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 derived from contracts with clients. Sales and other applicable taxes are excluded from revenues.

Recurring and Other Revenues

Recurring revenues are derived primarily from our payroll, talent acquisition, talent management, HR management and time and labor management applications, fees charged for form filings and delivery of client payroll checks and reports, and revenues associated with background checks and income and employment verification services. For a description of our applications, refer to Part I, Item 1, “Business,” in the Form 10-K.

We consider our commitment in our client contracts to be a series of distinct services that together constitute a single performance obligation that is generally satisfied over time and recognized during each client’s payroll period. The agreed-upon fee is variable consideration that is determined by client usage, billed and collected as part of our processing of the client’s payroll. The client’s use of our applications routinely fluctuates based upon factors that include the number of payrolls run and changes in the client’s employee population. These usage-based fluctuations do not change our core performance obligation to stand ready to provide the client with services over the contractual term. Collectability is reasonably assured as fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes default risk.

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, which we periodically assess for price adjustments.

Client contracts associated with these revenues vary in duration, with many contracts terminable upon 30 days’ notice and an increasing portion containing longer contractual terms. Substantially all recurring revenue contracts contain consideration that is variable and allocated entirely to a wholly unsatisfied promise to transfer a series of distinct services that forms a single performance obligation. Accordingly, we have elected the practical expedient under ASC 606 and therefore do not disclose the amount of the transaction price allocated to the remaining performance obligations associated with those contracts.

Other revenues consist of nonrefundable implementation fees, which are charged upfront 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 time and attendance application. These revenues represent distinct performance obligations from our recurring services. The implementation 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 the contract period. The implementation fee is typically collected upon contract inception and is deferred and recognized ratably over the period in which the client benefits from the material right (currently estimated to be 10 years). We perform an annual analysis of client retention data to support this estimate, and changes in the estimate could materially affect the timing and amount of revenue recognized from these fees.

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.

For additional information, see Note 14 “Segment Reporting.”

Interest on Funds Held for Clients

Interest income on funds held for clients is earned on funds that are collected from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. The interest earned on these funds is included in revenues in the consolidated statements of comprehensive income as the collection, holding, and remittance of these funds are essential components of providing these services.

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 generally do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

We expect to recognize $17.9 million of deferred revenue in the remainder of 2026, $25.0 million in 2027, $22.8 million in 2028, and $87.2 million thereafter over the remaining estimated client life. The Company’s deferred revenue balance primarily relates to implementation fees and other performance obligations that are recognized over time and are not subject to the practical expedient described above. These amounts represent unsatisfied performance obligations as defined in ASC 606.

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 exceed one year. We also recognize an asset for costs to fulfill a contract when 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 meet the capitalization criteria under ASC 340-40.

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 ratably over the expected period of benefit, which we have determined to be the estimated life of the client relationship of 10 years, primarily because we incur no new costs to obtain or fulfill a contract upon renewal. Additional commission costs incurred when existing clients purchase additional applications relate solely to those applications and are not associated with contract renewals. Furthermore, additional fulfillment costs associated with the implementation of additional applications for existing clients are generally minimal. A change in our client life estimate could have a material impact on the timing and amounts recognized as amortization expense.

The assets related to both costs to obtain and costs to fulfill contracts with clients are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill contracts is included in sales and marketing expenses and general and administrative expenses in the accompanying consolidated statements of comprehensive income. We regularly review our assets recognized from the costs to obtain and costs to fulfill client contracts for potential impairment and did not recognize an impairment loss during the six months ended June 30, 2026 or 2025.