Efrain Rivera
Senior Vice President and Chief Financial Officer at Paychex
Okay, thanks John, and good morning. I'd like to remind everyone that today's commentary contains forward-looking statements that refer to future events and therefore involve risks, refer to the customary disclosures.
Let me start by providing key points for the quarter and finish with a review of fiscal 2023 outlook. As Marty and John already mentioned, Q1 was strong, our financial results for the first quarter included service revenue and total revenue that increased 11% to $1.2 billion. Management Solutions revenue increased 12% to $906 million, driven by higher client employment levels and revenue per client; revenue per client was positively impacted by additional product penetration, HR ancillary services largely or ERTC product and price realization. We continue to see strong attachment of our HR Solutions, retirement and time and attendance solutions.
I'll note that the revenue from our ERTC service benefited our first quarter revenue by about 1% to 2%. While we had anticipated ERTC revenue would continue in fiscal 2023, strong execution both in sales and service allowed us to realize some of the revenue a bit earlier in the year. While ERTC was a tailwind to growth for the first quarter, it's benefit will decline as the year progresses. For the full year, the impact will be marginal to growth.
PEO and Insurance Solutions revenue increased 8% to $283 million, driven by growth in average worksite employees and PEO health insurance revenue. The rate of growth was tempered by a lower rate of health insurance enrollment in both the PEO and the insurance agency, together with continued softness in workers' compensation rates. So that really is a little bit more focused at -- the insurance agency has more of an impact on the revenue there.
Interest on funds held for clients increased 24% for the quarter to $18 million, primarily due to higher average interest rates along with growth in investment balances. Total expenses increased 11% to $711 million, expense growth was largely attributable to higher headcount, wage rates, and general cost to support growth in our business. In addition, PEO direct cost increased due to higher medical plan enrollments compared to the same period last year.
Op income increased 12% to $496 million, with an operating margin of 41.1%, an expansion of 20 basis points over the prior year, a bit above where we anticipated it being in the first quarter. Our effective tax rate for the quarter was 22.9% compared to 24.9% in the prior year period. Both periods reflect discrete tax benefits related to employee stock-based comp payments. However, the prior year also reflected an increase in state taxes. Net income and diluted earnings per share both increased 14% to $379 million and $1.05 per share, respectively. Adjusted net income increased 15% and adjusted diluted earnings per share increased 16% for the quarter to $372 million and $1.03 per share, respectively.
Our financial position remains strong with cash, restricted cash and total corporate investments was at $1.3 billion and our borrowings were at approximately $800 million as of the end of the quarter, cash flow from operations was $364 million during the first quarter, a small decrease from the prior, driven by fluctuations in working capital, partially offset by higher net income. And we paid out quarterly dividends at $0.79 per share for a total of $285 million in the first quarter. Our 12 month rolling return on equity was a stellar 46%.
Now, I'll turn to our guidance for the current fiscal year ending May 31, 2023. Our current outlook incorporates our first quarter results in our view of the evolving macroeconomic landscape. One thing I want to emphasize, as I walk through the guidance, we don't provide quarter-to-quarter guidance, what we try to do is, give you a sense of where we anticipate the quarters will fall. So I'd ask that you keep that in mind. The majority of our guidance remains unchanged from that provided in June with the exception of an increase in our expected growth for adjusted earnings per share.
Let me provide some color in certain areas as follows. Management Solutions revenue is expected to grow in the range of 5% to 7%, but now we anticipate it to be towards the upper end of the range. PEO and insurance solutions is still expected to grow in the range of 8% to 10%, but we now anticipate it to be towards the lower end of the range. Interest on funds held for clients is expected to be in the range of $85 million to $95 million, but is now again anticipated to be towards the upper end of the range. Total revenue is expected to grow in the range of 7% to 8%, but again based on what I just said, is anticipated to be towards the upper end of that range. And adjusted diluted earnings per share is now expected to grow in the range of 11% to 12% increase from the previous guidance of 9% to 10%. I just want everyone to remember I'm talking about adjusted diluted earnings per share.
So, turning to the second quarter, our current thoughts are that we anticipate revenue growth will be approximately 7% and we expect operating margins to be approximately 38%. Of course, all of this is subject to current assumptions, which could change if there are significant changes to the macro environment, and we'll update you again on the second quarter call and I refer you to our investor slides on our website for more information.
I'd also like to take a moment to thank you. But let's say thank you to Marty for his years of service to the company. It's been an incredible pleasure working alongside you and I wish you the best of luck in your future endeavors. I can say that for all of the shareholders on the call, there was never a moment, never a conversation where putting the interest of shareholders didn't come first, and so I know that that will continue under John's leadership. So the other thing I'd like to say is that, the company that we're reporting on today simply would not be where it is today without Marty's efforts.
Hey, one other thing that I want to add to, for the investors on the call, we filed the supplemental proxy statement this week relating to our "say on pay proposal", we'd ask that investors who want a position in Paychex take a look, read that closely. I'm always available, the management team is always available for any calls that you'd like to schedule to discuss that.
So with that, let me turn it back over to Marty.