Don Edward McGuire
Corporate Vice President, Chief of Financial Officer & President of Employer Services International at Automatic Data Processing
Thank you, Maria, and good morning, everyone. For our third quarter, we delivered 10% revenue growth on a reported basis and 11% on an organic constant currency basis. This revenue growth, in turn, supported adjusted EBIT margin expansion of 50 basis points, which was much better than the decline we expected. We achieved that margin expansion despite incremental investments in headcount and compensation we discussed last quarter.
Through the combination of this strong adjusted EBIT growth, a slightly lower tax rate and a lower share count, we were able to deliver a 17% increase in adjusted diluted earnings per share. Looking more closely at the segment results. Our Employer Services revenue increased 8% on a reported basis and 9% on an organic currency basis. ES revenue has been supported all year long by strong retention and pays per control trends, and our double-digit bookings performance has been contributing nicely as well.
In Q3, we also started to get a more meaningful contribution from client funds interest, through the combination of our 15% client funds balance growth and an average yield that was nearly flat with the prior year. This year-over-year increase in client funds interest contributed about 0.5% to our revenue growth, which is a very nice outcome compared to the last several quarters. ES margin increased 120 basis points, well ahead of our expectations for the quarter and supported primarily by revenue growth.
Moving on to the PEO segment. PEO revenue remains very strong and grew 14% in the quarter. Average worksite employee growth is the primary driver to PEO revenue and remained at a very robust 16%, reaching 688,000 average worksite employees for the quarter. We continue to benefit from the strong bookings growth we've seen all year long as well as healthy retention and pays per control growth within the PEO client base. PEO revenue growth was a bit lower than worksite employee growth this quarter, which is fairly atypical.
Impacting revenue for worksite employee was a mix shift towards WSEs with a slightly lower average wage and lower benefits participation, representing continued normalization back towards a pre-pandemic mix. That said, it's good to see a recovery in all parts of the workforce in our PEO. PEO margin was flat in the quarter and included higher selling expenses, driven by our strong sales momentum. Moving on to our updated outlook for the year. For ES revenues, we are raising our guidance and now expect growth of about 7%, up from our previous guidance of about 6%. There are a few drivers behind that increase.
We are narrowing our ES bookings guidance higher to a range of 13% to 16%, up from 12% to 16% prior. So far this year, we have realized and delivered solid double-digit growth. Clearly, there is geopolitical uncertainty in Europe as well as more general macro uncertainty. But notwithstanding those uncertainties, our outlook contemplates a strong Q4, with growth in the teens, and we look forward to delivering a strong finish to the year. We are raising our employer services retention guidance and now expect it to be down only 20 basis points for the year versus our prior expectation of down 40 basis points.
Our retention has held up extremely well so far this year. But out of prudence, we are assuming a modest decline in Q4 for the same reasons we've outlined all year long. For U.S. pays per control, we're once again raising our outlook and now expect 6% to 7% growth versus our prior expectation of 5% to 6% growth, driven by the ongoing recovery in the labor force participation, combined with steady demand for labor from our clients. We are also raising our client funds interest outlook slightly to a range of $450 million to $455 million, up from our prior expectation of $440 million to $450 million.
There's no change to our 18% to 20% balance growth outlook. With just a few months remaining in fiscal '22, the benefit from higher new purchase rates for the recent yield curve shifts is modest, and therefore, we still expect yield to round to 1.4% for the year. Moving on to ES margin, we are raising our outlook to now expect margins to be up 100 to 125 basis points versus up 75 to 100 basis points prior. This increase is mainly driven by the stronger revenue outlook and margin performance in Q3 versus our expectations.
Moving on to the PEO. We are narrowing our average worksite employee growth to 14% to 15% versus 13% to 15% prior, driven by continued momentum in new business bookings. We are likewise narrowing total PEO revenue to 14% to 15% growth, up from 13% to 15% growth prior. And we are raising PEO revenues, excluding zero margin pass-throughs, to 15% to 17% growth from 14% to 16% growth prior. For PEO margin, we are raising our guidance to now expect margins to be up 25 to 50 basis points rather than flat to down 50 basis points for the year.
That's driven by an improvement in pass-through expenses, including more favorability from workers' compensation compared to our prior outlook. Putting it together for our consolidated outlook, we now expect revenue to grow 9% to 10%, up from 8% to 9% prior. For adjusted EBIT margin, we now expect an increase of 75 to 100 basis points, up from 50 to 75 basis points prior. We are making no change to our tax rate assumption. And we now expect growth in adjusted diluted earnings per share of 15% to 17%, up from 12% to 14% prior.
Before we move on to Q&A, I wanted to quickly touch on fiscal '23. We're still going through our planning process, and so we won't be providing any specifics at this time. Clearly, there are going to be some unique puts and takes for fiscal '23. But overall, we feel very good about the momentum in the business, and we will remain focused on our medium-term growth objectives that we laid out at our November Investors Day. We look forward to providing our outlook next quarter.
Thank you, and I will now turn it back to the operator for Q&A.
