2007 Annual Report and Proxy by Gevity

People. Service. Technology.

â&#x20AC;&#x2DC;07

Gevity 2007 Annual Report

We are in the business of

helping our clients succeed. Our unwavering commitment to them unites us and drives every action.

â&#x20AC;&#x201D; Michael J. Lavington Chairman of the Board

gevity.com 1.800.2GEVITY

The greatest human resource is the human spirit.

About Gevity Founded in 1984

As a leading provider of business solutions, Gevity

Industry pioneer

(NASDAQ:GVHR) empowers small- to medium-size

Publicly traded since 1997: GVHR Local support backed by nationwide resources Serving thousands of clients & more than 100,000 client employees

businesses nationwide to boost their productivity by practicing human resource excellence. Gevity’s HR expertise and self-service technology enable business owners and managers to spend more time focusing on their bottom line and less time on administrative responsibilities. Gevity, a pioneer in the PEO industry, helps businesses achieve a more effective workforce, an enhanced business culture and compliance with complex HR laws.

Gevity helps small and mid-size businesses:

Services include payroll and payroll administration,

• Maximize business performance

management and loss prevention, HR policies

• Lower employee turnover

management, and employee development and

• Access competitive benefits • Minimize risk • Increase business value

benefits and benefits administration, risk and procedures, new hire support, performance retention. For more information, visit gevity.com.

To our Shareholders: Since being elected Chairman by my fellow Board members in October, on behalf of the Board I have initiated swift action intended to return the company to a leadership position within our industry. With the support of a new management team, we conducted an immediate evaluation of the business, to identify areas to strengthen our competitive position and maximize shareholder value. We visited field offices in all regions, discussed Gevity’s value proposition with long-term clients and prospects, evaluated the competitive landscape, engaged key business partners and, importantly, listened to the wisdom and experience of our Gevity colleagues. It soon became apparent that we could greatly improve our competitive position by building on our strengths, focusing on our people, and delivering improved execution by concentrating on our core PEO business. Build on Our Strengths For the two years preceding my election, Gevity had been pursuing a business strategy of insurance risk-neutrality that was intended to result in earnings consisting entirely of professional service fees. The company had expected to achieve this goal by the end of 2008. Although a strategy that removed insurance-related risk was an understandable objective, we concluded, upon further review, we no longer believed it was deliverable in the time period envisaged without diluting earnings.

believe that the most productive path to success is to focus on our core PEO product, Gevity Edge .

We strongly

Following an evaluation of the options available, we decided not to pursue a ‘risk neutral’ strategy that would have required the company to concentrate its attention on the non co-employed market. Accordingly, we withdrew our non co-employed product, Gevity Edge Select™. This withdrawal enabled management to clarify our strategic intent to build on our strengths and concentrate on our core PEO business. We strongly believe that the most productive path to success is to focus on our core PEO product, Gevity Edge™. We have already begun this process through product improvements and targeted marketing efforts. We have also strengthened our competitive position

with regard to our workers’ compensation program and, additionally, are making progress with our healthcare partners to enhance the appeal of our insurance products. These efforts are expected, by the end of 2008, to result in increased sales production and improved client retention.

Focus on Our People Having spent considerable time with our Gevity colleagues throughout the country, it was apparent that we have exceptional employees at all levels. However, my prior leadership roles have taught me that even a high caliber workforce needs direction, motivation and focus to be successful. Consistent operating standards supported by effective training initiatives are also prerequisites in a servicebased business that is highly dependent on the productivity of its sales force and the effectiveness of the specialist teams that provide client support. Within Gevity, we have already begun to make strides to create a workplace that has purpose and an increased dedication to our clients. We also believe that providing increased focus on our clients will progressively improve our competitive edge. Our revamped client service center has increased its efficiency, and training is underway to further enhance our service standards and levels of responsiveness. Additionally, we are beginning to see significant improvements in the effectiveness and consistency of our sales organization. Our regional office operations have been streamlined and other cost savings initiatives implemented.

By concentrating on our heritage—the

PEO marketplace—we will serve customers better, our sales force will have a better, simpler product to sell and investors will have a clear

Corporate leadership: Pictured from left to right: Clifford M. Sladnick, CAO; Jim Hardee, CSMO; Edwin Hightower, Vice President and General Counsel, Secretary of the Board of Directors; Mike Lavington, Chairman of the Board; Garry Welsh, CFO; and Paul Benz, CIO. To read the biographies of Gevity’s corporate leaders, visit gevity.com and click About Gevity.

view of where we are headed. Best practices sales methodology and process is being put in place throughout the country. The turnover of our Business Development Managers (BDMs) is, as of time of writing, at a three-year low. Client retention is beginning to improve and it is anticipated to continue to do so throughout 2008.

Deliver Improved Execution Now that our strategy is better aligned to our core strengths, coupled with a greater focus on employee effectiveness, we are beginning to see the benefits from improved execution. In the fourth quarter of 2007, we took action to reduce our overhead costs. We also improved the productivity of our BDMs by more than 20% in comparison to prior year. Additionally, we identified a number of clients that were unprofitable in 2007 and they have since either been removed from

our portfolio or repriced to profitable levels. These initiatives are examples of the new management team’s commitment to deliver meaningful results while improving efficiencies across the Company. Clearly, 2007 was a disappointing year for all Gevity stakeholders, but I strongly believe we have the right leadership in place to make a difference. With the announcement of our withdrawal from the non-PEO business, we are now in a much better position to serve our 7,000 PEO clients and, importantly, demonstrate strategic clarity to all stakeholders. We believe that 2008 will be a year of recovery and refocus, and we should emerge stronger and fitter as the result of the rebuilding efforts to which the new management team is totally committed. —Michael J. Lavington, Chairman of the Board

2007 Form 10-K and Proxy Statement

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from

Commission File No. 0-22701

GEVITY HR, INC. (Exact name of registrant as specified in its charter) Florida (State or other jurisdiction of incorporation or organization)

65-0735612 (I.R.S. Employer Identification No.)

9000 Town Center Parkway Bradenton, Florida (Address of principal executive offices)

34202 (Zip Code)

(Registrant’s Telephone Number, Including Area Code): (941) 741-4300 Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share Common Stock Purchase Rights

The NASDAQ Stock Market LLC

Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer

Accelerated filer

Non-accelerated filer (do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No As of June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates, based upon the closing price per share for the registrant’s common stock as reported on the Nasdaq Global Select Market, was approximately $333.0 million. The number of shares of the registrant’s common stock, outstanding as of February 29, 2008, was 23,312,826. DOCUMENTS INCORPORATED BY REFERENCE PART III—Portions of the registrant’s definitive Proxy Statement relating to the 2008 Annual Meeting of Shareholders of Gevity HR, Inc. expected to be held May 21, 2008, are incorporated herein by reference in Part III, Items 10, 11, 12, 13 and 14.

TABLE OF CONTENTS PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . ITEM 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . ITEM 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 13. Certain Relationships and Related Transactions, and Director Independence . . . . ITEM 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ITEM 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

1 1 19 30 30 31 31 31

. .

31 34

. . .

35 62 62

. . . . . .

62 62 65 65 65 65

. . . . .

65 65 65 65 65

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Statements made in this report, including under the section titled ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations,’’ that are not purely historical may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (‘‘Securities Act’’) and Section 21E of the Securities Exchange Act of 1934 (‘‘Exchange Act’’), including without limitation, statements regarding the Company’s expectations, hopes, beliefs, intentions or strategies regarding the future. Words such as ‘‘may’’, ‘‘will’’, ‘‘should’’, ‘‘could’’, ‘‘would’’, ‘‘predicts’’, ‘‘potential’’, ‘‘continue’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘future’’, ‘‘intends’’, ‘‘plans’’, ‘‘believes’’, ‘‘estimates’’, and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements are based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those that the Company has anticipated. Forward-looking statements involve a number of risks, uncertainties (some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by forward-looking statements, including those described in ‘‘Item 1A. Risk Factors’’ and the risks that are described in the reports that the Company files with the Securities and Exchange Commission (‘‘SEC’’). The Company cautions that the risk factors described in ‘‘Item 1A. Risk Factors’’ could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forwardlooking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of these factors. Further, management cannot assess the impact of each factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. PART I ITEM 1.

BUSINESS

General Gevity HR, Inc. (‘‘Gevity’’ or the ‘‘Company’’) specializes in providing small- and medium-sized businesses nationwide with a wide-range of competitively priced payroll, insurance and human resource (‘‘HR’’) outsourcing services. Gevity helps employers: • Streamline HR administration. Gevity takes the stress and effort out of payroll management and administration, benefits and benefits administration. • Optimize HR practices. Gevity works with the client’s team to build structure—policies, procedures and communications—for effective employment management, hiring practices and risk management over time. • Maximize people and performance. Gevity helps hone the skills and capabilities of clients’ staff and management for long-term employee retention and business success. Gevity’s employment management solution is designed to positively impact its clients’ business results by: • Increasing clients’ productivity by improving employee performance and generating greater employee retention;

• Allowing clients and their employees to focus on revenue producing activities rather than HR matters; and • Reducing clients’ exposure to liabilities associated with non-compliance with HR-related regulatory and tax matters. Essentially, Gevity serves as the full-service HR department for these businesses, providing each employee with support previously only available at much larger companies. Gevity is a professional employer organization (‘‘PEO’’), which means the Company provides certain HR-related services and functions for clients under what is referred to as a co-employment arrangement. Under the co-employment arrangement, Gevity assumes certain HR/employment-related responsibilities, as provided for by a professional services agreement (‘‘PSA’’) and as may be required under certain state laws. The co-employment relationship allows the PEO to become an employer of record and administrator for matters such as employment tax and insurance-related paperwork as well as relieving the client of these time-consuming administrative burdens. Because a PEO can aggregate a number of small clients into a larger pool, the PEO is able to create economies of scale—enabling smaller businesses to get competitively priced benefits. The core services typically provided by a PEO are payroll processing, access to health and welfare benefits and workers’ compensation coverage. In addition to these core offerings, the Company’s Gevity Edge PEO solution provides value-adding HR services such as employee retention programs, new hire support, employment practices liability insurance coverage and performance management programs, all designed to help clients effectively grow their businesses. Gevity is one of few PEOs with dedicated field-based HR Consultants. The Company’s HR Consultants work directly with clients to provide HR expertise and HR strategies that can help drive their business forward, while lowering potential exposure to HR-related claims. Gevity also provides service to its clients through a non co-employment relationship. The non co-employment relationship between Gevity and its clients is also governed by a PSA. Under the non co-employment PSA, the employment related liabilities remain with the client and the client is responsible for its own workers’ compensation insurance and health and welfare plans. The Company assumes responsibility for payroll administration (including payroll processing, payroll tax filing and W-2 preparation) and provides access to all of its HR services. This option became known as Gevity Edge Select and prior to 2007 did not have a significant impact on the Company’s results of operations or financial position. During 2007 the Company increased its investment in Gevity Edge Select beginning with the acquisition of the payroll processing firm HRAmerica, Inc. (‘‘HRA’’) on February 16, 2007. The Company acquired from HRA certain assets, including its client portfolio of approximately 145 clients (as measured by Federal Employer Identification Number (‘‘FEIN’’) with approximately 16,000 client employees. Approximately 14,700 non co-employed client employees were acquired as of the date of the acquisition and approximately 1,300 co-employed client employees (8 clients) were acquired with an effective date of April 1, 2007. The acquisition provided the Company with technology and processes to enhance its non co-employment model, Gevity Edge Select. In addition to the purchase of HRA, contracts with a national provider for benefits administration and with national and regional brokers for insurance distribution had been signed in support of Gevity Edge Select. After completion of a comprehensive strategic review, the Company decided to focus on the growth of its core PEO offering, Gevity Edge. As such, on February 25, 2008, the board of directors approved a plan to discontinue the Company’s non co-employment offering, Gevity Edge Select, effective immediately. The Company has been working closely with its existing non co-employed clients to provide a smooth transition to either its core Gevity Edge PEO offering or an alternative service provider. The Company plans to continue to operate the platform maintained in its service facility in Charlotte, North Carolina for an interim period to allow affected non co-employed clients to either

transition to its core Gevity Edge offering or an alternative service provider. The Company intends to complete this transition and close its service facility in Charlotte, North Carolina no later than June 30, 2008. Approximately, 30 jobs will be eliminated in both the Company’s service center in Charlotte, North Carolina and its branch office in Atlanta, Georgia. The Company expects to take a pre-tax charge in the range of $4.5 million to $5.5 million in the first half of 2008 related to the additional write-off of assets associated with Gevity Edge Select as well as the accrual of other exit costs including appropriate severance arrangements. The Company serves a diverse client base of small and medium-sized businesses in a wide variety of industries. The Company’s clients have employees located in all 50 states and the District of Columbia. As of December 31, 2007, these clients and their employees were served by a network of 43 offices in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, Nevada, New Jersey, New York, North Carolina, Tennessee and Texas. In addition, the Company has internal employees located onsite at certain client facilities. As of December 31, 2007, the Company served approximately 6,900 clients, as measured by individual client FEIN, with approximately 132,600 active client employees. For the year ended December 31, 2007, the Company’s top 25 clients accounted for less than 10% of its client billings, with no single client representing more than 1% of its client billings. The Company’s operations are conducted through a number of wholly-owned subsidiaries. The terms ‘‘Company’’ or ‘‘Gevity’’ as used in this report includes Gevity HR, Inc. and its subsidiaries. The Company was incorporated in Florida and consummated its initial public offering in 1997 after acquiring all of the assets of a predecessor professional employer organization business. In May 2002, the Company’s shareholders voted to change the Company’s name from ‘‘Staff Leasing, Inc.’’ to ‘‘Gevity HR, Inc.’’ Human Resource Outsourcing Industry The Company believes that small and medium-sized businesses are the primary drivers of economic growth and the chief source of job growth. Dun & Bradstreet estimates that during 2007, 46% of the U.S. workforce was employed at these companies. These businesses are also potential HR outsourcing customers since many desire to outsource non-core business functions, reduce regulatory compliance risk, rationalize the number of service providers that they use, enhance their benefit offerings and reduce costs by integrating HR systems and processes. The National Association of Professional Employer Organizations (‘‘NAPEO’’) defines the PEO industry as follows: Professional employer organizations (PEOs) enable clients to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation. PEO clients focus on their core competencies to maintain and grow their bottom line. Businesses today need help managing increasingly complex employee related matters such as health benefits, workers’ compensation claims, payroll, payroll tax compliance, and unemployment insurance claims. They contract with a PEO to assume these responsibilities and provide expertise in human resources management. This allows the PEO client to concentrate on the operational and revenue-producing side of its operations. A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with the employees at the client’s worksite and by contractually assuming certain employer rights, responsibilities, and risk.

PEOs provide: • Relief from the burden of employment administration. • A wide range of personnel management solutions through a team of professionals. • Assistance to improve employment practices, compliance and risk management to reduce liabilities. • Access to a comprehensive employee benefits package, allowing clients to be competitive in the labor market. • Assistance to improve productivity and profitability. Professional Services Provided by the Company The Company provides a broad range of tools and services to its clients. These tools and services are primarily offered to the Company’s clients on a ‘‘bundled’’ or all-inclusive basis. In addition to the Company’s core services, clients may elect to offer health and welfare and retirement programs to their employees. The Company provides these core tools and services to its clients through the following methods: Streamline HR administration—Gevity takes the stress and effort out of payroll management and administration, benefits and benefits administration. Payroll(1) + Payroll Administration Services

Online Tools

Administrative processing: • Payroll processing • W-2 preparation and delivery • Tax processing and payment • Paid time off processing • Health and welfare plan processing • Time and attendance service Unemployment claims support Payroll and HR-related reports

Web-based HRMS(2) access For Administrators: • Account information • Employee data • Reports For Employees: • Personal information • Payroll history

Benefits(1) + Benefits Administration Services

Online Tools

Benefits and insurance plan options Retirement plan options Workers’ compensation insurance options Employee Assistance Program

Web-based HRMS access For Administrators: • Annual Benefits Enrollment • Reports For Employees: • Benefits information

(1) Gevity Edge Select clients retain their own benefits, and Gevity processes payroll and taxes using the clients’ FEIN. Gevity can provide administrative support for unemployment claims and health and welfare benefits. (2) Oracle’s Human Resource Management System (‘‘HRMS’’).

Optimize HR practices—Gevity works with clients to build structure—policies, procedures and communications—for effective employment management, hiring practices and risk management over time. New Hire Support Services

Online Tools

New hire forms kit Interview process and procedures Candidate background screening Candidate drug testing

Job description creation tool Salary survey tool

Policies + Procedures/Risk Management Services

Online Tools

Policy and procedures audit Risk assessment Labor law posters Employment practices liability insurance Employee relations consultations Separation counseling procedures Employee handbook HR forms library

HR • • • •

knowledge base tool Law summaries Model documents Model company policies News and trends

Maximize people and performance—Gevity helps hone the skills and capabilities of staff and management for long-term employee retention and business success. Employee Development + Retention Services

Online Tools

Essentials management training • managing and engaging employees • interviewing Harassment prevention program and training

Workplace compliance training

Performance Management Services

Online Tools

Performance management process Progressive counseling procedures Employee reward and recognition program

Performance appraisal tool

Clients The Company had clients classified in over 500 Standard Industrial Classification (‘‘SIC’’) codes. The following table shows the Company’s client distribution by major SIC code industry grouping for the years indicated, ranked as a percentage of client billings: Year Ended December 31, 2007 2006 2005

Percentage of Client Billings by Industry

Services(1) . . . . . . . . . . . . . . . Finance/Insurance/Real Estate Manufacturing . . . . . . . . . . . . Retail Trade . . . . . . . . . . . . . . Wholesale Trade . . . . . . . . . . Construction(2) . . . . . . . . . . . Transportation . . . . . . . . . . . . Restaurants . . . . . . . . . . . . . . Agriculture . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42.3% 15.5 11.7 8.3 7.9 7.8 2.9 2.4 1.1 0.1

41.2% 15.8 12.2 9.2 6.8 9.1 2.3 2.0 1.3 0.1

39.5% 16.4 12.0 9.4 7.3 9.9 2.0 1.9 1.5 0.1

100.0% 100.0% 100.0%

(1) The Services category consists principally of health services, business services, personal services (e.g., laundry and dry cleaning, beauty and barber shops), hotel and lodging services, computer services, legal services, building maintenance, social services and miscellaneous repair services. (2) The Construction category consists principally of general contracting and other trade work, such as heating, ventilation, air-conditioning, plumbing, electrical and flooring. This category does not include workers engaged in roofing or other high-elevation exposure risk activities. As part of its current approach to client selection, the Company offers its Gevity Edge full service HR solution to businesses within specified industry codes. All prospective clients are evaluated individually on the basis of total predicted profitability. This analysis takes into account workers’ compensation risk and claims history, unemployment claims history, payroll adequacy, and credit status. With respect to potential clients operating in certain industries believed by the Company to present a level of risk exceeding industry norms, more rigorous underwriting requirements must be met before the Company agrees to provide Gevity Edge or co-employment related services to the potential client. This process may include an on-site inspection and review of workers’ compensation and unemployment claims experience for the last three years. The Company considers industries to be high risk if there is a likelihood of a high frequency of on-the-job accidents involving client employees or a likelihood that such accidents will be severe. In addition, under the terms of the Company’s workers’ compensation agreement, prospective clients operating in certain industries or with historically high workers’ compensation insurance claims experience must also be approved by the Company’s insurance carrier before the Company enters into a contract to provide services. The Company also maintains a client review program that includes a detailed profitability and risk analysis of all of its existing clients. Based on the results of these analyses, the Company may modify its pricing or, if necessary, terminate certain clients that the Company believes would not contribute to its long-term profitability or otherwise be detrimental to its business. The Company’s client retention rate for 2007 was approximately 79.2%. This rate is computed by dividing the number of clients at the end of the period by the sum of the number of clients at the

beginning of the period plus the number of clients added during the period. The client retention rate is affected by a number of factors, including the natural instability of small businesses and the number of clients that were terminated by the Company as part of its client review program. All of the Company’s clients are required to enter into a professional services agreement, which generally provides for an initial one-year term, subject to termination by the Company or the client at any time upon either 30 or 45 days prior written notice. Following the initial term, the contract may be renewed, terminated or continued on a month-to-month basis. Under the co-employment business service model, which covered approximately 98% of the Company’s clients in 2007, the Company and the client each become a co-employer of the client’s employees, and the Company operates as a licensed professional employer organization. Through Gevity Edge Select, clients were also offered the option to use the Company’s services without the Company becoming a co-employer of the client’s employees, in which case tax filings are made under the client’s FEIN and the client provides its own workers’ compensation insurance and health and welfare plans. As discussed in ‘‘Business—General,’’ the Company has decided to exit the Gevity Edge Select business. The Company retains the ability to immediately terminate the client (and co-employment relationship, if applicable) upon non-payment by a client. The Company manages its credit risk through the periodic nature of payroll, client credit checks, owner guarantees, the Company’s client selection process and its right to terminate the client and the co-employment relationship with the client employees, if applicable. Under the professional services agreement applicable to the co-employment model, employmentrelated liabilities are contractually allocated between the Company and the client. For instance, the Company assumes responsibility for, and manages the risks associated with, each client’s employee payroll obligations, including the liability for payment of salaries and wages to each client employee, the payment of payroll taxes and, at the client’s option, responsibility for providing group health, welfare and retirement benefits to such individuals. These Company obligations are fixed, whether or not the client makes timely payment of the associated service fee. In this regard, unlike payroll processing service providers, the Company issues to each of the client employees payroll checks drawn on the Company’s bank accounts. The Company also reports and remits all required employment information and taxes to the applicable federal and state agencies and issues a federal Form W-2 to each client employee under the Company’s FEIN. Under the co-employment model, the Company assumes the responsibility for compliance with employment-related governmental regulations that can be effectively managed away from the client’s worksite. The Company provides workers’ compensation insurance coverage to each client employee under the Company’s master insurance policy. The client, on the other hand, contractually retains the general day-to-day responsibility to direct, control, hire, terminate, set the wages and salary of, and manage each of the client’s employees. The client employee services are performed for the exclusive benefit of the client’s business. The client also remains responsible for compliance with those employment-related governmental regulations that are more closely related to the day-to-day management of client employees. In some cases, employment-related liabilities are shared between the Company and the client.

The following table summarizes the typical division of responsibilities for employment-related regulatory compliance under the Company’s professional services agreement applicable to the co-employment model: Gevity

Client

• All rules and regulations governing the reporting, collection and payment of federal and state payroll taxes on wages, including: (i) federal income tax withholding provisions of the Internal Revenue Code; (ii) state and/or local income tax withholding provisions; (iii) Federal Income Contributions Act (FICA); (iv) Federal Unemployment Tax Act (FUTA); and (v) applicable state unemployment tax provisions, including managing claims • Applicable workers’ compensation laws that cover: (i) procuring workers’ compensation insurance; (ii) completing and filing all required reports; and (iii) claims processing • COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986) continuation coverage for employees covered under health plans sponsored by Gevity

• Worksite and employee safety under the Occupational Safety and Health Act (OSHA) and related or similar federal, state or local regulations • Government contracting requirements as regulated by, including, but not limited to: (i) Executive Order 11246; (ii) Vocational Rehabilitation Act of 1973; (iii) Vietnam Era Veteran’s Readjustment Assistance Act of 1974; (iv) Walsh-Healy Public Contracts Act; (v) Davis-Bacon Act; (vi) the Service Contract Act of 1965; and (vii) any and all related or similar federal, state or local laws, regulations, ordinances and statutes • Professional licensing and liability • Internal Revenue Code Sections 414 (m), (n) and (o) relating to client maintained benefit plans

• Laws governing the garnishment of wages, including Title III of the Consumer Credit Protection Act

• Laws affecting the assignment and ownership of intellectual property rights • Worker Adjustment and Retraining Notification Act (WARN)

• All rules and regulations governing administration, procurement and payment of all Company sponsored employee benefit plans elected by the client or client employee

• Laws affecting the maintenance, storage and disposal of hazardous materials

• Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act of 1993 (FMLA)*

• Title VII (Civil Rights Act of 1964, as amended), Immigration Reform and Control Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, Older Workers Benefit Protection Act • Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act of 1993 (FMLA)* • All other federal, state, county or local laws, regulations, ordinances and statutes which regulate employees’ wage and hour matters, prohibit discrimination in the workplace or govern the employer/employee relationship

The Company and the client are each responsible for certain provisions under the terms of each act.

Under the co-employment model, the Company charges its clients a professional service fee that is designed to yield a profit and to cover the cost of certain employment-related taxes, workers’ compensation insurance coverage and HR services provided to the client. The component of the professional service fee related to HR management varies according to the size of the client, the amount and frequency of the payroll payments and the method of delivery of such payments. The component of the service fee related to workers’ compensation and unemployment insurance is based, in part, on the client’s historical claims experience. In addition, the client may choose to offer certain health, welfare and retirement benefits to its employees. The Company invoices each client for the service fee and costs of selected benefit plans, as well as the wages and other employment-related taxes of each client employee. The gross billings are invoiced at the time that each periodic payroll is delivered to the client. Under the professional services agreement applicable to the Gevity Edge Select or non co-employment model, employment-related liabilities remain with the client and the client is responsible for its own workers’ compensation insurance and health and welfare plans. The Company assumes responsibility for administration of the payroll process, including payroll processing, payroll tax filing and W-2 preparation. In addition, the Company provides access to all of its HR services. Under the non co-employment model, the Company charges its clients a professional service fee designed to cover the cost of its services and yield a profit to the Company. Service Delivery and Information Technology The Company delivers services using the power of local and national resources, on the clients’ terms, by using these delivery components: • Gevity OnSite . Local HR consultants are available to work with clients onsite, either full time or on a regularly scheduled basis. • Gevity OnCall . A dedicated team of HR professionals is available by telephone to address payroll, benefits and general HR needs for clients and their employees at a designated number. • Gevity OnLine . Gevity clients and their employees have online access to view and update their information anytime via gevity.com. The Ask Gevity link on gevity.com provides up-to-date critical HR, compliance and regulatory information. In order to provide proactive client relationship management, each of the Company’s clients is assigned a single HR consultant to serve as the client relationship manager. This allows the client to interface with the Company through a single point person. As of December 31, 2007, the Company had over 180 HR consultants with significant experience in the HR industry. Many of the Company’s HR consultants hold industry recognized certifications from organizations such as the Society for Human Resource Management. In 2007, the Company undertook several client service improvement initiatives including the implementation of new customer relationship and knowledge management tools as well as the reorganization of the client service center organization. These investments are intended to better serve the Company’s client base, achieve a high level of client satisfaction and allow the Company to improve both the efficiency and effectiveness of its operations. The Company processes payroll for the majority of its client employees using Oracle’s HRMS and Payroll processing application. The Oracle systems enable the Company to effectively manage its existing operations and maintain appropriate controls. The Oracle HRMS and Payroll systems provide the Company with the capability to promptly and accurately deliver HR services and generate comprehensive management reports. The Company’s information systems manage all data relating to client employee enrollment, payroll processing, administration, management information and other

requirements of the clients’ operations. The current systems have high-volume processing capabilities that allow the Company to produce and deliver payrolls to its clients, each configured to the needs of such clients. The February 2007 acquisition of HRA provided the Company with technology that operates on Ultimate Software’s UltiPro platform to enhance its non co-employment model, Gevity Edge Select. In connection with its decision to exit the Gevity Edge Select business (see ‘‘Item 1.Business-General’’), the Company will cease use of the UltiPro platform once all of the Gevity Edge Select clients are transitioned. The Company continues to enhance Gevity OnLine, which allows clients to input their payroll data directly into the Company’s payroll applications via the Internet. Clients can regularly add or delete employees, view reports, and change payroll information. Gevity OnLine is integrated with the Company’s Oracle HRMS and Payroll systems, Salesforce.com, Customer Relationship Management solution and financial reporting package, as well as the Company’s comprehensive line of online tools and services. The Company believes that this full integration results in improved client satisfaction, as well as improved efficiencies and operating margins for the Company. Oracle’s portal software provides the foundation, enabling a client configurable online experience, and the Company’s custom-developed software provides additional ease of use and service capabilities. The combination of the Oracle systems for access and functionality and Gevity’s proprietary online capabilities provides a unique solution capable of growing and adapting to the evolving needs of the Company’s clients. The Company’s information technology staff consisted of 95 employees at December 31, 2007. The Company believes the development of its information technology is an integral part of achieving its growth objectives and intends to continue to invest in its technology infrastructure. Sales and Marketing The Company markets its services through a direct sales force which, as of December 31, 2007, consisted of 132 business development managers distributed throughout its 43 field offices. In the first quarter of 2008, the Company closed 5 field offices determined to be unprofitable. The Company plans to expand its national coverage in selected major metropolitan areas over the next few years. The Company’s business development managers are compensated through a combination of salary and commission. The Company’s client acquisition model subdivides all markets into individually assigned and identified sales territories and is intended to result in the development of market share by territory. The territory methodology promotes a focused and efficient approach to market penetration and facilitates a collaborative environment among business development managers. The Company generates sales leads from various external sources as well as from direct sales efforts and inquiries. Each business development manager visits his or her clients on-site periodically in order to maintain an ongoing relationship and to seek new business referrals. The Company also generates sales leads from independent referral relationship partners and an information database of small businesses. The Company uses a referral incentive program with its relationship partners to encourage increased referral activity. Competition Gevity provides a comprehensive, full-service HR solution delivered through dedicated HR professionals and an advanced information technology platform. Gevity’s HR consultants complement its total employment management solution, providing the resources and tools found in HR departments of large companies. The Company believes this model allows it to compete favorably in the highly fragmented industry of HR outsourcing for small and medium-sized businesses in which the primary bases of competition are the scope and quality of services delivered.

The Company views its primary competitors in two categories. The first is single-point solution providers that offer only one, or a few, facets of the solution the Company provides its clients. These providers typically complement a business’ in-house HR resources. This type of competitor is exemplified by information technology outsourcers and broad-based consulting and outsourcing firms that now provide, or seek to provide, HR outsourcing services. Another example of this type of competitor is consulting companies that perform narrowly defined, individual HR related projects, such as the development of HR strategy or the installation of an HR information system. The Company believes the breadth and integrated nature of its solution positions it well against this type of competitor. The second type of competitor identified by the Company is one that provides a more comprehensive HR solution and typically includes Administrative Service Organizations (‘‘ASOs’’), PEOs and other comprehensive HR outsourcers. These providers typically may be used in conjunction with a business’ in-house HR resources, or they may be used in replacement of a business’ in-house HR resources. The Company believes its on-site delivery model, the cost savings it can pass along to its clients due to its size, and the breadth of its service offering create competitive advantages and allow it to compete favorably with other PEOs and HR outsourcers. The Company believes that it operates one of the largest PEOs in the United States in terms of active client employees and revenues. Many of these businesses that utilize the co-employment business model, especially the larger ones such as Administaff, Inc., the PEO division of Automatic Data Processing, Inc. and the PEO division of Paychex, Inc., are capitalizing on the co-employment insurance model while offering additional core HR services. The Company expects competition to increase, and competitors to develop broader service capabilities. Vendor Relationships The Company provides its services to its client employees under arrangements with a number of providers as described below. Workers’ Compensation Insurance The following is a description of the Company’s workers’ compensation insurance program, which covers all clients who are insured under the co-employment model: The Company has had a loss sensitive workers’ compensation insurance program since January 1, 2000. The program is insured by CNA Financial Corporation (‘‘CNA’’) for the 2000-2002 program years. The program is currently insured by member insurance companies of American International Group, Inc. (‘‘AIG’’) and includes coverage for the 2003-2007 program years. The insured loss sensitive programs provide insurance coverage for claims incurred in each plan year but which may be paid out over future periods dependent upon the nature and extent of the worksite injury. In states where private insurance is not permitted, client employees are covered by state insurance funds. Gevity purchased fully insured workers’ compensation policies from AIG with varying deductible amounts (ranging from $0.5 million to $2.0 million) for the 2003 through 2007 policy years whereby AIG is responsible for paying the claims and the Company is responsible for paying to AIG the per occurrence deductible amount. In addition, during 2004, the Company purchased insurance from AIG to cover its workers’ compensation claims liability up to the $1.0 million per occurrence deductible level for policy years’ 2000-2002 (CNA remains the insurer on the underlying claims for these years). The workers’ compensation program with AIG for policy years 2003-2007 consists primarily of two components. The first component consists of cash paid to AIG during each policy year related to policy expenses and program costs. This includes premium charges (for insurance of claims in excess of the deductible and certain stop loss coverage), taxes and administration costs. The amounts charged by

AIG are generally based upon the volume and classification of worker’s compensation payroll. Except for the policy true-up provisions that occur 18 months after policy inception and are based upon the actual volume and classification of payrolls, as well as the claims administration cost based upon the volume of claims processed, this component is fixed and there is no return of premium. The second component of the workers’ compensation program relates to the policy deductible. The Company, through its wholly-owned Bermuda-based insurance subsidiary, remits premiums to AIG to cover claims to be paid within the Company’s per occurrence deductible layer. AIG deposits the premiums into interest bearing loss fund collateral accounts for reimbursement of paid claims up to the per occurrence deductible amount. Interest on the loss fund collateral accounts (which will be reduced as the reimbursement of claims are paid out over the life of the policy) accrues to the benefit of the Company at fixed annual rates as long as the program, and the interest accrued under the program, remain with AIG as indicated in the table below. Information relating to the AIG policy years is as follows: Initial Loss Fund Collateral Premiums

Program Year

2003 2003 2004 2005 2006 2007

. . . . . .

$ 73.5 $ 11.5 $111.4 $100.0 $ 90.0 $ 66.5

Policy Year Deductible

million(1) million(1) million million million million

$1.0 million n/a $2.0 million(2) $2.0 million(2) $0.5 million $0.5 million

Guaranteed Interest Rate

2.42% 1.85% 2.92% 3.75% 4.58% 5.01%

Minimum Program Life for Guaranteed Interest Rate

7 7 10 10 10 10

years years years years years years

(1) The 2003 program year consists of two loss funds totaling $85.0 million. (2) For policy years 2004 and 2005, reinsurance was purchased by the Company’s insurance subsidiary to effectively reduce the per occurrence deductible from $2.0 million to $1.0 million and $0.75 million, respectively. If a policy program year is terminated prior to the end of a guarantee period, the interest rate is adjusted downward based upon a sliding scale. The 2003-2007 program years provide for an initial loss fund collateral true-up 18 months after the program inception and annually thereafter. The true-up is calculated as the product of a pre-determined loss factor and the amount of incurred claims in the deductible layer as of the date of the true-up. The true-up may result in funds being released from the AIG loss fund collateral account to the Company or may require additional loss fund collateral payments by the Company to AIG. During 2007, AIG released approximately $45.9 million, net, relating to the annual loss fund collateral true-up and the finalization of outstanding prior year premium expense audits. The Company expects to receive approximately $17.0 million from AIG during 2008 in connection with the June 2008 annual true-up. In 2004, the Company entered into agreements with AIG and CNA whereby the Company paid $102.0 million to purchase insurance from AIG to cover the Company’s workers’ compensation claims liability up to the $1.0 million per occurrence deductible level for policy years’ 2000-2002. Of the total premium paid to AIG, AIG deposited $88.9 million into an interest bearing loss fund account held by AIG and $5.5 million into an interest bearing escrow account held by CNA. The AIG loss fund account will be used by AIG to fund all claims under the program up to AIG’s aggregate limit. Interest on the AIG loss fund (which will be reduced as claims are paid out over the life of the policy) will accrue to the benefit of the Company at a fixed annual rate of 3.0% until all claims are closed. The CNA escrow account bears an interest rate based upon the rate as provided for in the facility into which it is deposited. Any agreed upon reduction in the escrow account between CNA and AIG will be deposited into the AIG loss fund account. AIG will return to the Company that portion of the loss fund account, if any, not used or retained to pay claims, including interest earned, at intervals of 36, 60, 84 and 120 months from the date of the inception of the agreement. The maximum return amount, which is

based upon a pre-determined formula, at 36 and 60 months is limited to $5.5 million for each payment due, with no limit as to the return amount at 84 and 120 months. During 2007, CNA released $3.8 million of the escrow account which was deposited into the AIG loss fund account and AIG released $5.5 million to the Company in connection with the 36 month true-up. In December 2007, the Company renewed its AIG workers’ compensation insurance policy for the 2008 program year. Under the 2008 program, the Company will be required to deposit $55.5 million into an interest bearing loss fund with a guaranteed interest rate of 3.19%, which will be used by AIG to fund losses up to the $1.0 million per occurrence deductible level. See the further discussion of the Company’s workers’ compensation policies at ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates-Workers’ Compensation Receivable/Reserves’’. Employee Benefit Plans Following is a description of the Company’s health plans, which are offered to all clients who are served under the co-employment model who meet the minimum participation and contribution requirements: Blue Cross and Blue Shield of Florida—Blue Cross and Blue Shield of Florida and its subsidiary Health Options, Inc. (together ‘‘BCBSF/HOI’’) is the Company’s primary partner in Florida, delivering medical care benefits to approximately 21,000 Florida based client employees. The Company’s policy with BCBSF/HOI is a minimum premium policy expiring September 30, 2008. Pursuant to this policy, the Company is obligated to reimburse BCBSF/HOI for the cost of the claims incurred by participants under the plan, plus the cost of plan administration. The administrative costs per covered client employee associated with this policy are specified by year and aggregate stop loss coverage is provided to the Company at the level of 110% of projected claims. BCBSF/HOI does not require collateral to secure the Company’s obligation to BCBSF/HOI related to incurred but not reported claims provided that a certain minimum coverage ratio is maintained by the Company. Aetna Health, Inc.—Aetna Health, Inc. (‘‘Aetna’’) is the Company’s primary medical care benefits provider for approximately 16,000 client employees throughout the remainder of the country. The Company’s 2007/2008 policy with Aetna provides for an HMO and PPO offering to plan participants. The Aetna HMO medical benefit plans are subject to a guaranteed cost contract that caps the Company’s annual liability. The Aetna PPO medical benefit plan is a retrospective funding arrangement. Beginning with the 2007 plan year, Aetna has agreed to eliminate the callable feature of the PPO plan that previously existed and differences in actual plan experience versus projected plan experience for the year will factor into subsequent year rates. UnitedHealthcare—In 2006, the Company announced the addition of UnitedHealthcare as an additional health plan option. As of December 31, 2007, UnitedHealthcare provides medical care benefits to approximately 5,000 client employees. The UnitedHealthcare plan is a fixed cost contract expiring September 30, 2008, that caps the Company’s annual liability. Under the terms of the current agreement with UnitedHealthcare, this plan is no longer offered as an option for new co-employed clients after July 1, 2007. Coverage through UnitedHealthcare will continue to be an option for clients covered by UnitedHealthcare as of June 30, 2007. Other Medical Benefit Plans—The Company provides coverage under various regional medical benefit plans to approximately 1,000 client employees in various areas of the country, including Kaiser Foundation Health Plan, Inc. and Harvard Pilgrim Healthcare. Such regional medical plans are fixed cost contracts.

Other Health Benefit Plans—The Company’s dental plans, which include both a PPO and HMO offering, are provided by Aetna for all client employees who elect coverage. All dental plans are subject to guaranteed cost contracts that cap the Company’s annual liability. In addition to dental coverage, the Company offers various other guaranteed cost insurance programs to client employees, such as vision care, life, accidental death and dismemberment, short-term disability and long-term disability. The Company also offers a flexible spending account for health care, dependent care and a qualified transportation fringe benefit program. Part-time client employees are eligible to enroll in limited benefit programs from Star HRG. These plans include fixed cost sickness and accident and dental insurance programs, and a vision discount plan. 401(k) Plans The Company offers to clients served under the co-employment model a 401(k) retirement plan, designed to be a multiple employer plan under Section 413(c) of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). Generally, employee benefit plans are subject to provisions of both the Code and the Employee Retirement Income Security Act (‘‘ERISA’’). Internal Company Employees As of December 31, 2007, the Company employed approximately 900 internal employees of whom approximately 420 were located at the Company’s headquarters in Bradenton, Florida. The remaining employees were located in the Company’s field offices or in some cases onsite at client locations. None of the Company’s internal employees are covered by a collective bargaining agreement. Industry Regulation General Numerous federal and state laws and regulations relating to employment matters, benefit plans and employment taxes affect the operations of the Company or specifically address issues associated with co-employment. Many of these federal and state laws were enacted before the development of non-traditional employment relationships, such as professional employer organizations, temporary employment and other employment-related outsourcing arrangements and, therefore, do not specifically address the obligations and responsibilities of a professional employer organization. Other federal and state laws and regulations are relatively new, and administrative agencies and federal and state courts have not yet interpreted or applied these regulations to the Company’s business or its industry. The development of additional regulations and interpretation of those regulations can be expected to evolve over time. In addition, from time to time, states have considered, and may in the future consider, imposing certain taxes on gross revenues or service fees of the Company and its competitors. Thirty-two states, including eleven states where the Company has offices (Alabama, Arizona, California, Florida, Illinois, Minnesota, New Jersey, New York, Nevada, North Carolina, and Texas), have passed laws that have licensing, registration or other regulatory requirements for professional employer organizations, and several other states are currently considering similar regulations. Such laws vary from state to state, but generally codify the requirements that a professional employer organization must reserve a right to hire, terminate and discipline client employees and secure workers’ compensation insurance coverage. The Company delegates or assigns such rights to the client where allowed under state law. Currently, New Hampshire is the only state where such delegation is not allowed. The laws also generally provide for monitoring the fiscal responsibility of professional

employer organizations and, in many cases, the licensure of the controlling officers of the professional employer organization. In addition, some states through legislative or other regulatory action may propose to modify the manner in which the Company is allowed to provide services to its clients. Such regulatory action could increase the administrative cost associated with providing such services. The Company believes that its operations are currently in compliance in all material respects with applicable federal and state statutes and regulations. 401(k) Plans In order to qualify for favorable tax treatment under the Code, 401(k) plans must be established and maintained by an employer for the exclusive benefit of its employees. Generally, an entity is an ‘‘employer’’ of certain workers for federal employment tax purposes if an employment relationship exists between the entity and the workers under the common law test of employment. In addition, the officers of a corporation are deemed to be employees of that corporation for federal employment tax purposes. The common law test of employment, as applied by the Internal Revenue Service (‘‘IRS’’), involves an examination of many factors to ascertain whether an employment relationship exists between a worker and a purported employer. Such a test is generally applied to determine whether an individual is an independent contractor or an employee for federal employment tax purposes and not to determine whether each of two or more companies is a ‘‘co-employer.’’ Substantial weight is typically given to the question of whether the purported employer directs and controls the details of an individual’s work. The courts have provided that the common law employer test applied to determine the existence of an employer-employee relationship for federal employment tax purposes can be different than the common law test applied to determine employer status for other federal tax purposes. In addition, control and supervision have been held to be less important factors when determining employer status for ERISA purposes. ERISA Requirements Employee pension and welfare benefit plans are also governed by ERISA. ERISA defines an ‘‘employer’’ as ‘‘any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan.’’ ERISA defines the term ‘‘employee’’ as ‘‘any individual employed by an employer.’’ The courts have held that the common law test of employment must be applied to determine whether an individual is an employee or an independent contractor under ERISA. However, in applying that test, control and supervision are less important for ERISA purposes when determining whether an employer has assumed responsibility for an individual’s benefits status. A definitive judicial interpretation of ‘‘employer’’ in the context of a professional employer organization or employee leasing arrangement has not been established. If the Company were found not to be an employer for ERISA purposes, its former 401(k) retirement plan would not comply with ERISA. Further, the Company would be subject to liabilities, including penalties, with respect to its cafeteria benefits plan for failure to withhold and pay taxes applicable to salary deferral contributions by its clients’ employees. In addition, as a result of such a finding, the Company and its plans would not enjoy, with respect to client employees, the preemption of state laws provided by ERISA and could be subject to varying state laws and regulation, as well as to claims based upon state common laws. Federal Employment Taxes As a co-employer, the Company assumes responsibility and liability for the payment of federal and state employment taxes with respect to wages and salaries paid to client employees. There are essentially three types of federal employment tax obligations: (i) withholding of income tax governed by

Code Section 3401, et seq.; (ii) obligations under FICA, governed by Code Section 3101, et seq.; and (iii) obligations under FUTA, governed by Code Section 3301, et seq. Under these Code sections, employers have the obligation to withhold and remit the employer portion and, where applicable, the employee portion of these taxes. Among other employment tax issues related to whether professional employer organizations are employers of client employees are issues under the Code provisions applicable to federal employment taxes. The issue arises as to whether the Company is responsible for payment of employment taxes on wages and salaries paid to such client employees. Code Section 3401(d)(1), which applies to federal income tax withholding requirements, contains an exception to the general common law test applied to determine whether an entity is an ‘‘employer’’ for purposes of federal income tax withholding. The courts have extended this exception to apply to both FICA and FUTA taxes as well. Code Section 3401(d)(1) states that if the person for whom services are rendered does not have control of the payment of wages, the ‘‘employer’’ for this purpose is the person having control of the payment of wages. A third party can be deemed to be the employer of workers under this Section for income tax withholding purposes where the person for whom services are rendered does not have legal control of the payment of wages. Although several courts have examined Code Section 3401(d)(1) with regard to professional employer organizations, its ultimate scope has not been delineated. Moreover, the IRS has, to date, relied extensively on the common law test of employment in determining liability for failure to comply with federal income tax withholding requirements. Accordingly, while the Company believes that it can assume the withholding obligations for client employees, if the Company fails to meet these obligations, the client may be held jointly and severally liable. While this interpretive issue has not, to the Company’s knowledge, discouraged clients from utilizing the Company’s services, there can be no assurance that a definitive adverse resolution of this issue would not do so in the future. Significant Transactions in 2007 Acquisition of HRAmerica, Inc. As discussed in ‘‘Business-General’’, the Company acquired certain assets, including the client portfolio, of HRA a human resource outsourcing firm that offered fundamental employee administration solutions including payroll processing to its clients. The acquisition provided the Company with technology and processes to enhance its non co-employment model. The purchase price for the acquired assets was approximately $10.9 million (including direct acquisition costs of approximately $0.7 million), which the Company paid in cash from its revolving credit facility. Of this amount, $1.4 million is being held in an escrow account and is included in short-term marketable securities—restricted at December 31, 2007. The amounts held in escrow represent purchase price contingencies related to potential earn outs and the achievement of certain client retention percentages up through the first anniversary date of the acquisition. Unearned escrow amounts, if any, will be returned to the Company. The Company does not believe that any purchase price contingency amounts will be paid out to the former owners of HRA. Impairment Loss During the fourth quarter of 2007, the Company evaluated the long-lived and intangible assets of the Gevity Edge Select segment for impairment based upon various factors including: the low fair value of the Gevity Edge Select segment obtained in connection with the annual test for goodwill impairment under Statement of Financial Accounting Standards (‘‘SFAS’’) No. 142, Goodwill and Other Intangible Assets (‘‘SFAS 142’’), the accumulation of costs significantly in excess of amounts originally anticipated for the HRA integration and the re-launch of Gevity Edge Select, current period operating losses, and the forecast of continued operating losses. The Gevity Edge Select segment is comprised substantially of the assets acquired in the HRA acquisition. At the time of the impairment testing the Gevity Edge Select asset group was classified as an asset to be held and used (see Note 7 to the consolidated

financial statements beginning on page F-1 for additional discussion regarding the impairment and ‘‘Business-General’’ for information regarding the Company’s subsequent decision to exit the Gevity Edge Select business). Based upon the results of the impairment analysis the Company recorded an impairment loss on the long-lived assets of Gevity Edge Select of $8.5 million which included the write-down of property, plant and equipment, client service agreements and goodwill. Share Repurchase Program On August 15, 2006, the Company announced that the board of directors authorized the repurchase of up to $75.0 million of the Company’s common stock under a new share repurchase program. Share repurchases under the new program may be made through open market purchases, block trades or in private transactions at such times and in such amounts as the Company deems appropriate, based on a variety of factors including price, regulatory requirements, overall market conditions and other corporate opportunities. As of March 31, 2007, the Company had purchased 1,650,684 shares of its common stock under this new program at a total cost of $36.5 million. On April 20, 2007, the Company’s board of directors authorized an increase to this share repurchase program bringing the repurchase amount authorized back up to $75.0 million. As of December 31, 2007, total shares repurchased under this program since its inception in August 2006 were 2,886,884 shares at a total cost of $60.1 million. Total shares repurchased under this program during 2007 were 1,543,121 at a total cost of $30.3 million. The Company has suspended its share repurchase program for the time being in order to invest available cash in its business. All repurchased shares were initially held as treasury shares. During the third quarter of 2007, the Company retired 8,732,527 shares of its common stock, which had been held in treasury. In connection with the retirement of these shares, the Company reclassified $149.6 million of the costs associated with these treasury shares to additional paid-in capital. See ‘‘Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities’’ for information regarding the 2007 fourth quarter common stock repurchase transactions. Executive Officers of the Registrant The following table sets forth certain information with respect to each person who is an executive officer of the Company as of March 13, 2008: Name

Age

Position

Garry Welsh . . . . . . . . .

Paul Benz . . . . . . . . . . . James Hardee . . . . . . . .

48 52

Clifford M. Sladnick . . .

Senior Vice President and Chief Financial Officer, and Interim Chief Executive Officer Senior Vice President and Chief Information Officer Senior Vice President and Chief Sales and Marketing Officer Senior Vice President and Chief Administrative Officer

Garry Welsh joined Gevity as Interim Chief Financial Officer in May 2007. Mr. Welsh was appointed Senior Vice President and Chief Financial Officer in August 2007. Additionally, in November 2007 the board of directors appointed Mr. Welsh the Company’s Chief Executive Officer to serve on an interim basis. The board has designated Mr. Welsh to act in this capacity where required, including in connection with the filing of the Company’s public filings with the Securities and Exchange Commission. Prior to joining the Company, Mr. Welsh was managing director of Sheridan Blake Consulting Limited during 2006 and GJW Consulting during 2006 and 2007. From September 2002 to March 2005, Mr. Welsh was the Global Chief Operating Officer of Barclays Private Bank in London.

Paul Benz joined Gevity in June 2006 as Senior Vice President and Chief Information Officer and is responsible for the Company’s information technology and service center organization. Prior to joining the Company, Mr. Benz held several executive information technology and finance positions with PriceWaterhouseCoopers and Pepsico. From 2004 to 2006 he directed the Southeast region of PriceWaterhouseCoopers’ Information Technology Effectiveness practice. From 2001 to 2004, Mr. Benz served in various executive roles with Pepsico including Vice President, Finance and Information Technology and Vice President, Merger Integration. James Hardee joined Gevity in August 2007 as Senior Vice President and Chief Sales and Marketing Officer. Prior to that, Mr. Hardee held various sales, marketing, management and executive positions with IBM Corporation. Among his positions at IBM were VP of Sales, VP of Services, VP of ibm.com, VP of Worldwide Sales, Director of Operations/Marketing and Business Unit Executive. Clifford M. Sladnick has served as Senior Vice President and Chief Administrative Officer since July 2005. Prior to joining the Company, Mr. Sladnick served as Managing Director and Acquisition Advisory Practice Leader for Dresner Companies from June 2004 to July 2005. From November 2003 to June 2004 Mr. Sladnick was co-owner of Hampden Partners. From February 2000 to November 2003, Mr. Sladnick served as Vice President, Acquisitions and Business Development, for the Brunswick Corporation, and from 1990 to 1999, he held positions of Senior Vice President, General Counsel and Corporate Secretary of St. Paul Bancorp, Inc. From 1981 to 1990, Mr. Sladnick was a partner in the corporate department of the law firm of McDermott, Will & Emery. On February 26, 2008, Mr. Sladnick resigned his position as Senior Vice President and Chief Administrative Officer of the Company effective July 31, 2008. Available Information You may read and copy any document the Company files with the SEC at the SEC’s public reference room located at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 to obtain more information regarding the public reference room. The SEC also maintains an Internet site at www.sec.gov that contains periodic and current reports, proxy statements and other information filed electronically by public issuers (including the Company) with the SEC. The Company also makes available all reports and other documents it files or furnishes pursuant to the Exchange Act free of charge through the Investor Relations page on its website, www.gevity.com, as soon as reasonably practicable after such reports are electronically filed with the SEC. The Company has adopted a Code of Business Conduct and Ethics, which applies to all employees and members of the board of directors of the Company, including the Chief Executive Officer, Chief Financial Officer and other senior financial officers of the Company, a copy of which is available through the Investor Relations page on the Company’s website, www.gevity.com. The Company intends to disclose any amendments of, or waivers to, the Code of Business Conduct and Ethics on the Investor Relations page of its website. In addition, the Company makes available, through its website, statements of beneficial ownership of the Company’s equity securities filed by its directors, executive officers and 10% beneficial holders under Section 16 of the Exchange Act. The Company also posts on its website the charters for its Audit Committee, Compensation Committee, Nominating/Corporate Governance Committee and Executive Committee. Copies of these documents may also be obtained from the Company, excluding exhibits, at no cost, by writing to the Company at 9000 Town Center Parkway, Bradenton, FL 34202, Attention: Investor Relations, by telephoning the Company at 1-800-2GEVITY or by sending the Company an email via the Investor Relations page of its website, www.gevity.com. The information on the Company’s website and its content are for your convenience only. The information contained on or connected to our website is not incorporated by reference into this report or filed with the SEC.

ITEM 1A.

RISK FACTORS

In addition to other information contained in this filing, the following risk factors should be considered carefully in evaluating our business. Each of these risks is subject to many factors beyond our control. If we are not successful in managing our operating strategy, and each of its elements, we expect our results of operations will be adversely affected and our stock price will decline. Our acquisition strategy subjects us to numerous risks. One important component of our growth strategy is to pursue selective acquisitions. This strategy entails numerous risks, including the following: Integration & Operational Risks. We face risks associated with integrating new organizations, including their management, personnel and clients, into our established business. An inability to successfully integrate acquired businesses into our operations could cause attrition of acquired personnel and clients. An acquisition may not provide the benefits originally anticipated by management while we continue to incur operating expenses to provide the services provided formerly by the acquired company. Financial Risks. We may finance an acquisition with cash, by issuing equity securities (which could be dilutive to existing shareholders) or by incurring debt (which would increase our leverage and interest expense and could impose additional restrictive covenants). We cannot assure you that we will be able to access the capital markets for these transactions, and, even if we were able to do so, we cannot assure you we would be able to obtain commercially reasonable terms for any such financing. Legal Risks. An acquired company may have liabilities that are difficult to assess, for which there are inadequate reserves and that may be significant. For example, employee benefit plans of an acquired company could result in liability due to the plan’s failure to comply with applicable laws and regulations. Further, there may be acquisition-related disputes, including disputes over earn-outs, indemnities and escrows. Completion Risks. Even if we pursue possible acquisition candidates, we cannot assure you that we will be able to close on them at attractive prices or at all. As a result, we may expend considerable resources (such as management time and money) on pursuing acquisitions without successfully acquiring any new businesses. Many of these risks are beyond our ability to control. As a result, we cannot assure you that we will be able to achieve this component of our growth strategy. These risks could also have a material adverse impact on our results of operations. In addition, these risks could be compounded if we complete several acquisitions within a relatively short period of time. Our quarterly results of operations may fluctuate, and we may not be able to grow as we have planned. Our revenue, margins and results from operations generally have fluctuated in the past and may continue to fluctuate in the future. Quarterly variations in our operating results occur as a result of a number of factors beyond our control, including: • competition for, and winning and maintaining, new clients with large employee counts; • market acceptance of new services; • our ability to achieve our strategy and long-term performance standards, including opening new geographic offices and our ability to pass through costs of our products and services, such as rising health insurance premiums, among other elements of our strategy; • charges due to workers’ compensation claims, health insurance claims, and state unemployment taxes; 19

• new product introductions or announcements by us or our competitors; • client attrition; • managing down our operating and other expenses; • the costs of hiring and training of additional staff; and • general economic conditions. Due to the presence of any of these factors, we may not be able to sustain our level of total revenue or our historical rate of revenue growth on a quarterly or annual basis. Our operating results could fall below our targets and the expectations of stock market analysts and investors, which could cause the price of our common stock to decline significantly. Our short-term results may be negatively impacted due to changes in health insurance claims, state unemployment tax rates and workers’ compensation rates, which we may not be able to immediately pass through to our clients. Health insurance costs, workers’ compensation and employment practices liability insurance rates and state unemployment taxes are primarily determined by our claims experience and comprise a significant portion of our actual costs. Should we experience a significant increase in claims activity, we may experience a substantial increase in our health insurance premiums, unemployment taxes, or workers’ compensation and employment practices liability insurance rates. Our ability to pass such increases through to our clients on a timely basis may be delayed and our clients may not agree to the increases, which could have a material adverse effect on our financial condition, results of operations and cash flows. We are dependent upon key personnel, and the recruitment and retention of key employees may be difficult and expensive. We believe that the successful operation of our business is dependent upon our retention of key personnel including our executive team. In general, the employment of our key personnel may be terminated by either the employee or us at any time, without cause or advance notice, subject to severance obligations under specified circumstances. If any of these individuals were unable or unwilling to continue working for us, we could have difficulty finding a replacement, and our operations and profitability could be adversely affected, which would likely have an adverse impact on the price of our common stock. In addition, we are not the beneficiary under any life insurance contracts covering any of our key personnel. We also rely heavily upon stock options to supplement compensation for many of our key employees, and if we continue to grant options to these employees, the treatment of options as an expense in response to regulatory requirements may significantly increase our reported costs. If we cannot attract and retain qualified individuals, the quality of our services may deteriorate and our results of operations could be adversely affected. Our success depends upon our ability to attract and retain qualified personnel including HR consultants and business development managers (‘‘BDMs’’) who possess the specific skills and experience necessary to identify, acquire and retain clients. Finding and retaining qualified personnel is difficult because of the specific skill set that we require in order for us to adequately operate in the complex HR regulatory environment. We compete for qualified personnel not only with other HR service providers, but also with internal HR departments. Our ability to attract and retain qualified personnel including HR consultants and BDMs could be impaired by any diminution of our reputation, decrease in compensation levels, restructuring of our compensation system, or competition from our competitors.

Our insurance-related loss reserves may be inadequate to cover our ultimate liability for losses and as a result our financial results could be materially and adversely affected. We maintain loss reserves to cover our liabilities for the costs of our health care and workers’ compensation programs. These reserves are not an exact calculation of our liability, but rather are estimates based on a number of factors including but not limited to actuarial calculations, current and historical loss trends and payment patterns, the number of open claims, developments relating to the actual claims incurred, medical trend rates and the impact of acquisitions, if any. Variables in the reserve estimation may be affected by both internal and external factors, such as changes in claims handling procedures, fluctuations in the administrative costs associated with the program, economic inflation, interest rates, legal determinations and legislative changes. Although our reserves estimates are regularly refined as historical loss experience develops and additional claims are reported and settled, because of the uncertainties of estimating loss reserves, we cannot assure you that our reserves are adequate, and actual costs and expenses may exceed our reserves. If our reserves are insufficient to cover actual losses we may incur potentially material charges to our earnings. Our results of operations may be adversely affected if insurance coverage for workers’ compensation or medical benefits is not available or if we lose relationships with our key providers. As part of our full range of services, we offer medical benefits coverage and workers’ compensation insurance to our clients. We depend on a small number of key providers for the majority of our medical benefits and workers compensation coverage, including AIG, BCBSF/HOI, UnitedHealthcare and Aetna. If any of our insurance providers discontinue coverage, the time and expense of providing replacement coverage could be disruptive to our business and could adversely affect our operating results and financial condition. Replacement coverage could lead to client dissatisfaction and attrition (especially since most clients may terminate with either 30 or 45 days notice) due to the lack of continuity between coverage providers and the difference in the terms and conditions of their respective coverage plans. In addition, if at any time we are unable to renew our existing policies on financial terms and premium rates acceptable to us, our ability to provide such insurance and benefits to our clients would be adversely impacted, which could lead to significant client attrition, and our results of operations could be adversely affected. Our inability to renew existing policies may jeopardize compliance with state regulatory requirements and subject us to fines and extra costs to satisfy the state requirements or, at worst, eliminate our ability to provide services in those states. The loss of our ability to provide services, even for a short period, would negatively impact our image with our clients and could lead to the termination of our service agreements and our results of operations may be adversely affected. We may be required to provide significant cash collateral for our obligations to our insurance providers and the amount of cash necessary to provide that collateral may increase in the future. Our workers’ compensation provider requires, and our health care insurance providers may in the future require, cash collateralization of our insurance plans. The extent of such requirements is dependent upon several factors such as our financial condition, as well as the workers’ compensation and health insurance claims experience of our clients. We have little control over our clients’ claims experience except in the decision to initially accept and retain such clients. These collateral requirements may affect our need for capital, as well as our profitability. We may not be able to raise or provide the additional capital or collateral, if needed. In addition, we may be required to post additional collateral for the benefit of our insurance providers as a result of growing our business, which amounts could be significant, and may cause a significant amount of our cash to be restricted from other uses.

Our workersâ&#x20AC;&#x2122; compensation receivable from AIG represents a significant concentration of credit risk. If AIG were to default on its obligations our results of operations would be materially and adversely affected. As of December 31, 2007, we have a workersâ&#x20AC;&#x2122; compensation receivable from AIG of approximately $122.3 million for premium payments made to AIG for program years 2000-2007 in excess of the present value of the estimated claims liability and the related accrued interest receivable on those payments. If AIG were to cease operations or otherwise default on this obligation we may not be able to recover the receivable and our results of operations, financial condition and cash flow would be materially and adversely affected. Our ability to manage health care costs affects our profitability. Our profitability depends in part on our ability to appropriately predict and manage future health care costs through underwriting criteria and negotiation of favorable contracts with health care plan providers. The aging of the population and other demographic characteristics, the introduction of new or costly treatments resulting from advances in medical technology and other factors continue to contribute to rising health care costs. Government-imposed limitations on Medicare and Medicaid reimbursements have also caused the private sector to assume a greater share of increasing health care costs. Changes in health care practices, inflation, new technologies, increases in the cost of prescription drugs, direct-to-consumer marketing by pharmaceutical companies, clusters of high cost cases, utilization levels, changes in the regulatory environment, health care provider or member fraud and numerous other factors affecting the cost of health care can be beyond any health plan providerâ&#x20AC;&#x2122;s control and may adversely affect our ability to predict and manage health care costs, as well as our business, financial condition and operating results. We use actuarial data to assist us in analyzing and projecting these amounts, however, we and our carriers may not be successful in managing the cost of our plans. Accordingly, our costs under our health benefit plans may exceed our estimates, requiring us to fund the difference. Any significant funding obligation may have a material adverse effect on our financial condition, results of operations and liquidity. Our business is subject to risks associated with vendor agreements. We rely on certain vendors to provide services to our clients. If these vendors cease operations, are sold or cancel/do not renew their service agreements with us, it may cause potential service interruptions while replacement providers are located, in addition to potential increases in costs of obtaining these services. Our business is subject to risks associated with geographic market concentration. While we currently have offices in 14 states and client employees in all 50 states and the District of Columbia, billings from our Florida operations accounted for approximately, 55% in 2005, 56% in 2006 and 50% in 2007. As a result of the size of our base of client employees in Florida and anticipated continued growth from our Florida operations, our profitability over the next several years is expected to be largely dependent on economic and regulatory conditions in Florida. As the Florida economy experiences an economic downturn and its growth rate slows, our profitability and growth prospects, or perception of these things, may be adversely affected. In addition, there is no assurance that we will be able to duplicate in other markets the revenue growth and operating results experienced in Florida.

Our headquarters, many of our clients’ headquarters, and the facilities of many of the third parties on which we rely to provide us and our clients with critical services are located in an area of the United States that is susceptible to hurricane damage and other natural disasters. Our Florida facilities, including our principal executive offices and field support offices, as well as certain of our vendors and a significant number of our clients are located in an area prone to natural disasters such as hurricanes, floods, tornadoes, and other adverse weather conditions. A hurricane or other disaster could significantly disrupt our services, particularly if it results in prolonged disruptions to the Internet and telecommunications services on which we heavily rely. The precautions that we have taken to protect ourselves and minimize the impact of such events (such as our disaster recovery plans) may not be adequate, and we may lose, not be able to access, or be unable to recover data, hardware, software and other systems used in our operations. In addition, our regional clients could also suffer the effects of a significant natural disaster and not be able to fulfill their contractual requirements pursuant to the terms of our professional services agreement. Our business could be materially and adversely affected should our ability to provide services and products, or our ability to collect our service fees, be impacted by such an event. We may find it difficult to expand or maintain our business in certain states due to varying state regulatory requirements and the existing competitive environment. We currently operate primarily in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Minnesota, Nevada, New Jersey, New York, North Carolina, Tennessee and Texas. Future growth or maintenance of our operations in these states or additional states depends, in part, on the regulatory and competitive environment in such states. In order to operate effectively in a state, we must obtain all necessary regulatory approvals, adapt our procedures to that state’s regulatory requirements and adapt our service offerings to local market conditions. In certain states, we may determine that the costs of doing business exceeds our actual or anticipated financial performance resulting in a reduction or cessation of operations within such state or decision not to expand into a state. We are also subject to additional competition from regional and local competitors in the markets in which we expand. In the event that we expand into additional states, we may not be able to duplicate in other markets the financial performance experienced in our current markets and could experience losses as a result. We operate in a complex regulatory environment and failure to comply with applicable laws and regulations could adversely affect our business. The HR outsourcing and PEO environment is subject to a number of federal and state laws and regulations, including those applicable to payroll practices, taxes, benefits administration, insurance, wage and hour, employment practices and data privacy. Because our clients have employees in states throughout the United States, we must perform our services in compliance with the legal and regulatory requirements of multiple jurisdictions. Some of these laws and regulations may be difficult to ascertain or interpret, may conflict and may change over time, and the addition of new services may subject us to additional laws and regulations. Many of these laws and regulations were instituted prior to the development of the professional employer organization industry, and therefore can be difficult to interpret or assess and may change over time. As a result of uncertainty and inconsistency in the interpretation and application of many of these laws and regulations, from time to time we have had disagreements with regulatory agencies in various states, some of which have resulted in administrative proceedings between a state agency and us. If we are unable to continue to provide certain contractual obligations, such as the payment of employment taxes on the salaries and wages paid to client employees, due to an adverse determination regarding our regulatory status as an ‘‘employer’’, our clients may be held jointly and severally liable for such payments. Violation of these laws and regulations could subject us to fines and penalties, damage our reputation, constitute breach of our

client contracts and impair our ability to do business in various jurisdictions or in accordance with established processes. In addition, many states in which we operate have enacted laws that require licensing or registration of professional employer organizations, including Florida, our largest market, and Texas, and additional states are considering such legislation. We may not be able to satisfy the licensing requirements or other applicable regulations of any particular state, or we may be unable to renew our licenses in the states in which we currently operate upon expiration of such licenses, which could prevent us from providing services to client employees in a certain state. In addition, many of these states have reciprocal disciplinary arrangements under which disciplinary action in one state can be the basis for disciplinary action in one or more other states. Future changes in or additions to these requirements may require us to modify the manner in which we provide services to our clients, which may increase our costs in providing such services. We are also increasingly affected by legal requirements relating to privacy of information. We anticipate that additional federal and state privacy laws and regulations beyond the federal Health Insurance Portability and Accountability Act of 1996 and the regulations promulgated thereunder will continue to be enacted and implemented. The scope of any such new laws and regulations may be very broad and entail significant costs for us to be in compliance. If our captive insurance subsidiary is not recognized as an insurance company we may be subject to additional and/or accelerated tax payments. When delivering our HR outsourcing solution to clients through a co-employment relationship, we are usually responsible for providing workers’ compensation coverage to our clients’ employees. A portion of this coverage is arranged through a wholly owned captive insurance subsidiary (the ‘‘Captive’’). We recognize the Captive as an insurance company for income tax purposes with respect to our income tax returns. While we have determined it is more likely than not the Captive qualifies as an insurance company, in the event the taxing authorities were to assert that the Captive does not qualify as an insurance company and were such assertion ultimately upheld, we could be required to make additional income tax payments and/or accelerate income tax payments that we otherwise would have deferred until future periods. We face direct and overlapping competition from a number of other companies which may affect our ability to retain existing clients and attract new clients. In order to acquire new clients, we must first convince potential clients that a HR outsourcing provider is a superior option as compared to their current internal HR solutions. For potential clients that choose to outsource these services, we then face direct competition from a number of providers that also operate on a co-employment platform, such as Administaff, Inc., as well as companies that primarily provide payroll processing services in addition to co-employment services, such as Automatic Data Processing Inc. and Paychex, Inc. We also face competition from certain information technology outsourcing firms and broad-based outsourcing and consultancy firms that provide or may seek to provide HR outsourcing services in addition to consulting companies that perform individual projects, such as development of HR strategy and information systems. Historically, most of these vendors have focused on discrete processes, but many are now promoting integrated process management offerings that may compete with our offerings. We expect that market experience to date and the predicted growth of the HR outsourcing market will continue to attract and motivate more competitors.

Certain of our existing or potential competitors may have substantially greater financial, technical and marketing resources, larger customer bases, greater name recognition and more established relationships with their clients and key product and service suppliers than we do. This may enable them to develop and expand their delivery infrastructure and service offerings more quickly, which could adversely affect our ability to attain new clients. Certain of our existing or potential competitors may have substantially greater financial, technical and marketing resources, larger customer bases, greater name recognition and more established relationships with their clients and key product and service suppliers than we do. This may enable them to develop and expand their delivery infrastructure and service offerings more quickly and: • achieve greater scale and cost efficiencies; adapt more quickly to new or emerging technologies and changing client needs; • take advantage of acquisitions and other opportunities more readily; establish operations in new markets more rapidly; • devote greater resources to the marketing and sale of their services; and • adopt more aggressive pricing policies and provide clients with additional benefits at lower overall costs in order to gain market share or in anticipation of future improvements in delivery costs. If our competitive advantages are not compelling or sustainable and we are not able to effectively compete with competitors, then we may not be able to increase or maintain our clients at profitable levels or at all. The market for our services and our revenue growth depends on our ability to use the Internet as a means of delivering HR services and this exposes us to various security risks. We rely on the Internet as a primary mechanism for delivering services to our clients and use public networks to transmit and store extremely confidential information about our clients and their employees. Our target clients may not continue to be receptive to HR services delivered over the Internet because of concerns over transaction security, user privacy, the reliability and quality of Internet service and other reasons. A security breach could disrupt our operations, damage our reputation and expose us to litigation and possible liability. We may be required to expend significant capital and other resources to address security breaches, and we cannot be certain that our security measures will be adequate. In addition, emerging or uncertain laws and regulations relating to Internet user privacy, property ownership, consumer protection, intellectual property, export of encryption technology, and libel could impair our existing Internet usage. This could decrease the popularity or impede the expansion of the Internet and decrease demand for our services. If we become subject to the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services, our profitability and growth prospects may be adversely affected. We are dependent upon technology services, and any damage, interruption, security breach or failure in our computer and telecommunications systems could adversely affect our existing client relationships and our ability to attract new clients. Our business could be interrupted and we may lose data as a result of damage to or disruption of our computer and telecommunications equipment and software systems from natural disasters, floods, fire, power loss, hardware or software malfunctions, penetration by computer hackers, terrorist acts, vandalism, sabotage, computer viruses, vendor performance failures or insolvency, and other causes. Our business involves the storage and transmission of sensitive information about our clients and their employees and any system or equipment failure or security breach we experience could adversely affect

our clientsâ&#x20AC;&#x2122; businesses, and could expose us to a risk of loss of this sensitive information, damage to our goodwill and reputation, litigation and possible liability. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to client data, our reputation will be damaged, our business may suffer and we could incur significant liability. The precautions that we have taken to protect ourselves and minimize the impact of such events (such as our disaster recovery plans and encryption of sensitive information) may not be adequate, and we may be unable to recover data used in our operations or prevent unauthorized access to our client and employee data. Techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of our security measures could be harmed, and we could lose sales and clients. We may not be able to keep pace with changes in technology. To maintain our growth strategy, we must adapt and respond to technological advances and technological requirements of our clients. Our future success will depend on our ability to enhance capabilities and increase the performance of our internal use systems, particularly our systems that meet our clientsâ&#x20AC;&#x2122; requirements. We continue to make significant investments related to the development of new technology. If our systems become outdated, we may be at a disadvantage when competing in our industry. There can be no assurance that our efforts to update and integrate systems will be successful. If we do not timely integrate and update our systems, or if our investments in technology fail to provide the expected results, there could be an adverse impact to our business and results of operations. We depend on the technology of third parties licensed to us, and the loss or inability to maintain these licenses or errors in the software we license could result in increased costs, reduced service levels and delayed sales of our products and services. We rely on third-party vendors for software, and if their products are not available, or are inadequate, our business could be seriously harmed. For example, we process payroll for most of our client employees using Oracleâ&#x20AC;&#x2122;s Human Resources Management System (HRMS) and Payroll processing applications. Our service delivery capability incorporates and relies on Oracle software that we license directly from Oracle. If Oracle or our other software vendors change or fail to maintain a product that we are using or do not permit use of that product by our clients or us, or if our licensing agreements are terminated or not renewed, we could be forced to delay or discontinue our services until substitute technology can be found, licensed and installed. We could also be forced to pay significantly higher licensing fees with respect to such substitute technology. In addition, our products depend upon the successful operation of third-party services and products, and any undetected errors in these products could prevent the implementation or impair the functionality of our products, delay new product introductions, and harm our reputation and sales. Our business depends on the confidentiality, integrity and availability of the data in our technology infrastructure. Our ability to provide effective and efficient service to our customers, and to accurately report our financial results, depends on the confidentiality, integrity and availability of the data in our technology infrastructure including our service delivery system. As a result of technology initiatives, changes in our system platforms and integration of new business acquisitions, we operate a number of different systems requiring frequent maintenance, expansion, replacement and upgrades. If the information we rely upon to run our business were found to be inaccurate or unreliable, or if such information were to be lost or corrupted in the process of consolidating, upgrading, expanding or replacing all or part of

our technology infrastructure, or if we otherwise fail to maintain our information systems and data integrity effectively, we could face damage to our reputation and ability to attract and retain clients, have increases in operating expenses or suffer other adverse consequences. In addition, failure to consolidate, upgrade, expand or replace all or part of the components of our technology infrastructure successfully could result in higher than expected costs and diversion of management’s time and energy, which could materially impact our business, financial condition and operating results. Our professional services agreement allows clients to terminate their relationship with us upon either 30 or 45 days notice, and as a result, we could lose a significant number of customers in a short period of time. In order to utilize our professional services, each of our clients is required to enter into our professional services agreement, which generally provides for an initial one-year term, subject to termination by our client or us at any time upon either 30 or 45 days prior written notice. Following the initial term, the contract may be renewed, terminated or continued on a month-to-month basis. As a result, a significant number of our clients may terminate their agreement with us at any time. In particular, they may decide to discontinue our services or their relationship with us due to our attempts to increase our services fees or increase our medical or workers’ compensation insurance charges. Clients may also be unwilling to pay for broadened service offerings if additional or increased fees accompany such changes. These termination provisions could cause us to lose a significant number of customers in a short period of time or make it difficult for us to increase our prices, thereby adversely affecting our results of operations. As a result of our co-employment relationship with most of our clients and client employees, we may be subject to liabilities as a result of their acts or omissions. We enter into a contractual relationship with each of our clients, whereby the client transfers certain employment-related risks and liabilities to us and retains other risks and liabilities. Many federal and state laws that apply to the employer-employee relationship do not specifically address the obligations and responsibilities of this ‘‘co-employment’’ relationship. Consequently, we may be subject to liability for violations of employment or discrimination laws, including violations of federal and state wage and hour laws, by our clients despite the contractual division of responsibilities between us, even if we do not participate in such violations. This risk is increased with respect to clients serviced by our HR consultants who are located on-site at our clients’ offices and who are designated service representatives of one or two clients because of their greater presence on a client’s premises and potential involvement in client employee relations. In addition, our client employees may also be deemed to be acting as our agents, subjecting us to further liability for the acts or omissions of such client employees. Although our professional services agreement provides that the client will indemnify us for any liability attributable to its own or its employees’ conduct, we may not be able to effectively enforce or collect such contractual indemnification. Any such liability imposed upon us could have a material adverse impact on our results of operations, financial condition and cash flows. Because we assume the obligation to make wage, tax and regulatory payments of behalf of our clients, we are exposed to certain credit risks with respect to our clients. Under the terms of our professional services agreement, for clients serviced on a co-employed basis we generally assume responsibility for and manage the risks associated with each of our client’s employee payroll obligations, including the payment of salaries, wages and associated taxes, and, at the client’s option, the responsibility for providing group health, welfare and retirement benefits to each client employee. In this ‘‘co-employment’’ relationship, we directly assume these obligations, and unlike payroll processing service providers, we issue payroll checks to each client employee drawn on our own bank accounts. In several states, we may be required to pay taxes, benefits and other amounts related

to payroll regardless of whether the client timely funds such payments to us. For clients serviced either on a co-employed or non co-employed basis who meet certain financial underwriting requirements, Gevity may issue payroll to a client’s employees prior to irrevocable receipt of payroll, taxes and associated service fees. If we are unable to collect these payments from our larger clients, there may be a material adverse effect on our results of operations, financial condition and cash flows. We may make errors and omissions in performing our services, which could subject us to losses and fines and harm our reputation. Our payroll processing and related administrative services are subject to various risks resulting from errors and omissions in filing tax returns covering employment-related taxes, paying tax liabilities with respect to those returns, transmitting funds to benefit plans, billing clients and paying wages to our clients’ employees. Tracking, processing and paying such amounts and administering retirement and other benefit plans is complex. Errors and omissions have occurred in the past and may occur in the future in connection with these services. We and our clients are subject to cash penalties imposed by tax authorities for late filings or underpayment of taxes or required plan contributions. We may also transfer to or withdraw funds from the wrong party in error or transfer or withdraw incorrect amounts and may not be able to correct the error or retrieve the funds. These penalties could, in some cases, be substantial and could harm our business and operating results. Our human resources consulting services also entail the risk of errors and omissions. Additionally, our failure to fulfill our obligations under our professional service agreements could harm our reputation, our relationship with our clients and our ability to gain new clients. If we are determined not to be an ‘‘employer’’ pursuant to applicable ERISA and IRS rules and regulations, we may be subject to additional regulations and liabilities. If it is determined that we are not the ‘‘employer’’ for purposes of ERISA, we could be subject to liabilities, including penalties, with respect to our cafeteria benefits plan operated under Section 125 of the Internal Revenue Code of 1986, as amended, for failure to withhold and pay taxes applicable to salary deferral contributions by our client employees. As a result of such a finding, we and our plans may not enjoy, with respect to our client employees, the preemption of state laws provided by ERISA, and we could be subject to additional varying state laws and regulation, as well as to claims based upon state common law. Laws and regulations relating to verifying individuals’ eligibility for employment could subject us to significant penalties and compliance costs. Federal law requires employers to verify that all persons employed by them in the United States have established both their identity and their eligibility to accept such work. Employers that knowingly employ unauthorized persons can be subject to significant civil and criminal sanctions. We rely on our clients to verify their employees’ identity and eligibility for employment and the responsibility for such verification is allocated to our clients in the professional services agreement. The treatment of PEOs for such purposes, including whether the PEO, its client, or both might be regarded as an employer of a worksite employee, has not been definitively established. We may be liable for 401(k) testing failures and any such liability may have an adverse effect on our results of operations and financial condition. Our 401(k) plan is structured as a multiple employer plan. Each participating client is considered a participating employer within the plan and is separately tested for compliance with certain participation-related legal requirements (commonly referred to as discrimination testing). Failure of any portion of the plan relating to one participating employer could jeopardize the qualified status of, and our ability to continue to operate the entire plan.

We rely on one financial institution to handle direct deposit payroll. Should this financial institution delay or stop processing these transactions, our business could suffer. We currently have a banking relationship with one financial institution to electronically transfer all of our payroll that is delivered to client employees by direct bank deposit through the automated clearing house, or ACH, system with this bank. If this bank were to terminate its services or to delay the processing of transfers and we were not able to obtain these services in a timely manner or on acceptable terms from other banks, our business could materially suffer. Our credit agreement contains restrictive covenants that may restrict our financial and operating flexibility. Our new credit agreement, which is fully secured by liens in substantially all the property and assets (with agreed upon carveouts and exceptions) of the Company, restricts us and our subsidiaries from various actions, including the following, in each case subject to various specified exceptions: • incurring liens and debt; • making acquisitions; • repurchasing shares of the Company’s stock; • making capital expenditures; • making investments; • entering into a merger, sale of all or substantially all of our assets or undergoing a change of control; • selling assets; • paying dividends and making other restricted payments; • entering into transactions with affiliates; • entering into agreements that limit the ability of our subsidiaries from paying dividends, debt, loans or entering into other restrictions; • amending the terms of other debt of ours; • entering into sale and leaseback transactions; and • materially modifying our workers compensation arrangements. We are also required to maintain financial covenants regarding leverage, coverage and fixed charges. These restrictions may limit our financial and operating flexibility and, as a result, reduce our ability to grow and execute on our strategic objectives. Our level of compliance with the financial covenants determines the maximum amount of the credit facility available to us. Additionally, if we fail to meet the minimum requirements of the financial covenants, and we are unable to obtain a waiver or amendment, the lender would have the right to terminate the credit agreement and require us to immediately repay all outstanding amounts. If we are unable to make borrowings under the credit agreement or were required to immediately repay all outstanding amounts, our cash flows, financial condition and results of operations could be materially and adversely affected.

The discontinuation of Gevity Edge Select and the Charlotte service center could materially and adversely affect our business and operating results. The discontinuation of Gevity Edge Select and our related Charlotte service center operations including the transition of clients to our core PEO offering or alternative service providers entails a number of risks that could materially and adversely affect our business and operating results, including: • diversion of management’s time and attention from our core PEO business; • difficulties in operating the discontinued business until all clients are successfully transitioned; • potential disputes with current clients who entered into service agreements for Gevity Edge Select services serviced out of the Charlotte service center; • security risks and other liabilities related to the transition services provided to affected clients serviced out of the Charlotte service center; • tax issues associated with discontinuation of operations; Anti-takeover provisions in our organizational documents and Florida law may limit the ability of our shareholders to control our policies and effect a change of control of our company, which may not be in your best interests. There are provisions in our articles of incorporation that may discourage a third party from making a proposal to acquire us, even if some of our shareholders might consider the proposal to be in their best interests. For example, our articles of incorporation authorize our board of directors to issue one or more classes or series of preferred stock that could discourage or delay a tender offer or change in control. In addition, we have entered into a shareholder rights plan, commonly known as a ‘‘poison pill,’’ that may delay or prevent a change of control. Additionally, we are subject to statutory ‘‘anti-takeover’’ provisions under Florida law. Section 607.0901 of the Florida Business Corporation Act (the ‘‘FBCA’’) imposes restrictions upon acquirers of 10% or more of our outstanding voting shares and requires approval by the corporation’s disinterested directors or a supermajority of uninterested shareholders for certain business combinations and corporate transactions with the interested shareholder or any entity or individual controlled by the interested shareholder, unless certain statutory exemptions apply. Section 607.0902 of the FBCA eliminates the voting rights of common stock acquired by a party who, by such acquisition, controls at least 20% of all voting rights of the corporation’s issued and outstanding stock. ITEM 1B.

UNRESOLVED STAFF COMMENTS

None. ITEM 2.

PROPERTIES

On June 6, 2005, the Company entered into a lease agreement with Osprey-Lakewood Ranch Properties, LLC, to relocate the Company’s corporate facility within Bradenton, Florida. Under the terms of the lease agreement, the Company has leased from the landlord approximately 97,000 square feet in the office building located at 9000 Town Center Parkway, Bradenton, Florida 34202. The lease is for a term of 10 years, unless sooner terminated or extended as provided in the lease agreement and commenced on December 1, 2005. The lease agreement provides for commercially reasonable base rent in consideration of the size and type of building and the surrounding area. The base rent will increase 3% each year beginning on the first anniversary of the commencement date of the term of the lease. The Company has the option to renew the lease for two additional five-year terms on the same terms and conditions as are applicable to the initial term, except that the base annual rent during each renewal term will be equal to the fair market base annual rent for the leased property determined in

accordance with the lease agreement; provided, however, that the base annual rent during each year of a renewal term will not be less than the base annual rent during the last year of the immediately preceding term. The Company began operating out of this facility in January 2006. As of December 31, 2007, the Company leased space for its 43 field offices located in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Maryland, Minnesota, New Jersey, New York, Nevada, North Carolina, Tennessee and Texas. The Company believes that its field office leases, which generally have terms of one to five years, can either be renewed on acceptable terms or that other, comparable space can be located upon the expiration of any field office lease without significant additional cost to the Company. The Company considers its facilities to be adequate for its current and prospective operations. In the first quarter of 2008, the Company closed 5 field offices determined to be unprofitable. ITEM 3.

LEGAL PROCEEDINGS

The Company is a party to certain pending claims that have arisen in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial position, results of operations, or cash flows if adversely resolved. However, the defense and settlement of these claims may impact the future availability of, and retention amounts and cost to the Company for applicable insurance coverage. From time to time, the Company is made a party to claims based upon the acts or omissions of its clients’ employees for the acts or omissions of such client employees and vigorously defends against such claims. ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the Company’s stockholders during the fourth quarter of 2007. Part II. ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information The Company’s common stock is traded on The NASDAQ Global Select Market under the ticker symbol ‘‘GVHR.’’ The following table sets forth the high and low sales prices for the common stock as reported on The NASDAQ Stock Market and dividends per share of common stock paid during the last two fiscal years: Fiscal Year Ended December 31, 2007

Fourth Quarter Third Quarter . Second Quarter First Quarter . .

. . . .

Fiscal Year Ended December 31, 2006

Fourth Quarter Third Quarter . Second Quarter First Quarter . .

. . . .

High

Low

Dividends

$13.10 $19.46 $22.51 $24.11

$ 4.06 $ 9.85 $18.43 $19.26

$0.09 $0.09 $0.09 $0.09

High

Low

Dividends

$24.11 $26.65 $30.40 $30.23

$20.85 $19.81 $22.73 $22.25

$0.09 $0.09 $0.09 $0.07

Dividends The Company did not pay any cash dividends prior to the first quarter of 2001. The Company paid a cash dividend of $0.05 per share of common stock for that quarter and for each subsequent quarter through the first quarter of 2004. Beginning in the second quarter of 2004, the Company increased its quarterly cash dividend payment to $0.06. Beginning the second quarter of 2005, the Company increased its quarterly cash dividend to $0.07. In the second quarter of 2006, the Company increased its quarterly cash dividend payment to $0.09. On February 20, 2008, the board of directors declared a quarterly cash dividend of $0.05 per share of common stock, payable on April 30, 2008 to holders of record on April 15, 2008. The Company reduced its dividend payment to reflect an appropriate level of payout for the 2007 earnings, to allow sustainability given the 2008 plan, and to allow for investment in client facing aspects of its technology platform. Any future determination as to the payment of dividends will be made at the discretion of the Company’s board of directors and will depend upon the Company’s operating results, financial condition, capital requirements, general business conditions and such other factors as the board deems relevant. Holders As of February 22, 2008, there were 529 holders of record of the Company’s common stock. The number of holders of record does not include beneficial owners of the common stock whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries. Issuer Purchases of Equity Securities The following table provides information about Company repurchases during the three months ended December 31, 2007, of its own equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:

Period

Total Number of Shares Purchased (1)

10/01/2007—10/31/2007 . . . . . 11/01/2007—11/30/2007 . . . . . 12/01/2007—12/31/2007 . . . . .

— — —

Total . . . . . . . . . . . . . . . . . .

—

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Program (1)

— — —

—

Approximate Dollar Value of Shares That May Yet be Purchased Under the Program ($000’s) (1),(2),(3)

$51,396 $51,396 $51,396

(1) On August 15, 2006, the Company announced that the board of directors had authorized the purchase of up to $75.0 million of the Company’s common stock under a new share repurchase program. Share repurchases under the new program are to be made through open market repurchases, block trades or in private transactions at such times and in such amounts as the Company deems appropriate based upon a variety of factors including price, regulatory requirements, market conditions and other corporate opportunities. (2) On April 20, 2007, the Company’s board of directors authorized an increase to its current share repurchase program of approximately $36.5 million, which brought the current repurchase amount authorized back up to $75.0 million. (3) The Company has suspended its stock repurchase program for the time being in order to invest available cash in its business.

Share Performance Graph The following graph shows the cumulative total return to the Companies shareholders beginning as of December 31, 2002 and for each year of the five years ended December 31, 2007, in comparison to the NASDAQ Composite and to an index of peer group companies that the Company has selected. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Gevity HR, The NASDAQ Composite Index, An Old Peer Group And A New Peer Group $800 $700 $600 $500 $400 $300 $200 $100 $0 12/02

12/03

12/04

12/05

12/06

Gevity HR

NASDAQ Composite

Old Peer Group

New Peer Group

12/07

15MAR200801502046

* $100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

Gevity HR . . . . . . . . NASDAQ Composite . Old Peer Group . . . . New Peer Group . . . .

. . . .

12/02

12/03

12/04

12/05

12/06

12/07

$100.00 $100.00 $100.00 $100.00

$562.09 $149.75 $115.61 $113.72

$525.57 $164.64 $121.79 $118.45

$666.38 $168.60 $131.37 $129.31

$622.45 $187.83 $144.34 $141.14

$206.26 $205.22 $143.23 $141.05

The new peer group consists of Administaff, Inc., Automatic Data Processing, Inc., Barrett Business Services, Inc., CBIZ, Inc., Convergys Corporation, Hewitt Associates, Inc., and Paychex, Inc. The old peer group consisted of Administaff, Inc., Automatic Data Processing, Inc., CBIZ, Inc., Convergys Corporation, Hewitt Associates, Inc., Korn/Ferry International, Navigant Consulting, Inc., Paychex, Inc., Spherion Corporation, and Watson Wyatt Worldwide, Inc. Prior to 2007, the old peer group included Ceridian Corporation and Talx Corporation which both entered into mergers in 2007 and have been excluded from the 2007 total return calculations set forth above. The information in the foregoing graph and table is not ‘‘soliciting material,’’ is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filings.

ITEM 6.

SELECTED FINANCIAL DATA

The following table sets forth certain selected historical financial and operating data of the Company as of the dates and for the periods indicated. The following selected financial data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements beginning on page F-1, related notes and other financial information included as Part II, Item 8 of this Annual Report on Form 10-K, as well as ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’ For the Years Ended December 31, 2007 2006 2005 2004 2003 (In thousands except per share and statistical data)

Statement of Operations Data: Revenues Professional service fees . . . . . . . . . . . . . . . . . . Employee health and welfare benefits . . . . . . . . Workers’ compensation . . . . . . . . . . . . . . . . . . State unemployment taxes and other . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to common shareholders . . Net income per share: —Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average common shares: —Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared per common share . . . . . . . . . . . Statistical And Operating Data: Client employees at period end . . . . . . . . . . . . . . . . Average number of client employees paid . . . . . . . . . Average wage per average number of client employees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional service fees per average number of client employees paid . . . . . . . . . . . . . . . . . . . . . . . . . Internal employees at period end . . . . . . . . . . . . . . . Number of workers’ compensation claims(1) . . . . . . . Frequency of workers’ compensation claims per one million dollars of workers’ compensation wages . . . Balance Sheet Data: Cash, cash equivalents and investments(2) . . . . . . . . . Workers’ compensation receivable . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revolving credit facility . . . . . . . . . . . . . . . . . . . . . Long-term accrued workers’ compensation and health reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

$144,274 350,966 84,513 25,239 $604,992 $189,254 $ 17,774 $ 9,959 $ 9,959

$163,025 352,017 106,075 26,850 $647,967 $203,777 $ 47,879 $ 35,263 $ 35,263

$140,698 331,215 114,778 22,106 $608,797 $194,990 $ 55,010 $ 37,378 $ 37,378

$134,781 314,494 117,669 18,537 $585,481 $179,341 $ 51,561 $ 34,618 $ 4,738

$ 97,376 214,701 104,225 9,525 $425,827 $115,718 $ 21,585 $ 15,391 $ 13,005

.. ..

$ $

.. .. ..

23,689 24,247 $ 0.36

25,933 26,790 $ 0.36

27,452 28,534 $ 0.28

24,125 25,735 $ 0.24

19,686 24,649 $ 0.20

.. ..

132,646 127,597

128,427 126,584

136,687 122,356

129,876 119,857

106,452 87,819

$ 44,749

$ 41,044

$ 39,040

$ 35,953

$ 33,569

.. .. ..

$ 1,131 901 4,590

1.04x

1.26x

1.42x

1.59x

2.00x

. . . .

$ 19,986 $122,271 $341,911 $ 17,367

$ 44,516 $121,226 $374,560 $ —

$ 64,730 $128,318 $387,869 $ —

$ 59,412 $112,715 $339,587 $ —

$152,008 $ 24,355 $321,564 $ —

.. ..

$ 90 $115,562

$ 160 $142,052

$ 242 $155,415

$ 700 $165,174

$ 59,280 $ 92,380

. . . .

. . . . . . . . .

0.42 0.41

1.36 1.32

1,288 1,000 5,820

1.36 1.31

1,150 1,050 6,232

0.20 0.18

1,125 993 6,489

0.66 0.62

1,109 954 5,765

(1) The number of workers’ compensation claims reflects the number of claims reported by the end of the respective year and does not include any claims with respect to a specific policy year that are reported subsequent to the end of such year. For information regarding claims reported after the end of each respective year from 2000—2006, see the first table set forth in ‘‘Item 7. Managements’ Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Workers’ Compensation Receivable/Reserves.’’ (2) $10,036, $8,225, $12,205, $18,636 and $107,326 of the cash, cash equivalents and investments (which consist of certificates of deposit-restricted and marketable securities-restricted, both long and short term) as of December 31, 2007, 2006, 2005, 2004, and 2003, respectively, have been utilized to collateralize the Company’s obligations under its workers’ compensation, health benefit plans and certain general insurance contracts as well as amounts held in escrow related to purchase price contingencies associated with the Company’s acquisition of HRA. These amounts are considered ‘‘restricted’’ and are not available for general corporate purposes.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that are subject to known and unknown risks, uncertainties, and other factors that may cause the Company’s actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this Annual Report on Form 10-K. See ‘‘Cautionary Note Regarding Forward-Looking Statements’’ above. The following discussion should be read in conjunction with the Company’s consolidated financial statements and related notes beginning on page F-1 of this report. Historical results are not necessarily indicative of trends in operating results for any future period. Overview For a discussion of the Company’s business see ‘‘Item 1. Business—General.’’ The Company believes that the HR outsourcing market of small and medium-sized businesses, as measured by the number of employees per client, is by far its most attractive market in terms of low customer concentration, lack of the need for customized solutions, lack of price sensitivity, minimum capital investments, low client acquisition costs, short sales cycles and potential market growth. The Company believes that the HR outsourcing competitive landscape is highly fragmented and populated by various point solution providers who offer only segments of the entire service offering that the Company provides to its clients. The Company focuses on the professional service fees that it earns from its clients as the primary source of its net income and cash flow. When delivering its HR outsourcing solution to its clients through a co-employment relationship, the Company is also responsible for providing workers’ compensation and unemployment insurance benefits to its clients’ employees as well as health and welfare benefits if elected by the client. In so doing, the Company has an opportunity to generate net income and cash flow from these offerings and the effective management of the related risk, which is tempered by the need to remain competitive with its health and worker’s compensation offerings. The Company has derived significant benefit in the past from its insurance offerings. Prior to 2007, the Company operated in one reportable segment under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (‘‘SFAS 131’’), due to its centralized structure and the single bundled service offering that it provided to its clients. The Chief Operating Decision Maker of the Company, as defined in SFAS No. 131, reviewed financial information on a Company-wide basis. During the fourth quarter of 2007, the Company initiated several key changes to its operations in response to integration issues associated with the HRA acquisition, the re-launch of Gevity Edge Select, and the changes in the Company’s executive management team. As a result, the Company reassessed its reportable segments under SFAS 131 and determined that the Gevity Edge Select business (which includes the operations acquired in the HRA acquisition) should be a reportable segment apart from the Gevity Edge business based upon economic and operational characteristics and the financial performance review by the Chief Operating Decision Maker. The Company has broken out segment results for all periods presented to reflect this change in addition to the discussion and analysis of the results on an overall consolidated basis. Gevity Edge Gevity Edge consists primarily of the Company’s core PEO business and operates on the Oracle HRMS and Payroll platforms. The Company’s PEO solution combines administrative processing and HR support on a co-employment basis. This includes payroll processing and administration, payroll tax filing, workers’ compensation coverage, health and welfare benefits programs, 401(k) plan administration, HR and regulatory compliance knowledge.

Gevity Edge Select Gevity Edge Select consists primarily of the Company’s non co-employment business and operates on the Ultimate Software UltiPro platform. The Company’s non co-employment solution includes payroll processing and administration, payroll tax filing, 401(k) plan administration, HR and regulatory compliance knowledge while allowing clients to retain the benefits and insurance programs of their choice. See ‘‘Item 1. Business-General’’ for information regarding the Company’s subsequent decision to exit the Gevity Edge Select business. The Company believes that the primary challenge it faces in delivering its HR outsourcing solutions is its ability to convince small and medium-sized businesses to accept the concept of HR outsourcing. The Company believes that most small and medium-sized businesses outsource certain aspects of the Company’s total solution, including payroll administration, health and welfare administration and providing workers’ compensation insurance, but that only a small number of businesses outsource the entire offering that the Company provides. The Company continues to focus on increasing the profitability of each client employee as well as increasing the overall number of client employees serviced. The Company believes that it can increase the overall number of client employees serviced through: (i) capitalizing on the growth opportunities within the existing client portfolio through pricing and retention; (ii) further penetration of existing markets from increased production and sales person productivity, supported by increased brand awareness, database management, and the development of additional HR products; (iii) potential acquisitions of client portfolios and complementary businesses and (iv) the investment in the hiring, training, support and retention of its business development managers, as well as investing in the enhanced management skill sets of its field general managers. The following table provides information that the Company utilizes when assessing the overall financial performance of its business, the fluctuations of which are discussed under the ‘‘Results of Operations’’: For the Years Ended December 31, 2007 2006 % Change

Statistical data: Client employees at period end . . . . . . . . . . . . . . . . . . . . . . . . . . . Clients at period end(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of client employees at period end/clients at period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average number of client employees paid(2) . . . . . . . . . . . . . . . . . Average wage per average number of client employees paid . . . . . . Professional service fees per average number of client employees paid Gross profit per average number of client employees paid . . . . . . . Operating income per average number of client employees paid . . .

.. .. . . . . . .

. . . . . .

132,646 6,894

128,427 7,411

3.3% (7.0)%

19.24 127,597 $ 44,749 $ 1,131 $ 1,483 $ 139

17.33 126,584 $ 41,044 $ 1,288 $ 1,610 $ 378

11.0% 0.8% 9.0% (12.2)% (7.9)% (63.2)%

(1) Number of clients measured by individual client FEIN. (2) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month in the year divided by 12 months. All other statistical information above is based upon actual year-to-date amounts divided by the average number of client employees paid. The Company believes that the primary challenges to its ability to increase the overall number of client employees serviced are: • the amount of time required for sales personnel to acquire new client employees may be longer than anticipated;

• the current client employee retention levels may decrease if clients decide to use alternative providers to service their HR outsourcing needs; • other HR outsourcing client employee portfolios or service providers may not be available for acquisition due to price or quality; • the Company (under its co-employed service option) may not be able to continue to provide insurance-related products of a quality to acquire new client employees and to retain current client employees; and • the impact of the economy, especially in Florida. Revenues The client billings that the Company charges its clients under its professional services agreements include each client employee’s gross wages, a consolidated service fee and, to the extent elected by the clients, health and welfare benefit plan costs. The Company’s consolidated service fee, which is primarily computed on a percentage of payroll basis, is intended to yield a profit to the Company and to cover the costs of the HR outsourcing services provided by the Company to the client, and, under Gevity Edge, certain employment-related taxes and workers’ compensation insurance coverage. The professional service fee component of the consolidated service fee related to HR outsourcing varies according to a number of factors, such as the size and the location of the client. The component of the consolidated service fee related to workers’ compensation and unemployment insurance is based, in part, on the client’s historical claims experience. All charges by the Company are invoiced along with each periodic payroll provided to the client. The Company’s long-term profitability is largely dependent upon the Company’s success in generating professional service fees by providing value to its clients. The Company accounts for its revenues using the accrual method of accounting. Under the accrual method of accounting, the Company recognizes its revenues in the period in which the client employee performs work. The Company accrues revenues and unbilled receivables for consolidated service fees relating to work performed by client employees but unpaid at the end of each period. In addition, the related costs of services are accrued as a liability for the same period. Subsequent to the end of each period, those wages are paid and the related service fees are billed. The Company reports revenues from consolidated service fees in accordance with Emerging Issues Task Force (‘‘EITF’’) No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company reports as revenues, on a gross basis, the total amount billed to clients for professional service fees, and, to the extent applicable, health and welfare benefit plan fees, workers’ compensation and unemployment insurance fees. The Company reports revenues on a gross basis for these fees because the Company is the primary obligor and deemed to be the principal in these transactions under EITF No. 99-19. The Company reports revenues on a net basis for the amount billed to clients for client employee salaries, wages and certain payroll-related taxes less amounts paid to client employees and taxing authorities for these salaries, wages and taxes. The Company’s revenues are impacted by the number of client employees it serves, the number of client employees paid each period and the related wages paid, and the number of client employees participating in the Company’s benefit plans. Because a portion of the consolidated service fee charged is computed as a percentage of gross payroll, revenues are affected by fluctuations in the gross payroll caused by the composition of the employee base, inflationary effects on wage levels and differences in the local economies in the Company’s markets. Cost of Services Cost of services for Gevity Edge includes health and welfare benefit plan costs, workers’ compensation insurance costs and state unemployment tax costs. Additionally, costs of services for both

Gevity Edge and Gevity Edge Select include other direct costs associated with the Company’s revenue generating activities, such as employer liability insurance coverage, drug screenings and background checks. Health and welfare benefit plan costs are comprised primarily of medical benefit costs, but also include costs of other employee benefits such as dental, vision, disability and group life insurance. Benefit claims incurred by client employees under the benefit plans are expensed as incurred according to the terms of each contract. In addition, for certain contracts, liability reserves are established for benefit claims reported and not yet paid and claims that have been incurred but not reported. In certain instances, the Company decides to make a contribution toward the medical benefit plan costs of certain Gevity Edge clients. The contribution is referred to as a ‘‘health benefit subsidy’’. The addition of the client employees of these clients as participants in the Company’s medical benefit plans helps to stabilize the overall claims experience risk associated with those plans. An aggregate health benefit subsidy in excess of a planned amount may occur when the medical cost inflation exceeds expected medical cost trends or when medical benefit plan enrollment of those who qualify for a subsidy exceeds expectations. Conversely, a ‘‘health benefit surplus’’ may occur when the medical cost inflation is less than expected medical cost trends or when medical benefit plan enrollment of those who qualify for a subsidy is less than expected. The Company offers its medical benefit plans through partnerships with premier health care companies. See ‘‘Item 1. Business—Vendor Relationships—Employee Benefit Plans.’’ These companies have extensive provider networks and strong reputations in the markets in which the Company operates. The Company seeks to manage its health and welfare benefit plan costs through appropriately designed benefit plans that encourage client employee participation and efficient risk pooling. Substantially all of the Company’s Gevity Edge client employees are covered under the Company’s workers’ compensation program with AIG, which was effective January 1, 2003. Under this program, workers’ compensation costs for the year are based on premiums paid to AIG for the current year coverage, estimated total costs of claims to be paid by the Company that fall within the program’s deductible, the administrative costs of the program, the return on investment earned with respect to premium dollars paid as part of the program and the discount rate used in determining the present value of future payments to be made under the program. Additionally, any revisions to the ultimate loss estimates of the prior years’ loss sensitive programs are recognized in the current year. In states where private insurance is not permitted, client employees are covered by state insurance funds. Premiums paid to state insurance funds are expensed as incurred. On a quarterly basis, the Company reviews the current and prior year claims information. The current accrual rate and overall workers compensation reserves may be adjusted based on current and historical loss trends, fluctuations in the administrative costs associated with the program, actual returns on investment earned with respect to premium dollars paid and changes in the discount rate used to determine the present value of future payments to be made under the program. The final costs of coverage will be determined by the actual claims experience over time as claims close, by the final administrative costs of the program and by the final return on investment earned with respect to premium dollars paid. See ‘‘Item 1. Business—Vendor Relationships—Workers’ Compensation Insurance.’’ The Company manages its workers’ compensation costs through the use of carriers who the Company believes efficiently manage claims administration and through the Company’s internal risk assessment and client risk management programs.

State unemployment taxes are generally paid as a percentage of payroll costs and expensed as incurred. Rates vary from state to state and are generally based upon the employer’s claims history. The Company actively manages its state unemployment taxes by: • actively reviewing unemployment claims, and if warranted, contesting claims it believes are improper; • avoiding unemployment tax rate increases through the use of voluntary contributions where available; • using multiple state accounts for the classification of its workers where available; • electing to report under its clients’ rates whenever possible; and • using state successorship rules for its acquisitions of client portfolios of other companies. Operating Expenses Operating expenses consist primarily of salaries, wages and commissions associated with the Company’s internal employees and general and administrative expenses. Sales and marketing commissions and client referral fees are expensed as incurred. The Company expects that future revenue growth will result in increased operating leverage as the Company’s fixed operating expenses are spread over a larger revenue base. Income Taxes The Company records income tax expense using the asset and liability method of accounting for deferred income taxes. RESULTS OF OPERATIONS—ANALYSIS OF CONSOLIDATED OPERATIONS Year Ended December 31, 2007 Compared to Year Ended December 31, 2006. Revenues The following table presents certain information related to the Company’s overall consolidated revenues for the years ended December 31, 2007 (‘‘2007’’) and December 31, 2006 (‘‘2006’’): December 31, December 31, 2007 2006 % Change (In thousands, except statistical data)

Revenues: Professional service fees . . . . . . . . . . Employee health and welfare benefits Workers’ compensation . . . . . . . . . . . State unemployment taxes and other . Total revenues . . . . . . . . . . . . . . . . . . .

. . . . .

Statistical data: Gross salaries and wages (in thousands) . . . . . . . . . . . . . . Average number of client employees paid(1) . . . . . . . . . . . Average wage per average number of client employees paid Workers’ compensation billing per one hundred dollars of workers’ compensation wages(2) . . . . . . . . . . . . . . . . . . Workers’ compensation manual premium per one hundred dollars of workers’ compensation wages(2),(3) . . . . . . . . Professional service fees per average number of client employees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Client employee health benefits plan participation . . . . . . .

. . . . .

$ 144,274 350,966 84,513 25,239 $ 604,992

$ 163,025 352,017 106,075 26,850 $ 647,967

(11.5)% (0.3)% (20.3)% (6.0)% (6.6)%

... ... ...

$5,709,876 127,597 $ 44,749

$5,195,439 126,584 $ 41,044

9.9% 0.8% 9.0%

...

1.92

2.30

(16.5)%

...

2.13

2.68

(20.5)%

... ...

1,288 38%

(12.2)% (15.8)%

1,131 $ 32%

(1) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month divided by the number of months in the period.

(2) Workers’ compensation wages exclude the wages of clients electing out of the Company’s workers’ compensation program. (3) Manual premium rate data are derived from tables of member insurance companies of AIG in effect for 2007 and 2006, respectively. For 2007, revenues decreased to $605.0 million from $648.0 million for 2006, representing a decrease of $43.0 million or 6.6%. This decrease was a result of the reduction in all revenue components as described below. The overall average number of client employees paid was 127,597 for the year ended December 31, 2007 compared to 126,584 for the year ended December 31, 2006. The average number of client employees paid for the year ended December 31, 2007, was favorably impacted by the growth of Gevity Edge Select which includes the impact of the HRA acquisition. For the year ended December 31, 2007, approximately 14,503 of the average number of client employees paid were attributable to Gevity Edge Select. For the core PEO business the average number of client employees paid declined approximately 10.2% when compared to the period ended December 31, 2006. This decline is attributable to the departure of legacy clients primarily as a result of the Company’s 2006 initiative to bring healthcare premiums up to retail rates, lower than expected production levels during 2007 and the impact in 2007 of the economy on clients in Florida and clients in the financial and business services sectors. The average wage per average number of client employees paid for 2007 increased 9.0% to $44,749, from $41,044 for 2006. This increase was due to the Company’s strategy of focusing on clients that pay higher wages to their employees as well as the effects of inflation. Revenues from professional service fees decreased to $144.3 million for the year ended December 31, 2007, from $163.0 million for the year ended December 31, 2006, representing a decrease of $18.8 million or 11.5%. The decrease was primarily due to the overall decrease in the average number of client employees paid in the Company’s core PEO portfolio. The increase in Gevity Edge Select clients did not significantly impact professional service fees earned during of 2007 as the HRA clients acquired within Gevity Edge Select have a lower average professional service fee for a basic level of service. Accordingly, the decrease in annualized professional service fees per average number of client employees paid of 12.2%, from $1,288 in 2006 to $1,131 in 2007, was primarily attributable to the HRA acquisition. Revenues for providing health and welfare benefits for the year ended December 31, 2007 were $351.0 million as compared to $352.0 million for the year ended December 31, 2006, representing a decrease of $1.1 million or 0.3%. Health and welfare benefit plan revenues decreased due to the decrease in the average number of participants in the Company’s health and welfare benefit plans of approximately 10.1% and was partially offset by the increase in health insurance premiums as a result of higher costs to the Company to provide such coverage for client employees and the Company’s approach to pass along all insurance-related cost increases. Gevity Edge Select clients are not covered under the Company’s health and welfare benefit plans and therefore do not contribute to the Company’s health and welfare benefit revenues. Revenues for providing workers’ compensation insurance coverage decreased to $84.5 million in 2007, from $106.1 million in 2006 representing a decrease of $21.6 million or 20.3%. Workers’ compensation billing, as a percentage of workers’ compensation wages for 2007, were 1.92% as compared to 2.30% for 2006, representing a decrease of 16.5%. Workers’ compensation charges decreased in 2007 primarily due to a decrease in billings for Florida clients reflecting a reduction in Florida manual premium rates beginning in January 2007 and a reduction in the number of clients that participate in the Company’s workers’ compensation program. The manual premium rate for workers’ compensation applicable to the Company’s clients decreased 20.5% during 2007 compared to 2006. Manual premium rates are the allowable rates that employers are charged by insurance companies for

workers’ compensation insurance coverage. The decrease in the Company’s manual premium rates primarily reflects the reduction in the Florida manual premium rates. Revenues from state unemployment taxes and other revenues decreased to $25.2 million in 2007 from $26.9 million in 2006, representing a decrease of $1.6 million or 6.0%. The decrease was primarily due to the net effect of a decrease in co-employed client employees and related taxable wages which was partially offset by increases in the state unemployment tax rates that were passed along to clients. Gevity Edge Select clients do not provide state unemployment tax revenue to the Company. Cost of Services The following table presents certain information related to the Company’s overall consolidated cost of services for 2007 and 2006: December 31, December 31, 2007 2006 % Change (In thousands, except statistical data)

Cost of services: Employee health and welfare benefits . . . . . . . . . . . . . . . . . . . Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State unemployment taxes and other . . . . . . . . . . . . . . . . . . . .

$ 347,817 39,371 28,550

$ 354,531 57,462 32,197

(1.9)% (31.5)% (11.3)%

Total cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 415,738

$ 444,190

(6.4)%

... ...

$5,709,876 127,597

$5,195,439 126,584

9.9% 0.8%

... ...

Statistical data: Gross salaries and wages (in thousands) . . . . . . . . . . . . . . Average number of client employees paid(1) . . . . . . . . . . . Workers compensation cost rate per one hundred dollars of workers’ compensation wages(2) . . . . . . . . . . . . . . . . . . Number of workers’ compensation claims(3) . . . . . . . . . . . Frequency of workers’ compensation claims per one million dollars of workers’ compensation wages(2) . . . . . . . . . . .

...

0.89 4,590 1.04x

1.25 5,820 1.26x

(28.8)% (21.1)% (17.5)%

$1.3 million one-time premium cost for the month of October 2006 not passed along to clients after the deferral of the start of the new health plan benefit year from October 1 to November 1. Gevity Edge Select clients are not covered under the Company’s health and welfare benefit plans and therefore do not impact the Company’s health and welfare benefit costs. Workers’ compensation costs were $39.4 million for 2007, as compared to $57.5 million for 2006, representing a decrease of $18.1 million or 31.5%. Workers’ compensation costs decreased in 2007 primarily as a result of the overall decline in co-employed client employees and the related impact on the 2007 program year costs. In addition, the reduction in the prior years’ workers’ compensation loss estimates were $19.8 million during 2007 compared to $18.7 million during 2006. Gevity Edge Select clients are not covered under the Company’s workers’ compensation plans and therefore do not impact the Company’s worker’s compensation costs. State unemployment taxes and other costs were $28.6 million for 2007, compared to $32.2 million for 2006, representing a decrease of $3.6 million or 11.3%. The decrease in co-employed client employees and related taxable wages were substantially offset by an increase in state unemployment tax rates beginning January 1, 2007, as well as an increase in costs associated with expanded client service offerings. Gevity Edge Select clients are primarily non co-employed clients that do not impact the Company’s state unemployment tax expense. Operating Expenses The following table presents certain information related to the Company’s overall consolidated operating expenses for 2007 and 2006: December 31, December 31, 2007 2006 % Change (In thousands, except statistical data)

Operating expenses: Salaries, wages and commissions . Other general and administrative Impairment loss . . . . . . . . . . . . Reinsurance contract loss, net . . Depreciation and amortization . .

. . . . .

$ 86,837 59,896 8,477 — 16,270

$ 85,624 54,746 — 1,650 13,878

1.4% 9.4% n/a n/a 17.2%

Total operating expenses . . . . . . . . . . . . . . . . .

$171,480

$155,898

10.0%

Statistical data: Internal employees at year end . . . . . . . . . . .

901

1,000

(9.9)%

Total operating expenses were $171.5 million for 2007 as compared to $155.9 million for 2006, representing an increase of $15.6 million, or 10.0%. Salaries, wages and commissions were $86.8 million for 2007 as compared to $85.6 million for 2006, representing an increase of $1.2 million, or 1.4%. The increase is primarily a result of the net effect of the following: an increase in severance wages of approximately $3.0 million in 2007, principally related to reductions in support and management positions (including approximately $1.6 million related to the severance agreement of our former Chief Executive Officer); other net increases in wages of approximately $2.1 million primarily associated with the growth of Gevity Edge Select; a $2.1 million reduction in commission expense as a result of lower sales volume; and a $1.6 million reduction in stock compensation expense attributable to an increase in the estimated forfeiture rate as a result of employee terminations. Other general and administrative expenses were $59.9 million for 2007 as compared to $54.7 million in 2006, representing an increase of $5.2 million, or 9.4%. This increase is primarily a result of costs associated with investments in marketing and information technology which will benefit

operations beyond 2007, relating to improvements in service delivery and sales and includes an increase of $3.7 million associated with the operations of Gevity Edge Select. Additionally, there was an increase in bad debt expense of approximately $0.9 million related to terminated accounts in 2007. As previously discussed under ‘‘Item 1. Business—Significant Transactions in 2007—Impairment Loss,’’ the Company recorded an impairment loss of $8.5 million in the fourth quarter of 2007 relating to the long-lived and intangible assets of Gevity Edge Select. For additional discussion of the impairment loss see Note 7 of the consolidated financial statements beginning on page F-1. The net reinsurance contract loss for the year 2006 was $1.65 million as a result of the net effect of the following. During the second quarter of 2006, the Company recorded a $4.65 million loss on a reinsurance contract related to its 2006 workers’ compensation program. The Company determined that, as a result of the liquidation proceeding related to the Bermuda reinsurance company responsible for covering the layer of its workers’ compensation claims between $0.5 million and $2.0 million per occurrence and the related termination of its reinsurance contract, a loss of $4.65 million should be recorded as of June 30, 2006, which represented the entire premium paid for coverage in 2006. During the third quarter of 2006, the Company recorded a gain on the reinsurance contract as a result of the receipt of $3.0 million pursuant to a court-approved settlement, which also called for the admission in the liquidation proceeding of an unsecured claim against the reinsurer in the amount of $2.2 million. The settlement is without prejudice to any claims Gevity may have against third parties relating to the reinsurer’s liquidation. The Company is actively pursuing additional recovery. Future amounts recovered, if any, will be recognized in income when realization is assured beyond a reasonable doubt. In light of the liquidation proceeding, during the second quarter of 2006, the Company secured comparable coverage for the layer of claims between $0.5 million and $2.0 million from AIG retroactively effective to January 1, 2006. The cost of the replacement coverage for 2006 (approximately $4.8 million), has been included in cost of services for 2006 and replaces the cost incurred from the original policy. Depreciation and amortization expenses were $16.3 million for 2007 compared to $13.9 million for 2006, an increase of 17.2%. The increase is primarily attributable to the amortization of technology assets capitalized during 2007. Also included in the increase was the amortization of the intangible assets related to the HRA acquisition. Income Taxes Income taxes were $5.5 million for 2007 compared to $13.2 million for 2006. The decrease is primarily due to a reduction in income before income taxes for 2007 compared to 2006. The Company’s effective tax rate for 2007 and 2006 was 35.7% and 27.2%, respectively. The Company’s effective tax rates differed from the statutory federal tax rates because of state taxes and federal tax credits. In addition, during 2006, the Company’s effective tax rate was favorably impacted as a result of the filing of a change in accounting method with the Internal Revenue Service in the second quarter of 2006 and the related reversal of a tax reserve of approximately $2.0 million. Net Income and Diluted Earnings Per Share As a result of the factors described above, net income decreased 71.8% to $10.0 million for 2007 compared to $35.3 million for 2006. Net income per diluted common share on 24.2 million shares was $0.41 for 2007 compared to net income per diluted common share of $1.32 on 26.8 million shares for 2006. The 2007 impairment loss of $8.5 million reduced diluted earnings per share by approximately $0.22 and the 2007 executive severance charge of $1.6 million reduced diluted earnings per share by approximately $0.04. In 2006, the net reinsurance contract loss of $1.65 million reduced diluted earnings per share by approximately $0.03.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005. Revenues The following table presents certain information related to the Company’s overall consolidated revenues for the years ended December 31, 2006 (‘‘2006’’) and December 31, 2005 (‘‘2005’’): December 31, December 31, 2006 2005 % Change (In thousands, except statistical data)

Revenues: Professional service fees . . . . . . . . . . . Employee health and welfare benefits . Workers’ compensation . . . . . . . . . . . State unemployment taxes and other .

. . . .

$ 163,025 352,017 106,075 26,850

$ 140,698 331,215 114,778 22,106

15.9% 6.3% (7.6)% 21.5%

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 647,967

$ 608,797

6.4%

$5,195,439 126,584 $ 41,044

$4,776,770 122,356 $ 39,040

8.8% 3.5% 5.1%

2.30

2.62

(12.2)%

2.68

3.22

(16.8)%

1,150 38%

12.0% —%

Statistical data: Gross salaries and wages (in thousands) . . . . . . . . . . . . . . . . . . . Average number of client employees paid(1) . . . . . . . . . . . . . . . . Average wage per average number of client employees paid . . . . . Workers’ compensation billing per one hundred dollars of workers’ compensation wages(2) . . . . . . . . . . . . . . . . . . . . . . . Workers’ compensation manual premium per one hundred dollars of workers’ compensation wages(2),(3) . . . . . . . . . . . . . . . . . . Professional service fees per average number of client employees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Client employee health benefits plan participation . . . . . . . . . . . .

1,288 $ 38%

(1) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month divided by the number of months in the period. (2) Workers’ compensation wages exclude the wages of clients electing out of the Company’s workers’ compensation program. (3) Manual premium rate data is derived from tables of AIG in effect for 2006 and 2005, respectively. For 2006, revenues increased to $648.0 million from $608.8 million for 2005, representing an increase of $39.2 million or 6.4%. Revenue growth was primarily a result of the increase in the average number of paid employees, increases in the charges for professional service fees as part of the Company’s strategy to enhance and emphasize the HR consulting services that it provides to its clients, an increase in fees for providing health and welfare benefits for client employees, and increases in state unemployment tax rates. These increases were partially offset by a reduction in workers’ compensation revenues as described below. The impact of Gevity Edge Select was minimal for 2006 and 2005 as the average number of client employees paid was less than 1,000 in both years. As of December 31, 2006, the Company served approximately 7,400 clients as measured by each client’s FEIN, with approximately 128,400 active client employees. This compares to over 8,200 clients as measured by each client’s FEIN, with approximately 136,700 active client employees at December 31, 2005. The decrease in clients and client employees is a function of client and client employee attrition in excess of organic growth for the year ended December 31, 2006. Client attrition accelerated and was higher than expected in the fourth quarter of 2006 as a result of the Company’s initiative to bring healthcare premiums up to retail rates. The average number of paid client employees was 126,584 for 2006, as compared to 122,356 for 2005, representing an increase of 3.5%. Due to the timing of the client attrition late in the fourth quarter, it did not fully impact the average number of

paid client employees for 2006. The Company believes that the clients that left in the fourth quarter were generally indicative of clients whose primary objective was to seek relief in healthcare premiums under the traditional professional employer organization business model. The average wage per average number of client employees paid for 2006 increased 5.1% to $41,044, from $39,040 for 2005. This increase was due to the Company’s strategy of focusing on clients that pay higher wages to their employees as well as the effects of inflation. Revenues for professional service fees increased to $163.0 million in 2006, from $140.7 million in 2005, representing an increase of $22.3 million or 15.9%. The increase was due to an increase in professional service fees charged, an increase in the average number of client employees paid in 2006, as well as the overall increase in gross salaries and wages. The overall effect of this was an increase in professional service fees per average number of client employees paid of 12.0% from $1,150 in 2005 to $1,288 in 2006. In the first quarter of 2006, the Company implemented the initial phases of its value proposition outreach campaign, which was a program designed to enhance and emphasize the HR consulting services that it provides to its clients. This program contributed to the increase in the average professional service fee per client employee compared to the same period last year. The value proposition outreach campaign was fully implemented during the second quarter of 2006 and positively impacted professional service fees for the remainder of the year. The impact of the pricing initiative also positively influenced the quality of gross profit by increasing the relative contribution of professional service fees. Revenues for providing health and welfare benefit plans in 2006 were $352.0 million as compared to $331.2 million in 2005, representing an increase of $20.8 million or 6.3%. Health and welfare benefit plan charges primarily increased as a result of higher costs to the Company to provide such coverage for client employees and the Company’s approach to pass along all insurance-related costs to its clients and as a result of an increase in the average number of participants in the Company’s health and welfare plans in 2006 as compared to 2005. Revenues for providing workers’ compensation insurance coverage decreased to $106.1 million in 2006, from $114.8 million in 2005 representing a decrease of $8.7 million or 7.6%. Workers’ compensation billing, as a percentage of workers’ compensation wages for 2006, were 2.30% as compared to 2.62% for 2005, representing a decrease of 12.2%. The decrease in workers’ compensation revenue for 2006 was primarily due to the effect of a decrease in billings for Florida clients reflecting a reduction in Florida manual premium rates and an improvement in the risk profile of the Company’s client base. These decreases were partially offset by an increase in workers’ compensation revenues associated with the increase in the average number of paid client employees and related workers’ compensation wages. The manual premium rate for workers’ compensation applicable to the Company’s clients decreased 16.8% during 2006 compared to 2005. Manual premium rates are the allowable rates that employers are charged by insurance companies for workers’ compensation insurance coverage. The decrease in the Company’s manual premium rates primarily reflects the reduction in the Florida manual premium rates. Revenues from state unemployment taxes and other revenues increased to $26.9 million in 2006 from $22.1 million in 2005, representing an increase of $4.7 million or 21.5%. The increase was primarily due to an increase in salaries and wages as well as increases in the state unemployment tax rates that were passed along to clients.

Cost of Services The following table presents certain information related to the Company’s overall consolidated cost of services for 2006 and 2005: December 31, December 31, 2006 2005 % Change (In thousands, except statistical data)

$ 354,531 57,462 32,197

$ 326,932 60,071 26,804

8.4% (4.3)% 20.1%

Total cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 444,190

$ 413,807

7.3%

... ...

$5,195,439 126,584

$4,776,770 122,356

8.8% 3.5%

... ...

...

1.25 5,820 1.26x

1.37 6,232 1.42x

(8.8)% (6.6)% (11.3)%

(1) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month divided by the number of months in the period. (2) Workers’ compensation wages exclude the wages of clients electing out of the Company’s workers’ compensation program. (3) The number of workers’ compensation claims reflects the number of claims reported by the end of the respective year and does not include claims with respect to a specific policy year that are reported subsequent to the end of such year. For information regarding claims reported after the end of each respective year, see the first table set forth below in this Item 7 under ‘‘Critical Accounting Estimates.’’ Cost of services, which includes the cost of the Company’s health and welfare benefit plans, workers’ compensation insurance, state unemployment taxes and other costs, was $444.2 million for 2006, compared to $413.8 million for 2005, representing an increase of $30.4 million, or 7.3%. This increase was primarily due to an increase in health and welfare benefit costs and state unemployment taxes and was partially offset by a reduction in workers’ compensation costs. The cost of providing health and welfare benefit plans to client employees for 2006 was $354.5 million as compared to $326.9 million for 2005, representing an increase of $27.6 million or 8.4%. This increase was primarily attributable to the increase in overall health care costs and the increase in the average number of client employees participating in the Company’s health and welfare plans. During 2006, the Company recorded an overall health plan subsidy of approximately $2.5 million primarily due to a $1.3 million one-time premium cost for the month of October not passed along to clients after the deferral of the start of the new health plan benefit year from October 1 to November 1 and unfavorable claims trends in the fourth quarter of 2006. This is compared to a health plan surplus of $4.3 million during 2005 as a result of favorable claims development during 2005. Workers’ compensation costs were $57.5 million for 2006, as compared to $60.1 million for 2005, representing a decrease of $2.6 million or 4.3%. The decrease in workers’ compensation costs was primarily due to: (a) the reduction in workers’ compensation expense for the 2006 program year as a result of favorable claims metrics experienced by the Company for the 2006 program year; (b) a

reduction in premium costs; and (c) the lowering of the loss estimates for the 2000-2005 program years based upon continued favorable claims development for those years. The aggregate impact in 2006 of the lowering of the prior year loss estimates for the 2000-2005 program years was approximately $18.7 million. In 2005 the aggregate impact of the lowering of prior year loss estimates for the 2000— 2004 program years was a reduction in workers’ compensation expense of approximately $22.3 million. State unemployment taxes and other costs were $32.2 million for 2006, compared to $26.8 million for 2005, representing an increase of $5.4 million or 20.1%. The increase relates to an increase in taxable wages, increases in state unemployment tax rates beginning January 1, 2006, payroll tax return true-ups, as well as an increase in costs associated with expanded client service offerings. Operating Expenses The following table presents certain information related to the Company’s overall consolidated operating expenses for 2006 and 2005: December 31, December 31, 2006 2005 % Change (In thousands, except statistical data)

Operating expenses: Salaries, wages and commissions . Other general and administrative Reinsurance contract loss, net . . . Depreciation and amortization . .

. . . .

$ 85,624 54,746 1,650 13,878

$ 76,033 49,312 — 14,635

12.6% 11.0% n/a (5.2)%

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$155,898

$139,980

11.4%

Statistical data: Internal employees at year end . . . . . . . . . . . . . . . . . . . . . . . .

1,000

1,050

(4.8)%

Total operating expenses were $155.9 million for 2006 as compared to $140.0 million for 2005, representing an increase of $15.9 million, or 11.4%. Salaries, wages and commissions were $85.6 million for 2006 as compared to $76.0 million for 2005, representing an increase of $9.6 million, or 12.6%. The increase is primarily a result of the increase in payroll costs associated with the hiring of additional senior management personnel during the second half of 2005 and during 2006. Also included in 2006 is $3.7 million of stock compensation expense associated with the adoption of SFAS No. 123R, Share-Based Payment (‘‘SFAS 123R’’), compared to $0.6 million of stock-based compensation expense recorded in 2005. For additional information regarding the Company’s adoption of SFAS 123R, see Note 1 to the consolidated financial statements beginning on page F-1. Other general and administrative expenses were $54.7 million for 2006 as compared to $49.3 million in 2005, representing an increase of $5.4 million, or 11.0%. This increase is primarily a result of an overall increase in general and administrative costs and includes costs associated with the Company’s expansion into mid-market, consulting fees associated with strategic initiatives and costs related to the first quarter 2006 relocation of the Company’s field support center in Bradenton, Florida. Information regarding the Company’s 2006 reinsurance contract loss can be found under ‘‘Operating Expenses’’ for the year ended December 31, 2007 compared to the year ended December 31, 2006. Depreciation and amortization expenses were $13.9 million for 2006 compared to $14.6 million for 2005. The decrease is primarily attributable to a greater number of assets reaching the end of their depreciable lives compared to assets put into service during 2006.

Income Taxes Income taxes were $13.2 million for 2006 compared to $18.6 million for 2005. The decrease is primarily due to a decrease in income before taxes in 2006 compared to 2005, a decrease in the Company’s statutory income tax rate from 39.5% to 38.0%, and the reversal of an approximate $2.0 million tax reserve related to the Company’s filing of a change in accounting method with the Internal Revenue Service during 2006. The Company’s effective tax rate for 2006 and 2005 was 27.2% and 33.2%, respectively. The Company’s effective tax rates differed from the statutory federal tax rates primarily because of state taxes and federal tax credits and changes in tax reserves. Net Income and Diluted Earnings Per Share As a result of the factors described above, net income decreased 5.7% to $35.3 million for 2006 compared to $37.4 million for 2005. Net income per diluted common share on 26.8 million shares was $1.32 for 2006 compared to net income per diluted common share of $1.31 on 28.5 million shares for 2005. In 2006, the net reinsurance contract loss of $1.65 million reduced diluted earnings per share by approximately $0.03. RESULTS OF OPERATIONS—ANALYSIS OF REPORTABLE SEGMENTS The following presents certain information related to the Company’s segment revenues, operating income and statistical analysis for 2007, 2006 and 2005: December 31, December 31, December 31, 2007 2006 2005 (In thousands, except statistical data)

Revenues: Gevity Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gevity Edge Select . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$601,594 3,398

$647,527 440

$608,531 266

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$604,992

$647,967

$608,797

Operating income (loss): Gevity Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gevity Edge Select . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,027 (13,253)

$ 48,429 (550)

$ 56,342 (1,332)

Total operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,774

$ 47,879

$ 55,010

Clients at period end(1): Gevity Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gevity Edge Select . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,728 166

7,397 14

8,201 25

Total clients at period end . . . . . . . . . . . . . . . . . . . . . . . . . . .

6,894

7,411

8,226

Average number of client employees paid(2): Gevity Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gevity Edge Select . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

113,094 14,503

125,905 679

121,894 462

Total average number of client employees paid . . . . . . . . . . . .

127,597

126,584

122,356

Professional service fees per average number of client employees paid: Gevity Edge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gevity Edge Select . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total professional service fees per average number of client employees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Number of clients measured by individual client FEIN.

$ $

1,251 192

$ 1,291 $ 647

$ 1,152 $ 576

1,131

1,288

1,150

(2) The average number of client employees paid is calculated based upon the sum of the number of paid client employees at the end of each month divided by the number of months in the period. The revenues for each segment are based upon revenues from the clients assigned to each segment. Operating income for Gevity Edge Select is based upon information that is reviewed by management on a regular basis and includes only the direct costs for the Gevity Edge Select segment. The Company does not allocate corporate, indirect general and administrative costs, interest or income taxes from the Gevity Edge segment to the Gevity Edge Select segment. The accounting policies for each segment are the same. Gevity Edge Year Ended December 31, 2007 Compared to Year Ended December 31, 2006. Revenues Gevity Edge revenues decreased approximately 7.1% from $647.5 million in 2006 to $601.6 million in 2007 or $45.9 million. The decrease is due to a decline in professional service fee revenues of $21.1 million, a decline in employee health and welfare benefits of approximately $1.1 million, a decline in workers’ compensation revenue of $21.6 million and a decline in state unemployment taxes and other revenue of $2.1 million. The overall decrease in Gevity Edge revenues was primarily due to the 10.2% decrease in the average number of Gevity Edge client employees paid from 125,905 in 2006 to 113,094 in 2007. This decline is attributable to the departure of legacy clients primarily as a result of the Company’s 2006 initiative to bring healthcare premiums up to retail rates, lower than expected production levels during 2007 and the impact in 2007 of the economy on clients in Florida and clients in the financial and business services sectors. The decline in Gevity Edge professional service revenues of $21.1 million is a result of the decline in average paid client employees year over year as well as 3.1% decrease in professional service fee per average number of client employees paid from $1,291 in 2006 to $1,251 in 2007 primarily as a result of an accumulation of pricing concessions taken since the third quarter of 2006, a by-product of the adjustments made to bring healthcare premiums to retail rates. The decrease in employee health and welfare benefits revenue, workers’ compensation revenue and state unemployment taxes and other revenue is as previously discussed under ‘‘Results Of Operations—Analysis Of Consolidated Operations, Year Ended December 31, 2007 Compared to Year Ended December 31, 2006-Revenue’’ as there is no employee health and welfare benefits revenue or worker’s compensation revenue from Gevity Edge Select and an insignificant amount of other revenue included in state unemployment taxes and other revenues. Operating Income Gevity Edge operating income decreased approximately 35.9% from $48.4 million in 2006 to $31.0 million in 2007 or $17.4 million. The decline in Gevity Edge operating income is due to a decrease in gross profit of $17.4 million. The decrease in gross profit is due to the net effect of: a decline in professional service fees of $21.1 million as discussed above; an increase in employee health and welfare gross profit of $5.7 million due to the combined effect of a $3.1 million health plan surplus in 2007 versus a $2.5 million health plan subsidy in 2006; a decrease in workers’ compensation gross profit of $3.5 million primarily due to a decrease in client employees as well as a decrease in Florida manual premium rates; and an increase in state unemployment taxes and other gross profit of $1.5 as unemployment rate increases were passed along to clients.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005. Revenues The Gevity Edge revenues increased 6.4% to $647.5 million in 2006 from $608.5 million in 2005. During this time period, the Gevity Edge segment represented 99.9% of the overall consolidated revenues in each year. As such, the fluctuation of consolidated revenues as previously discussed under ‘‘Results Of Operations—Analysis Of Consolidated Operations, Year Ended December 31, 2006 Compared to Year Ended December 31, 2005-Revenue’’ primarily relates to the Gevity Edge segment. Operating Income The Gevity Edge operating income decreased 14.0% to $48.4 million in 2006 from $56.3 million in 2005 or $7.9 million. During this time period, all of the consolidated operating income was derived from Gevity Edge and slightly offset by Gevity Edge Select operating losses of $0.6 million in 2006 and $1.3 million in 2005. As such, the drivers impacting gross profit for Gevity Edge have been previously discussed under Results Of Operations—Analysis Of Consolidated Operations, Year Ended December 31, 2006 Compared to Year Ended December 31, 2005, Revenue, Cost of Sales and Operating Expenses’’. Gevity Edge Select Year Ended December 31, 2007 Compared to Year Ended December 31, 2006. Revenues The Gevity Edge Select revenues increased $3.0 million to $3.4 million in 2007 from $0.4 million in 2006. The increase is primarily attributable to the increase in average number of client employees paid from 679 in 2006 to 14,503 in 2007 as a result of the 2007 acquisition of HRA. The Gevity Edge select revenue is primarily comprised of professional service fees and other miscellaneous service revenues. As a result of the HRA acquisition the professional service fee revenue per average client employee paid decreased from $647 to $192 as the HRA clients acquired have a lower average professional service fee for a basic level of service. Operating Loss The Gevity Edge Select operating loss increased from $0.5 million in 2006 to $13.3 million in 2007 or $12.7 million. The increase was primarily attributable to the impact of the $8.5 million impairment loss on the long-lived and intangible assets of HRA as previously discussed and an increase in operating expenses of $7.1 million related to the operations of HRA, integration costs of HRA, costs associated with the re-launch of Gevity Edge Select and an increase in the amortization expense associated with intangible assets acquired in the HRA acquisition. These amounts were partially offset by the increase in Gevity Edge Select gross profit of $2.9 million as a result of the increase in professional service fees. Year Ended December 31, 2006 Compared to Year Ended December 31, 2005. Revenues and Operating Loss Prior to the acquisition of HRA in 2007, the Gevity Edge Select segment represented an insignificant part of the overall consolidated operations of the Company. In the fourth quarter of 2004 the Company announced the addition of its non co-employment offering (formerly known as its ‘‘Custom’’ platform) which was introduced on a pilot basis in its Baltimore, Maryland office and offered on a broader basis in 2005. The average number of client employees paid was 679 in 2006 versus 462 in 2005. Revenues for Gevity Edge Select were $0.4 million in 2006 compared to $0.3 million in 2005. The

decrease in operating loss from $1.3 million in 2005 to $0.6 million in 2006 were reflective of startup costs incurred in 2005. LIQUIDITY AND CASH FLOWS Cash Flow General The Company periodically evaluates its liquidity requirements, capital needs and availability of capital resources in view of its collateralization requirements for insurance coverage, purchases of shares of its common stock under its share repurchase program (see ‘‘Item 5. Issuer Purchases of Equity Securities’’ for information regarding the suspension of the Company’s share repurchase program), the potential for expansion of its HR outsourcing portfolio through acquisitions, possible acquisitions of businesses complementary to the business of Company and other operating cash needs. As a result of this process, the Company has in the past sought, and may in the future seek, to obtain additional capital from either private or public sources. The Company currently believes that its current cash balances, cash flow from operations and the existing credit facility will be sufficient to meet its operational requirements for the next 12 months, excluding cash required for acquisitions, if any. The Company has an unsecured credit facility for $100.0 million with Bank of America, N.A. and Wachovia, N.A. (the ‘‘Lenders’’) of which $17.4 million was outstanding as of December 31, 2007. See Note 11 to the consolidated financial statements beginning on page F-1 for additional information regarding the Company’s credit facility. On February 25, 2008, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (‘‘Third Amendment’’). The Third Amendment provides for the grant of security interests and liens in substantially all the property and assets (with agreed upon carveouts and exceptions) of the real and personal property, assets and rights of the Company to the Lenders. The Third Amendment also provides for an automatic decrease of the aggregate revolving commitment of the credit facility from $100.0 million to $85.0 million on September 30, 2008. The Third Amendment includes additional covenants and amends certain financial covenants and negative covenants with an effective date of December 31, 2007. These include the maintenance of a minimum consolidated net worth, a maximum consolidated adjusted leverage ratio, a minimum consolidated fixed charge coverage ratio of 1.25:1.0, minimum consolidated adjusted EBITDA requirements, and a ceiling on consolidated capital expenditures. The revised covenants set forth in the Third Amendment also restrict the Company’s ability to repurchase shares of its capital stock in certain circumstances, make acquisitions and require the Company to provide certain period reports relating to budget and profits and losses, intellectual property and insurance policies. Each of these covenants is based on defined terms and contain exceptions in each case contained in the credit agreement, as amended. The Company was in compliance with all of the revised covenants under the credit agreement at December 31, 2007. The ability to draw funds under the credit agreement is dependent upon meeting the aforementioned financial covenants. Additionally, the level of compliance with the financial covenants determines the maximum amount available to be drawn. At December 31, 2007, the maximum facility was available to the Company. The Company’s primary short-term liquidity requirements relate to the payment of accrued payroll and payroll taxes of its internal and client employees and the payment of workers’ compensation premiums and medical benefit plan premiums. The Company’s billings to its clients include: (i) each client employee’s gross wages; (ii) a professional service fee which is primarily computed as a percentage of the gross wages; (iii) related payroll taxes; (iv) workers’ compensation insurance charges (if applicable); and (v) the client’s portion of benefits, including medical and retirement benefits, provided to the client employees based on coverage levels elected by the client and the client employees. Included in the Company’s billings during 2007 were salaries, wages and payroll taxes of

client employees of approximately $6.1 billion. The billings to clients are managed from a cash flow perspective so that a matching generally exists between the time that the funds are received from a client to the time that the funds are paid to the client employees and to the appropriate tax jurisdictions. As a co-employer, and under the terms of the Company’s professional services agreements, the Company is obligated to make certain wage, tax and regulatory payments even if the related wages tax and regulatory payments are not made by its clients. Therefore, the objective of the Company is to minimize the credit risk associated with remitting the payroll and associated taxes before receiving the service fees from the client and generally, the Company has the right to immediately terminate the client relationship for non-payment. To the extent this objective is not achieved, short-term cash requirements as well as bad debt expense can be significant. In addition, the timing and amount of payments for payroll, payroll taxes and benefit premiums can vary significantly based on various factors, including the day of the week on which a payroll period ends and the existence of holidays at or immediately following a payroll period-end. Restricted Cash The Company is required to collateralize its obligations under its workers’ compensation and certain general insurance coverage. The Company uses its marketable securities to collateralize these obligations as more fully described below. Marketable securities used to collateralize these obligations are designated as restricted in the Company’s consolidated financial statements. At December 31, 2007, the Company had $20.0 million in total cash and cash equivalents and restricted marketable securities, of which $10.0 million was unrestricted. At December 31, 2007, the Company had pledged $8.6 million of restricted marketable securities in collateral trust arrangements issued in connection with the Company’s workers’ compensation and general insurance coverage and had $1.4 million held in escrow in connection with various purchase price contingencies related to the HRA acquisition as follows: December 31, December 31, 2007 2006 (In thousands)

Short-term marketable securities—restricted: General insurance collateral obligations—AIG . . . . . . . . . . . . . . . . . . . . . HRA Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,702 1,400

$4,478 —

Total short-term marketable securities—restricted . . . . . . . . . . . . . . . . . . . .

6,102

4,478

Long-term marketable securities restricted: Workers’ compensation collateral—AIG . . . . . . . . . . . . . . . . . . . . . . . . .

3,934

3,747

Total long-term marketable securities—restricted . . . . . . . . . . . . . . . . . . . . .

3,934

3,747

Total restricted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,036

$8,225

The Company’s obligation to BCBSF/HOI under its current contract may require an irrevocable letter of credit (‘‘LOC’’) in favor of BCBSF/HOI if a coverage ratio, as set forth in the BCBSF/HOI agreement, is not maintained. The coverage ratio is calculated quarterly. If the Company’s coverage ratio does not meet the minimum requirements, the Company must provide an LOC valued at up to two months of projected claims (average monthly claims approximated $9.4 million during the last twelve months). On February 25, 2008, the Company and BCBSF/HOI entered into the Second Amendment to Agreement to Provide Comprehensive Health Care Benefits (the ‘‘Second Amendment’’) amending the Agreement to Provide Comprehensive Health Care Benefits, dated as of October 1, 2005, between the parties, restating the definition of coverage ratio to exclude certain non-cash asset and goodwill impairment charges commencing with the fiscal quarter ending December 31, 2007. As of December 31, 2007, the minimum coverage ratio was met and no LOC was

required. If current trends continue, the Company will not be able to maintain the minimum coverage ratio through the end of the current contract with BCBSF/HOI and will need to either seek modifications or provide an LOC as discussed above. If such modifications are not obtained or an LOC is required, this may have a material impact on the Company’s cash flow and ability to conduct its operations. The Company was not required to collateralize the Aetna program for 2006 and 2007. The Company does not anticipate any additional collateral obligations to be required in 2008 for its workers’ compensation arrangements. As of December 31, 2007, the Company has recorded a $122.3 million receivable from AIG representing workers’ compensation premium payments made to AIG related to program years 2000 through 2007 in excess of the present value of the estimated claims liability and the related accrued interest receivable. This receivable represents a significant concentration of credit risk for the Company. Cash Flows from Operating Activities At December 31, 2007, the Company had a net working capital deficit of $26.2 million, including restricted funds classified as short-term of $6.1 million, as compared to a net working capital deficit of $10.7 million as of December 31, 2006, including $4.5 million of restricted funds classified as short-term. The overall decrease in working capital is primarily due to the reduction in cash related to timing differences, the acquisition of HRA and stock repurchases under the Company’s repurchase program. Net cash provided by operating activities was $11.4 million for the year ended December 31, 2007 as compared to net cash provided by operating activities of $54.4 million for the year ended December 31, 2006, representing a decrease of $43.0 million. Cash flows from operating activities are significantly impacted by the timing of client payrolls, the day of the week on which a fiscal period ends and the existence of holidays at or immediately following a period end. The overall decrease in cash from operating activities was primarily due to an overall reduction in net income as well as net timing differences. If current workers’ compensation trends continue, the Company expects to receive approximately $17.0 million from AIG during 2008 (primarily in the third quarter) as a net return of premiums in connection with the true-ups related to the 2000-2007 program years. Additional premium releases by AIG are also anticipated in future years if such trends continue. The Company believes that it has provided AIG a sufficient amount of cash to cover its short-term and long-term workers compensation obligations related to open policy years. Cash Flows from Investing Activities Cash used in investing activities for the year ended December 31, 2007 of $17.2 million includes approximately $10.9 million related to the February 16, 2007 acquisition of HRA ($9.5 million of cash and related acquisition costs and $1.4 million included in marketable securities purchases for purchase price contingencies held in an escrow account). In addition, the Company spent approximately $5.9 million for capital expenditures primarily for technology-related items excluding approximately $0.1 million of capital expenditures made by the Company in 2007 and paid for in 2008 and $1.1 million of capital assets acquired through capital leasing arrangements. The Company is continuing to invest capital resources in the development and enhancement of its current information technology infrastructure and service delivery capabilities. This compares to cash used in investing activities of $14.5 million for the year ended December 31, 2006 primarily related to $14.2 million of capital expenditures for technology-related items and excludes approximately $1.7 million of capital expenditures made by the Company in 2006 and paid for in 2007. The Company plans to spend

approximately $6.0 million on capital expenditures during 2008 primarily related to a technology upgrades and enhancements related to service delivery. Capital expenditures are expected to be funded through operations, leasing arrangements or from the Company’s line of credit. Cash Flows from Financing Activities Cash used in financing activities for the year ended December 31, 2007 of $20.6 million was primarily a result of the use of $30.3 million to repurchase 1,543,121 shares of the Company’s common stock under its stock repurchase programs (see ‘‘Part II. Item 5. Issuer Purchases of Equity Securities’’ for a discussion of the current stock repurchase program), and $8.6 million of cash dividends paid. These amounts were partially offset by $17.4 million of net borrowings under the revolving credit facility and $1.0 million received upon the exercise of 91,742 stock options and the purchase of 20,301 shares of common stock under the Company’s employee stock purchase plan. The Company has suspended its share repurchase program for the time being in order to invest available cash in its business. This compares to cash used in financing activities for the year ended December 31, 2006 of $56.1 million which was a result of the net effect of: $57.3 million used to repurchase 2,496,096 shares of the Company’s common stock under its stock repurchase programs, including $3.4 million related to the purchase of 128,400 shares made in 2005 and paid for in 2006; $8.9 million of cash dividends paid; $6.8 million received from directors, officers and employees of the Company upon the exercise of 666,808 stock options and the purchase of 20,941 shares of common stock under the Company’s employee stock purchase plan; and $3.3 million related to excess tax benefits received by the Company for its share-based arrangements. Inflation The Company believes that inflation in salaries and wages of client employees has an overall positive impact on its results of operations since the professional service fees earned from clients are generally proportional to increases in salaries and wages. Commitments and Contractual Obligations Off-Balance Sheet Arrangements—The Company does not have any off-balance sheet arrangements. Table Of Contractual Arrangements—The following table summarizes the Company’s contractual obligations and commercial commitments as of December 31, 2007 and the effect they are expected to have on its liquidity and capital resources (in thousands):

Contractual Obligations

Revolving credit facility . . . Capital lease obligations . . Operating lease obligations Purchase obligations . . . . . Other . . . . . . . . . . . . . . .

Total

. . . . .

Payment Due by Period Less Than 1 1-3 4-5 Year Years Years

— 466 10,601 500 —

More Than 5 Years

. . . . .

$17,367 1,146 43,053 1,000 —

— 671 14,356 500 —

$17,367 9 7,044 — —

— — 11,052 — —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$62,566

$11,567

$15,527

$24,420

$11,052

Due to the uncertainty of the timing of settlement with taxing authorities, we are unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits. Therefore, $1.8 million of unrecognized tax benefits as of December 31, 2007 have been excluded from the

Contractual Obligations table above. See Note 18 to the consolidated financial statements beginning on page F-1 for additional information on unrecognized tax benefits. CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. The accounting estimates described below are those that the Company considers critical in preparing its financial statements because they are particularly dependent on estimates and assumptions made by management that are uncertain at the time the accounting estimates are made. While management has used its best estimates based upon facts and circumstances available at the time, different estimates reasonably could have been used in the current period, and changes in the accounting estimates used are reasonably likely to occur from period to period, which may have a material impact on the presentation of the Company’s financial condition and results of operations. Management periodically reviews the estimates and assumptions and reflects the effects of revisions in the period in which they are determined to be necessary. Management has reviewed the critical accounting estimates with the Audit Committee of the Company’s board of directors. The descriptions below are summarized and have been simplified for clarity. A detailed description of the significant accounting policies used by the Company in preparing its financial statements is included in Note 1 to the consolidated financial statements beginning on page F-1. Workers’ Compensation Receivable/Reserves For a description of the Company’s workers’ compensation program see ‘‘Item 1. Business— Vendor Relationships—Workers’ Compensation.’’ Workers’ compensation claim payments related to an individual policy year may extend over many years following the date of the worksite injury. Volatility in the dollar amount of workers’ compensation costs arises when the number of accidents and the severity of these accidents cannot be easily projected, thus resulting in a wide range of possible expected dollar losses for an insurance policy program year. Volatility in the projection of expected dollar losses caused by the number of claims and the severity of these claims is more likely to be associated with industries that have a high-risk level associated with them. The Company reviews the estimated costs of claims in the deductible layer for each open program year on a quarterly basis. The determination of the estimated cost of claims is based upon a number of factors, including but not limited to actuarial calculations, current and historical loss trends, the number of open claims, development related to actual claims incurred and the impact of acquisitions, if any. A significant amount of judgment is used in this estimation process by the Company. The Company’s consolidated financial statements reflect the estimates made by the Company as well as other factors related to the Company’s workers’ compensation programs within the cost of services on the Company’s consolidated statements of operations and within the workers’ compensation receivable, the accrued insurance premiums and health reserves or the other long-term liabilities on the Company’s consolidated balance sheets. Gevity accounts for its workers’ compensation insurance contracts with AIG as follows: • Premiums for claims in excess of the deductible layer are expensed ratably during the policy year; • Administrative costs of the program (including claims administration, state taxes and surcharges) are determined and expensed quarterly;

• Gevity’s estimate of its ultimate liability to AIG for claims that fall within the policy year deductible, calculated on a net present value basis, is determined and expensed quarterly; • The return on investments earned with respect to the collateral held by AIG under the insurance agreements is determined and recorded quarterly as a reduction of workers’ compensation expense; • The balance in the collateral account held by AIG (including interest earned) in excess of the net present value of the Company’s liability to AIG with respect to claims payable within the deductible layer is recorded as a workers’ compensation receivable. • Returns of collateral deposits are recorded as reductions to the workers’ compensation receivable. If the actual cost of the claims incurred is higher than the estimates of its ultimate liability to AIG determined by the Company then the accrual rate used to determine workers’ compensation costs could increase. If the actual cost of the claims incurred is lower than the estimates of its ultimate liability to AIG determined by the Company, then the accrual rate used to determine workers’ compensation costs could decrease. An increase or decrease to the accrual rate is reflected in the accounting period for which the change in the amount of workers’ compensation claims is estimated. Due to the considerable variability in the estimate of the amount of workers’ compensation claims, adjustments to workers’ compensation costs are sometimes significant. For example, a 1% change in overall claims loss estimate for claims under the Company’s deductible levels with no other changes in assumptions would have impacted the net present value of the claims liability and workers’ compensation cost as of December 31, 2007 by approximately $3.9 million. The workers’ compensation receivable (payable) is also affected by the change in the discount rate used to calculate the present value of the remaining claims liability. Fluctuations in the interest rate environment influence the selection of the discount rate. Increases in the discount rate result in a decrease in the net present value of the liability while decreases in the discount rate result in an increase in the net present value of the liability. For example a 1% change in the discount rate used to calculate the net present value of the claims liability at December 31, 2007 with no other changes in assumptions would have impacted the net present value of the claims liability and workers’ compensation cost as of December 31, 2007 by approximately $2.1 million. During 2007 and 2006, the Company, in conjunction with its quarterly reviews of estimated costs of claims, revised its previous loss estimates for prior program years in recognition of the continued favorable claim development trends that occurred during each year. This revision of prior year loss estimates resulted in a total of $19.8 million and $18.7 million in 2007 and 2006, respectively, in favorable adjustments to costs of services and workers’ compensation receivable. The following loss reserve development table illustrates the change over time of reserves established for workers’ compensation claims for each of the open program years. This table excludes the 2000 program year for the Texas Workers’ Compensation Insurance Fund, which was a guaranteed cost program under which all of the claims were paid by the insurance company without any deductible payment by the Company. The second section, reading down, shows the number of claims reported. The third section, reading down, shows the number of open claims as of the end of each successive year. The fourth section, reading down, shows the amount of open case reserves as of the end of each successive year. The fifth section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to the originally reported reserve liability. The last section, reading down, shows re-estimates of the originally recorded reserves as of the end of each successive year, which is the result of the Company’s expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The loss reserve development table for workers’ compensation claims is

cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior program years. 2007

Originally reported reserves for unpaid claims and claims expenses limited to the Company’s liability per occurrence . . . . . . . Number of claims reported as of: End of initial year . . . . . . . . . . . . . . . . . . One year later . . . . . . . . . . . . . . . . . . . . Two years later . . . . . . . . . . . . . . . . . . . . Three years later . . . . . . . . . . . . . . . . . . . Four years later . . . . . . . . . . . . . . . . . . . . Five years later . . . . . . . . . . . . . . . . . . . . Six years later . . . . . . . . . . . . . . . . . . . . . Seven years later . . . . . . . . . . . . . . . . . . . Number of open claims reported as of: End of initial year . . . . . . . . . . . . . . . . . . One year later . . . . . . . . . . . . . . . . . . . . Two years later . . . . . . . . . . . . . . . . . . . . Three years later . . . . . . . . . . . . . . . . . . . Four years later . . . . . . . . . . . . . . . . . . . . Five years later . . . . . . . . . . . . . . . . . . . . Six years later . . . . . . . . . . . . . . . . . . . . . Seven years later . . . . . . . . . . . . . . . . . . . Insurance carrier open case reserve amount as of: End of initial year . . . . . . . . . . . . . . . . . . One year later . . . . . . . . . . . . . . . . . . . . Two years later . . . . . . . . . . . . . . . . . . . . Three years later . . . . . . . . . . . . . . . . . . . Four years later . . . . . . . . . . . . . . . . . . . . Five years later . . . . . . . . . . . . . . . . . . . . Six years later . . . . . . . . . . . . . . . . . . . . . Seven years later . . . . . . . . . . . . . . . . . . . Cumulative net paid claims by insurance carrier as of: End of initial year . . . . . . . . . . . . . . . . . . One year later . . . . . . . . . . . . . . . . . . . . Two years later . . . . . . . . . . . . . . . . . . . . Three years later . . . . . . . . . . . . . . . . . . . Four years later . . . . . . . . . . . . . . . . . . . . Five years later . . . . . . . . . . . . . . . . . . . . Six years later . . . . . . . . . . . . . . . . . . . . . Seven years later . . . . . . . . . . . . . . . . . . . Undiscounted reserves re-estimated as of: End of initial year . . . . . . . . . . . . . . . . . . One year later . . . . . . . . . . . . . . . . . . . . Two years later . . . . . . . . . . . . . . . . . . . . Three years later . . . . . . . . . . . . . . . . . . . Four years later . . . . . . . . . . . . . . . . . . . . Five years later . . . . . . . . . . . . . . . . . . . . Six years later . . . . . . . . . . . . . . . . . . . . . Seven years later . . . . . . . . . . . . . . . . . . .

2006

Years Ended December 31, 2005 2004 2003 2002 (Dollars in thousands)

2001

2000

$47,800 $60,500 $64,000 $73,000 $65,000 $76,200 $103,000 $109,000 4,590 — — — — — — —

5,820 5,953 — — — — — —

6,232 6,420 6,432 — — — — —

6,489 6,665 6,679 6,680 — — — —

5,765 5,916 5,961 5,964 5,963 — — —

7,701 7,856 7,873 7,872 7,873 7,873 — —

10,195 10,475 10,495 10,500 10,500 10,500 10,500 —

11,888 12,088 12,114 12,118 12,119 12,119 12,119 12,119

1,162 — — — — — — —

1,474 265 — — — — — —

1,628 329 131 — — — — —

2,045 388 174 88 — — — —

1,604 333 121 57 36 — — —

1,632 462 251 126 84 55 — —

2,632 791 286 156 84 59 47 —

3,077 965 532 148 84 54 36 27

$13,029 $13,997 $15,028 $15,339 $12,444 — $ 7,480 $10,079 $10,825 $ 9,253 — — $ 3,888 $ 5,902 $ 4,381 — — — $ 3,783 $ 2,534 — — — — $ 1,613 — — — — — — — — — — — — — — —

$15,272 $11,249 $ 6,579 $ 4,697 $ 4,249 $ 2,349 — —

$ $ $ $ $ $ $

23,087 14,086 8,223 4,814 2,960 4,225 3,203 —

$ $ $ $ $ $ $ $

22,315 16,796 12,105 5,533 3,639 2,665 2,629 2,025

$10,837 $14,162 $14,647 $13,876 $14,502 $16,859 $ 21,345 $ — $28,778 $29,328 $31,488 $30,790 $38,006 $ 47,461 $ — — $38,118 $40,010 $40,343 $50,182 $ 65,925 $ — — — $44,402 $43,221 $56,292 $ 72,457 $ — — — — $45,086 $59,056 $ 76,740 $ — — — — — $60,727 $ 78,217 $ — — — — — — $ 79,475 $ — — — — — — — $

22,688 50,524 69,251 81,033 85,241 88,084 89,274 90,419

$47,800 $60,500 $64,000 $73,000 $65,000 $76,200 $103,000 $109,000 — $54,700 $58,500 $63,000 $63,000 $78,000 $ 98,000 $109,000 — — $52,700 $56,700 $56,000 $71,000 $ 99,000 $108,400 — — — $53,500 $51,600 $69,000 $ 93,000 $105,000 — — — — $49,400 $69,000 $ 90,000 $104,000 — — — — — $66,000 $ 86,900 $100,000 — — — — — — $ 85,100 $ 95,600 — — — — — — — $ 93,800

The following table summarizes the components of the workers’ compensation receivable, net, for the open program years as of December 31, 2007. Policy program years 2000 through 2002 have been combined to reflect the additional insurance coverage purchased from AIG during 2004 with respect to those program years and include the premium payment and claim activity with both AIG and CNA: 2007

For the Policy Years Ended December 31, 2006 2005 2004 2003 (In thousands)

2000-2002

Total

Initial premium/collateral payments to carriers(1) . . . . . . . . . . . . . . . . . . $ 66,500 $ 90,000 $100,000 $111,402 $ 85,000 $ 293,720 $ 746,622 Premium/collateral refunds received . .

—

Net premiums/collateral held by carriers . . . . . . . . . . . . . . . . . . . .

66,500

(30,057) (45,004) (58,072) (26,189) 59,943

54,996

53,330

58,811

(5,500) (164,822) 288,220

581,800

Claims paid by insurance carrier . . . . Estimated future claims covered by premium/collateral . . . . . . . . . . . .

(10,837) (28,778) (38,118) (44,402) (45,086) (230,621) (397,842)

Total estimated ultimate claims . . . . Reinsurance reimbursement . . . . . . Discount on future claim payments . Estimated premium expense refunds due . . . . . . . . . . . . . . . . . . . . . . Accrued interest receivable on premium/collateral payments . . . .

(47,800) (54,700) (52,700) (53,500) (49,400) (244,900) (503,000) — — (178) — — — (178) 3,444 2,280 1,203 714 339 1,691 9,671

. . .

(36,963) (25,922) (14,582)

(9,098)

(4,314)

(14,279) (105,158)

3,346

642

520

387

110

—

5,005

1,644

4,261

5,482

5,604

4,582

7,400

28,973

9,323 $

6,535 $ 14,442 $ 52,411 $ 122,271

Workers’ compensation receivable, net, as of December 31, 2007 . . . . . $ 27,134 $ 12,426 $

(1) Represents initial premium/collateral payments to carriers for the deductible portion of the Company’s workers’ compensation program.

The AIG workers’ compensation insurance program provides for a return to the Company of excess premiums paid eighteen months after the beginning of each program year and annually thereafter. The adjustment amount is determined by applying a loss development factor to an estimate of the incurred losses based upon actual claims incurred during the program year and comparing that amount to actual premiums paid for the program year. The Company expects to receive approximately $17.0 million, net, primarily during the third quarter of 2008, relative to the AIG returned premiums for program years 2003 through 2007. All other estimated premium/collateral return is expected to be long-term. Intangible Assets The Company has recorded significant intangible assets as a result of acquisitions. The intangible assets related to the client service agreements acquired were initially valued with the assistance of a third party, are considered to have a finite life, and are being amortized straight-line over a 5-year period based upon the estimated rate of client attrition. The original estimate of client attrition was based upon the previous experience of the Company. The Company reviews the remaining life of the intangible assets periodically and reviews for impairment if events and circumstances warrant. Changes to the estimated economic life, if any, may result in an increase in amortization expense that may be significant. Goodwill is tested for impairment annually and between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired.

During the fourth quarter of 2007, the Company evaluated the long-lived and intangible assets of the Gevity Edge Select segment for impairment based upon various factors including: the low fair value of the Gevity Edge Select segment obtained in connection with the annual test for goodwill impairment under SFAS 142, the accumulation of costs significantly in excess of amounts originally anticipated for the HRA integration and the re-launch of Gevity Edge Select, current period operating losses, and the forecast of continued operating losses. The Gevity Edge Select segment is comprised substantially of the assets acquired in the HRA acquisition. At the time of the impairment testing the Gevity Edge Select asset group was classified as an asset to be held and used (see Note 7 to the consolidated financial statements beginning on page F-1 for additional discussion regarding the impairment and ‘‘Item 1. Business-General’’ for information regarding the Company’s subsequent decision to exit the Gevity Edge Select business). Based upon the results of the impairment analysis the Company recorded an impairment loss on the long-lived assets of Gevity Edge Select of $8.5 million which included the write-down of property, plant and equipment, client service agreements and goodwill. The calculation of the impairment loss required a significant amount of judgment by the Company relating to the projection of future cash flows and the related impact on the calculated fair value of the long-lived and intangible assets at December 31, 2007. The Company expects to take a pre-tax charge in the range of $4.5 million to $5.5 million in the first half of 2008 related to the additional write-off of assets associated with Gevity Edge Select as well as the accrual of other exit costs including appropriate severance arrangements. Medical Benefit Plan Liabilities The Company provides medical benefit plans to its client employees through several medical benefit plan providers; under a minimum premium plan with BCBSF/HOI; a retrospective premium plan with Aetna for the Aetna PPO plan; and guarantee cost contracts for all other plans. With respect to the medical benefit plans with BCBSF/HOI, the Company establishes medical benefit plan liabilities for benefit claims that have been reported but not paid and claims that have been incurred but not reported. These reserves are determined quarterly by the Company based upon a number of factors, including but not limited to actuarial calculations, current and historical claim payment patterns, plan enrollment and medical trend. For each period, the Company estimates the relevant factors, based primarily on historical data and uses this information to determine the assumptions underlying the reserve calculations. An extensive degree of judgment is used in this estimation process. Due to the considerable variability of health care costs, adjustments to health reserves are sometimes significant. For example, an increase (decrease) in the margin factor used to calculate claims incurred but not reported by 1% at December 31, 2007 would have resulted in an increase (decrease) in the incurred but not reported claim reserve of approximately $1.2 million. During the year ended December 31, 2007, the Company recorded a net health plan surplus of $3.1 million that decreased its cost of services and reserves for incurred but not reported claims. During the year ended December 31, 2006, the Company recorded a health plan subsidy of $2.5 million that increased its cost of services and reserves for incurred but not reported claims. The following table provides the amount of the medical benefit plan liabilities for benefit claims that have been reported but not paid and claims that have been incurred but not reported (in thousands): Year Ended December 31, 2007 2006

Incurred but not reported claims . . . . . . . . . . . . . . . . . . . . . . . . Other health plan liabilities (including recall premiums) . . . . . . .

$10,100 256

$10,609 2,457

Total medical benefit plan liabilities . . . . . . . . . . . . . . . . . . . . . .

$10,356

$13,066

If the actual amount of the Company’s medical benefit plan liabilities at the end of each period were to increase (decrease) from the estimates used by the Company, then the Company would have an increase in the amount of its future period health benefit subsidy (surplus). The Company’s consolidated financial statements reflect the estimates made with respect to medical benefit plan liabilities within the cost of services on the Company’s consolidated statement of operations and within the accrued insurance premiums and health reserves on the company’s consolidated balance sheet. State Unemployment Taxes The Company records state unemployment tax expense based upon taxable wages and tax rates as determined by each state. State unemployment rates vary by state and are based, in part, on past claims experience. If the Company’s claims experience increases, its rates could increase. Additionally, states have the ability to increase unemployment tax rates to cover deficiencies in the state’s unemployment tax fund. As a result our unemployment tax rates have increased over the last several years and are expected to continue to increase. Some states have implemented retroactive rate increases. These increases cannot always be predicted. Contractual arrangements with the Company’s clients may limit its ability to pass through these rate increases. Retroactive rate increases that the Company determines not to pass on to its clients could have a material adverse effect on the Company’s financial position and results of operations. California Unemployment Tax Assessment In May of 2007, the Company received a Notice of Assessment from the State of California Employment Development Department (‘‘EDD’’) relative to the Company’s practice of reporting payroll for its subsidiaries under multiple employer account numbers. The notice stated that the EDD was collapsing the accounts of the Company’s subsidiaries into one account number for payroll reporting purposes and retroactively reassessed unemployment taxes due at a higher overall rate for the 2004-2006 tax years resulting in an assessment of $4.7 million. On May 30, 2007, the Company filed a petition with the Office of the Chief Administrative Law Judge for the California Unemployment Insurance Appeals Board asking that the EDD’s assessment be set aside. The petition contends in part that the EDD has exceeded the scope of its authority in issuing the assessment by failing to comply with its own mandatory procedural requirements and that the statute of limitations for issuing the assessments has expired as the Company’s activities within the state were compliant with California statutes and regulations. The Company believes that it has valid defenses regarding the assessments and intends to vigorously protest these claims. However, the Company cannot estimate at this point in time what amount, if any, will ultimately be due with respect to this matter. Allowance for Doubtful Accounts The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its clients to pay their fees. The Company believes that the success of its business is heavily dependent on its ability to collect these fees for several reasons including the following: • the Company is at risk for the payment of its direct costs and client employee payroll costs regardless of whether the clients pay their fees; • the large volume and dollar amount of transactions processed by the Company; and • the periodic and recurring nature of payroll, upon which the fees are based. The Company has established credit policies and generally requires its clients to pay in advance or simultaneously with the delivery of its payroll. In addition, the Company maintains the right to immediately terminate the professional services agreement and associated client employees or to

require prepayment, letters of credit or other collateral upon deterioration of a client’s financial position or upon nonpayment by a client. As a result of the Company’s strict credit policies, customer nonpayments historically have been low as a percentage of revenues (see ‘‘Schedule II—Valuation and Qualifying Accounts—Allowance for Doubtful Accounts’’ on page S-1). If the financial condition of the Company’s clients were to deteriorate rapidly, resulting in non-payment, the Company’s uncollected accounts receivable could increase rapidly and the Company could be required to provide for additional allowances. Deferred Taxes The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of its assets and liabilities. The Company regularly reviews its deferred tax assets for recoverability and, if necessary, establishes a valuation allowance. The Company considers future market growth, forecasted earnings, future taxable income, the mix of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies in determining the need for a valuation allowance. The Company calculates the current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the fourth quarter of the subsequent year for U.S. federal and state provisions. If the Company were to operate at a loss or is unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, then the Company could be required to establish a valuation allowance against all or a significant portion of the deferred tax assets, resulting in a substantial increase in the Company’s effective tax rate. During the year ended December 31, 2007, the Company determined that it is more likely than not that the deferred tax assets related to certain state net operating loss carryforwards will not be realized. As such, at December 31, 2007 the Company established a valuation allowance of $1,304 against those certain state net operating loss carryforwards. If it is later determined that it is more likely than not that the net deferred tax assets would be realized, the applicable portion of the previously provided valuation allowance will be reversed. The Company adopted the provisions of Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 (‘‘FIN 48’’), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in tax positions and requires companies to determine whether it is ‘‘more likely than not’’ that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. The disclosure requirements and cumulative effect of adoption of FIN 48 are presented in Note 18 to the consolidated financial statements beginning on page F-1. Share-Based Payments The Company adopted SFAS No. 123R in January of 2006. SFAS 123R requires that the costs of employee share-based payments be measured at fair value on the awards’ grant date and, for those awards expected to vest, recognized in the financial statements over the requisite service period. The Company estimates the fair value of stock option awards on the date of grant utilizing the BlackScholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of short-term traded options that have no vesting restrictions and are fully transferable. However, certain assumptions used in the Black-Scholes model, such as expected term, can be adjusted to incorporate the unique characteristics of the Company’s stock option awards. Option valuation models require the input of somewhat subjective assumptions including expected stock price

volatility and expected term. The Company believes it is unlikely that materially different estimates for the assumptions used in estimating the fair value of stock options granted would be made based on the conditions suggested by actual historical experience and other data available at the time estimates were made. Restricted stock awards are valued at the price of the Company’s common stock on the date of the grant. The Company utilizes judgment in the determination of expected forfeiture rates in its estimate of those share awards expected to vest. The forfeiture rates are adjusted as necessary based upon actual forfeiture experience. NEW ACCOUNTING PRONOUNCEMENTS See Note 1 of notes to the consolidated financial statements beginning on page F-1 of this report for a discussion of new accounting pronouncements. ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risk from exposure to changes in interest rates based on its investing and cash management activities. The Company currently utilizes money market funds and has in the past utilized U.S. government agency and other corporate debt with fixed rates and maturities of less than one year to manage its exposures to interest rates. See Note 3 to the consolidated financial statements beginning on page F-1. The Company holds restricted collateral with respect to its insurance programs provided by the member insurance companies of AIG, which are currently invested in money market funds and are therefore not significantly exposed to interest rate risk. If interest rates change, the interest income with respect to these investments would ultimately be affected. The insurance premiums paid to AIG under its workers’ compensation insurance program earn a fixed rate of return and are not subject to market risk from changes in interest rates (see Note 5 to the consolidated financial statements beginning on page F-1). The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2008, although there can be no assurances that interest rates will not change. ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is contained in a separate section of this report. See ‘‘Index to Consolidated Financial Statements and Financial Statement Schedule’’ beginning on page F-1. ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None. ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures; Changes in Internal Control over Financial Reporting As of the end of the period covered by this Form 10-K, the Company’s management, including the Interim Chief Executive Officer/Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives. Based upon that evaluation and subject to the foregoing, the Company’s management, including the Company’s Interim Chief Executive Officer/Chief Financial Officer, concluded that the design and operation of the Company’s disclosure controls and procedures provided reasonable assurance that the disclosure controls and procedures are effective to accomplish their objectives.

During the quarter ended December 31, 2007, there were no other changes in internal control over financial reporting that have materially affected or are reasonably likely to affect the Company’s internal control over financial reporting. Management’s Report On Internal Control Over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, 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 in the United States. Internal control over financial reporting includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles; • provide reasonable assurance that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on the assessment, management determined that as of December 31, 2007, the Company’s internal control over financial reporting was effective based upon those criteria. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited the Company’s consolidated financial statements. Deloitte & Touche LLP’s attestation report on the effectiveness of internal control over financial reporting is presented below.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Gevity HR, Inc. Bradenton, Florida We have audited the internal control over financial reporting of Gevity HR, Inc. and subsidiaries (the ‘‘Company’’) as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2007 of the Company and our report dated March 17, 2008 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company’s adoption of Statement of Financial Accounting Standard No. 123R, Share-Based Payment, as of January 1, 2006. /s/ Deloitte & Touche LLP Certified Public Accountants Tampa, Florida March 17, 2008 64

ITEM 9B.

OTHER INFORMATION

None. PART III. ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item 10 regarding the Company’s executive officers is included under ‘‘Item 1. Business—Executive Officers of the Registrant.’’ Other information required by this Item 10 will be contained in the Company’s Proxy Statement, relating to the 2008 Annual Meeting of Shareholders, expected to be held on May 21, 2008 (the ‘‘Proxy Statement’’) under the headings ‘‘Election of Directors’’, ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’, and ‘‘Information Regarding our Board and its Committees’’ and is incorporated herein by reference. ITEM 11.

EXECUTIVE COMPENSATION

The information required by this Item 11 will be contained in the Proxy Statement under the heading ‘‘Executive Compensation’’ and is incorporated herein by reference, provided that the Compensation Committee Report contained in the Proxy Statement shall not be deemed to be incorporated herein by reference. ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 will be contained in the Proxy Statement under the headings ‘‘Ownership of Securities’’ and ‘‘Executive Compensation’’ and is incorporated herein by reference. ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item 13 will be contained in the Proxy Statement under the heading ‘‘Certain Relationships and Related Transactions’’ and is incorporated herein by reference. ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item 14 will be contained in the Proxy Statement under the headings ‘‘Audit Committee Pre-Approval’’ and ‘‘Fees Paid to Deloitte & Touche LLP’’ and is incorporated herein by reference. PART IV. ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements—See the Index to Consolidated Financial Statements on Page F-1. 2.

Financial Statement Schedule:

See Schedule II—Valuation and Qualifying Accounts—Allowance for Doubtful Accounts on Page S-1 All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. (b) Exhibit Index: A list of exhibits filed with this report is included in the Exhibit Index that immediately precedes such exhibits and is incorporated by reference herein. 65

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Gevity HR, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GEVITY HR, INC. Dated: March 17, 2008

/s/ GARRY J. WELSH Garry J. Welsh Interim Chief Executive Officer (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: March 17, 2008

/s/ MICHAEL J. LAVINGTON Michael J. Lavington Chairman of the Board

Dated: March 17, 2008

/s/ GEORGE B. BEITZEL George B. Beitzel Director

Dated: March 17, 2008

/s/ TODD F. BOURELL Todd F. Bourell Director

Dated: March 17, 2008

/s/ PAUL R. DAOUST Paul R. Daoust Director

Dated: March 17, 2008

/s/ JONATHAN H. KAGAN Jonathan H. Kagan Director

Dated: March 17, 2008

/s/ DAVID S. KATZ David S. Katz Director

Dated: March 17, 2008

/s/ JEFFREY A. SONNENFELD Jeffrey A. Sonnenfeld Director

Dated: March 17, 2008

/s/ DANIEL J. SULLIVAN Daniel J. Sullivan Director

GEVITY HR, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets as of December 31, 2007 and 2006 . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Operations for the Years Ended December 31, 2007, 2006, and 2005 Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2007, 2006, and 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2006, and 2005 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statement Schedule II—Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . .

. F-2 . F-3 . F-4 . F-5 . F-6 . F-8 . S-1

Schedules Omitted—Certain other schedules have been omitted because they are not required or because the information required therein has been included in Notes to Consolidated Financial Statements.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Gevity HR, Inc. Bradenton, Florida We have audited the accompanying consolidated balance sheets of Gevity HR, Inc. and subsidiaries (the ‘‘Company’’) as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17, 2008 expressed an unqualified opinion on the Company’s internal control over financial reporting. /s/ Deloitte & Touche LLP Certified Public Accountants Tampa, Florida March 17, 2008

F-2

GEVITY HR, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In $000’s except share and per share data) December 31, 2007

December 31, 2006

ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . Marketable securities—restricted . . . . . . . . . . . . Accounts receivable, net . . . . . . . . . . . . . . . . . . Short-term workers’ compensation receivable, net . Other current assets . . . . . . . . . . . . . . . . . . . . .

. . . . .

Total current assets . . . . . . . . . . . . . . . . . . Property and equipment, net . . . . . . . . . . . . . . . Long-term marketable securities—restricted . . . . Long-term workers’ compensation receivable, net Intangible assets, net . . . . . . . . . . . . . . . . . . . . Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset, net . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . .

9,950 6,102 130,209 16,950 14,515

$ 36,291 4,478 126,936 35,354 15,927

. . . . . . . .

177,726 22,176 3,934 105,321 11,386 9,224 10,797 1,347

218,986 23,847 3,747 85,872 20,856 8,692 11,938 622

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 341,911

$ 374,560

. . . . . .

$ 151,105 13,557 13,581 11,881 11,674 2,096

$ 163,410 17,287 11,893 10,243 24,583 2,223

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

203,894 17,367 5,088

229,639 — 2,869

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

226,349

232,508

. . . . . . . .

LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accrued payroll and payroll taxes . . . . . . . . . . . Accrued insurance premiums and health reserves Customer deposits and prepayments . . . . . . . . . Accounts payable and other accrued liabilities . . Deferred tax liability, net . . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

Commitments and contingencies (see notes) Shareholders’ equity: Common stock, $.01 par value, 100,000,000 shares authorized, 23,379,761 and 31,962,314 issued as of December 31, 2007 and 2006, respectively . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasury stock (85,660 and 7,260,175 shares at cost, respectively) . . . . . . . . .

. . . .

234 31,475 84,899 (1,046)

320 177,949 84,110 (120,327)

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115,562

142,052

Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .

$ 341,911

$ 374,560

See notes to consolidated financial statements.

F-3

GEVITY HR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In $000’s, except share and per share data)

2007

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of services (exclusive of depreciation and amortization shown below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year Ended December 31, 2006

604,992

647,967

2005

608,797

415,738

444,190

413,807

189,254

203,777

194,990

. . . . .

86,837 59,896 8,477 — 16,270

85,624 54,746 — 1,650 13,878

76,033 49,312 — — 14,635

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . .

171,480

155,898

139,980

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses: Salaries, wages and commissions . Other general and administrative Impairment loss . . . . . . . . . . . . Reinsurance contract loss, net . . Depreciation and amortization . . Operating income . Interest income . . Interest expense . . Other expense, net

. . . .

. . . . . . . . .

. . . .

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,774 1,091 (2,822) (558)

47,879 1,157 (430) (169)

55,010 1,371 (393) —

15,485 5,526

48,437 13,174

55,988 18,610

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,959

35,263

37,378

Net income per common share: —Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.42

1.36

—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.41

1.32

1.31

Weighted average common shares outstanding: —Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,688,921

25,932,904

27,451,834

—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24,247,241

26,789,652

28,534,440

See notes to consolidated financial statements.

F-4

GEVITY HR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years Ended December 31, 2007, 2006 and 2005 (In $000’s, except share data) Common Stock (Shares)

Balance, December 31, 2004 . . . . . . . 30,408,220 Issuance of common stock . . . . . . . Tax benefit of stock option exercises . Common stock dividends declared . . Purchase of treasury stock . . . . . . . Net income . . . . . . . . . . . . . . . . .

$304

Additional Paid-in Retained Capital Earnings

Treasury Stock

$ 152,670 $28,417 $ (16,217)

829,233 — — — —

8 — — — —

9,032 4,174 — — —

Balance, December 31, 2005 . . . . . . . 31,237,453

312

Issuance of common stock . . . . . . . Tax benefit of stock option exercises . Stock-based compensation expense . . Reversal of deferred compensation upon adoption of SFAS 123R . . . . Common stock dividends declared . . Purchase of treasury stock . . . . . . . Net income . . . . . . . . . . . . . . . . .

. . . . .

Common Stock

Deferred Compensation

—

Total

$165,174

— — (7,658) — 37,378

(751) — — (49,399) —

(2,543) — — — —

5,746 4,174 (7,658) (49,399) 37,378

165,876

58,137

(66,367)

(2,543)

155,415

6,664 4,268 3,684

— — —

(63) — —

— — —

— — (53,897) —

2,543 — — —

. . .

724,861 — —

8 — —

. . . .

— — — —

Balance, December 31, 2006 . . . . . . . 31,962,314

320

177,949

84,110

(120,327)

—

142,052

Adjustment upon adoption of FIN 48 . — Issuance of common stock . . . . . . . . 149,974 Tax benefit of stock option exercises . . — Stock-based compensation expense . . . — Common stock dividends declared . . . — Purchase of treasury stock . . . . . . . . — Cancellation of treasury shares . . . . . (8,732,527) Net income . . . . . . . . . . . . . . . . . . —

— 1 — — — — (87) —

— 910 56 2,079 — — (149,519) —

(711) — — — (8,459) — — 9,959

— (35) — — — (30,290) 149,606 —

— — — — — — — —

(711) 876 56 2,079 (8,459) (30,290) — 9,959

Balance, December 31, 2007 . . . . . . . 23,379,761

$234

(2,543) — — (9,290) — — — 35,263

$ 31,475 $84,899 $

See notes to consolidated financial statements.

F-5

(1,046)

—

6,609 4,268 3,684 — (9,290) (53,897) 35,263

$115,562

GEVITY HR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In $000’s) Years Ended December 31, 2007 2006 2005

CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax (benefit) provision, net . . . . . . . . . . . . . . . . . . . . . . . Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Excess tax benefits from share-based arrangements . . . . . . . . . . . . . Provision for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in operating working capital: Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Workers’ compensation receivable, net . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued insurance premiums and health reserves . . . . . . . . . . . . . Accrued payroll and payroll taxes . . . . . . . . . . . . . . . . . . . . . . . Accounts payable and other accrued liabilities . . . . . . . . . . . . . . . Customer deposits and prepayments . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.....

$ 9,959

$ 35,263

$ 37,378

. . . . . . .

16,270 8,477 (15,217) 2,079 (56) 1,764 581

13,878 — (7,368) 3,684 (3,349) 855 226

14,635 — 10,428 592 — 598 55

. . . . . . . . .

(5,037) 1,687 (1,045) (343) (3,730) (12,449) 6,352 1,688 424

(13,927) 4,178 7,092 (55) (3,249) 10,336 3,304 3,578 (77)

(14,672) (9,731) (15,603) (168) (2,655) 41,253 2,692 (3,582) (694)

11,404

54,369

60,526

. . . .

(1,811) — (9,495) (5,889)

(363) 34 — (14,198)

(5,293) 11,085 — (6,240)

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(17,195)

(14,527)

(448)

. . . . . .

17,367 (130) 1,033 56 (8,586) (30,290)

— — 6,755 3,349 (8,913) (57,267)

— — 5,154 — (7,454) (46,029)

Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20,550)

(56,076)

(48,329)

Net (decrease) increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . Cash and cash equivalents—beginning of year . . . . . . . . . . . . . . . . . . . . . . . .

(26,341) 36,291

(16,234) 52,525

11,749 40,776

Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities and certificates of deposit . Maturities of marketable securities and certificates of deposit Business acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving credit facility . . . . Capital lease payments . . . . . . . . . . . . . . . . . . . . Proceeds from exercise of stock options . . . . . . . . Excess tax benefits from share-based arrangements Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of treasury stock . . . . . . . . . . . . . . . . .

. . . . . .

Cash and cash equivalents—end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,950

$ 36,291

$ 52,525

Supplemental disclosure of cash flow information: Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,628

$ 15,697

$ 10,237

Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,888

F-6

576

176

GEVITY HR, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (In $000’s) Supplemental disclosure of non-cash transactions: Capital expenditures for the years ended December 31, 2007, 2006 and 2005, exclude approximately $110, $1,739 and $1,425, respectively, of capital items purchased by the Company and paid for in the following year. Capital expenditures and cash flows from financing activities for the year ended December 31, 2007, exclude approximately $1,079 of capital items purchased by the Company through capital leases. Capital expenditures exclude the following non-cash items at December 31, 2005: • approximately $703 of landlord incentives related to leasehold improvements at the Company’s corporate facility; and • approximately $411 of capitalized rent related to the rent-free construction period at the Company’s corporate facility. The purchase of treasury stock at December 31, 2005 excludes approximately $3,370 of 2005 common stock purchases that were paid for in 2006.

See notes to consolidated financial statements.

F-7

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Gevity HR, Inc. (‘‘Gevity’’ or the ‘‘Company’’) delivers the Gevity Edge , a comprehensive solution comprised of innovative management and administration services, helping employers to streamline human resource (‘‘HR’’) administration, optimize HR practices, and maximize people and performance. Essentially, Gevity serves as the full-service HR department for these businesses, providing each employee with support previously only available at much larger companies. Gevity operates primarily as a professional employer organization (‘‘PEO’’) and enters into a co-employment relationship with its clients. The terms of the co-employment relationship are governed by a Professional Services Agreement (‘‘PSA’’) that contractually allocates employment-related responsibilities between the Company and the client. Under the co-employment relationship the Company typically assumes responsibility for the payment of salaries and wages to each client employee, the payment of payroll taxes, workers’ compensation insurance coverage, and, at the client’s option, responsibility for providing group health, welfare and retirement benefits. This portion of the Company’s operations is known as the Gevity Edge . Gevity also operates a non co-employment business known as Gevity Edge Select . The non co-employment relationship is also governed by a PSA. Under the non co-employment model the employment-related liabilities remain with the client and the client is responsible for its own workers’ compensation insurance and health and welfare plans. The Company assumes responsibility for payroll administration (including payroll processing, payroll tax filing and W-2 preparation) and provides access to all of its HR services. The Gevity Edge Select business (previously referred to as Gevity’s ‘‘Custom’’ business solution) was introduced in 2004 and historically has not had a significant impact on the Company’s revenues or results of operations. On February 16, 2007, the Company acquired certain assets, including the client portfolio, of HRAmerica, Inc. (‘‘HRA’’), a human resource outsourcing firm that offered fundamental employee administration solutions including payroll processing to approximately 145 clients with approximately 16,000 client employees. Approximately 14,700 non co-employed client employees were acquired as of the date of the acquisition and approximately 1,300 co-employed client employees (8 clients) were acquired with an effective date of April 1, 2007. The acquisition provided the Company with technology and processes to enhance its non co-employment model. See Note 7 for additional information on the HRA acquisition and Note 20 for information relating to Gevity’s first quarter 2008 decision to exit the Gevity Edge Select business. Principles of Consolidation—The accompanying consolidated financial statements include the accounts of Gevity HR, Inc. and all of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates and assumptions are based upon management’s best knowledge of current events and actions that the Company may take in the future. The Company’s most significant estimates relate to receivables, reserves for the allowance for doubtful accounts, workers’ compensation claims, intangible assets, medical benefit plan liabilities, state unemployment

F-8

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) taxes, deferred taxes, share-based payments and the estimates used in the determination of the fair value of long-lived assets. Actual results could differ materially from those estimates. Cash Equivalents—Cash equivalents are defined as short-term investments with original maturities of three months or less. Marketable Securities—The Company accounts for marketable securities in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company determines the appropriate classification of all marketable securities as held-to-maturity, available-for-sale or trading at the time of purchase and re-evaluates such classification as of each balance sheet date. The Company’s investment portfolio has primarily consisted of money market funds and marketable equity securities classified as either available-for-sale or trading, and as a result, are reported at fair value. Unrealized gains and losses, net of income taxes, are reported as a separate component of shareholders’ equity and comprehensive income for available-for-sale securities and included in earnings for trading securities. The cost of investments sold is based on the specific identification method, and realized gains and losses are included in other income (expense). Property and Equipment—Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the lesser of the remaining estimated useful lives of the related assets or lease terms, as follows: Years

Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3 to 7 3 to 7 Life of lease

The Company reviews its property and equipment amounts for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss would be recognized if the carrying amount of the asset exceeded the estimated undiscounted cash flows expected to be generated from the asset. The amount of the impairment loss recorded would be calculated as the excess of the assets carrying value over its fair value. Fair value is estimated using a discounted cash flow analysis from the asset (asset group) or determined by other valuation techniques. See Note 7 for the discussion of the impairment loss recognized during the year ended December 31, 2007. Internal Use Software—Certain costs of computer software developed or obtained for internal use are capitalized and amortized on a straight-line basis over the estimated useful lives of the software, generally three to five years. Costs incurred during the preliminary project stage, as well as general and administrative, overhead, maintenance and training, and costs that do not add functionality to existing systems, are expensed as incurred. Goodwill—Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually and between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. The Company had previously determined

F-9

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) that no goodwill impairment existed at December 31, 2006. See Note 7 for the discussion of goodwill impairment at December 31, 2007. Intangible Assets—Intangible assets represent client service agreements acquired from independent parties. Acquired intangible assets were determined to have finite lives and are amortized on a straight-line basis over their estimated economic lives of 5 years. Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The Company had previously determined that no impairment of the intangible assets existed as of December 31, 2006. See Note 7 for the discussion of intangible asset impairment at December 31, 2007. Fair Value of Financial Instruments—The carrying values of cash and cash equivalents, accounts receivable, and accounts payable and other accrued liabilities approximate their fair values due to the short-term maturities of these instruments. Revenue Recognition—The gross billings that the Company charges its clients under its professional services agreement include each client employee’s gross wages, employment taxes, a professional service fee and, to the extent elected by the clients, health and welfare benefit plan costs. The Company’s professional service fee, which is primarily computed as a percentage of gross wages, is intended to yield a profit to the Company and to cover the cost of HR outsourcing services provided by the Company to the client, certain employment-related taxes and workers’ compensation insurance coverage. The component of the professional service fee related to HR outsourcing services varies according to the size and location of the client. The component of the service fee related to workers’ compensation and unemployment insurance is based, in part, on the client’s historical claims experience. All charges by the Company are invoiced along with each periodic payroll delivered to the client. The Company accounts for its revenues using the accrual method of accounting. Under the accrual method of accounting, the Company recognizes its revenues in the period in which the client employee performs work. The Company accrues revenues and unbilled receivables for service fees relating to work performed by client employees but unpaid at the end of each period. In addition, the related costs of services are accrued as a liability for the same period. Subsequent to the end of each period, such costs are paid and the related service fees are billed. The Company reports revenues from service fees in accordance with Emerging Issues Task Force (‘‘EITF’’) No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company reports as revenues, on a gross basis, the total amount billed to clients for professional service fees, health and retirement plan fees, workers’ compensation and unemployment insurance fees. The Company reports revenues on a gross basis for these fees because the Company is the primary obligor and deemed to be the principal in these transactions under EITF No. 99-19. The Company reports revenues on a net basis for the amount billed to clients for employee salaries, wages and payroll-related taxes less amounts paid to client employees and taxing authorities for these salaries, wages and taxes. Sales and Marketing Commissions and Client Referral Fees—Sales and marketing commissions and client referral fees are expensed as incurred. Such expenses are classified as salaries, wages and commissions in the consolidated statements of operations.

F-10

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Workers’ Compensation Costs—The Company has maintained a loss sensitive workers’ compensation program since January 1, 2000. The program was with CNA Financial Corporation, (‘‘CNA’’) until December 31, 2002 and is with member insurance companies of American International Group, Inc. (‘‘AIG’’) effective January 1, 2003. The insured loss sensitive programs provide insurance coverage for claims incurred in each plan year but which will be paid out over future periods. In states where private insurance is not permitted, client employees are covered by state insurance funds. Workers’ compensation expense for the year is based upon premiums paid to the carrier for claims in excess of the deductible layer, administrative costs of the programs (including claims administration, state taxes and surcharges), the estimate of the total cost of the claims that fall within the policy deductible layer (calculated on a net present value basis), and is reduced by the return on investment with respect to the collateral held by AIG under the insurance agreements. The Company reviews the estimated cost of claims in the deductible layer on a quarterly basis. The determination of the estimated cost of claims is based upon a number of factors, including but not limited to actuarial calculations, current and historical loss trends, the number of open claims, developments relating to the actual claims incurred, and the impact of acquisitions, if any. A significant amount of judgment is used in this estimation process. Health Benefits—Claims incurred under the health benefit plans are expensed as incurred according to the terms of each contract. For certain contracts, liability reserves are established for the benefit claims reported but not yet paid and claims that have been incurred but not yet reported. Stock-Based Compensation—The Company grants stock options and non-vested stock awards (previously referred to as ‘‘restricted stock’’) to its employees, officers and directors. Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R, Share-Based Payment (‘‘SFAS 123R’’), for its stock-based compensation plans. Among other things, SFAS 123R requires that compensation expense for all share-based awards be recognized in the financial statements based upon the grant-date fair value of those awards. Prior to January 1, 2006, the Company accounted for stock-based compensation using the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (‘‘APB 25’’), and related interpretations, and disclosure requirements established by SFAS No. 123, Accounting for Stock-Based Compensation (‘‘SFAS 123’’), as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transitions and Disclosures (‘‘SFAS 148’’). Under APB 25, no compensation expense was recognized for either stock options issued under the Company’s stock compensation plans or for stock purchased under the Company’s Employee Stock Purchase Plan (‘‘ESPP’’). The pro forma effects on net income and earnings per share for stock options and ESPP awards were instead disclosed in a footnote to the financial statements. Compensation expense was previously recognized for awards of non-vested stock, based upon the market value of the common stock on the date of grant, on a straight-line basis over the requisite service period with the effect of forfeitures recognized as they occurred. The following table represents the pro forma information for the year ended December 31, 2005 (as previously disclosed) under the Company’s stock compensation plans had compensation cost for the

F-11

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) stock options and common stock purchased under the ESPP been determined based on the fair value at the grant-date consistent with the method prescribed by SFAS 123: Year Ended December 31, 2005

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: total stock-based compensation included in net income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . Less: total stock-based employee compensation expense determined under fair value method for all awards, net of tax . . . . . . . . . . . . . . . . . . . . . .

As reported

$37,378

As reported

396

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pro forma

$34,322

Basic earnings per share . . . . . . . . . . . . . . . . . . . . .

As reported Pro forma As reported Pro forma

$ 1.36 $ 1.25 $ 1.31 $ 1.20

Diluted earnings per share . . . . . . . . . . . . . . . . . . .

Pro forma

(3,452)

The Company has adopted SFAS 123R using the modified prospective transition method. Under this transition method, compensation costs recognized during the years ended December 31, 2007 and 2006 include: • compensation cost for all share-based awards (expected to vest) granted prior to, but not yet vested as of January 1, 2006, based upon grant-date fair value estimated in accordance with the original provisions of SFAS 123; and • compensation cost for all share-based awards (expected to vest) granted during the years ended December 31, 2007 and 2006, based upon grant-date fair value estimated in accordance with the provisions of SFAS 123R. Upon adoption of SFAS 123R, the Company continued to use the Black-Scholes-Merton valuation model for valuing all stock options and shares granted under the ESPP. Compensation for non-vested stock awards is measured at fair value on the grant date based upon the number of shares expected to vest and the quoted market price of the underlying common stock. Compensation cost for all awards is recognized in earnings, net of estimated forfeitures, on a straight-line basis over the requisite service period. The cumulative effect of changing from recognizing compensation expense for non-vested stock awards as forfeitures occurred, to recognizing compensation expense for non-vested awards net of estimated forfeitures, was not material. Prior to the adoption of SFAS 123R, the Company presented deferred compensation associated with the issuance of non-vested stock, as a separate component of stockholders’ equity. In accordance with the provisions of SFAS 123R, on January 1, 2006, the Company reversed the deferred compensation balance from December 31, 2005 of $2,543 to additional paid-in-capital. See Note 16 for additional information regarding the Company’s stock-based compensation plans and the assumptions used to calculate the fair value of stock-based awards.

F-12

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes—The Company records income tax expense using the asset and liability method of accounting for deferred income taxes. Under such method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and the income tax bases of the Company’s assets and liabilities. Earnings Per Share—Basic earnings per share is calculated by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares and common equivalent shares outstanding during the year. Common equivalent shares are calculated using the treasury stock method for stock options and restricted stock. Reclassifications—Certain insignificant prior period amounts have been reclassified to conform to current period presentation. New Accounting Pronouncements—In February 2007, the Financial Accounting Standards Board (‘‘FASB’’) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115 (‘‘SFAS 159’’). SFAS 159 gives entities the irrevocable option to carry many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (‘‘SFAS 157’’). SFAS 157 establishes a framework for the measurement of assets and liabilities that use fair value and expands disclosures about fair value measurements. SFAS 157 will apply whenever another US GAAP standard requires (or permits) assets or liabilities to be measured at fair value but does not expand the use of fair value to any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations. In February 2008, the FASB issued FASB Staff Position FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for Purpose of Lease Classification or Measurement Under Statement 13 (‘‘FSP 157-1’’). FSP 157-1 excludes FASB Statement No. 13, Accounting for Leases, and its related interpretive accounting pronouncements for the provisions of SFAS 157. FSP 157-1 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 (‘‘FSP 157-2’’). FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations. In December 2007, the FASB issued FASB Statement No. 141 (revised 2007), Business Combinations (‘‘SFAS 141-R’’), which will become effective for business combination transactions

F-13

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) having an acquisition date on or after January 1, 2009. This standard requires the acquiring entity in a business combination to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date to be measured at their respective fair values. SFAS 141-R requires acquisition related costs, as well as restructuring costs the acquirer expects to incur for which it is not obligated at the acquisition date, to be recorded against income rather than included in the purchase price determination. It also requires recognition of contingent arrangements at their acquisition date fair values, with subsequent changes in fair value generally reflected in income. The Company does not anticipate that the adoption of SFAS 141-R will have a material impact on its financial position and results of operations. The Company adopted the provisions of Financial Accounting Standards Board (‘‘FASB’’) Interpretation No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109 (‘‘FIN 48’’), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in tax positions and requires companies to determine whether it is ‘‘more likely than not’’ that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. The disclosure requirements and cumulative effect of adoption of FIN 48 are presented in Note 18. 2. SEGMENT REPORTING Prior to 2007, the Company operated in one reportable segment under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (‘‘SFAS 131’’), due to its centralized structure and the single bundled service offering that it provided to its clients. The chief operating decision maker of the Company, as defined in SFAS No. 131, reviewed financial information on a company-wide basis. During the fourth quarter of 2007, the Company initiated several key changes to its operations in response to integration issues associated with the HRA acquisition, the re-launch of Gevity Edge Select, and the changes in the Company’s executive management team. As a result, the Company reassessed its reportable segments under SFAS 131 and determined that the Gevity Edge Select business (which includes the operations acquired in the HRA acquisition) should be a reportable segment apart from the Gevity Edge business based upon economic and operational characteristics and the financial performance review by the chief operating decision maker. The Company has broken out segment results for all periods presented to reflect this change. All of the Company’s revenues are derived in the United States and the revenues reported below are all from external customers. The Company evaluates segment performance based upon operating income which includes only the direct costs for the Gevity Edge Select segment. The Company does not allocate corporate, indirect general and administrative costs, interest or income taxes from the Gevity Edge segment to the Gevity Edge Select segment.

F-14

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

2. SEGMENT REPORTING (Continued) The following table presents information about the Company’s segments for the years ended December 31, 2007, 2006 and 2005: Year Ended December 31, 2007

Gevity Edge

Gevity Edge Select

Total

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$601,594

$ 3,398

$604,992

Operating income (loss)(1) . . . . . . . . . . . . Items excluded from segment profit (loss): Interest income . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 31,027

$(13,253)

$ 17,774

..... ..... ..... .....

1,091 (2,822) (558)

Income before income taxes . . . . . . . . . . . . . . . .

$ 15,485

Depreciation and amortization . . . . . . . . . . . . . .

$ 15,326

944

$ 16,270

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$332,735

$ 9,176

$341,911

Capital expenditures . . . . . . . . . . . . . . . . . . . . . .

5,178

711

5,889

(1) Includes the $8,477 impairment loss of Gevity Edge Select as described in Note7. Year Ended December 31, 2006

Gevity Edge

Gevity Edge Select

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$647,527

440

$647,967

Operating income (loss) . . . . . . . . . . . . . . Items excluded from segment profit (loss): Interest income . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 48,429

(550)

$ 47,879

..... ..... ..... .....

Total

1,157 (430) (169)

Income before income taxes . . . . . . . . . . . . . . . .

$ 48,437

Depreciation and amortization . . . . . . . . . . . . . .

$ 13,810

$ 13,878

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$371,305

$ 3,255

$374,560

Capital expenditures . . . . . . . . . . . . . . . . . . . . . .

$ 14,198

F-15

—

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

2. SEGMENT REPORTING (Continued)

Year Ended December 31, 2005

Gevity Edge

Gevity Edge Select

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$608,531

$ 56,342

$ (1,332)

.....

Total

266

$608,797 $ 55,010

..... ..... .....

1,371 (393) —

Income before income taxes . . . . . . . . . . . . . . . .

$ 55,988

Depreciation and amortization . . . . . . . . . . . . . .

$ 14,178

457

$ 14,635

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$385,516

$ 2,353

$387,869

Capital expenditures . . . . . . . . . . . . . . . . . . . . . .

6,240

—

6,240

3. MARKETABLE SECURITIES—RESTRICTED At December 31, 2007 and 2006, the Company’s investment portfolio consisted of restricted money market funds classified as available-for-sale. Restricted money market funds relate to collateral held in connection with the Company’s workers’ compensation programs, collateral held in connection with the Company’s general insurance programs and amounts held in escrow related to purchase price contingencies associated with the Company’s acquisition of HRA (see Note 1 and 7). These securities are recorded at fair value, which is equal to cost. The interest earned on these investments is recognized as interest income in the Company’s condensed consolidated statements of operations. There were no realized gains or losses on the sale of marketable securities for the years ended December 31, 2007, 2006 and 2005. There were no unrealized gains or losses on marketable securities as of December 31, 2007 and 2006. 4. ACCOUNTS RECEIVABLE At December 31, 2007 and 2006, accounts receivable consisted of the following: December 31, 2007

Billed to clients . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F-16

9,124 121,917 131,041 (832)

$130,209

December 31, 2006

$ 10,622 116,937 127,559 (623) $126,936

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

4. ACCOUNTS RECEIVABLE (Continued) The Company establishes an allowance for doubtful accounts based upon management’s assessment of the collectibility of specific accounts and other potentially uncollectible amounts. The Company reviews its allowance for doubtful accounts on a quarterly basis. 5. WORKERS’ COMPENSATION RECEIVABLE/RESERVES Gevity purchased fully insured workers’ compensation policies from AIG with varying deductible amounts (ranging from $500 to $2,000) for the 2003 through 2007 policy years whereby AIG is responsible for paying the claims and the Company is responsible for paying to AIG the per occurrence deductible amount. In addition, during 2004, the Company purchased insurance from AIG to cover its workers’ compensation claims liability up to the $1,000 per occurrence deductible level for policy years’ 2000-2002 (CNA remains the insurer on the underlying claims for these years). The workers’ compensation program with AIG for policy years 2003-2007 consists primarily of two components. The first component consists of cash paid to AIG during each policy year related to policy expenses and program costs. This includes premium charges (for insurance of claims in excess of the deductible and certain stop loss coverage), taxes and administration costs. The amounts charged by AIG are generally based upon the volume and classification of worker’s compensation payroll. Except for the policy true-up provisions that occur 18 months after policy inception and are based upon the actual volume and classification of payrolls, as well as the claims administration cost based upon the volume of claims processed, this component is fixed and there is no return of premium. The second component of the workers’ compensation program relates to the policy deductible. The Company, through its wholly-owned Bermuda-based insurance subsidiary, remits premiums to AIG to cover claims to be paid within the Company’s per occurrence deductible layer. AIG deposits the premiums into interest bearing loss fund collateral accounts for reimbursement of paid claims up to the per occurrence deductible amount. Interest on the loss fund collateral accounts (which will be reduced as the reimbursement of claims are paid out over the life of the policy) accrues to the benefit of the Company at fixed annual rates as long as the program, and the interest accrued under the program, remain with AIG as indicated in the table below. Information relating to the AIG policy years is as follows: Initial Loss Fund Collateral Premiums

Program Year

2003 . 2003 . 2004 . 2005 . 2006 . 2007 .

. . . . . .

$ 73,500(1) $ 11,500(1) $111,400 $100,000 $ 90,000 $ 66,500

Policy Year Deductible

$1,000 n/a $2,000(2) $2,000(2) $ 500 $ 500

Guaranteed Interest Rate

2.42% 1.85% 2.92% 3.75% 4.58% 5.01%

Minimum Program Life for Guaranteed Interest Rate

7 7 10 10 10 10

years years years years years years

(1) The 2003 program year consists of two loss funds totaling $85,000. (2) For policy years 2004 and 2005 reinsurance was purchased by the Company’s insurance subsidiary to effectively reduce the per occurrence deductible from $2,000 to $1,000 and $750, respectively.

F-17

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

5. WORKERS’ COMPENSATION RECEIVABLE/RESERVES (Continued) If a policy program year is terminated prior to the end of a guarantee period, the interest rate is adjusted downward based upon a sliding scale. The 2003-2007 program years provide for an initial loss fund collateral premium true-up 18 months after the program inception and annually thereafter. The true-up is calculated as the product of a pre-determined loss factor and the amount of incurred claims in the deductible layer as of the date of the true-up. The true-up may result in funds being released from the AIG loss fund collateral account to the Company or may require additional loss fund collateral payments by the Company to AIG. During 2007, AIG released approximately $45,945, net, relating to the annual loss fund collateral true-up and the finalization of outstanding prior year premium expense audits. The Company expects to receive approximately $16,950 from AIG during 2008 in connection with the June 2008 annual true-up. In 2004, the Company entered into agreements with AIG and CNA whereby the Company paid $102,000 to purchase insurance from AIG to cover the Company’s workers’ compensation claims liability up to the $1,000 per occurrence deductible level for policy years’ 2000-2002. Of the total premium paid to AIG, AIG deposited $88,900 into an interest bearing loss fund account held by AIG and $5,500 into an interest bearing escrow account held by CNA. The AIG loss fund account will be used by AIG to fund all claims under the program up to AIG’s aggregate limit. Interest on the AIG loss fund (which will be reduced as claims are paid out over the life of the policy) will accrue to the benefit of the Company at a fixed annual rate of 3.0% until all claims are closed. The CNA escrow account bears an interest rate based upon the rate as provided for in the facility into which it is deposited. Any agreed upon reduction in the escrow account between CNA and AIG will be deposited into the AIG loss fund account. AIG will return to the Company that portion of the loss fund account, if any, not used or retained to pay claims, including interest earned, at intervals of 36, 60, 84 and 120 months from the date of the inception of the agreement. The maximum return amount, which is based upon a pre-determined formula, at 36 and 60 months is limited to $5,500 for each payment due, with no limit as to the return amount at 84 and 120 months. During 2007, CNA released $3,750 of the escrow account which was deposited into the AIG loss fund account and AIG released $5,500 to the Company in connection with the 36 month true-up. Gevity accounts for its workers’ compensation insurance contracts with AIG as follows: • Premiums for claims in excess of the deductible layer are expensed ratably during the policy year; • Administrative costs of the program (including claims administration, state taxes and surcharges) are determined and expensed quarterly; • Gevity’s estimate of its ultimate liability to AIG for claims that fall within the policy year deductible, calculated on a net present value basis, is determined and expensed quarterly; • The return on investments earned with respect to the collateral held by AIG under the insurance agreements is determined and recorded quarterly as a reduction of workers’ compensation expense; • The balance in the collateral account held by AIG (including interest earned) in excess of the net present value of the Company’s liability to AIG with respect to claims payable within the deductible layer is recorded as a workers’ compensation receivable.

F-18

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

5. WORKERS’ COMPENSATION RECEIVABLE/RESERVES (Continued) • Returns of collateral deposits are recorded as reductions to the workers’ compensation receivable. At December 31, 2007 and 2006 the weighted average discount rate used to calculate the present value of claims liability was 4.15% and 3.70%, respectively. Premium payments made to AIG during 2003 through 2007 exceeded the present value of the estimated claims liabilities. This resulted in a workers’ compensation receivable, net, at December 31, 2007 and 2006. Since the entire amount is due from AIG, this receivable represents a significant concentration of credit risk for the Company. AIG requires the Company to provide collateral related to premium payment credit risk. The required collateral was provided in the form of cash placed into a trust account. Collateral balances as of December 31, 2007 and 2006 were $3,934 and $3,747, respectively. These amounts were included as long-term marketable securities-restricted as of December 31, 2007 and 2006. During the year ended December 31, 2007, the Company lowered its ultimate loss estimates for the 2000-2006 program years based upon continued favorable claims development that occurred during the year. This revision resulted in a net reduction of workers’ compensation expense for the year of approximately $19,805. During the year ended December 31, 2006, the Company lowered its ultimate loss estimates for the 2000-2005 program years based upon favorable claims development that occurred during the year. This revision resulted in a net reduction of workers’ compensation expense for the year of approximately $18,741. The following table summarizes the components of the workers’ compensation receivable as of December 31, 2007 and 2006 for the AIG workers’ compensation insurance programs: December 31, 2007

December 31, 2006

$ 547,303 (164,822) 28,973 5,005 (198,523) (95,665)

$ 474,803 (111,174) 20,113 3,818 (153,947) (112,387)

Total workers’ compensation receivable . . . . . . . . . . . . . . Short-term workers’ compensation receivable, net . . . . . . .

122,271 16,950

121,226 35,354

Long-term workers’ compensation receivable, net . . . . . . .

$ 105,321

$ 85,872

Loss fund premium payments to AIG . . . Loss fund premium refunds . . . . . . . . . . . Interest receivable on premium payments . Estimated premium expense refund due . . Claims paid by AIG . . . . . . . . . . . . . . . . Present value of future claims liabilities . .

. . . . . .

2006 Reinsurance Contract Loss, net During the second quarter of 2006, the Company recorded a $4,650 loss on a reinsurance contract related to its 2006 workers’ compensation program. The Company determined that, as a result of the liquidation proceeding related to the Bermuda reinsurance company responsible for covering the layer of its workers’ compensation claims between $500 and $2,000 per occurrence and the related termination of its reinsurance contract, a loss of $4,650 should be recorded as of June 30, 2006, which represented the entire premium paid for coverage in 2006. The $4,650 loss was recorded within

F-19

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

5. WORKERS’ COMPENSATION RECEIVABLE/RESERVES (Continued) operating expenses. During the third quarter of 2006, the Company received a cash payment of $3,000 pursuant to a court-approved settlement, which also called for the admission in the liquidation proceeding of an unsecured claim against the reinsurer in the amount of $2,200. The settlement is without prejudice to any claims Gevity may have against third parties relating to the reinsurer’s liquidation. The $3,000 recovery was recorded in the third quarter of 2006 within operating expenses. The Company is actively pursuing additional recovery. Future amounts recovered, if any, will be recognized in income when realization is assured beyond a reasonable doubt. In light of the liquidation proceeding, during the second quarter of 2006 the Company secured comparable coverage for the layer of claims between $500 and $2,000 from AIG retroactively effective to January 1, 2006. The cost of the replacement coverage for 2006 (approximately $4,800), was included in cost of services for the year ended December 31, 2006 and replaced the cost incurred from the original policy. 6. PROPERTY AND EQUIPMENT At December 31, 2007 and 2006, property and equipment consisted of the following:

Leasehold improvements . . . . . . . Furniture and fixtures . . . . . . . . . Equipment . . . . . . . . . . . . . . . . . Computer hardware and software Construction in progress . . . . . . .

. . . . .

Total property and equipment . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . .

December 31, 2007

December 31, 2006

$ 5,137 2,456 2,443 45,898 1,706

$ 4,963 2,403 2,498 43,992 8,431

57,640 (35,464) $ 22,176

62,287 (38,440) $ 23,847

For the years ended December 31, 2007, 2006, and 2005, depreciation expense was $6,228, $4,238, and $4,995, respectively. 7. BUSINESS ACQUISITION HRA Acquisition The Company acquired HRA on February 16, 2007 (see Note 1). The purchase price for the acquired assets was approximately $10,895 (including direct acquisition costs of approximately $652), which the Company paid in cash from its revolving credit facility. Of this amount, $1,400 is being held in an escrow account and is included in short-term marketable securities—restricted at December 31, 2007. The amounts held in escrow represent purchase price contingencies related to potential earn outs and the achievement of certain client retention percentages up through the first anniversary date of the acquisition. Unearned escrow amounts, if any, will be returned to the Company. The Company does not believe that any purchase price contingency amounts will be paid out to the former owners of HRA. The HRA acquisition was accounted for by the purchase method in accordance with SFAS No. 141, Business Combinations. The results of operations for HRA are included in the Company’s

F-20

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

7. BUSINESS ACQUISITION (Continued) statement of operations for the period February 16, 2007 through December 31, 2007. The effects of the HRA acquisition on the historical financial statements of the Company had it occurred January 1, 2006 are not material and therefore pro forma information is not presented. The purchase price of $9,495 (excluding $1,400 of contingent purchase price included with short-term marketable securitiesrestricted at December 31, 2007) was allocated to assets and liabilities acquired based upon their fair value on the date of acquisition as follows: Other current assets . . . . Software . . . . . . . . . . . . . Property and equipment . Client service agreements Goodwill . . . . . . . . . . . . Other current liabilities . . Other long-term liabilities

. . . . . . .

Net value of purchased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 275 800 327 2,300 5,966 (36) (137) $9,495

The client service agreements intangible asset is being amortized straight-line over a 5-year period based upon the estimated rate of client attrition. Impairment Loss During the fourth quarter of 2007, the Company evaluated the long-lived and intangible assets of the Gevity Edge Select segment for impairment based upon various factors including: the low fair value of the Gevity Edge Select segment obtained in connection with the annual test for goodwill impairment under SFAS No. 142, Goodwill and Other Intangible Assets, the accumulation of costs significantly in excess of amounts originally anticipated for the HRA integration and the re-launch of Gevity Edge Select, current period operating losses, and the forecast of continued operating losses. The Gevity Edge Select segment is comprised substantially of the assets acquired in the HRA acquisition. At the time of the impairment testing the Gevity Edge Select asset group was classified as an asset to be held and used (see Note 20 for information regarding the Company’s subsequent decision to exit the Gevity Edge Select business). In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (‘‘SFAS 144’’), in assessing long-lived assets to be held and used for an impairment loss and fair value, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities within the Company. An impairment loss is recognized under SFAS 144 if the carrying amount of the asset group is not recoverable and it exceeds the fair value of the asset group. It was determined that the carrying amount of the Gevity Edge Select asset group was not recoverable and it exceeded the fair value of the asset group by $8,477. The fair value of the asset group was determined based upon a combination of the discounted cash flow method, the guideline company method, the similar transaction method and the net assets method. The impairment loss was allocated to the long-lived assets of the group on a pro-rata basis using the relative carrying amounts of those assets and resulted in an impairment of property, plant and equipment of $1,314, an impairment of client service agreements of $1,729 and an impairment of goodwill of $5,434.

F-21

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 8. INTANGIBLE ASSETS At December 31, 2007 and 2006, intangible assets consisted of the following: December 31, 2007

December 31, 2006

Client service agreements . . . . . . . . . . . . . . . . . . . . . . . . Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . .

$ 48,097 (36,711)

$ 47,929 (27,073)

Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,386

$ 20,856

Amortization expense for the year ended December 31, 2007, 2006 and 2005 was $10,041, $9,638, and $9,639 respectively. Estimated amortization expense for each of the remaining 5 years is $9,433, $1,866, $41, $41 and $5 respectively. As a result of the $1,729 impairment loss related to the HRA client service agreements as discussed above in Note 7, the client service agreements and the related accumulated amortization have been reduced by $2,131 and $402, respectively, as of December 31, 2007. For the years ended December 31, 2007 and 2006, the rollforward of goodwill by operating segment is as follows: Gevity Edge

Goodwill balance at December 31, 2005 . . . . . . . .

$8,692

Goodwill balance at December 31, 2006 . . . . . . . . Acquisition of HRA . . . . . . . . . . . . . . . . . . . . . . . HRA goodwill impairment . . . . . . . . . . . . . . . . . .

8,692 — —

Goodwill balance at December 31, 2007 . . . . . . . .

$8,692

Gevity Edge Select

—

$ 8,692

— 5,966 (5,434) $

Total

532

8,692 5,966 (5,434) $ 9,224

9. OTHER ASSETS At December 31, 2007 and 2006, other current assets consisted of the following: December 31, 2007

December 31, 2006

. . . . . . .

$ 6,089 — 2,182 2,820 2,936 403 85

$ 5,390 4,619 2,080 1,297 1,885 613 43

Total other current assets . . . . . . . . . . . . . . . . . . . . . . . .

$14,515

$15,927

Prepaid insurance . . . . . . . . Prepaid income taxes . . . . . Client employee receivables Prepaid employment taxes . . Other prepaid expenses . . . Other receivables . . . . . . . . Short-term deposits . . . . . .

. . . . . . .

F-22

. . . . . . .

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 9. OTHER ASSETS (Continued) At December 31, 2007 and 2006, other assets consisted of the following:

Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31, 2007

December 31, 2006

$ 468 879

$439 183

$1,347

$622

For the years ended December 31, 2007, 2006 and 2005, amortization expense, related to other assets, was $1, $2, and $1, respectively. 10. HEALTH BENEFITS Blue Cross Blue Shield of Florida, Inc. and its subsidiary Health Options, Inc. (together ‘‘BCBSF/ HOI’’) is the Company’s primary healthcare partner in Florida, delivering medical care benefits to approximately 21,000 Florida-based client employees. The Company’s policy with BCBSF/HOI is a minimum premium policy expiring September 30, 2008. Pursuant to this policy, the Company is obligated to reimburse BCBSF/HOI for the cost of the claims incurred by participants under the plan, plus the cost of plan administration. The administrative costs per covered client employee associated with this policy are specified by year and aggregate loss coverage is provided to the Company at the level of 110% of projected claims. The Company’s obligation to BCBSF/HOI under its current contract may require an irrevocable letter of credit (‘‘LOC’’) in favor of BCBSF/HOI if the coverage ratio, as set forth in the BCBSF/HOI agreement, is not maintained. The coverage ratio is calculated quarterly. If the Company’s coverage ratio does not meet the minimum requirement, the Company must provide an LOC valued at up to two months of projected claims (average monthly claims approximated $9,400 for the last twelve months). On February 25, 2008, the Company and BCBSF/HOI entered into the Second Amendment to Agreement to Provide Comprehensive Health Care Benefits (the ‘‘Second Amendment’’) amending the Agreement to Provide Comprehensive Health Care Benefits, dated as of October 1, 2005, between the parties, restating the definition of ‘‘Coverage Ratio’’ to exclude certain non-cash asset and goodwill impairment charges commencing with the fiscal quarter ending December 31, 2007. As of December 31, 2007, the minimum coverage ratio was met and no LOC was required. If current trends continue, the Company will not be able to maintain the minimum coverage ratio through the end of the current contract with BCBSF/HOI and will need to either seek modifications or provide an LOC as discussed above. If such modifications are not obtained or an LOC is required, this may have a material impact on the Company’s cash flow and ability to conduct its operations. Aetna Health, Inc. (‘‘Aetna’’) is the Company’s largest medical care benefits provider for approximately 16,000 client employees outside the state of Florida. The Company’s 2007/2008 policy with Aetna provides for an HMO and PPO offering to plan participants. The Aetna HMO medical benefit plans are subject to a guaranteed cost contract that caps the Company’s annual liability. The Aetna PPO medical benefit plan is a retrospective funding arrangement. Beginning in the 2007 plan year Aetna has agreed to eliminate the callable feature of the PPO plan that previously existed and differences in actual plan experience versus projected plan experience for the year will factor into subsequent year rates.

F-23

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 10. HEALTH BENEFITS (Continued) In 2006, the Company announced the addition of UnitedHealthcare as an additional health plan option. As of December 31, 2007, UnitedHealthcare provides medical care benefits to approximately 5,000 client employees. The UnitedHealthcare plan is a fixed cost contract expiring September 30, 2008, that caps the Company’s annual liability. Under the terms of the current agreement with UnitedHealthcare, this plan is no longer offered as an option for new co-employed clients after July 1, 2007. Coverage through UnitedHealthcare will continue to be an option for clients covered by UnitedHealthcare as of June 30, 2007. The Company provides coverage under various regional medical benefit plans to approximately 1,000 client employees in various areas of the country. Included in the list of medical benefit plan providers are Kaiser Foundation Health Plan, Inc. and Harvard Pilgrim Healthcare. These regional medical plans are subject to fixed cost contracts. The Company’s dental plans, which include both a PPO and HMO offering, are provided by Aetna for all client employees who elect coverage. All dental plans are subject to fixed cost contracts that cap the Company’s annual liability. In addition to dental coverage, the Company offers various fixed cost insurance programs to client employees such as vision care, life, accidental death and dismemberment, short-term disability and long-term disability. The Company also offers a flexible spending account for healthcare, dependent care and a qualified transportation fringe benefit program. Part-time employees of clients are eligible to enroll in limited benefit programs from Star HRG. These plans include fixed cost sickness and accident and dental insurance programs, and a vision discount plan. Included in accrued insurance premiums and health reserves at December 31, 2007 and December 31, 2006 are $10,356 and $13,066, respectively, of short-term liabilities related to the Company’s health benefit plans. Of these amounts $10,100 and $10,609, respectively, represent an accrual for the estimate of claims incurred but not reported at December 31, 2007 and 2006. Health benefit reserves are determined quarterly by the Company and include an estimate of claims incurred but not reported and claims reported but not yet paid. The calculation of these reserves is based upon a number of factors, including but not limited to actuarial calculations, current and historical claims payment patterns, plan enrollment and medical trend rates. During the years ended December 31, 2007, 2006 and 2005, the Company recorded net health plan surplus (subsidy) of approximately $3,100, ($2,500) and $4,300, respectively, which decreased (increased) its cost of services and reserves for incurred but not reported claims. 11. REVOLVING CREDIT FACILITY The Company maintains a $100,000 unsecured credit facility with Bank of America, N.A. and Wachovia, N.A. (the ‘‘Lenders’’). On May 7, 2007, the Company entered into the First Amendment to the Amended and Restated Credit Agreement dated August 30, 2006, which increased the amount of aggregate revolving commitments of the credit facility from $50,000 to $75,000 and allowed the Company to repurchase up to $125,000 of its capital stock during the term of the agreement. On June 14, 2007, the Company entered into the Second Amendment to the Amended and Restated Credit Agreement, which increased the amount of aggregate revolving commitments from $75,000 to

F-24

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 11. REVOLVING CREDIT FACILITY (Continued) $100,000. On February 25, 2008, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (‘‘Third Amendment’’). The Third Amendment provides for the grant of security interests and liens in substantially all the property and assets (with agreed upon carveouts and exceptions) of the real and personal property, assets and rights of the Company to the Lenders. The Third Amendment also provides for an automatic decrease of the aggregate revolving commitment of the credit facility from $100,000 to $85,000 on September 30, 2008. The Third Amendment includes additional covenants and amends certain financial covenants and negative covenants with an effective date of December 31, 2007. These include the maintenance of a minimum consolidated net worth, a maximum consolidated adjusted leverage ratio, a minimum consolidated fixed charge coverage ratio of 1.25:1.0, minimum consolidated adjusted EBITDA requirements, and a ceiling on consolidated capital expenditures. The revised covenants set forth in the Third Amendment now restrict the Company’s ability to repurchase shares of its capital stock in certain circumstances, make acquisitions and requires the Company to provide certain period reports relating to budget and profits and losses, intellectual property and insurance policies. Each of these covenants is based on defined terms and contain exceptions in each case contained in the Credit Agreement, as amended. Certain of the Company’s subsidiaries named in the credit agreement have guaranteed the obligations under the credit agreement. The credit facility has a five-year term that expires August 30, 2011. Loan advances bear an interest rate equal to an Applicable Rate (which ranges from 1.50% to 2.25% for Eurodollar Rate Loans, and from 0.25% to 1.00% for Prime Rate Loans, depending upon the Company’s consolidated leverage ratio) plus one of the following indexes: (i) Eurodollar Rate or (ii) the Prime Rate (each as defined in the credit agreement). Up to $20,000 of the loan commitment can be drawn through letters of credit. With respect to outstanding letters of credit, a fee determined by reference to the Applicable Rate plus a fronting fee ranging from 1.50% to 2.25% per annum will be charged on the aggregate stated amount of each outstanding letter of credit. A fee ranging from 0.30% to 0.45% (based upon the Company’s consolidated leverage ratio) is charged on any unused portion of the loan commitment. At December 31, 2007, the Company had outstanding advances of $17,367 at an interest rate of 6.11%. There were no outstanding advances under the credit agreement at December 31, 2006. The Company was in compliance with all of the revised covenants under the credit agreement at December 31, 2007. The ability to draw funds under the credit agreement is dependent upon meeting the aforementioned financial covenants. Additionally, the level of compliance with the financial covenants determines the maximum amount available to be drawn. At December 31, 2007, the maximum facility available to the Company was approximately $100,000. Pursuant to the terms of the credit agreement, the obligations of the Company may be accelerated upon the occurrence and continuation of an Event of Default. Such events include the following: (i) the failure to make principal, interest or fee payments when due (beyond applicable grace periods); (ii) the failure to observe and perform certain covenants contained in the credit agreement; (iii) any representation or warranty made by the Company in the credit agreement or related documents proves to be incorrect or misleading in any material respect when made or deemed made; and (iv) other customary events of default. The Company recorded $2,810 and $207 of interest expense for the years ended December 31, 2007 and 2006, respectively, related to the amortization of loan costs, unused loan commitment fees

F-25

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000â&#x20AC;&#x2122;s, except share and per share data) 11. REVOLVING CREDIT FACILITY (Continued) and interest on advances. The Company capitalized approximately $125 and $192 of interest expense to the cost of internally developed software during the years ended December 31, 2007 and 2006 respectively. 12. COMMITMENTS AND CONTINGENCIES Capital Leases The Company is a party to non-cancelable lease agreements involving computer equipment, software and furniture determined to be capital leases. The leases extend for varying periods up to 3 years and generally provide for the payment of taxes, insurance and maintenance by the lessee. Generally, these leases have options to purchase at varying dates. The Companyâ&#x20AC;&#x2122;s property held under capital leases, included in property and equipment (Note 6) consisted of the following: December 31, 2007

Furniture and fixtures . . Equipment . . . . . . . . . . Computer hardware . . . Construction in progress

. . . .

55 17 65 1,079

Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,216 (63)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,153

Amortization of assets recorded under capital leases is included with depreciation expense. The current portion of capital lease obligations is included in accounts payable and other accrued liabilities and the long-term portion of capital lease obligations is included in other long-term liabilities. The approximate future minimum lease payments for the capital lease obligations are as follows: Year Ending December 31,

2008 . 2009 . 2010 . 2011 .

. . . .

Amount

. . . .

Less imputed interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 466 446 225 9 1,146 (60) $1,086

Operating Leases The Company occupies office facilities and leases office equipment under operating leases, which expire in various years through 2015, certain of which are subject to escalations including those based upon increases in specified operating expenses or increases in the Consumer Price Index. Leases of real estate generally provide for payment of property taxes, insurance, maintenance and repairs. Rent expense was $10,743, $9,524 and $8,169 for the years ended December 31, 2007, 2006, and 2005, F-26

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 12. COMMITMENTS AND CONTINGENCIES (Continued) respectively. Future minimum payments under non-cancelable operating leases as of December 31, 2007 are as follows: Year Ending December 31,

2008 . . . . . 2009 . . . . . 2010 . . . . . 2011 . . . . . 2012 . . . . . Thereafter

. . . . . .

Amount

. . . . . .

$10,601 8,737 5,619 3,889 3,155 11,052

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$43,053

At December 31, 2007, the Company is obligated under a software license agreement through 2010. Payments under this agreement approximate $500 in 2008 and $500 in 2009. Litigation The Company is a party to certain pending claims that have arisen in the ordinary course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial position, results of operations, or cash flows if adversely resolved. However, the defense and settlement of these claims may impact the future availability of, and retention amounts and cost to the Company for, applicable insurance coverage. Regulatory Matters The Company’s employer and health care operations are subject to numerous federal, state and local laws related to employment, taxes and benefit plan matters. Generally, these rules affect all companies in the U.S. However, the rules that govern professional employer organizations constitute an evolving area due to uncertainties resulting from the non-traditional employment relationship among the professional employer organization, the client and the client employees. Many federal and state laws relating to tax and employment matters were enacted before the widespread existence of professional employer organizations and do not specifically address the obligations and responsibilities of these professional employer organization relationships. If the Internal Revenue Service (‘‘IRS’’) concludes that professional employer organizations are not ‘‘employers’’ of certain client employees for purposes of the Internal Revenue Code of 1986, as amended (the ‘‘Code’’), the tax qualified status of the Company’s defined contribution retirement plan as in effect prior to April 1, 1997 could be revoked, its cafeteria plan may lose its favorable tax status and the Company may no longer be able to assume the client’s federal employment tax withholding obligations and certain defined employee benefit plans maintained by the Company may be denied the ability to deliver benefits on a tax-favored basis as intended. California Unemployment Tax Assessment In May of 2007, the Company received a Notice of Assessment from the State of California Employment Development Department (‘‘EDD’’) relative to the Company’s practice of reporting payroll for its subsidiaries under multiple employer account numbers. The notice stated that the EDD was collapsing the accounts of the Company’s subsidiaries into one account number for payroll F-27

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data) 12. COMMITMENTS AND CONTINGENCIES (Continued) reporting purposes and retroactively reassessed unemployment taxes due at a higher overall rate for the 2004-2006 tax years resulting in an assessment of $4,684. On May 30, 2007, the Company filed a petition with the Office of the Chief Administrative Law Judge for the California Unemployment Insurance Appeals Board asking that the EDD’s assessment be set aside. The petition contends in part that the EDD has exceeded the scope of its authority in issuing the assessment by failing to comply with its own mandatory procedural requirements and that the statute of limitations for issuing the assessments has expired as the Company’s activities within the state were compliant with California statutes and regulations. The Company believes that it has valid defenses regarding the assessments and intends to vigorously protest these claims. However, the Company cannot estimate at this point in time what amount, if any, will ultimately be due with respect to this matter. 13. RELATED PARTIES Certain members of the board of directors utilized the services of the Company with respect to themselves and/or their companies. The amount of service fees paid by the directors or their companies was $3, $4 and $38 in 2007, 2006, and 2005, respectively. During 2007, Gevity utilized the services of a company where a member of the board of directors is an executive officer. Payments to the company for the year ended December 31, 2007 totaled $602. 14. RETIREMENT PLAN The Company offers a defined contribution 401(k) retirement plan to its internal employees as well as its external client employees. In 2007, 2006 and 2005, the Company matched 50% of internal employees’ contributions up to a maximum of 2% of employees’ compensation. The Company had 401(k) retirement matching expense of $879, $776 and $737, for the years 2007, 2006, and 2005 respectively. The Company’s 401(k) plan is designed to be a ‘‘multiple employer’’ plan under the Internal Revenue Code Section 413(c). 15. GEOGRAPHIC MARKET CONCENTRATION AND DEPENDENCE ON KEY VENDORS Geographic Market Concentration—As of December 31, 2007, the Company had offices in 15 states and client employees in all 50 states and the District of Columbia. The Company’s billings to Florida clients accounted for approximately 50%, 56% and 55% of the Company’s total client billings in 2007, 2006 and 2005, respectively. As a result of the size of the Company’s base of client employees in Florida, the Company’s profitability over the next several years is expected to be largely dependent on economic and regulatory conditions in Florida. Any adverse change in either of these conditions could have a material adverse effect on the Company’s future profitability and growth prospects. Dependence on Key Vendors—The maintenance of insurance plans including workers’ compensation and health that cover client employees is a significant part of the Company’s business. The current contracts are provided by vendors on terms that the Company believes to be favorable. While the Company believes that replacement contracts could be obtained on competitive terms with other carriers, such replacement could cause a significant disruption to the Company’s business resulting in a decrease in client retention and general dissatisfaction with the Company’s service offering. This, in turn, could have a material adverse effect on the Company’s future results of operations, financial condition, and cash flows.

F-28

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

16. EQUITY Share Repurchase Program On August 15, 2006, the Company announced that the board of directors authorized the repurchase of up to $75,000 of the Company’s common stock under a new share repurchase program. Share repurchases under the new program may be made through open market purchases, block trades or in private transactions at such times and in such amounts as the Company deems appropriate, based on a variety of factors including price, regulatory requirements, overall market conditions and other corporate opportunities. As of March 31, 2007, the Company had purchased 1,650,684 shares of its common stock under this new program at a total cost of $36,527. On April 20, 2007, the Company’s board of directors authorized an increase to this share repurchase program bringing the repurchase amount authorized back up to $75,000. As of December 31, 2007, total shares repurchased under this program since its inception in August 2006 were 2,886,884 shares at a total cost of $60,131. Total shares repurchased under this program during 2007 were 1,543,121 at a total cost of $30,290. The Company has suspended its share repurchase program for the time being in order to invest available cash in its business. On February 28, 2006, the Company announced that the board of directors had authorized the purchase of up to 1,000,000 additional shares of the Company’s common stock under a new share repurchase program. Share repurchases under this program were to be made through open market repurchases, block trades or in private transactions at such times and in such amounts as the Company deemed appropriate based upon a variety of factors including price, regulatory requirements, market conditions and other corporate opportunities. The Company completed this share repurchase program in September 2006 with a total purchase of 1,000,000 shares at a cost of $23,456. On September 28, 2005, the Company announced that the board of directors authorized the repurchase of up to $50,000 of the Company’s common stock. Stock repurchases under this program were to be made at such times and in such amounts as the Company deemed appropriate, based on a variety of factors including price, corporate and regulatory requirements and overall market conditions. As of December 31, 2005, the Company had purchased 1,816,869 shares of its common stock at a cost of $49,399. The Company completed this share repurchase program in January 2006 with additional purchases of 23,933 shares at a cost of $601. All repurchased shares were initially held as treasury shares. During the third quarter of 2007, the Company retired 8,732,527 shares of its common stock, which had been held in treasury. In connection with the retirement of these shares, the Company reclassified $149,606 of the costs associated with these treasury shares to additional paid-in capital. Equity Based Compensation Plans At December 31, 2007, the Company has several equity-based compensation plans from which stock-based compensation awards can or have been granted to eligible employees, officers and directors. In 2005, the shareholders approved the 2005 Equity Incentive Plan (the ‘‘2005 Plan’’). The 2005 Plan provides for various equity incentives, including options, to be granted to key employees, officers, directors, consultants and other service providers of the Company. Under the 2005 Plan, 2,000,000 shares of common stock were authorized for issuance. Stock awards granted to date under the 2005

F-29

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

16. EQUITY (Continued) Plan have been in the form of stock options and non-vested stock and have a vesting period of 4 years for officers and key employees, whereby 25% of the awards vest each year. Stock option awards granted to non-employee directors are immediately vested or vest quarterly over a one year period while non-vested stock awards to non-employee directors vest over a three year period. Options may not be exercised more than 10 years from the date of grant. In May 2002, the shareholders approved the 2002 Incentive Plan (the ‘‘2002 Plan’’). The 2002 Plan provided for various equity incentives including options, to be granted to key employees, officers, and directors of the Company. Under the 2002 Plan, 2,000,000 shares of common stock were authorized for issuance. Stock awards granted to date under the 2002 Plan have been in the form of stock options and non-vested stock and have a vesting period of 4 years for officers and key employees, whereby 25% of the awards vest each year, and are immediately vested for non-employee directors. Options may not be exercised more than 10 years from the date of grant. In connection with the approval of the 2005 Plan, no further options or equity awards are to be granted under the 2002 Plan. In 1997, the Company adopted the 1997 Stock Incentive Plan (the ‘‘1997 Plan’’). The 1997 Plan provides for various equity incentives, including options, to be granted to key employees, officers, and directors of the Company. Initially, 2,500,000 shares of common stock were authorized for issuance under the 1997 plan. In May 2000, shareholders approved an amendment to the 1997 Plan that increased the number of shares reserved for issuance under the plan to 4,500,000 shares. Options granted to date under the 1997 Plan generally have a vesting period of 4 years for officers and key employees, whereby 25% of the awards vest each year, and generally are immediately vested for non-employee directors. Options may not be exercised more than 10 years from the date of the grant. In connection with the approval of the 2005 Plan, no further options or equity awards are to be granted under the 1997 Plan. Grants of stock options are generally awarded at a grant price equal to the market price of the Company’s common stock on the date of grant. The source of shares issued upon the exercise of the Company’s stock options may be newly issued shares or shares issued from treasury. As of December 31, 2007, there was approximately $4,059 of unrecognized compensation expense related to all non-vested share-based compensation arrangements granted under the Company’s stock compensation plans. That expense is expected to be recognized over a weighted-average period of 1.7 years. Stock Option Awards The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of stock options on the grant-date under SFAS 123R, which is the same valuation technique previously used for pro forma disclosures under SFAS 123. The Company used the following weighted average

F-30

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

16. EQUITY (Continued) assumptions for all options granted during the twelve months ended December 31, 2007, 2006 and 2005: Year Ended December 31, 2007 2006 2005

Risk-free Expected Expected Expected

interest rate . . . . . . dividend yield . . . . . volatility . . . . . . . . . option life (in years)

. . . .

4.59% 4.71% 3.60% 2.13% 1.31% 1.24% 43.35% 50.83% 56.19% 3.8 3.7 3.1

The risk-free interest rate is based upon the U.S. Treasury yield curve on the date of grant with a remaining term approximating the expected term of the option granted. The expected term of the options granted is derived from historical data; employees are divided into two groups based upon expected exercise behavior and are considered separately for valuation purposes. The expected volatility is based upon the historical volatility of the Company’s common stock over the period of time equivalent to the expected term of the options granted. The dividend yield is based upon the Company’s best estimate of future dividend yield. A summary of stock option activity for the year ended December 31, 2007 is as follows: WeightedAverage Remaining Contractual Term

Aggregate Intrinsic Value

WeightedAverage Exercise Price

2,277,445 357,405 (91,742) (554,154) (110,913)

$14.12 $17.49 $ 7.17 $23.37 $23.67

Outstanding at December 31, 2007 . . . . . . . . . . .

1,878,041

$11.81

3.38

$3,959

Exercisable at December 31, 2007 . . . . . . . . . . . .

1,542,749

$10.09

2.23

$3,959

Options vested and expected to vest . . . . . . . . . .

1,692,383

$10.93

2.80

$3,959

Stock Options

Outstanding at January Granted . . . . . . . . . . . Exercised . . . . . . . . . . Forfeited . . . . . . . . . . Expired . . . . . . . . . . .

1, 2007 ...... ...... ...... ......

. . . . .

The weighted average grant-date fair value of stock options granted during the years ended December 31, 2007, 2006 and 2005 was $5.82, $10.96 and $8.91 respectively. The total intrinsic value of options exercised, determined as of the date of exercise, during the years ended December 31, 2007, 2006 and 2005 was $1,194, $11,439 and $10,564, respectively. Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s stock for in-the-money stock options at December 31, 2007.

F-31

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

16. EQUITY (Continued) Non-Vested Stock Awards The fair value of non-vested stock awards equals the market value of the underlying common stock on the date of grant. A summary of non-vested stock activity for the year ended December 31, 2007 is as follows: WeightedAverage Remaining Contractual Term

Aggregate Intrinsic Value

Weighted Average Grant-Date Fair Value

119,596 58,232 (34,988) (28,282)

$23.97 $16.87 $23.30 $24.93

Outstanding at December 31, 2007 . . . . . . . . . . .

114,558

$20.33

8.51

$881

Non-vested stock expected to vest . . . . . . . . . . .

77,669

$19.57

8.67

$597

Non-Vested Stock

Outstanding at January 1, 2007 Granted . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . .

. . . .

The weighted average grant-date fair value of non-vested stock awards granted during the years ended December 31, 2007, 2006 and 2005, was $16.87, $26.64 and $22.04, respectively. The total fair value of non-vested stock awards that vested during the years ended December 31, 2007 and 2006 was $269 and $724. There were no non-vested stock awards that vested during the year ended December 31, 2005. Employee Stock Purchase Plan (‘‘ESPP’’) The Company has a shareholder approved ESPP. The first offering period of the plan was from July 1 through December 31, 2001. Internal employees of the Company, who regularly work more than 20 hours per week and have been employed with the Company for at least ninety days prior to the offering period, are eligible to participate in the plan. Participants, through payroll deductions, may purchase a maximum of 500 shares during the offering period at a cost of 85% of the lower of the stock price as of the beginning or ending of the stock offering period. During the years ended December 31, 2007 and 2006, 20,301 and 20,941, shares of common stock (from treasury), respectively, were sold to employees participating in the Company’s ESPP for proceeds of approximately $375 and $401, respectively.

F-32

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000â&#x20AC;&#x2122;s, except share and per share data)

17. EARNINGS PER SHARE The reconciliation of net income attributable to common shareholders and shares outstanding for the purposes of calculating basic and diluted earnings per share for the years ended December 31, 2007, 2006 and 2005 is as follows:

For the year ended 2007: Basic EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

Net Income (Numerator)

Shares (Denominator)

Per Share Amount

$ 9,959

23,688,921

$0.42

Effect of dilutive securities: Options to purchase common stock . . . . . . . Restricted stock . . . . . . . . . . . . . . . . . . . . .

542,411 15,909

Diluted EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$ 9,959

24,247,241

$0.41

For the year ended 2006: Basic EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$35,263

25,932,904

$1.36

Effect of dilutive securities: Options to purchase common stock . . . . . . . Restricted stock . . . . . . . . . . . . . . . . . . . . .

808,554 48,194

Diluted EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$35,263

26,789,652

$1.32

For the year ended 2005: Basic EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

$37,378

27,451,834

$1.36

Effect of dilutive securities: Options to purchase common stock . . . . . . . Restricted stock . . . . . . . . . . . . . . . . . . . . . Diluted EPS: Net income . . . . . . . . . . . . . . . . . . . . . . . . .

1,062,633 19,973 $37,378

28,534,440

$1.31

For the years ended December 31, 2007, 2006, and 2005 options to purchase 709,416, 357,237 and 461,398 shares of common stock, respectively, (weighted for the time period they were outstanding) were excluded from the diluted earnings per share calculation because the exercise price of the options was greater than the average price of the common stock for the year.

F-33

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

18. INCOME TAXES Significant components of the income tax provision are as follows: Year Ended December 31, 2007 2006 2005

Current: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 17,820 2,923

$18,109 2,433

$ 6,753 1,429

Total current provision for income taxes . . . . . . . . . .

20,743

20,542

8,182

Deferred: Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . State and local . . . . . . . . . . . . . . . . . . . . . . . . . . .

(12,935) (2,282)

(6,786) (582)

9,240 1,188

Total deferred provision for income taxes . . . . . . . . . .

(15,217)

(7,368)

10,428

Total provision for income taxes . . . . . . . . . . . . . . . .

$ 5,526

$13,174

$18,610

The reconciliation of income tax provision computed at the U.S. federal statutory rate to the Company’s effective income tax provision is as follows: Year Ended December 31, 2007 2006 2005

Statutory U.S. Federal tax at 35% . . . . . . State and local tax, less Federal benefit Adjustment to tax intangible assets . . . Change in valuation allowance . . . . . . . Change in tax reserves . . . . . . . . . . . . Tax credits . . . . . . . . . . . . . . . . . . . . . Permanent differences . . . . . . . . . . . . . Tax credit true-up . . . . . . . . . . . . . . . . State net operating loss true-up . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

Total tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . .

F-34

$ 5,420 $16,953 $19,596 551 100 2,519 — — (2,445) 1,304 — — 439 (2,482) (301) (2,400) (2,278) (1,451) 1,011 1,107 694 (566) — — (363) — — 130 (226) (2) $ 5,526 35.7%

$13,174 27.2%

$18,610 33.2%

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

18. INCOME TAXES (Continued) The components of deferred tax assets and liabilities included on the balance sheet at December 31, 2007 and 2006 are as follows: 2007

Deferred Tax Assets: Accrued expenses . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . Net operating loss and tax credit carryover Less: valuation allowance . . . . . . . . . . . . .

. . . .

2006

$ 9,708 $ 7,357 13,586 8,490 1,791 1,835 (1,304) —

Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .

23,781

17,682

Deferred Tax Liabilities: Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangibles and fixed assets . . . . . . . . . . . . . .

(19,813) (4,845)

(29,720) (607)

Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

(24,658)

(30,327)

Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(877) $(12,645)

Balance Sheet Classification: Current: Net current deferred tax liability . . . . . . . . . . . . . . . . . . . . . Non-current: Net non-current deferred tax asset . . . . . . . . . . . . . . . . . . . .

$(11,674) $(24,583)

Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,797

11,938

(877) $(12,645)

SFAS No. 109, Accounting for Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the available evidence, both positive and negative, for each respective tax jurisdiction, it is more likely than not that some portion or all of the deferred tax assets will not be realized. At December 31, 2007 the Company established a valuation allowance of $1,304 as it was determined that it is more likely than not that the deferred tax assets related to certain state net operating loss carryforwards will not be utilized. The Company has various tax effected state net operating loss carryforwards of approximately $1,769, (notwithstanding the valuation allowance discussed above) which are available for carryforward and expire through the year ending December 31, 2027. At December 31, 2005, the Company had a reserve for tax contingencies in the amount of $2,500 recorded in its consolidated financial statements. In 2006, the Company reversed this reserve and no longer has a reserve for tax contingencies. The majority of tax reserve reversal related to the Company’s filing of a change in accounting method with the Internal Revenue Service (‘‘IRS’’) in the second quarter of 2006. The Company and its subsidiaries are subject to tax in the U.S. federal and various state and local jurisdictions. The Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities in material jurisdictions for tax years beginning prior to January 1, 2002. The Internal Revenue Service commenced an examination of the Company’s U.S. income tax returns

F-35

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

18. INCOME TAXES (Continued) for 2002 through 2004 in July 2006. In December 2007, the Service commenced the examination of the Company’s U.S. income tax returns for 2005 and 2006. On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No. 109, (‘‘FIN 48’’) which clarifies the accounting for uncertainty in tax positions. As a result of the implementation of FIN 48, the Company recognized a net increase in its liability for unrecognized tax benefits of $711 which was accounted for as a decrease to the January 1, 2007 balance of retained earnings. At the adoption date of January 1, 2007, the Company had $1,094 of unrecognized tax benefits (including interest) recognition of which would affect the Company’s effective tax rate. At December 31, 2007, the Company had $1,770 of unrecognized tax benefits (including interest) recognition of which would affect the Company’s effective tax rate. If the Company recognized these tax benefits, the impact on the effective tax rate would be partially offset by a tax benefit received from the deductions relating to the unrecognized tax benefits, and thus the impact on the rate would be $711 and $1,151 at January 1, 2007 and December 31, 2007, respectively. It is reasonably possible that the gross unrecognized tax benefit at December 31, 2007 of $1,770 (including interest of $128) will decrease in its entirety within twelve months. The unrecognized tax benefit relates to the methodology used to determine state apportionment of income. The Company is pursuing a ruling to clarify this uncertain tax position and expects to receive this ruling within the next 12 months. The Company will continue to recognize interest and penalties related to its uncertain tax positions in income tax expense. At January 1st and December 31st of 2007 the Company had interest expense accrued on the unrecognized tax benefit of $32 and $128 respectively. No penalties were accrued on either date. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Total amount of unrecognized tax benefits (excluding interest/penalties) as of January 1, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross amount of decrease in unrecognized tax benefits as a result of tax positions taken during a prior period . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross amount of increase in unrecognized tax benefits as a result of tax positions taken during the current period . . . . . . . . . . . . . . . . . . . . . . . . Total amount of unrecognized tax benefits (excluding interest/penalties) as of December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,062 (106) 686 $1,642

19. QUARTERLY FINANCIAL DATA (UNAUDITED): The following table presents certain unaudited results of operations data for the interim quarterly periods during the years ended December 31, 2007 and 2006. The Company believes that all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations in accordance with accounting principles generally accepted in the United States of America,

F-36

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

19. QUARTERLY FINANCIAL DATA (UNAUDITED): (Continued) have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year or any future period.

Revenues . . . . . . . Gross profit . . . . . Gross profit margin Operating income . Net income . . . . . Earnings per share: —Basic . . . . . . . . —Diluted . . . . . . . (1)

(2)

(3)

. . . . .

. . . . . . . . . . . . . .

$ $

0.01 0.01

$ $

0.11 0.10

$ $

0.20 0.19

$ $

0.10 0.10

$ $

0.42 0.41

$ $

0.36 0.35

$ $

0.26 0.26

$ $

0.31 0.30

Included in the fourth quarter of 2007 is the impact of:

•

a $7,699 increase in gross profit ($4,773 net of related income tax) related to the reduction in the ultimate loss estimates of prior years’ workers’ compensation programs in recognition of continued favorable claims trends;

•

a $548 increase in gross profit ($340 net of related income tax) related to favorable health claims trend and the recording of a health plan surplus;

•

an $8,477 impairment loss ($5,256 net of related income tax) recorded for the long-lived and intangible assets related to the 2007 acquisition of HRA;

•

a $1,988 expense ($1,233 net of related income tax) for incentive compensation attributable to the attainment of certain bonus targets in the fourth quarter of 2007.

•

a $1,589 expense ($985 net of related income tax) related to a severance agreement with the Company’s former Chief Executive Officer;

•

a $508 charge ($315 net of related income tax) for the write-off of software no longer in use; and

•

a $1,304 valuation allowance established for deferred tax assets related to certain state net operating loss carryforwards which may not be utilized.

Included in the third quarter of 2007 is the impact of:

•

a $4,063 increase in gross profit ($2,519 net of related income tax) related to the reduction in the ultimate loss estimates of prior years’ workers’ compensation programs in recognition of continued favorable claims trends; and

•

a $1,916 expense ($1,188 net of related income tax) for severance related costs associated with the termination of approximately 70 support and management personnel during the third quarter of 2007.

Included in the second quarter of 2007 is the impact of:

• (4)

. . . . .

Quarter Ended 2007 2006 Dec. 31(1) Sept. 30(2) June 30(3) Mar. 31(4) Dec. 31(5) Sept. 30(6) June 30(7) Mar. 31(8) (Dollars in thousands, except per share data) $146,961 $146,508 $150,408 $161,115 $156,455 $160,615 $161,208 $169,689 $ 51,244 $ 45,065 $ 47,551 $ 45,394 $ 55,274 $ 50,603 $ 48,298 $ 49,602 34.9% 30.8% 31.6% 28.2% 35.3% 31.5% 30.0% 29.2% $ 1,838 $ 4,306 $ 7,302 $ 4,328 $ 12,397 $ 15,115 $ 7,804 $ 12,563 $ 301 $ 2,454 $ 4,690 $ 2,514 $ 10,608 $ 9,557 $ 6,904 $ 8,194

a $6,794 increase in gross profit ($4,212 net of related income tax) related to the reduction in the ultimate loss estimates of prior years’ workers’ compensation programs in recognition of continued favorable claims trends.

Included in the first quarter of 2007 is the impact of:

•

a $1,249 increase in gross profit ($774 net of related income tax) related to the reduction in the ultimate loss estimates of prior years’ workers’ compensation programs in recognition of continued favorable claims trends;

•

a $2,601 increase in gross profit ($1,613 net of related income tax) related to favorable health claims trend and the recording of a health plan surplus; and

F-37

GEVITY HR, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (in $000’s, except share and per share data)

19. QUARTERLY FINANCIAL DATA (UNAUDITED): (Continued) • (5)

a $1,448 expense ($898 net of related income tax) for severance related costs associated with the elimination of approximately 40 support positions.

Included in the fourth quarter of 2006 is the impact of:

•

a $16,198 increase in gross profit ($10,043 net of related income tax) related to the reduction in the ultimate loss estimates of prior years’ workers’ compensation programs in recognition of continued favorable claims trends;

•

a $4,537 increase in expense ($2,813 net of related income tax) related to the Company’s health care plans primarily due to a) $1,300 of one-time premium costs for the month of October not passed along to clients after deferring the start of the new health plan year from October 1 to November 1, b) $500 of accrued premium related to the Aetna PPO recall feature, and c) approximately $2,700 increase in health care cost estimates under the BCBSF/HOI health plan due to unfavorable medical trends; and

•

a $2,500 increase in incentive compensation expense ($1,550 net of related income tax) attributable to the attainment of certain bonus targets in the fourth quarter of 2006.

(6)

Included in the third quarter of 2006 is the $3,000 gain ($1,815 net of related income tax) related to the recovery of the portion of the reinsurance premium that the Company had recorded as a loss in the second quarter of 2006 in connection with the liquidation proceeding of the Company’s reinsurance provider for its workers’ compensation program.

(7)

Included in the second quarter of 2006 is the impact of:

(8)

•

a $4,650 loss ($2,813 net of related income tax) the Company recorded in connection with the liquidation proceeding of the Company’s reinsurance provider for its workers’ compensation program; and

•

a $2,000 reversal of an income tax reserve related to the Company’s filing of a change in accounting method with the Internal Revenue Service during the second quarter of 2006.

Included in the first quarter of 2006 is a reduction of the Company’s reserve for incurred but not reported claims and accrual for premium recalls of approximately $3,200 ($1,936 net of related income tax) related to favorable claims development and finalization of prior year recall amounts.

20. SUBSEQUENT EVENTS After completion of a comprehensive strategic review the Company decided to focus on the growth of its core PEO offering, Gevity Edge. As such, on February 25, 2008, the board of directors of the Company approved a plan to discontinue the Company’s non co-employment offering, Gevity Edge Select, effective immediately. The Company will be working closely with its existing non co-employed clients to provide a smooth transition to either its core Gevity Edge PEO offering or an alternative service provider. The Company plans to continue to operate the platform maintained in its service facility in Charlotte, North Carolina for an interim period to allow affected non co-employed clients to either transition to its core Gevity Edge offering or an alternative service provider. The Company intends to complete this transition and close its service facility in Charlotte, North Carolina no later than June 30, 2008. Approximately, 30 jobs will be eliminated in both the Company’s service center in Charlotte, North Carolina and its branch office in Atlanta, Georgia. The Company will recognize the impact related to the additional write-off of assets associated with Gevity Edge Select as well as the accrual of other exit costs including appropriate severance arrangements in the first six months of 2008. On February 26, 2008, the board of directors declared a quarterly cash dividend of $0.05 per share of common stock, payable on April 30, 2008 to holders of record on April 15, 2008.

F-38

GEVITY HR, INC. AND SUBSIDIARIES SCHEDULE IIâ&#x20AC;&#x201D;VALUATION AND QUALIFYING ACCOUNTS ALLOWANCE FOR DOUBTFUL ACCOUNTS (In thousands of dollars) Balance, January 1, 2007

Provision for Bad Debts

Determined Uncollectible

$623

$ 1,764

$(2,027)

Balance, January 1, 2006

Provision for Bad Debts

Determined Uncollectible

$506 Balance, January 1, 2005

$805

855

Provision for Bad Debts

598

$ (927) Determined Uncollectible

$(1,220)

S-1

Account Recoveries

472

Account Recoveries

189

Account Recoveries

323

Balance, December 31, 2007

832

Balance, December 31, 2006

623

Balance, December 31, 2005

506

EXHIBIT INDEX Exhibit No.

Description

3.1

Third Articles of Amendment and Restatement of the Articles of Incorporation, as filed with the Secretary of State of the State of Florida on August 12, 2004 (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed November 9, 2004 and incorporated herein by reference).

3.2

Third Amended and Restated Bylaws, dated February 16, 2005 (filed as Exhibit 3.01 to the Company’s Current Report on Form 8-K filed February 22, 2005 and incorporated herein by reference).

4.1

Rights Agreement dated as of April 23, 2002 between the Company and American Stock Transfer & Trust Company, and Exhibits thereto (filed as Exhibit 1 to the Company’s Registration Statement of Form 8-A filed April 25, 2002 and incorporated herein by reference).

4.2

First Amendment and Supplement to the Rights Agreement between the Company and American Stock Transfer & Trust Company, dated March 5, 2003 (filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K filed March 6, 2003 and incorporated herein by reference).

4.3

Second Amendment and Supplement to the Rights Agreement between the Company and American Stock Transfer & Trust Company, dated June 6, 2003 (filed as Exhibit 99.7 to the Company’s Current Report on Form 8-K filed June 10, 2003 and incorporated herein by reference).

4.4

Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Company’s Registration Statement No. 333-22933 on Form S-1/A filed May 30, 1997 and incorporated herein by reference).

10.1

Gevity HR, Inc. 2002 Stock Incentive Plan (filed as Exhibit B to the Company’s Definitive Proxy Statement on Schedule 14A filed April 25, 2002 and incorporated herein by reference).*

10.2

Form of Employee Vesting Schedule pursuant to the Gevity HR, Inc. 2002 Stock Incentive Plan (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

10.3

Form of Director Vesting Schedule pursuant to the Gevity HR, Inc. 2002 Stock Incentive Plan (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

10.4

Form of Terms and Conditions to the Non-Qualified Stock Option Award pursuant to the Gevity HR, Inc. 2002 Stock Incentive Plan (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

10.5

Gevity HR, Inc. 1997 Stock Incentive Plan, as amended and restated (filed as Exhibit 4.1 to the Company’s Registration Statement No. 333-68929 on Form S-8, Amendment No. 1 filed September 30, 2003 and incorporated herein by reference).*

10.6

Form of Employee Vesting Schedule pursuant to the Gevity HR, Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

10.7

Form of Director Vesting Schedule pursuant to the Gevity HR, Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

Exhibit No.

Description

10.8

Form of Terms and Conditions to the Non-Qualified Stock Option Award pursuant to the Gevity HR, Inc. 1997 Stock Incentive Plan (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed February 15, 2005 and incorporated herein by reference).*

10.9

Gevity HR, Inc. 2005 Equity Incentive Plan, (filed as Exhibit B to the Company’s Definitive Proxy Statement on Schedule 14A filed April 8, 2005 and incorporated here by reference).*

10.10

Gevity HR, Inc. 2005 Executive Incentive Compensation Plan, (filed as Exhibit C to the Company’s Definitive Proxy Statement on Schedule 14A filed April 8, 2005 and incorporated here by reference).*

10.11

Form of Employee Option Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.12

Form of Employee Restricted Stock Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.13

Form of Executive Stock Option Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.14

Form of Executive Restricted Stock Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.15

Form of Non-employee Director Stock Option Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.16

Form of Non-employee Director Restricted Stock Award under Gevity HR, 2005 Equity Incentive Plan (filed as Exhibit 10.6 to the Company’s Current Report on Form 8-K filed November 14, 2005 and incorporated herein by reference).*

10.17

Gevity HR, Inc. Employee Stock Purchase Plan (filed as Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed April 20, 2001 and incorporated herein by reference).*

10.18

Offer Letter Agreement executed on August 3, 2007 between Gevity HR, Inc. and Garry Welsh (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed August 7, 2007 and incorporated herein by reference).*

10.18.1

Revised Change in Control Severance Agreement executed on August 29, 2007 between Gevity HR, Inc. and Garry Welsh (filed as Exhibit 99.4 to the Company’s Current Report on Form 8-K filed August 31, 2007 and incorporated herein by reference).*

10.19

Offer Letter Agreement executed on August 3, 2007 between Gevity HR, Inc. and James Hardee (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 7, 2007 and incorporated herein by reference).*

10.19.1

Revised Change in Control Severance Agreement executed on August 29, 2007 between Gevity HR, Inc. and James Hardee (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed August 31, 2007 and incorporated herein by reference).*

10.20

Employment offer letter from the Company accepted by Clifford M. Sladnick, dated June 6, 2005 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 1, 2005 and incorporated herein by reference).*

Exhibit No.

Description

10.20.1

Change in Control Severance Agreement between the Company and Clifford M. Sladnick, dated July 22, 2005 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 filed July 28, 2005 and incorporated herein by reference).*

10.20.2

Amendment Number One to the Change in Control Severance Agreement executed on August 29, 2007 between Gevity HR, Inc. and Clifford M. Sladnick (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed August 31, 2007 and incorporated herein by reference).*

10.21

Employment offer letter from the Company accepted by Paul Benz on June 19, 2006 (filed as Exhibit 10.58 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 16, 2007 and incorporated herein by reference).*

10.21.1

Change in Control Severance Agreement executed on August 29, 2007 between Gevity HR, Inc. and Paul E. Benz (filed as Exhibit 99.5 to the Company’s Current Report on Form 8-K filed August 31, 2007 and incorporated herein by reference).*

10.22

Employment Agreement between the Company and Erik Vonk, dated March 21, 2002 (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed March 25, 2002 and incorporated herein by reference).*

10.22.1

Form of Securities Purchase Agreement between the Company and Erik Vonk (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed March 25, 2002 and incorporated herein by reference).*

10.22.2

Change in Control Severance Agreement between the Company and Erik Vonk, dated September 21, 2004 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 24, 2004 and incorporated herein by reference).*

10.22.3

Amendment Number One to the Change in Control Severance Agreement executed on August 29, 2007 between Gevity HR, Inc. and Erik Vonk (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed August 31, 2007 and incorporated herein by reference).*

10.22.4

Separation Agreement and Full and Final Release of Claims between Gevity HR, Inc. and Erik Vonk, dated November 2, 2007 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 filed November 9, 2007 and incorporated herein by reference).*

10.23

Promotion Letter from the Company accepted by Peter C. Grabowski, dated April 23, 2003 (filed as Exhibit 99.3 to the Company’s Current Report on Form 8-K filed April 24, 2003 and incorporated herein by reference).*

10.23.1

Change in Control Severance Agreement between the Company and Peter C. Grabowski, dated September 21, 2004 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 24, 2004 and incorporated herein by reference).*

10.23.2

Separation Agreement and Full and Final Release of Claims between Gevity HR, Inc. and Peter Grabowski, dated July 24, 2007 (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed July 27, 2007 and incorporated herein by reference).*

10.24

Employment offer letter from the Company accepted by Michael Collins on February 23, 2006 (filed as Exhibit 10.56 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 16, 2007 and incorporated herein by reference).*

10.24.1

Change in Control Severance Agreement executed on March 13, 2006 between Gevity HR, Inc. and Michael Collins (filed as Exhibit 10.57 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 16, 2007 and incorporated herein by reference).*

Exhibit No.

Description

10.25

Form of Indemnification Agreement between the Company and each of its directors and executive officers (filed as Exhibit 10.36 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 16, 2007 and incorporated herein by reference).*

10.26

Agreement of Lease between Osprey-Lakewood Ranch Properties, LLC. and the Company, dated June 6, 2005, for premises located at 9000 Town Center Parkway, Bradenton, Florida 34202 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 10, 2005 and incorporated herein by reference).

10.27

Letter Agreement dated June 28, 2007 between the Company and ValueAct Capital Management, L.P. (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed June 29, 2007 and incorporated herein by reference).

10.28

Healthcare Benefits Contract Among Blue Cross/Blue Shield of Florida, Inc., Health Options, Inc., and the Company, effective October 1, 2005 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 filed October 27, 2005 and incorporated herein by reference).

10.28.1

Amendment No. 1 to the Health Care Benefits Contract between the Company and Blue Cross Clue Shield of Florida and Health Options, Inc. dated as of February 15, 2006 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 22, 2006).

10.28.2

Second Amendment to Agreement to Provide Comprehensive Health Care Benefits date as of February 25, 2008, among Gevity HR, Inc., Blue Cross and Blue Shield of Florida, Inc. and its subsidiary Health Options, Inc. (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 26, 2008).

10.29

Aetna, Inc. Financial Conditions related to the Group Master Policy for the Company, effective January 1, 2003 (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed March 15, 2004 and incorporated herein by reference).

10.30

UnitedHealthcare Group Benefits Agreement effective as of June 1, 2006 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed August 9, 2007 and incorporated herein by reference).

10.31

AIG Risk Management, Inc. 1/1/08-09 Workers Compensation/Employers Liability Final Bound Proposal, dated December 14, 2007 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended).+័

Exhibit No.

Description

10.32

AIG Risk Management, Inc. 1/1/07-08 Workers Compensation/Employers Liability Final Bound Proposal, dated December 21, 2006 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.41 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed March 16, 2007 and incorporated herein by reference).

10.33

AIG Risk Management, Inc. 1/1/06-07 Workers Compensation/Employers Liability Final Bound Proposal, dated December 21, 2005 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.39 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed March 8, 2006 and incorporated herein by reference).

10.34

AIG Risk Management, Inc. 1/1/05-06 Workers Compensation/Employers Liability Final Bound Proposal, dated December 16, 2004 (certain confidential information contained in this document, marked by asterisks and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 22, 2004 and incorporated herein by reference).

10.35

AIG Risk Management, Inc. 1/1/04-05 Workers Compensation/Employers Liability Final Bound Proposal, dated December 31, 2003 (certain confidential information in this document, marked by an asterisk and brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended) (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed March 15, 2004 and incorporated herein by reference).

10.36

AIG Risk Management, Inc. 1/1/03-04 Workers Compensation/Employers Liability Final Bound Proposal, dated October 22, 2002 (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed October 23, 2002 and incorporated herein by reference).

10.37

Finance Agreement for Paid Loss Workers’ Compensation Deductible between the Company and Continental Casualty Company, effective as of January 1, 2002 (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed April 1, 2002 and incorporated herein by reference).

10.38

Finance Agreement for Paid Loss Workers’ Compensation deductible between the Company and Continental Casualty Company, effective as of January 1, 2001 (filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 filed March 29, 2001 and incorporated herein by reference).

10.39

Finance Agreement for Paid Loss Workers’ Compensation Deductible between the Company and Continental Casualty Company, effective as of January 1, 2000 (filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed April 3, 2000 and incorporated herein by reference).

10.40

Workers’ Compensation and Employers’ Liability Policy issued by Texas Workers’ Compensation Insurance Fund to Gevity HR of Texas, L.P., effective January 1, 2000 (filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed April 3, 2000 and incorporated herein by reference).

Exhibit No.

Description

10.41

Workers’ Compensation and Employers Liability Policy issued by Continental Casualty Co. to the Company, effective January 1, 2000 (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999 filed April 3, 2000 and incorporated herein by reference).

10.42

Final Binder prepared by National Union Fire Insurance Company of Vermont (a member insurance company of American International Group, Inc.) for the Company related to the Deductible Liability Protection Policy covering workers’ compensation claims up to $1.0 million per occurrence for the program years 2000, 2001 and 2002, dated September 30, 2004 (filed as Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed November 9, 2004 and incorporated herein by reference).

10.43

Final Binder prepared by Continental Casualty Company, National Fire Insurance Company and Transportation Insurance Company (collectively, ‘‘CNA’’) and National Union Fire Insurance Company of Vermont (a member insurance company of American International Group, Inc.) for the Company related to the Deductible Liability Protection Policy covering workers’ compensation claims up to $1.0 million per occurrence for the program years 2000, 2001 and 2002, dated September 30, 2004 (filed as Exhibit 10.9 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed November 9, 2004 and incorporated herein by reference).

10.44

Assignment of Deductible Liability Protection Policy Proceeds from the Company to CNA related to coverage for workers’ compensation claims up to $1.0 million per occurrence for program years 2000, 2001 and 2002, dated October 20, 2004 (filed as Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed November 9, 2004 and incorporated herein by reference).

10.45

Collateral Addendum to January 1, 2002 Paid Loss Workers’ Compensation Deductible Finance Agreement between the Company and CNA, dated October 11, 2004 (filed as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 filed November 9, 2004 and incorporated herein by reference).

10.46

Amended and Restated Credit Agreement dated August 30, 2006 among Gevity HR, Inc., as the Borrower, the Subsidiaries of the Borrower, as the Guarantors, Bank of America, N.A., as Administrative Agent and Other Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 6, 2006 and incorporated herein by reference).

10.46.1

First Amendment to the Amended and Restated Credit Agreement with Bank of America, N.A. dated May 7, 2007 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 10, 2007 and incorporated herein.

10.46.2

Second Amendment to the Amended and Restated Credit Agreement with Bank of America, N.A. dated June 14, 2007 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 19, 2007 and incorporated herein by reference).

10.46.3

Third Amendment to Amended and Restated Credit Agreement dated February 25, 2008, among Gevity HR, Inc., as the Borrower, the Subsidiaries of the Borrower, as the Guarantors, Bank of America,N.A.as Administrative Agent and Other Lenders Party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 26, 2008 and incorporated herein by reference).

21.1

List of Subsidiaries of the Company.+

23.1

Consent of Independent Registered Public Accounting Firm to Annual Report on Form 10-K for the year ended December 31, 2007.+

Exhibit No.

Description

31.1

Certification of Garry J. Welsh, as Interim Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

31.2

Certification of Garry J. Welsh, as Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+

Certification of Garry J. Welsh, as Interim Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.+

Management contract or compensatory plan or arrangement.

Filed electronically herewith.

á&#x;? Confidential treatment has been requested for this exhibit and confidential portions have been filed with the Securities and Exchange Commission

EXHIBIT 21.1 SUBSIDIARIES OF GEVITY HR, INC. as of DECEMBER 31, 2007

Subsidiary

Jurisdiction of Formation

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware New Mexico Florida Delaware Delaware Bermuda Delaware

Gevity HR, L.P.* Gevity HR II, L.P.* Gevity HR III, L.P.* Gevity HR IV, L.P.* Gevity HR V, L.P.* Gevity HR VI, L.P.* Gevity HR VII, L.P.* Gevity HR VIII, L.P.* Gevity HR IX, L.P.* Gevity HR X, L.P.* Gevity HR XI, LLC* Gevity HR XII Corp.* Gevity XIV, LLC* Staff Leasing, LLC* Concorda Insurance Company Limited Gevity Insurance Agency, Inc.

Also does business under the name ‘‘Gevity HR’’.

Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-68929, 333-64242, 333-109332 and 333-125245 on Form S-8 of our reports dated March 17, 2008 relating to (1) the consolidated financial statements and financial statement schedule of Gevity HR, Inc. and subsidiaries (the ‘‘Company’’) which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s adoption of Statement of Financial Accounting Standards No. 123R, ShareBased Payment and (2) the effectiveness of the Company’s internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the year ended December 31, 2007. /s/ Deloitte & Touche LLP Tampa, Florida March 17, 2008

Exhibit 31.1 CERTIFICATIONS I, Garry J. Welsh, certify that: (1) I have reviewed this Annual Report on Form 10-K of Gevity HR, 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 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;

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;

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

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 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

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.

Dated: March 17, 2008

/s/ GARRY J. WELSH Garry J. Welsh Interim Chief Executive Officer

Exhibit 31.2 CERTIFICATIONS I, Garry J. Welsh, certify that: (1) I have reviewed this Annual Report on Form 10-K of Gevity HR, 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 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.

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.

Dated: March 17, 2008

/s/ GARRY J. WELSH Garry J. Welsh Chief Financial Officer

Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Gevity HR, Inc. (the ‘‘Company’’) on Form 10-K for the period ended December 31, 2007, as filed with the Securities and Exchange Commission on or about the date hereof (the ‘‘Report’’), I, Garry J. Welsh, as Interim Chief Executive Officer and as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 17, 2008

/s/ GARRY J. WELSH Garry J. Welsh Interim Chief Executive Officer

Dated: March 17, 2008

/s/ GARRY J. WELSH Garry J. Welsh Chief Financial Officer

4APR200810545213

April 16, 2008 Dear valued shareholders: You are cordially invited to attend the annual meeting of shareholders of Gevity HR, Inc. (‘‘Gevity’’) to be held on May 21, 2008, at our offices in Bradenton, Florida, commencing at 9:00 a.m., local time. The agenda for this meeting includes the annual election of our board of directors, the ratification of the appointment of independent public accountants and the approval of an amendment to our 2005 Equity Incentive Plan. Please refer to the accompanying notice of annual meeting and proxy statement for detailed information regarding the annual meeting. The attached proxy statement is a critical element of the corporate governance process. Its purpose is to answer your questions and to provide you with information about Gevity’s board of directors and executive officers and a discussion of each proposal that requires your vote. Your vote is very important. Regardless of whether you plan to attend the annual meeting, we encourage you to vote as soon as possible to ensure that your shares are represented and your vote is promptly recorded. Votes may be submitted via the Internet, by phone or by signing, dating and returning the enclosed proxy card in the enclosed envelope. On behalf of our board of directors and the management of Gevity, I thank you for your continued interest in, and support of, the affairs of our company. Sincerely,

2APR200823083934 Michael Lavington Chairman

GEVITY HR, INC. 9000 TOWN CENTER PARKWAY BRADENTON, FLORIDA 34202

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 21, 2008 To our shareholders: The annual meeting of shareholders of Gevity HR, Inc. (‘‘Gevity’’) will be held on May 21, 2008, at 9:00 a.m., local time, at our offices located at 9000 Town Center Parkway, Bradenton, Florida 34202 for the following purposes: • to elect eight directors to serve until the 2009 annual meeting of shareholders; and • to ratify the appointment of Deloitte & Touche LLP as Gevity’s independent public accountants to serve for the fiscal year ending December 31, 2008; and • to approve an amendment to Gevity’s 2005 Equity Incentive Plan; and • to transact such other business as may properly come before the meeting or any adjournments or postponements of the meeting. Only shareholders of record at the close of business on March 13, 2008 are entitled to notice of, and to vote at, the annual meeting or adjournments or postponements thereof. A list of shareholders entitled to vote will be available for inspection by shareholders during normal business hours at our principal executive offices for ten business days immediately preceding the meeting date. The list will also be available to shareholders at the meeting. We look forward to your participation in the annual meeting, whether in person or by proxy. By order of our board of directors:

4APR200810545918 Edwin E. Hightower, Jr. Corporate Secretary Bradenton, Florida April 16, 2008 IMPORTANT Whether or not you plan to attend the meeting, we urge you to vote your shares at your earliest convenience. Promptly voting your shares via the Internet; by telephone; or by signing, dating and returning the enclosed proxy card will save Gevity the added expense of additional solicitation. Also, if you have Internet access, we encourage you to record your vote via the Internet—it is easy and convenient and saves the Company significant postage and processing costs. Thank you.

TABLE OF CONTENTS Page

ABOUT THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL 1: ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incumbent Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INFORMATION REGARDING OUR BOARD AND ITS COMMITTEES . . . . . . . . . . . . . . . ‘‘Independence’’ Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Responsibilities and Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board Committees and Charters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Attendance at Board, Committee and Annual Shareholder Meetings . . . . . . . . . . . . . . . . . . . . Communications from Shareholders to the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CORPORATE GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate Governance Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Code of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OWNERSHIP OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Directors, Management and Principal Shareholders . . . . . . . . . . . . . . . Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Related Person Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation Committee Report* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 Grant of Plan Based Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 Outstanding Equity Awards at Fiscal Year-End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 Option Exercises and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Potential Payments Upon Termination or Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . Director Compensation in Fiscal 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AUDIT COMMITTEE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Audit Committee Report* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF DELIOTTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . Audit Committee Pre-Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Determination of Accountant Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fees Paid to Deloitte & Touche LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSAL 3: APPROVAL OF AMENDMENT TO THE GEVITY HR, INC. 2005 EQUITY INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PROPOSALS OF SHAREHOLDERS FOR 2009 ANNUAL MEETING . . . . . . . . . . . . . . . . . . IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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GEVITY HR, INC. 9000 TOWN CENTER PARKWAY BRADENTON, FLORIDA 34202

PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 21, 2008

Gevity HR, Inc. (‘‘Gevity,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us,’’ or ‘‘our’’), a Florida corporation, furnishes this proxy statement to its shareholders in connection with the solicitation by our board of directors on behalf of Gevity of proxies to be voted at the annual meeting of our shareholders to be held May 21, 2008. We are first sending the proxy materials to our shareholders on or about April 17, 2008. Accompanying this proxy statement is Gevity’s 2007 Annual Report to Shareholders, which includes our Annual Report on Form 10-K for the year ended December 31, 2007. Neither the 2007 Annual Report nor the Annual Report on Form 10-K constitutes a part of the proxy solicitation material. ABOUT THE MEETING Record Date and Share Ownership. The record date for shareholders entitled to notice of, and to vote at, the 2008 annual meeting is the close of business on March 13, 2008. The holders of our common stock on the record date are entitled to vote on all matters submitted to our shareholders for a vote at the meeting. In deciding all questions, a holder of common stock is entitled to one vote, in person or by proxy, for each share held in the shareholder’s name on the record date. As of the close of business on March 13, 2008, we had 23,312,826 outstanding shares of common stock. Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of our common stock is necessary to constitute a quorum at the annual meeting of shareholders. If you abstain from voting on a matter, or include instructions in your proxy to abstain from voting on a matter, your shares will be counted for the purpose of determining if a quorum is present, but will not be counted as either an affirmative vote or a negative vote with respect to the proposal. Proposal 1—Election of Directors. You are being asked to vote on the election of the eight director nominees set forth in ‘‘PROPOSAL 1: Election of Directors.’’ Directors will be elected by a plurality vote. This means that the eight nominees receiving the greatest number of votes will be elected. Abstentions and broker non-votes (shares held by brokers that do not have discretionary authority to vote on the matter and have not received voting instructions from their clients) are included in determining if a quorum is present, but will have no effect on the election of directors. Should any nominee become unable or unwilling to accept nomination or election at the time of the annual meeting, the proxy holders may vote for the election in such nominee’s stead of any other person our board of directors may recommend. Proposal 2—Ratification of Appointment of Independent Registered Public Accounting Firm. You are being asked to ratify the audit committee’s appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm to audit the Company’s consolidated financial statements for fiscal year 2008. Deloitte & Touche LLP has served as the Company’s independent auditors since 1996. The proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors will require the approval of a majority of the votes cast at the meeting. Abstentions and broker non-votes are included in determining if a quorum is present, but will not be included in the vote totals and will not affect the outcome of the vote. In the event of a negative vote on such ratification, the audit

committee will reconsider its selection. Even if this appointment is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committee determines that such a change would be in the best interest of the Company and its shareholders. Representatives of Deloitte & Touche LLP will be present at the annual meeting and will have the opportunity to respond to appropriate questions. Proposal 3—Approval of the Amendment to the 2005 Equity Incentive Plan. You are being asked to vote on the approval of an amendment to the Gevity HR, Inc. 2005 Equity Incentive Plan (the ‘‘Plan’’) to modify the 400,000 share limit on the number of shares subject to stock incentive awards other than stock options that may be issued under the Plan. If the amendment is approved, the entire pool of 2,000,000 shares available for grant under the Plan would be issuable not only in the form of stock options, but also in the form of any other stock incentive permissible under the Plan. The proposal to approve the amendment to the Plan will require the approval of a majority of the votes cast at the meeting. Abstentions and broker non-votes are included in determining if a quorum is present, but will not be included in the vote totals and will not affect the outcome of the vote. Other Expected Meeting Proposals. There are no other matters that our board intends to present, or has reason to believe others will present, at the annual meeting. If other matters are properly presented for voting at the annual meeting, the persons named as proxies will vote in accordance with their best judgment on such matters. Submitting Your Proxy. If you complete and submit the enclosed proxy card, the persons named as proxy holders will vote the shares represented by your proxy in accordance with your instructions. If any other matter or business is brought before the annual meeting, the proxy holders may vote the shares for which they hold proxies at their discretion. Our board of directors does not presently know of any such other matter or business. If you submit an executed proxy card but do not fill out the voting instructions, the persons named as proxy holders will vote your shares represented as follows: • FOR the election of the director nominees set forth in ‘‘PROPOSAL 1: Election of Directors;’’ and • FOR the ratification of Deliotte & Touche LLP as independent public accountants for the fiscal year ending December 31, 2008; and • FOR the approval of the amendment to the Plan. To ensure that your vote is recorded promptly, please vote as soon as possible, even if you plan to attend the annual meeting in person. Shareholders have three options for submitting their vote: • via the Internet; • by telephone; or • by signing, dating and returning the enclosed proxy card in the enclosed envelope. If you have Internet access, we encourage you to record your vote on the Internet. It is easy and convenient, and it saves us significant postage and processing costs. In addition, when you vote via the Internet or by telephone prior to the meeting date, your vote is recorded immediately, and there is no risk that postal delays will cause your vote to arrive late and not be counted. Whether voting via Internet, by telephone or by submitting a proxy card, please follow the instructions on the accompanying proxy card. If you attend the annual meeting, you may also submit your vote in person, and any previous votes that you submitted, whether by Internet, telephone or mail, will be superseded by the vote that you cast in-person at the annual meeting. At this year’s meeting, proxies will be accepted until 11:59 p.m. local time on May 20, 2008 (the day before the annual meeting), and no further proxies will be accepted after that time.

Legal Proxy. Please note that if your shares are held by a bank or brokerage firm, you will need to request a legal proxy from such bank or brokerage firm to be able to vote in person at the annual meeting. Additionally, if you request a legal proxy, any previously executed proxy will be revoked and your shares will not be voted unless you attend the annual meeting and vote or appoint another proxy. If you have any questions about submitting your vote, you may call our corporate secretary at 941-741-4616 or American Stock Transfer & Trust Company, our transfer agent, at 1-800-937-5449. Revoking Your Proxy. You may revoke your proxy at any time prior to 11:59 p.m. local time on May 20, 2008 (the day before the annual meeting) by voting again via the Internet, by telephone or by submitting a written revocation or later-dated proxy card. You may also revoke your proxy by attending the annual meeting and voting in person. If you hold shares through a bank or brokerage firm, you must contact that bank or firm directly to revoke any prior voting instructions. Explanation of Registered Holders versus Beneficial Holders. If your Gevity shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, you are considered a ‘‘registered shareholder’’ with respect to those shares. If this is the case, the proxy materials have been forwarded to you directly by Gevity. If your Gevity shares are held for your benefit by a bank or brokerage firm, the proxy materials have been forwarded to you by that bank or brokerage firm. In that case, you, as the beneficial holder, have the right to direct your bank or brokerage firm on how to vote your shares by following the voting instructions provided to you by that bank or brokerage firm. Inspectors of Election. inspectors of election.

Broadridge Investor Communications will tabulate the votes and act as

PROPOSAL 1: ELECTION OF DIRECTORS Our board of directors nominated the persons listed below to stand for reelection as a director for a one-year term beginning at our annual meeting of shareholders on May 21, 2008 until our next annual meeting of shareholders or until their successors, if any, are elected or appointed. The nominees include six ‘‘independent directors,’’ as determined in accordance with applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’), and The NASDAQ Stock Market, LLC’s (‘‘NASDAQ’’) Marketplace Rules, and incumbent directors Michael Lavington and Paul Daoust. Unless proxy cards are otherwise marked, the persons named as proxy holders will vote all proxies received FOR the election of each nominee. Should any nominee become unable or unwilling to accept nomination or election at the time of the annual meeting, the proxy holders may vote for the election in such nominee’s stead of any other person our board of directors may recommend. Incumbent Director Nominees Michael J. Lavington, age 61, has served as chairman of Gevity since October of 2007 and as a director since September 2006. In October 2007, our board announced that Mr. Lavington is our board’s choice for appointment as the Company’s chief executive officer, subject to obtaining all necessary immigration approvals. Since 2003, Mr. Lavington has acted as an independent business consultant serving clients in the United Kingdom and the United States. In 2002, Mr. Lavington left Global Telesystems, Inc., where he served as senior vice president of human resources and property from 2000. From 1999 to 2000, Mr. Lavington served as senior consultant with Garner International, an executive recruitment and business consultancy firm. From 1991 to 1999, Mr. Lavington worked for the Rank Group, PLC, initially as the group human resources director and later as president and chief executive office of their US subsidiary, Resorts USA, Inc. From 1984 to 1990, Mr. Lavington was employed by the Mecca Leisure Group, PLC, serving as group services director and later, from 1984 to 1991, as divisional managing director of its overseas division, which included the Hard Rock Caf´ e Group. In 1985, Mr. Lavington was appointed to the main board of Mecca Group. Mr. Lavington is a citizen of the United Kingdom. George B. Beitzel, age 79, has served as a director of Gevity since November 1993. Mr. Beitzel retired from IBM in 1987, where he had served for 32 years, the last 14 as a member of IBM’s board of directors and corporate officer. Mr. Beitzel currently serves on the board of directors of Actuate Corporation, Deutsche Bank Trust Company Americas, Bitstream, Inc. and Computer Task Group, Incorporated. Mr. Beitzel is chairman emeritus of Amherst College and Colonial Williamsburg Foundation. He is a graduate of Harvard Business School and served 12 years on the board of directors of the Associates at Harvard Business School. Todd F. Bourell, age 37, has served as a director of Gevity since June 2007. Mr. Bourell is a partner at ValueAct Capital, LLC, a privately-owned hedge fund, which he joined in May 2001. Prior to joining ValueAct, he was employed at Wellington Management Company as an analyst covering the telecommunications services industry. Mr. Bourell also served as director of Insurance Auto Auctions, Inc. from September 2004 to May 2005. He is a graduate of the University of Pennslyvania’s Wharton School of Business and Harvard College. Paul R. Daoust, age 60, has served as a director of Gevity since May 2006. Mr. Daoust currently serves as chairman of the board and chief executive officer of HighRoads, Inc., a privately-held technology enabled solutions company in the human resources space, which he joined in February 2005. From October 2000 until his retirement in July 2003, Mr. Daoust served as chairman of the board and chief executive officer of GRX Technologies, Inc., a privately-held software company focused on supply chain management for the commercial insurance industry. Mr. Daoust also served as executive vice president and chief operating officer of Watson Wyatt Worldwide, Inc., one of the world’s largest

human resource consulting firms, from June 1993 to June 1998. He worked for Watson Wyatt for 28 years and served on their board of directors for nine years. He currently serves on the board of Salary.com, a publicly-held technology company in the human resources space, and on the advisory boards of Brodeur Worldwide (part of the Omnicom Group) and LaborMetrix, Inc. Jonathan H. Kagan, age 51, has served as a director of Gevity since May 1999. Since January 2001, Mr. Kagan has been a managing principal at Lazard Alternative Investments. From 1995 to 2000, Mr. Kagan served as managing director of Centre Partners Management, LLC, managing investments on behalf of Centre Capital Investors II, LP and affiliated entities. From 1990 to 2000, Mr. Kagan was a managing director of Corporate Advisers, LP. From 1985 to 2000, he was a managing director of Lazard Freres & Co., LLC. David S. Katz, age 42, has served as a director of Gevity since June 2003. Since February 2006, Mr. Katz has been a principal of GTCR Golder Rauner, LLC, a Chicago-based private equity investment firm. From April 2000 to January 2006, he served as a managing director of Frontenac Company, LLC, a private equity investment firm. Mr. Katz currently serves on the board of directors of APS Healthcare and Capella Healthcare, Inc., and has previously served on the board of directors of Natural Nutrition Group, Inc., Pro Mach, Inc. and numerous other privately-held companies. Mr. Katz joined Frontenac in 1994 after holding positions at The Clipper Group and The Boston Consulting Group. Jeffrey A. Sonnenfeld, age 54, has served as a director of Gevity since May 2004. Dr. Sonnenfeld is currently the senior associate dean for executive programs and a professor at the Yale School of Management. In addition, he is the president and chief executive officer of the Chief Executive Leadership Institute which he founded in 1998 and which was acquired by Yale University in 2001. From 1989 to 1997, Dr. Sonnenfeld was a professor at the Goizueta Business School of Emory University. From 1980 to 1987, he was a professor at the Harvard Business School. Dr. Sonnenfeld currently serves on the board of directors of TheStreet.com, Inc. and Lennar Corporation. Daniel J. Sullivan, age 61, has served as a director of Gevity since May 2007. Mr. Sullivan began his career as an operations supervisor for Roadway Express. In 1983, he joined Roadway Services where he founded Roadway Package System (‘‘RPS’’), serving as RPS’s president and chief executive officer until 1990. Mr. Sullivan became vice president and group executive for Roadway Services in 1990, senior vice president and president of the National Carrier Group in 1993, president and chief operating officer in 1994, and chairman, president and chief executive officer in 1995. Mr. Sullivan served on the board of directors of Roadway Services from 1990 to 1996. In 1996, Mr. Sullivan led the transformation of Roadway Services to Caliber System, Inc. He served as chairman, president, and chief executive officer of Caliber until 1998. In 1998, Caliber System was acquired by FedEx Corporation. Mr. Sullivan returned to FedEx Ground (formerly RPS) and served as president and chief executive officer until his retirement on December 31, 2006. Mr. Sullivan is a member of the boards of directors of Computer Task Group, Inc. (Buffalo, NY), GDS Express, Inc. (Akron, OH), and Pike Electric, Inc. (Mount Airy, NC) and serves as a commissioner on the Flight 93 National Memorial Federal Advisory Commission. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’ THE ELECTION AS DIRECTOR OF EACH OF THE NOMINEES WHOSE NAME APPEARS ON THIS AND THE PRECEDING PAGES.

INFORMATION REGARDING OUR BOARD AND ITS COMMITTEES Gevity’s system of governance is allocated between our shareholders, our board of directors and our employee management team. Our shareholders elect our board and vote on extraordinary matters, our board acts as the Company’s governing body, and management runs the Company’s day-to-day operations. Our board of directors currently consists of eight directors, all of whom are being nominated for re-election as described in ‘‘PROPOSAL 1: Election of Directors.’’ ‘‘Independence’’ Determination Our board of directors believes that there should be a substantial majority of independent directors on our board and that it is useful and appropriate to have our chief executive officer serve as a director. Except for Michael Lavington and Paul Daoust, each of our directors was determined to be ‘‘independent’’ in accordance with applicable corporate governance rules under the Exchange Act and NASDAQ. The NASDAQ independence definition includes a series of objective tests, such as whether the director is an employee of the company or has engaged in various types of business dealings with the company. In addition, as required by NASDAQ Marketplace Rules, our board and the nominating/ corporate governance committee each made a subjective determination as to whether each director has any relationships which, in their opinion, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In making these determinations, our board and the nominating/corporate governance committee reviewed and discussed information provided by each director and the Company with regard to each director’s business and personal activities as they may relate to the Company and management. Based on the foregoing, each of the members of the audit committee, the nominating/corporate governance committee, other than Mr. Daoust, and the compensation committee meets the independence requirements, as established by NASDAQ. Mr. Daoust will resign from the nominating/ corporate governance committee on May 21, 2008. Following the board’s determination in 2008 that Mr. Daoust was not independent, he recused himself from all actions of the nominating/corporate governance committee. For a discussion of Mr. Daoust’s relationship with the Company, see ‘‘Certain Related Person Transactions.’’ In addition, (i) the members of the audit committee meet the applicable standards for audit committee members established by the SEC and NASDAQ and (ii) the members of the compensation committee meet the applicable standards under the Internal Revenue Code of 1986 (the ‘‘Code’’) and the Exchange Act. Board Responsibilities and Structure The primary responsibilities of our board are oversight of, and counseling and direction to, our management in the long-term interests of the Company and our shareholders. Our board’s responsibilities include: • selecting and regularly evaluating the performance of the chief executive officer and other executive officers; • planning for succession with respect to the position of chief executive officer and monitoring management’s succession planning for other executive officers; • reviewing and, when appropriate, approving our major financial objectives and strategic and operating plans and actions; • overseeing the conduct of our business to evaluate whether the business, in the judgment of our board, is being properly managed; and • overseeing the processes for maintaining our integrity with regard to our financial statements and other public disclosures as well as compliance with law and ethical business practices.

Our board instructed our chief executive officer to work with our other executive officers to manage our business in a manner consistent with our standards and practices, in accordance with all applicable legal requirements and our published Code of Business Conduct and Ethics and in compliance with any specific plans, instructions or directions of our board. Our management is responsible for seeking the advice and, in appropriate situations, the approval of our board with respect to extraordinary actions to be undertaken by the Company. Board Committees and Charters Our board has delegated various responsibilities and certain authority to its established board committees. The established committees of our board are the audit, compensation, nominating/ corporate governance, and executive committees. These committees regularly report on their activities and actions to the full board. Each year our board appoints the members of its committees. The board and its committees meet throughout the year on a set schedule, and also hold special meetings and act by written consent from time to time, as appropriate. Board meeting agendas include regularlyscheduled sessions for the independent directors to meet in the executive session without management or non-independent directors present. A copy of the current committee charter for each committee, as well as a copy of our Guidelines on Significant Corporate Governance Issues, are posted in the ‘‘About Gevity—Corporate Governance’’ section of our website, www.gevity.com. As of the date of this proxy statement, the members of our board committees are as follows:

Director

Michael J. Lavington . George B. Beitzel . . . Todd F. Bourell . . . . . Paul R. Daoust* . . . . Jonathan H. Kagan . . David S. Katz . . . . . . Jeffrey A. Sonnenfeld . Daniel J. Sullivan . . . . *

Audit

. . . . . . . .

Compensation

Nominating/ Corporate Governance

Executive

Chair X

Chair X X Chair

X Chair X

X X

Mr. Daoust will resign from the nominating/corporate governance committee effective May 21, 2008.

Audit Committee. The audit committee assists our board in fulfilling its responsibilities by overseeing Gevity’s accounting and financial reporting processes, the audit of our consolidated financial statements, the qualifications of the independent registered public accounting firm engaged as our independent auditor, and the performance of the internal auditors and independent auditors. The audit committee is solely responsible for the appointment, dismissal, compensation and oversight of the work of Gevity’s auditors. In addition, the audit committee generally approves any related party transactions, oversees our internal compliance programs and is responsible for establishing procedures for the receipt, retention and treatment of complaints received by Gevity regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission from our employees, received through established procedures, of concerns regarding questionable accounting or auditing matters. The audit committee relies on the expertise and knowledge of management, the internal auditors, and our independent auditor in carrying out its oversight responsibilities. The responsibilities and activities of the audit committee are described in greater detail under ‘‘Audit Committee Report.’’ In 2007, the audit committee held eight meetings.

Our board has determined that each audit committee member has sufficient knowledge in financial and auditing matters to serve on the audit committee and is financially literate as required by the NASDAQ Marketplace Rules. In addition, our board determined that Mr. Kagan is an ‘‘audit committee financial expert’’ as defined under the Exchange Act. Shareholders should understand that this designation is a disclosure requirement under the Exchange Act related to Mr. Kagan’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Kagan any duties, obligations or liabilities that are greater than are generally imposed on him as a member of the audit committee and our board, and his designation as an ‘‘audit committee financial expert’’ pursuant to this requirement does not affect the duties, obligations or liabilities of any other member of the audit committee or our board. Compensation Committee. The compensation committee determines the compensation of our executive officers, including our chief executive officer, chief financial officer, chief sales and marketing officer, chief administrative officer, chief information officer, and senior vice presidents. The compensation committee also establishes the parameters for the compensation of our other officers holding the title of vice president. The committee also reviews and reassesses annually the compensation paid to members of our board for their service on our board and board committees and recommends any changes in compensation to the full board for its approval. In addition, the compensation committee authorizes all stock option and other equity-based awards to employees and non-employee directors under our stock option and equity incentive plans. For information about our compensation program, the role of the compensation committee and the engagement of compensation consultants in setting executive compensation, see ‘‘Compensation Discussion and Analysis.’’ The compensation committee held 10 meetings in 2007. Nominating/Corporate Governance Committee. responsible for:

The nominating/corporate governance committee is

• determining the slate of director nominees for election to our board; • recommending candidates for election to our board between annual shareholder meetings; • reviewing the size and composition of our board and its committees; • establishing procedures for the director nomination process; • monitoring compliance with, and reviewing and recommending changes to, our Guidelines on Significant Corporate Governance Issues; and • reviewing Gevity’s policies and programs that relate to matters of corporate responsibility. The nominating/corporate governance committee is responsible for regularly reviewing with our board the appropriate skills and characteristics required of board members in the context of the current size and make-up of our board in light of Company objectives. This assessment includes issues of diversity and numerous other factors, such as professional or business experience and qualifications. These factors, and any other qualifications considered relevant by the nominating/corporate governance committee, are reviewed in the context of an assessment of the perceived needs of our board at that time. As a result, the priorities and emphasis of the nominating/corporate governance committee and of our board may change from time to time to take into account changes in business and other trends and the portfolio of skills and experience of current and prospective board members. Therefore, while focused on the achievements and the perceived ability of potential candidates to make a positive contribution with respect to such factors, the nominating/corporate governance committee has not established any specific minimum criteria or qualifications that a nominee must possess. The nominating/corporate governance committee held three meetings in 2007. The nominating/corporate governance committee will consider candidates proposed by shareholders, provided such nominations comply with the applicable provisions of our bylaws and the

procedures to be followed in submitting proposals. The nominating/corporate governance committee evaluates candidate nominees proposed by shareholders using the same criteria as for other candidates. A shareholder seeking to recommend a prospective nominee for the nominating/corporate governance committee’s consideration should submit the candidate’s name and qualifications by one of the following means: Mail:

Email: Fax:

Gevity HR, Inc. 9000 Town Center Parkway Bradenton, FL 34202 Attn: Edwin E. Hightower, Jr., Corporate Secretary corporate.secretary@gevity.com (941) 744-3322

See ‘‘Proposals of Shareholders for 2009 Annual Meeting’’ for the procedures to be followed by shareholders in submitting proposals, including recommendations for director nominees, to be included in our proxy statement and form of proxy relating to our 2009 annual meeting of shareholders or for consideration at our 2009 annual meeting. Executive Committee. The executive committee may exercise all power and authority of our board of directors when action is required to be taken between regular meetings of our board and where time is of the essence and it is not practicable to convene a special meeting of our board. The executive committee may exercise these powers to the fullest extent permitted under our articles of incorporation, bylaws and Florida law. The executive committee did not hold any meetings in 2007. Attendance at Board, Committee and Annual Shareholder Meetings Our board held 16 meetings in 2007. All directors are expected to attend (in person or by telephonic means) each meeting of our board and the committees on which he or she serves and are also expected to attend the annual meeting of our shareholders. In 2007, no director attended less than 75% of the meetings of our board and the committees on which he or she served. Five of our eight directors attended our 2007 annual meeting of shareholders. Our board does not have a formal policy that seeks to limit the number of committee seats held by an independent director, but our board’s guideline of attending all meetings reflects our board’s expectation that each director will meet his or her commitments to the position. The time commitments of directors vary substantially with regard to their individual involvement with their primary positions; their involvement with other commercial, charitable and similar organizations; and certain other commitments. A director’s involvement with other boards is just one factor considered by the nominating/corporate governance committee in deciding if a director can devote the time and attention necessary to be an informed and effective director of our Company. Communications from Shareholders to the Board Shareholders may contact an individual director, a committee of our board, the independent directors as a group, or our board as a group. All shareholder communications should be sent to the attention of our corporate secretary. This centralized process will assist our board in reviewing and responding to shareholder communications in an appropriate manner. The name of any specific

intended board recipient (or recipients) should be noted in the communication. Communications may be sent by one of the following means: Mail:

Email: Fax:

Gevity HR, Inc. 9000 Town Center Parkway Bradenton, FL 34202 Attn: Edwin E. Hightower, Jr., Corporate Secretary corporate.secretary@gevity.com (941) 744-3322

Our board has instructed our corporate secretary to forward such correspondence only to the intended recipients. Prior to forwarding any correspondence, however, the corporate secretary will review such correspondence and, in his discretion, will not forward certain items to a director if the communication is deemed to be of a commercial or frivolous nature or otherwise inappropriate for our board’s consideration. In such cases, some of that correspondence may be forwarded elsewhere in our Company for review and possible response. The foregoing process has been approved by a majority of our independent directors. Concerns about accounting or auditing matters or possible violations of Gevity’s Code of Business Conduct and Ethics should be reported pursuant to the procedures outlined in the code, which is available in the ‘‘About Gevity—Corporate Governance’’ section of our website, www.gevity.com.

CORPORATE GOVERNANCE Gevity operates within a comprehensive corporate governance framework, which includes defining independence, assigning responsibilities, setting exceptional standards of professional and personal conduct and assuring compliance with such responsibilities and standards. Our board, and especially our nominating/corporate governance committee, regularly monitors developments in the area of corporate governance, including the rules and regulations adopted pursuant to the Sarbanes-Oxley Act of 2002, as well as corporate governance standards and disclosure requirements imposed or recommended by NASDAQ and the SEC. Corporate Governance Guidelines Our board adopted Guidelines on Significant Corporate Governance Issues, which is available in the ‘‘About Gevity—Corporate Governance’’ section of our website, www.gevity.com. Among other matters, the guidelines include the following corporate governance standards: • There should be a substantial majority of independent directors on our board. • Independent directors should meet on a regular basis apart from other board members and management representatives. • All directors should stand for election every year (rather than having a so-called ‘‘staggered board’’). • Board compensation should be a mix of cash and equity-based compensation. Management directors will not be paid for board membership in addition to their regular employee compensation. Independent directors may not receive consulting, advisory or other compensatory fees from Gevity in addition to their compensation as directors. To the extent practicable, independent directors, if any, who are affiliated with our service providers will undertake to ensure that their compensation from such providers does not include amounts connected to payments by Gevity. • Board members must act at all times in accordance with the requirements of our Code of Business Conduct and Ethics, which are applicable to each director in connection with his or her activities relating to Gevity. • Our board establishes committees and appoints the members of such committees. • The audit, compensation and nominating/corporate governance committees should consist entirely of independent directors. • The annual cycle of agenda items for board meetings is expected to change on a periodic basis to reflect board requests and changing business and legal issues. Our board will have regularly scheduled presentations from the heads of significant functional areas within the Company. Our board’s annual agenda will include, among other items, the long-term strategic plan for the Company, capital projects, budget matters and management succession. • Our board may contact and meet with any Gevity employee at any time. • The chief executive officer should report at least annually to our board on succession planning and management development. • At least annually, our board should evaluate the performance of the chief executive officer and other senior management personnel. • Our board and each board committee should conduct periodic self-evaluations and self-assessments of itself and its members.

• Our board should work with management to schedule new-director orientation programs and continuing education programs for directors. The orientation programs are designed to familiarize new directors with Gevity’s businesses, strategies and challenges, and to assist new directors in developing and maintaining the skills necessary or appropriate for the performance of their responsibilities. Continuing education programs for board members may include a mix of in-house and third-party presentations and programs. • Non-employee directors and our executive officers are encouraged to be Gevity shareholders, which beneficial ownership is intended to fully align the interests of Gevity’s directors and executive officers with the interests of its shareholders, further promote the Company’s commitment to sound corporate governance, and signify leadership’s confidence in the Company. These guidelines encourage covered individuals to achieve certain goals concerning the ownership of the Company’s common stock within five years after becoming subject to the guidelines. Non-employee directors are encouraged to own shares of our common stock having a value of not less than five times the amount of the annual fee paid to them for serving as a board member. With respect to our executives, our chief executive officer is encouraged to own shares of our common stock having a value of not less than five times his annual base salary, our executive officers with line responsibility are encouraged to own shares of our common stock having a value of not less than two times their annual base salary and our executive officers with staff responsibilities are encouraged to own shares of our common stock having a value not less than their annual base salaries. • With limited exceptions, directors and officers may not invest in (purchase or otherwise receive or write) derivatives of Gevity securities, e.g., puts and calls on Gevity securities, or enter into any ‘‘short sales’’ or ‘‘short positions’’ with respect to Gevity securities. A short position is one in which the holder will profit if the market price of the securities decreases. Gevity considers it inappropriate and contrary to the interests of Gevity and its shareholders for directors and officers to take such investment positions. Code of Business Conduct and Ethics Our board of directors adopted a Code of Business Conduct and Ethics, which applies to all of our directors, officers and employees with regard to their company-related activities. This code includes Gevity’s policies with respect to conflicts of interest, confidentiality, protection of Gevity’s assets, ethical conduct in business dealings, and respect for and compliance with, applicable law. The code includes, within it, standards applicable to all employees, including our chief executive officer, chief financial officer, chief sales and marketing officer, chief administrative officer, chief information officer, controller and persons performing similar functions, with respect to ethical standards involving disclosures in reports that we file with the SEC and in other public communications. Any waiver of the requirements of our code with respect to any individual director or executive officer is required to be reported to, and subject to the approval of, our board of directors. Since its inception, no waivers to our code have been requested or made. Concerns about accounting or auditing matters, or possible violations of Gevity’s Code of Business Conduct and Ethics, should be reported pursuant to the procedures outlined in the code, which is available in the ‘‘About Gevity—Corporate Governance’’ section of our website, www.gevity.com.

OWNERSHIP OF SECURITIES Security Ownership of Directors, Management and Principal Shareholders At the close of business on March 13, 2008, our record date, we had 23,312,826 shares of common stock issued, outstanding and entitled to vote at our 2008 annual shareholders meeting. The following table sets forth the beneficial ownership of our common stock to our knowledge as of such date of: (1) each of our directors; (2) each of the named executive officers identified in the 2007 Summary Compensation Table included elsewhere in this proxy statement; (3) the beneficial owners of more than 5% of our outstanding common stock; and (4) our directors and executive officers as a group. Unless otherwise indicated, the address for each of the individuals listed in the table below is 9000 Town Center Parkway, Bradenton, Florida 34202. Amount and Nature of Beneficial Ownership(1)

Name of Beneficial Owner

ValueAct Capital Management, LP . . . . . . . . . . . . . . . . . . . . . . . . . .

Percent of Class

3,289,284(2)

14.11%

1,552,335(3)

6.66%

1,438,115(4)

6.17%

1,267,100(5)

5.44%

435 Pacific Avenue, 4th Floor, San Francisco, CA 94133 Putnam, LLC, doing business as Putnam Investments . . . . . . . . . . . . . One Post Office Square, Boston, Massachusetts 02109 Barclays Global Investors, NA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Fremont Street, San Francisco, CA 94105 Manning & Napier Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 290 Woodcliff Drive, Fairport, New York 14450 Garry J. Welsh, SVP, Chief Financial Officer & Interim Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15,000(6)

James E. Hardee, SVP, Chief Sales and Marketing Officer . . . . . . . . . . .

12,500(7)

Clifford M. Sladnick, SVP, Chief Administrative Officer . . . . . . . . . . . . .

75,789(8)

Paul E. Benz, SVP, Chief Information Officer . . . . . . . . . . . . . . . . . . . .

22,334(9)

Erik Vonk, Former Chairman and Chief Executive Officer . . . . . . . . . . .

1,343,691(10)

5.49%

Peter C. Grabowski, Former SVP, National Sales & Field Service Operations(20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

â&#x20AC;&#x201D;

Michael J. Lavington, Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,135(11)

George B. Beitzel, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54,471(12)

Todd F. Bourell, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,085(13)

Paul R. Daoust, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,135(14)

Jonathan H. Kagan, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115,968(15)

David S. Katz, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

26,806(16)

Jeffrey A. Sonnenfeld, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,181(17)

Daniel J. Sullivan, Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,702(18)

Directors and executive officers as a group (12 persons) . . . . . . . . . . .

381,106(19)

1.62%

* Less than 1%. (1) Unless otherwise stated, the beneficial owner has sole voting and investment power over the shares indicated. References in the footnotes below to currently exercisable stock options include options exercisable within 60 days of March 13, 2008.

(2) The amount shown and the following information is based on a Schedule 13D/A jointly filed with the SEC on September 27, 2006 by: (a) ValueAct Capital Master Fund, LP (‘‘ValueAct Master Fund’’); (b) ValueAct Capital Master Fund III, LP (‘‘ValueAct Master Fund III’’); (c) VA Partners, LLC (‘‘VA Partners’’); (d) VA Partners III, LLC (‘‘VA Partners III’’); (e) ValueAct Capital Management, LP (‘‘ValueAct Management LP’’); (f) ValueAct Capital Management, LLC (‘‘ValueAct Management LLC’’); (g) Jeffrey W. Ubben; (h) George F. Hamel, Jr.; and (i) Peter H. Kamin. As of the date of the Schedule 13D/A: (1) ValueAct Master Fund was the beneficial owner of 2,983,384 shares of our common stock, which shares may also be deemed to be beneficial owned by VA Partners; (2) ValueAct Master Fund III was the beneficial owner of 305,900 shares of our common stock, which shares may also be deemed to be beneficially owned by VA Partners III; and (3) ValueAct Management LP, ValueAct Management LLC and Messrs. Ubben, Hamel and Kamin may each be deemed to be the beneficial owner of an aggregate of 3,289,284 shares of our common stock. (3) The amount shown and the following information is based on a Schedule 13G filed with the SEC on February 1, 2008 by Putnam, LLC, doing business as Putnam Investments, on behalf of itself and its investment advisors and subsidiaries: (a) Putnam Investment Management, LLC, the beneficial owner of 908,050 shares of our common stock; and (b) The Putnam Advisory Company, LLC, the beneficial owner of 644,285 shares of our common stock. Shares beneficially owned by Putnam Investments are held in trust accounts for the economic benefit of the beneficiaries of those accounts. (4) The amount shown and the following information is based on a Schedule 13G filed with the SEC on January 10, 2008 by Barclays Global Investors, NA. Shares beneficially owned by Barclays Global Investors, NA are held in trust accounts for the economic benefit of the beneficiaries of those accounts. (5) The amount shown and the following information is based on a Schedule 13G filed with the SEC on February 8, 2008 by Manning & Napier Advisors, Inc. Shares beneficially owned by Manning & Napier Advisors, Inc. are held in trust accounts for the economic benefit of the beneficiaries of those accounts. (6) Represents restricted shares. (7) Represents restricted shares. (8) Includes 12,500 restricted shares and 54,097 shares which Mr. Sladnick has the right to acquire through currently exercisable options. (9) Includes 9,375 restricted shares and 12,500 shares which Mr. Benz has the right to acquire through currently exercisable options. (10) Includes 1,160,880 shares which Mr. Vonk has the right to acquire through currently exercisable options. Mr. Vonk resigned as Chairman and CEO effective October 18, 2007. (11) Includes 3,135 restricted shares and 10,000 shares which Mr. Lavington has the right to acquire through currently exercisable options. (12) Includes 3,135 restricted shares; 6,719 shares which Mr. Beitzel has the right to acquire through currently exercisable options; and also 3,000 shares owned by Mr. Beitzel’s wife. (13) Represents restricted shares. (14) Includes 3,135 restricted shares and 10,000 shares which Mr. Daoust has the right to acquire through currently exercisable options.

(15) Includes 3,135 restricted shares; an aggregate of 330 shares held by Mr. Kagan’s minor children; and also includes 37,005 shares that Mr. Kagan has the right to acquire through currently exercisable options. (16) Includes 3,135 restricted shares and 23,671 shares which Mr. Katz has the right to acquire through currently exercisable options. (17) Includes 3,135 restricted shares and 13,671 shares Dr. Sonnenfeld has the right to acquire through currently exercisable options. (18) Represents restricted shares. (19) Please refer to notes 6 through 9 and 11 through 18. (20) Mr. Grabowski resigned as SVP, National Sales & Field Service Operations effective July 23, 2007. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our executive officers, directors and all persons who beneficially own more than 10% of the outstanding shares of our common stock (‘‘Reporting Persons’’) to file reports of ownership and changes in ownership with the SEC. Reporting Persons are required to furnish us with copies of all reports they file. As a matter of practice, our administrative staff assists our executive officers and directors in preparing and filing such reports with the SEC. To our knowledge, based solely upon a review of copies of reports filed by the Reporting Persons with the SEC for the year ended December 31, 2007, and representations provided to us by the Reporting Persons, no Reporting Person failed to file the forms required by Section 16(a) of the Exchange Act on a timely basis, except that due to an administrative error, a Form 4 reporting Mr. Bourell’s award of 4,085 shares of restricted stock on June 28, 2007 was filed on July 5, 2007. In addition, the Form 3 for Mr. Welsh was filed upon his appointment as chief financial officer and not upon his appointment as interim chief financial officer. Certain Related Person Transactions In 2007, Gevity utilized HighRoads, Inc. for the provision of health and welfare benefits-related advisory services in the ordinary course of business, which are considered arms-length in nature. Paul Daoust, one of our directors, is chairman and chief executive officer of HighRoads, Inc. The Company paid HighRoads, Inc. $600,000 for such advisory services. In the opinion of management, the terms of the health and welfare benefits-related advisory services arrangement are fair and reasonable and as favorable to the Company as those that could be obtained from unrelated third parties. The audit committee has adopted a written policy concerning the review, approval or ratification of all transactions required to be disclosed under Item 404 of Regulation S-K under the Exchange Act. This policy covers all related person transactions required to be disclosed under such regulation as well as all material conflict of interest transactions as defined by relevant state law and the rules and regulations of NASDAQ that are applicable to us. This policy requires that all such transactions be identified by management and disclosed to the audit committee for review and, if required, approval or ratification. At least annually, each director and executive officer completes a detailed questionnaire that asks questions about any business relationship that may give rise to a conflict of interest and all transactions in which Gevity is involved and in which the executive officer, a director or a related person has a direct or indirect material interest. We also conduct a review, at least annually, of our financial systems to determine whether a director, or a company employing a director, engaged in transactions with us during the fiscal year.

EXECUTIVE COMPENSATION Compensation Discussion and Analysis Compensation Program Objectives and Rewards The primary objective of our compensation program, and the guiding philosophy of our compensation committee in designing such program, is to provide a compensation package that attracts and retains talented employees, including our named executive officers. Our program is designed to reward superior performance and hold consequences for underperformance—our ‘‘pay for performance’’ philosophy. A further objective is to ensure the compensation program is aligned with our shareholders’ short- and long-term interests and, in this regard, encourages our named executive officers to act as equity owners. Finally, our compensation program is designed within our cultural framework and ethical standards: Company Culture. We seek to maintain an egalitarian culture in our facilities and operations. Neither our named executive officers nor our other officers are entitled to operate under different standards than those applicable to our other internal employees. We do not provide our named executive officers with reserved parking spaces or separate dining or other facilities, for example, and we have implemented very few programs that provide for personal benefits or perquisites to our named executive officers. As a provider of human resource consulting services, we believe this type of culture inspires trust at all levels and removes any sense of entitlement merely because of someone’s ‘‘level’’ or title. Ethical Standards. Quite simply, ‘‘Integrity Works Here’’ at Gevity. We expect our directors and named executive officers to be role models under our Code of Business Conduct and Ethics, which is applicable to all board members and internal employees. All internal employees, including named executive officers, are required to complete an ethics course upon the start of employment, and we hold periodic ethics-oriented training at all levels. Named Executive Officers for 2007 Currently, our active named executive officers include: Garry J. Welsh, our interim chief executive officer and our senior vice president and chief financial officer; James E. Hardee, our senior vice president and chief sales and marketing officer; Clifford M. Sladnick, our senior vice president and chief administrative officer; and Paul E. Benz, our senior vice president and chief information officer. Over the course of 2007, two of our named executive officers resigned: Erik Vonk, our former chief executive officer, and Peter C. Grabowski, our former senior vice president, national sales & field service operations. They appear in the compensation tables included in this proxy statement and payments made to them in connection with their employment termination are described in a section titled, ‘‘Compensation Paid to Named Executive Officers Who Departed in 2007.’’ Compensation Committee Procedures The compensation committee of our board, which we refer to as the Committee, is empowered under the terms of its charter to review and determine the compensation of our chief executive officer, or CEO, and our other executive officers. The Committee is also responsible for: • approving corporate goals and objectives relating to compensation of our executive officers; • performing annual reviews of our executive officers, including evaluating their performance against the goals and objectives established; and • setting compensation levels or ranges for our executive officers.

The Committee also oversees our compensation plans and policies and administers our equity incentive plans. On an annual basis, the Committee reviews and reassesses the compensation paid to members of our board for their service on our board and board committee(s), and recommends any changes to the full board for its approval. Compensation Consultant The Committee engaged Mercer (US), Inc. (‘‘Mercer’’) as its compensation consultant to provide research, market data, survey information and design expertise in developing compensation programs, including equity programs. At the request of management or the Committee, Mercer attended a number of Committee meetings and performed work based on Committee directives. Mercer did not determine the exact amount or form of compensation for any of the named executive officers. Compensation Benchmarking As in past years, the Committee utilized the services of Mercer to assist in the design of our executive compensation program for 2007 and 2008, and in setting the groundwork for executive compensation in future years. In accordance with the recommendations of Mercer, the Committee uses an industry-related peer group for annual external pay and performance validation. The Committee’s philosophy is to establish compensation opportunities for our named executive officers that are commensurate with our size and our short- and long-term performance goals. The targeted compensation for our named executive officers as established by the Committee is generally at or below the median of the industry-related peer group. • Together with Mercer, the Committee looked at a compensation peer group of 11 publiclytraded companies based on relevant industry/business and size range. These consisted of: Administaff, Inc.; Automatic Data Processing, Inc.; CBIZ, Inc.; Ceridian Corp.; Convergys Corporation; Hewitt Associates, Inc.; Korn Ferry International; Navigant Consulting, Inc.; Paychex, Inc.; Spherion Corp.; and Watson Wyatt & Co. Holdings. Peer group members are the same as the prior year with the exception of TALX Corporation which was acquired by Equifax, Inc. in 2007. • Mercer provides the Committee with data to assist in the review and comparison of each compensation element for our named executive officers. With this information, the Committee reviews and analyzes compensation for each of our named executive officers and makes adjustments as it may deem appropriate. The Committee also requests and considers the recommendations of our CEO with respect to named executive officer compensation, as more fully detailed below. The Role of our CEO in Setting Executive Compensation Because of our CEO’s leadership role in managing our named executive officers and his in-depth knowledge of our business and its performance, we feel it is important for the CEO to have a role in setting the annual incentive plan design and performance goals for our named executive officers and determining their rewards for the prior year’s performance. The Committee’s charter formalizes this role. The CEO is invited to present his recommendations to the Committee at the meeting where these matters are considered, which typically occurs in February or March of each year. The CEO generally provides an overview of the business from his vantage point, including a review of the individual contributions of each other named executive officer of our business. The CEO also provides input with respect to the earned rewards for the other named executive officers, which he provides in the context of our prior year performance and our plans for the coming year. The CEO then participates in the Committee’s discussions of his recommendations with respect to the other named executive officers. We believe that the discussions between the CEO and the Committee are an important piece of the

evaluative process in which the Committee engages. The CEO, however, does not participate in the Committee’s discussions in which they consider and set his compensation. No other named executive officer participates in the compensation decision-making process. Mr. Vonk participated in these meetings and provided his thoughts and recommendations through his departure from the Company in October 2007, including those meetings that considered 2006 annual awards and 2007 annual incentive plan design. Because the CEO resigned over the course of 2007, the Committee invited Mr. Lavington to participate in providing recommendations to the Committee during its considerations of 2007 annual awards and 2008 annual incentive plan designs, in light of his assumption of a greater oversight role with the Company during the third and fourth quarters of 2007 at the request, and on behalf, of our board. For a discussion of the additional oversight roles Mr. Lavington performs on behalf of our board, see ‘‘Mr. Lavington’s Additional Board Fees.’’ What Our Compensation Program is Designed to Reward Quite simply, our compensation program is designed to attract and retain highly qualified individuals at all levels in our business and properly incentivize them to enhance shareholder value, as further described below. It is designed to reward our executives for superior performance and hold consequences for underperformance. Pay Elements Our compensation practices reflect the Committee’s pay for performance philosophy, whereby a significant portion of executive compensation is at risk and tied to both Company and business unit or function performance. Our compensation program consists of several elements, which are described below: Pay Element

Purpose of the Pay Element and What it Rewards

Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provides fixed compensation that is in line with our philosophy on competitive and market practices. Intended to reward core competence in the executive’s role relative to skills, experience and contributions to our business.

Annual Cash Incentives (Short Term Incentives) . .

Provides at-risk variable pay opportunity. Intended to reward achievement of specific annual Company and business unit or function objectives.

Long-term Incentives . . . . . . . . . . . . . . . . . . . . .

Provides at-risk variable pay opportunity tied to long-term objectives that are aligned with shareholder interests. Intended to reward both performance and tenure and encourage executives to act as equity owners.

Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Retention of our most senior executives. Designed to assist the senior executive to efficiently perform their responsibilities and minimize distractions.

Retirement Benefits . . . . . . . . . . . . . . . . . . . . . .

Part of our broad-based total rewards program. Designed to provide a safety net of protection against financial catastrophes that can result from illness, disability or death.

Pay Element

Purpose of the Pay Element and What it Rewards

Health and Welfare Benefits . . . . . . . . . . . . . . . .

Part of the broad-based total rewards program. Designed to provide ready access to health care so that we can maintain a healthy and productive workforce. Also provides a safety net of protection against financial catastrophes that can result from illness, disability or death.

Severance and Change in Control . . . . . . . . . . . .

Includes general and change in control severance agreements. General severance agreements provide severance in the case of termination for other than ‘‘cause.’’ Change in control agreements provide for severance in the event of termination within two years after a qualifying change in control event. Designed to attract and retain talent, reflect general market practice and, in the case of the change in control agreements, to provide for continuity of management.

Base Salary We seek to attract and retain qualified executive officers, and we feel it is important to offer a competitive base salary to achieve this goal. We typically benchmark new executive officers against equivalent executive officers in our peer group to set initial base salary levels. Annually thereafter the Committee utilizes Mercer to provide benchmark reviews. Base salary reviews are conducted one time each year, typically in February or March. In its review, the Committee generally considers the CEO’s recommendations, general contribution at the individual level, Mercer’s benchmark data, and the executive officers’ competencies and skill level, in addition to their individual performance. 2007 Base Salary The actions taken by the Committee with respect to named executive officers relating to base salary for 2007 are outlined in the table below. The base salaries are between 21% and 38% of total target pay. Messrs. Welsh and Hardee were not employed by the Company in 2006. Named Executive Officer

2006 Base Salary

2007 Base Salary

% Change

Garry J. Welsh

N/A

$450,000

—

James E. Hardee

N/A

$385,000

—

Clifford M. Sladnick

$345,000

$360,000

4.3%

Paul E. Benz

$264,000

$325,000

23.1%

Erik Vonk

$650,000

$700,000

7.7%

Peter C. Grabowski

$350,000

$360,000

2.9%

The adjustments to base salaries for 2007 were a result of the process described above and, for Mr. Benz, also included a promotion to senior vice president. Messrs. Welsh and Hardee’s base salaries were determined in connection with their employment with the Company.

2008 Base Salary The continuing named executive officers’ base salaries for 2008 are between 30% and 38% of total target pay. The Committee determined the 2008 base salaries as indicated in this table: Named Executive Officer

2007 Base Salary

2008 Base Salary

% Change

Garry J. Welsh

$450,000

$468,000

4.0%

James E. Hardee

$385,000

$400,000

3.9%

Clifford M. Sladnick

$360,000

Paul E. Benz

$325,000

$360,000

10.8%

The adjustments to base salaries for 2008 were a result of the process described above and, for Mr. Benz, also included internal pay considerations. Mr. Sladnick’s base salary for 2008 was not adjusted based on his decision to voluntarily resign his position with the Company, effective July 31, 2008 (as previously disclosed on a Form 8-K filed on February 26, 2008). Because of Mr. Vonk’s departure in October 2007, and given our board’s announced intention to appoint Michael Lavington, subject to his obtaining all necessary immigration approvals, to serve as the Company’s chief executive officer, the Committee has approved a base salary for Mr. Lavington that will comprise approximately 21% of his total target pay upon being appointed as chief executive officer. Upon his appointment, Mr. Lavington’s base salary for 2008 will be $710,000. Annual Cash Incentives We believe that our named executive officers should be eligible to receive annual cash rewards linked to achievement of specific short-term goals, both as a company and within the executive’s individual business unit or function. We establish an operating plan each year that outlines our short-term (annual) goals, consisting of both financial goals and individual business unit or function goals. As such, our annual incentive plan includes an opportunity to earn a cash reward each year based on a mix of both corporate financial and individual business unit or function performance goals. Each chosen metric has levels of performance results that correspond with an earned award level funded at 50% of target for threshold performance, 100% at target performance and 150% of target at superior performance. Performance Targets For 2007, 100% of the annual incentive opportunity for Messrs. Hardee and Vonk and 66.7% of the annual incentive opportunity for Messrs. Sladnick, Benz and Grabowski were comprised of Company performance objectives, with respect to earnings per share (‘‘EPS’’), professional service fees (‘‘PSF’’) and worksite employees (‘‘WSE’’) performance goals as follows: Threshold

Target

Superior

EPS

1.31

1.33

1.50

PSF ($Million)

163.0

177.7

195.0

WSE

128,400

151,427

165,000

For Messrs. Sladnick, Benz and Grabowski, 33.3% of the annual incentive opportunity consisted of performance objectives, specific to their business unit or function. For Mr. Sladnick, the performance objective was based on the operationalization of HRAmerica and a benefits administration source or

partnership; for Mr. Benz, the performance objective was based on the realization of the service delivery enhancement business case; and for Mr. Grabowski, the performance objective was based on the degree to which he completed the field alignment and implementation of market plans. Mr. Welsh was eligible for a cash bonus of $42,000 subject to adjustment based on the evaluation of his individual performance and contribution. Annual Incentive Payouts and Bonus Awards For 2007, a substantial portion of each named executive officer’s total target pay opportunity— from approximately 24% to 27%—consisted of the annual incentive element, in line with emphasis on performance-based pay. We did not meet our EPS, PSF or WSE goals, and, in line with our pay for performance philosophy, the named executive officers’ annual cash incentive payments were appropriately impacted. Messrs. Sladnick and Benz each achieved their business unit or function performance goals at threshold and target, respectively. In determining the bonus awards for Messrs. Welsh and Hardee, each of whom joined the Company over the course of 2007, the Committee considered the terms of their respective Offer Letters, their respective contributions during their tenure, Mr. Lavington’s recommendations and internal equity issues. In addition, in light of the turnover of Company executives over the course of 2007, the Committee considered the additional factor of retention of key talent in making these awards, believing that stabilization of the current executive team is in the best interest of the Company and the shareholders. Messrs. Welsh and Hardee will fully participate in the 2008 annual cash incentive program. Messrs. Vonk and Grabowski, who departed prior to the completion of the year, were not awarded annual cash incentives for 2007. The 2007 target and actual annual cash incentives are as follows: 2007 Target as % of Base Salary

2007 Target Annual Cash Incentive

N/A(1)

$ 42,000

0(3)

80% of base salary (prorated)(2)

$128,333

0(3)

Clifford M. Sladnick

66.7%

$240,120

$40,000

Paul E. Benz

66.7%

$216,775

$75,000

Erik Vonk

130%

$910,000

0(4)

Peter C. Grabowski

80%

$288,000

0(4)

Named Executive Officer

Garry J. Welsh James E. Hardee

2007 Actual Annual Cash Incentive

(1) See Offer Letter with Mr. Welsh filed on Form 8-K (dated August 7, 2007). (2) See Offer Letter with Mr. Hardee filed on Form 8-K (dated August 7, 2007). (3) Messrs. Welsh and Hardee were granted discretionary bonuses as described above. (4) Messrs. Vonk and Grabowski resigned during the course of 2007 and were not awarded any 2007 annual cash incentives.

Long-Term Incentives In furthering our goal of aligning the interests of our named executive officers with the long-term interests of our shareholders, we provide long-term incentives in the form of equity awards. We believe this encourages our named executive officers to act as equity owners. In other words, we reward continued progression in terms of stock performance. Grant Practices The Committee generally makes regular annual equity grants at the same time it determines annual incentive awards for the prior year’s service, which typically occurs at its regularly scheduled meeting in February or March. The authority to grant equity awards to employees is reserved to the Committee, and the Committee does not delegate its authority, except that the Committee has established guidelines for equity grants to newly hired employees at the vice president level, granted as an inducement to employment. These guidelines are reviewed by the Committee annually. The Committee does not time the award of equity grants based on the release of material non-public information. 2007 Awards Long-term incentives make up between approximately 37% to 52% of each named executive officers’ total target pay, which the Committee believes is an appropriate portion of total pay and reflective of peer group and market practices. The value of the long-term incentive awards are determined as a percentage relative to base pay and then converted to actual awards using a BlackScholes valuation. In making its long-term incentive award determinations, the Committee considers the performance of each named executive officer in achieving objectives that support the long-term performance of our business, as well as an evaluation of the potential for the named executive officer’s future contribution to the long-term success of our Company. The 2007 grants approved by the Committee on April 10, 2007, are:

Named Executive Officer

2006 Target as % of Base Salary

2006 Target Long-term Incentive Award

2006 Actual Long-term Incentive Award Granted in 2007 (#)

Garry J. Welsh

N/A

James E. Hardee

N/A

100%

$ 350,000

26,415

Clifford M. Sladnick Paul E. Benz Erik Vonk Peter C. Grabowski

200%

$1,300,000

132,075

85%

$ 297,500

26,415

These grants were in the form of stock options that vest at the rate of 25% per year beginning on the first anniversary of the date of grant. The exercise price of each option is equal to the market price of our common stock at the close of trading on the date of grant, or previous close of trading, if the market is closed on the date of grant. We believe options provide a direct and readily observable connection to shareholder value and that multi-year vesting helps us retain our named executive officers.

Messrs. Welsh and Hardee, who joined the Company over the course of 2007, each received an initial equity grant as an inducement to accept employment with the Company. Mr. Welsh received a grant of 15,000 restricted shares and 60,000 stock options and Mr. Hardee received a grant of 12,500 restricted shares and 45,000 stock options. Because Mr. Benz received initial equity grants related to his initial employment during the course of 2006, he was not considered for additional grants in 2007. Although awards were made to Messrs. Vonk and Grabowski, due to their departures over the course of 2007, no portion of these awards vested (pursuant to the terms and conditions applicable to each grant). Plans for 2008 For 2008, the Committee has reconfirmed its philosophy that long-term incentives should be used to drive achievement of objectives that will sustain our business and build shareholder value and to strongly align the named executive officers’ interests with those of our shareholders. While prior year equity grants were made in the form of options, the Committee intends to use other forms of awards, as may be available under the applicable shareholder approved plans, as part of the long-term incentive program going forward. Use of multiple vehicles is also reflective of competitive practices within our peer group. Given the changes in the executive leadership team as well as the restated near-term direction of the Company, our board believes it is in the best interest of shareholders to properly incentivize the members of the executive leadership team through a special equity grant that is subject to performance and time vesting features, which will be facilitated by the proposed amendment to the Plan, as more fully described in ‘‘PROPOSAL NO. 3: Approval of Amendment to the Gevity HR, Inc. 2005 Equity Incentive Plan.’’ The Committee retains full discretion in this regard and in all areas of long-term incentive awards. Perquisites As a part of his negotiated employment agreement (previously filed with the SEC), Mr. Vonk received an annual, non-accountable allowance in the amount of $50,000, which was intended to cover the cost of supplemental life and disability insurance and automobile expenses. This amount has not been increased since Mr. Vonk was first employed by us. Mr. Vonk received a pro-rated allowance in 2007 of $42,308. No other named executive officer receives a similar perquisite. Messrs. Welsh and Hardee each received relocation expense allowances, in the amount of $250,000, in 2007, pursuant to their Offer Letters as an inducement to their employment with the Company, in order to assist their transition to the Bradenton/Sarasota area. Our executives, including our named executive officers, receive enhanced Company contributions to their health and welfare benefits, as described in the ‘‘Health and Welfare Benefits’’ section. Retirement Benefits We believe in offering a vehicle by which all our internal employees, including our named executive officers, can save for retirement on a tax deferred basis both for recruiting and retention reasons. We sponsor a 401(k) plan with a vesting schedule of one year, in which named executive officers, as well as all other internal employees, may participate. We match contributions to the plans at the rate of 50% of the first 4% of the elective contributions by all our internal employees, including the named executive officers. There are no additional retirement benefits available to named executive officers.

Health and Welfare Benefits We provide all regular, full time internal employees, including our named executive officers, comprehensive medical coverage that includes both traditional and leading edge consumer-driven health plan options—health, dental and vision benefits. We believe access to health and welfare benefits provides us with an edge in our recruiting and retention efforts. An additional benefit is that ready access to health care helps us maintain a healthy and productive workforce. We also offer access to supplemental benefits, including short- and long-term disability, accidental death and dismemberment and life insurance. We include, at our expense, ‘‘core’’ life insurance to all internal employees who elect to participate in our health and welfare plan, with a benefit of one-times salary, up to $100,000. For our named executive officers, as well as for all internal employees holding the title of ‘‘director’’ and ‘‘vice president’’, we contribute 100% of the employee-only premiums for the lowest cost medical and dental plan available and 90% of the premiums toward family coverage for the lowest cost medial and dental plan available. We also contribute to all other regular, full time internal employees’ premiums at the rate of 90% of the employee-only premiums for the lowest cost medical and dental plan available, and 50% of the premiums toward family coverage for the lowest cost medical and dental plan available. Severance and Change in Control We provide key executives with general severance and, where appropriate, change in control agreements. We believe this serves to attract and retain talented individuals, and believe it is common practice to have such protections within the marketplace. Two named executive officers departed during the course of 2007 under severance agreements with us, as more fully described in the section titled ‘‘Compensation Paid to Named Executive Officers Who Departed in 2007,’’ below. We have certain agreements in place with our named executive officers, as described in this section. Agreements with Executive Officer—General Severance Although we do not have employment agreements with any of our executive officers, certain of our executive officers are eligible to receive general severance/salary continuation in the event their employment is terminated by us for other than ‘‘cause’’ and provided the executive officer executes a full and complete general release, as agreed to in their offers of employment with us. For a further description, see ‘‘Potential Payments Upon Termination or Change of Control’’ below. Change in Control Agreements We have entered into agreements, referred to below as the ‘‘executive agreements,’’ with Messrs. Welsh, Hardee, Sladnick and Benz, that provide for certain payments to be made to the executive in the event of a change in control of the Company. These agreements are designed to ensure that, in the event we are considering a change in control transaction, our named executive officers are provided a measure of security against the possibility of employment loss so that they may direct their energy to the business. The provisions are intended to make any transaction neutral to the named executive officer’s economic interest. In August of 2007, the Company revised its form of executive agreement to bring such agreements into compliance with the provisions of Section 409A of the Code by delaying certain payments until a period that is six months and one day after the date of termination giving rise to the payment. The Company also standardized the severance-related benefit provisions of the executive agreements, providing for two years equivalent of severance and medical, dental, accident, disability and term life insurance benefits, in addition to accelerated vesting of equity incentive grants, should a change in control event occur (as defined in the executive agreements), as

more fully detailed below under ‘‘Potential Payments Upon Termination or Change of Control.’’ These agreements were filed on Form 8-K dated August 31, 2007. Compensation Paid to Named Executive Officers Who Departed in 2007 Severance Agreement with Erik Vonk In connection with Mr. Vonk’s resignation as our Company’s chief executive officer and chairman of our board effective October 18, 2007 (the ‘‘Severance Date’’), Mr. Vonk and the Company entered into a Separation Agreement and Full and Final Release of Claims, dated November 2, 2007. Pursuant to Mr. Vonk’s March 21, 2002 employment agreement with the Company, Mr. Vonk is entitled to certain severance and other post-termination benefits and payments that are detailed in the Separation Agreement. Mr. Vonk will be paid a total of $1,500,000 through October 18, 2009, together with health and welfare benefits through that period of time. The Separation Agreement also provides an extension of Mr. Vonk’s 90 day option exercise period (i) to the period ending on the first anniversary of the Severance Date to exercise (a) the option granted to him on March 21, 2002 to purchase 100,000 shares of Company stock at a per share price of $3.02 and (b) the option granted to him on May 30, 2002 to purchase 900,000 shares of Company stock at a per share price of $3.90 and (ii) to the period ending on the second anniversary of the Severance Date to exercise (a) the option granted to him on December 15, 2003 (but only to the extent vested as of the Severance Date) with respect to the right to purchase 68,181 of Company stock at a per share price of $21.85, (b) the option granted to him on February 15, 2005 (but only to the extent vested as of the Severance Date) with respect to the right to purchase 57,937 shares of Company stock at a per share price of $21.14, and (c) the option granted to him on February 22, 2006 (but only to the extent vested as of the Severance Date) with respect to the right to purchase 34,762 shares of Company stock at a per share price of $29.22. Severance Agreement with Peter C. Grabowski Peter Grabowski resigned as senior vice president from the Company effective July 23, 2007. In connection with his resignation, Mr. Grabowski and the Company entered into a Severance Agreement, dated July 24, 2007. The Severance Agreement provides that the Company will pay Mr. Grabowski a total of $240,000 through March 13, 2008, together with health and welfare benefits through that period of time. Employee Stock Purchase Plan (ESPP) Internal employees who regularly work more than 20 hours per week and are employed by us for at least 90 days prior to the offering period are eligible to participate in our shareholder-approved ESPP. Participants, through payroll deduction, may purchase a maximum of 500 shares during each semi-annual offering period at a cost of 85% of the lower of the stock price as of the beginning or ending of the offering period, subject to an annual limitation of $25,000. During 2007, 20,301 shares of common stock (from treasury) were sold to employees participating in the employee stock purchase plan for proceeds of approximately $375,442. Our named executive officers are eligible to participate in the ESPP. No named executive officer participated in the ESPP during 2007. Voluntary Stock Ownership Guidelines Our named executive officers are encouraged to be Gevity shareholders, and beneficial ownership of our shares is intended to fully align the interests of Gevity’s executive officers with the interests of our shareholders, further promote our commitment to sound corporate governance and signify leadership’s confidence in our business. These guidelines encourage covered individuals to achieve certain goals concerning the ownership of our common stock within five years after becoming subject to the guidelines. Our CEO is encouraged to own shares of our common stock having a value of not less

than five times his annual base salary, our named executive officers with line responsibility are encouraged to own shares of our common stock having a value of not less than two times their annual base salary and our named executive officers with staff responsibilities are encouraged to own shares of our common stock having a value not less than their annual base salaries. Accounting and Tax Considerations Section 162(m) of the Code precludes a public corporation from taking a tax deduction for certain compensation in excess of $1 million in any one year paid to its chief executive officer or any of its three other highest paid executive officers (other than the chief financial officer), unless certain specific and detailed criteria are satisfied. However, certain qualifying ‘‘performance-based’’ compensation (i.e., compensation paid under a plan administered by a committee of outside directors, based on achieving objective performance goals, the material terms of which were approved by shareholders, such as our Gevity HR, Inc. 2005 Executive Incentive Compensation Plan) is not subject to the $1 million deduction limit. The Committee considered the potential impact of Section 162(m) in its review and establishment of compensation programs and payments. Compensation established by the Committee for 2007 was designed to comply with the requirements of Section 162(m). We have no individuals with non-performance based compensation paid in excess of the Internal Revenue Code Section 162(m) tax deduction limit. Our stock option grant policies have been impacted by the implementation of Statement of Financial Accounting Standards No. 123R (‘‘SFAS 123R’’), which we adopted in the first quarter of fiscal year 2006. Under this accounting pronouncement, we are required to value unvested stock options granted prior to our adoption of SFAS 123R under the fair value method and expense those amounts in the income statement over the stock option’s remaining vesting period. Compensation Committee Report* The compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the compensation committee, the compensation committee has recommended to our board of directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in the Company’s Form 10-K. This report is submitted by the compensation committee: David S. Katz, Chairman Todd F. Bourell Daniel J. Sullivan *

The information in this report is not ‘‘soliciting material,’’ is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933 as amended or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporated language in any such filings.

Compensation Committee Interlocks and Insider Participation During 2007, Messrs. Katz, Bourell and Sullivan served as members of the compensation committee. During 2007: • no member of the compensation committee was an officer or employee of Gevity or any of our subsidiaries; • none of our executive officers was a director of another entity where one of that entity’s executive officers served on our compensation committee; • no member of the compensation committee entered into any transaction with us in which the amount involved exceeded $120,000; and • none of our executive officers served on the compensation committee of any entity where one of that entity’s executive officers served on our compensation committee, and none of our executive officers served on the compensation committee of another entity where one of that entity’s executive officers served as a director on our board.

2007 Summary Compensation Table The following table shows cash and non-cash compensation for the year ended December 31, 2007 for (i) our interim chief executive officer and senior vice president and chief financial officer, (ii) our other three most highly-compensated executive officers (iii) Mr. Vonk, who served as our chief executive officer through October 18, 2007 and (iv) Mr. Grabowski, who served as our senior vice president, national sales & field service operations through July 23, 2007 and served as our chief financial officer through April 2007 (announced in a Company press release dated April 19, 2007).

Name and Principal Position

Year

Salary ($)

Bonus ($)(2)

Stock Awards ($)(3)

Option Awards ($)(4)

Non-Equity Incentive Plan Compensation ($)(5)

All Other Compensation ($)(6)

Total ($)

Garry J. Welsh, Interim Chief Executive Officer, SVP and Chief Financial Officer(1)

2007 $306,969 $100,000 $ 21,274 $ 2006 N/A N/A N/A

26,641 N/A

0 N/A

$ 394,268 N/A

$ 849,152 N/A

James E. Hardee, SVP and Chief Sales and Marketing Officer(1)

2007 $130,308 $100,000 $ 14,895 $ 2006 N/A N/A N/A

16,512 N/A

0 N/A

$ 399,341 N/A

$ 661,056 N/A

Clifford M. Sladnick, SVP and Chief Administrative Officer

2007 $358,077 $ 2006 $349,039 $

0 $132,455 $ 240,631 0 $132,434 $ 200,229

$ 40,000 $100,000

$ $

4,660 43,498

$ 775,823 $ 825,200

Paul E. Benz, SVP and Chief Information Officer

2007 $313,269 $ 0 $ 16,541 $ 134,061 2006 $120,015 $ 85,000 $ 8,337 $ 66,847

$ 75,000 $ 0

$ $

4,660 3,993

$ 543,531 $ 284,192

Erik Vonk, Former Chairman and CEO

2007 $600,462 $ 2006 $640,385 $

0 $ 0 $

0 $ 390,654 0 $1,035,868

$ 0 $148,339

$1,569,107 $ 57,500

$2,560,223 $1,882,092

Peter C. Grabowski, Former SVP, National Sales & Field Service Operations/Chief Financial Officer

2007 $222,869 $ 2006 $301,923 $

0 $ 0 $

0 $ 2,610 0 $ 206,949

$ 0 $100,000

$ 248,794 $ 7,757

$ 474,273 $ 616,629

(1)

Messrs. Welsh and Hardee were not employed by the Company in 2006.

(2)

Represents discretionary bonuses paid in 2008 for their 2007 service.

(3)

This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of restricted stock awards granted in 2007 as well as prior fiscal years, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For restricted stock awards, fair value is calculated using the closing price of Gevity stock on the date of grant. For additional information, refer to note 16 of the Gevity financial statements in our Form 10-K for the year ended December 31, 2007, as filed with the SEC. See the 2007 Grants of Plan-Based Awards Table for information on awards made in 2007. These amounts reflect our Companyâ&#x20AC;&#x2122;s accounting expense for these awards, and do not correspond to the actual value that may be recognized by the named executive officers.

(4)

This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of stock options granted in 2007, as well as prior fiscal years, in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For additional information on the valuation assumptions with respect to the 2005-2007 grants, refer to note 16 of the Gevity financial statements in our Form 10-K for the year ended December 31, 2007, as filed with the SEC. For information on the valuation assumptions with respect to grants made in 2003 and 2004, refer to the Equity note of the Gevity financial statements in our Form 10-K for the year ended December 31, 2004. See the 2007 Grants of Plan-Based Awards Table for information on options granted in 2007. These amounts reflect our accounting expense for these awards and do not correspond to the actual value that may be recognized by the named executive officers.

(5)

Represents non-equity incentive plan compensation paid in 2008 for services performed in 2007.

(6)

Information regarding all other compensation is set forth below.

All Other Compensation Table for 2007 Perquisites and Other Personal Benefits

Name

Year

Health Benefits(1)

Garry J. Welsh James E. Hardee Clifford M. Sladnick Paul E. Benz Erik Vonk Peter C. Grabowski

2007 2007 2007 2007 2007 2007

— — — — — —

Relocation Expense

Expense Allowance(2)

Total Perquisites and Other Personal Benefits

$250,000 $250,000 $ 0 $ 0 $ 0 $ 0

$ 0 $ 0 $ 0 $ 0 $42,308 $ 0

$250,000 $250,000 — — $ 42,308 —

(1) The Company provides enhanced health and welfare benefits to each of the named executive officers as described in ‘‘Compensation Discussion and Analysis.’’ (2) For a description of Mr. Vonk’s expense allowance, see ‘‘Compensation Discussion and Analysis.’’

Additional All Other Compensation

Name

Year

Severance

Garry J. Welsh James E. Hardee Clifford M. Sladnick Paul E. Benz Erik Vonk Peter C. Grabowski

2007 N/A 2007 N/A 2007 N/A 2007 N/A 2007 $1,521,820(1) 2007 $ 242,390(2)

Life Insurance 401K Match Premiums

$ 810 $1,630 $4,500 $4,500 $4,500 $4,500

$ 67 $ 67 $160 $160 $133 $ 93

Tax Gross-up(3)

$143,391 $147,644 $ 0 $ 0 $ 0 $ 0

Total Additional All Other Other(4) Compensation

$ 0 $ 0 $ 0 $ 0 $ 346 $1,811

$ 144,268 $ 149,341 $ 4,660 $ 4,660 $1,526,799 $ 248,794

(1) Amount represents total severance payments of $1,500,000 ($905,660 will be paid in 2008 and $594,340 will be paid in 2009) and the estimated cost of healthcare benefits provided by the Company during the two-year severance period. (2) Amount represents total severance payments of $240,000 ($150,000 was paid in 2007 and $90,000 was paid in 2008) as well as the cost of the enhanced health and welfare benefits during the severance period. (3) Amount represents the tax gross-up for the relocation expense payments listed under Perquisites and Other Personal Benefits. (4) Other compensation includes the value of miscellaneous awards.

2007 Grant of Plan Based Awards The following table sets forth information regarding grants during 2007 to our named executive officers.

Grant Date

Name

Garry J. Welsh James E. Hardee

Clifford M. Sladnick Paul E. Benz Erik Vonk Peter C. Grabowski

8/06/2007(6) 8/06/2007(6) 8/15/2007 8/15/2007(6) 8/15/2007(6) 4/10/2007 4/10/2007 4/10/2007 4/10/2007 4/10/2007 4/10/2007 4/10/2007

Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) Threshold Target Maximum ($) ($) ($)

All Other All Other Grant Date Stock Awards: Option Exercise or Fair Value of Number of Awards: Number Base Price Stock and Shares of of Securities of Option Option Stock or Units Underlying Awards Awards (#)(2) Options (#)(3) ($/Sh) ($)(4)

15,000 60,000

$14.07

$211,050 $264,252

45,000

$12.58

$157,250 $174,380

26,415 —

$19.32 —

$175,932 —

132,075(5)

$19.32

$879,659

26,415(5)

$19.32

$175,932

$ 64,167 $128,333 $ 192,500 12,500 $ 120,060 $240,120 $ 360,180 $ 108,388 $216,775 $ 325,163 $ 682,500 $910,000 $ 1,365,000

—

$ 144,000 $288,000 $ 432,000

(1)

The amounts represent the awards for annual cash incentives in 2007. Actual payments under these awards have already been determined and are included in the 2007 Summary Compensation Table. For a detailed discussion of annual cash incentives, please see the ‘‘Compensation Discussion and Analysis’’ section.

(2)

This column shows the number of stock awards granted in 2007 to the named executive officers. These stock awards vest ratably in four equal installments beginning one year after the date of grant. During the vesting period, each stock award entitles the individual to receive quarterly dividend payments as declared by us. For a detailed discussion of long-term incentives, please see the ‘‘Compensation Discussion and Analysis’’ section.

(3)

This column shows the number of stock options granted in 2007 to the named executive officers. These options vest and become exercisable ratably in four equal annual installments, beginning one year after the grant date. For a detailed discussion long-term incentives, please see the ‘‘Compensation Discussion and Analysis’’ section.

(4)

This column shows the full grant date fair value of stock and stock option awards granted to the named executive officers in 2007. The full grant date fair value is the amount that we would expense in our financial statements over the award’s vesting schedule. See notes 3 and 4 of the 2007 Summary Compensation Table for a discussion of fair value calculation.

(5)

100% of these grants were forfeited in 2007 in connection with the named executive officer’s departure from the Company.

(6)

Authorized as sign-on grants by the compensation committee in connection with the initial employment of Mr. Welsh (see Offer Letter filed on Form 8-K dated August 7, 2007) and Mr. Hardee (see Offer Letter filed on Form 8-K dated August 7, 2007). The grants were made in accordance with the guidelines established by the compensation committee as described in ‘‘Compensation Discussion and Analysis.’’

2007 Outstanding Equity Awards at Fiscal Year-End The following table sets forth information regarding the number of shares of unexercised stock options and the number of shares and value of restricted stock outstanding on December 31, 2007 for our executive officers named in the 2007 Summary Compensation Table. Mr. Grabowski did not have any outstanding equity awards on December 31, 2007. Option Awards

Name

Grant Date

Garry J. Welsh James E. Hardee Clifford M. Sladnick

Paul E. Benz Erik Vonk

8/06/2007(3) 8/15/2007(3) 7/11/2005(4) 2/22/2006(5) 4/10/2007(3) 7/03/2006(5) 3/21/2002 5/30/2002 12/15/2003 2/15/2005 2/22/2006

Stock Awards

Number of Number of Securities Securities Underlying Underlying Unexercised Options Options Option Exercisable Unexercisable Exercise (#) (#) Price ($)

37,500 4,997 12,500 100,000 900,000 68,181 57,937 34,762

60,000 45,000 37,500 14,992 26,415 37,500

$14.07 $12.58 $21.22 $29.22 $19.32 $26.44 $ 3.02 $ 3.90 $21.85 $21.14 $29.22

Option Expiration Date

8/06/2017 8/15/2017 7/11/2015 2/22/2016 4/10/2017 7/03/2016 10/18/2008 10/18/2008 10/18/2009 10/18/2009 10/18/2009

Grant Date

Number of Shares or Units of Stock That Have Not Vested (#)(1)

Market Value of Shares or Units of Stock That Have Not Vested ($)(2)

8/06/2007(3) 8/15/2007(3)

15,000 12,500

$115,350 $ 96,125

7/11/2005(4) 7/01/2006(5)

12,500 1,875

$ 96,125 $ 14,419

(1)

Restricted stock awards are entitled to dividends declared by us under the terms of the restricted stock grants.

(2)

All amounts are as of December 31, 2007 and dollar values are based on the closing price of our common stock on December 31, 2007 of $7.69.

(3)

The unexercisable option awards and restricted stock awards will vest ratably over the next four years on the anniversary date of the grant.

(4)

The unexercisable option awards and restricted stock awards will vest ratably over the next two years on the anniversary date of the grant.

(5)

The unexercisable option awards and restricted stock awards will vest ratably over the next three years on the anniversary date of the grant

2007 Option Exercises and Stock Vested The following table sets forth information regarding the number and value of stock options exercised and stock vested during 2007 for our named executive officers.

Name

Garry J. Welsh James E. Hardee Clifford M. Sladnick Paul E. Benz Erik Vonk Peter C. Grabowski

Option Awards Number of Shares Acquired Value Realized on on Exercise (#) Exercise ($)

0 0 0 0 0 8,750

$ 0 $ 0 $ 0 $ 0 $ 0 $72,758(1)

Stock Awards Number of Shares Acquired on Value realized on Vesting (#) Vesting ($)

0 0 6,250 625 0 0

$ 0 $ 0 $117,375(2) $ 12,081(3) $ 0 $ 0

(1) The value realized on exercise is based on the difference between the exercise price of the option and the fair market value on the date of exercise multiplied by the number of options exercised. (2) The value realized by Mr. Sladnick was determined by multiplying the 6,250 shares received by $18.78, the closing price of the common stock on July 10, 2007, the business day immediately preceding July 11, 2007, the date the shares vested. (3) The value realized by Mr. Benz was determined by multiplying the 625 shares received by $19.33, the closing price of the common stock on June 29, 2007, the business day immediately preceding July 1, 2007, the date the shares vested. Potential Payments Upon Termination or Change of Control The following tables illustrate potential payments to our named executive officers under certain hypothetical termination scenarios assuming the termination date to be December 31, 2007. Although the calculations are intended to provide reasonable estimates of potential payments, they are based on assumptions, not actual circumstances, and may not represent the actual amount an executive would receive if an eligible termination event were to occur. We note that two of our named executive officers—Messrs. Vonk and Grabowski—were not included in this section due to their departures during the course of 2007. Payouts, if any, to each of these named executive officers are described in detail under ‘‘Compensation to Named Executive Officers Who Departed in 2007.’’ In addition, we have non-compete arrangements with Messrs. Hardee, Sladnick, Benz, Vonk and Grabowski. Generally, each executive or former executive is restricted from directly competing with our business for one to two years after separating from the Company.

Garry J. Welsh

Involuntary Termination w/o Cause

Involuntary Termination after Change in Control w/o Cause or Constructive Termination

Death

Disability

Voluntary Resignation/ Retirement(1)

Cash Payment(2,3)

$450,000

$ 984,000

Stock Options(4)

Restricted Stock(5)

$ 115,350

Total Welfare Value(6)

$ 12,437

12,437

Outplacement(7)

25,000

Gross-up on Excise Tax(8)

Totals

$462,437

$1,136,787

(1) Mr. Welsh was not eligible for retirement at December 31, 2007. (2) In the event of death, disability or retirement, reflects no severance. In the event of involuntary termination without cause, reflects one times highest annual base salary 12-month prior to termination. In the event of a termination after a change in control without cause or a constructive termination, reflects two times salary and plus the greater of target annual incentive or average annual incentives over 3 years (in this case, it is target annual incentive of $42,000). (3) Does not include any amounts attributable to the 2007 annual incentive award that was paid in March 2008 and disclosed in the Summary Compensation Table. (4) Reflects fair market value of unvested (in-the-money) stock options based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (5) Reflects fair market value of unvested restricted stock based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (6) Represents the value attributable to continuation of health and welfare benefits during the severance period. (7) Represents outplacement benefits (in the case of change in control termination) at the Companyâ&#x20AC;&#x2122;s discretion. (8) This calculation is an estimate for proxy disclosure purposes only. Payments on an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, changes in compensation and reasonable compensation analyses. For purposes of this calculation, we did not treat any portion of the compensation as reasonable compensation for services rendered prior to the change in control.

James E. Hardee

Involuntary Termination w/o Cause

Involuntary Termination after Change in Control w/o Cause or Constructive Termination

Death

Disability

Voluntary Resignation/ Retirement(1)

Cash Payment(2,3)

$385,000

$1,386,000

Stock Options(4)

Restricted Stock(5)

96,125

Total Welfare Value(6)

$ 11,660

11,660

Outplacement(7)

25,000

Gross-up on Excise Tax(8)

$ 485,687

Totals

$396,660

$2,004,472

(1) Mr. Hardee was not eligible for retirement at December 31, 2007. (2) In the event of death, disability or retirement, reflects no severance. In the event of involuntary termination without cause, reflects one times highest annual base salary 12-month prior to termination. In the event of a termination after a change in control without cause or a constructive termination, reflects two times salary plus the greater of target annual incentive or average annual incentives over 3 years (in this case, it is target annual incentive of $308,000). (3) Does not include any amounts attributable to the 2007 annual incentive award that was paid in March 2008 and disclosed in the Summary Compensation Table. (4) Reflects fair market value of unvested (in-the-money) stock options based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (5) Reflects fair market value of unvested restricted stock based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (6) Represents the value attributable to continuation of health and welfare benefits during the severance period. (7) Represents outplacement benefits (in the case of change in control termination) at the Companyâ&#x20AC;&#x2122;s discretion. (8) This calculation is an estimate for proxy disclosure purposes only. Payments on an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, changes in compensation and reasonable compensation analyses. For purposes of this calculation, we did not treat any portion of the compensation as reasonable compensation for services rendered prior to the change in control or attribute any value to non-competition covenants.

Clifford M. Sladnick

Involuntary Termination w/o Cause

Involuntary Termination after Change in Control w/o Cause or Constructive Termination

Death

Disability

Voluntary Resignation/ Retirement(1)

Cash Payment(2,3)

$360,000

$1,200,240

Stock Options(4)

Restricted Stock(5)

96,125

Total Welfare Value(6)

$ 11,524

23,047

Outplacement(7)

25,000

Gross-up on Excise Tax(8)

Totals

$371,524

$1,344,412

(1) Mr. Sladnick was not eligible for retirement at December 31, 2007. (2) In the event of death, disability or retirement, reflects no severance. In the event of involuntary termination without cause, reflects one times highest annual base salary 12-month prior to termination. In the event of a termination after a change in control without cause or a constructive termination, reflects two times salary plus the greater of target annual incentive or average annual incentives over 3 years (in this case, it is target annual incentive of $240,120). (3) Does not include any amounts attributable to the 2007 annual incentive award that was paid in March 2008 and disclosed in the Summary Compensation Table. (4) Reflects fair market value of unvested (in-the-money) stock options based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (5) Reflects fair market value of unvested restricted stock based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (6) Represents the value attributable to continuation of health and welfare benefits during the severance period. (7) Represents outplacement benefits (in the case of change in control termination) at the Companyâ&#x20AC;&#x2122;s discretion. (8) This calculation is an estimate for proxy disclosure purposes only. Payments on an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, changes in compensation and reasonable compensation analyses. For purposes of this calculation, we did not treat any portion of the compensation as reasonable compensation for services rendered prior to the change in control or attribute any value to non-competition covenants.

Paul E. Benz

Involuntary Termination w/o Cause

Involuntary Termination after Change in Control w/o Cause or Constructive Termination

Death

Disability

Voluntary Resignation/ Retirement(1)

Cash Payment(2,3)

$325,000

$1,083,550

Stock Options(4)

Restricted Stock(5)

14,419

Total Welfare Value(6)

$ 13,156

26,311

Outplacement(7)

25,000

Gross-up on Excise Tax(8)

$ 391,812

Totals

$338,156

$1,541,092

(1) Mr. Benz was not eligible for retirement at December 31, 2007. (2) In the event of death, disability or retirement, reflects no severance. In the event of involuntary termination without cause, reflects one times highest annual base salary 12-month prior to termination. In the event of a termination after a change in control without cause or a constructive termination, reflects two times salary plus the greater of target annual incentive or average annual incentives over 3 years (in this case, it is target annual incentive of $216,775). (3) Does not include any amounts attributable to the 2007 annual incentive award that was paid in March 2008 and disclosed in the Summary Compensation Table. (4) Reflects fair market value of unvested (in-the-money) stock options based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (5) Reflects fair market value of unvested restricted stock based on a closing stock price of $7.69 on December 31, 2007. Upon Change in Control, all equity grants vest. (6) Represents the value attributable to continuation of health and welfare benefits during the severance period. (7) Represents outplacement benefits (in the case of change in control termination) at the Company’s discretion. (8) This calculation is an estimate for proxy disclosure purposes only. Payments on an actual change in control may differ based on factors such as transaction price, timing of employment termination and payments, changes in compensation, and reasonable compensation analyses. For purposes of this calculation, we did not treat any portion of the compensation as reasonable compensation for services rendered prior to the change in control or attribute any value to non-competition covenants. Change in Control Agreements Under the executive agreements, each executive officer is entitled to compensation if he is employed by us at the time of a change in control and his employment is terminated by us within two years after the change in control for a reason other than for ‘‘cause’’ (as defined in the executive agreement) or by the executive officer for ‘‘good reason’’ (as defined in the executive agreement and summarized below). In such event, the executive would receive: • within five days following the Date of Termination (as defined in such agreement) a lump-sum cash amount equal to the sum of the executive’s base salary through the Date of Termination

and any bonus amounts which have become payable, to the extent not paid or deferred, and any accrued vacation pay to the extent not paid; plus • on the first business day which is six months and one day after the executive separates from services (within the meaning of Section 409A of the Code) a lump sum payment equal to the greater of the executive’s target annual incentive bonus for the year in which the termination occurs or the executive’s average annual incentive bonus earned in the three years prior to the termination multiplied by a fraction, the numerator of which is the number of days elapsed in the fiscal year through the Date of Termination and the denominator of which is 365, less any annual incentive bonus amounts paid to the executive during the fiscal year in which the termination occurs; plus • on the first business day which is six months and one day after the executive separates from services (within the meaning of Section 409A of the Code) a lump-sum payment equal to two times the amount of the executive’s highest annual rate of base salary during the one year period prior to the executive’s termination plus two times an amount equal to the greater of the executive’s target annual bonus for the year in which the termination occurs or his average annual bonus earned in the three years prior to termination. In addition, all stock incentives that were awarded to the executives under the terms of any of the Company’s equity incentive plans would fully vest upon the occurrence of a change in control; provided, however, that if the change in control results from the acquisition by a third-party of our outstanding voting securities, the stock incentives will vest only if the percentage of voting power acquired is 50% or more. Upon such event, all other terms and conditions of such stock incentives would remain in effect. The executive agreements also provide for the continuation of the executive’s life, disability and accident insurance and medical and dental plan coverage for two years after termination of the executive’s employment. In addition, if the executive is subject to the excise tax imposed under applicable sections of the Code, we will pay an additional amount so as to put the executive in the same after-tax position he or she would have been in had the excise tax never applied. For purposes of the executive agreements, a ‘‘change in control’’ means: • the acquisition by certain third parties of 25% or more of the voting power of our company’s outstanding voting securities; • a majority change in the composition of our board of directors; • the consummation of certain mergers or consolidations of our company where the voting securities outstanding immediately prior to such transactions represent 50% or less of the total voting power of the corporation resulting from such mergers or consolidations (or, if applicable, such corporation’s ultimate parent); or • the approval by shareholders of a plan of liquidation or dissolution of our company or the sale of all or substantially all of our company’s assets. ‘‘Good Reason,’’ as defined in the Change in Control Severance Agreements, means any of the following events, without the named executive’s express written consent, post Change in Control: • change in duties, responsibilities, titles or offices that is materially or adversely inconsistent with the executive’s duties or responsibilities immediately prior to Change in Control; • reduction on executive’s rate of annual base salary or annual target bonus opportunity; • required (i) relocation of base office of more than 50 miles from where the executive is located at the time of Change in Control or (ii) substantial increase in business travel obligations;

• failure of the Company to (i) continue any employee benefit plan, compensation plan, welfare benefit plan or material fringe benefit plan to which the executive participated prior to Change in Control, unless a substantially equivalent plan is offered an alternative or (ii) offer paid vacation in accordance with the most favorable vacation policies of the Company in effect immediately prior to Change in Control; • any purported termination of executive’s employment not consistent with termination procedures detailed within the Change in Control Severance Agreements; or • failure of the Company to obtain an assumption agreement from any successor, as contemplated in the Change in Control Severance Agreement. Director Compensation in Fiscal 2007 In accordance with our compensation plan for non-employee directors, non-employee members of our board are paid an annual fee of $40,000 (pro rated for any partial year of service). Each non-employee director will also receive $1,500 for attending each meeting of our board or a committee of our board. In addition, non-employee committee chairs receive $3,000 per year for serving in such capacity, except that the chairs of the compensation and audit committee receive $10,000 and $15,000, respectively, per year (in each case, pro rated for any partial year of service). Each non-employee director receives an annual equity incentive award with a target cash equivalent of $60,000 under the terms and conditions applicable to non-employee directors under any then-current Company-sponsored equity incentive plan. Upon initial election or appointment to our board, each non-employee director will receive an initial equity incentive award of restricted shares of the Company’s common stock substantially equal to $90,000 and having a three-year vesting schedule pursuant to which 50% of such shares vest on the first anniversary date of the award and 25% each on the second and third anniversaries subject to the restrictions contained within the applicable equity incentive plan. Non-employee directors are encouraged to own shares of our common stock having a value of not less than five times the amount of the annual fee paid to them for serving as a board member. Fees Earned or Paid in Cash(1) ($)

Stock Awards(2) ($)

Option Awards(3) ($)

All Other Compensation ($)

Total ($)

Michael J. Lavington

$306,714

$19,286

$65,324

$ 256,570(4)

$647,894

George B. Beitzel

$114,000

$19,286

$23,033

$156,319

Todd F. Bourell

$ 12,000

$23,057

$ 35,057

Paul R. Daoust

$ 91,500

$19,286

$34,277

$145,063

Jonathan H. Kagan

$101,000

$19,286

$23,033

$143,319

David S. Katz

$ 97,000

$19,286

$23,033

$139,319

Jeffrey A. Sonnenfeld

$ 75,000

$19,286

$23,033

$117,319

Daniel J. Sullivan

$ 67,000

$28,930

$ 95,930

Name

(1) This column reports the amount of cash compensation earned in 2007 for board and committee service. Fees for Mr. Lavington include $221,214 earned during 2007 with respect to his assumption of additional oversight duties at the request of our board, for further detail about Mr. Lavington’s additional board fees, see ‘‘Mr. Lavington’s Additional Board Fees.’’ (2) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year based upon the grant date fair value of the restricted stock and the vesting period. Restricted stock granted to directors in 2007 vest over a three year period with 50% of such shares vesting on the first anniversary date of the award and 25% vesting each on the

second and third anniversary dates. No restricted stock was granted to directors prior to 2007. The grant date fair value was $61,571 for Messrs. Lavington, Beitzel, Daoust, Kagan, Katz and Sonnenfeld. The grant date fair value for Mr. Bourell was $90,564 and for Mr. Sullivan was $92,347. The following directors have outstanding restricted stock at 2007 fiscal year-end: Messrs. Lavington, Beitzel, Daoust, Kagan, Katz and Sonnenfeld (3,135), Mr. Bourell (4,085) and Mr. Sullivan (4,702). (3) This column represents the dollar amount recognized for financial statement reporting purposes with respect to the 2007 fiscal year for the fair value of stock options granted to the directors in the prior year. No stock options were granted to directors during 2007. For additional information on the valuation assumptions with respect to the 2006 grants, refer to note 16 of the Gevity financial statements in our Form 10-K for the year ended December 31, 2007, as filed with the SEC. The following directors have outstanding option awards at 2007 fiscal year-end: Mr. Beitzel (6,719), Mr. Daoust (10,000), Mr. Kagan (37,005), Mr. Katz (23,671), Mr. Sonnenfeld (13,671) and Mr. Lavington (10,000). (4) This represents a one-time relocation payment of $250,000, plus temporary housing allowance. Mr. Lavington’s Additional Board Fees In August of 2007, our board asked Mr. Lavington to provide additional services in his capacity as a board member and on our board’s behalf, to provide day-to-day oversight. At such time, our board also announced its selection of Mr. Lavington as the board’s choice for appointment as the Company’s chief operating officer, subject to his obtaining all necessary immigration approvals. Later, effective October 18, 2007, our board appointed Mr. Lavington as Chairman of the Board and announced that Mr. Lavington was our board’s choice for appointment as the Company’s chief executive officer, subject to his obtaining all necessary immigration approvals. During the period in which Mr. Lavington is awaiting the immigration approvals, our board requested that Mr. Lavington assume greater responsibility for oversight of the day-to-day management of the Company on our board’s behalf. Based on Mr. Lavington’s assumption of additional oversight duties in his capacity as a board member and at the request of our board, and, in recognition of the greater time commitment undertaken by Mr. Lavington, our board determined that he should be paid additional board fees. The board’s decision to award such additional board fees was made in 2008, but the amount of these board fees is based in part on service provided by Mr. Lavington in 2007, as described above. In determining the amount of board fees to be paid to Mr. Lavington, our board took into account the nature and scope of the oversight duties he assumed on behalf of our board. Additionally, our board factored in the amount that the Company would have expected to pay to an executive or other board member to perform day-to-day oversight duties of the nature being provided by Mr. Lavington both before and after October 18, 2007. The board also noted the inconvenience to Mr. Lavington of spending increased time in Florida and foregoing his existing business opportunities. As a result of its review of the foregoing factors, our board determined that Mr. Lavington is entitled to the following additional board fees to compensate him for his assumption of additional oversight duties in his capacity as a board member and on behalf of our board: • an additional board fee in the amount of $221,214 for oversight services performed in 2007; • an additional board fee of $60,834 per month beginning January 1, 2008, and continuing at our board’s discretion for so long as Mr. Lavington performs the oversight duties as a board member; and • a temporary housing allowance of $3,285 per month from November 1, 2007 through March 31, 2008.

In addition, our board reimbursed or agreed to pay certain business expenses incurred by Mr. Lavington as a result of the inconvenience to Mr. Lavington, including a one-time relocation payment of $250,000. These payments reflect the costs incurred by Mr. Lavington as a result of the increased time that he has been required to spend at the Company’s headquarters in Bradenton, Florida. Securities Authorized for Issuance under our Equity Compensation Plans As of March 13, 2008, options to purchase 1,892,913 shares of our common stock were outstanding under all of our equity incentive plans at a weighted average exercise price of $11.69 per share. Of these, 1,576,461 were exercisable options. In addition, 102,996 shares of restricted stock were outstanding. As of the same date, an aggregate of 1,402,287 shares remained available for future issuance under the Plan. The following table summarizes information about our equity compensation plans by type as of December 31, 2007.

Plan Category

Equity compensation plans approved by security holders . . . . Equity compensation plans not approved by security holders . . Total . . . . . . . . . . . . .

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans

1,992,599

$11.13

1,431,160

N/A

1,992,599

$11.13

1,431,160

We have outstanding equity awards under the following plans: 2005 Equity Incentive Plan. In May 2005, our shareholders approved the Plan. The Plan provides for various equity incentives, including non-qualified options, to be granted to our key employees, officers, directors, certain contractors and other service providers that we utilize. Under the Plan, a maximum of 2,000,000 shares of our common stock were authorized for issuance. The maximum aggregate number of shares of our common stock subject to stock awards, stock appreciation rights, dividend equivalent rights, phantom shares and performance unit awards that may be settled in stock and granted under the Plan may not exceed 400,000. See ‘‘PROPOSAL 3: Approval of Amendment to the Gevity HR, Inc. 2005 Equity Incentive Plan’’ for a description of proposed amendments. Grants of options and restricted stock under the Plan are approved by the Committee. Options granted under the Plan generally have a vesting period of four years for officers and key employees, generally vest in equal quarterly installments over a one year period for non-employee directors and may not be exercised more than 10 years from the grant date. Restricted stock granted under the Plan generally has a vesting period of four years for officers and key employees. Under the Plan, the exercise price of each option will equal the market price of our common stock at the close of trading on the date of grant or previous close of trading if the market is closed on the date of grant. 2002 Stock Incentive Plan. Our 2002 Stock Incentive Plan provided for various equity incentives, including non-qualified options, to be granted to our key employees, officers, directors, certain contractors and other service providers that we utilize. Under the 2002 plan, 2,000,000 shares of our common stock were authorized for issuance. All options were granted at fair market value on the date of grant. Options granted under the 2002 plan generally have a vesting period of four years for officers and key employees, generally were immediately vested for non-employee directors and may not be exercised more than 10 years from the grant date. Restricted stock

granted under the 2002 plan generally has a vesting period of four years for officers and key employees. As of the date of approval of the Plan, no further options or other equity awards were made under our 2002 plan. 1997 Stock Incentive Plan. Our 1997 Stock Incentive Plan provided for various equity incentives, including options, to be granted to key employees, officers and directors. Initially, 2,500,000 shares of common stock were authorized for issuance under the 1997 plan. In May 2000, our shareholders approved an amendment to the 1997 plan that increased the number of shares reserved for issuance under the 1997 plan to 4,500,000 shares. All options were granted at fair market value on the date of grant. Options granted under the 1997 plan generally have a vesting period of four years for officers and key employees and generally were immediately vested for non-employee directors. Options generally may not be exercised more than 10 years from the grant date. As of the date of approval of the Plan, no further options or other equity awards were made under our 1997 plan.

AUDIT COMMITTEE MATTERS Audit Committee Report* Gevity’s audit committee is made up solely of independent directors, as defined by applicable NASDAQ and SEC rules, and our board has determined that each audit committee member has sufficient knowledge in financial and auditing matters to serve on the committee and is financially literate as required by NASDAQ rules. In addition, our board has determined that Mr. Kagan is an ‘‘audit committee financial expert’’ as defined by rules under the Exchange Act. Shareholders should understand that this designation is a disclosure requirement under the Exchange Act related to Mr. Kagan’s experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon Mr. Kagan any duties, obligations or liabilities that are greater than are generally imposed on him as a member of the audit committee and our board, and his designation as an ‘‘audit committee financial expert’’ pursuant to this SEC requirement does not affect the duties, obligations or liabilities of any other member of the audit committee or our board. The audit committee assists our board in fulfilling its responsibilities by overseeing Gevity’s accounting and financial reporting processes, the audit of consolidated financial statements, the qualifications of the independent registered public accounting firm engaged as our independent auditor, and the performance of the internal auditors and independent auditors. In addition, the audit committee generally oversees our internal compliance programs and is responsible for establishing procedures for the receipt, retention and treatment of complaints received by Gevity regarding accounting, internal accounting controls or auditing matters, including the confidential, anonymous submission from our employees, received through established procedures, of concerns regarding questionable accounting or auditing matters. The audit committee operates under a written charter adopted by our board of directors that is available in the ‘‘About Gevity—Corporate Governance’’ section of Gevity’s website, www.gevity.com. The audit committee reviews its charter on an annual basis, and it was last revised as of October 24, 2006. The committee relies on the expertise and knowledge of management, Gevity’s internal auditors and the independent auditor in carrying out its oversight responsibilities. Management is responsible for the preparation, presentation and integrity of our financial statements; accounting and financial reporting principles; internal controls; and procedures designed to reasonably assure compliance with accounting standards, applicable laws and regulations. Our internal auditors are responsible for objectively reviewing and evaluating the adequacy, effectiveness and quality of our system of internal control over financial reporting relating (for example, the reliability and integrity of our financial information and the safeguarding of our assets) and reporting all findings to the audit committee and to management. Deloitte & Touche LLP, our independent auditing firm, is responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards, auditing the effectiveness of our internal control over financial reporting, and issuing reports with respect to such audits. Among other matters, the audit committee monitors the activities and performance of our internal and independent auditors, including the audit scope, independent auditor fees, auditor independence matters and the extent to which the independent auditors may be retained to perform non-audit services. Our independent auditors provided the audit committee with the required written disclosures and the letter required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and the audit committee discussed with the independent auditors and management that firm’s independence. The audit committee also discussed with the independent *

auditors those matters required to be discussed under Statement on Auditing Standards No. 61 (Communications with Audit Committee). In accordance with audit committee policy and the requirements of law, all services to be provided by Deloitte & Touche LLP are pre-approved by the audit committee. Pre-approval includes audit services, audit-related services, tax services and other services. In some cases, pre-approval is provided by the full audit committee for up to a year, relates to a particular defined task or scope of work and is subject to a specific budget. In other cases, the chairman of the audit committee has the delegated authority from the audit committee to pre-approve additional services, and such pre-approvals are then communicated to the full audit committee. To avoid certain potential conflicts of interest, the law prohibits a publicly-traded company from obtaining certain non-audit services from its auditing firm. We obtain these services from other service providers as needed. For a description of the services performed by, and the related fees paid to, Deloitte & Touche LLP during 2006 and 2007, see ‘‘Fees Paid to Deloitte & Touche LLP.’’ During 2007, the audit committee fulfilled its duties and responsibilities generally as outlined in its charter, including reviewing and discussing (including in executive sessions) the following with management, our internal auditors, and our independent auditor: • our quarterly earnings press releases, consolidated financial statements, and related periodic reports filed with the SEC; • management’s assessment of the effectiveness of Gevity’s internal control over financial reporting and the independent auditors’ opinion about the effectiveness of Gevity’s internal control over financial reporting; and • reviewing the audit scope and plan. Management represented to the audit committee that our consolidated financial statements were prepared in accordance with generally accepted accounting principles; and the independent auditors represented that their presentations included the matters required to be discussed with the independent auditors by Statement on Auditing Standards No. 114, The Auditor’s Communication with Those Charged with Governance. Management has reviewed and discussed the audited financial statements in Gevity’s Annual Report on Form 10-K for the year ended December 31, 2007 with the audit committee. This review included a discussion with management of the quality, not merely the acceptability, of Gevity’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosure in our financial statements, including the disclosures related to critical accounting estimates. In reliance on these views and discussions, and the report of the independent auditors, the audit committee recommended to our board, and our board approved, the inclusion of the audited financial statements in Gevity’s Annual Report on Form 10-K for the year ended December 31, 2007 for filing with the SEC. This report is submitted by the Audit Committee: George B. Beitzel, Chairman Jonathan H. Kagan Daniel J. Sullivan

PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF DELIOTTE &TOUCHE LLP AS THE COMPANY’S INDEPENDENT REGISERED PUBLIC ACCOUNTING FIRM The audit committee requests that shareholders ratify its selection of Deloitte & Touche LLP to serve as the Gevity’s independent registered public accounting firm to audit the Company’s consolidated financial statements for fiscal year 2008 and to prepare a report on this audit. Deloitte & Touche LLP has served as the Company’s independent auditors since 1996. In the event of a negative vote on such ratification, the audit committee will reconsider its selection. Even if this appointment is ratified, the audit committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the audit committee determines that such a change would be in the best interest of the Company and its shareholders. Representatives of Deloitte & Touche LLP will be present at the annual meeting and will have the opportunity to respond to appropriate questions. Unless proxies are otherwise marked, the persons designated in the enclosed proxy will vote your shares FOR the ratification of the appointment of Deliotte & Touche LLP as the Company’s Independent Registered Public Accounting Firm. The affirmative vote of a majority of the shares present in person or by proxy at the annual meeting and entitled to vote on this proposal is required for ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountant firm. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE ‘‘FOR’’ THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCH LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

Audit Committee Pre-Approval The audit committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent auditor. In accordance with its charter and the Sarbanes-Oxley Act of 2002 (the ‘‘Act’’), each year the audit committee approves the terms of the independent auditor’s engagement for the following year. This approval requirement is subject to applicable de minimis exceptions allowed by that Act. In making its pre-approval determination, the audit committee is required to consider whether providing the non-audit services is compatible with maintaining the auditors’ independence. The audit committee may delegate this pre-approval authority to one or more audit committee members. However, if the authority is delegated, the member or members to whom the authority is delegated must present a report of their actions at the next scheduled audit committee meeting. Determination of Accountant Independence The audit committee considered the provision of non-audit services by Deloitte & Touche LLP and determined that the provision of such services was not incompatible with maintaining their independence.

Fees Paid to Deloitte & Touche LLP 2007

2006

. . . .

$ 975,000 141,000 22,000 —

$901,000 74,000 22,000 —

Total* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,138,000

$997,000

Audit Fees . . . . . . . Audit-Related Fees . Tax Fees . . . . . . . . All Other Fees . . . .

. . . .

The amount disclosed for 2007 represents estimates of total fees to be paid to Deloitte & Touche LLP with respect to 2007. The amount disclosed for 2006 reflects actual fees paid to Deloitte & Touche LLP with respect to 2006.

Audit Fees. This category includes the audit of Gevity’s annual financial statements, review of financial statements included in each of Gevity’s Quarterly Reports on Form 10-Q and Annual Report on Form 10-K, the audit of our internal control over financial reporting and the effectiveness thereof in connection with Section 404 of the Sarbanes-Oxley Act of 2002 and services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements for those fiscal years. Audit-Related Fees. This category consists of assurance and related services provided by Deloitte & Touche LLP that are reasonably related to the performance of the audit or review of Gevity’s financial statements and are not reported above under ‘‘Audit Fees.’’ The services for the fees disclosed under this category include consultations regarding financial reporting and related matters. Tax Fees. This category consists of professional services rendered by Deloitte & Touche LLP primarily in connection with Gevity’s tax compliance activities, including the review of tax returns, tax planning and technical advice. Representatives of Deloitte & Touche LLP are expected to be present at the annual meeting. They will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions.

PROPOSAL 3: APPROVAL OF AMENDMENT TO THE GEVITY HR, INC. 2005 EQUITY INCENTIVE PLAN We are requesting that our shareholders vote in favor of an amendment to the Gevity HR, Inc. 2005 Equity Incentive Plan (the ‘‘Plan’’). If approved, Amendment Number One to the Gevity HR, Inc. 2005 Equity Incentive Plan (the ‘‘Amendment’’) would modify the separate 400,000 share limit currently in the Plan with respect to shares of Stock subject to Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units (each as defined in the Plan) which may be settled in shares of Stock that may be granted under the Plan. This would mean that the entire pool of 2,000,000 shares currently reserved for issuance under the Plan would be available to be issued not only in the form of Options (as defined on the Plan), but also in the form of Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units, subject to the terms and conditions described in the Agreement. This change would increase the Company’s flexibility regarding the types of grants that could be made under the Plan. Such increased flexibility would better allow the Company to structure equity grants in order to link the financial interests of the Company’s employees to the interests of shareholders, encourage support of the Company’s long-term objectives, tie compensation to the Company’s performance, and attract and retain talented employees. Reason for Proposed Amendment Many public companies in the last few years have increasingly been granting equity based compensation in the form of restricted stock and restricted stock units rather than in the form of stock options. Restricted stock and restricted stock units which vest, either based on time or achievement of performance measures, unlike stock options, will retain value despite a decline in stock price, thereby maintaining its incentivizing effect. In addition, from a management perspective, restricted stock is better at motivating employees to think and act like stockholders. Finally, fewer shares of stock are required to achieve the same compensatory and incentivizing effect. The Company is reevaluating its compensation strategy, including potentially shifting to an increasing use of Stock Awards and Performance Units and away from its more traditional practice of granting Options. Currently, the total pool of Shares that may be issued under the Plan is 2,000,000 shares. However, because the Plan imposes a separate 400,000 share limit on the number of shares of Stock subject to Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units, most of the Shares in the total pool may only be used as Options. As a result of the Amendment, the separate 400,000 share limit would be modified, thereby allowing the full pool of shares under the Plan to be issued in the form of Options, Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units. Generally, after the separate 400,000 share limit is exceeded, each Stock Incentive granted under the Plan other than as an Option or Stock Appreciation Right shall reduce the Maximum Plan Shares (as defined herein) by three shares of stock for every one share subject to the Stock Incentive. As of March 13, 2008, the number of Options outstanding under the Plan was 476,141 and the number of shares of Stock subject to Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units outstanding under the Plan was 121,572. Thus, 1,402,287 total Shares are currently available for issuance under the Plan, but only 278,428 Shares are available for issuance as Stock Awards, Stock Appreciation Rights, Dividend Equivalent Rights, Phantom Shares and Performance Units.

Board Approval The proposal to amend the Plan was approved by both the compensation committee on January 21, 2008 and our board of directors on February 20, 2008, subject to stockholder approval. Summary of the Plan The following is a brief description of the principal features of the Plan, as proposed to be amended by the Amendment. It is intended to be a summary only and does not purport to be complete. The summary is qualified in its entirety by the full text of the Plan and the Amendment each of which is available in the ‘‘About Gevity—Corporate Governance’’ section of Gevity’s website, www.gevity.com. If there is any discrepancy between this summary and the Plan or the Amendment, the terms of the Plan or the Amendment, as applicable, shall control. The material terms of the Plan, as proposed to be amended by the Amendment, are as follows: Purpose of the Plan The Plan is intended to: (a) provide incentive to officers, employees, directors, consultants and other service providers of the Company to stimulate their efforts toward the continued success of the Company and to operate and manage the business in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by such persons by providing them with a means to acquire a proprietary interest in the Company, acquire shares of Stock, or to receive compensation which is based upon appreciation in the value of Stock; (c) align the long-term interests of such persons with those of shareholders; (d) heighten the desire of such persons to continue in working toward and contributing to the success of the Company; (e) assist the Company in competing effectively with other enterprises for the services of new employees necessary for the continued improvement of operations; and (f) to attract and retain qualified individuals for service as directors of the Company. The Plan will allow Gevity, under the direction of the compensation committee, to make broad-based grants of Options, Stock Awards, Performance Units, Stock Appreciation Rights, Phantom Shares and Dividend Equivalent Rights, each of which shall be subject to such conditions based upon continued employment, passage of time or satisfaction of performance criteria as permitted by the Plan. General The Plan permits awards of a variety of equity-based incentives to purchase or acquire shares of our common stock, including Options, Stock Appreciation Rights, Stock Awards, Dividend Equivalent Rights, Performance Unit Awards and Phantom Shares (collectively, ‘‘Stock Incentives’’). The Plan has an indefinite term, but incentive stock options may only be granted within 10 years from earlier of the date the Plan is adopted or approved by Gevity’s shareholders. The Plan will be administered solely by the compensation committee. The particular terms and provisions applicable to each Stock Incentive granted will be set forth in a Stock Incentive agreement. Eligibility Officers, employees, directors, consultants and other service providers of Gevity and our affiliates are eligible to receive awards under the Plan; provided, however, incentive stock options may only be granted to any employee of Gevity or any parent or subsidiary of Gevity. The compensation committee will determine which eligible recipients will participate in the Plan.

Stock Subject to the Plan. A total of 2,000,000 shares of common stock (the ‘‘Maximum Plan Shares’’) are currently reserved for issuance under the Plan. Each Stock Incentive granted under the Plan prior to the ‘‘400,000 share limit’’ (as described below) being exhausted, shall reduce the Maximum Plan Shares by one share for every one share subject to the Stock Incentive. After the ‘‘400,000 share limit’’ is exhausted, each Stock Incentive granted under the Plan (i) as an Option or Stock Appreciation Right shall reduce the Maximum Plan Shares by one share of Stock for every one share subject to the Stock Incentive and (ii) that may result in the issuance of Stock, other than as an Option or Stock Appreciation Right, shall reduce the Maximum Plan Shares by three shares of Stock for every one share subject to the Stock Incentive. For this purpose, after the ‘‘400,000 share limit’’ is exhausted, the number of shares of Stock taken into account with respect to a Stock Appreciation Right shall be the number of shares underlying the grant and not the number of shares delivered upon exercise of the Stock Appreciation Right. The shares of Stock deducted from the Maximum Plan Shares (and the ‘‘400,000 share limit,’’ if applicable) that are attributable to the nonvested, unpaid, unexercised, unconverted or otherwise unsettled portion of any applicable Stock Incentive that is forfeited or cancelled or expires or terminates for any reason without becoming vested, paid, exercised, converted or otherwise settled in full shall be restored and again be available for purposes of the Plan. In addition, to the extent a Stock Incentive is settled in cash, rather than by the issuance of shares of Stock, the number of shares deducted against the Maximum Plan Shares (and the ‘‘400,000 share limit,’’ if applicable) with respect thereto shall be restored and again be available for purposes of the Plan. Awards Awards made under the Plan may be contingent upon the achievement of performance goals or upon other conditions, as determined by the compensation committee. Subject to limits contained in the Plan, the compensation committee has the discretionary authority to determine the size of an award. The addition of performance-based requirements will be considered in light of our company’s total compensation program. Options A stock option is the right to purchase a certain number of shares of our common stock at a certain exercise price in the future. The Plan provides for the grant of incentive stock options and nonqualified stock options. The compensation committee will determine whether an Option is an incentive stock option or a nonqualified stock option at the time the Option is granted and will establish the terms pursuant to which the option will be exercisable, so long as such terms are not otherwise inconsistent with the terms of the Plan. The compensation committee may permit an option exercise price to be paid: • in cash; • by the delivery of previously-owned shares of our common stock; • through a cashless exercise executed through a broker, subject to applicable law; or • by having a number of shares of our common stock otherwise issuable at the time of exercise withheld. The term of an incentive stock option granted to a participant who owns more than 10% of the voting stock of Gevity or any subsidiary of Gevity may not exceed five years from the date of grant. The term of all other incentive stock options and all nonqualified stock options may not exceed 10 years from the date of grant.

Stock Appreciation Rights A Stock Appreciation Right is the right to receive the net of the fair market price of a share of our common stock at the time of exercise and the exercise price of the right (which may not be less than the fair market value of our common stock at the time of the grant), either in cash or in shares of our common stock, in the future, as determined by the compensation committee. The compensation committee may provide that a Stock Appreciation Right is exercisable at the discretion of the holder or that it will be paid at a specific time or times or upon the occurrence or non-occurrence of events specified in the applicable Stock Incentive agreement. Stock Awards A Stock Award is an award of shares of our common stock which may be subject to restrictions or conditions, including, without limitation, performance goals established by the compensation committee. The compensation committee may require a cash payment to Gevity from the recipient of the stock award in an amount no greater than the fair market value of the shares of stock awarded determined at the date of the grant or may grant the stock award without the requirement of a cash payment. Any Stock Award that does not contain forfeitability provisions based upon performance goals must vest over a period of no less than three years. Other Stock Incentives Dividend Equivalent Rights, Performance Unit Awards and Phantom Shares may also be granted under the Plan. A Dividend Equivalent Right is the right to receive, in the future, either in cash or in shares of our common stock, an amount determined by reference to dividends paid on our common stock during the period such rights are effective. A Performance Unit Award is the right to receive an amount equal to all or a portion of the value of a specified or determinable number of units granted by the compensation committee either in cash or in shares of our common stock, in the future, conditioned upon the achievement of performance objectives. A Phantom Share is the right to receive an amount equal to all or a portion of the fair market value of a specified number of shares of our common stock, either in cash or in our common stock, in the future. The compensation committee may determine whether any of such Stock Incentives are subject to any conditions and restrictions and whether the Stock Incentive will be payable in cash or in shares of our common stock. Limitations on Awards under the Plan In addition to the limitation discussed above under Stock Subject to the Plan, the Plan contains a number of limitations on awards that our board believes are consistent with the interests of our shareholders and sound corporate governance practices. These include: No Repricing. Other than in connection with a change in the Companyâ&#x20AC;&#x2122;s capitalization, the exercise price of an Option and the price of a Stock Appreciation Right may not be reduced without shareholder approval. No Reload Grants. The Plan prohibits reload grants or the granting of Options in consideration for, or conditional upon, delivery of shares to Gevity in payment of the exercise price and/or tax withholding obligation under another stock option. No Discount Stock Options. The Plan prohibits the granting of Options with an exercise price of less than the fair market value of our common stock on the date of grant. Limitation on Option Terms.

Generally, the Plan limits the term of Options to ten years.

Annual Limit on Grants to Employees and Directors. To the extent required under Section 162(m) of the Code, the maximum number of shares of our common stock with

respect to Options and Stock Appreciation Rights granted in any fiscal year may not exceed 200,000 for any employee (or 300,000 for a new hire who will serve as an executive officer) and 15,000 for any non-employee director. Limit on Performance Unit Awards to any Employee. The maximum aggregate dollar amount of Performance Unit Awards that may be granted during any fiscal year of Gevity to any employee may not exceed $1,000,000. Eligibility under Section 162(m) Stock Incentive awards may, but need not, include performance goals that satisfy Section 162(m) of the Code. To the extent that awards are intended to qualify as ‘‘performance-based compensation’’ under Section 162(m) of the Code, the performance goals will be one or more of the criteria set forth in the Plan. Performance goals may be described in terms of (i) company-wide objectives, (ii) objectives that are related to the performance of the division, department or function within Gevity or an affiliate of Gevity in which the recipient of the Stock Incentive is employed or on which the recipient’s efforts have the most influence or (iii) the performance of Gevity relative to the performance by a company or group of companies selected by the compensation committee with respect to one or more of the performance goals established by the compensation committee. Tax Reimbursement Payments The compensation committee may make cash tax reimbursement payments designed to cover income tax obligations of grantee that result from the receipt or exercise of a Stock Incentive. Termination of Stock Incentives A particular Stock Incentive may terminate, as determined by the compensation committee, among other reasons, upon the recipient’s termination of employment or other status with Gevity or any affiliate of Gevity, upon a specified date, upon the recipient’s death or disability; provided, however, that a vested incentive stock option will expire or become unexercisable no later than three months following termination of employment of the holder of the incentive stock option (for reasons other than death or disability) or one year following such holder’s death or disability. These time limits, however, may be exceeded by the compensation committee under the terms of a particular grant, in which case the incentive stock option will become a nonqualified stock option. Adjustments The number of shares of our common stock reserved for the grant of Stock Incentives and certain other limitations on the number of Shares subject to one or more types of Stock Incentives may be proportionately adjusted for any increase or decrease in the number of issued shares of our common stock resulting from a subdivision or combination of shares or the payment of a stock dividend in shares of our common stock to holders of outstanding shares of our common stock or any other increase or decrease in the number of shares of our common stock outstanding affected without receipt of consideration by Gevity. In the event of certain corporate reorganizations and recapitalizations and a change in control of Gevity, Stock Incentives may be substituted, cancelled, accelerated or otherwise adjusted by the compensation committee, provided that any such action is not inconsistent with the terms of the Plan or any agreement reflecting the terms of the Stock Incentive. Amendments or Termination of the Plan The Plan may be amended or terminated by our board at any time without shareholder approval, except that shareholder approval will be required for any amendment that increases the number of shares of our common stock available under the Plan, materially expands the classes of individuals

eligible to receive Stock Incentives, materially expands the types of awards available for issuance under the Plan, or would otherwise require shareholder approval under the rules of NASDAQ or other exchange or market system on which our common stock is then traded. No amendment or termination by our board may adversely affect the rights of a holder of a Stock Incentive without such holder’s consent. Benefits to Named Executive Officers and Others Awards of Stock Incentives under the Plan to eligible participants are at the discretion of the compensation committee. If the Amendment is approved, the compensation committee currently intends to make the following grants: Gevity HR, Inc. 2005 Equity Incentive Plan Name and Position

Garry J. Welsh . . . . . . . . . . . . . . . . . . . James E. Hardee . . . . . . . . . . . . . . . . . Clifford M. Sladnick . . . . . . . . . . . . . . . Paul E. Benz . . . . . . . . . . . . . . . . . . . . Executive Group . . . . . . . . . . . . . . . . . Non-Executive Director Group . . . . . . . Non-Executive Officer Employee Group

. . . . . . .

Dollar Value ($)(1)

Number of Units(4)

$ 509,870(2) $ 509,870(2) 0 $ 509,870(2) $1,019,740 $ 480,000(3) 0

67,000(4) 67,000(4) 0 67,000(4) 134,000(4) 63,072(5) 0

(1) Based on the closing share price of $7.61 on March 13, 2008. (2) Dollar value does not reflect adjustment for market based vesting conditions. (3) $60,000 cash equivalent for each non-employee director. (4) Subject to performance and time vesting features. (5) Subject to time vesting features. Vote Required Unless proxies are otherwise marked, the persons designated in the enclosed proxy will vote your shares FOR the approval of the amendment to the Plan. The affirmative vote of a majority of the shares present in person or by proxy at the annual meeting and entitled to vote on this proposal is required for approval of the amendment to the Plan. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE ‘‘FOR’’ THE APPROVAL OF THE AMENDMENT TO THE GEVITY HR, INC. 2005 EQUITY INCENTIVE PLAN.

PROPOSALS OF SHAREHOLDERS FOR 2009 ANNUAL MEETING The proxy rules of the SEC permit our shareholders, after notice to us, to present proposals for shareholder action in our proxy statement if the proposals are consistent with applicable law, pertain to matters appropriate for shareholder action and are not properly omitted by our action in accordance with the proxy rules. If you wish to provide a proposal to be included in our proxy statement and form of proxy relating to our 2009 annual meeting of shareholders, you must provide a written copy of your proposal to us at our principal offices c/o Edwin E. Hightower, Jr., Corporate Secretary and General Counsel, Gevity HR, Inc., 9000 Town Center Parkway, Bradenton, Florida 34202, no later than December 11, 2008. We encourage any shareholder interested in submitting a proposal to contact our corporate secretary in advance of the deadline to discuss the proposal, and shareholders may wish to consult with knowledgeable counsel with regard to the detailed requirements of the SEC’s proxy rules. Submitting a proposal does not guarantee that we will include it in the 2009 proxy statement. Under our third amended and restated bylaws, and as permitted by SEC rules, shareholders who wish to submit a proposal or nominate a person as a candidate for election to our board of directors at an annual meeting must follow certain procedures. These procedures require that timely written notice of such proposal or nomination be received by our secretary at our principal executive offices no earlier than December 11, 2008 and no later than January 10, 2009. In addition, our bylaws require that the shareholder’s notice set forth the following information: • with respect to each matter the shareholder proposes to bring before the meeting, a brief description of the business to be brought before the meeting and the reasons for conducting the business at the meeting; • with respect to each person for whom a shareholder proposes to nominate for election or re-election as a director, all information relating to such person (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) that is required under applicable SEC rules; • the name and address, as they appear on our records, of the shareholder proposing the new business or nominating the person for election or re-election as a director and the name and address of the beneficial owner, if any, on whose behalf the proposal or nomination is made; • the number of shares of our common stock that are owned beneficially and of record by such shareholder of record and by the beneficial owner, if any, on whose behalf the proposal or nomination is made; and • any material interest or relationship that such shareholder of record and/or the beneficial owner, if any, on whose behalf the proposal or nomination is made may respectively have in such business or with such nominee. At the request of our board, any person so nominated for election as a director will be required to furnish to our corporate secretary the information required to be set forth in a shareholder’s notice of nomination, which pertains to the nominee. The chairman of the annual meeting may, if warranted, determine that business was not properly brought before the meeting or that a nomination was not made in accordance with the procedures of our bylaws, in which case those matters will not be acted upon at the meeting. In addition, our nominating/corporate governance committee will consider candidates proposed by shareholders and make recommendations to our board using the same criteria as for other candidates as described herein under ‘‘Committees of Our Board—Nominating/Corporate Governance Committee.’’ The preceding description of the procedures required by our third amended and restated bylaws is only a summary. We refer any shareholders who wish to submit a proposal or nominate a person as a candidate for election to our board of directors at an annual meeting to our bylaws for the full requirements. A copy of our bylaws is posted in the ‘‘About Gevity—Corporate Governance’’ section of our website, www.gevity.com.

IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENTS In an effort to further efficiencies and contain costs, Gevity ‘‘households’’ disclosure documents by sending a single copy of the proxy statement and notice of annual meeting to any household at which two or more shareholders reside if we believe the shareholders are members of the same family, unless we have received contrary instructions. Each shareholder in the household receives a separate proxy card. Householding reduces the volume of duplicate information received at any one household and helps to reduce our expenses. However, if shareholders prefer to receive multiple sets of our disclosure documents at the same address in the future years, the shareholders should follow the instructions described below. Similarly, if an address is shared with another shareholder and together both of the shareholders would like to receive only a single set of our disclosure documents, the shareholders should follow these instructions: • if the shares are registered in the name of the shareholder, the shareholder should contact us at our offices at 9000 Town Center Parkway, Bradenton, Florida 34202, Attention: Corporate Secretary, to inform Gevity of their request, or by calling 1-800-248-8489, extension 4603; or • if a bank, broker or other nominee holds the shares, the shareholder should contact the bank, broker or other nominee directly.

SOLICITATION OF PROXIES The accompanying proxy is being solicited by our board of directors on behalf of Gevity. We will bear the expense of preparing, printing, and mailing the proxy solicitation material and the form of proxy. Proxies may be solicited by members of our board of directors, our executive officers and director-level employees, none of whom will receive any additional compensation for their services. Also, we may engage Morrow & Co., LLC to solicit proxies on our behalf at an anticipated cost of $10,000 or less. In addition to use of the mail, proxies may be solicited by personal interview, telephone, facsimile, telegram, messenger or via the Internet. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons, and we may reimburse them for reasonable out-of-pocket expenses incurred by them in connection therewith. By order of our board of directors:

4APR200810545918 Edwin E. Hightower, Jr. Corporate Secretary Bradenton, Florida April 16, 2008

Stockholder information Company Headquarters Gevity HR Inc. 9000 Town Center Parkway Bradenton, FL 34202 1.800.2GEVITY (1.800.243.8489) Stock Exchange Listing NASDAQ, symbol GVHR Annual Meeting of Stockholders Wednesday, May 21, 2008 Gevity HR Executive Offices 9000 Town Center Parkway Bradenton, FL 34202 Website gevity.com Gevity’s annual and quarterly financial results, other information and reports filed with the Securities and Exchange Commission are available at gevity.com (go to Investor Relations and SEC Filings). Investor and Media Contact Investors, security analysts and members of the media should contact Patrick Lee, Director of Investor and Media Relations, at the Company’s headquarters by calling 941.744.3301 or by email at patrick.lee@gevity.com. Transfer Agent and Registrar Please direct your communications regarding individual stock records, address changes or dividend payments to: American Stock Transfer 59 Maiden Lane Plaza Level New York, NY 10038 1.877.777.0800 Dividend Payments Quarterly dividends on Gevity HR Inc. Common Stock, subject to declaration by the Company’s Board of Directors, are typically paid in January, April, July and October. Independent Registered Public Accounting Firm Deloitte and Touche, LLP

people 1st gevity.com 1.800.2GEVITY

1.800.243.8489

© 2008 Gevity. All rights reserved. GevitySM and gevity.comSM are trademarks of Gevity. In Florida, Gevity is licensed by the DBPR (License #GL99 and #EL272). In Texas, “Gevity” means Gevity HR, L.P., Gevity HR IV, L.P., Gevity HR IX, L.P., Gevity HR X, L.P. and Gevity HR XI, LLC.

11957 3/08

gevity.com 1.800.2GEVITY NASDAQ: GVHR 9000 Town Center Parkway Bradenton, FL 34202