.  Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.  As payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters.  These seasonal fluctuations in revenues can also have an impact on gross profits.  Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.

Employee Stock Purchase Plan

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and recognized at the fair value of the award.  Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Funds Held for Clients and Client Funds Obligation

As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities.  Amounts collected by us from clients for their federal, state and local employment taxes are invested by us, and we earn interest on these funds during the interval between receipt and disbursement.

These investments are shown in our consolidated balance sheets as funds held for clients, and the offsetting liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date.  As of March 31, 2020 and December 31, 2019, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit.  Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets.  These available-for-sale securities are recorded in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.  Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation.  

Stock Repurchase Plan

In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.  Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time.  Most recently, in March 2020, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock.  As of March 31, 2020, there was $242.0 million available for repurchases under our stock repurchase plan.  Our stock repurchase plan may be suspended or discontinued at any time.  The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations.  The current stock repurchase plan will expire on March 12, 2022.

During the three months ended March 31, 2020, we repurchased an aggregate of 40,032 shares of our common stock at an average cost of $204.04 per share, including 671 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.  

Recently Issued Accounting Pronouncements 

In December 2019, the Financial Accounting Standards Board issued ASU No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).  The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences.  ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.  This guidance is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted.  We are currently evaluating the impact that this guidance will have on our financial position and results of operations, if any.

9

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

3. REVENUE

Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are comprised of revenue from contracts with clients. Sales taxes and other applicable taxes are excluded from revenues.  

Recurring Revenues

Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports. Talent acquisition includes our applicant tracking, candidate tracker, background check, on-boarding, e-verify and tax credit services applications. Time and labor management includes time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting and geofencing/geotracking. Payroll includes our payroll and tax management, Paycom Pay, expense management, garnishment management and GL Concierge applications. Talent management includes our employee self-service, compensation budgeting, performance management, executive dashboard and Paycom learning and course content applications. HR management includes our document and task management, government and compliance, benefits administration, COBRA administration, personnel action forms, surveys and enhanced Affordable Care Act applications.

The performance obligations related to recurring revenues are satisfied during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll. Recurring revenues are recognized at the conclusion of processing of each client’s payroll period, when each respective payroll client is billed. Collectability is reasonably assured as the fees are collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.

The contract period for substantially all contracts associated with these revenues is one month due to the fact that both we and the client have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications.  For clients who purchase multiple applications, due to the short-term nature of our contracts, we do not believe it is meaningful to separately assess and identify whether or not each application potentially represents its own, individual, performance obligation as the revenue generated from each application is recognized within the same month as the revenue from the core payroll application.  Similarly, we do not believe it is meaningful to individually determine the standalone selling price for each application.  We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups.  

Implementation and Other Revenues

Implementation and other revenues consist of nonrefundable upfront conversion fees which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our employee time and attendance services. Although these revenues are related to our recurring revenues, they represent distinct performance obligations.

Implementation activities primarily represent administrative activities that allow us to fulfill future performance obligations for our clients and do not represent services transferred to the client.  However, the nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of each 30-day contract period. Further, given that all other services within the contract are sold at a total price indicative of the standalone selling price, coupled with the fact that the upfront fees are consistent with upfront fees charged in similar contracts that we have with clients, the standalone selling price of the client’s option to renew the contract approximates the dollar amount of the nonrefundable upfront fee.  The nonrefundable upfront fee is typically included on the client’s first invoice, and is deferred and recognized ratably over the estimated renewal period (i.e., ten-year estimated client life).

Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.  

Contract Balances

The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

10

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

Changes in deferred revenue related to material right performance obligations as of March 31, 2020 and 2019 were as follows:

	Three Months Ended March 31,
	2020			2019
Balance, beginning of period	$	76,244		$	64,651
Deferral of revenue		5,885			5,561
Recognition of unearned revenue		(3,674	)		(2,701	)
Balance, end of period	$	78,455		$	67,511

We expect to recognize $8.8 million of deferred revenue related to material right performance obligations in the remainder of 2020, $11.5 million of such deferred revenue in 2021, and $58.2 million of such deferred revenue thereafter.

Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts

We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40.  These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations.  

The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach, and are capitalized and amortized over the expected period of benefit, which we have determined to be the estimated client relationship of ten years.  The expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal of such contract.  Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal.  Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform.  These assets are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract are included in the “sales and marketing” and “general and administrative” line items in the accompanying consolidated statements of income.

The following tables present the asset balances and related amortization expense for these contract costs:

	As of and for the Three Months Ended March 31, 2020
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	194,964	$	21,184	$	(7,188	)	$	208,960
Costs to fulfill a contract	$	143,788	$	19,509	$	(4,976	)	$	158,321
	As of and for the Three Months Ended March 31, 2019
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	158,989	$	19,387	$	(5,721	)	$	172,655
Costs to fulfill a contract	$	101,756	$	15,005	$	(3,470	)	$	113,291

11

Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

4. PROPERTY AND EQUIPMENT

Property and equipment and accumulated depreciation and amortization were as follows:

	March 31, 2020			December 31, 2019
Property and equipment
Software and capitalized software costs	$	109,275		$	99,125
Buildings		101,707			101,707
Computer equipment		60,673			56,879
Rental clocks		21,906			20,836
Furniture, fixtures and equipment		18,809			18,311
Other		6,853			6,242
		319,223			303,100
Less: accumulated depreciation and amortization		(137,114	)		(124,950	)
		182,109			178,150
Construction in progress		43,280			31,274
Land		29,034			29,034
Property and equipment, net	$	254,423		$	238,458

We capitalize computer software development costs related to software developed for internal use in accordance with ASC 350-40.  For the three months ended March 31, 2020 and 2019, we capitalized $9.7 million and $8.9 million, respectively, of computer software development costs related to software developed for internal use.

Rental clocks included in property and equipment, net represent time clocks issued to clients under month-to-month operating leases.  As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.

We capitalize interest incurred for indebtedness related to construction in progress.  For both the three months ended March 31, 2020 and 2019, we incurred interest costs of $0.4 million, of which we capitalized $0.4 million and $0.1 million, respectively.  Included in the construction in progress balance at March 31, 2020 and December 31, 2019 is $2.5 million and $2.2 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $12.2 million and $9.3 million, respectively, for the three months ended March 31, 2020 and 2019.

5. GOODWILL AND INTANGIBLE ASSETS, NET

As of both March 31, 2020 and December 31, 2019, goodwill was $51.9 million.  We have selected June 30 as our annual goodwill impairment testing date.  We have elected to perform a qualitative analysis of the fair value of our goodwill and determined there was no impairment as of June 30, 2019.  As of March 31, 2020 and December 31, 2019, there were no indicators of impairment.

All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables provide the components of intangible assets, which are included in Other assets in our consolidated balance sheets:

	March 31, 2020
	Weighted Average Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Trade name		2.3	$	3,194	$	(2,715	)	$	479
Total			$	3,194	$	(2,715	)	$	479

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Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

	December 31, 2019
	Weighted Average Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Trade name	2.5	$	3,194	$	(2,662	)	$	532
Total		$	3,194	$	(2,662	)	$	532

The weighted average remaining useful life of our intangible assets was 2.3 years as of March 31, 2020.  Amortization of intangible assets for both the three months ended March 31, 2020 and 2019 was $0.1 million.

6. LONG-TERM DEBT, NET

Long-term debt consisted of the following:

	March 31, 2020			December 31, 2019
Net term note to bank due September 7, 2025	$	32,198		$	32,633
Total long-term debt, net (including current portion)		32,198			32,633
Less: Current portion		(1,775	)		(1,775	)
Total long-term debt, net	$	30,423		$	30,858

On December 7, 2017, we entered into a senior secured term credit agreement (as amended from time to time, the “Term Credit Agreement”), pursuant to which JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank made certain term loans to us (the “Term Loans”).  Our obligations under the Term Loans are secured by a mortgage and first priority security interest in our corporate headquarters property.  The Term Loans mature on September 7, 2025 and bear interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5%.  As of March 31, 2020, our indebtedness of $30.4 million consisted solely of Term Loans made under the Term Credit Agreement.  Unamortized debt issuance costs of $0.2 million as of both March 31, 2020 and December 31, 2019 are presented as a direct deduction from the carrying amount of the debt liability.

Under the Term Credit Agreement, we are subject to two material financial covenants, which require us to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0. As of March 31, 2020, we were in compliance with these covenants. 

On February 12, 2018, we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. and Bank of America, N.A. that provided for a senior secured revolving credit facility (the “Facility”) in the aggregate principal amount of $50.0 million (the “Revolving Commitment”), which could be increased to up to $100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.  The Facility includes a $5.0 million sublimit for swingline loans and a $2.5 million sublimit for letters of credit.  The Facility was scheduled to mature on February 12, 2020.  On April 15, 2019, we entered into the First Amendment to Revolving Credit Agreement (the “First Amendment”).  Pursuant to the First Amendment, Wells Fargo Bank, N.A., was added as a lender and the Revolving Commitment was increased to $75.0 million, which may be further increased to $125.0 million subject to obtaining additional lender commitments and certain approvals and satisfying other conditions.  The scheduled maturity date of the Facility was extended to April 15, 2022.

Borrowings under the Facility will generally bear interest at a prime rate plus 1.0% or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5%.  The proceeds of the loans and letters of credit under the Facility are to be used only for our general business purposes and working capital.  Letters of credit are to be issued only to support our business operations. As of March 31, 2020, we did not have any borrowings outstanding under the Facility.

Under the Revolving Credit Agreement, we are required to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0. Additionally, the Revolving Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make certain investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case

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Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

subject to customary exceptions for a facility of the size and type of the Facility.  As of March 31, 2020, we were in compliance with all covenants related to the Revolving Credit Agreement.

As of March 31, 2020 and December 31, 2019, the carrying value of our total long-term debt approximated its fair value as of such date.  The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.

7. DERIVATIVE INSTRUMENTS

In December 2017, we entered into a floating-to-fixed interest rate swap agreement to limit the exposure to floating interest rate risk related to the Term Loans.  We do not hold derivative instruments for trading or speculative purposes.  The interest rate swap agreement effectively converts a portion of the variable interest rate payments to fixed interest rate payments.  We account for our derivatives under ASC Topic 815, “Derivatives and Hedging,” and recognize all derivative instruments in the consolidated balance sheets at fair value as either short-term or long-term assets or liabilities based on their anticipated settlement date.  See Note 8, “Fair Value of Financial Instruments”.  We have elected not to designate our interest rate swap as a hedge; therefore, changes in the fair value of the derivative instrument are recognized in our consolidated statements of income within Other income (expense), net.

The objective of the interest rate swap is to reduce the variability in the forecasted interest payments of the Term Loans, which is based on a one-month LIBOR rate versus a fixed interest rate of 2.54% on a notional value of $35.5 million.  Under the terms of the interest rate swap agreement, we will receive quarterly variable interest payments based on the LIBOR rate and will pay interest at a fixed rate.  The interest rate swap agreement has a maturity date of September 7, 2025.  For the three months ended March 31, 2020 and 2019, we recorded losses of $1.6 million and $0.5 million, respectively, for the change in fair value of the interest rate swap, which is included in Other income (expense), net in the consolidated statements of income.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt.  The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation approximates fair value due to the short-term nature of the instruments.  See Note 6 for discussion of the fair value of our debt.

As discussed in Note 2, we invest the funds held for clients in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit, and classify these items as cash and cash equivalents within the funds held for clients line item in the consolidated balance sheets.  Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item.  These available-for-sale securities are recognized in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.  As of March 31, 2020 and December 31, 2019, all available-for-sale securities and certificates of deposit were due in thirteen months or less.

As discussed in Note 7, during the year ended December 31, 2017, we entered into an interest rate swap.  The interest rate swap is measured on a recurring basis based on quoted prices for similar financial instruments and other observable inputs recognized at fair value.  

The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – Observable inputs such as quoted prices in active markets

• Level 2 – Inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active

• Level 3 – Unobservable inputs in which there is little or no market data

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Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	142,574	$	—	$	142,574
Certificates of deposit	$	—	$	170,388			$	170,388
Liabilities:
Interest rate swap	$	—	$	2,933	$	—	$	2,933

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	79,591	$	—	$	79,591
Certificates of deposit	$	—	$	75,000	$	—	$	75,000
Liabilities:
Interest rate swap	$	—	$	1,358	$	—	$	1,358

9. EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

Employees over the age of 18 who have completed ninety days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby the Company matches the contribution of our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of an employee’s salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100% vested in amounts attributable to salary deferrals and rollover contributions. The QACA matching contributions as well as the discretionary matching and profit sharing contributions vest 100% after two years of employment from the date of hire. Matching contributions were $2.2 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.

The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months.  At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10% of their compensation, subject to an annual per-employee maximum of $25,000.  Eligible employees purchase shares of the Company’s common stock at a price equal to 85% of the fair market value of the shares on the exercise date.  The maximum number of shares that may be purchased by a participant during each offering period is 2,000 shares, subject to limits specified by the Internal Revenue Service. The shares reserved for purposes of the ESPP are shares we purchase in the open market.  The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2.0 million shares.  Eligible employees purchased 25,564 and 22,330 shares of the Company’s common stock under the ESPP during the three months ended March 31, 2020 and 2019, respectively.  Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period.  Our compensation expense related to the ESPP was $0.4 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively.  

10. EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive shares of restricted stock whether or not they are vested.

In accordance with ASC Topic 260, “Earnings Per Share,” the two-class method determines earnings for each class of common stock and participating securities according to an earnings allocation formula that adjusts the income available to common stockholders for dividends or dividend equivalents and participation rights in undistributed earnings.  Certain unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.  The unvested shares of restricted stock granted in 2015 are considered participating securities, while all other unvested shares of restricted stock are not considered participating securities.

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Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:  

	Three Months Ended March 31,
	2020			2019
Numerator:
Net income	$	63,015		$	47,282
Less:  income allocable to participating securities		(27	)		(55	)
Income allocable to common shares	$	62,988		$	47,227
Add back:  undistributed earnings allocable to participating securities	$	27		$	55
Less:  undistributed earnings reallocated to participating securities		(27	)		(54	)
Numerator for diluted earnings per share	$	62,988		$	47,228
Denominator:
Basic weighted average shares outstanding		57,655			57,357
Dilutive effect of unvested restricted stock		785			959
Diluted weighted average shares outstanding		58,440			58,316
Earnings per share:
Basic	$	1.09		$	0.82
Diluted	$	1.08		$	0.81

11. STOCK-BASED COMPENSATION

The following table summarizes restricted stock awards activity for the three months ended March 31, 2020:

	Time-Based					Market-Based
	Restricted Stock Awards					Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2019		742.6		$	107.93		—		$	—
Granted		85.1		$	323.94		360.9		$	216.69
Vested		(2.0	)	$	155.81		—		$	—
Forfeited		(16.3	)	$	117.73		(1.0	)	$	251.33
Unvested shares of restricted stock outstanding at March 31, 2020		809.4		$	130.34		359.9		$	216.59

During the three months ended March 31, 2020, we issued an aggregate of 446,096 restricted shares of common stock to our executive officers and certain non-executive employees under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”), consisting of 360,948 shares subject to market-based vesting conditions (“Market-Based Shares”) and 85,148 shares subject to time-based vesting conditions (“Time-Based Shares”). Market-Based Shares for executive officers will vest 50% on the first date, if any, that the Company’s total enterprise value (calculated as defined in the applicable restricted stock award agreement) (“TEV”) equals or exceeds $23.75 billion and 50% on the first date, if any, that the Company’s TEV equals or exceeds $27.7 billion, in each case provided that (i) such date occurs on or before the sixth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date.  Market-Based Shares for non-executive employees will vest 50% on the first date, if any, that the Company’s TEV equals or exceeds $19.8 billion and 50% on the first date, if any, that the Company’s TEV equals or exceeds $22.15 billion, in each case provided that (i) such date occurs on or before the sixth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date. Time-Based Shares granted to non-executive employees will vest over periods ranging from three to four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.

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Paycom Software, Inc.

Notes to the Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

(unaudited)

For the three months ended March 31, 2020 and 2019, our total compensation expense related to restricted stock was $15.8 million and $31.1 million, respectively.  There was $143.0 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of restricted stock outstanding as of March 31, 2020. The unrecognized compensation cost for the unvested shares is expected to be recognized over a weighted average period of 1.9 years as of March 31, 2020.  

We capitalized stock-based compensation costs related to software developed for internal use of $1.6 million and $3.3 million for the three months ended March 31, 2020 and 2019, respectively.  

12. COMMITMENTS AND CONTINGENCIES

As previously disclosed, since February 2019, we have received subpoenas and requests from the SEC focused on whether certain of our clients were charged, and paid, an additional amount for one or more applications for which the clients were already being charged. In connection with this matter, we identified less than 250 affected clients, representing approximately 0.5% of our client base as of December 31, 2019.  Since December 2019, we have been notifying clients affected by such charges between approximately 2011 and 2019 and have refunded approximately $2.5 million, in the aggregate, to such clients. This issue did not have a material impact on our financial results for any prior period. The SEC staff has informed our legal counsel that its inquiry concerns our books and records and internal controls. We cannot predict the timing, scope or outcome of this matter.

We are involved in various legal proceedings in the ordinary course of business.  Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

13. INCOME TAXES

The Company’s effective income tax rate was 28.7% and 23.9% for the three months ended March 31, 2020 and 2019, respectively. The higher effective tax rate for the three months ended March 31, 2020 is primarily related to a decrease in excess tax benefits from stock-based compensation related to vesting events as compared to the three months ended March 31, 2019.  

14. SUBSEQUENT EVENTS

On April 27, 2020, we issued an aggregate of 60,348 restricted shares of common stock to certain non-executive employees under the LTIP consisting of Time-Based Shares that will vest in three equal tranches annually, beginning on the first anniversary of the grant date, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.

On April 27, 2020, we issued an aggregate of 5,970 restricted shares of common stock under the LTIP to the non-employee members of our board of directors. Such shares of restricted stock will cliff-vest on the seventh day following the first anniversary of the date of grant, provided that such director is providing services to the Company through the applicable vesting date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2020, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 13, 2020 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2019, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in thousands unless otherwise noted.

Forward-Looking Statements

The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that look to future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; our ability to attract and retain qualified employees and key personnel; future regulatory, judicial and legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; the timeline for construction of our new Texas operations facility; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to our new Texas operations facility and research and development; our plans to repurchase shares of our common stock through a stock repurchase plan; our expected income tax rate for future periods; and the impact of the novel coronavirus (COVID-19) pandemic on our business, results of operations, cash flows, financial condition and liquidity.  In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “will,” “would,” and similar expressions or the negative of such terms or other comparable terminology.

Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

• changes in laws, government regulations and policies and interpretations thereof;

• the possibility of security vulnerabilities, cyberattacks and network disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions;

• the impact of COVID-19 on the U.S. economy, including business disruptions resulting from government-mandated mitigation measures, reductions in employment and an increase in business failures;

• our compliance with data privacy laws and regulations;

• our ability to develop enhancements and new applications, keep pace with technological developments and respond to future disruptive technologies;

• our ability to compete effectively;

• fluctuations in our financial results due to factors beyond our control;

• our ability to manage our rapid growth and organizational change effectively;

• the possibility that clients may not be satisfied with our deployment or technical support services, or that our solution fails to perform properly;

• our dependence on our key executives;

• our ability to attract and retain qualified personnel, including software developers and skilled IT, sales, marketing and operational personnel;

• our failure to develop and maintain our brand cost-effectively;

• seasonality of certain operating results and financial metrics;

• the possibility that the Affordable Care Act may be modified or repealed;

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• our failure to adequately protect our intellectual property rights;

• our reliance on relationships with third parties; and

• the other factors set forth in Part I, Item 1A, “Risk Factors” of the Form 10-K, Part II, Item 1A, “Risk Factors” of this Form 10-Q and our other reports filed with the SEC.

Forward-looking statements are based only on information currently available to us and speak only as of the date of this Form 10-Q.  We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.

Overview

We are a leading provider of comprehensive, cloud-based human capital management (“HCM”) software delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources management applications. Our user-friendly software allows for easy adoption of our solution by employees, enabling self-management of their HCM activities in the cloud, which reduces the administrative burden on employers and increases employee productivity.

We generate revenues from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed and (ii) fixed amounts charged per billing period.  We do not require clients to enter into long-term contractual commitments with us.  Our billing period varies by client based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly.  We serve a diverse client base in terms of size and industry. None of our clients constituted more than one-half of one percent of our revenues for the three months ended March 31, 2020.  Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives who sell new applications to existing clients.

Our continued growth depends on attracting new clients through further penetration of our existing markets and geographic expansion into new markets, targeting a high degree of client employee usage across our solution, and introducing new applications to our existing client base. We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase revenues in the future, and the number of our new applications adopted by our clients has been a significant factor in our revenue growth. We also plan to open additional sales offices in the future to further expand our presence in the U.S. market.

Our principal marketing efforts include email campaigns, social and digital media, search engine marketing methods, tradeshows and outbound marketing including television and print advertising. In addition, we generate leads and build recognition of our brand and thought leadership with relevant and informative content, such as white papers, blogs, podcast episodes and webinars.

Throughout our history, we have built strong relationships with our clients. As the HCM needs of our clients evolve, we believe that we are well-positioned to expand the HCM spending of our clients and we believe this opportunity is significant. To be successful, we must continue to demonstrate the operational and economic benefits of our solution, as well as effectively hire, train, motivate and retain qualified personnel.

Growth Outlook, Opportunities and Challenges

As a result of our significant revenue growth and geographic expansion since our initial public offering in April 2014, we are presented with a variety of opportunities and challenges.  Our payroll application is the foundation of our solution and all of our clients are required to utilize this application in order to access our other applications.  Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution.  We believe our strategy of focusing on increased employee usage is key to long-term client satisfaction and client retention.  Client adoption of new applications and client employee usage of both new and existing applications have been significant factors in our revenue growth, and we expect the continuation of this trajectory will depend, in part, on the introduction of applications to our existing client base that encourage and promote more employee usage.  Moreover, in order to increase revenues and continue to improve our operating results, we must also attract new clients.  We intend to obtain new clients by (i) continuing to leverage our salesforce productivity within markets where we currently have existing sales offices, (ii) expanding our presence in metropolitan areas where we currently have an existing sales office through adding sales teams or offices, thereby increasing the number of sales professionals within such markets, and (iii) opening sales offices in new metropolitan areas.

Our target client size range is 50 to 5,000 employees.  While we continue to serve a diversified client base ranging in size from one employee to many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations, increased the number of applications we offer and gained traction with larger companies.  We believe larger employers represent a substantial opportunity to increase the number of potential clients and to increase our revenues per client, with limited incremental cost to us.  Because we charge our clients on a per-employee basis for certain services we provide, any increase or

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decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations.  As discussed in more detail below, client headcount fluctuations are particularly relevant in light of the ongoing COVID-19 pandemic.  Generally, we expect that changes in certain factors affecting our performance will correlate with improvement or deterioration in the labor market.  

We collect funds from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services.  Those collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days.  We typically invest funds held for clients in money market funds, demand deposit accounts, commercial paper and certificates of deposit until they are paid to the applicable tax or regulatory agencies or to client employees.  As we introduce new applications, expand our client base and renew and expand relationships with existing clients, we expect our average funds held for clients balance and, accordingly, interest earned on funds held for clients, will increase; however, the amount of interest we earn can be positively or negatively impacted by changes in interest rates.  Even if our average funds held for clients balance continues to increase, the impact of significantly lower average interest rates could partially offset the impact of such increased balance and, as a result, have a negative impact on recurring revenue growth.

Growing our business has resulted in, and will continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs and general and administrative expenses, which have and will continue to increase our expenses.  Specifically, our revenue growth and geographic expansion drive increases in our employee headcount, which in turn precipitates increases in (i) salaries and benefits, (ii) stock-based compensation expense and (iii) facility costs related to the expansion of our corporate headquarters and operations facilities and additional sales office leases.

We believe the challenges of managing the ever-changing complexity of payroll and human resources will continue to drive companies to turn to outsourced providers for help with their HCM needs. The HCM industry historically has been driven, in part, by legislation and regulatory action, including COBRA, changes to the minimum wage laws or overtime rules, and legislation from federal, state or municipal taxation authorities.

Our revenues are seasonal in nature.  Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2, Form 1099, and Form 1095, and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.  Because payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters.  These seasonal fluctuations in revenues can also have an impact on gross profits.  Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.  For the three months ended March 31, 2020 and 2019, our total gross margins were approximately 88% and 85%, respectively.  Although our gross margins may fluctuate from quarter to quarter due to seasonality and hiring trends, we expect that our gross margins will remain relatively consistent in future periods.  Nonetheless, as discussed in further detail below, operational challenges resulting from the ongoing COVID-19 crisis may negatively impact our gross margins throughout 2020.

Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the current COVID-19 outbreak to be a global pandemic. In response, federal, state and local governments have imposed various restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the disease. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain, disrupting the business of our clients, and will impact our business and consolidated results of operations and could impact our financial condition in the future. We are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our clients and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q.

The COVID-19 pandemic has disrupted the operations of our clients and client prospects and may continue to do so for an indefinite period of time. Temporary and permanent business closures across multiple industries are resulting in significant layoffs and employee furloughs. Because we charge our clients on a per-employee basis for certain services we provide, decreases in headcount at our clients will negatively impact our results of operations. Further, as a result of ongoing business disruptions, client prospects may delay onboarding decisions and service implementation.

In addition, during 2019, interest earned on funds held for clients contributed to growth in recurring revenue, due to both higher average interest rates and an increased average funds held for clients balance. Since August 2019, the Federal Open Market Committee has reduced the target range for short-term interest rates several times, with the most significant rate cut occurring in March 2020 to support the economy and potentially reduce the impacts of the COVID-19 pandemic. In addition, a provision in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows employers to delay the payment of the employer’s share of Social Security taxes to a future date.  Significantly lower average interest rates in 2020, as well as slower growth in average funds held for clients balance due to lower employee headcount at our clients and clients electing the Social Security tax deferral under the CARES Act, will have a negative effect on recurring revenue growth.

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Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate, and in March 2020, we prohibited all business-related travel until further notice and began transitioning our employees to work-from-home arrangements. Our remote work arrangements may create operational challenges and may result in increased costs related to investments in technology.  As of March 31, 2020, 98% of our employees were working remotely.

Furthermore, our salesforce has historically traveled frequently to sell our solution. Beginning in March 2020 and continuing for the foreseeable future, our sales employees are conducting all meetings with current and prospective clients virtually. If clients and client prospects are not as willing or available to engage via video conference and teleconference, we expect that the shift from in-person to virtual sales meetings could negatively affect our sales efforts, impede client acquisition and lengthen our sales cycles, which would negatively impact our business and results of operations and could impact our financial condition in the future. Despite these new challenges, the current remote work environment presents a unique opportunity for our salesforce, in that each sales employee is able to meet with a greater number of client prospects in a given day than he or she would if conducting in-person meetings. Nonetheless, while our revenue and earnings are relatively predictable, the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

Despite the economic challenges brought on by the COVID-19 pandemic, we remain confident in the overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy. Internally, all applications within the Paycom solution, and more specifically Employee Self-Service, Manager on-the-Go, Documents and Checklists, Ask Here and our enhanced Learning Management System, have been instrumental in our ability to seamlessly manage and communicate with our remote workforce. As many clients have also transitioned their workforces to work-from-home arrangements, we believe they too are recognizing the benefits of these applications and our focus on employee usage, as well as the strengths and advantages of our single database solution. In contrast, we believe the remote work environment is exposing the weaknesses and disadvantages arising from the combination of disparate systems offered by some of our competitors.

Although we currently have some insight with respect to the shorter-term effects of the COVID-19 pandemic, it is not possible at this time to estimate the full impact that the crisis could have on our business. The impact will depend on future developments that are highly uncertain and cannot be predicted. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and clients.

Results of Operations

The following table sets forth consolidated statements of income data and such data as a percentage of total revenues for the periods presented:

	Three Months Ended March 31,
	2020					2019					% Change
Revenues
Recurring	$	238,495		98.4	%	$	196,864		98.5	%	21%
Implementation and other		3,873		1.6	%		3,079		1.5	%	26%
Total revenues		242,368		100.0	%		199,943		100.0	%	21%
Cost of revenues
Operating expenses		24,116		10.0	%		24,776		12.4	%	-3%
Depreciation and amortization		5,930		2.4	%		4,542		2.3	%	31%
Total cost of revenues		30,046		12.4	%		29,318		14.7	%	2%
Administrative expenses
Sales and marketing		55,018		22.7	%		39,645		19.8	%	39%
Research and development		21,621		8.9	%		18,489		9.2	%	17%
General and administrative		40,134		16.6	%		45,198		22.6	%	-11%
Depreciation and amortization		6,285		2.6	%		4,805		2.4	%	31%
Total administrative expenses		123,058		50.8	%		108,137		54.0	%	14%
Total operating expenses		153,104		63.2	%		137,455		68.7	%	11%
Operating income		89,264		36.8	%		62,488		31.3	%	43%
Interest expense		(16	)	0.0	%		(276	)	-0.1	%	-94%
Other income (expense), net		(930	)	-0.4	%		(100	)	-0.1	%	830%
Income before income taxes		88,318		36.4	%		62,112		31.1	%	42%
Provision for income taxes		25,303		10.4	%		14,830		7.5	%	71%
Net income	$	63,015		26.0	%	$	47,282		23.6	%	33%

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Revenues

The increase in total revenues for the three months ended March 31, 2020 compared to the same period in 2019 was primarily the result of (i) the addition of new clients and productivity and efficiency gains in mature sales offices, which are offices that have been open for at least 24 months, (ii) contributions from new sales offices opened in 2018 and 2019 that are progressing to maturity and (iii) the sale of additional applications to our existing clients.  In addition, the strong performance of our tax forms filing business in the first quarter contributed to the increase in total revenues for the three months ended March 31, 2020 as compared to the same period in 2019.  These increases were partially offset by a decrease in interest earned on funds held for clients attributable to lower interest rates during the three months ended March 31, 2020, as compared to the same period in 2019.

The increase in implementation and other revenues for the three months ended March 31, 2020 from the same period in 2019 was primarily the result of the increased recognition of non-refundable conversion fees that are charged to new clients to offset the expense of new client set up.  These fees are deferred and recognized ratably over the ten-year estimated life of our clients.

Expenses

Cost of Revenues

During the three months ended March 31, 2020, cost of revenues increased from the comparable prior year period by $0.7 million.  Depreciation and amortization expense increased $1.4 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other fixed assets. Additionally, during the three months ended March 31, 2020, employee-related expenses increased $0.8 million from the same period in 2019 due to growth in the number of operating personnel, and automated clearing house fees increased $0.4 million in connection with the increase in revenues.  These increases in cost of revenues were partially offset by a $1.7 million decrease in non-cash stock based compensation and a $0.2 million decrease in shipping and supplies fees during the three months ended March 31, 2020, as compared to the prior year period.

Administrative Expenses

Sales and Marketing

During the three months ended March 31, 2020, sales and marketing expenses increased from the comparable prior year period by $15.4 million due to an $8.3 million increase in employee-related expenses, including commissions, bonuses and non-cash stock-based compensation, and a $7.1 million increase in marketing and advertising expense due to increased spending across most components of our marketing program. Based on positive results from recent advertising campaigns, we plan to increase spending on marketing and advertising in the second quarter of 2020 as compared to the first quarter of 2020, and may continue to do so in future periods as we see opportunities for returns on our investments.

Research and Development

During the three months ended March 31, 2020, research and development expenses increased from the comparable prior year period due to a $4.0 million increase in employee-related expenses, which was partially offset by a $0.9 million decrease in non-cash stock-based compensation expense.  

As we continue the ongoing development of our platform and product offerings, we generally expect research and development expenses (exclusive of stock-based compensation) to continue to increase, particularly as we hire more personnel to support our growth.  While we expect this trend to continue on an absolute dollar basis and as a percentage of total revenues, we also anticipate the rate of increase to decline over time as we leverage our growth and realize additional economies of scale.  As is customary for our business, we also expect fluctuations in research and development expense as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.

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Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020		2019		% Change
Capitalized portion of research and development	$	9,746	$	8,940	9%
Expensed portion of research and development		21,621		18,489	17%
Total research and development costs	$	31,367	$	27,429	14%

General and Administrative

During the three months ended March 31, 2020, general and administrative expenses decreased $5.1 million from the comparable prior year period primarily due to a $13.3 million decrease in non-cash stock-based compensation, which was partially offset by a $4.6 million increase in accounting and legal expenses related to regulatory and compliance matters and a $3.6 million increase in employee-related expenses.

Non-Cash Stock-Based Compensation Expense

The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of income:

	Three Months Ended March 31,
	2020		2019		% Change
Non-cash stock-based compensation expense
Operating expenses	$	1,198	$	2,896	-59%
Sales and marketing		3,165		2,583	23%
Research and development		2,171		3,046	-29%
General and administrative		9,277		22,546	-59%
Total non-cash stock-based compensation expense	$	15,811	$	31,071	-49%

During the three months ended March 31, 2020, our non-cash stock-based compensation expense decreased $15.3 million from the comparable prior year period primarily due to the accelerated vesting of restricted stock subject to market-based vesting conditions during the first quarter of 2019.

Depreciation and Amortization

During the three months ended March 31, 2020, depreciation and amortization expense increased from the comparable prior year period primarily due to the development of additional technology and purchases of other related fixed assets.

Interest Expense

The decrease in interest expense for the three months ended March 31, 2020 was due to the timing of construction of our expanded operations facility in Grapevine, Texas, which resulted in more capitalized interest in 2020.  

Other Income (Expense), net

The decrease in other income (expense), net for the three months ended March 31, 2020 was primarily due to a decrease in the fair value of our interest rate swap as compared to the three months ended March 31, 2019.

Provision for Income Taxes

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 28.7% and 23.9% for the three months ended March 31, 2020 and 2019, respectively. The higher effective income tax rate for the three months ended March 31, 2020 primarily resulted from a decrease in excess tax benefits from stock-based compensation related to vesting events as compared to the three months ended March 31, 2019.  

Liquidity and Capital Resources

Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents.  Our cash and cash equivalents consist primarily of demand deposit accounts, money market funds and certificates of deposit.  Additionally, we maintain

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a senior secured revolving credit facility (the “Facility”), which can be accessed as needed to supplement our operating cash flow and cash balances.  The Facility provides us the ability to borrow funds in the aggregate principal amount of $75.0 million, which may be increased up to $125.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.  We believe our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months.  Given the rapidly changing market and economic conditions related to the COVID-19 outbreak, we will continue to evaluate the nature and extent of the impact to our business, financial position and liquidity.  

We have historically funded our operations from cash flows generated from operations, cash from the sale of equity securities and debt financing. Although we have funded most of the costs for ongoing construction projects at our corporate headquarters from available cash, we have incurred indebtedness for a portion of these costs.  Further, all purchases under our stock repurchase plans were paid for from available cash.  

Term Credit Agreement.  As of March 31, 2020, our indebtedness consisted solely of term loans (the “Term Loans”) made under a senior secured term credit agreement (as amended from time to time, the “Term Credit Agreement”) among the Company, certain of our subsidiaries, JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank.  All Term Loans were used to finance construction projects at our corporate headquarters.  Our obligations under the Term Loans are secured by a mortgage and first priority security interest in our corporate headquarters property.  The Term Loans mature on September 7, 2025 and bear interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5%.

Under the Term Credit Agreement, we are required to comply with certain financial and non-financial covenants, including maintaining a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0. Additionally, the Term Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make investments, dispose of assets, enter into certain transactions including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case subject to customary exceptions for a credit agreement of this size and type.  As of March 31, 2020, we were in compliance with all covenants set forth in the Term Credit Agreement.

Interest Rate Swap Agreement.  In connection with entering into the Term Credit Agreement, we also entered into a floating-to-fixed interest rate swap agreement to limit the exposure to interest rate risk related to the Term Loans (the “Interest Rate Swap Agreement”).  The Interest Rate Swap Agreement, which has a maturity date of September 7, 2025, provides that we will receive quarterly variable interest payments based on the LIBOR rate and will pay interest at a fixed rate.  We have elected not to designate this interest rate swap as a hedge and, as such, changes in the fair value of the derivative instrument are recognized in our consolidated statements of income.  For the three months ended March 31, 2020, we recognized a loss of $1.6 million for the change in fair value of the interest rate swap, which is included in Other income (expense), net in the consolidated statements of income.

Revolving Credit Agreement.  On February 12, 2018, we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. and Bank of America, N.A. that provided for the Facility in the aggregate principal amount of $50.0 million (the “Revolving Commitment”), which could be increased to up to $100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions. The Facility includes a $5.0 million sublimit for swingline loans and a $2.5 million sublimit for letters of credit.  The Facility was scheduled to mature on February 12, 2020.  On April 15, 2019, we entered into the First Amendment to Revolving Credit Agreement (the “First Amendment”).  Pursuant to First Amendment, Wells Fargo Bank, N.A. was added as a lender and the Revolving Commitment was increased to $75.0 million, which may be further increased to $125.0 million subject to obtaining additional lender commitments and certain approvals and satisfying other conditions and the scheduled maturity date of the Facility was extended to April 15, 2022.  

Borrowings under the Facility will generally bear interest at a prime rate plus 1.0% or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5%, in each case subject to certain conditions set forth in the Revolving Credit Agreement.  As of March 31, 2020, we did not have any borrowings outstanding under the Facility.

Stock Repurchase Plan and Withholding Shares to Cover Taxes.  In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.  Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time.  Most recently, in March 2020, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock.  As of March 31, 2020, there was $242.0 million available for repurchases under our stock repurchase plan.  Our stock repurchase plan may be suspended or discontinued at any time.  The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations.  The current stock repurchase plan will expire on March 12, 2022.

During the three months ended March 31, 2020, we repurchased an aggregate of 40,032 shares of our common stock at an average cost of $204.04 per share, including 671 shares withheld to satisfy tax withholding obligations for certain employees upon the

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vesting of restricted common stock. Our payment of the taxes on behalf of those employees resulted in a cash expenditure of $0.2 million and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.

Cash Flow Analysis

Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenues received but deferred, our investment in sales and marketing to drive growth, and research and development. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.

As our business grows, we expect our capital expenditures and our investment activity to continue to increase. We are currently focused on the ongoing construction of our new Texas operations facility in Grapevine, Texas.  Capital expenditures related to the construction of the facility began in the second quarter of 2019.  Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, acquisitions, technology and services. Actual future capital requirements will depend on many factors, including our future revenues, cash from operating activities and the level of expenditures in all areas of our business.  

As part of our payroll and payroll tax filing services, we collect funds from our clients for federal, state and local employment taxes, which we remit to the appropriate tax agencies. We invest these funds in money market funds, demand deposit accounts, commercial paper and certificates of deposit from which we earn interest income during the period between their receipt and disbursement.

Our cash flows from investing and financing activities are influenced by the amount of funds held for clients, which can vary significantly from quarter to quarter. The balance of the funds we hold depends on our clients’ payroll calendars, and therefore such balance changes from period to period in accordance with the timing of each payroll cycle.  

Our cash flows from financing activities are also affected by the extent to which we use available cash to purchase shares of common stock under our stock repurchase plan as well as restricted stock vesting events that result in net share settlements and the Company paying withholding taxes on behalf of certain employees.

The following table summarizes the consolidated statements of cash flows for the three months ended March 31, 2020 and 2019:

	Three Months Ended March 31,
	2020			2019			Change %
Net cash provided by (used in):
Operating activities	$	82,030		$	80,426		2%
Investing activities		(183,629	)		(17,189	)	968%
Financing activities		(279,011	)		417,565		-167%
Change in cash, cash equivalents, restricted cash and restricted cash equivalents	$	(380,610	)	$	480,802		-179%

Operating Activities

Cash provided by operating activities for the three months ended March 31, 2020 primarily consisted of payments received from our clients and interest earned on funds held for clients.  Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business.  These payments included costs of operations, advertising and other sales and marketing efforts, IT infrastructure development, product research and development and security and administrative costs.  Compared to the three months ended March 31, 2019, our operating cash flows for the three months ended March 31, 2020 were positively impacted by the growth of our business.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2020 increased from the comparable prior year period due to a $161.1 million increase in purchases of short-term investments from funds held for clients and a $10.8 million increase in cash used for purchases of property and equipment.  The increase in cash used in investing activities was partially offset by a $5.5 million increase in proceeds from maturities of short-term investments from funds held for clients.

Financing Activities

Cash flows used in financing activities for the three months ended March 31, 2020 increased from the comparable prior year period primarily due to the impact of a $708.1 million change related to the client funds obligation, which is due to the timing of receipts from our clients and payments made to our clients’ employees and applicable taxing authorities on their behalf.  Additionally,

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cash flows used in financing activities increased by $8.0 million due to repurchases of common stock.  These cash flows used in financing activities were partially offset by a $19.5 million decrease in withholding taxes paid related to net share settlements.

Contractual Obligations

Our principal commitments primarily consist of long-term debt and leases for office space. There have been no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.  For additional information regarding our leases, long-term debt and our commitments and contingencies, see “Note 5.  Leases”, “Note 6. Long-Term Debt” and “Note 12. Commitments and Contingencies” in the Form 10-K and “Note 6. Long-Term Debt, Net” and “Note 12. Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any off-balance sheet arrangements that had or were reasonably likely to have an effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources that may be material to investors.

Critical Accounting Policies and Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions to ensure that management believes them to be reasonable under the then-current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions.

Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are discussed in the critical accounting policies and estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.  There have been no material changes to the critical accounting policies disclosed in the Form 10-K.

Adoption of Accounting Pronouncements

Discussion of our adoption of ASU 2018-13 and ASU 2018-15 can be found in Note 2 in this Form 10-Q.      

Non-GAAP Financial Measures

Management uses adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define (i) adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap, all of which are adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by management in its financial and operational decision-making.  We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP.  In addition, adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes.  Management believes that the non-GAAP measures presented in this Form 10-Q, when viewed in combination with our results prepared in accordance with U.S. GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.

Adjusted EBITDA and non-GAAP net income are not measures of financial performance under U.S. GAAP, and should not be considered a substitute for net income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of income data prepared in accordance with U.S. GAAP. Adjusted EBITDA and non-GAAP net income may not be comparable to similarly titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

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The following tables reconcile net income to adjusted EBITDA, net income to non-GAAP net income and earnings per share to non-GAAP net income per share on a basic and diluted basis:

	Three Months Ended March 31,
	2020		2019
Net income to adjusted EBITDA:
Net income	$	63,015	$	47,282
Interest expense		16		276
Provision for income taxes		25,303		14,830
Depreciation and amortization		12,215		9,347
EBITDA		100,549		71,735
Non-cash stock-based compensation expense		15,811		31,071
Change in fair value of interest rate swap		1,575		539
Adjusted EBITDA	$	117,935	$	103,345

	Three Months Ended March 31,
	2020		2019
Net income to non-GAAP net income:
Net income	$	63,015	$	47,282
Non-cash stock-based compensation expense		15,811		31,071
Change in fair value of interest rate swap		1,575		539
Income tax effect on non-GAAP adjustments		(2,473)		(9,642	)
Non-GAAP net income	$	77,928	$	69,250
Earnings per share, basic	$	1.09	$	0.82
Earnings per share, diluted	$	1.08	$	0.81
Non-GAAP net income per share, basic	$	1.35	$	1.21
Non-GAAP net income per share, diluted	$	1.33	$	1.19
Weighted average shares outstanding:
Basic		57,655		57,357
Diluted		58,440		58,316

	Three Months Ended March 31,
	2020			2019
Earnings per share to non-GAAP net income per share, basic:
Earnings per share, basic	$	1.09		$	0.82
Non-cash stock-based compensation expense		0.27			0.54
Change in fair value of interest rate swap		0.03			0.01
Income tax effect on non-GAAP adjustments		(0.04	)		(0.16	)
Non-GAAP net income per share, basic	$	1.35		$	1.21
	Three Months Ended March 31,
	2020			2019
Earnings per share to non-GAAP net income per share, diluted:
Earnings per share, diluted	$	1.08		$	0.81
Non-cash stock-based compensation expense		0.27			0.53
Change in fair value of interest rate swap		0.03			0.01
Income tax effect on non-GAAP adjustments		(0.05	)		(0.16	)
Non-GAAP net income per share, diluted	$	1.33		$	1.19

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents totaling $181.8 million as of March 31, 2020. These amounts are invested primarily in demand deposit accounts and money market funds. We consider all highly liquid debt instruments purchased with a maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal.  We do not enter into investments for trading or speculative purposes.

Our cash equivalents are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

As described elsewhere in this Form 10-Q, the Term Loans made under the Term Credit Agreement bear interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5%.  As a result, we are exposed to increased interest rate risk.  To mitigate the increased interest rate risk, we entered into the Interest Rate Swap Agreement.  The Interest Rate Swap Agreement has effectively fixed our interest rate at 4.0%, eliminating a portion of the variable rate and coinciding interest rate risk associated with the Term Loans.  As of March 31, 2020, an increase or decrease in interest rates of 100-basis points would not have had a material effect on our operating results or financial condition.

As described elsewhere in this Form 10-Q, the Revolving Credit Agreement, as amended, provides for a Facility in the aggregate amount of $75.0 million, which may be increased to up to $125.0 million.  Borrowings under the Facility will generally bear interest at a prime rate plus 1.0% or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5%.  As of March 31, 2020, we have not made any draws under the Facility.  To the extent we make draws under the Facility in the future, we may be exposed to increased interest rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our chief executive officer and chief financial officer, evaluated, as of March 31, 2020, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2020 to ensure that information required to be disclosed by us in this Form 10-Q is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, can only provide reasonable assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have been no material changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business. We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K.

The novel coronavirus (COVID-19) pandemic could adversely impact our business, results of operations, cash flows, financial condition and liquidity.

The global spread of the novel coronavirus (COVID-19) has created significant volatility, uncertainty and economic disruption. Individually and collectively, the consequences of the COVID-19 pandemic could adversely impact our business, results of operations, cash flows, financial condition and liquidity.  The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, cash flows, financial condition and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to:

• the duration and scope of the pandemic;

• governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;

• the impact of business disruptions and reductions in headcount on our clients and the resulting impact on their demand for our services and solution;

• the increase in business failures among businesses that we serve;

• our clients’ ability to pay for our services and solutions; and

• our ability to provide our services and solutions, including as a result of our employees or our clients’ employees working remotely and/or closures of offices and facilities.

Temporary and permanent business closures across multiple industries are resulting in significant layoffs and employee furloughs. Because we charge our clients on a per-employee basis for certain services we provide, decreases in headcount at our clients will negatively impact our results of operations. Further, as a result of ongoing business disruptions, client prospects may delay onboarding decisions and service implementation.

In order to spur economic activity to counteract the adverse effects of the COVID-19 pandemic, the Federal Open Market Committee lowered its target for the federal funds rate in March 2020.  In addition, a provision in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows employers to delay the payment of the employer’s share of Social Security taxes to a future date.  Significantly lower average interest rates in 2020, as well as slower growth in the average funds held for clients balance due to lower employee headcount at our clients and clients electing the Social Security tax deferral under the CARES Act will have a negative effect on recurring revenue growth.

Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate. Our remote work arrangements may create operational challenges and may result in increased costs related to investments in technology.  As of March 31, 2020, 98% of our employees were working remotely.

Furthermore, we have prohibited all business-related travel until further notice and our salesforce is conducting all sales meetings virtually.  If clients and client prospects are not as willing or available to engage via video conference and teleconference, we expect that the shift from in-person to virtual sales meetings could negatively affect our sales efforts, impede client acquisition and lengthen our sales cycles, which would negatively impact our business and results of operations and could impact our financial condition in the future.

Even after the COVID-19 outbreak has subsided, depending upon its duration and frequency of recurrence, and the governmental policies in response thereto, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that may occur or be continuing as a result. We are evaluating the extent to which

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COVID-19 has impacted us and our employees and clients, and the extent to which it and other emerging developments are expected to impact us in the future.  

Our financial results may fluctuate due to many factors, some of which may be beyond our control.

Our results of operations, including our revenues, costs of revenues, administrative expenses, operating income, cash flow and deferred revenue, may vary significantly in the future, and the results of any one period should not be relied upon as an indication of future performance. Fluctuations in our financial results may negatively impact the value of our common stock.  Our financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Factors that may cause our financial results to fluctuate from period to period include, without limitation:

• our ability to attract new clients or sell additional applications to our existing clients;

• the number of new clients and their employees, as compared to the number of existing clients and their employees in a particular period;

• the mix of clients between small, mid-sized and large organizations;

• the extent to which we retain existing clients and the expansion or contraction of our relationships with them;

• the mix of applications sold during a period;

• changes in our pricing policies or those of our competitors;

• seasonal factors affecting payroll processing, demand for our applications or potential clients’ purchasing decisions;

• the amount and timing of operating expenses, including those related to the maintenance and expansion of our business, operations and infrastructure;

• the timing and success of new applications introduced by us and the timing of expenses related to the development of new applications and technologies;

• the timing and success of current and new competitive products and services offered by our competitors;

• economic conditions affecting our clients, including their ability to outsource HCM solutions and hire employees;

• business disruptions caused by pandemics such as the COVID-19 outbreak;

• changes in laws, regulations or policies affecting our clients’ legal obligations and, as a result, demand for certain applications;

• changes in the competitive dynamics of our industry, including consolidation among competitors or clients;

• our ability to manage our existing business and future growth, including expenses related to our data centers and the expansion of such data centers and the addition of new offices;

• the effects and expenses of acquisition of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions;

• inclement weather or natural disasters, including but not limited to tornadoes, hurricanes, fires, earthquakes and floods;

• network outages or security breaches; and

• general economic, industry and market conditions.

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Item 2. Unregistered Sale of Equity Securities and Use of Proceeds  

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January  1 - 31, 2020(2)		477	$	278.14		477	$	119,300,000
February 1 - 29, 2020		—	$	—		—	$	119,300,000
March 1 - 31, 2020(3)		39,555	$	203.14		39,555	$	242,000,000
Total		40,032				40,032

(1) Pursuant to a stock repurchase plan announced on November 20, 2018, we were authorized to purchase (in the aggregate) up to $150.0 million of our common stock in open market purchases, privately negotiated transactions or by other means.  On March 12, 2020, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $250.0 million and extended the expiration date to March 12, 2022.

(2) Consists of shares withheld to satisfy tax withholding for certain employees upon the vesting of restricted stock.

(3) Includes 194 shares withheld to satisfy tax withholding for certain employees upon the vesting of restricted stock.

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Item 6. Exhibits

The following exhibits are incorporated herein by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K):

Exhibit No.	Description
3.1	Amended and Restated Certificate of Incorporation of Paycom Software, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).
3.2	Amended and Restated Bylaws of Paycom Software, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).
4.2	Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).
4.3	Joinder to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).
4.4	Amendment No. 1 to the Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015 (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 7, 2015).
4.5	Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and the Mackesy Family Foundation, dated as of May 27, 2015 (incorporated by reference to Exhibit 4.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.6	Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Anthony & Christie de Nicola Foundation, dated as of August 13, 2015 (incorporated by reference to Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.7	Amendment No. 2 to Registration Rights Agreement, by and between Paycom Software, Inc. and each of the signatories thereto, dated as of September 15, 2015 (incorporated by reference to Exhibit 4.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.8	Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and The Swani Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.9	Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Paul & Anne-Marie Queally Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015).
4.10	Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Scully Family Charitable Foundation, dated as of December 2, 2015 (incorporated by reference to Exhibit 4.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 22, 2016).

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Exhibit No.	Description
10.1*+	Second Amended and Restated Executive Employment Agreement dated March 9, 2020, by and between Paycom Software, Inc. and Chad Richison.
10.2*+	Amended and Restated Executive Employment Agreement dated March 9, 2020, by and between Paycom Software, Inc. and Craig Boelte.
10.3*+	Amended and Restated Executive Employment Agreement dated March 9, 2020, by and between Paycom Software, Inc. and Jeffrey York.
10.4+	Form of CEO Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan, approved January 30, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 30, 2020, filed with the SEC on February 5, 2020).
10.5+	Form of Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan, approved January 30, 2020 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated January 30, 2020, filed with the SEC on February 5, 2020).
10.6*+	Form of Market-Based Vesting Restricted Stock Award Agreement (Non-Executives) under the Paycom Software, Inc. 2014 Long-Term Incentive Plan.
10.7*+	Form of Time-Based Vesting Restricted Stock Award Agreement (Non-Executives) under the Paycom Software, Inc. 2014 Long-Term Incentive Plan.
10.8*+	Form of Restricted Stock Award Agreement (Directors) under the Paycom Software, Inc. 2014 Long-Term Incentive Plan.
31.1*	Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. payc-ex311_9.htm
31.2*	Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. payc-ex312_6.htm
32.1**	Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. payc-ex321_7.htm
101.INS	Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

+ Management contract or compensatory plan or arrangement.

* Filed herewith.

** The certifications attached as Exhibit 32.1 are not deemed “filed” with the SEC and are not to be incorporated by reference into any filing of Paycom Software, Inc. under the Securities Act whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		PAYCOM SOFTWARE, INC.
Date:     April 30, 2020	By:	/s/ Chad Richison
		Chad Richison
		President and Chief Executive Officer
		(Principal Executive Officer)
Date:     April 30, 2020	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

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EX-10.1

Exhibit 10.1

SECOND AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT

This Second Amended and Restated Executive Employment Agreement (“Agreement”) is entered into by and between Paycom Software, Inc. (the “Company”) and Chad Richison (“Executive”).  This Agreement is entered on March 9, 2020 and is effective as of January 1, 2014 except with respect to (i) Section 2 and Section 4.5, which shall be effective upon execution of this Agreement by each of the parties hereto, and (ii) those sections amended and restated in the Amended and Restated Executive Employment Agreement dated October 28, 2019 (other than Section 2), which amended and restated sections shall be effective as of October 28, 2019 (in each case, as applicable, the“Effective Date”).

WHEREAS, the operations of the Company and its Affiliates (defined below) are a complex matter requiring direction and leadership in a variety of arenas;

WHEREAS, Executive possesses certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates;

WHEREAS, the Company has provided Executive with highly confidential information pertaining to the Company and its Affiliates and will continue to provide new confidential information after the execution of this Agreement;

WHEREAS, the Executive has disclosed to the Company that, while continuing to perform his duties as Chief Executive Officer and President of the Company, Executive may also seek to engage in other certain outside business activities unrelated to and not competitive with the Company’s business activities;

WHEREAS, the Company and Executive acknowledge and confirm that this Agreement arises from and is integrally related to Executive’s sale of the goodwill of a business to the Company; and,

WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to employ Executive as an officer of the Company in the role as its Chief Executive Officer, and Executive wishes to accept such employment;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions, and conditions set forth in this Agreement, the parties hereby agree:

1. Definitions.The following capitalized terms shall have the meanings set forth below.

1.1.“Affiliates” means, with respect to any particular Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such particular Person.  As used in this definition, the term “control” shall mean (i) the ownership (directly or indirectly) of more than 50% of the ownership or voting interests of any particular Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

1.2.“Board” shall mean the Board of Directors of the Company.

1.3.“Cause” shall mean, with respect to Executive, the occurrence of any one of the following:  (a) the repeated failure of Executive to perform such duties as are lawfully requested and communicated in writing to Executive by the Board or the board of directors of any subsidiary of the Company (to the extent such duties are consistent with Executive’s position with the Company or any of its subsidiaries), (b) the failure by such Executive to observe all reasonable, lawful material policies of the Company and its subsidiaries applicable to Executive and communicated to Executive in writing, (c) any action or omission constituting gross negligence or willful misconduct of such Person in the performance of his or her duties, (d) the material breach by Executive of any provision of Executive’s employment or the breach by Executive of any non‑competition, non‑solicitation or similar restrictive agreement with the Company or any of its subsidiaries, (e) any act or omission by Executive constituting fraud, embezzlement, disloyalty or dishonesty with respect to the Company or its subsidiaries, (f) the use by Executive of illegal drugs or repetitive abuse of other drugs or repetitive excess consumption of alcohol interfering with the performance of Executive’s duties, or (g) the commission by Executive of any felony or of a misdemeanor involving dishonesty, disloyalty or moral turpitude.    Notwithstanding the foregoing, in the case of subsections (a), (b), (c), and (d) of this Section 1.3, Cause shall not be deemed to exist unless (i) Company gives Executive prior written notice that the Company believes Executive is in violation of subsections (a), (b), (c), or (d) of his Section 1.3; and (ii) Company gives Executive a ten (10) day opportunity to cure; and (iii) Executive fails to cure prior to the end of such ten (10) day period.

1.4.“Code” shall mean the Internal Revenue Code of 1986, as amended.

1.5.“Compensation Committee” means the Compensation Committee of the Board.

1.6.“Confidential Information” shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials owned, developed or possessed by the Company or its Affiliates that are not generally known to the public or within the industry of the Company.  Confidential Information includes, but is not limited to, customer lists, preferences and contacts, financial information, business plans, product cost or pricing, information regarding future development, locations or acquisitions, personnel records (including records of the Company’s clients) and software programs.  Confidential Information shall not include any information that is or becomes generally publicly available (other than as a result of violation of this Agreement by Executive).

1.7.“Incumbent Director” means each member of the Board on the Effective Date and each other member of the Board whose nomination or election to the Board is approved by a majority of the then Incumbent Directors.

1.8.“Person” has the meaning given in Section 7701(a)(1) of the Code.  Person shall include more than one Person acting as a group as defined by the Final Treasury Regulations issued under Section 409A of the Code.

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1.9.“Public Offering” shall mean an underwritten sale to the public of the Company’s equity securities (or its successor’s equity securities) pursuant to an effective registration statement filed with the SEC on Form S-1 (or any successor form adopted by the SEC) and after which the Company’s (or its successor’s) equity securities are listed on the New York Stock Exchange, the NYSE MKT or The NASDAQ Stock Market; provided, that a Public Offering shall not include any issuance of equity securities in any merger or other business combination, and shall not include any registration of the issuance of equity securities to existing securityholders or employees of the Company and its subsidiaries on Form S-4 or Form S-8 (or any successor form adopted by the SEC).

1.10.“Restricted Period” shall mean:  (a) if the Termination Date is before the initial Public Offering, twelve (12) months following the Termination Date; or (b) if the Termination Date is after the initial Public Offering, thirty-six (36) months following the consummation of the initial Public Offering and twelve (12) months following the Termination Date (such twelve (12) month period to run concurrently with the aforementioned thirty-six (36) month period if both periods are applicable).

2. Term.  This Agreement shall commence on January 1, 2014 and shall continue until three (3) years following the consummation of the initial Public Offering (which was on April 21, 2014), subject to earlier termination as set forth in Section 5 below (“InitialTerm”).  The Agreement has been renewed on April 22, 2017, April 22, 2018, April 22, 2019 and January 1, 2020, and will automatically renew, subject to earlier termination as herein provided, for successive one (1) year periods (the “Additional Terms”), unless either Executive or the Company provides written notice of non-renewal at least forty-five (45) days prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable.  The Initial Term and any Additional Term(s) shall be referred to collectively as the “Term.”  Notwithstanding the foregoing, and subject to earlier termination as herein provided, the presently-effective Additional Term of this Agreement shall continue through December 31, 2020, at which time it will be subject to expiration or renewal for successive one (1) year Additional Terms from such date, as provided for in this section.

3. Capacity and Performance.

3.1.Capacity.  During the Term, Executive shall serve the Company as its Chief Executive Officer and President and shall report directly to the Board.  During the Term, Executive shall be employed by the Company and shall perform such duties and responsibilities, consistent and customary with the positions of Chief Executive Officer and President, on behalf of the Company and its Affiliates as may reasonably be designated from time to time by the Board.

3.2.Capacity and Performance.

(a) During his employment with the Company, Executive shall devote his commercially reasonable efforts, business judgment, skill, and knowledge to the advancement of the business and interests of the Company and its Affiliates and to the discharge of his duties and responsibilities hereunder.

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(b) It is acknowledged and agreed between the Company and Executive that Executive shall have the right and option to pursue other outside business and non-business activities and interests while employed by the Company pursuant to this Agreement, and may perform services and engage in activities for such other business entities so long as such activities and interests are not in violation of Executive’s obligations to the Company pursuant to this Agreement.  Such outside business and non-business activities and interest may include, but shall not be limited to, Executive performing services as a manager, managing member, officer, or directoron behalf of other outside business or non-business entities not affiliated with the Company or its Affiliates.

(c) Notwithstanding the provisions of this Section 3.2, Executive shall not engage in any outside business activities that either: (i) are competitive with the products or services of the Company or its Affiliates (whether then-current or in development), or (ii) interfere with Executive’s duties and responsibilities to the Company.

4. Compensation and Benefits. As compensation for all services performed by Executive during the Term, Executive shall receive the following:

4.1.Base Salary.  During the Term, the Company shall pay Executive a base salary at a rate not less than Seven Hundred Eleven Thousand Three Hundred Sixty Dollars and Fifty Two Cents ($711,360.52) per year, less any and all lawful withholdings or deductions, payable in accordance with the payroll practices of the Company for its executives, and subject to increases from time to time as may be approved by the Board (“Base Salary”).

4.2.Bonus.  Subject to the provisions of this Section 4.2, Executive shall be eligible to earn an annual bonus of 100% of his Base Salary (or such larger amount approved by the Compensation Committee) (the “Target Bonus”) in accordance with the Company’s bonus plan applicable to executive officers of the Company.  The actual amount of the bonus payable with respect to a fiscal year (the “Bonus”) shall be determined by the Compensation Committee, in its sole discretion, and shall be paid in accordance with the plans, policies and procedures adopted by the Compensation Committee from time to time.

4.3.Vacation.  During the Term, Executive shall receive and be entitled to take vacation in accordance with the policies of the Company as in effect from time to time, and subject to the reasonable business needs of the Company.  Executive shall not be entitled to payment for any accrued but unused vacation pay if the Company terminates Executive for Cause.  However, if Executive’s employment is terminated for any other reason, Executive shall be entitled to receive payment for all accrued but unused vacation pay.

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4.4.Aircraft.  During the Term, the Company shall either: (i) contract with NetJets or a similar private business jet charter company to provide 24 hour-per-day, 365 day-per-year access to a Medium Cabin private aircraft for Executive’s business or personal travel; or (ii) purchase, lease or charter, and provide 24 hour-per-day, 365 day-per-year access to, a Medium Cabin private aircraft for Executive’s business or personal travel.  Executive shall be entitled to up to seventy-five (75) hours of flight time for Executive’s designated non-Company use per calendar year pursuant to this Section, for which Executive shall not be required to reimburse the Company.  To the extent Executive exceeds seventy-five (75) hours of non-Company flight time use in a calendar year, Executive shall reimburse the Company for any excess.  The Company will withhold any required taxes or withholding with respect to the benefits described in this Section 4.4 from Executive’s Base Salary.

4.5.Company Automobile.  During the Term, the Company shall provide Executive use of a Company automobile with a lease value of up to Two Thousand Dollars ($2,000.00) per month (subject to increases from time to time as may be approved by the Board or an appropriate committee thereof) for Executive’s business or personal use, less any required taxes or withholdings.

4.6.Personal Security.  During the Term, the Company shall pay the reasonable expenses for Executive’s personal and home security.

4.7.Country Club.  During the Term, the Company shall provide Executive with a Country Club membership in any country club or recreational sports club of Executive’s choosing at a cost of up to Seven Hundred Fifty Dollars ($750.00) per month, less any required taxes or withholdings.

4.8.Administrative Assistant.  During the Term, the Company shall provide Executive with one (1) full-time administrative assistant mutually agreed upon by the Company and Executive.  As Executive directs from time to time, the administrative assistant may assist the Executive with all manner of Executive’s business dealings and personal dealings, including Executive’s business dealings on behalf of the Company, personal and family matters, and/or Executive’s outside business and non-business activities. It is additionally agreed between the Company and Executive that, from time to time and on an as-needed basis, Executive may additionally use other Company administrative staff to assist Executive in all manner of Executive’s other non-Company activities.

4.9.Other Benefits. Executive shall be entitled to participate in or receive benefits under the Company’s Executive Benefit Plan and any plan or arrangement made available from time to time by the Company to its employees generally (including any health, dental, vision, disability, life insurance, 401k, or other retirement programs) (“Benefits”).  Any such plan or arrangement shall be revocable and subject to termination or amendment at any time only in accordance with the terms and conditions of such plans or arrangements, without recourse by Executive, provided that no such termination or amendment shall disadvantage Executive or his wife or dependents disproportionately to any other participants therein (except as may be required by laws or regulations, such as those related to “top-heavy” or “top hat” plans).

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4.10.Business Expenses.  The Company shall pay or reimburse Executive for all reasonable, customary and necessary business expenses incurred or paid by Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time.

4.11.Clawback. Executive acknowledges and agrees that any compensation or benefits paid to Executive by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with Section 304 of the Sarbanes-Oxley Act of 2002 or any other clawback law or regulation applicable to executives of the Company, if any, as amended from time to time.

5. Termination of Employment and Severance Benefits During the Term. Notwithstanding the provision of Section 2 hereof and subject to the provisions of Section 20 below, Executive’s employment may terminate prior to or at the expiration of the Term under the following circumstances (each, a “Termination Date”):

5.1.Death.  In the event of Executive’s death during the Term, Executive’s employment hereunder shall immediately and automatically terminate. In such event, the Company, shall pay to Executive’s designated beneficiaries or, if no beneficiaries have been designated by Executive, to his estate, (i) the Base Salary earned but not paid through the Termination Date; (ii) the amount of any accrued but unused vacation calculated as of the Termination Date; and (iii) any business expenses incurred by Executive but un-reimbursed on the Termination Date, provided that such expenses and required substantiation and documentation are submitted within ninety (90) days of termination and that such expenses are reimbursable under Company policy (all of the foregoing, “Final Compensation”).  The Final Compensation shall be paid by the Company on the next regular payroll period following his death (or, if later, on the next regular payroll period after the Company receives notice of Executive’s death).

5.2.Disability.

(a)If, as a result of Executive’s incapacity due to physical or mental illness, Executive shall have been unable to perform the essential functions of the Executive’s duties with the Company for one hundred eighty (180) consecutive calendar days or two hundred seventy (270) non-consecutive days in any eighteen (18) month period, and within thirty (30) days after written notice of termination Executive shall not have returned to the performance of the essential functions of his duties, with or without reasonable accommodations, the Company may thereafter notify Executive of termination.  In the event of such termination, the Company shall pay to Executive the Final Compensation on the next regular payroll period following his Termination Date.

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(b)The Board may designate another employee to act in Executive’s place during any period of Executive’s disability which shall not constitute Good Reason hereunder.  Notwithstanding any such designation, Executive shall continue to receive his compensation and benefits in accordance with Section 4, to the extent permitted by the then-current terms of the applicable benefit plans, until Executive becomes eligible for disability income benefits under the Company’s disability income plan or until the termination of his employment, whichever shall first occur.

5.3.By the Company for Cause.  During the Term, the Company may terminate Executive’s employment for Cause as defined in Section 1.3 above, after the Company provides Executive with written notice identifying the reasons constituting such Cause (and subject to any applicable cure period as may be specifically provided in Section 1.3).  If Executive’s employment is terminated for Cause as defined in Section 1.3 above, then the Company shall have no further obligation to Executive other than to pay his Final Compensation on the next regular payroll period following his Termination Date.

5.4.By the Company Without Cause.  During the Term, the Company may terminate Executive’s employment without Cause at any time.  If Executive’s employment is terminated by the Company without Cause following the initial Public Offering then, in addition to paying Executive the Final Compensation and subject to Executive’s compliance with Article 7 in all material respects, the Company shall:  (a) continue to pay Executive the Base Salary at the rate in effect on the Termination Date during the Restricted Period, with the first payment being on the Company’s next regular payroll period which is at least eight (8) business days following the effective date of the Release (defined below) (provided that if the 60-day time period for the Release begins in one taxable year and ends in a subsequent taxable year, the first payment shall be paid in the subsequent taxable year (for example, if Executive terminates on December 1, then the first payment shall not be paid until on or after January 1 of the next year, regardless of when the Release is returned)); (b) continue Executive’s health insurance benefits for the Restricted Period (at a cost no less favorable than that paid by Executive immediately prior to the Termination Date) or the economic equivalent thereto if such continuation is not permissible under the terms of the Company’s health insurance plan or would otherwise expose the Company to tax or other penalties; (c) continue to pay the reasonable expenses for Executive’s security for a period of two years after termination of this Agreement and consistent with the Company’s provision of such security pursuant to Section 4.6 during the Term; and (d) pay Executive an amount equal to the pro rata amount of the Bonus Executive would have earned for the year in which the termination occurred, based on the Company’s performance for the entire fiscal year in which the termination occurred relative to the performance measurements that were pending at the time of termination and to be used to determine Executive’s bonus for such year.  Any such prorated Bonus shall be payable at such time or times as bonuses are payable to the other executives of the Company (the benefits, which the parties acknowledge are not required by law, outlined in Section(s) 5.4(a), (b) (c) and (d) are collectively referenced as the “Severance”).  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering to the Company and not revoking a release, in a form acceptable to the Company (the “Release”), within sixty (60) days of his Termination Date, which Release in any event will require Executive to reaffirm his obligations and commitments to the Company under Section 7 of this Agreement.

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5.5.By Executive for Good Reason.  During the Term, Executive may terminate his employment for Good Reason in accordance with this Section 5.5.  The following shall constitute “Good Reason” for termination by Executive:

(a)any material reduction by the Company in Executive’s Base Salary without Executive’s prior consent;

(b)any change, made by the Company and without Executive’s written consent in his individual capacity, in Executive’s status, reporting, duties or position that represents a demotion or diminution from Executive’s status, reporting, duties or position as President, Chief Executive Officer, and Chairperson of the Board as such positions were in effect at the time this Agreement was entered into; and/or

(c)any material breach of this Agreement by the Company.

Executive shall not be deemed to have been terminated for Good Reason pursuant to Section(s) 5.5(a), (b) or (c) above unless Executive delivers to the Company a written notice identifying the reasons constituting Good Reason.  For purposes of this Agreement, Good Reason shall not be deemed to exist unless (x) Executive gives the Company written notice of his objection to such occurrence constituting Good Reason within forty-five (45) days after Executive first learns of such occurrence, (y) such occurrence is not corrected by the Company within twenty (20) days of its receipt of such notice, and (z) Executive resigns his employment with the Company for such Good Reason by written notice to the Company not more than thirty (30) days following the expiration of the 20-day cure period.

If Executive’s employment is terminated by Executive for Good Reason following the initial Public Offering then, in addition to immediately paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms and conditions as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.

5.6.By Executive Other than for Good Reason.  During the Term, Executive may terminate his employment at any time upon sixty (60) days’ written notice to the Company.  In the event of termination of Executive pursuant to this Section 5.6, the Board may elect to waive the period of notice, or any portion thereof, and, if the Board so elects, the Company shall pay Executive his Base Salary for the notice period (or for any remaining portion of the period).  If Executive’s employment is voluntarily terminated by him other than for Good Reason, then the Company shall pay Executive the Final Compensation on the next regular payroll period following his Termination Date.

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5.7.By Expiration of the Term.  Upon expiration of the Term, if Executive’s employment with the Company terminates at the expiration of the Term, Executive shall be paid the Final Compensation on the next regular payroll period following his Termination Date.  If the expiration of the Term was the result of the Company issuance of a notice of non-renewal to Executive pursuant to Section 2, then, in addition to paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.

6. Effect of Termination.

6.1.Benefits.  Except as may apply pursuant to any Severance provided for in this Agreement, benefits to Executive shall terminate pursuant to the terms of the applicable benefit plans based on the date of the termination of Executive’s employment without regard to any continuation of Base Salary or other payment to Executive following such Termination Date.

6.2.Restricted Stock Grants.  The restricted stock grants made pursuant to those certain Restricted Stock Award Agreements by and between the Company (or its successor or affiliate) and Executive shall vest in accordance with the terms of such agreements.

6.3.Survival of Obligations.  Provisions of this Agreement shall survive any termination of Executive’s employment hereunder, including termination of this Agreement upon the expiration of the Term, if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of Executive under Sections 7 and 8 hereof and the obligations of the Company under Section 5.

7. Confidential Information, Ownership of Information, Inventions, Work Product, Restrictive Covenants and Defend Trade Secrets Act.

7.1.Confidential Information.  Executive acknowledges that the Company and its Affiliates continually develop Confidential Information, that Executive may develop Confidential Information for the Company or its Affiliates, and that the Company has and will continue to provide Executive with Confidential Information during the course of his employment.  Executive will comply with the policies and procedures of the Company and its Affiliates for protecting Confidential Information and shall not disclose to any person or entity or use, other than as required by applicable law or for the proper performance of his duties and responsibilities to the Company and its Affiliates, any Confidential Information obtained by Executive incident to his employment by the Company or any of its Affiliates.  Notwithstanding this Section 7.1 or any other provision of this Agreement, (a) Executive may disclose Confidential Information when required to do so by a court of competent jurisdiction, by any governmental agency having authority over Executive or the business of the Company or its Affiliates or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information; and (b) nothing in this Agreement is intended to interfere with Executive’s right to (i) report possible violations of state or federal law or regulation to any governmental or law enforcement agency or entity; (ii) make other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; (iii) file a claim or charge

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with the Equal Employment Opportunity Commission (“EEOC”), any state human rights commission, or any other governmental agency or entity; or (iv) testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC, any state human rights commission, any other governmental or law enforcement agency or entity, or any court.  For purposes of clarity, in making or initiating any such reports or disclosures or engaging in any of the conduct outlined in subsection (b) above, Executive may disclose Confidential Information to the extent necessary to such governmental or law enforcement agency or entity or such court, need not seek prior authorization from the Company or its Affiliates, and is not required to notify the Company or its Affiliates of any such reports, disclosures or conduct.

7.2.Safeguard and Return of Documents.  All documents, records, tapes, and other media of every kind and description relating to the business, present or otherwise, of the Company or its Affiliates, and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of the Company and its Affiliates.  Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates all Documents then in Executive’s possession or control with the exception of this Agreement or other documents related to Executive’s compensation or benefits.

7.3.Ownership of Information, Inventions and Original Work.  Executive agrees that, in connection with his employment with the Company, any creative works, discoveries, developments, designs, software, computer programs, inventions, improvements, modifications, enhancements, know-how, formulation, concept, methods, processes, or idea which is made, conceived, created, developed or reduced to practice by Executive, either alone or with others (collectively referred to as “Work Product”) is the exclusive property of the Company if:

(a)Confidential Information of the Company was used in its conception or development; or

(b)It (i) relates, at the time of conception or reduction to practice, to a product or service of the Company, (ii) relates, at the time of conception or reduction of practice, to a research or development project of the Company that was demonstrably anticipated or existed prior to or at the time of the termination of Executive’s employment with the Company and/or its subsidiaries, or (iii) results from any work performed by Executive for the Company.  Notwithstanding Section 7.3(b), if the foregoing intellectual property described in Section 7.3(b) is conceived, developed or reduced to practice entirely after the Executive is no longer an employee of the Company, then such intellectual property shall not constitute Work Product.

Executive agrees to assist the Company in obtaining a patent or copyrights on such Work Product and to provide such documentation and assistance as is necessary for the Company to obtain such patent or copyright.  Executive shall maintain adequate written records of such Work Product in such format as may be specified by the Company.  Such records of such Work Product will be available to and remain the sole property of the Company at all times.

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7.4.Restrictive Covenants.  Executive acknowledges that, in order to effectuate the promise to hold Confidential Information in trust for the Company and in order to protect the Company’s legitimate business interests (which include, but are not limited to, continuation of contracts and relationships with its customers, its reputation, its competitive advantage and its goodwill), it is necessary to enter into the following restrictive covenants.  Without the prior written consent of the Company, Executive shall not, during the Restricted Period:

(a)directly or indirectly manage, operate, control, participate in, consult with, render services for or in any manner engage in any business or enterprise (including any division, group or franchise of a larger organization), whether as a proprietor, owner, member, partner, stockholder, director, officer, employee, consultant, joint venturer, investor, sales representative or other participant, in which the Company or any of its subsidiaries engaged at any time during the two year period immediately preceding the date Executive’s employment with the Company and its subsidiaries terminates  (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated) or engages or proposes to engage as of such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated), in each case, anywhere in any State where the Company or one of its subsidiaries maintained an office immediately preceding such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated);

(b)directly or indirectly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of such entity;

(c)subject to the restrictions of any applicable law, directly or indirectly induce or attempt to induce any established customer of the Company or any of its subsidiaries to cease doing business with, or materially alter its business relationship with, such entity;

(d)directly or indirectly solicit the sale of goods or services, or a combination thereof, to established customers of the Company or any of its subsidiaries; or

(e)make or solicit or encourage others to make or solicit directly or indirectly any derogatory or negative statement or communication about the Company, its subsidiaries or any of their respective businesses, products, services or activities; provided, however, that the restriction set forth in this clause (e) will not prohibit truthful testimony compelled by valid legal process.

Notwithstanding the foregoing, Executive shall not be prohibited from owning up to one percent of the outstanding stock of a corporation which is publicly traded and competes with the business of the Company, so long as Executive has no active participation in the business of such corporation.

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7.5.Defend Trade Secrets Act.  Executive is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If Executive files a lawsuit for retaliation against the Company or its Affiliates for reporting a suspected violation of law, Executive may disclose the Company’s or its Affiliates’ trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.

8. Assignment of Rights to Work Product.  Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) Executive’s full right, title and interest in and to all Work Product (as that term is defined in Section 7.3 above).  Executive agrees to execute any and all applications for domestic and foreign patents, copyrights, or other proprietary rights and to do such other acts (including, without limitation, execute and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Work Product to the Company and to permit the Company to enforce any patents, copyrights, or other proprietary rights to the Work Product. All copyrightable works that Executive creates in the course of his employment by the Company shall be considered “work made for hire.”

9. Enforcement of Covenants. Executive agrees that these restraints are necessary for the reasonable and proper protection of the Company and its subsidiaries and their trade secrets and Confidential Information and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area, and that these restraints, individually or in the aggregate, will not prevent Executive from obtaining other suitable employment during the period in which Executive is bound by the restraints.  Executive acknowledges that each of these covenants has a unique, very substantial and immeasurable value to the Company and its subsidiaries, that Executive has sufficient assets and skills to provide a livelihood while such covenants remain in force and that, as a result of the foregoing, in the event that Executive breaches such covenants, monetary damages would be an insufficient remedy for the Company and equitable enforcement of the covenant would be proper.  Executive therefore agrees that the Company, in addition to any other remedies available to it, will be entitled to preliminary and permanent injunctive relief against any breach by Executive of any of those covenants, without the necessity of showing actual monetary damages or the posting of a bond or other security.  Executive and the Company further agree that, in the event that any provision of Article 7 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision will be deemed to be modified to permit its enforcement to the maximum extent permitted by law.  It is also agreed that each of the Company’s subsidiaries will have the right to enforce all of Executive’s obligations to that subsidiary under this Agreement, including without limitation pursuant to Article 7.

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10. Assignment and Succession.

10.1.No Assignment by Executive.  This Agreement is personal to Executive and shall not be assignable by Executive.

10.2.Succession.  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

11. Notices.  All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent via facsimile confirmed in writing as follows:

If to the Company:

Paycom Software, Inc.

7501 W. Memorial Road

Oklahoma City, OK 73142

Attention:  Board of Directors

If to Executive:

Mr. Chad Richison

XXXXXXXXXXXX

XXXXXXXXXXXX

or to such other address or addresses as either party shall have designated in writing to the other party hereto, provided, however, that any notice sent by certified or registered mail shall be deemed delivered on the date of delivery as evidenced by the return receipt.

12. Severability.  If any portion or provision of this Agreement shall, to any extent, be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application or such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

13. Waiver.  No waiver of such provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

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14. Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of Executive’s employment, including Section 5(e) of the Securities Purchase Agreement dated July 2, 2007 by and among WCAS Paycom Holdings, Inc., Paycom Payroll, LLC, Ernest Group, Inc., The Ruby Group, Inc., Executive, Shannon Rowe, William Kerber and Henry J. Binkowski and excluding only any agreements governing the rights and obligations of the Company and Executive with respect to the securities of the Company, and any Company-provided separate benefit or severance plans, all of which remain in full force and effect in accordance with their terms.

15. Amendment.  This Agreement may be amended or modified only by a written instrument signed by Executive and by an expressly authorized representative of the Board.

16. Headings.  The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.

17. Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

18. Governing Law.This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the laws of the State of Delaware, without regard to its conflicts of law rules.  To the extent that a court of competent jurisdiction concludes that application of Delaware law to all or part of Section 7.4 is contrary to Oklahoma public policy or statutes, Executive acknowledges that this Agreement relates to Executive’s sale of the goodwill of the Company, as defined in 15 O.S. § 218, and agrees to comply with Sections 7.4(a)-(d) to the fullest extent permitted by law.

19. Attorney’s Fees.  The Company agrees to pay or reimburse Executive for the reasonable attorney fees incurred by Executive in connection with the review of this Agreement and any related documents, up to a maximum of Fifteen Thousand Dollars and Zero Cents ($15,000.00).  Such payment will be made promptly following the date Executive executes this Agreement with the Company, upon receipt by the Company of an appropriate invoice from the attorney for the fees with respect to such review.  

20. Section 409A of the Code.

(a)To the extent (i) any payments to which Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code; (ii) Executive is deemed at the time of his separation from service to be a “specified employee” under Section 409A of the Code; and (iii) at the time of Executive’s separation from service the Company is publicly traded (as defined in Section 409A of Code), then such payments (other than any payments permitted by Section 409A of the Code to be paid within six (6) months of Executive’s separation from service) shall not be made until the earlier of (x) the first day of the seventh month following Executive’s separation from service or (y) the date of Executive’s death following such

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separation from service.  During any period that payment or payments to Executive are deferred pursuant to the foregoing, Executive shall be entitled to interest on the deferred payment or payments at a per annum rate equal to Federal-Funds rate as published in The Wall Street Journal on the date of Executive’s termination of employment with the Company. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Section 19 (together with accrued interest thereon) shall be paid to Executive or Executive’s beneficiary in one lump sum.

(b)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Section 409A of the Code).

(c)For purposes of Section 409A of the Code, each payment under Section 5 hereof (and each other severance plan payment) will be treated as a separate payment.

(d)Any reimbursement of expenses made under this Agreement shall only be made for eligible expenses incurred during the Term, and no reimbursement of any expense shall be made by the Company after December 31st of the year following the calendar year in which the expense was incurred.  Any amount eligible for reimbursement under this Agreement during a taxable year may not affect expenses eligible for reimbursement in any other taxable year, and any right to reimbursement under this Agreement is not subject to liquidation or exchange for another benefit.

(e)It is intended that this Agreement comply with the provisions of Section 409A of the Code and the regulations and guidance of general applicability issued thereunder so as to not subject Executive to the payment of additional interest and taxes under Section 409A of the Code, and in furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions.

* * * * *

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IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Executive Employment Agreement as of the date first set forth above.

EXECUTIVE	PAYCOM SOFTWARE, INC.
/s/ Chad Richison	/s/ Frederick C. Peters, II
Chad Richison	By:	Frederick C. Peters, II
	Title:	Lead Director of the Board of Directors, on behalf of the Board of Directors

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This Amended and Restated Executive Employment Agreement (“Agreement”) is entered into by and between Paycom Software, Inc. (the “Company”) and Craig Boelte (“Executive”).  This Agreement is entered on March 9, 2020 and, other than with respect to those amended sections set forth herein, which amended sections shall be effective upon execution of this Agreement by each of the parties hereto, is effective as of January 1, 2014 (the“Effective Date”).  

WHEREAS, the operations of the Company and its Affiliates (defined below) are a complex matter requiring direction and leadership in a variety of arenas;

WHEREAS, Executive possesses certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates;

WHEREAS, the Company has provided Executive with highly confidential information pertaining to the Company and its Affiliates and will continue to provide new confidential information after the execution of this Agreement;

WHEREAS, the Company and Executive acknowledge and confirm that this Agreement arises from and is integrally related to Executive’s sale of the goodwill of a business to the Company; and,

WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to employ Executive as an officer of the Company in the role as its Chief Financial Officer, and Executive wishes to accept such employment;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions, and conditions set forth in this Agreement, the parties hereby agree:

1.Definitions.The following capitalized terms shall have the meanings set forth below.

1.1“Affiliates” means, with respect to any particular Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such particular Person.  As used in this definition, the term “control” shall mean (i) the ownership (directly or indirectly) of more than 50% of the ownership or voting interests of any particular Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

1.2“Board” shall mean the Board of Directors of the Company.

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1.3“Cause” shall mean, with respect to Executive, any of the following: (a) the repeated failure of Executive to perform such duties as are lawfully requested by the Chief Executive Officer, (b) the failure by such Executive to observe all reasonable, lawful material policies of the Company and its subsidiaries applicable to Executive and communicated to Executive in writing, (c) any action or omission constituting gross negligence or willful misconduct of such Person in the performance of his or her duties, (d) the material breach by Executive of any provision of Executive’s employment or the breach by Executive of any non‑competition, non‑solicitation or similar restrictive agreement with the Company or any of its subsidiaries, (e) any act or omission by Executive constituting fraud, embezzlement, disloyalty or dishonesty with respect to the Company or its subsidiaries, (f) the use by Executive of illegal drugs or repetitive abuse of other drugs or repetitive excess consumption of alcohol interfering with the performance of Executive’s duties, or (g) the commission by Executive of any felony or of a misdemeanor involving dishonesty, disloyalty or moral turpitude.

1.4“Change in Control” shall mean the following: (a) any Person other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities of the Company representing 50% or more of (i) the outstanding shares of common stock of the Company or (ii) the combined voting power of the Company’s then-outstanding securities (other than pursuant to a transaction described in clause (b) that does not constitute a Change in Control thereunder); (b) the Company is party to a merger or consolidation, or series of related transactions, which results in the voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) at least fifty (50%) percent of the combined voting power of the voting securities of the Company or such surviving or other entity outstanding immediately after such merger or consolidation (or a parent company thereof); (c) the sale or disposition of all or substantially all of the Company’s assets (or consummation of any transaction, or series of related transactions, having similar effect); (d) there occurs a change in the composition of the Board of Directors of the Company within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors; (e) the dissolution or liquidation of the Company; or (f) any transaction or series of related transactions that has the substantial effect of any one or more of the foregoing.  Notwithstanding the foregoing, to the extent required to comply with Section 409A of the Code, no event shall be deemed a “Change in Control” unless such event also constitutes a change in ownership or control within the meaning of Section 409A of the Code.

1.5“Code” shall mean the Internal Revenue Code of 1986, as amended.

1.6“Compensation Committee” means the Compensation Committee of the Board.

1.7“Confidential Information” shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials owned, developed or possessed by the Company or its Affiliates that are not generally known to the public or within the industry of the Company.  Confidential Information includes, but is not limited to, customer lists, preferences and contacts, financial information, business plans, product cost or pricing, information regarding future development, locations or acquisitions, personnel records (including records of the Company’s clients) and software programs.  Confidential Information shall not include any information that is or becomes generally publicly available (other than as a result of violation of this Agreement by Executive).

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1.8“Incumbent Director” means each member of the Board on the Effective Date and each other member of the Board whose nomination or election to the Board is approved by a majority of the then Incumbent Directors.

1.9“Person” has the meaning given in Section 7701(a)(1) of the Code.  Person shall include more than one Person acting as a group as defined by the Final Treasury Regulations issued under Section 409A of the Code.

1.10“Public Offering” shall mean an underwritten sale to the public of the Company’s equity securities (or its successor’s equity securities) pursuant to an effective registration statement filed with the SEC on Form S-1 (or any successor form adopted by the SEC) and after which the Company’s (or its successor’s) equity securities are listed on the New York Stock Exchange, the NYSE MKT or The NASDAQ Stock Market; provided, that a Public Offering shall not include any issuance of equity securities in any merger or other business combination, and shall not include any registration of the issuance of equity securities to existing securityholders or employees of the Company and its subsidiaries on Form S-4 or Form S-8 (or any successor form adopted by the SEC).

1.11“Restricted Period” shall mean: (a) if the Termination Date is before the initial Public Offering, twelve (12) months following the Termination Date; or (b) if the Termination Date is after the initial Public Offering, thirty-six (36) months following the consummation of the initial Public Offering and twelve (12) months following the Termination Date (such twelve (12) month period to run concurrently with the aforementioned thirty-six (36) month period if both periods are applicable).

2.Term.  This Agreement shall commence on January 1, 2014 and shall continue until three (3) years following the consummation of the initial Public Offering (which was on April 21, 2014), subject to earlier termination as set forth in Section 5 below (“InitialTerm”).  The Agreement has been renewed on April 22, 2017, April 22, 2018 and April 22, 2019, and will automatically renew, subject to earlier termination as herein provided, for successive one (1) year periods (the “Additional Terms”), unless either Executive or the Company provide notice of non-renewal at least forty-five (45) days prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable.  The Initial Term and any Additional Term(s) shall be referred to collectively as the “Term.” Notwithstanding the foregoing, and subject to earlier termination as herein provided, the presently effective Additional Term of this Agreement shall continue through December 31, 2020, at which time it will be subject to expiration or renewal for successive one (1) year Additional Terms from such date, as provided for in this section.

3.Capacity and Performance.  

3.1During the Term, Executive shall serve the Company as its Chief Financial Officer and shall report directly to the Chief Executive Officer.  During the Term, Executive shall be employed by the Company on a full-time basis and shall perform such duties and responsibilities, consistent and customary with the position of Chief Financial Officer, on behalf of the Company and its Affiliates as may reasonably be designated from time to time by the Chief Executive Officer.

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3.2During his employment with the Company, Executive shall devote his full business time and commercially reasonable efforts, business judgment, skill, and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates and to the discharge of his duties and responsibilities hereunder.  Executive shall not engage in any other competitive business activity or serve in any competitive industry, trade, professional, governmental, or academic position during his employment with the Company, except as may be expressly approved by the Board in writing.  The foregoing shall not limit Executive's right to: (a) serve on civic or charitable boards or committees or up to two corporate boards that are not engaged in business competition with the Company; (b) engage in such activities as are reasonably necessary to monitor and protect his interests as a minority stockholder in other companies, to the extent a reasonably prudent minority stockholder would be expected to engage in such activities; and (c) invest Executive’s personal assets in such manner as will not require any material services by Executive in the operation of the entities in which such investments are made, to the extent such activities do not individually or in the aggregate interfere with the discharge of Executive’s duties hereunder in a matter so that such activities will not prevent Executive from fulfilling Executive’s obligations to the Company hereunder.

4.Compensation and Benefits. As compensation for all services performed by Executive during the Term, Executive shall receive the following:

4.1Base Salary.  During the Term, the Company shall pay Executive a base salary at a rate not less than Two Hundred Ninety-One Thousand Six Hundred Dollars and Zero Cents ($291,600.00) per year, less any and all lawful withholdings or deductions, payable in accordance with the payroll practices of the Company for its executives, and subject to increases from time to time as may be approved by the Board (“Base Salary”).  

4.2Bonus.  Subject to the provisions of this Section 4.2, Executive shall be eligible to earn an annual bonus of 100% of his Base Salary (or such larger amount approved by the Compensation Committee) (the “Target Bonus”) in accordance with the Company’s bonus plan applicable to executive officers of the Company.  The actual amount of the bonus payable with respect to a fiscal year (the “Bonus”) shall be determined by the Compensation Committee, in its sole discretion, and shall be paid in accordance with the plans, policies and procedures adopted by the Compensation Committee from time to time.  

4.3Vacation.  During the Term, Executive shall receive and be entitled to take vacation in accordance with the policies of the Company as in effect from time to time, and subject to the reasonable business needs of the Company.  Executive shall not be entitled to payment for any accrued but unused vacation pay if the Company terminates Executive for Cause.  However, if Executive's employment is terminated for any other reason, Executive shall be entitled to receive payment for all accrued but unused vacation pay.

4.4Company Automobile.  During the Term, the Company shall provide Executive use of a Company automobile with a lease value of up to Two Thousand Dollars and Zero Cents ($2,000.00) per month (subject to increases from time to time as may be approved by the Board or an appropriate committee thereof) for Executive’s business or personal use, less any required taxes or withholdings.    

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4.5Other Benefits. Executive shall be entitled to participate in or receive benefits under the Company's Executive Benefit Plan and any plan or arrangement made available from time to time by the Company to its employees generally (including any health, dental, vision, disability, life insurance, 401k, or other retirement programs) (“Benefits”).  Any such plan or arrangement shall be revocable and subject to termination or amendment at any time only in accordance with the terms and conditions of such plans or arrangements, without recourse by Executive, provided that no such termination or amendment shall disadvantage Executive or his wife or dependents disproportionately to any other participants therein (except as may be required by laws or regulations, such as those related to “top-heavy” or “top hat” plans).

4.6Business Expenses.  The Company shall pay or reimburse Executive for all reasonable, customary and necessary business expenses incurred or paid by Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time.

4.7Clawback.  Executive acknowledges and agrees that any compensation or benefits paid to Executive by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with Section 304 of the Sarbanes-Oxley Act of 2002 or any other clawback law or regulation applicable to executives of the Company, if any, as amended from time to time.

5.Termination of Employment and Severance Benefits During the Term. Notwithstanding the provision of Section 2 hereof and subject to the provisions of Section 20 below, Executive's employment may terminate prior to or at the expiration of the Term under the following circumstances (each, a “Termination Date”):

5.1Death.  In the event of Executive's death during the Term, Executive's employment hereunder shall immediately and automatically terminate. In such event, the Company, shall pay to Executive's designated beneficiaries or, if no beneficiaries have been designated by Executive, to his estate, (i) the Base Salary earned but not paid through the Termination Date; (ii) the amount of any accrued but unused vacation calculated as of the Termination Date; and (iii) any business expenses incurred by Executive but un-reimbursed on the Termination Date, provided that such expenses and required substantiation and documentation are submitted within ninety (90) days of termination and that such expenses are reimbursable under Company policy (all of the foregoing, “Final Compensation”).  The Final Compensation shall be paid by the Company on the next regular payroll period following his death (or, if later, on the next regular payroll period after the Company receives notice of Executive’s death).

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5.2Disability.

(a)If, as a result of Executive’s incapacity due to physical or mental illness, Executive shall have been absent from Executive’s duties with the Company on a full-time basis for one hundred eighty (180) consecutive calendar days or two hundred seventy (270) non-consecutive days in any eighteen (18) month period, and within thirty (30) days after written notice of termination Executive shall not have returned to the full-time performance of his duties, with or without reasonable accommodations, the Company may thereafter notify Executive of termination.  In the event of such termination, the Company shall pay to Executive the Final Compensation on the next regular payroll period following his Termination Date.

(b)The Board may designate another employee to act in Executive's place during any period of Executive's disability which shall not constitute Good Reason hereunder.  Notwithstanding any such designation, Executive shall continue to receive his compensation and benefits in accordance with Section 4, to the extent permitted by the then-current terms of the applicable benefit plans, until Executive becomes eligible for disability income benefits under the Company's disability income plan or until the termination of his employment, whichever shall first occur.

5.3By the Company for Cause.  During the Term, the Company may terminate Executive's employment for Cause as defined in Section 1.3 above.  If Executive’s employment is terminated for Cause as defined in Section 1.3 above, then the Company shall have no further obligation to Executive other than to pay his Final Compensation on the next regular payroll period following his Termination Date.

5.4By the Company Without Cause.  During the Term, the Company may terminate Executive's employment without Cause at any time.  If Executive’s employment is terminated by the Company without Cause following the initial Public Offering then, in addition to paying Executive the Final Compensation and subject to Executive’s compliance with Article 7 in all material respects, the Company shall: (a) continue to pay Executive the Base Salary at the rate in effect on the Termination Date during the Restricted Period, with the first payment being on the Company’s next regular payroll period which is at least eight (8) business days following the effective date of the Release (defined below) (provided that if the 60-day time period for the Release begins in one taxable year and ends in a subsequent taxable year, the first payment shall be paid in the subsequent taxable year (for example, if Executive terminates on December 1, then the first payment shall not be paid until on or after January 1 of the next year, regardless of when the Release is returned)); (b) continue Executive’s health insurance benefits for the Restricted Period (at a cost no less favorable than that paid by Executive immediately prior to the Termination Date) or the economic equivalent thereto if such continuation is not permissible under the terms of the Company’s health insurance plan or would otherwise expose the Company to tax or other penalties; and (c) pay Executive an amount equal to the pro rata amount of the Bonus Executive would have earned for the year in which the termination occurred, based on the Company’s performance for the entire fiscal year in which the termination occurred relative to the performance measurements that were pending at the time of termination and to be used to determine Executive’s bonus for such year.   Any such prorated Bonus shall be payable at such time or times as bonuses

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are payable to the other executives of the Company (the benefits, which the parties acknowledge are not required by law, outlined in Section(s) 5.4(a), (b) and (c) are collectively referenced as the “Severance”).  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering to the Company and not revoking a release, in a form acceptable to the Company (the “Release”), within sixty (60) days of his Termination Date, which Release in any event will require Executive to reaffirm his obligations and commitments to the Company under Section 7 of this Agreement.

5.5By Executive for Good Reason.  During the Term, Executive may terminate his employment at any time for Good Reason.  The following shall constitute “Good Reason” for termination by Executive:

(a)any material reduction by the Company in Executive’s Base Salary without Executive’s prior consent;

(b)following a Change in Control, any change in Executive’s status, reporting, duties or position that represents a demotion or diminution from Executive’s status, reporting, duties or position in effect before such Change in Control; or

(c)any material breach by the Company of this Agreement between it and Executive.

Executive shall not be deemed to have been terminated for Good Reason pursuant to Section(s) 5.5(a), (b) or (c) above unless Executive delivers to the Company a written notice of termination for Good Reason specifying the alleged Good Reason within thirty (30) days after Executive first learns of the existence of the circumstances giving rise to Good Reason, within thirty (30) days following delivery of such notice, the Company has failed to cure the circumstances giving rise to Good Reason, and Executive resigns within fifteen (15) days after the end of the cure period.

If Executive’s employment is terminated by Executive for Good Reason following the initial Public Offering then, in addition to immediately paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms and conditions as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.

5.6By Executive Other than for Good Reason.  During the Term, Executive may terminate his employment at any time upon sixty (60) days' written notice to the Company.  In the event of termination of Executive pursuant to this Section 5.6, the Board may elect to waive the period of notice, or any portion thereof, and, if the Board so elects, the Company shall pay Executive his Base Salary for the notice period (or for any remaining portion of the period).  If Executive’s employment is voluntarily terminated by him other than for Good Reason, then the Company shall pay Executive the Final Compensation on the next regular payroll period following his Termination Date.

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5.7By Expiration of the Term.  Upon expiration of the Term, if Executive’s employment with the Company terminates at the expiration of the Term, Executive shall be paid the Final Compensation on the next regular payroll period following his Termination Date.   If the expiration of the Term was the result of the Company issuance of a notice of non-renewal to Executive pursuant to Section 2, then, in addition to paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.  

6.Effect of Termination.

6.1Benefits.  Benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the termination of Executive's employment without regard to any continuation of Base Salary or other payment to Executive following such Termination Date.

6.2Restricted Stock Grants.  The restricted stock grants made pursuant to that certain Restricted Stock Award Agreement by and between the Company (or its successor or affiliate) and Executive dated as of January 1, 2014 shall vest in accordance with the terms of such agreement.

6.3Survival of Obligations.  Provisions of this Agreement shall survive any termination of Executive's employment hereunder, including termination of this Agreement upon the expiration of the Term, if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of Executive under Sections 7 and 8 hereof and the obligations of the Company under Section 5.  

7.Confidential Information, Ownership of Information, Inventions, Work Product, Restrictive Covenants and Defend Trade Secrets Act.  

7.1Confidential Information.  Executive acknowledges that the Company and its Affiliates continually develop Confidential Information, that Executive may develop Confidential Information for the Company or its Affiliates, and that the Company has and will continue to provide Executive with Confidential Information during the course of his employment.  Executive will comply with the policies and procedures of the Company and its Affiliates for protecting Confidential Information and shall not disclose to any person or entity or use, other than as required by applicable law or for the proper performance of his duties and responsibilities to the Company and its Affiliates, any Confidential Information obtained by Executive incident to his employment by the Company or any of its Affiliates. Notwithstanding this Section 7.1 or any other provision of this Agreement, (a) Executive may disclose Confidential Information when required to do so by a court of competent jurisdiction, by any governmental agency having authority over Executive or the business of the Company or its Affiliates or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information; and (b) nothing in this Agreement is intended to interfere with Executive’s right to (i) report possible violations of state or federal law or regulation to any governmental or law enforcement agency or entity; (ii) make other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; (iii) file a claim or charge

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with the Equal Employment Opportunity Commission (“EEOC”), any state human rights commission, or any other governmental agency or entity; or (iv) testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC, any state human rights commission, any other governmental or law enforcement agency or entity, or any court. For purposes of clarity, in making or initiating any such reports or disclosures or engaging in any of the conduct outlined in subsection (b) above, Executive may disclose Confidential Information to the extent necessary to such governmental or law enforcement agency or entity or such court, need not seek prior authorization from the Company or its Affiliates, and is not required to notify the Company or its Affiliates of any such reports, disclosures or conduct.

7.2Safeguard and Return of Documents.  All documents, records, tapes, and other media of every kind and description relating to the business, present or otherwise, of the Company or its Affiliates, and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of the Company and its Affiliates.  Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates all Documents then in Executive's possession or control with the exception of this Agreement or other documents related to Executive's compensation or benefits.

7.3Ownership of Information, Inventions and Original Work.  Executive agrees that any creative works, discoveries, developments, designs, software, computer programs, inventions, improvements, modifications, enhancements, know-how, formulation, concept, methods, processes, or idea which is made, conceived, created, developed or reduced to practice by Executive, either alone or with others (collectively referred to as “Work Product”) is the exclusive property of the Company if:

(a)It was conceived or developed in any part on Company time;

(b)Any equipment, facilities, materials, or Confidential Information of the Company was used in its conception or development; or

(c)It (i) relates, at the time of conception or reduction to practice, to the Company’s business, (ii) relates, at the time of conception or reduction of practice, to a research or development project of the Company that was demonstrably anticipated or existed prior to or at the time of the termination of Executive’s service to the Company and/or its subsidiaries, or (iii) results from any work performed by Executive for the Company.  Notwithstanding Section 7.3(c)(i), if the foregoing intellectual property described in Section 7.3(c)(i) is conceived, developed or reduced to practice entirely after the latest to occur of the time at which: (A) the Executive is no longer employed by the Company and (B) the Executive is no longer serving as a director on the Board, then such intellectual property shall not constitute Work Product.

Executive agrees to assist the Company in obtaining a patent or copyrights on such Work Product and to provide such documentation and assistance as is necessary for the Company to obtain such patent or copyright.  Executive shall maintain adequate written records of such Work Product in such format as may be specified by the Company.  Such records will be available to and remain the sole property of the Company at all times.  

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7.4Restrictive Covenants.  Executive acknowledges that, in order to effectuate the promise to hold Confidential Information in trust for the Company and in order to protect the Company's legitimate business interests (which include, but are not limited to, continuation of contracts and relationships with its customers, its reputation, its competitive advantage and its goodwill), it is necessary to enter into the following restrictive covenants.  Without the prior written consent of the Company, Executive shall not, during the Restricted Period:

(a)directly or indirectly manage, operate, control, participate in, consult with, render services for or in any manner engage in any business or enterprise (including any division, group or franchise of a larger organization), whether as a proprietor, owner, member, partner, stockholder, director, officer, employee, consultant, joint venturer, investor, sales representative or other participant, in which the Company or any of its subsidiaries engaged at any time during the two year period immediately preceding the date Executive’s employment with the Company and its subsidiaries terminates  (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated) or engages or proposes to engage as of such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated), in each case, anywhere in any State where the Company or one of its subsidiaries maintained an office immediately preceding such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated);  

(b)directly or indirectly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of such entity;

(c)subject to the restrictions of any applicable law, directly or indirectly induce or attempt to induce any established customer of the Company or any of its subsidiaries to cease doing business with, or materially alter its business relationship with, such entity;

(d)directly or indirectly solicit the sale of goods or services, or a combination thereof, to established customers of the Company or any of its subsidiaries; or

(e)make or solicit or encourage others to make or solicit directly or indirectly any derogatory or negative statement or communication about the Company, its subsidiaries or any of their respective businesses, products, services or activities; provided, however, that the restriction set forth in this clause (e) will not prohibit truthful testimony compelled by valid legal process. Notwithstanding the foregoing, the Executive shall not be prohibited from owning up to one percent of the outstanding stock of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation.

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7.5Defend Trade Secrets Act.  Executive is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If Executive files a lawsuit for retaliation against the Company or its Affiliates for reporting a suspected violation of law, Executive may disclose the Company’s or its Affiliates’ trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.

8.Assignment of Rights to Work Product.  Executive shall promptly and fully disclose all Work Product to the Company.  Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) Executive's full right, title and interest in and to all Work Product.  Executive agrees to execute any and all applications for domestic and foreign patents, copyrights, or other proprietary rights and to do such other acts (including, without limitation, execute and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Work Product to the Company and to permit the Company to enforce any patents, copyrights, or other proprietary rights to the Work Product.  All copyrightable works that Executive creates in the course of his employment by the Company shall be considered “work made for hire.”

9.Enforcement of Covenants.  Executive agrees that these restraints are necessary for the reasonable and proper protection of the Company and its subsidiaries and their trade secrets and Confidential Information and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area, and that these restraints, individually or in the aggregate, will not prevent Executive from obtaining other suitable employment during the period in which Executive is bound by the restraints.  Executive agrees that, before providing services, whether as an employee or consultant, to any entity during the Restricted Period, Executive will provide a copy of Articles 7, 9, and 18 to such entity.  Executive acknowledges that each of these covenants has a unique, very substantial and immeasurable value to the Company and its subsidiaries, that Executive has sufficient assets and skills to provide a livelihood while such covenants remain in force and that, as a result of the foregoing, in the event that Executive breaches such covenants, monetary damages would be an insufficient remedy for the Company and equitable enforcement of the covenant would be proper.  Executive therefore agrees that the Company, in addition to any other remedies available to it, will be entitled to preliminary and permanent injunctive relief against any breach by Executive of any of those covenants, without the necessity of showing actual monetary damages or the posting of a bond or other security.  Executive and the Company further agree that, in the event that any provision of Article 7 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision will be deemed to be modified to permit its enforcement to the maximum extent permitted by law. Executive further covenants that Executive will not challenge the reasonableness or enforceability of any of the covenants set forth in Article 7 and that Executive will reimburse the Company and its subsidiaries for all costs (including reasonable attorneys’ fees) incurred in

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connection with any action to enforce any of the provisions of Article 7 if Executive challenges the reasonability or enforceability of any of the provisions of Article 7, it being understood and agreed that a dispute as to whether Executive’s conduct in fact violates or violated the terms of Article 7 is not, by itself, a challenge regarding the reasonableness or enforceability of Article 7.  It is also agreed that each of the Company's subsidiaries will have the right to enforce all of Executive’s obligations to that subsidiary under this Agreement, including without limitation pursuant to Article 7.  

10.Assignment and Succession.

10.1No Assignment by Executive.  This Agreement is personal to Executive and shall not be assignable by Executive.  

10.2Succession.  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  

11.Notices.  All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent via facsimile confirmed in writing as follows:

If to the Company:

Paycom Software, Inc.

7501 W. Memorial Road

Oklahoma City, OK 73142

Attention:  Board of Directors

If to Executive:

Mr. Craig Boelte

XXXXXXXXXXXXXX

XXXXXXXXXXXXXX

or to such other address or addresses as either party shall have designated in writing to the other party hereto, provided, however, that any notice sent by certified or registered mail shall be deemed delivered on the date of delivery as evidenced by the return receipt.

12.Severability.  If any portion or provision of this Agreement shall, to any extent, be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application or such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

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13.Waiver.  No waiver of such provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

14.Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of Executive's employment, including Section 5(e) of the Securities Purchase Agreement dated July 2, 2007 by and among WCAS Paycom Holdings, Inc., Paycom Payroll, LLC, Ernest Group, Inc., The Ruby Group, Inc., Executive, Shannon Rowe, William Kerber and Henry J. Binkowski and excluding only any agreements governing the rights and obligations of the Company and Executive with respect to the securities of the Company, and any Company-provided separate benefit or severance plans, all of which remain in full force and effect in accordance with their terms.  

15.Amendment.  This Agreement may be amended or modified only by a written instrument signed by Executive and by an expressly authorized representative of the Board.

16.Headings.  The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.

17.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

18.Governing Law.This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the laws of the State of Delaware, without regard to its conflicts of law rules.  To the extent that a court of competent jurisdiction concludes that application of Delaware law to all or part of Section 7.4 is contrary to Oklahoma public policy or statutes, Executive acknowledges that this Agreement relates to Executive’s sale of the goodwill of the Company, as defined in 15 O.S. § 218, and agrees to comply with Sections 7.4(a)-(b) to the fullest extent permitted by law.

19.Attorney’s Fees.  The Company agrees to pay or reimburse Executive for the reasonable attorney fees incurred by Executive in connection with the review of this Agreement and any related documents, up to a maximum of Fifteen Thousand Dollars and Zero Cents ($15,000.00).  Such payment will be made promptly following the date Executive executes this Agreement with the Company, upon receipt by the Company of an appropriate invoice from the attorney for the fees with respect to such review.

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20.Section 409A of the Code.

(a)To the extent (i) any payments to which Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code; (ii) Executive is deemed at the time of his separation from service to be a “specified employee” under Section 409A of the Code; and (iii) at the time of Executive’s separation from service the Company is publicly traded (as defined in Section 409A of Code), then such payments (other than any payments permitted by Section 409A of the Code to be paid within six (6) months of Executive’s separation from service) shall not be made until the earlier of (x) the first day of the seventh month following Executive’s separation from service or (y) the date of Executive’s death following such separation from service.  During any period that payment or payments to Executive are deferred pursuant to the foregoing, Executive shall be entitled to interest on the deferred payment or payments at a per annum rate equal to Federal-Funds rate as published in The Wall Street Journal on the date of Executive’s termination of employment with the Company. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Section 19 (together with accrued interest thereon) shall be paid to Executive or Executive’s beneficiary in one lump sum.

(b)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Section 409A of the Code).

(c)For purposes of Section 409A of the Code, each payment under Section 5 hereof (and each other severance plan payment) will be treated as a separate payment.

(d)Any reimbursement of expenses made under this Agreement shall only be made for eligible expenses incurred during the Term, and no reimbursement of any expense shall be made by the Company after December 31st of the year following the calendar year in which the expense was incurred.  Any amount eligible for reimbursement under this Agreement during a taxable year may not affect expenses eligible for reimbursement in any other taxable year, and any right to reimbursement under this Agreement is not subject to liquidation or exchange for another benefit.

(e)It is intended that this Agreement comply with the provisions of Section 409A of the Code and the regulations and guidance of general applicability issued thereunder so as to not subject Executive to the payment of additional interest and taxes under Section 409A of the Code, and in furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions.

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Employment Agreement as of the date first set forth above.

EXECUTIVE	PAYCOM SOFTWARE, INC.
/s/ Craig Boelte	/s/ Frederick C. Peters, II
Craig Boelte	By:	Frederick C. Peters, II
	Title:	Lead Director of the Board of Directors, on behalf of the Board of Directors

EX-10.3

Exhibit 10.3

AMENDED AND RESTATED

EXECUTIVE EMPLOYMENT AGREEMENT

This Amended and Restated Executive Employment Agreement (“Agreement”) is entered into by and between Paycom Software, Inc. (the “Company”) and Jeffrey York (“Executive”).  This Agreement is entered on March 9, 2020 and, other than with respect to those amended sections set forth herein, which amended sections shall be effective upon execution of this Agreement by each of the parties hereto, is effective as of January 1, 2014 (the“Effective Date”).  

WHEREAS, the operations of the Company and its Affiliates (defined below) are a complex matter requiring direction and leadership in a variety of arenas;

WHEREAS, Executive possesses certain experience and expertise that qualify him to provide the direction and leadership required by the Company and its Affiliates;

WHEREAS, the Company has provided Executive with highly confidential information pertaining to the Company and its Affiliates and will continue to provide new confidential information after the execution of this Agreement;

WHEREAS, the Company and Executive acknowledge and confirm that this Agreement arises from and is integrally related to Executive’s sale of the goodwill of a business to the Company; and,

WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore wishes to employ Executive as an officer of the Company in the role as its Chief Sales Officer, and Executive wishes to accept such employment;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms, provisions, and conditions set forth in this Agreement, the parties hereby agree:

1.Definitions.The following capitalized terms shall have the meanings set forth below.

1.1“Affiliates” means, with respect to any particular Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such particular Person.  As used in this definition, the term “control” shall mean (i) the ownership (directly or indirectly) of more than 50% of the ownership or voting interests of any particular Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.

1.2“Board” shall mean the Board of Directors of the Company.

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1.3“Cause” shall mean, with respect to Executive, any of the following: (a) the repeated failure of Executive to perform such duties as are lawfully requested by the Chief Executive Officer, (b) the failure by such Executive to observe all reasonable, lawful material policies of the Company and its subsidiaries applicable to Executive and communicated to Executive in writing, (c) any action or omission constituting gross negligence or willful misconduct of such Person in the performance of his or her duties, (d) the material breach by Executive of any provision of Executive’s employment or the breach by Executive of any non‑competition, non‑solicitation or similar restrictive agreement with the Company or any of its subsidiaries, (e) any act or omission by Executive constituting fraud, embezzlement, disloyalty or dishonesty with respect to the Company or its subsidiaries, (f) the use by Executive of illegal drugs or repetitive abuse of other drugs or repetitive excess consumption of alcohol interfering with the performance of Executive’s duties, or (g) the commission by Executive of any felony or of a misdemeanor involving dishonesty, disloyalty or moral turpitude.

1.4“Change in Control” shall mean the following: (a) any Person other than a trustee or other fiduciary holding securities of the Company under an employee benefit plan of the Company, becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of securities of the Company representing 50% or more of (i) the outstanding shares of common stock of the Company or (ii) the combined voting power of the Company’s then-outstanding securities (other than pursuant to a transaction described in clause (b) that does not constitute a Change in Control thereunder); (b) the Company is party to a merger or consolidation, or series of related transactions, which results in the voting securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving or another entity) at least fifty (50%) percent of the combined voting power of the voting securities of the Company or such surviving or other entity outstanding immediately after such merger or consolidation (or a parent company thereof); (c) the sale or disposition of all or substantially all of the Company’s assets (or consummation of any transaction, or series of related transactions, having similar effect); (d) there occurs a change in the composition of the Board of Directors of the Company within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors; (e) the dissolution or liquidation of the Company; or (f) any transaction or series of related transactions that has the substantial effect of any one or more of the foregoing.  Notwithstanding the foregoing, to the extent required to comply with Section 409A of the Code, no event shall be deemed a “Change in Control” unless such event also constitutes a change in ownership or control within the meaning of Section 409A of the Code.

1.5“Code” shall mean the Internal Revenue Code of 1986, as amended.

1.6“Compensation Committee” means the Compensation Committee of the Board.

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1.7“Confidential Information” shall mean trade secrets, confidential or proprietary information, and all other information, documents or materials owned, developed or possessed by the Company or its Affiliates that are not generally known to the public or within the industry of the Company.  Confidential Information includes, but is not limited to, customer lists, preferences and contacts, financial information, business plans, product cost or pricing, information regarding future development, locations or acquisitions, personnel records (including records of the Company’s clients) and software programs.  Confidential Information shall not include any information that is or becomes generally publicly available (other than as a result of violation of this Agreement by Executive).

1.8“Incumbent Director” means each member of the Board on the Effective Date and each other member of the Board whose nomination or election to the Board is approved by a majority of the then Incumbent Directors.

1.9“Person” has the meaning given in Section 7701(a)(1) of the Code.  Person shall include more than one Person acting as a group as defined by the Final Treasury Regulations issued under Section 409A of the Code.

1.10“Public Offering” shall mean an underwritten sale to the public of the Company’s equity securities (or its successor’s equity securities) pursuant to an effective registration statement filed with the SEC on Form S-1 (or any successor form adopted by the SEC) and after which the Company’s (or its successor’s) equity securities are listed on the New York Stock Exchange, the NYSE MKT or The NASDAQ Stock Market; provided, that a Public Offering shall not include any issuance of equity securities in any merger or other business combination, and shall not include any registration of the issuance of equity securities to existing securityholders or employees of the Company and its subsidiaries on Form S-4 or Form S-8 (or any successor form adopted by the SEC).

1.11“Restricted Period” shall mean: (a) if the Termination Date is before the initial Public Offering, twelve (12) months following the Termination Date; or (b) if the Termination Date is after the initial Public Offering, thirty-six (36) months following the consummation of the initial Public Offering and twelve (12) months following the Termination Date (such twelve (12) month period to run concurrently with the aforementioned thirty-six (36) month period if both periods are applicable).

2.Term.  This Agreement shall commence on January 1, 2014 and shall continue until three (3) years following the consummation of the initial Public Offering (which was on April 21, 2014), subject to earlier termination as set forth in Section 5 below (“InitialTerm”).  The Agreement has been renewed on April 22, 2017, April 22, 2018 and April 22, 2019, and will automatically renew, subject to earlier termination as herein provided, for successive one (1) year periods (the “Additional Terms”), unless either Executive or the Company provide notice of non-renewal at least forty-five (45) days prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable.  The Initial Term and any Additional Term(s) shall be referred to collectively as the “Term.” Notwithstanding the foregoing, and subject to earlier termination as herein provided, the presently effective Additional Term of this Agreement shall continue through December 31, 2020, at which time it will be subject to expiration or renewal for successive one (1) year Additional Terms from such date, as provided for in this section.

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3.Capacity and Performance.

3.1During the Term, Executive shall serve the Company as its Chief Sales Officer and shall report directly to the Chief Executive Officer.  During the Term, Executive shall be employed by the Company on a full-time basis and shall perform such duties and responsibilities, consistent and customary with the position of Chief Sales Officer, on behalf of the Company and its Affiliates as may reasonably be designated from time to time by the Chief Executive Officer.

3.2During his employment with the Company, Executive shall devote his full business time and commercially reasonable efforts, business judgment, skill, and knowledge exclusively to the advancement of the business and interests of the Company and its Affiliates and to the discharge of his duties and responsibilities hereunder.  Executive shall not engage in any other competitive business activity or serve in any competitive industry, trade, professional, governmental, or academic position during his employment with the Company, except as may be expressly approved by the Board in writing.  The foregoing shall not limit Executive's right to: (a) serve on civic or charitable boards or committees or up to two corporate boards that are not engaged in business competition with the Company; (b) engage in such activities as are reasonably necessary to monitor and protect his interests as a minority stockholder in other companies, to the extent a reasonably prudent minority stockholder would be expected to engage in such activities; and (c) invest Executive’s personal assets in such manner as will not require any material services by Executive in the operation of the entities in which such investments are made, to the extent such activities do not individually or in the aggregate interfere with the discharge of Executive’s duties hereunder in a matter so that such activities will not prevent Executive from fulfilling Executive’s obligations to the Company hereunder.

4.Compensation and Benefits. As compensation for all services performed by Executive during the Term, Executive shall receive the following:

4.1Base Salary.  During the Term, the Company shall pay Executive a base salary at a rate not less than Three Hundred Fifty-Six Thousand Four Hundred Dollars and Zero Cents ($356,400.00) per year, less any and all lawful withholdings or deductions, payable in accordance with the payroll practices of the Company for its executives, and subject to increases from time to time as may be approved by the Board (“Base Salary”).  

4.2Bonus.  Subject to the provisions of this Section 4.2, Executive shall be eligible to earn an annual bonus of 75% of his Base Salary (or such larger amount approved by the Compensation Committee) (the “Target Bonus”) in accordance with the Company’s bonus plan applicable to executive officers of the Company. The actual amount of the bonus payable with respect to a fiscal year (the “Bonus”) shall be determined by the Compensation Committee, in its sole discretion, and shall be paid in accordance with the plans, policies and procedures adopted by the Compensation Committee from time to time.  

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4.3Vacation.  During the Term, Executive shall receive and be entitled to take vacation in accordance with the policies of the Company as in effect from time to time, and subject to the reasonable business needs of the Company.  Executive shall not be entitled to payment for any accrued but unused vacation pay if the Company terminates Executive for Cause.  However, if Executive's employment is terminated for any other reason, Executive shall be entitled to receive payment for all accrued but unused vacation pay.

4.4Company Automobile.  During the Term, the Company shall provide Executive use of a Company automobile with a lease value of up to Two Thousand Dollars and Zero Cents ($2,000.00) per month (subject to increases from time to time as may be approved by the Board or an appropriate committee thereof) for Executive’s business or personal use, less any required taxes or withholdings.    

4.5Other Benefits. Executive shall be entitled to participate in or receive benefits under the Company's Executive Benefit Plan and any plan or arrangement made available from time to time by the Company to its employees generally (including any health, dental, vision, disability, life insurance, 401k, or other retirement programs) (“Benefits”).  Any such plan or arrangement shall be revocable and subject to termination or amendment at any time only in accordance with the terms and conditions of such plans or arrangements, without recourse by Executive, provided that no such termination or amendment shall disadvantage Executive or his wife or dependents disproportionately to any other participants therein (except as may be required by laws or regulations, such as those related to “top-heavy” or “top hat” plans).

4.6Business Expenses.  The Company shall pay or reimburse Executive for all reasonable, customary and necessary business expenses incurred or paid by Executive in the performance of his duties and responsibilities hereunder, subject to any maximum annual limit and other restrictions on such expenses set by the Board and to such reasonable substantiation and documentation as may be specified by the Company from time to time.

4.7Clawback.  Executive acknowledges and agrees that any compensation or benefits paid to Executive by the Company, pursuant to this Agreement or otherwise, shall be subject to recovery by the Company in accordance with Section 304 of the Sarbanes-Oxley Act of 2002 or any other clawback law or regulation applicable to executives of the Company, if any, as amended from time to time.

5.Termination of Employment and Severance Benefits During the Term. Notwithstanding the provision of Section 2 hereof and subject to the provisions of Section 20 below, Executive's employment may terminate prior to or at the expiration of the Term under the following circumstances (each, a “Termination Date”):

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5.1Death.  In the event of Executive's death during the Term, Executive's employment hereunder shall immediately and automatically terminate. In such event, the Company, shall pay to Executive's designated beneficiaries or, if no beneficiaries have been designated by Executive, to his estate, (i) the Base Salary earned but not paid through the Termination Date; (ii) the amount of any accrued but unused vacation calculated as of the Termination Date; and (iii) any business expenses incurred by Executive but un-reimbursed on the Termination Date, provided that such expenses and required substantiation and documentation are submitted within ninety (90) days of termination and that such expenses are reimbursable under Company policy (all of the foregoing, “Final Compensation”).  The Final Compensation shall be paid by the Company on the next regular payroll period following his death (or, if later, on the next regular payroll period after the Company receives notice of Executive’s death).

5.2Disability.

(a)If, as a result of Executive’s incapacity due to physical or mental illness, Executive shall have been absent from Executive’s duties with the Company on a full-time basis for one hundred eighty (180) consecutive calendar days or two hundred seventy (270) non-consecutive days in any eighteen (18) month period, and within thirty (30) days after written notice of termination Executive shall not have returned to the full-time performance of his duties, with or without reasonable accommodations, the Company may thereafter notify Executive of termination.  In the event of such termination, the Company shall pay to Executive the Final Compensation on the next regular payroll period following his Termination Date.

(b)The Board may designate another employee to act in Executive's place during any period of Executive's disability which shall not constitute Good Reason hereunder.  Notwithstanding any such designation, Executive shall continue to receive his compensation and benefits in accordance with Section 4, to the extent permitted by the then-current terms of the applicable benefit plans, until Executive becomes eligible for disability income benefits under the Company's disability income plan or until the termination of his employment, whichever shall first occur.

5.3By the Company for Cause.  During the Term, the Company may terminate Executive's employment for Cause as defined in Section 1.3 above.  If Executive’s employment is terminated for Cause as defined in Section 1.3 above, then the Company shall have no further obligation to Executive other than to pay his Final Compensation on the next regular payroll period following his Termination Date.

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5.4By the Company Without Cause.  During the Term, the Company may terminate Executive's employment without Cause at any time.  If Executive’s employment is terminated by the Company without Cause following the initial Public Offering then, in addition to paying Executive the Final Compensation and subject to Executive’s compliance with Article 7 in all material respects, the Company shall: (a)continue to pay Executive the Base Salary at the rate in effect on the Termination Date during the Restricted Period, with the first payment being on the Company’s next regular payroll period which is at least eight (8) business days following the effective date of the Release (defined below) (provided that if the 60-day time period for the Release begins in one taxable year and ends in a subsequent taxable year, the first payment shall be paid in the subsequent taxable year (for example, if Executive terminates on December 1, then the first payment shall not be paid until on or after January 1 of the next year, regardless of when the Release is returned)); (b) continue Executive’s health insurance benefits for the Restricted Period (at a cost no less favorable than that paid by Executive immediately prior to the Termination Date) or the economic equivalent thereto if such continuation is not permissible under the terms of the Company’s health insurance plan or would otherwise expose the Company to tax or other penalties;  and (c) pay Executive an amount equal to the pro rata amount of the Bonus Executive would have earned for the year in which the termination occurred, based on the Company’s performance for the entire fiscal year in which the termination occurred relative to the performance measurements that were pending at the time of termination and to be used to determine Executive’s bonus for such year.   Any such prorated Bonus shall be payable at such time or times as bonuses are payable to the other executives of the Company(the benefits, which the parties acknowledge are not required by law, outlined in Section(s) 5.4(a), (b) and (c) are collectively referenced as the “Severance”).  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering to the Company and not revoking a release, in a form acceptable to the Company (the “Release”), within sixty (60) days of his Termination Date, which Release in any event will require Executive to reaffirm his obligations and commitments to the Company under Section 7 of this Agreement.

5.5By Executive for Good Reason.  During the Term, Executive may terminate his employment at any time for Good Reason.  The following shall constitute “Good Reason” for termination by Executive:

(a)any material reduction by the Company in Executive’s Base Salary without Executive’s prior consent;

(b)following a Change in Control, any change in Executive’s status, reporting, duties or position that represents a demotion or diminution from Executive’s status, reporting, duties or position in effect before such Change in Control; or

(c)any material breach by the Company of this Agreement between it and Executive.

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Executive shall not be deemed to have been terminated for Good Reason pursuant to Section(s) 5.5(a), (b) or (c) above unless Executive delivers to the Company a written notice of termination for Good Reason specifying the alleged Good Reason within thirty (30) days after Executive first learns of the existence of the circumstances giving rise to Good Reason, within thirty (30) days following delivery of such notice, the Company has failed to cure the circumstances giving rise to Good Reason, and Executive resigns within fifteen (15) days after the end of the cure period.

If Executive’s employment is terminated by Executive for Good Reason following the initial Public Offering then, in addition to immediately paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms and conditions as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.

5.6By Executive Other than for Good Reason.  During the Term, Executive may terminate his employment at any time upon sixty (60) days' written notice to the Company.  In the event of termination of Executive pursuant to this Section 5.6, the Board may elect to waive the period of notice, or any portion thereof, and, if the Board so elects, the Company shall pay Executive his Base Salary for the notice period (or for any remaining portion of the period).  If Executive’s employment is voluntarily terminated by him other than for Good Reason, then the Company shall pay Executive the Final Compensation on the next regular payroll period following his Termination Date.

5.7By Expiration of the Term.  Upon expiration of the Term, if Executive’s employment with the Company terminates at the expiration of the Term, Executive shall be paid the Final Compensation on the next regular payroll period following his Termination Date.   If the expiration of the Term was the result of  the Company issuance of a notice of non-renewal to Executive pursuant to Section 2, then, in addition to paying Executive the Final Compensation, Executive shall be paid the Severance at the same time and subject to the same terms as described in Section 5.4 hereof.  Any obligation of the Company to provide Executive the Severance is conditioned on Executive signing, delivering the Release to the Company and not revoking the Release as provided therein within sixty (60) days of his Termination Date.

6.Effect of Termination.

6.1Benefits.  Benefits shall terminate pursuant to the terms of the applicable benefit plans based on the date of the termination of Executive's employment without regard to any continuation of Base Salary or other payment to Executive following such Termination Date.

6.2Restricted Stock Grants.  The restricted stock grants made pursuant to that certain Restricted Stock Award Agreement by and between the Company (or its successor or affiliate) and Executive dated as of January 1, 2014 shall vest in accordance with the terms of such agreement.

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6.3Survival of Obligations.  Provisions of this Agreement shall survive any termination of Executive's employment hereunder, including termination of this Agreement upon the expiration of the Term, if so provided herein or if necessary or desirable to accomplish the purposes of other surviving provisions, including without limitation the obligations of Executive under Sections 7 and 8 hereof and the obligations of the Company under Section 5.  

7.Confidential Information, Ownership of Information, Inventions, Work Product, Restrictive Covenants and Defend Trade Secrets Act.

7.1Confidential Information.  Executive acknowledges that the Company and its Affiliates continually develop Confidential Information, that Executive may develop Confidential Information for the Company or its Affiliates, and that the Company has and will continue to provide Executive with Confidential Information during the course of his employment.  Executive will comply with the policies and procedures of the Company and its Affiliates for protecting Confidential Information and shall not disclose to any person or entity or use, other than as required by applicable law or for the proper performance of his duties and responsibilities to the Company and its Affiliates, any Confidential Information obtained by Executive incident to his employment by the Company or any of its Affiliates. Notwithstanding this Section 7.1 or any other provision of this Agreement, (a) Executive may disclose Confidential Information when required to do so by a court of competent jurisdiction, by any governmental agency having authority over Executive or the business of the Company or its Affiliates or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information; and (b) nothing in this Agreement is intended to interfere with Executive’s right to (i) report possible violations of state or federal law or regulation to any governmental or law enforcement agency or entity; (ii) make other disclosures that are protected under the whistleblower provisions of state or federal law or regulation; (iii) file a claim or charge with the Equal Employment Opportunity Commission (“EEOC”), any state human rights commission, or any other governmental agency or entity; or (iv) testify, assist, or participate in an investigation, hearing, or proceeding conducted by the EEOC, any state human rights commission, any other governmental or law enforcement agency or entity, or any court.  For purposes of clarity, in making or initiating any such reports or disclosures or engaging in any of the conduct outlined in subsection (b) above, Executive may disclose Confidential Information to the extent necessary to such governmental or law enforcement agency or entity or such court, need not seek prior authorization from the Company or its Affiliates, and is not required to notify the Company or its Affiliates of any such reports, disclosures or conduct.

7.2Safeguard and Return of Documents.  All documents, records, tapes, and other media of every kind and description relating to the business, present or otherwise, of the Company or its Affiliates, and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by Executive, shall be the sole and exclusive property of the Company and its Affiliates.  Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates all Documents then in Executive's possession or control with the exception of this Agreement or other documents related to Executive's compensation or benefits.

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7.3Ownership of Information, Inventions and Original Work.  Executive agrees that any creative works, discoveries, developments, designs, software, computer programs, inventions, improvements, modifications, enhancements, know-how, formulation, concept, methods, processes, or idea which is made, conceived, created, developed or reduced to practice by Executive, either alone or with others (collectively referred to as “Work Product”) is the exclusive property of the Company if:

(a)It was conceived or developed in any part on Company time;

(b)Any equipment, facilities, materials, or Confidential Information of the Company was used in its conception or development; or

(c)It (i) relates, at the time of conception or reduction to practice, to the Company’s business, (ii) relates, at the time of conception or reduction of practice, to a research or development project of the Company that was demonstrably anticipated or existed prior to or at the time of the termination of Executive’s service to the Company and/or its subsidiaries, or (iii) results from any work performed by Executive for the Company.  Notwithstanding Section 7.3(c)(i), if the foregoing intellectual property described in Section 7.3(c)(i) is conceived, developed or reduced to practice entirely after the latest to occur of the time at which: (A) the Executive is no longer employed by the Company and (B) the Executive is no longer serving as a director on the Board, then such intellectual property shall not constitute Work Product.

Executive agrees to assist the Company in obtaining a patent or copyrights on such Work Product and to provide such documentation and assistance as is necessary for the Company to obtain such patent or copyright.  Executive shall maintain adequate written records of such Work Product in such format as may be specified by the Company.  Such records will be available to and remain the sole property of the Company at all times.  

7.4Restrictive Covenants.  Executive acknowledges that, in order to effectuate the promise to hold Confidential Information in trust for the Company and in order to protect the Company's legitimate business interests (which include, but are not limited to, continuation of contracts and relationships with its customers, its reputation, its competitive advantage and its goodwill), it is necessary to enter into the following restrictive covenants.  Without the prior written consent of the Company, Executive shall not, during the Restricted Period:

(a)directly or indirectly manage, operate, control, participate in, consult with, render services for or in any manner engage in any business or enterprise (including any division, group or franchise of a larger organization), whether as a proprietor, owner, member, partner, stockholder, director, officer, employee, consultant, joint venturer, investor, sales representative or other participant, in which the Company or any of its subsidiaries engaged at any time during the two year period immediately preceding the date Executive’s employment with the Company and its subsidiaries terminates  (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated) or engages or proposes to engage as of such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries

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terminated), in each case, anywhere in any State where the Company or one of its subsidiaries maintained an office immediately preceding such termination date (or the date of determination if the date of determination is prior to the date Executive’s employment with the Company and its subsidiaries terminated);

(b)directly or indirectly induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of such entity;

(c)subject to the restrictions of any applicable law, directly or indirectly induce or attempt to induce any established customer of the Company or any of its subsidiaries to cease doing business with, or materially alter its business relationship with, such entity;

(d)directly or indirectly solicit the sale of goods or services, or a combination thereof, to established customers of the Company or any of its subsidiaries; or

(e) make or solicit or encourage others to make or solicit directly or indirectly any derogatory or negative statement or communication about the Company, its subsidiaries or any of their respective businesses, products, services or activities; provided, however, that the restriction set forth in this clause (e) will not prohibit truthful testimony compelled by valid legal process. Notwithstanding the foregoing, the Executive shall not be prohibited from owning up to one percent of the outstanding stock of a corporation which is publicly traded, so long as Executive has no active participation in the business of such corporation.

7.5 Defend Trade Secrets Act.  Executive is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If Executive files a lawsuit for retaliation against the Company or its Affiliates for reporting a suspected violation of law, Executive may disclose the Company’s or its Affiliates’ trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.

8.Assignment of Rights to Work Product.  Executive shall promptly and fully disclose all Work Product to the Company.  Executive hereby assigns and agrees to assign to the Company (or as otherwise directed by the Company) Executive's full right, title and interest in and to all Work Product.  Executive agrees to execute any and all applications for domestic and foreign patents, copyrights, or other proprietary rights and to do such other acts (including, without limitation, execute and delivery of instruments of further assurance or confirmation) requested by the Company to assign the Work Product to the Company and to permit the Company to enforce any patents, copyrights, or other proprietary rights to the Work Product.  All copyrightable works that Executive creates in the course of his employment by the Company shall be considered “work made for hire.”

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9.Enforcement of Covenants.Executive agrees that these restraints are necessary for the reasonable and proper protection of the Company and its subsidiaries and their trade secrets and Confidential Information and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area, and that these restraints, individually or in the aggregate, will not prevent Executive from obtaining other suitable employment during the period in which Executive is bound by the restraints.  Executive agrees that, before providing services, whether as an employee or consultant, to any entity during the Restricted Period, Executive will provide a copy of Articles 7, 9, and 18 to such entity.  Executive acknowledges that each of these covenants has a unique, very substantial and immeasurable value to the Company and its subsidiaries, that Executive has sufficient assets and skills to provide a livelihood while such covenants remain in force and that, as a result of the foregoing, in the event that Executive breaches such covenants, monetary damages would be an insufficient remedy for the Company and equitable enforcement of the covenant would be proper.  Executive therefore agrees that the Company, in addition to any other remedies available to it, will be entitled to preliminary and permanent injunctive relief against any breach by Executive of any of those covenants, without the necessity of showing actual monetary damages or the posting of a bond or other security.  Executive and the Company further agree that, in the event that any provision of Article 7 is determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, that provision will be deemed to be modified to permit its enforcement to the maximum extent permitted by law.Executive further covenants that Executive will not challenge the reasonableness or enforceability of any of the covenants set forth in Article 7 and that Executive will reimburse the Company and its subsidiaries for all costs (including reasonable attorneys’ fees) incurred in connection with any action to enforce any of the provisions of Article 7 if Executive challenges the reasonability or enforceability of any of the provisions of Article 7, it being understood and agreed that a dispute as to whether Executive’s conduct in fact violates or violated the terms of Article 7 is not, by itself, a challenge regarding the reasonableness or enforceability of Article 7.  It is also agreed that each of the Company's subsidiaries will have the right to enforce all of Executive’s obligations to that subsidiary under this Agreement, including without limitation pursuant to Article 7.  

10.Assignment and Succession.

10.1No Assignment by Executive.  This Agreement is personal to Executive and shall not be assignable by Executive.  

10.2Succession.  This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.  

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11.Notices.  All notices which are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and (i) delivered personally, (ii) mailed by certified or registered mail, return receipt requested and postage prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent via facsimile confirmed in writing as follows:

If to the Company:

Paycom Software, Inc.

7501 W. Memorial Road

Oklahoma City, OK 73142

Attention:  Board of Directors

If to Executive:

Mr. Jeffrey York

XXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXX

or to such other address or addresses as either party shall have designated in writing to the other party hereto, provided, however, that any notice sent by certified or registered mail shall be deemed delivered on the date of delivery as evidenced by the return receipt.

12.Severability.  If any portion or provision of this Agreement shall, to any extent, be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application or such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

13.Waiver.  No waiver of such provision hereof shall be effective unless made in writing and signed by the waiving party.  The failure of either party to require the performance of any term or obligation of this Agreement, or the waiver by either party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach.

14.Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes all prior communications, agreements and understandings, written or oral, with respect to the terms and conditions of Executive's employment, including Section 5(e) of the Securities Purchase Agreement dated July 2, 2007 by and among WCAS Paycom Holdings, Inc., Paycom Payroll, LLC, Ernest Group, Inc., The Ruby Group, Inc., Executive, Shannon Rowe, William Kerber and Henry J. Binkowski and excluding only any agreements governing the rights and obligations of the Company and Executive with respect to the securities of the Company, and any Company-provided separate benefit or severance plans, all of which remain in full force and effect in accordance with their terms.  

15.Amendment.  This Agreement may be amended or modified only by a written instrument signed by Executive and by an expressly authorized representative of the Board.

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16.Headings.  The headings and captions in this Agreement are for convenience only and in no way define or describe the scope or content of any provision of this Agreement.

17.Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument.

18.Governing Law.This Agreement shall be construed, and the legal relations between the parties determined, in accordance with the laws of the State of Delaware, without regard to its conflicts of law rules.  To the extent that a court of competent jurisdiction concludes that application of Delaware law to all or part of Section 7.4 is contrary to Oklahoma public policy or statutes, Executive acknowledges that this Agreement relates to Executive’s sale of the goodwill of the Company, as defined in 15 O.S. § 218, and agrees to comply with Sections 7.4(a)-(b) to the fullest extent permitted by law.

19.Attorney’s Fees.  The Company agrees to pay or reimburse Executive for the reasonable attorney fees incurred by Executive in connection with the review of this Agreement and any related documents, up to a maximum of Fifteen Thousand Dollars and Zero Cents ($15,000.00).  Such payment will be made promptly following the date Executive executes this Agreement with the Company, upon receipt by the Company of an appropriate invoice from the attorney for the fees with respect to such review.

20.Section 409A of the Code.

(a)To the extent (i) any payments to which Executive becomes entitled under this Agreement, or any agreement or plan referenced herein, in connection with Executive’s termination of employment with the Company constitute deferred compensation subject to Section 409A of the Code; (ii) Executive is deemed at the time of his separation from service to be a “specified employee” under Section 409A of the Code; and (iii) at the time of Executive’s separation from service the Company is publicly traded (as defined in Section 409A of Code), then such payments (other than any payments permitted by Section 409A of the Code to be paid within six (6) months of Executive’s separation from service) shall not be made until the earlier of (x) the first day of the seventh month following Executive’s separation from service or (y) the date of Executive’s death following such separation from service.  During any period that payment or payments to Executive are deferred pursuant to the foregoing, Executive shall be entitled to interest on the deferred payment or payments at a per annum rate equal to Federal-Funds rate as published in The Wall Street Journal on the date of Executive’s termination of employment with the Company. Upon the expiration of the applicable deferral period, any payments which would have otherwise been made during that period (whether in a single sum or in installments) in the absence of this Section 19 (together with accrued interest thereon) shall be paid to Executive or Executive’s beneficiary in one lump sum.

(b)A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation from service” (within the meaning of Section 409A of the Code).

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(c)For purposes of Section 409A of the Code, each payment under Section 5 hereof (and each other severance plan payment) will be treated as a separate payment.

(d)Any reimbursement of expenses made under this Agreement shall only be made for eligible expenses incurred during the Term, and no reimbursement of any expense shall be made by the Company after December 31st of the year following the calendar year in which the expense was incurred.  Any amount eligible for reimbursement under this Agreement during a taxable year may not affect expenses eligible for reimbursement in any other taxable year, and any right to reimbursement under this Agreement is not subject to liquidation or exchange for another benefit.

(e)It is intended that this Agreement comply with the provisions of Section 409A of the Code and the regulations and guidance of general applicability issued thereunder so as to not subject Executive to the payment of additional interest and taxes under Section 409A of the Code, and in furtherance of this intent, this Agreement shall be interpreted, operated and administered in a manner consistent with these intentions.

*************

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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Executive Employment Agreement as of the date first set forth above.

EXECUTIVE	PAYCOM SOFTWARE, INC.
/s/ Jeffrey York	/s/ Frederick C. Peters, II
Jeffrey York	By:	Frederick C. Peters, II
	Title:	Lead Director of the Board of Directors, on behalf of the Board of Directors

EX-10.6

Exhibit 10.6

RESTRICTED STOCK AWARD AGREEMENT

TIME-BASED VESTING

PAYCOM SOFTWARE, INC.

2014 LONG-TERM INCENTIVE PLAN

1.Grant of Award.  Pursuant to the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “Plan”) for Employees, Contractors, and Outside Directors of Paycom Software, Inc., a Delaware corporation (the “Company”), the Company grants to

_______________________________________

(the “Participant”)

an Award of Restricted Stock in accordance with Section 6.4 of the Plan.  The number of shares of Common Stock awarded under this Restricted Stock Award Agreement – Time-Based Vesting (this “Agreement”) is __________________________ shares (the “Awarded Shares”).  The “Date of Grant” of this Award is __________________.

2.Subject to Plan; Purpose; Definitions.  

a.This Agreement is subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement.  To the extent the terms of the Plan are inconsistent with the provisions of the Agreement, this Agreement shall control.  This Agreement is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.

b.The Awarded Shares provided for in this Agreement are intended to: (i) provide the Participant with a long-term stake in the Company; (ii) provide the Participant with an incentive to contribute to the Company’s overall performance; and (iii) develop and maintain stockholders of the Company whose interests are aligned with the Company’s interests.  The Participant acknowledges that the Company is distinct from its Subsidiaries and that the Participant’s employer is not the Company, but a Subsidiary of the Company.  The Participant further acknowledges and agrees that (x) the Awarded Shares provided for herein are entirely supplemental to, and independent of, any wage or other compensation provided to the Participant by any of the Subsidiaries in consideration of the Participant’s services, and this Award is expressly contingent upon each of the terms, conditions and requirements provided for herein, and (y) the Company would not have granted this Award to the Participant, but for the Participant’s agreement to be bound by the terms, conditions and requirements provided for herein, including, without limitation, the provisions set forth in Section 4 of this Agreement.

c.The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan; provided, that the following terms shall have the meanings set forth below:

i.“Appraised Value” means the value ascribed to a share of the subject Equity Securities as set forth in the most recent written appraisal previously issued by an independent Person selected by the audit committee of the Company nationally recognized as having experience in providing investment banking or similar appraisal or valuation services and with expertise generally in the valuation of securities; provided, that it being

understood that neither the Board nor the audit committee shall have any obligation to obtain any such appraisal more than once per calendar year.

ii.“Clawback” shall have the meaning set forth in Section 4(b).

iii.“Clawback Period” shall mean the period beginning on the Date of Grant and ending on the sixtieth (60th) day following the three (3) year anniversary of the date of the Participant’s Termination of Service.

iv.“Confidential Information” means trade secrets, confidential or proprietary information, and all other information, documents or materials owned, developed or possessed by Paycom that are not generally known to the public or within the industry of Paycom.  Confidential Information includes, but is not limited to, Paycom’s customer names and Paycom’s customer contact person names; Paycom’s customers’ nonpublic personal information; Paycom’s pricing information, pricing promotions, and pricing strategies; Paycom’s customer pricing; Paycom’s lead lists; Paycom’s prospective customer information, including prospective customer contact information, prospective customer pricing, prospective customer preferences, prospective customer feedback, and prospective customer timing needs; Paycom’s customers’ employee information, including Paycom’s customers’ employee salary information and Paycom’s customers’ employees’ personally identifiable information; information concerning Paycom’s employee salary information, compensation information, commission policies, bonus policies, benefits policies (but specifically excluding the Participant’s own individual salary, benefits, bonus and compensation information); Paycom employees’ personally identifiable information; Paycom’s employees’ performance information, whether aggregated or individualized; information pertaining to Paycom customer complaints, whether aggregated or individualized; information pertaining to any Paycom customer’s requests for additional functionality, whether aggregated or individualized; information pertaining to any Paycom customer’s use of a specific payroll processing system or provider; Paycom’s marketing promotions and strategies; Paycom’s sales promotions and strategies; Paycom’s reputation management activities and strategies; Paycom’s competitive advantage analyses; Paycom’s competitive disadvantage analyses; Paycom’s product development information, including specifications, design and pricing structure; Paycom’s nonpublic financial information; Paycom’s licensee relationships; Paycom’s proprietary technology and proprietary file formats, including its application program interface (API), database structure, file formats, converter files and information security protocols; Paycom’s referral source relationships, including brokers, accountants and other referral source relationships; Paycom’s business processes; and/or any and all material nonpublic information with respect to any aspect of Paycom’s business.  Confidential Information shall not include any information that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Participant).

v.“Demotion” means (a) a material decrease in the compensation (exclusive of commissions and bonuses) of the Participant, provided that, a decrease in compensation that is uniformly applied to Employees, Contractors or Outside Directors who are similarly situated to the Participant (as determined by the Company in its sole discretion) shall not constitute a Demotion; (b) a diminution of the Participant’s position to a lower position within Paycom; or (c) a material diminution of the Participant’s authority, duties or responsibilities, with notice to the Participant that, based on the Participant’s performance, the Participant will have materially less authority or be responsible for materially lesser duties or responsibilities, in each case as determined by the Company, in its sole discretion.

vi.“Equity Securities” means, as applicable, (a) any capital stock or other share capital, (b) any securities (other than debt securities) directly or indirectly convertible into or exchangeable for any capital stock, membership interests or other share capital or containing any profit participation features, (c) any rights or options directly or indirectly to subscribe for or to purchase any capital stock, other share capital or securities containing any profit participation features or to subscribe for or to purchase any securities (other than debt securities) directly or indirectly convertible into or exchangeable for any capital stock, other share capital or securities (other than debt securities) containing any profit participation features, (d) any share appreciation rights, phantom share rights or other similar rights, or (e) any Equity Securities as defined in clauses (a) through (d) above issued or issuable with respect to the securities referred to in clauses (a) through (d) above in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

vii.“Equity Securities Value Per Share” means, for any class or series of Equity Securities of the Company, for any date, the price determined by the first of the following clauses that applies: (a) if such Equity Securities are then listed or quoted on a Trading Market, the arithmetic average of the VWAP of a share of such Equity Securities on each of the twenty (20) consecutive Trading Days immediately preceding such date; (b) if the Equity Securities are not then listed or quoted for trading on a Trading Market and if prices for such Equity Securities are then reported on the OTC Bulletin Board (or a similar organization or agency succeeding to its functions of reporting prices), the arithmetic average of the closing bid price per share of such Equity Securities so reported on each of the twenty (20) consecutive Trading Days immediately preceding such date; or (c) in all other cases, the Appraised Value of a share of such Equity Securities.

viii. “Forfeiture Activities” shall have the meaning set forth in Section 4(e).

ix.“Initial Vesting Date” means ______________________.

x.“Material Contact” means, with respect to any Paycom customer or prospective Paycom customer, the Participant, during the term of the Participant’s service with Paycom: (a) directly interacted with such customer or prospective customer; (b) supervised an Employee who interacted with such customer or prospective customer; or (c) obtained or received nonpublic information from Paycom specifically related to such customer or prospective customer, including, without limitation, as a result of the Participant’s attendance at or access to meetings or discussions in which said customer or prospective customer was specifically discussed.

xi. “Paycom” means the Company and its Subsidiaries collectively.

xii.“Relevant Paycom Customer” means any Paycom customer that maintains an office located within the Territory and with which the Participant had Material Contact.

xiii.“Relevant Paycom Employee” means an Employee (a) with whom the Participant directly interacted during the time that the Participant was employed by (or if the Participant is a Contractor or an Outside Director, was providing services to) Paycom; (b) whom the Participant directly supervised or who reported directly to the Participant or the Participant’s direct reports; or (c) about whom the Participant obtained or received

nonpublic information from Paycom specifically related to such Employee’s performance or employment.

xiv.“Relevant Prospective Customer” means any Paycom prospective customer that maintains an office located within the Territory and with which the Participant had Material Contact.

xv. “Territory” shall mean a geographic area or areas located within any of the following territorial areas: (i) a one hundred (100) mile radius or radii of any office location(s) in which the Participant worked during the Participant’s tenure with Paycom; and (ii) if applicable, a fifty (50) mile radius or radii of any sales territory(ies) boundary(ies) assigned to the Participant during the Participant’s tenure with Paycom.  Notwithstanding the foregoing, Territory shall be limited to only include areas located within the United States of America.

xvi.“Trading Day” means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable Trading Market or in the applicable securities market.

xvii.“Trading Market” means the primary securities exchange on which the Common Stock is listed or quoted for trading on the date in question.

xviii.“VWAP” means the daily volume weighted average price of a share of the Common Stock for such date on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (or successor thereto) using its “Volume at Price” function (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)).

3.Vesting.  Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Awarded Shares shall vest as set forth below. Any Awarded Shares that become vested in accordance with this Section 3 shall be referred to as “Vested Shares” and any Awarded Shares that, at the particular time of determination, have not become vested in accordance with this Section 3 shall be referred to as “Non-Vested Shares.”  The Awarded Shares shall vest as follows:

a.One-fourth (1/4^th) of the total Awarded Shares shall vest on the Initial Vesting Date, provided the Participant is employed by (or if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date;

b.An additional one-fourth (1/4^th) of the total Awarded Shares shall vest on the first (1^st) anniversary of the Initial Vesting Date, provided the Participant is employed by (or if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date;

c.An additional one-fourth (1/4^th) of the total Awarded Shares shall vest on the second (2^nd) anniversary of the Initial Vesting Date, provided the Participant is employed by (or if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date; and

d.The remaining one-fourth (1/4^th) of the total Awarded Shares shall vest on the third (3^rd) anniversary of the Initial Vesting Date, provided the Participant is employed by (or if the

Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date.

Notwithstanding the foregoing, upon the occurrence of a Demotion, a pro-rated portion of the Awarded Shares that are eligible for vesting on the next occurring vesting date, shall vest on the date of the Demotion, with such pro-rated portion (rounding down to the nearest whole share to avoid the issuance of fractional shares) to be determined by multiplying (1) the number of Awarded Shares that are eligible for vesting on the next occurring vesting date by (2) a fraction,  (a) the numerator of which is the number of days that have lapsed between the immediately prior vesting date (or the Date of Grant if no vesting date has occurred) and the date of Demotion, and (b) the denominator of which is three hundred sixty-five (365) (provided that if the Initial Vesting Date has not yet occurred, the denominator will be the number of days between the Date of Grant and the Initial Vesting Date). Any Awarded Shares that remain unvested as of the date of the Demotion (following the pro-rated vesting as a result of such Demotion) shall be forfeited in accordance with Section 4 below.

Notwithstanding the foregoing, all Awarded Shares not previously vested shall immediately become vested in full upon a Termination of Service as a result of the Participant’s death or Total and Permanent Disability.  In addition, in the event that (i) a Change in Control occurs, and (ii) this Agreement is not assumed by the surviving corporation or its parent, or the surviving corporation or its parent does not substitute its own restricted shares, then immediately prior to the effective date of such Change in Control, all Awarded Shares not previously vested shall thereupon immediately become fully vested.

4.Forfeiture of Awarded Shares.  Notwithstanding anything herein to the contrary, Awarded Shares shall be forfeited and shall cease to be outstanding as set forth below:

a.Awarded Shares that are not vested in accordance with Section 3 shall be forfeited on the earlier of (i) the third (3rd) anniversary of the Initial Vesting Date with respect to all Awarded Shares, (ii) the date of the Participant’s Termination of Service with respect to all Awarded Shares; or (iii) the date of the Participant’s Demotion with respect to all Awarded Shares (immediately following the vesting of any pro-rated portion of the Awarded Shares in accordance with Section 3).  Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligations on the part of the Company.  

b.The Participant acknowledges that: (i) Paycom continually develops Confidential Information, and that the Participant has had and will continue to have access to Confidential Information which, if disclosed, would unfairly and inappropriately assist in competition against the Company or any of its Subsidiaries, (ii) the Participant has generated and will continue to generate goodwill for Paycom in the course of the Participant’s service; and (iii) the Company has an interest in maintaining stockholders whose interests are aligned with Paycom’s interests.  Accordingly, if at any time during the Clawback Period, the Company determines that the Participant has engaged in Forfeiture Activities, all Awarded Shares (whether or not vested and whether then held by the Participant or any other Person) shall be subject to the following provisions (collectively, the “Clawback”):    

1. If the Participant has engaged in Forfeiture Activities and has not transferred any of the Awarded Shares, then the Participant shall forfeit all of the Awarded Shares;

2.If the Participant has engaged in Forfeiture Activities and has transferred all of the Awarded Shares, then the Participant shall pay to the Company an amount equal to the gross proceeds received in respect of such transferred Awarded Shares; or

3.If the Participant has engaged in Forfeiture Activities and has transferred some, but not all, of the Vested Shares, then the Participant shall (x) forfeit all of the non-transferred Vested Shares, (y) pay to the Company an amount equal to the gross proceeds received in respect of any transferred Vested Shares, and (z) forfeit all Non-Vested Shares.  

The Clawback set forth in this Section 4(b) shall survive the Participant’s Termination of Service and the termination of this Agreement.

c.In the event the Company is unable to conclusively establish the amount of the gross proceeds received by the Participant in respect of the Participant’s transferred Vested Shares, then such amount shall be deemed to be an amount calculated based on the following formula:

where

P1 = the Equity Securities Value Per Share as of the last Trading Day of the calendar year in which the Date of Grant occurred;

P2 =the sum of the Equity Securities Value Per Share as of the last Trading Day of each calendar year that has elapsed following the year in which the Date of Grant occurred but prior to the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback;

P3 =the Equity Securities Value Per Share as of the Trading Day immediately prior to the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback;

Y =the number of calendar-year-ends that have occurred between the Date of Grant and the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback; and

TS =the number of transferred Vested Shares.

d.The Company shall deliver prompt written notice to the Participant of the Company’s intent to enforce the Clawback.  Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligations on the part of the Company.  The Company shall not initiate enforcement of its right of Clawback beyond the Clawback Period; provided, however, the Company may continue its enforcement of any right of Clawback beyond the Clawback Period.

e.The Participant shall have engaged in “Forfeiture Activities” if the Participant, subject to the restrictions of any applicable law (including the right to engage in conduct protected by Section 7 of the National Labor Relations Act): (i) during the term of the Participant’s service with Paycom or during the two (2) year period following a Termination of Service (A) directly or indirectly hires or solicits any Relevant Paycom Employee to leave the employ of Paycom; (B) directly or indirectly solicits or encourages any Relevant Paycom Customer to cease doing business with, or materially alter its business relationship with Paycom; (C) directly or indirectly solicits or encourages any Relevant Prospective Customer to cease doing business with, or materially alter its business relationship with Paycom; (D) directly or indirectly solicits or encourages any Relevant Paycom Customer to purchase the same or similar goods or services, or a combination thereof, as those offered by Paycom from an entity or Person other than Paycom; or (E) directly or indirectly solicits or encourages any Relevant Prospective Customer to purchase the same or similar goods

or services, or a combination thereof, as those offered by Paycom from an entity or Person other than Paycom (ii) during the term of the Participant’s service with Paycom or during the two (2) year period following a Termination of Service, makes or solicits or encourages others to make or solicit directly or indirectly any derogatory, negative, unflattering, critical, insulting, offensive, deprecating, belittling, harmful, undesirable or intentionally misleading statement or communication, including statements or communications made on social media, in a text or similar message, in an e-mail or in any other form whatsoever, about the Company, its Subsidiaries or any of their respective officers, directors, employees, businesses, products, services or activities; or (iii) during the term of the Participant’s service with Paycom or during the three (3) period following a Termination of Service, discloses to any Person or entity or uses, other than as required by applicable law or for the proper performance of his or her duties and responsibilities to Paycom, any Confidential Information obtained by or known to the Participant.  The determination of whether the Participant has engaged in Forfeiture Activities will be made by Paycom in its sole and absolute discretion.  The restrictions set forth in this Section 4(e) shall survive the Participant’s Termination of Service and the termination of this Agreement.

f.Notwithstanding Section 4(e), the Participant shall not have engaged in Forfeiture Activities by providing truthful testimony or information compelled by valid legal process, or by reporting possible violations of applicable law or making other disclosures that are protected under the whistleblower provisions of applicable law, to the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Commission or any similar state agency.  Further, the Participant shall not have engaged in Forfeiture Activities and will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If the Participant files a lawsuit for retaliation against the Company or any of its Subsidiaries for reporting a suspected violation of law, the Participant shall not have engaged in Forfeiture Activities and may disclose the Company and its Subsidiaries’ trade secrets to the Participant’s attorney and use the trade secret information in the court proceeding if the Participant: (x) files any document containing the trade secret under seal; and (y) does not disclose the trade secret, except pursuant to court order.

5.Restrictions on Awarded Shares.  The Participant shall not be permitted to sell, transfer, pledge, hypothecate, margin, assign or otherwise encumber any of the Non-Vested Shares until such shares become Vested Shares in accordance with Section 3.  The Committee may in its sole discretion, remove any or all of such restrictions (or any other restrictions contained herein) on any Awarded Shares whenever it may determine that, by reason of changes in applicable law or changes in circumstances after the date of this Agreement, such action is appropriate

6.Legend.  The following legend shall be placed on all certificates issued representing Awarded Shares:

        On the face of the certificate:

“Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.”

On the reverse:

“The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain Paycom Software, Inc. 2014 Long-Term Incentive Plan and that certain restricted stock award agreement, by and between the company and the participant, DATED AS OF ___________________, copies of which are on file at the principal office of the Company in Oklahoma City, Oklahoma.  No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan.  By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan.”

The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:

“Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”

All Awarded Shares owned by the Participant shall be subject to the terms of this Agreement and shall be represented by a certificate or certificates bearing the foregoing legend.

7.Delivery of Certificates; Registration of Shares.  The Company shall deliver certificates for Awarded Shares to the Participant or shall register such Awarded Shares in the Participant’s name, free of restriction under this Agreement, promptly after, and only after, such Awarded Shares have become Vested Shares in accordance with Section 3.  In connection with any issuance of a certificate for Restricted Stock, the Participant shall endorse such certificate in blank or execute a stock power in a form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company.

8.Rights of a Stockholder.  Except as provided in Section 4 and Section 5 above, the Participant shall have, with respect to his Awarded Shares, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon,  subject to the provisions of this Section 8.  Any stock dividends paid with respect to Awarded Shares shall at all times be treated as Awarded Shares and shall be subject to all restrictions placed on such Awarded Shares; any such stock dividends paid with respect to such Awarded Shares shall vest as the related Awarded Shares become vested.  Any cash dividends paid with respect to Non-Vested Shares shall at all times be subject to the provisions of this Agreement (including the vesting and forfeiture provisions set forth above); any such cash dividends paid with respect to such Non-Vested Shares shall vest as such shares become Vested Shares, and shall be paid to the Participant on the date the Non-Vested Shares to which such cash dividends relate become Vested Shares.

9.Voting.  The Participant, as record holder of the Awarded Shares, has the exclusive right to vote, or consent with respect to, such Awarded Shares until such time as the Awarded Shares are transferred in accordance with this Agreement; provided that this Section 9 shall not create any voting right where the holders of such Awarded Shares otherwise have no such right.

10.Adjustment to Number of Awarded Shares.  The number of Awarded Shares shall be subject to adjustment in accordance with Articles 11-13 of the Plan.

11.Specific Performance.  The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance.  The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.

12.Participant’s Representations.  Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Awarded Shares, and that the Company will not be obligated to issue any Awarded Shares to the Participant hereunder, if the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any such determination by the Company shall be final, binding, and conclusive.  The rights and obligations of the Company and the rights and obligations of the Participant are subject to all applicable laws.

13.Investment Representation.  Unless the Awarded Shares are issued in a transaction registered under applicable federal and state securities laws, by his or her execution hereof, the Participant represents and warrants to the Company that all Common Stock which may be purchased and or received hereunder will be acquired by the Participant for investment purposes for his or her own account and not with any intent for resale or distribution in violation of federal or state securities laws.  Unless the Common Stock is issued to him or her in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently registered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and substance satisfactory to the Company and its counsel, that such registration is not required.

14.Participant’s Acknowledgments.  The Participant acknowledges that a copy of the Plan has been made available for his review by the Company, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions thereof.  The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

15.Law Governing.  This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation of this agreement to the laws of another state).

16.No Right to Continue Service or Employment.  Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Contractor or as an Outside Director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Contractor, or Outside Director at any time.

17.Legal Construction.  In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.

18.Covenants and Agreements as Independent Agreements.  Each of the covenants and agreements that are set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement.  The existence of any claim or cause of action of the Participant against Paycom, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

19.Entire Agreement.  This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20.Parties Bound.  The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.  No Person shall be permitted to acquire any Awarded Shares without first executing and delivering an agreement in the form satisfactory to the Company making such Person or entity subject to the restrictions on transfer contained herein.

21.Modification.  No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties.  Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

22.Headings.  The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.

23.Gender and Number.  Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

24.Notice.  Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the third (3rd) day after the date mailed, by certified or registered mail (in each case, return receipt requested, postage pre-paid).  Notices must be sent to the respective parties at the following addresses (or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:

Notice to the Company shall be addressed and delivered as follows:

Paycom Software, Inc.

7501 W. Memorial Rd.

Oklahoma City, OK 73142

Attn:  Chief Financial Officer

Notice to the Participant shall be addressed and delivered as set forth on the signature page.

25.Tax Requirements.  The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement, the method and timing for filing an election to include this Agreement in income under Section 83(b) of the Code, and the tax consequences of such election.  By execution of this Agreement, the Participant agrees that if the Participant makes such an election, the Participant shall provide the Company with written notice of such election in accordance with the regulations promulgated under Section 83(b) of the Code.The Company or, if applicable, any Subsidiary (for purposes of this Section 25, the term “Company” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with this Award.  The Participant receiving shares of Common Stock issued under the Plan shall pay to the Company, in accordance with the provisions of this Section 25, the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award.  Such payment must be made prior to the delivery of any certificate representing shares of Common Stock, as follows: (i) if the Participant is a Reporting Participant and/or is subject to the Company’s “Insider Trading Policy” at the time of vesting of Awarded Shares, then the tax withholding obligation must be satisfied by the Company’s withholding of a number of shares to be delivered upon the vesting of such Awarded Shares, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment (the “Net Settlement of Shares”), provided that, the Committee (excluding the Participant if the Participant is a member of the Committee) may, in its sole discretion, instead require the satisfaction of the tax withholding obligation in accordance with (ii)(A), (ii)(B) or (ii)(D) below; or (ii) if the Participant is neither a Reporting Participant nor subject to the Company’s “Insider Trading Policy” at the time of vesting of Awarded Shares, then such payment may be made (A) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares) the required tax withholding obligations of the Company; (B) if the Company, in its sole discretion, so consents in writing, the actual delivery by the Participant to the Company of shares of Common Stock, other than Restricted Stock or Common Stock that the Participant has acquired from the

Company within six (6) months prior thereto, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares) the required tax withholding payment; (C) if the Company, in its sole discretion, so consents in writing, by the Net Settlement of Shares; or (D) any combination of (A), (B), or (C).  The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.  

* * * * * * * * * *

[Remainder of Page Intentionally Left Blank.

Signature Page Follows]

Each party to this Agreement consents to the use of electronic signatures in the execution of this Agreement.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.  A PDF, scanned item, or other reproduction of this Agreement and/or its signature page may be executed by one or more of the parties, and an executed copy of such signature page of this Agreement may be delivered by one or more of the parties by email or similar instantaneous electronic transmission pursuant to which the signature of, or on behalf of, the party is set forth electronically on the signature page, and such execution and delivery shall be considered valid, legally binding and effective for all purposes.  

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

COMPANY: Paycom Software, Inc.	PARTICIPANT:
Signature	Signature
Name:	Date:
Title:	Address:

EX-10.7

Exhibit 10.7

RESTRICTED STOCK AWARD AGREEMENT

MARKET-BASED VESTING

PAYCOM SOFTWARE, INC.

2014 LONG-TERM INCENTIVE PLAN

1.Grant of Award.  Pursuant to the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “Plan”) for Employees, Contractors, and Outside Directors of Paycom Software, Inc., a Delaware corporation (the “Company”), the Company grants to

____________________________________

(the “Participant”)

an Award of Restricted Stock in accordance with Section 6.4 of the Plan.  The number of shares of Common Stock awarded under this Restricted Stock Award Agreement – Market-Based Vesting (this “Agreement”) is _________________ shares (the “Awarded Shares”). The “Date of Grant” of this Award is _________________.

2.Subject to Plan; Purpose; Definitions.  

a.This Agreement is subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement.  To the extent the terms of the Plan are inconsistent with the provisions of the Agreement, this Agreement shall control.  This Agreement is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.

b.The Awarded Shares provided for in this Agreement are intended to: (i) provide the Participant with a long-term stake in the Company; (ii) provide the Participant with an incentive to contribute to the Company’s overall performance; and (iii) develop and maintain stockholders of the Company whose interests are aligned with the Company’s interests.  The Participant acknowledges that the Company is distinct from its Subsidiaries and that the Participant’s employer is not the Company, but a Subsidiary of the Company.  The Participant further acknowledges and agrees that (x) the Awarded Shares provided for herein are entirely supplemental to, and independent of, any wage or other compensation provided to the Participant by any of the Subsidiaries in consideration of the Participant’s services, and this Award is expressly contingent upon each of the terms, conditions and requirements provided for herein, and (y) the Company would not have granted this Award to the Participant, but for the Participant’s agreement to be bound by the terms, conditions and requirements provided for herein, including, without limitation, the provisions set forth in Section 4 of this Agreement.

c.The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan; provided, that the following terms shall have the meanings set forth below:

i.“Appraised Value” means the value ascribed to a share of the subject Equity Securities as set forth in the most recent written appraisal previously issued by an independent Person selected by the audit committee of the Company nationally recognized as having experience in providing investment banking or similar appraisal or valuation services and with expertise generally in the valuation of securities; provided, that it being

understood that neither the Board nor the audit committee shall have any obligation to obtain any such appraisal more than once per calendar year.

ii. “Clawback” shall have the meaning set forth in Section 4(b).

iii.“Clawback Period” shall mean the period beginning on the Date of Grant and ending on the sixtieth (60th) day following the three (3) year anniversary of the date of the Participant’s Termination of Service.

iv.“Confidential Information” means trade secrets, confidential or proprietary information, and all other information, documents or materials owned, developed or possessed by Paycom that are not generally known to the public or within the industry of Paycom.  Confidential Information includes, but is not limited to, Paycom’s customer names and Paycom’s customer contact person names; Paycom’s customers’ nonpublic personal information; Paycom’s pricing information, pricing promotions, and pricing strategies; Paycom’s customer pricing; Paycom’s lead lists; Paycom’s prospective customer information, including prospective customer contact information, prospective customer pricing, prospective customer preferences, prospective customer feedback, and prospective customer timing needs; Paycom’s customers’ employee information, including Paycom’s customers’ employee salary information and Paycom’s customers’ employees’ personally identifiable information; information concerning Paycom’s employee salary information, compensation information, commission policies, bonus policies, benefits policies (but specifically excluding the Participant’s own individual salary, benefits, bonus and compensation information); Paycom employees’ personally identifiable information; Paycom’s employees’ performance information, whether aggregated or individualized; information pertaining to Paycom customer complaints, whether aggregated or individualized; information pertaining to any Paycom customer’s requests for additional functionality, whether aggregated or individualized; information pertaining to any Paycom customer’s use of a specific payroll processing system or provider; Paycom’s marketing promotions and strategies; Paycom’s sales promotions and strategies; Paycom’s reputation management activities and strategies; Paycom’s competitive advantage analyses; Paycom’s competitive disadvantage analyses; Paycom’s product development information, including specifications, design and pricing structure; Paycom’s nonpublic financial information; Paycom’s licensee relationships; Paycom’s proprietary technology and proprietary file formats, including its application program interface (API), database structure, file formats, converter files and information security protocols; Paycom’s referral source relationships, including brokers, accountants and other referral source relationships; Paycom’s business processes; and/or any and all material nonpublic information with respect to any aspect of Paycom’s business.  Confidential Information shall not include any information that is or becomes generally publicly available (other than as a result of violation of this Agreement by the Participant).

v.“Demotion” means (a) a material decrease in the compensation (exclusive of commissions and bonuses) of the Participant, provided that, a decrease in compensation that is uniformly applied to Employees, Contractors or Outside Directors who are similarly situated to the Participant (as determined by the Company in its sole discretion) shall not constitute a Demotion; (b) a diminution of the Participant’s position to a lower position within Paycom; or (c) a material diminution of the Participant’s authority, duties or responsibilities, with notice to the Participant that, based on the Participant’s performance, the Participant will have materially less authority or be responsible for materially lesser duties or responsibilities, in each case as determined by the Company, in its sole discretion.

vi. “Equity Securities” means, as applicable, (a) any capital stock or other share capital, (b) any securities (other than debt securities) directly or indirectly convertible into or exchangeable for any capital stock, membership interests or other share capital or containing any profit participation features, (c) any rights or options directly or indirectly to subscribe for or to purchase any capital stock, other share capital or securities containing any profit participation features or to subscribe for or to purchase any securities (other than debt securities) directly or indirectly convertible into or exchangeable for any capital stock, other share capital or securities (other than debt securities) containing any profit participation features, (d) any share appreciation rights, phantom share rights or other similar rights, or (e) any Equity Securities as defined in clauses (a) through (d) above issued or issuable with respect to the securities referred to in clauses (a) through (d) above in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization.

vii.“Equity Securities Value Per Share” means, for any class or series of Equity Securities of the Company, for any date, the price determined by the first of the following clauses that applies: (a) if such Equity Securities are then listed or quoted on a Trading Market, the arithmetic average of the VWAP of a share of such Equity Securities on each of the twenty (20) consecutive Trading Days immediately preceding such date; (b) if the Equity Securities are not then listed or quoted for trading on a Trading Market and if prices for such Equity Securities are then reported on the OTC Bulletin Board (or a similar organization or agency succeeding to its functions of reporting prices), the arithmetic average of the closing bid price per share of such Equity Securities so reported on each of the twenty (20) consecutive Trading Days immediately preceding such date; or (c) in all other cases, the Appraised Value of a share of such Equity Securities.

viii.“First TEV Threshold” means $__________.

ix.“Forfeiture Activities” shall have the meaning set forth in Section 4(e).

x. “Material Contact” means, with respect to any Paycom customer or prospective Paycom customer, the Participant, during the term of the Participant’s service with Paycom: (a) directly interacted with such customer or prospective customer; (b) supervised an Employee who interacted with such customer or prospective customer; or (c) obtained or received nonpublic information from Paycom specifically related to such customer or prospective customer, including, without limitation, as a result of the Participant’s attendance at or access to meetings or discussions in which said customer or prospective customer was specifically discussed.

xi. “Paycom” means the Company and its Subsidiaries collectively.

xii.“Relevant Paycom Customer” means any Paycom customer that maintains an office located within the Territory and with which the Participant had Material Contact.

xiii.“Relevant Paycom Employee” means an Employee (a) with whom the Participant directly interacted during the time that the Participant was employed by (or if the Participant is a Contractor or an Outside Director, was providing services to) Paycom; (b) whom the Participant directly supervised or who reported directly to the Participant or the Participant’s direct reports; or (c) about whom the Participant obtained or received

nonpublic information from Paycom specifically related to such Employee’s performance or employment.

xiv.“Relevant Prospective Customer” means any Paycom prospective customer that maintains an office located within the Territory and with which the Participant had Material Contact.

xv.“Second TEV Threshold” means $____________.

xvi.“Territory” shall mean a geographic area or areas located within any of the following territorial areas: (i) a one hundred (100) mile radius or radii of any office location(s) in which the Participant worked during the Participant’s tenure with Paycom; and (ii) if applicable, a fifty (50) mile radius or radii of any sales territory(ies) boundary(ies) assigned to the Participant during the Participant’s tenure with Paycom.  Notwithstanding the foregoing, Territory shall be limited to only include areas located within the United States of America.

xvii.“Total Enterprise Value” means the sum of: (i) the product of (A) the Equity Securities Value Per Share of a share of Common Stock not subject to vesting or other restrictions multiplied by (B) the number of outstanding shares of Common Stock, less (y) the number of outstanding shares of Restricted Stock or Other Awards of shares of Common Stock without vesting restrictions, in each case, issued after the date of this Agreement (including outstanding shares of Common Stock resulting from the vesting of such Restricted Stock), and less (z) the number of shares of Common Stock issued by the Company after the date of this Agreement in connection with any merger, consolidation, share exchange or other transaction in which, in each case, the Company acquires voting securities of another Person or all or any portion of another Person’s assets; (ii) for each other class or series of Equity Securities of the Company, if any, the product of (A) Equity Securities Value Per Share for such class or series of such Equity Securities of the Company multiplied by (B) the number of shares of such class or series of such Equity Securities of the Company, less (y) the number of shares of such class or series of such Equity Securities issued under the Plan (or otherwise issued for compensatory purposes) after the date of this Agreement, and less (z) the number of shares of such class or series of such Equity Securities issued by the Company after the date of this Agreement in connection with any merger, consolidation, share exchange or other transaction in which, in each case, the Company acquires the voting securities of another Person or all or any portion of another Person’s assets; and (iii) the principal amount of all outstanding funded indebtedness of the Company as of the last day of the month immediately preceding the date of calculation less the aggregate amount of cash and cash equivalents of the Company (exclusive of funds held on behalf of clients) as of the last day of the month immediately preceding the date of calculation.

xviii. “Trading Day” means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the applicable Trading Market or in the applicable securities market.

xix.“Trading Market” means the primary securities exchange on which the Common Stock is listed or quoted for trading on the date in question.

xx.“VWAP” means the daily volume weighted average price of a share of the Common Stock for such date on the Trading Market on which the Common Stock is then

listed or quoted for trading as reported by Bloomberg L.P. (or successor thereto) using its “Volume at Price” function (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)).

3.Vesting.  Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, the Awarded Shares shall vest as set forth below. Any Awarded Shares that become vested in accordance with this Section 3 shall be referred to as “Vested Shares” and any Awarded Shares that, at the particular time of determination, have not become vested in accordance with this Section 3 shall be referred to as “Non-Vested Shares.”  The Awarded Shares shall vest as follows:

a.One-half (1/2) of the Awarded Shares shall vest on the first date, if any, that the Total Enterprise Value equals or exceeds the First TEV Threshold, provided that (i) the Participant is employed by (or if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date and (ii) such date occurs on or before the sixth (6^th) anniversary of the Date of Grant; and

b.One-half (1/2) of the Awarded Shares shall vest on the first date, if any, that the Total Enterprise Value equals or exceeds the Second TEV Threshold, provided that (i) the Participant is employed by (or if the Participant is a Contractor or an Outside Director, is providing services to) the Company or a Subsidiary on that date and (ii) such date occurs on or before the sixth (6^th) anniversary of the Date of Grant;

Notwithstanding the foregoing, all Awarded Shares not previously vested shall immediately become vested in full upon a Termination of Service as a result of the Participant’s death or Total and Permanent Disability.  In addition, in the event that (i) a Change in Control occurs, and (ii) this Agreement is not assumed by the surviving corporation or its parent, or the surviving corporation or its parent does not substitute its own restricted shares, then immediately prior to the effective date of such Change in Control, all Awarded Shares not previously vested shall thereupon immediately become fully vested.

4.Forfeiture of Awarded Shares.  Notwithstanding anything herein to the contrary, Awarded Shares shall be forfeited and shall cease to be outstanding as set forth below:

a.Awarded Shares that are not vested in accordance with Section 3 shall be forfeited on the earlier of (i) the sixth (6^th) anniversary of the Date of Grant with respect to all Awarded Shares; (ii) the date of the Participant’s Termination of Service with respect to all Awarded Shares; or (iii) the date of the Participant’s Demotion with respect to all Awarded Shares. Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligations on the part of the Company.  

b.The Participant acknowledges that: (i) Paycom continually develops Confidential Information, and that the Participant has had and will continue to have access to Confidential Information which, if disclosed, would unfairly and inappropriately assist in competition against the Company or any of its Subsidiaries, (ii) the Participant has generated and will continue to generate goodwill for Paycom in the course of the Participant’s service; and (iii) the Company has an interest in maintaining stockholders whose interests are aligned with Paycom’s interests.  Accordingly, if at any time during the Clawback Period, the Company determines that the Participant has engaged in Forfeiture Activities, all Awarded Shares (whether or not vested and whether then held by the Participant or any other Person) shall be subject to the following provisions (collectively, the “Clawback”):    

1. If the Participant has engaged in Forfeiture Activities and has not transferred any of the Awarded Shares, then the Participant shall forfeit all of the Awarded Shares;

2.If the Participant has engaged in Forfeiture Activities and has transferred all of the Awarded Shares, then the Participant shall pay to the Company an amount equal to the gross proceeds received in respect of such transferred Awarded Shares; or

3.If the Participant has engaged in Forfeiture Activities and has transferred some, but not all, of the Vested Shares, then the Participant shall (x) forfeit all of the non-transferred Vested Shares, (y) pay to the Company an amount equal to the gross proceeds received in respect of any transferred Vested Shares, and (z) forfeit all Non-Vested Shares.  

The Clawback set forth in this Section 4(b) shall survive the Participant’s Termination of Service and the termination of this Agreement.

c.In the event the Company is unable to conclusively establish the amount of the gross proceeds received by the Participant in respect of the Participant’s transferred Vested Shares, then such amount shall be deemed to be an amount calculated based on the following formula:

where

P1 = the Equity Securities Value Per Share as of the last Trading Day of the calendar year in which the Date of Grant occurred;

P2 =the sum of the Equity Securities Value Per Share as of the last Trading Day of each calendar year that has elapsed following the year in which the Date of Grant occurred but prior to the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback;

P3 =the Equity Securities Value Per Share as of the Trading Day immediately prior to the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback;

Y =the number of calendar-year-ends that have occurred between the Date of Grant and the date that the Company delivers written notice to the Participant of its intent to enforce the Clawback; and

TS =the number of transferred Vested Shares.

d.The Company shall deliver prompt written notice to the Participant of the Company’s intent to enforce the Clawback.  Upon forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligations on the part of the Company.  The Company shall not initiate enforcement of its right of Clawback beyond the Clawback Period; provided, however, the Company may continue its enforcement of any right of Clawback beyond the Clawback Period.

e.The Participant shall have engaged in “Forfeiture Activities” if the Participant, subject to the restrictions of any applicable law (including the right to engage in conduct protected by Section 7 of the National Labor Relations Act): (i) during the term of the Participant’s service with Paycom or during the two (2) year period following a Termination of Service (A) directly or indirectly hires or solicits any Relevant Paycom Employee to leave the employ of Paycom; (B)

directly or indirectly solicits or encourages any Relevant Paycom Customer to cease doing business with, or materially alter its business relationship with Paycom; (C) directly or indirectly solicits or encourages any Relevant Prospective Customer to cease doing business with, or materially alter its business relationship with Paycom; (D) directly or indirectly solicits or encourages any Relevant Paycom Customer to purchase the same or similar goods or services, or a combination thereof, as those offered by Paycom from an entity or Person other than Paycom; or (E) directly or indirectly solicits or encourages any Relevant Prospective Customer to purchase the same or similar goods or services, or a combination thereof, as those offered by Paycom from an entity or Person other than Paycom (ii) during the term of the Participant’s service with Paycom or during the two (2) year period following a Termination of Service, makes or solicits or encourages others to make or solicit directly or indirectly any derogatory, negative, unflattering, critical, insulting, offensive,

deprecating, belittling, harmful, undesirable or intentionally misleading statement or communication, including statements or communications made on social media, in a text or similar message, in an e-mail or in any other form whatsoever, about the Company, its Subsidiaries or any of their respective officers, directors, employees, businesses, products, services or activities; or (iii) during the term of the Participant’s service with Paycom or during the three (3) period following a Termination of Service, discloses to any Person or entity or uses, other than as required by applicable law or for the proper performance of his or her duties and responsibilities to Paycom, any Confidential Information obtained by or known to the Participant.  The determination of whether the Participant has engaged in Forfeiture Activities will be made by Paycom in its sole and absolute discretion.  The restrictions set forth in this Section 4(e) shall survive the Participant’s Termination of Service and the termination of this Agreement.

f.Notwithstanding Section 4(e), the Participant shall not have engaged in Forfeiture Activities by providing truthful testimony or information compelled by valid legal process, or by reporting possible violations of applicable law or making other disclosures that are protected under the whistleblower provisions of applicable law, to the Securities and Exchange Commission, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Commission or any similar state agency.  Further, the Participant shall not have engaged in Forfeiture Activities and will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.  If the Participant files a lawsuit for retaliation against the Company or any of its Subsidiaries for reporting a suspected violation of law, the Participant shall not have engaged in Forfeiture Activities and may disclose the Company and its Subsidiaries’ trade secrets to the Participant’s attorney and use the trade secret information in the court proceeding if the Participant: (x) files any document containing the trade secret under seal; and (y) does not disclose the trade secret, except pursuant to court order.

5.Restrictions on Awarded Shares.  The Participant shall not be permitted to sell, transfer, pledge, hypothecate, margin, assign or otherwise encumber any of the Non-Vested Shares until such shares become Vested Shares in accordance with Section 3.  The Committee may in its sole discretion, remove any or all of such restrictions (or any other restrictions contained herein) on any Awarded Shares whenever it may determine that, by reason of changes in applicable law or changes in circumstances after the date of this Agreement, such action is appropriate.

6.Legend.  The following legend shall be placed on all certificates issued representing Awarded Shares:

On the face of the certificate:

“Transfer of this stock is restricted in accordance with conditions printed on the reverse of this certificate.”

On the reverse:

“The shares of stock evidenced by this certificate are subject to and transferable only in accordance with that certain Paycom Software, Inc. 2014 Long-Term Incentive Plan and that certain restricted stock award agreement, by and between the company and the participant, DATED AS OF _____________, copies of which are on file at the principal office of the Company in Oklahoma City, Oklahoma.  No transfer or pledge of the shares evidenced hereby may be made except in accordance with and subject to the provisions of said Plan.  By acceptance of this certificate, any holder, transferee or pledgee hereof agrees to be bound by all of the provisions of said Plan.”

The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:

“Shares of stock represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”

All Awarded Shares owned by the Participant shall be subject to the terms of this Agreement and shall be represented by a certificate or certificates bearing the foregoing legend.

7.Delivery of Certificates; Registration of Shares.  The Company shall deliver certificates for Awarded Shares to the Participant or shall register such Awarded Shares in the Participant’s name, free of restriction under this Agreement, promptly after, and only after, such Awarded Shares have become Vested Shares in accordance with Section 3.  In connection with any issuance of a certificate for Restricted Stock, the Participant shall endorse such certificate in blank or execute a stock power in a form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company.

8.Rights of a Stockholder.  Except as provided in Section 4 and Section 5 above, the Participant shall have, with respect to his Awarded Shares, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon, subject to the provisions of this Section 8.  Any stock dividends paid with respect to Awarded Shares shall at all times be treated as Awarded Shares and shall be subject to all restrictions placed on such Awarded Shares; any such stock dividends paid with respect to such Awarded Shares shall vest as the related Awarded Shares become vested.  Any cash dividends paid with respect to Non-Vested Shares shall at all times be subject to the provisions of this Agreement (including the vesting and forfeiture provisions set forth above); any such cash dividends paid with respect to such Non-Vested Shares shall vest as such shares become Vested Shares, and shall be paid to the Participant on the date the Non-Vested Shares to which such cash dividends relate become Vested Shares.

9.Voting.  The Participant, as record holder of the Awarded Shares, has the exclusive right to vote, or consent with respect to, such Awarded Shares until such time as the Awarded Shares are transferred in accordance with this Agreement; provided that this Section 9 shall not create any voting right where the holders of such Awarded Shares otherwise have no such right.

10.Adjustment to Number of Awarded Shares.  The number of Awarded Shares shall be subject to adjustment in accordance with Articles 11-13 of the Plan.

11.Specific Performance.  The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance.  The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.

12.Participant’s Representations.  Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Awarded Shares, and that the Company will not be obligated to issue any Awarded Shares to the Participant hereunder, if the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any such determination by the Company shall be final, binding, and conclusive.  The rights and obligations of the Company and the rights and obligations of the Participant are subject to all applicable laws.

13.Investment Representation.  Unless the Awarded Shares are issued in a transaction registered under applicable federal and state securities laws, by his or her execution hereof, the Participant represents and warrants to the Company that all Common Stock which may be purchased and or received hereunder will be acquired by the Participant for investment purposes for his or her own account and not with any intent for resale or distribution in violation of federal or state securities laws.  Unless the Common Stock is issued to him or her in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently registered under the applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and substance satisfactory to the Company and its counsel, that such registration is not required.

14.Participant’s Acknowledgments.  The Participant acknowledges that a copy of the Plan has been made available for his review by the Company, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions thereof.  The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

15.Law Governing.  This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation of this agreement to the laws of another state).

16.No Right to Continue Service or Employment.  Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Contractor or as an Outside Director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Contractor, or Outside Director at any time.

17.Legal Construction.  In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.

18.Covenants and Agreements as Independent Agreements.  Each of the covenants and agreements that are set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement.  The existence of any claim or cause of action of the Participant against Paycom, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

19.Entire Agreement.  This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20.Parties Bound.  The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.  No Person shall be permitted to acquire any Awarded Shares without first executing and delivering an agreement in the form satisfactory to the Company making such Person or entity subject to the restrictions on transfer contained herein.

21.Modification.  No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties.  Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

22.Headings.  The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.

23.Gender and Number.  Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

24.Notice.  Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the third (3rd) day after the date mailed, by certified or registered mail (in each case, return receipt requested, postage pre-paid).  Notices must be sent to the respective parties at the following addresses (or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:

Notice to the Company shall be addressed and delivered as follows:

Paycom Software, Inc.

7501 W. Memorial Rd.

Oklahoma City, OK 73142

Attn:  Chief Financial Officer

Notice to the Participant shall be addressed and delivered as set forth on the signature page.

25.Tax Requirements.  The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement, the method and timing for filing an election to include this Agreement in income under Section 83(b) of the Code, and the tax consequences of such election.  By execution of this Agreement, the Participant agrees that if the Participant makes such an election, the Participant shall provide the Company with written notice of such election in accordance with the regulations promulgated under Section 83(b) of the Code.The Company or, if applicable, any Subsidiary (for purposes of this Section 25, the term “Company” shall be deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any Federal, state, local, or other taxes required by law to be withheld in connection with this Award.  The Participant receiving shares of Common Stock issued under the Plan shall pay to the Company, in accordance with the provisions of this Section 25, the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award.  Such payment must be made prior to the delivery of any certificate representing shares of Common Stock, as follows: (i) if the Participant is a Reporting Participant and/or is subject to the Company’s “Insider Trading Policy” at the time of vesting of Awarded Shares, then the tax withholding obligation must be satisfied by the Company’s withholding of a number of shares to be delivered upon the vesting of such Awarded Shares, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment (the “Net Settlement of Shares”), provided that, the Committee (excluding the Participant if the Participant is a member of the Committee) may, in its sole discretion, instead require the satisfaction of the tax withholding obligation in accordance with (ii)(A), (ii)(B) or (ii)(D) below; or (ii) if the Participant is neither a Reporting Participant nor subject to the Company’s “Insider Trading Policy” at the time of vesting of Awarded Shares, then such payment may be made (A) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares) the required tax withholding obligations of the Company; (B) if the Company, in its sole discretion, so consents in writing, the actual delivery by the Participant to the Company of shares of Common Stock, other than Restricted Stock or Common Stock that the Participant has acquired from the

Company within six (6) months prior thereto, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares) the required tax withholding payment; (C) if the Company, in its sole discretion, so consents in writing, by the Net Settlement of Shares; or (D) any combination of (A), (B), or (C).  The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.  

* * * * * * * * * *

[Remainder of Page Intentionally Left Blank.

Signature Page Follows]

Each party to this Agreement consents to the use of electronic signatures in the execution of this Agreement.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.  A PDF, scanned item, or other reproduction of this Agreement and/or its signature page may be executed by one or more of the parties, and an executed copy of such signature page of this Agreement may be delivered by one or more of the parties by email or similar instantaneous electronic transmission pursuant to which the signature of, or on behalf of, the party is set forth electronically on the signature page, and such execution and delivery shall be considered valid, legally binding and effective for all purposes.  

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

COMPANY: Paycom Software, Inc.	PARTICIPANT:
Signature	Signature
Name:	Date:
Title:	Address:

EX-10.8

Exhibit 10.8

RESTRICTED STOCK AWARD AGREEMENT

[20__] OUTSIDE DIRECTOR AWARD

Paycom Software, Inc.

2014 LONG-TERM INCENTIVE PLAN

1.Grant of Award.  Pursuant to the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “Plan”) for Employees, Contractors, and Outside Directors of Paycom Software, Inc., a Delaware corporation (the “Company”), the Company grants to

(the “Participant”)

an Award of Restricted Stock in accordance with Section 6.4 of the Plan.  The number of shares of Common Stock awarded under this Restricted Stock Award Agreement (this “Agreement”) is [________] shares (the “Awarded Shares”).  The “Date of Grant” of this Award is [________, 20__].

2.Subject to Plan.  This Agreement is subject to the terms and conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise inconsistent with the provisions of this Agreement.  To the extent the terms of the Plan are inconsistent with the provisions of the Agreement, this Agreement shall control.  The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan.  This Agreement is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.

3.Vesting.  Except as specifically provided in this Agreement and subject to certain restrictions and conditions set forth in the Plan, one hundred percent (100%) of the Awarded Shares shall vest on [________, 20__] (the “Vesting Date”), provided the Participant is providing services to the Company or a Subsidiary on that date. Notwithstanding the foregoing, all Awarded Shares not previously vested shall immediately become vested in full upon a Termination of Service as a result of the Participant’s death or Total and Permanent Disability.  In addition, in the event that (i) a Change in Control occurs, and (ii) this Agreement is not assumed by the surviving corporation or its parent, or the surviving corporation or its parent does not substitute its own restricted shares, then immediately prior to the effective date of such Change in Control, all Awarded Shares not previously vested shall thereupon immediately become fully vested.

4.Forfeiture of Awarded Shares.  Awarded Shares that are not vested in accordance with Section 3 shall be forfeited on the date of the Participant’s Termination of Service; provided, however, if (i) such Termination of Service results from the Participant’s resignation from the Board concurrently with the next annual meeting of stockholders occurring prior to the Vesting Date, (ii) such annual meeting of stockholders is held not more than thirty (30) days prior to the Vesting Date, and (iii) the Participant continues to serve on the Board through the date of such annual meeting of stockholders, then the Awarded Shares shall not be forfeited on such Termination of Service and shall vest on the Vesting Date as if the Participant were continuing to provide services through the Vesting Date.  Upon any forfeiture, all of the Participant’s rights with respect to the forfeited Awarded Shares shall cease and terminate, without any further obligations on the part of the Company.

5.Restrictions on Awarded Shares.  The Participant shall not be permitted to sell, transfer, pledge, hypothecate, margin, assign or otherwise encumber any of the Awarded Shares until such shares have vested in accordance with Section 3.  The Committee may in its sole discretion, remove any or all of

the restrictions on such Awarded Shares whenever it may determine that, by reason of changes in applicable law or changes in circumstances after the date of this Agreement, such action is appropriate.

6.Legend.  The following legend shall be placed on all certificates issued representing Awarded Shares:

On the face of the certificate:

“TRANSFER OF THIS STOCK IS RESTRICTED IN ACCORDANCE WITH CONDITIONS PRINTED ON THE REVERSE OF THIS CERTIFICATE.”

On the reverse:

“THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AND TRANSFERABLE ONLY IN ACCORDANCE WITH THAT CERTAIN PAYCOM SOFTWARE, INC. 2014 LONG-TERM INCENTIVE PLAN AND THAT CERTAIN RESTRICTED STOCK AWARD AGREEMENT, BY AND BETWEEN THE COMPANY AND THE PARTICIPANT, DATED AS OF [________, 20__], COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY IN OKLAHOMA CITY, OKLAHOMA.  NO TRANSFER OR PLEDGE OF THE SHARES EVIDENCED HEREBY MAY BE MADE EXCEPT IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF SAID PLAN.  BY ACCEPTANCE OF THIS CERTIFICATE, ANY HOLDER, TRANSFEREE OR PLEDGEE HEREOF AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SAID PLAN.”

The following legend shall be inserted on a certificate evidencing Common Stock issued under the Plan if the shares were not issued in a transaction registered under the applicable federal and state securities laws:

“SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER FOR INVESTMENT AND NOT FOR RESALE, TRANSFER OR DISTRIBUTION, HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF APPLICABLE STATE AND FEDERAL SECURITIES LAWS, AND MAY NOT BE OFFERED FOR SALE, SOLD OR TRANSFERRED OTHER THAN PURSUANT TO EFFECTIVE REGISTRATION UNDER SUCH LAWS, OR IN TRANSACTIONS OTHERWISE IN COMPLIANCE WITH SUCH LAWS, AND UPON EVIDENCE SATISFACTORY TO THE COMPANY OF COMPLIANCE WITH SUCH LAWS, AS TO WHICH THE COMPANY MAY RELY UPON AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.”

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All Awarded Shares owned by the Participant shall be subject to the terms of this Agreement and shall be represented by a certificate or certificates bearing the foregoing legend.

7.Delivery of Certificates; Registration of Shares.  The Company shall deliver certificates for Awarded Shares to the Participant or shall register such Awarded Shares in the Participant’s name, free of restriction under this Agreement, promptly after, and only after, such Awarded Shares have vested in accordance with Section 3.  In connection with any issuance of a certificate for Restricted Stock, the Participant shall endorse such certificate in blank or execute a stock power in a form satisfactory to the Company in blank and deliver such certificate and executed stock power to the Company.

8.Rights of a Stockholder.  Except as provided in Section 4 and Section 5 above, the Participant shall have, with respect to his Awarded Shares, all of the rights of a stockholder of the Company, including the right to vote the shares, and the right to receive any dividends thereon, subject to the provisions of this Section 8.  Any stock dividends paid with respect to Awarded Shares shall at all times be treated as Awarded Shares and shall be subject to all restrictions placed on such Awarded Shares; any such stock dividends paid with respect to such Awarded Shares shall vest as the related Awarded Shares become vested.  Any cash dividends paid with respect to unvested Awarded Shares shall at all times be subject to the provisions of this Agreement (including the vesting and forfeiture provisions set forth above); any such cash dividends paid with respect to such unvested Awarded Shares shall vest as such Awarded Shares become vested, and shall be paid to the Participant on the date the Awarded Shares to which such cash dividends relate become vested.  

9.Voting.  The Participant, as record holder of the Awarded Shares, has the exclusive right to vote, or consent with respect to, such Awarded Shares until such time as the Awarded Shares are transferred in accordance with this Agreement; provided that this Section 9 shall not create any voting right where the holders of such Awarded Shares otherwise have no such right.

10.Adjustment to Number of Awarded Shares.  The number of Awarded Shares shall be subject to adjustment in accordance with Articles 11-13 of the Plan.

11.Specific Performance.  The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance.  The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.

12.Participant’s Representations.  Notwithstanding any of the provisions hereof, the Participant hereby agrees that he or she will not acquire any Awarded Shares, and that the Company will not be obligated to issue any Awarded Shares to the Participant hereunder, if the issuance of such shares shall constitute a violation by the Participant or the Company of any provision of any law or regulation of any governmental authority.  Any such determination by the Company shall be final, binding, and conclusive.  The rights and obligations of the Company and the rights and obligations of the Participant are subject to all applicable laws.

13.Investment Representation.  Unless the Awarded Shares are issued in a transaction registered under applicable federal and state securities laws, by his or her execution hereof, the Participant represents and warrants to the Company that all Common Stock which may be purchased and or received hereunder will be acquired by the Participant for investment purposes for his or her own account and not with any intent for resale or distribution in violation of federal or state securities laws.  Unless the Common Stock is issued to him or her in a transaction registered under the applicable federal and state securities laws, all certificates issued with respect to the Common Stock shall bear an appropriate restrictive investment legend and shall be held indefinitely, unless they are subsequently registered under the

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applicable federal and state securities laws or the Participant obtains an opinion of counsel, in form and substance satisfactory to the Company and its counsel, that such registration is not required.

14.Participant’s Acknowledgments.  The Participant acknowledges that a copy of the Plan has been made available for his review by the Company, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions thereof.  The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement.

15.Law Governing.  This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle of Delaware law that might refer the governance, construction, or interpretation of this agreement to the laws of another state).

16.No Right to Continue Service or Employment.  Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Contractor or as an Outside Director, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Contractor, or Outside Director at any time.

17.Legal Construction.  In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.

18.Covenants and Agreements as Independent Agreements.  Each of the covenants and agreements that are set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement.  The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.

19.Entire Agreement.  This Agreement together with the Plan supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter.  All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.  Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan and that any agreement, statement or promise that is not contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

20.Parties Bound.  The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.  No Person shall be permitted to acquire any Awarded Shares without first executing and delivering an agreement in the form satisfactory to the Company making such Person or entity subject to the restrictions on transfer contained herein.

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21.Modification.  No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties.  Notwithstanding the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

22.Headings.  The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.

23.Gender and Number.  Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.

24.Notice.  Any notice required or permitted to be delivered hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the third (3rd) day after the date mailed, by certified or registered mail (in each case, return receipt requested, postage pre-paid). Notices must be sent to the respective parties at the following addresses (or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:

Notice to the Company shall be addressed and delivered as follows:

Paycom Software, Inc.

7501 W. Memorial Rd.

Oklahoma City, OK 73142

Attn:  Chief Financial Officer

Notice to the Participant shall be addressed and delivered as set forth on the signature page.

25.Tax Requirements.  The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement, the method and timing for filing an election to include this Agreement in income under Section 83(b) of the Code, and the tax consequences of such election.  By execution of this Agreement, the Participant agrees that if the Participant makes such an election, the Participant shall provide the Company with written notice of such election in accordance with the regulations promulgated under Section 83(b) of the Code.  The Participant acknowledges and agrees that the Participant is responsible for any and all any Federal, state, local, or other tax liabilities and obligations arising in connection with this Agreement.  

* * * * * * * * * *

[Remainder of Page Intentionally Left Blank.

Signature Page Follows]

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Each party to this Agreement consents to the use of electronic signatures in the execution of this Agreement. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. A PDF, scanned item, or other reproduction of this Agreement and/or its signature page may be executed by one or more of the parties, and an executed copy of such signature page of this Agreement may be delivered by one or more of the parties by email or similar instantaneous electronic transmission pursuant to which the signature of, or on behalf of, the party is set forth electronically on the signature page, and such execution and delivery shall be considered valid, legally binding and effective for all purposes.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

COMPANY:

Paycom Software, Inc.

By:

Name:

Title:

PARTICIPANT:

Signature

Name:

Address:

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Chad Richison, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 30, 2020	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Craig E. Boelte, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 30, 2020	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Paycom Software, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: April 30, 2020	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)
Date:April 30, 2020	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods.  In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for the fair presentation of our consolidated balance sheets as of March 31, 2020 and our consolidated statements of income, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019.  Such adjustments are of a normal recurring nature.  The information in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the Form 10-K.  The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In January 2020, we adopted Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2020, we adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).  ASU No. 2018-13 modifies the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits. The adoption of this guidance did not have a material impact on our consolidated financial statements. 

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.

Seasonality

Seasonality

Our revenues are seasonal in nature.  Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.  As payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters.  These seasonal fluctuations in revenues can also have an impact on gross profits.  Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.

Employee Stock Purchase Plan

Employee Stock Purchase Plan

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and recognized at the fair value of the award.  Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Funds Held for Clients and Client Funds Obligation

Funds Held for Clients and Client Funds Obligation

As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities.  Amounts collected by us from clients for their federal, state and local employment taxes are invested by us, and we earn interest on these funds during the interval between receipt and disbursement.

These investments are shown in our consolidated balance sheets as funds held for clients, and the offsetting liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date.  As of March 31, 2020 and December 31, 2019, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit.  Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets.  These available-for-sale securities are recorded in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.  Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation.  

Stock Repurchase Plan

Stock Repurchase Plan

In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.  Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time.  Most recently, in March 2020, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock.  As of March 31, 2020, there was $242.0 million available for repurchases under our stock repurchase plan.  Our stock repurchase plan may be suspended or discontinued at any time.  The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations.  The current stock repurchase plan will expire on March 12, 2022.

During the three months ended March 31, 2020, we repurchased an aggregate of 40,032 shares of our common stock at an average cost of $204.04 per share, including 671 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.  

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements 

In December 2019, the Financial Accounting Standards Board issued ASU No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).  The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences.  ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.  This guidance is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted.  We are currently evaluating the impact that this guidance will have on our financial position and results of operations, if any.

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Long-Term Debt, Net (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Schedule of Long-Term Debt

Long-term debt consisted of the following:

	March 31, 2020			December 31, 2019
Net term note to bank due September 7, 2025	$	32,198		$	32,633
Total long-term debt, net (including current portion)		32,198			32,633
Less: Current portion		(1,775	)		(1,775	)
Total long-term debt, net	$	30,423		$	30,858

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Summary of Significant Accounting Policies - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2020 USD ($) $ / shares shares
Restricted Stock [Member]
Summary Of Significant Accounting Policy [Line Items]
Shares withheld to satisfy tax withholding obligations | shares	671
Stock Repurchase Plan [Member]
Summary Of Significant Accounting Policy [Line Items]
Available authorized repurchase amount | $	$ 242,000,000.0
Stock repurchase plan expiration date	Mar. 12, 2022
Number of common stocks repurchased during the period | shares	40,032,000
Stock repurchased, average costs per share | $ / shares	$ 204.04
Maximum [Member] | Stock Repurchase Plan [Member]
Summary Of Significant Accounting Policy [Line Items]
Stock repurchase plan, authorized amount | $	$ 250,000,000.0

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Income Taxes - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Tax Disclosure [Abstract]
Effective income tax rate	28.70%	23.90%

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Earnings Per Share - Computation of Basic and Diluted Net Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Numerator:
Net income	$ 63,015	$ 47,282
Less: income allocable to participating securities	(27)	(55)
Income allocable to common shares	62,988	47,227
Add back: undistributed earnings allocable to participating securities	27	55
Less: undistributed earnings reallocated to participating securities	(27)	(54)
Numerator for diluted earnings per share	$ 62,988	$ 47,228
Denominator:
Basic weighted average shares outstanding	57,655	57,357
Dilutive effect of unvested restricted stock	785	959
Diluted weighted average shares outstanding	58,440	58,316
Earnings per share:
Earnings per share, basic	$ 1.09	$ 0.82
Earnings per share, diluted	$ 1.08	$ 0.81

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Derivative Instruments - Additional Information (Details) - Term Loan [Member] - Interest Rate Swap [Member] - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Derivative [Line Items]
Debt instrument maturity date	Sep. 07, 2025
Description of variable rate basis	one-month LIBOR
Debt Instrument, Interest Rate, Stated Percentage	2.54%
Derivative Instrument, notional value	$ 35.5
Interest rate payment description	The objective of the interest rate swap is to reduce the variability in the forecasted interest payments of the Term Loans, which is based on a one-month LIBOR rate versus a fixed interest rate of 2.54% on a notional value of $35.5 million.  Under the terms of the interest rate swap agreement, we will receive quarterly variable interest payments based on the LIBOR rate and will pay interest at a fixed rate
Derivative instrument gain (loss) under fair value	$ (1.6)	$ (0.5)

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Revenue

3 Months Ended

Mar. 31, 2020

Revenue From Contract With Customer [Abstract]

Revenue

3. REVENUE

Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services. Substantially all of our revenues are comprised of revenue from contracts with clients. Sales taxes and other applicable taxes are excluded from revenues.  

Recurring Revenues

Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports. Talent acquisition includes our applicant tracking, candidate tracker, background check, on-boarding, e-verify and tax credit services applications. Time and labor management includes time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting and geofencing/geotracking. Payroll includes our payroll and tax management, Paycom Pay, expense management, garnishment management and GL Concierge applications. Talent management includes our employee self-service, compensation budgeting, performance management, executive dashboard and Paycom learning and course content applications. HR management includes our document and task management, government and compliance, benefits administration, COBRA administration, personnel action forms, surveys and enhanced Affordable Care Act applications.

The performance obligations related to recurring revenues are satisfied during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll. Recurring revenues are recognized at the conclusion of processing of each client’s payroll period, when each respective payroll client is billed. Collectability is reasonably assured as the fees are collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.

The contract period for substantially all contracts associated with these revenues is one month due to the fact that both we and the client have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications.  For clients who purchase multiple applications, due to the short-term nature of our contracts, we do not believe it is meaningful to separately assess and identify whether or not each application potentially represents its own, individual, performance obligation as the revenue generated from each application is recognized within the same month as the revenue from the core payroll application.  Similarly, we do not believe it is meaningful to individually determine the standalone selling price for each application.  We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups.  

Implementation and Other Revenues

Implementation and other revenues consist of nonrefundable upfront conversion fees which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our employee time and attendance services. Although these revenues are related to our recurring revenues, they represent distinct performance obligations.

Implementation activities primarily represent administrative activities that allow us to fulfill future performance obligations for our clients and do not represent services transferred to the client.  However, the nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of each 30-day contract period. Further, given that all other services within the contract are sold at a total price indicative of the standalone selling price, coupled with the fact that the upfront fees are consistent with upfront fees charged in similar contracts that we have with clients, the standalone selling price of the client’s option to renew the contract approximates the dollar amount of the nonrefundable upfront fee.  The nonrefundable upfront fee is typically included on the client’s first invoice, and is deferred and recognized ratably over the estimated renewal period (i.e., ten-year estimated client life).

Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.  

Contract Balances

The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Changes in deferred revenue related to material right performance obligations as of March 31, 2020 and 2019 were as follows:

	Three Months Ended March 31,
	2020			2019
Balance, beginning of period	$	76,244		$	64,651
Deferral of revenue		5,885			5,561
Recognition of unearned revenue		(3,674	)		(2,701	)
Balance, end of period	$	78,455		$	67,511

We expect to recognize $8.8 million of deferred revenue related to material right performance obligations in the remainder of 2020, $11.5 million of such deferred revenue in 2021, and $58.2 million of such deferred revenue thereafter.

Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts

We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40.  These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations.  

The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach, and are capitalized and amortized over the expected period of benefit, which we have determined to be the estimated client relationship of ten years.  The expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal of such contract.  Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal.  Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform.  These assets are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract are included in the “sales and marketing” and “general and administrative” line items in the accompanying consolidated statements of income.

The following tables present the asset balances and related amortization expense for these contract costs:

	As of and for the Three Months Ended March 31, 2020
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	194,964	$	21,184	$	(7,188	)	$	208,960
Costs to fulfill a contract	$	143,788	$	19,509	$	(4,976	)	$	158,321
	As of and for the Three Months Ended March 31, 2019
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	158,989	$	19,387	$	(5,721	)	$	172,655
Costs to fulfill a contract	$	101,756	$	15,005	$	(3,470	)	$	113,291

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Apr. 21, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Trading Symbol	PAYC
Entity Registrant Name	Paycom Software, Inc.
Entity Central Index Key	0001590955
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		58,566,076
Title of 12(b) Security	Common Stock, $0.01 par value
Security Exchange Name	NYSE
Entity File Number	001-36393
Entity Tax Identification Number	80-0957485
Entity Address, Address Line One	7501 W. Memorial Road
Entity Address, City or Town	Oklahoma City
Entity Address, State or Province	OK
Entity Incorporation, State or Country Code	DE
Entity Address, Postal Zip Code	73142
City Area Code	405
Local Phone Number	722-6900
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Document Quarterly Report	true
Document Transition Report	false

XML

Consolidated Statements of Shareholders' Equity (unaudited) - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]
Beginning balance, value at Dec. 31, 2018	$ 334,753	$ 607	$ 203,680	$ 395,590	$ (265,124)
Beginning balance, shares at Dec. 31, 2018		60,747,000			3,470,000
Vesting of restricted stock		$ 2	(2)
Vesting of restricted stock, shares		280,000
Stock-based compensation	36,187		36,187
Repurchases of common stock	(19,669)				$ (19,669)
Repurchases of common stock, shares					110,000
Net income	47,282			47,282
Ending balance, value at Mar. 31, 2019	398,553	$ 609	239,865	442,872	$ (284,793)
Ending balance, shares at Mar. 31, 2019		61,027,000			3,580,000
Beginning balance, value at Dec. 31, 2019	526,628	$ 613	257,501	576,166	$ (307,652)
Beginning balance, shares at Dec. 31, 2019		61,350,000			3,689,000
Vesting of restricted stock		$ 1	(1)
Vesting of restricted stock, shares		2,000
Stock-based compensation	18,313		18,313
Repurchases of common stock	(8,168)				$ (8,168)
Repurchases of common stock, shares					41,000
Net income	63,015			63,015
Ending balance, value at Mar. 31, 2020	$ 599,788	$ 614	$ 275,813	$ 639,181	$ (315,820)
Ending balance, shares at Mar. 31, 2020		61,352,000			3,730,000

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Derivative Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

7. DERIVATIVE INSTRUMENTS

In December 2017, we entered into a floating-to-fixed interest rate swap agreement to limit the exposure to floating interest rate risk related to the Term Loans.  We do not hold derivative instruments for trading or speculative purposes.  The interest rate swap agreement effectively converts a portion of the variable interest rate payments to fixed interest rate payments.  We account for our derivatives under ASC Topic 815, “Derivatives and Hedging,” and recognize all derivative instruments in the consolidated balance sheets at fair value as either short-term or long-term assets or liabilities based on their anticipated settlement date.  See Note 8, “Fair Value of Financial Instruments”.  We have elected not to designate our interest rate swap as a hedge; therefore, changes in the fair value of the derivative instrument are recognized in our consolidated statements of income within Other income (expense), net.

The objective of the interest rate swap is to reduce the variability in the forecasted interest payments of the Term Loans, which is based on a one-month LIBOR rate versus a fixed interest rate of 2.54% on a notional value of $35.5 million.  Under the terms of the interest rate swap agreement, we will receive quarterly variable interest payments based on the LIBOR rate and will pay interest at a fixed rate.  The interest rate swap agreement has a maturity date of September 7, 2025.  For the three months ended March 31, 2020 and 2019, we recorded losses of $1.6 million and $0.5 million, respectively, for the change in fair value of the interest rate swap, which is included in Other income (expense), net in the consolidated statements of income.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

11. STOCK-BASED COMPENSATION

The following table summarizes restricted stock awards activity for the three months ended March 31, 2020:

	Time-Based					Market-Based
	Restricted Stock Awards					Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2019		742.6		$	107.93		—		$	—
Granted		85.1		$	323.94		360.9		$	216.69
Vested		(2.0	)	$	155.81		—		$	—
Forfeited		(16.3	)	$	117.73		(1.0	)	$	251.33
Unvested shares of restricted stock outstanding at March 31, 2020		809.4		$	130.34		359.9		$	216.59

During the three months ended March 31, 2020, we issued an aggregate of 446,096 restricted shares of common stock to our executive officers and certain non-executive employees under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”), consisting of 360,948 shares subject to market-based vesting conditions (“Market-Based Shares”) and 85,148 shares subject to time-based vesting conditions (“Time-Based Shares”). Market-Based Shares for executive officers will vest 50% on the first date, if any, that the Company’s total enterprise value (calculated as defined in the applicable restricted stock award agreement) (“TEV”) equals or exceeds $23.75 billion and 50% on the first date, if any, that the Company’s TEV equals or exceeds $27.7 billion, in each case provided that (i) such date occurs on or before the sixth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date.  Market-Based Shares for non-executive employees will vest 50% on the first date, if any, that the Company’s TEV equals or exceeds $19.8 billion and 50% on the first date, if any, that the Company’s TEV equals or exceeds $22.15 billion, in each case provided that (i) such date occurs on or before the sixth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date. Time-Based Shares granted to non-executive employees will vest over periods ranging from three to four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.

For the three months ended March 31, 2020 and 2019, our total compensation expense related to restricted stock was $15.8 million and $31.1 million, respectively.  There was $143.0 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of restricted stock outstanding as of March 31, 2020. The unrecognized compensation cost for the unvested shares is expected to be recognized over a weighted average period of 1.9 years as of March 31, 2020.  

We capitalized stock-based compensation costs related to software developed for internal use of $1.6 million and $3.3 million for the three months ended March 31, 2020 and 2019, respectively.  

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Long-Term Debt, Net - Schedule of Long-Term Debt (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Schedule Of Capitalization Longterm Debt [Line Items]
Total long-term debt, net (including current portion)	$ 32,198	$ 32,633
Less: Current portion	(1,775)	(1,775)
Total long-term debt, net	30,423	30,858
2025 Consolidated Loan [Member]
Schedule Of Capitalization Longterm Debt [Line Items]
Term note to bank	$ 32,198	$ 32,633

XML

Property and Equipment - Schedule of Property and Equipment and Associated Accumulated Depreciation and Amortization (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Property and Equipment [Line Items]
Property and equipment, gross	$ 319,223	$ 303,100
Less: accumulated depreciation and amortization	(137,114)	(124,950)
Property and equipment, net	254,423	238,458
Buildings [Member]
Property and Equipment [Line Items]
Property and equipment, gross	101,707	101,707
Software and Capitalized Software Costs [Member]
Property and Equipment [Line Items]
Property and equipment, gross	109,275	99,125
Computer Equipment [Member]
Property and Equipment [Line Items]
Property and equipment, gross	60,673	56,879
Rental Clocks [Member]
Property and Equipment [Line Items]
Property and equipment, gross	21,906	20,836
Furniture, Fixtures and Equipment [Member]
Property and Equipment [Line Items]
Property and equipment, gross	18,809	18,311
Other [Member]
Property and Equipment [Line Items]
Property and equipment, gross	6,853	6,242
Excluded Land and Construction in Process [Member]
Property and Equipment [Line Items]
Property and equipment, net	182,109	178,150
Land [Member]
Property and Equipment [Line Items]
Property and equipment, net	29,034	29,034
Construction in Progress [Member]
Property and Equipment [Line Items]
Property and equipment, net	$ 43,280	$ 31,274

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Revenue - Summary of Changes in Deferred Revenue Related to Material Right Performance Obligations (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenue From Contract With Customer [Abstract]
Balance, beginning of period	$ 76,244	$ 64,651
Deferral of revenue	5,885	5,561
Recognition of unearned revenue	(3,674)	(2,701)
Balance, end of period	$ 78,455	$ 67,511

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Consolidated Statements of Income (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Revenues
Total revenues	$ 242,368	$ 199,943
Cost of revenues
Operating expenses	24,116	24,776
Depreciation and amortization	5,930	4,542
Total cost of revenues	30,046	29,318
Administrative expenses
Sales and marketing	55,018	39,645
Research and development	21,621	18,489
General and administrative	40,134	45,198
Depreciation and amortization	6,285	4,805
Total administrative expenses	123,058	108,137
Total operating expenses	153,104	137,455
Operating income	89,264	62,488
Interest expense	(16)	(276)
Other income (expense), net	(930)	(100)
Income before income taxes	88,318	62,112
Provision for income taxes	25,303	14,830
Net income	$ 63,015	$ 47,282
Earnings per share, basic	$ 1.09	$ 0.82
Earnings per share, diluted	$ 1.08	$ 0.81
Weighted average shares outstanding:
Basic	57,655	57,357
Diluted	58,440	58,316
Recurring [Member]
Revenues
Total revenues	$ 238,495	$ 196,864
Implementation and Other [Member]
Revenues
Total revenues	$ 3,873	$ 3,079

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in the notes to our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 (the “Form 10-K”).

Basis of Presentation

The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods.  In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for the fair presentation of our consolidated balance sheets as of March 31, 2020 and our consolidated statements of income, stockholders’ equity and cash flows for the three months ended March 31, 2020 and 2019.  Such adjustments are of a normal recurring nature.  The information in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the Form 10-K.  The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year.

Recently Adopted Accounting Pronouncements

In January 2020, we adopted Accounting Standards Update (“ASU”) No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2020, we adopted ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).  ASU No. 2018-13 modifies the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements,” including consideration of costs and benefits. The adoption of this guidance did not have a material impact on our consolidated financial statements. 

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.

Seasonality

Our revenues are seasonal in nature.  Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.  As payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters.  These seasonal fluctuations in revenues can also have an impact on gross profits.  Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.

Employee Stock Purchase Plan

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and recognized at the fair value of the award.  Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Funds Held for Clients and Client Funds Obligation

As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities.  Amounts collected by us from clients for their federal, state and local employment taxes are invested by us, and we earn interest on these funds during the interval between receipt and disbursement.

These investments are shown in our consolidated balance sheets as funds held for clients, and the offsetting liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date.  As of March 31, 2020 and December 31, 2019, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit.  Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets.  These available-for-sale securities are recorded in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.  Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation.  

Stock Repurchase Plan

In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.  Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time.  Most recently, in March 2020, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock.  As of March 31, 2020, there was $242.0 million available for repurchases under our stock repurchase plan.  Our stock repurchase plan may be suspended or discontinued at any time.  The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations.  The current stock repurchase plan will expire on March 12, 2022.

During the three months ended March 31, 2020, we repurchased an aggregate of 40,032 shares of our common stock at an average cost of $204.04 per share, including 671 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.  

Recently Issued Accounting Pronouncements 

In December 2019, the Financial Accounting Standards Board issued ASU No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).  The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences.  ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes.  This guidance is effective for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted.  We are currently evaluating the impact that this guidance will have on our financial position and results of operations, if any.

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Long-Term Debt, Net

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Long-Term Debt, Net

6. LONG-TERM DEBT, NET

Long-term debt consisted of the following:

	March 31, 2020			December 31, 2019
Net term note to bank due September 7, 2025	$	32,198		$	32,633
Total long-term debt, net (including current portion)		32,198			32,633
Less: Current portion		(1,775	)		(1,775	)
Total long-term debt, net	$	30,423		$	30,858

On December 7, 2017, we entered into a senior secured term credit agreement (as amended from time to time, the “Term Credit Agreement”), pursuant to which JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank made certain term loans to us (the “Term Loans”).  Our obligations under the Term Loans are secured by a mortgage and first priority security interest in our corporate headquarters property.  The Term Loans mature on September 7, 2025 and bear interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5%.  As of March 31, 2020, our indebtedness of $30.4 million consisted solely of Term Loans made under the Term Credit Agreement.  Unamortized debt issuance costs of $0.2 million as of both March 31, 2020 and December 31, 2019 are presented as a direct deduction from the carrying amount of the debt liability.

Under the Term Credit Agreement, we are subject to two material financial covenants, which require us to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0. As of March 31, 2020, we were in compliance with these covenants. 

On February 12, 2018, we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. and Bank of America, N.A. that provided for a senior secured revolving credit facility (the “Facility”) in the aggregate principal amount of $50.0 million (the “Revolving Commitment”), which could be increased to up to $100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.  The Facility includes a $5.0 million sublimit for swingline loans and a $2.5 million sublimit for letters of credit.  The Facility was scheduled to mature on February 12, 2020.  On April 15, 2019, we entered into the First Amendment to Revolving Credit Agreement (the “First Amendment”).  Pursuant to the First Amendment, Wells Fargo Bank, N.A., was added as a lender and the Revolving Commitment was increased to $75.0 million, which may be further increased to $125.0 million subject to obtaining additional lender commitments and certain approvals and satisfying other conditions.  The scheduled maturity date of the Facility was extended to April 15, 2022.

Borrowings under the Facility will generally bear interest at a prime rate plus 1.0% or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5%.  The proceeds of the loans and letters of credit under the Facility are to be used only for our general business purposes and working capital.  Letters of credit are to be issued only to support our business operations. As of March 31, 2020, we did not have any borrowings outstanding under the Facility.

Under the Revolving Credit Agreement, we are required to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0. Additionally, the Revolving Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make certain investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case

subject to customary exceptions for a facility of the size and type of the Facility.  As of March 31, 2020, we were in compliance with all covenants related to the Revolving Credit Agreement.

As of March 31, 2020 and December 31, 2019, the carrying value of our total long-term debt approximated its fair value as of such date.  The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.

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Earnings Per Share

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Earnings Per Share

10. EARNINGS PER SHARE

Basic earnings per share is based on the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive shares of restricted stock whether or not they are vested.

In accordance with ASC Topic 260, “Earnings Per Share,” the two-class method determines earnings for each class of common stock and participating securities according to an earnings allocation formula that adjusts the income available to common stockholders for dividends or dividend equivalents and participation rights in undistributed earnings.  Certain unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.  The unvested shares of restricted stock granted in 2015 are considered participating securities, while all other unvested shares of restricted stock are not considered participating securities.

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:  

	Three Months Ended March 31,
	2020			2019
Numerator:
Net income	$	63,015		$	47,282
Less:  income allocable to participating securities		(27	)		(55	)
Income allocable to common shares	$	62,988		$	47,227
Add back:  undistributed earnings allocable to participating securities	$	27		$	55
Less:  undistributed earnings reallocated to participating securities		(27	)		(54	)
Numerator for diluted earnings per share	$	62,988		$	47,228
Denominator:
Basic weighted average shares outstanding		57,655			57,357
Dilutive effect of unvested restricted stock		785			959
Diluted weighted average shares outstanding		58,440			58,316
Earnings per share:
Basic	$	1.09		$	0.82
Diluted	$	1.08		$	0.81

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Property and Equipment - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Property and Equipment [Line Items]
Computer software development costs capitalized	$ 9,700	$ 8,900
Interest cost paid	400	400
Interest costs capitalized	400	100
Retainage amount included in construction in progress	2,500	2,200
Depreciation and amortization	6,285	4,805
Property and Equipment [Member]
Property and Equipment [Line Items]
Depreciation and amortization	$ 12,200	$ 9,300

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Revenue - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2020
Revenue From Contract With Customer [Abstract]
Deferred revenue expect to recognize description	We expect to recognize $8.8 million of deferred revenue related to material right performance obligations in the remainder of 2020, $11.5 million of such deferred revenue in 2021, and $58.2 million of such deferred revenue thereafter.

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Long-Term Debt, Net - Additional Information (Detail) - USD ($)				3 Months Ended
	Apr. 15, 2019	Feb. 12, 2018	Dec. 07, 2017	Mar. 31, 2020	Dec. 31, 2019
Revolving Credit Agreement [Member]
Debt Instrument [Line Items]
Debt instrument, restrictive covenants				maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0
Line of credit facility agreement date		Feb. 12, 2018
Line of credit facility, maximum borrowing capacity		$ 50,000,000.0
Line of credit facility, maximum borrwoing capacity may increased subject to obtaining additional lender commitments and certain approvals and other conditions		$ 100,000,000.0
Line of credit facility, maturity date		Feb. 12, 2020
Line of credit facility, interest rate description				Borrowings under the Facility will generally bear interest at a prime rate plus 1.0% or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5%.
Line of credit facility, borrowings outstanding				$ 0
Revolving Credit Agreement [Member] | Wells Fargo Bank, N.A. [Member]
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity	$ 75,000,000.0
Line of credit facility, maximum borrwoing capacity may increased subject to obtaining additional lender commitments and certain approvals and other conditions	$ 125,000,000.0
Line of credit facility, maturity date	Apr. 15, 2022
Revolving Credit Agreement [Member] | Swingline Loans [Member]
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity		$ 5,000,000.0
Revolving Credit Agreement [Member] | Letters of Credit [Member]
Debt Instrument [Line Items]
Line of credit facility, maximum borrowing capacity		$ 2,500,000
Revolving Credit Agreement [Member] | Maximum [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio required by covenants				125.00%
Revolving Credit Agreement [Member] | Minimum [Member]
Debt Instrument [Line Items]
Funded indebtedness to EBITDA ratio required by covenants				100.00%
Revolving Credit Agreement [Member] | Prime Rate [Member]
Debt Instrument [Line Items]
Line of credit facility, outstanding borrowings interest				1.00%
Revolving Credit Agreement [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Line of credit facility, outstanding borrowings interest				1.50%
New Credit Agreement [Member]
Debt Instrument [Line Items]
Debt instrument, restrictive covenants				maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0.
New Credit Agreement [Member] | Maximum [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio required by covenants				125.00%
New Credit Agreement [Member] | Minimum [Member]
Debt Instrument [Line Items]
Funded indebtedness to EBITDA ratio required by covenants				100.00%
New Credit Agreement [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument maturity date			Sep. 07, 2025
Term loan, maturity date description				The Term Loans mature on September 7, 2025 and bear interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5%.
New Credit Agreement [Member] | Term Loan [Member] | Prime Rate [Member]
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate			1.00%
New Credit Agreement [Member] | Term Loan [Member] | Adjusted London Interbank Offered Rate LIBOR [Member]
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate			1.50%
New Credit Agreement [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Indebtedness, term loans				$ 30,400,000
Unamortized debt issuance cost				$ 200,000	$ 200,000

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Nonvested Restricted Stock Awards Activity

The following table summarizes restricted stock awards activity for the three months ended March 31, 2020:

	Time-Based					Market-Based
	Restricted Stock Awards					Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2019		742.6		$	107.93		—		$	—
Granted		85.1		$	323.94		360.9		$	216.69
Vested		(2.0	)	$	155.81		—		$	—
Forfeited		(16.3	)	$	117.73		(1.0	)	$	251.33
Unvested shares of restricted stock outstanding at March 31, 2020		809.4		$	130.34		359.9		$	216.59

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Subsequent Event

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Event

14. SUBSEQUENT EVENTS

On April 27, 2020, we issued an aggregate of 60,348 restricted shares of common stock to certain non-executive employees under the LTIP consisting of Time-Based Shares that will vest in three equal tranches annually, beginning on the first anniversary of the grant date, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.

On April 27, 2020, we issued an aggregate of 5,970 restricted shares of common stock under the LTIP to the non-employee members of our board of directors. Such shares of restricted stock will cliff-vest on the seventh day following the first anniversary of the date of grant, provided that such director is providing services to the Company through the applicable vesting date.

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Goodwill and Intangible Assets, Net (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Components of Intangible Assets

All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables provide the components of intangible assets, which are included in Other assets in our consolidated balance sheets:

	March 31, 2020
	Weighted Average Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Trade name		2.3	$	3,194	$	(2,715	)	$	479
Total			$	3,194	$	(2,715	)	$	479

	December 31, 2019
	Weighted Average Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Trade name	2.5	$	3,194	$	(2,662	)	$	532
Total		$	3,194	$	(2,662	)	$	532

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Stock-Based Compensation - Summary of Nonvested Restricted Stock Awards Activity (Detail)	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Time-Based Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Unvested shares of restricted stock outstanding at beginning of period | shares	742,600
Restricted Stock Awards, Granted | shares	85,100
Restricted Stock Awards, Vested | shares	(2,000.0)
Restricted Stock Awards, Forfeited | shares	(16,300)
Unvested shares of restricted stock outstanding at end of period | shares	809,400
Unvested shares of restricted stock outstanding, Weighted Average Grant Date Fair Value, at beginning of period | $ / shares	$ 107.93
Granted, Weighted Average Grant Date Fair Value | $ / shares	323.94
Vested, Weighted Average Grant Date Fair Value | $ / shares	155.81
Forfeited, Weighted Average Grant Date Fair Value | $ / shares	117.73
Unvested shares of restricted stock outstanding, Weighted Average Grant Date Fair Value, at end of period | $ / shares	$ 130.34
Market-Based Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Restricted Stock Awards, Granted | shares	360,900
Restricted Stock Awards, Forfeited | shares	(1,000.0)
Unvested shares of restricted stock outstanding at end of period | shares	359,900
Granted, Weighted Average Grant Date Fair Value | $ / shares	$ 216.69
Forfeited, Weighted Average Grant Date Fair Value | $ / shares	251.33
Unvested shares of restricted stock outstanding, Weighted Average Grant Date Fair Value, at end of period | $ / shares	$ 216.59

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Fair Value of Financial Instruments - Additional Information (Detail)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Available-for-sale Securities [Member] | Certificates of Deposit [Member] | Maximum [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Financial instruments maturity period	13 months	13 months

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Subsequent Events - Additional Information (Detail) - Restricted Stock [Member] - shares		3 Months Ended
	Apr. 27, 2020	Mar. 31, 2020
Non Executive Employees [Member]
Subsequent Event [Line Items]
Share-based compensation arrangement by share-based payment award, award vesting rights		over periods ranging from three to four years
LTIP [Member]
Subsequent Event [Line Items]
Restricted shares of common stock issued		446,096
Subsequent Event [Member] | LTIP [Member] | Non Executive Employees [Member]
Subsequent Event [Line Items]
Restricted shares of common stock issued	60,348
Share-based compensation arrangement by share-based payment award, award vesting rights	Time-Based Shares that will vest in three equal tranches annually, beginning on the first anniversary of the grant date, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date.
Subsequent Event [Member] | LTIP [Member] | Non Employee Members [Member]
Subsequent Event [Line Items]
Restricted shares of common stock issued	5,970
Share-based compensation arrangement by share-based payment award, award vesting rights	shares of restricted stock will cliff-vest on the seventh day following the first anniversary of the date of grant, provided that such director is providing services to the Company through the applicable vesting date.

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Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Current assets:
Cash and cash equivalents	$ 181,827	$ 133,667
Accounts receivable	8,059	9,298
Prepaid expenses	17,853	13,561
Inventory	930	1,158
Income tax receivable		4,020
Deferred contract costs	50,513	46,618
Current assets before funds held for clients	259,182	208,322
Funds held for clients	1,392,379	1,662,778
Total current assets	1,651,561	1,871,100
Property and equipment, net	254,423	238,458
Goodwill	51,889	51,889
Long-term deferred contract costs	316,768	292,134
Other assets	35,084	33,336
Total assets	2,309,725	2,486,917
Current liabilities:
Accounts payable	5,694	5,051
Income tax payable	15,953
Accrued commissions and bonuses	5,662	12,343
Accrued payroll and vacation	21,159	14,870
Deferred revenue	11,660	11,105
Current portion of long-term debt	1,775	1,775
Accrued expenses and other current liabilities	43,633	45,600
Current liabilities before client funds obligation	105,536	90,744
Client funds obligation	1,392,379	1,662,778
Total current liabilities	1,497,915	1,753,522
Deferred income tax liabilities, net	92,609	91,217
Long-term deferred revenue	66,795	65,139
Net long-term debt, less current portion	30,423	30,858
Other long-term liabilities	22,195	19,553
Total long-term liabilities	212,022	206,767
Total liabilities	1,709,937	1,960,289
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000 shares authorized, 61,352 and 61,350 shares issued at March 31, 2020 and December 31, 2019, respectively; 57,622 and 57,660 shares outstanding at March 31, 2020 and December 31, 2019, respectively)	614	613
Additional paid-in capital	275,813	257,501
Retained earnings	639,181	576,166
Treasury stock, at cost (3,730 and 3,689 shares at March 31, 2020 and December 31, 2019, respectively)	(315,820)	(307,652)
Total stockholders' equity	599,788	526,628
Total liabilities and stockholders' equity	$ 2,309,725	$ 2,486,917

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Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash flows from operating activities
Net income	$ 63,015	$ 47,282
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,215	9,347
Accretion of discount on available-for-sale securities	(467)	(165)
Amortization of debt issuance costs	9	9
Stock-based compensation expense	15,811	31,071
Cash paid for derivative settlement	(69)	(1)
Loss on derivative	1,644	540
Deferred income taxes, net	1,392	3,722
Changes in operating assets and liabilities:
Accounts receivable	1,239	(421)
Prepaid expenses	(4,292)	(1,498)
Inventory	254	(11)
Other assets	(1,801)	(702)
Deferred contract costs	(27,630)	(23,414)
Accounts payable	408	(1,251)
Income taxes, net	19,973	7,488
Accrued commissions and bonuses	(6,681)	(6,118)
Accrued payroll and vacation	6,289	3,765
Deferred revenue	2,211	2,860
Accrued expenses and other current liabilities	(1,490)	7,923
Net cash provided by operating activities	82,030	80,426
Cash flows from investing activities
Purchase of short-term investments from funds held for clients	(177,903)	(16,800)
Proceeds from maturities of short-term investments from funds held for clients	20,000	14,500
Purchases of property and equipment	(25,726)	(14,889)
Net cash used in investing activities	(183,629)	(17,189)
Cash flows from financing activities
Repurchases of common stock	(7,998)
Withholding taxes paid related to net share settlements	(170)	(19,669)
Payments on long-term debt	(444)	(444)
Net change in client funds obligation	(270,399)	437,678
Net cash (used in) provided by financing activities	(279,011)	417,565
(Decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents	(380,610)	480,802
Cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	1,641,854	986,464
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	1,261,244	1,467,266
Cash and cash equivalents	181,827	91,307
Restricted cash included in funds held for clients	1,079,417	1,375,959
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	8,251	3,384
Stock-based compensation for capitalized software	$ 1,601	$ 3,329

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Goodwill and Intangible Assets, Net - Components of Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Finite Lived Intangible Assets [Line Items]
Gross	$ 3,194	$ 3,194
Accumulated Amortization	(2,715)	(2,662)
Net	$ 479	532
Weighted average remaining useful life	2 years 3 months 18 days
Trade Name [Member]
Finite Lived Intangible Assets [Line Items]
Gross	$ 3,194	3,194
Accumulated Amortization	(2,715)	(2,662)
Net	$ 479	$ 532
Weighted average remaining useful life	2 years 3 months 18 days	2 years 6 months

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Revenue - Summary of Asset Balances and Related Amortization Expense For Contract Costs (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Costs to Obtain a Contract [Member]
Capitalized Contract Cost [Line Items]
Beginning Balance	$ 194,964	$ 158,989
Capitalization of Costs	21,184	19,387
Amortization	(7,188)	(5,721)
Ending Balance	208,960	172,655
Costs to Fulfill a Contract [Member]
Capitalized Contract Cost [Line Items]
Beginning Balance	143,788	101,756
Capitalization of Costs	19,509	15,005
Amortization	(4,976)	(3,470)
Ending Balance	$ 158,321	$ 113,291

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Property and Equipment

3 Months Ended

Mar. 31, 2020

Property Plant And Equipment [Abstract]

Property and Equipment

4. PROPERTY AND EQUIPMENT

Property and equipment and accumulated depreciation and amortization were as follows:

	March 31, 2020			December 31, 2019
Property and equipment
Software and capitalized software costs	$	109,275		$	99,125
Buildings		101,707			101,707
Computer equipment		60,673			56,879
Rental clocks		21,906			20,836
Furniture, fixtures and equipment		18,809			18,311
Other		6,853			6,242
		319,223			303,100
Less: accumulated depreciation and amortization		(137,114	)		(124,950	)
		182,109			178,150
Construction in progress		43,280			31,274
Land		29,034			29,034
Property and equipment, net	$	254,423		$	238,458

We capitalize computer software development costs related to software developed for internal use in accordance with ASC 350-40.  For the three months ended March 31, 2020 and 2019, we capitalized $9.7 million and $8.9 million, respectively, of computer software development costs related to software developed for internal use.

Rental clocks included in property and equipment, net represent time clocks issued to clients under month-to-month operating leases.  As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.

We capitalize interest incurred for indebtedness related to construction in progress.  For both the three months ended March 31, 2020 and 2019, we incurred interest costs of $0.4 million, of which we capitalized $0.4 million and $0.1 million, respectively.  Included in the construction in progress balance at March 31, 2020 and December 31, 2019 is $2.5 million and $2.2 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $12.2 million and $9.3 million, respectively, for the three months ended March 31, 2020 and 2019.

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt.  The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client funds obligation approximates fair value due to the short-term nature of the instruments.  See Note 6 for discussion of the fair value of our debt.

As discussed in Note 2, we invest the funds held for clients in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit, and classify these items as cash and cash equivalents within the funds held for clients line item in the consolidated balance sheets.  Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item.  These available-for-sale securities are recognized in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.  As of March 31, 2020 and December 31, 2019, all available-for-sale securities and certificates of deposit were due in thirteen months or less.

As discussed in Note 7, during the year ended December 31, 2017, we entered into an interest rate swap.  The interest rate swap is measured on a recurring basis based on quoted prices for similar financial instruments and other observable inputs recognized at fair value.  

The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1 – Observable inputs such as quoted prices in active markets

• Level 2 – Inputs other than quoted prices in active markets for identical assets or liabilities that are observable either directly or indirectly or quoted prices that are not active

• Level 3 – Unobservable inputs in which there is little or no market data

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	142,574	$	—	$	142,574
Certificates of deposit	$	—	$	170,388			$	170,388
Liabilities:
Interest rate swap	$	—	$	2,933	$	—	$	2,933

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	79,591	$	—	$	79,591
Certificates of deposit	$	—	$	75,000	$	—	$	75,000
Liabilities:
Interest rate swap	$	—	$	1,358	$	—	$	1,358

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

12. COMMITMENTS AND CONTINGENCIES

As previously disclosed, since February 2019, we have received subpoenas and requests from the SEC focused on whether certain of our clients were charged, and paid, an additional amount for one or more applications for which the clients were already being charged. In connection with this matter, we identified less than 250 affected clients, representing approximately 0.5% of our client base as of December 31, 2019.  Since December 2019, we have been notifying clients affected by such charges between approximately 2011 and 2019 and have refunded approximately $2.5 million, in the aggregate, to such clients. This issue did not have a material impact on our financial results for any prior period. The SEC staff has informed our legal counsel that its inquiry concerns our books and records and internal controls. We cannot predict the timing, scope or outcome of this matter.

We are involved in various legal proceedings in the ordinary course of business.  Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Revenue (Tables)

3 Months Ended

Mar. 31, 2020

Revenue From Contract With Customer [Abstract]

Summary of Changes in Deferred Revenue Related to Material Right Performance Obligations

Changes in deferred revenue related to material right performance obligations as of March 31, 2020 and 2019 were as follows:

	Three Months Ended March 31,
	2020			2019
Balance, beginning of period	$	76,244		$	64,651
Deferral of revenue		5,885			5,561
Recognition of unearned revenue		(3,674	)		(2,701	)
Balance, end of period	$	78,455		$	67,511

Summary of Asset Balances and Related Amortization Expense For Contract Costs

The following tables present the asset balances and related amortization expense for these contract costs:

	As of and for the Three Months Ended March 31, 2020
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	194,964	$	21,184	$	(7,188	)	$	208,960
Costs to fulfill a contract	$	143,788	$	19,509	$	(4,976	)	$	158,321
	As of and for the Three Months Ended March 31, 2019
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	158,989	$	19,387	$	(5,721	)	$	172,655
Costs to fulfill a contract	$	101,756	$	15,005	$	(3,470	)	$	113,291

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

Schedule of Major Categories of Assets and Liabilities Measured at Fair Value on Recurring Basis

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:

	March 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	142,574	$	—	$	142,574
Certificates of deposit	$	—	$	170,388			$	170,388
Liabilities:
Interest rate swap	$	—	$	2,933	$	—	$	2,933

	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	79,591	$	—	$	79,591
Certificates of deposit	$	—	$	75,000	$	—	$	75,000
Liabilities:
Interest rate swap	$	—	$	1,358	$	—	$	1,358

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Commitment and Contingencies - Additional Information (Details) $ in Millions	12 Months Ended
	Dec. 31, 2019 USD ($) Client
Other Commitments [Line Items]
Percentage of identified clients	0.50%
Refund of additional amount charged to clients | $	$ 2.5
Maximum [Member]
Other Commitments [Line Items]
Number of identified clients | Client	250

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Employee Savings Plan and Employee Stock Purchase Plan - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Defined Contribution Plan Disclosure [Line Items]
401(k) eligibility minimum service period	90 days
401(k) description of plan contributions	contribution of our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of an employee’s salary each plan year.
Employee vested percentage in salary deferrals and roll over contributions	100.00%
Minimum period for vesting 100% contributions	2 years
Minimum period for vesting of discretionary contributions	2 years
Matching contribution	$ 2,200,000	$ 1,600,000
Employee stock purchase plan overlapping offering period	24 months
Employee Stock Purchase Plan [Member]
Defined Contribution Plan Disclosure [Line Items]
Employees Company's common stock shares purchase limit percentage	10.00%
Employees Company's common stock shares purchase limit amount	$ 25,000
Maximum number of shares that may be purchased by a participant	2,000
Share of common stock purchase maximum	2,000,000.0
Purchase of shares of common stock	25,564	22,330
Compensation expense related to ESPP	$ 400,000	$ 600,000
After Two Years Of Employment [Member]
Defined Contribution Plan Disclosure [Line Items]
Matching contributions, vesting percentage	100.00%
One Hundred Percent Match For Percent Of Participants Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer contribution percentage	100.00%
Percentage of salary deferrals	1.00%
50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer contribution percentage	50.00%
Minimum [Member]
Defined Contribution Plan Disclosure [Line Items]
401(k) eligible age of employee	18 years
Minimum [Member] | 50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals	2.00%
Maximum [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals	3.50%
Maximum [Member] | Employee Stock Purchase Plan [Member]
Defined Contribution Plan Disclosure [Line Items]
Purchase price of common stock expressed as a percentage of its fair market value	85.00%
Maximum [Member] | 50% Matching Contribution [Member]
Defined Contribution Plan Disclosure [Line Items]
Percentage of salary deferrals	6.00%

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2020

Property Plant And Equipment [Abstract]

Schedule of Property and Equipment and Associated Accumulated Depreciation and Amortization

Property and equipment and accumulated depreciation and amortization were as follows:

	March 31, 2020			December 31, 2019
Property and equipment
Software and capitalized software costs	$	109,275		$	99,125
Buildings		101,707			101,707
Computer equipment		60,673			56,879
Rental clocks		21,906			20,836
Furniture, fixtures and equipment		18,809			18,311
Other		6,853			6,242
		319,223			303,100
Less: accumulated depreciation and amortization		(137,114	)		(124,950	)
		182,109			178,150
Construction in progress		43,280			31,274
Land		29,034			29,034
Property and equipment, net	$	254,423		$	238,458

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Earnings Per Share

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:  

	Three Months Ended March 31,
	2020			2019
Numerator:
Net income	$	63,015		$	47,282
Less:  income allocable to participating securities		(27	)		(55	)
Income allocable to common shares	$	62,988		$	47,227
Add back:  undistributed earnings allocable to participating securities	$	27		$	55
Less:  undistributed earnings reallocated to participating securities		(27	)		(54	)
Numerator for diluted earnings per share	$	62,988		$	47,228
Denominator:
Basic weighted average shares outstanding		57,655			57,357
Dilutive effect of unvested restricted stock		785			959
Diluted weighted average shares outstanding		58,440			58,316
Earnings per share:
Basic	$	1.09		$	0.82
Diluted	$	1.08		$	0.81

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Software and Capitalized Software Costs [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Capitalized compensation cost	$ 1.6	$ 3.3
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Compensation expense related to ESPP	15.8	$ 31.1
Total unrecognized compensation cost related to unvested restricted stock	$ 143.0
Unrecognized compensation expected for unvested shares to be recognized	1 year 10 months 24 days
Restricted Stock [Member] | Market-Based Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Number of shares vested	360,948
Restricted Stock [Member] | Time-Based Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Number of shares vested	85,148
Restricted Stock [Member] | LTIP [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Restricted shares of common stock issued	446,096
Restricted Stock [Member] | Executive Officers [Member] | Vest 50% on the first date, if any, that the Company’s TEV (calculated as defined in the applicable restricted stock award agreement) equals or exceeds $23.75 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 23,750.0
Restricted Stock [Member] | Executive Officers [Member] | Vest 50% on the first date, if any, that the Company’s TEV equals or exceeds $27.7 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 27,700.0
Restricted Stock [Member] | Non Executive Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based compensation arrangement by share-based payment award, award vesting rights	over periods ranging from three to four years
Restricted Stock [Member] | Non Executive Employees [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Restricted Stock [Member] | Non Executive Employees [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	4 years
Restricted Stock [Member] | Non Executive Employees [Member] | Vest 50% on the first date, if any, that the Company’s TEV equals or exceeds $19.8 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 19,800.0
Restricted Stock [Member] | Non Executive Employees [Member] | Vest 50% on the first date, if any, that the Company’s TEV equals or exceeds $22.15 billion [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Market-based vesting percentage, restricted shares	50.00%
Total enterprise value	$ 22,150.0

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Fair Value of Financial Instruments - Schedule of Major Categories of Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Commercial Paper [Member]
Assets:
Assets	$ 142,574	$ 79,591
Certificates of Deposit [Member]
Assets:
Assets	170,388	75,000
Level 2 [Member] | Commercial Paper [Member]
Assets:
Assets	142,574	79,591
Level 2 [Member] | Certificates of Deposit [Member]
Assets:
Assets	170,388	75,000
Interest Rate Swap [Member]
Liabilities:
Liabilities	2,933	1,358
Interest Rate Swap [Member] | Level 2 [Member]
Liabilities:
Liabilities	$ 2,933	$ 1,358

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	61,352,000	61,350,000
Common stock, shares outstanding	57,622,000	57,660,000
Treasury stock, shares	3,730,000	3,689,000

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Organization and Description of Business

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Organization and Description of Business

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Paycom Software, Inc. (“Software”) and its wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of comprehensive, cloud-based human capital management (“HCM”) software delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.  

We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications.

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Goodwill and Intangible Assets, Net - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended	12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Jun. 30, 2019	Dec. 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill	$ 51,889,000			$ 51,889,000
Goodwill impairment amount	$ 0		$ 0	$ 0
Weighted average remaining useful life	2 years 3 months 18 days
Amortization of intangible assets	$ 100,000	$ 100,000

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Revenue - Additional Information (Detail 1) $ in Millions	Mar. 31, 2020 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2020-04-01
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Deferred revenue expect to recognize amount	$ 8.8
Deferred revenue expect to recognize period	9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-01-01
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Deferred revenue expect to recognize amount	$ 11.5
Deferred revenue expect to recognize period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01
Revenue Remaining Performance Obligation Expected Timing Of Satisfaction [Line Items]
Deferred revenue expect to recognize amount	$ 58.2
Deferred revenue expect to recognize period

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Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

13. INCOME TAXES

The Company’s effective income tax rate was 28.7% and 23.9% for the three months ended March 31, 2020 and 2019, respectively. The higher effective tax rate for the three months ended March 31, 2020 is primarily related to a decrease in excess tax benefits from stock-based compensation related to vesting events as compared to the three months ended March 31, 2019.  

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Goodwill and Intangible Assets, Net

3 Months Ended

Mar. 31, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets, Net

5. GOODWILL AND INTANGIBLE ASSETS, NET

As of both March 31, 2020 and December 31, 2019, goodwill was $51.9 million.  We have selected June 30 as our annual goodwill impairment testing date.  We have elected to perform a qualitative analysis of the fair value of our goodwill and determined there was no impairment as of June 30, 2019.  As of March 31, 2020 and December 31, 2019, there were no indicators of impairment.

All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables provide the components of intangible assets, which are included in Other assets in our consolidated balance sheets:

	March 31, 2020
	Weighted Average Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Trade name		2.3	$	3,194	$	(2,715	)	$	479
Total			$	3,194	$	(2,715	)	$	479

	December 31, 2019
	Weighted Average Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Trade name	2.5	$	3,194	$	(2,662	)	$	532
Total		$	3,194	$	(2,662	)	$	532

The weighted average remaining useful life of our intangible assets was 2.3 years as of March 31, 2020.  Amortization of intangible assets for both the three months ended March 31, 2020 and 2019 was $0.1 million.

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Employee Savings Plan and Employee Stock Purchase Plan

3 Months Ended

Mar. 31, 2020

Compensation Related Costs [Abstract]

Employee Savings Plan and Employee Stock Purchase Plan

9. EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

Employees over the age of 18 who have completed ninety days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby the Company matches the contribution of our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of an employee’s salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100% vested in amounts attributable to salary deferrals and rollover contributions. The QACA matching contributions as well as the discretionary matching and profit sharing contributions vest 100% after two years of employment from the date of hire. Matching contributions were $2.2 million and $1.6 million for the three months ended March 31, 2020 and 2019, respectively.

The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months.  At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10% of their compensation, subject to an annual per-employee maximum of $25,000.  Eligible employees purchase shares of the Company’s common stock at a price equal to 85% of the fair market value of the shares on the exercise date.  The maximum number of shares that may be purchased by a participant during each offering period is 2,000 shares, subject to limits specified by the Internal Revenue Service. The shares reserved for purposes of the ESPP are shares we purchase in the open market.  The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2.0 million shares.  Eligible employees purchased 25,564 and 22,330 shares of the Company’s common stock under the ESPP during the three months ended March 31, 2020 and 2019, respectively.  Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period.  Our compensation expense related to the ESPP was $0.4 million and $0.6 million for the three months ended March 31, 2020 and 2019, respectively.