Senior Vice President, Chief Financial Officer and Treasurer at Paychex
Thanks, Marty, and good morning to all of you. It's great to join you at the end of one of the most successful years in the company's history, despite the success what you have from us and will always have. It's a team that's grounded and will continue to work to deliver shareholder returns that lead the market. I'd like to remind everyone that today's conference call will contain forward-looking investment statements. Refer to the customary disclosures or periodically refer to some non-GAAP measures. Please refer to the press release and investor presentation for more information. They're pretty modest adjustments.
I'll start by providing a summary of our fourth quarter financial results, quickly get on full-year results and then provide some guidance for fiscal '23. For the fourth quarter of fiscal '22, as you saw both service revenue and total revenue increased 11% to $1.1 billion. Management Solutions had another strong quarter, increasing to 12% to $845 million, driven by higher revenue per client and growth in our payroll client base. The higher revenue per client reflects product attachment across our HCM suite, higher employment levels within our base, pricing, revenue from ancillary services, including our ERTC service. ERTC revenue reached approximately 1% of total service revenue, that's for the year. While we do not anticipate this revenue stream to continue at that level, there still remains a significant opportunity both inside and outside our base.
PEO and Insurance Solutions revenue increased 10% to $284 million, driven primarily by higher average worksite employees and health insurance revenue. Interest on funds held for clients increased just 2% for the quarter to $15 million, due primarily to growth in average investment balances. Note that while recent rate hikes did not have a significant impact on the fiscal quarter, they will provide a tailwind for next year.
Total expenses increased to 11% to $750 million. The growth in expenses resulted primarily from higher compensation cost due to the increased headcount to support our growing client base, wage rates and performance-based compensation. In addition, we continue to invest in our products, technology and marketing. And I just want to call out the margin in the quarter, we made very deliberate choices in the fourth quarter to invest back in our client base and among our employees. That's why all of the flow through did not go down to the bottom line, and that was a deliberate choice that we think leads to the future sustainability of the business. And we think we're positioned very well as a result of those choices.
Operating income increased 11% to $394 million with an operating margin of 34.4% and adjusted operating margin was flat for the reasons I just said. And we anticipated some hiring in marketing spend and pulled that into Q4. Net income increased 13% for the quarter to $296 million and diluted earnings per share increased 12% to $0.82 per share despite all of that investment. Adjusted net income and adjusted diluted earnings per share both increased 13% for the quarter to $295 million, $0.81 per share respectively. As I said, the adjustments were relatively modest.
Full year fiscal '22. Let me touch on that quickly. You saw total service revenue and total revenues both increased 14% to $4.6 billion. Expenses, including one-time costs, incurred during the prior year increased 8%. Operating income and adjusted operating income increased 26% and 23% respectively to $1.8 billion. Adjusted operating margin was 39.9%, an expansion of 310 basis points over the prior year, and I just called it out. You will search high and low to find someone -- the companies that are at that level. We delivered that. We delivered that while investing in the company, because we think that we're not playing a game from the next quarter or the next year, we're playing a game for the long haul. That's what you do when you have that kind of company.
Diluted earnings per share increased 27% to $3.84 per share. Adjusted diluted earnings per share increased 24% to $3.77 per share. I'm really proud of our financial position. We delivered all of that and our financial position remains rock solid with cash, restricted cash and total corporate investments of $1.3 billion. Total borrowings were $806 million as of May 31. Cash flow from operations was $1.5 billion during the fiscal year. We translate earnings into cash, that's what we do. Free cash flow generated for the year was $1.3 billion, up 20% year-over-year. So, earnings and cash flow were really strong this year.
Given the strong performance and our commitment to returning capital to shareholders, in May, we increased our quarterly dividend 20% to $0.79 per share. And as many of you know, we have one of the leading dividend than certainly in our sector and industry. And during fiscal '22, we paid out a total of $1 billion in dividends. And we also repurchased 1.2 million shares of Paychex common stock for $145 million. Our 12-month rolling return on equity was a superb 45%.
Now, let's talk about '23. I'm going to turn to the upcoming fiscal year. And our current guidance is as follows: Management Solutions revenue expected to grow in the range of 5% to 7%; PEO and Insurance Solutions is expected to grow in the range of 8% to 10%; interest on funds held for clients is expected to be in the range of $85 million to $95 million. Let me just call out that this reflects increases in line with what we understand the Fed is saying through the end of this calendar year. What does that mean specifically? It means that we think that interest rates by the end of calendar year 2022 will be approximately 3.25% give or take and we are assuming that in our plans at this stage.
Total revenue is expected to grow in the range of 7% to 8%. Adjusted operating income margin is expected to be in the range of 40% to 41%. Not only did we deliver a 300 basis point increase, we are committing to additional leverage as we go into next year despite having made a lot of investments in the business as we've gone along. Adjusted EBITDA margin is expected to be another stellar 44%. Other expense net is expected to be in the range of $5 million to $10 million. Just so you all remember, that is a combination of both interest expense, less the gain -- the income on the portfolio, that's why it's $5 million to $10 million. We expect that we will see income from the portfolio offset some of the interest expense.
Our effective income tax is expected to be in the range of 24% to 25% and adjusted diluted earnings per share at this point we expect to grow in the range of 9% to 10%. This outlook assumes the current macro environment, which, as all of you know, has some uncertainty. We like you week-to-week struggle to understand sometimes what are the signals that are coming out of the federal government.
I want to reiterate something that Marty said. The indicators in our business are strong as we exit the year. So that's not a concern certainly in the first half of the year in as much as we see it right now. Second half, we will see. So, where is inflation going to be? Don't know that. What is the Fed exactly going to do? We think we have some indicators. We will see what they end up doing.
We obviously, given all of those comments, have better visibility into the first half of fiscal '23 than the second half. So here is what we think about the first half. In the first half of the year, at this stage, we expect total revenue growth to be in the range of 8% to 9% with an operating margin of approximately 39%. That's what we think will happen in the first half. And then for the first quarter, getting a little closer, we currently are anticipating total revenue growth will be in the range of 9% to 10% with adjusted operating margin in the range of 39% to 40%. Of course, all of this is subject to current assumptions, which are subject to change. And we'll update you again on the first quarter call. Let me refer you to the investor slides on our website for additional information.
And with that, I will turn the call back to Marty.