ADP’s client funds investment strategy became a larger contributor to earnings during fiscal 2026, as higher average balances, improving portfolio yields, and lower short-term financing costs increased the strategy’s net impact by 22%.
The net contribution from the client funds strategy reached approximately $1.31 billion for the year, compared with $1.07 billion in fiscal 2025. During the fourth quarter, the contribution increased 24% to $355.5 million from $287.7 million.
ADP collects payroll-related funds from clients before those funds are distributed to employees, tax authorities, and other recipients. The company invests those balances under guidelines focused on safety, liquidity, and diversification, with most of the portfolio rated AAA or AA.
Interest earned on funds held for clients increased 14% to approximately $1.35 billion for fiscal 2026. Fourth-quarter interest revenue rose 15% to $355.4 million.
Average client funds balances increased 7% to $40.4 billion for the full year and 8% to $41 billion during the fourth quarter. The full-year average yield increased to 3.4% from 3.2%, while the fourth-quarter yield reached 3.5%.
The improvement shows that rising yields contributed more to client funds interest growth than balance expansion alone.
ADP also uses an extended investment strategy in which it invests portions of client funds for longer periods while using short-term financing to meet near-term client fund obligations.
Average corporate extended investment balances increased 11% to $7.8 billion during fiscal 2026. Interest income from those investments increased 23% to $278.1 million as the average earned rate rose to 3.6% from 3.2%.
The corresponding average short-term financing balance also increased 11% to $7.8 billion. However, the average financing rate declined to 4.1% from 4.8%, reducing related interest expense by 7% to $318.3 million.
The combination of higher investment income and lower financing costs widened the economic contribution from ADP’s extended strategy.
During the fourth quarter, corporate extended interest income increased 36% to $79.3 million. Short-term financing expense remained approximately flat at $79.2 million despite an 18% increase in average financing balances, reflecting the lower cost of those borrowings.
ADP expects the client funds strategy to contribute even more during fiscal 2027.
Interest earned on funds held for clients is projected to range from $1.54 billion to $1.56 billion. The outlook assumes client funds balance growth of 3% to 4% and an average portfolio yield of approximately 3.7%.
The total contribution from the client funds extended investment strategy is expected to range from $1.545 billion to $1.565 billion.
At the midpoint, that would represent approximately 18% growth from the fiscal 2026 contribution of $1.31 billion.
ADP based its interest assumptions on federal funds futures contracts and forward yield curves as of July 28, 2026. The company used a blended rate of 4.4% to forecast new investment purchase rates across its extended and long-duration portfolios.
The continued client funds tailwind is important because ADP expects relatively limited employment growth across its existing U.S. client base.
U.S. pays per control increased 1% during fiscal 2026. For fiscal 2027, ADP expects the measure to increase between 0% and 1%.
This means the company’s earnings outlook depends more heavily on pricing, new business, client retention, investment income, and operating efficiency than on significant employment expansion.
ADP expects consolidated fiscal 2027 revenue to increase between 5% and 6%. Adjusted EBIT margin is projected to expand by 70 to 90 basis points, while adjusted diluted earnings per share are expected to increase between 9% and 11%.
The outlook extends the company’s fiscal 2026 margin expansion.
Full-year revenue increased 7% to approximately $21.95 billion, including 6% organic constant-currency growth. Adjusted EBIT increased 10% to approximately $5.87 billion, while adjusted EBIT margin expanded 80 basis points to 26.8%.
Adjusted net earnings increased 10% to approximately $4.49 billion, and adjusted diluted earnings per share increased 11% to $11.12.
Fourth-quarter profitability grew faster than revenue. Quarterly revenue increased 7% to approximately $5.47 billion, while adjusted EBIT increased 13% to $1.37 billion.
Adjusted EBIT margin expanded 140 basis points to 25.1%. Adjusted net earnings increased 14% to approximately $1.05 billion, and adjusted diluted earnings per share increased 17% to $2.64.
Employer Services remained ADP’s primary earnings contributor.
Employer Services revenue increased 7% to approximately $14.83 billion for fiscal 2026, while segment earnings increased 9% to approximately $5.44 billion. Segment margin expanded 60 basis points to 36.7%.
New business bookings increased 6% to $2.2 billion, while client revenue retention remained flat at 92.1%.
For fiscal 2027, ADP expects Employer Services revenue to increase between 5% and 6% and new business bookings to grow between 4% and 7%. Client retention is expected to decline modestly by 10 to 30 basis points.
PEO Services revenue increased 7% to approximately $7.13 billion, but segment earnings declined 2% to $936.1 million. Segment margin contracted 110 basis points to 13.1%.
Revenue excluding zero-margin benefits pass-throughs increased 5% to approximately $2.52 billion. Average paid worksite employees increased 2% to approximately 762,000 for the year.
ADP expects fiscal 2027 PEO revenue growth of 5% to 7%, revenue growth excluding zero-margin benefits pass-throughs of 3% to 5%, and worksite employee growth of approximately 2%.
The company incurred a $91.1 million charge during the fourth quarter as part of a corporate-led business alignment program.
The charge included $89.1 million of severance costs and $2 million of strategic project costs. ADP said the initiative was designed to streamline its organizational structure and align resources with its strategic priorities.
The charge was excluded from adjusted results. ADP also excluded an $18 million legal settlement charge, gains from ADP Ventures investments, and a partial reversal of earlier workforce optimization initiatives.
GAAP net earnings increased 8% to approximately $4.41 billion, while diluted GAAP earnings per share increased 10% to $10.94.
Operating cash flow increased to approximately $5.44 billion from $4.94 billion. ADP spent approximately $2.08 billion on share repurchases and paid approximately $2.63 billion in dividends during fiscal 2026.
The client funds strategy gives ADP an earnings source that extends beyond traditional payroll processing and human capital management revenue.
Fiscal 2026 benefited from the combination of larger client balances, rising investment yields, and declining short-term financing rates. ADP’s fiscal 2027 outlook assumes that the portfolio yield will continue increasing even as client balance growth moderates.
That income could help ADP continue expanding margins and producing high-single-digit to low-double-digit earnings growth despite a relatively subdued employment environment.
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