Revenue and Direct Cost Recognition
We enter into contracts with our PEO HR Solutions customers for human resources services based on a stated rate and price in the contract. Our contracts generally establish pricing for a period of 12 months and are generally cancellable at any time by either party with 30-days’ notice. Our performance obligations are satisfied as services are rendered each month. The term between invoicing and when our performance obligations are satisfied is not significant. Our payment terms typically require payment concurrently with the invoicing of our PEO services. We do not have significant financing components or significant payment terms.
Our revenue is generally recognized ratably over the payroll period as WSEEs perform their service at the client worksite in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. Customers are invoiced concurrently with each periodic payroll of its WSEEs. Revenues that have been recognized but not invoiced represent unbilled accounts receivable of $810 million at both December 31, 2025 and December 31, 2024, and are included in accounts receivable, net on our Consolidated Balance Sheets.
Pursuant to the “practical expedients” provided under ASC 340-40, Other Assets and Deferred Costs - Contracts with Customers, we expense sales commissions when incurred because the terms of our contracts are cancellable by either party with a 30-day notice. These costs are recorded in commissions in our Consolidated Statements of Operations.
Our revenue for our PEO HR Solutions by geographic region and for our other products and services offerings are as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2025 | 2024 | 2023 |
| | | |
| Northeast | $ | 1,873 | | $ | 1,801 | | $ | 1,757 | |
| Southeast | 972 | | 926 | | 907 | |
| Central | 1,230 | | 1,195 | | 1,170 | |
| Southwest | 1,279 | | 1,245 | | 1,250 | |
| West | 1,388 | | 1,344 | | 1,337 | |
| 6,742 | | 6,511 | | 6,421 | |
| Other revenue | 70 | | 70 | | 65 | |
| Total revenue | $ | 6,812 | | $ | 6,581 | | $ | 6,486 | |
Our PEO HR Solutions revenues are primarily derived from our gross billings, which are based on (1) the payroll cost of our WSEEs; and (2) a markup computed as a percentage of the payroll cost. The gross billings are invoiced concurrently with each periodic payroll of our WSEEs. Revenues, which exclude the payroll cost component of gross billings and therefore consist solely of the markup, are recognized ratably over the payroll period as WSEEs perform their service at the client worksite.
In determining the pricing of the markup component of our gross billings, we take into consideration our estimates of the costs directly associated with our WSEEs, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, our operating results are significantly impacted by our ability to accurately estimate our direct costs relative to the revenues derived from the markup component of our gross billings.
Revenues are comprised of gross billings less WSEE payroll costs as follows:
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2025 | 2024 | 2023 |
| | | |
| Gross billings | $ | 45,565 | | $ | 43,752 | | $ | 43,141 | |
| Less: WSEE payroll cost | 38,753 | | 37,171 | | 36,655 | |
| Revenues | $ | 6,812 | | $ | 6,581 | | $ | 6,486 | |
Consistent with our revenue recognition policy, our direct costs do not include the payroll cost of our WSEEs. Our direct costs associated with our revenue generating activities are primarily comprised of all other costs related to our WSEEs, such as the employer portion of payroll-related taxes, employee benefit plan premiums and workers’ compensation insurance costs.