The Canadian federal government is in the process of phasing out the problematic Phoenix pay system and implementing a new platform, but challenges such as a backlog and increasing expenses persist, as outlined in a report presented on Monday by Auditor General Karen Hogan.
The audit revealed that the Treasury Board of Canada Secretariat (TBS) and Public Services and Procurement Canada (PSPC) are overseeing the pay transformation project with the potential for future value, although it is still in its early stages and not slated for completion for several years.
Hogan emphasized the slow advancement in simplifying intricate pay regulations, a crucial lesson learned from the failed launch of the Phoenix system in 2016. She expressed concern over the lack of progress in simplifying these rules a decade later, leading to additional costs of nearly $4 million annually to customize the new Dayforce pay system.
A substantial backlog of unresolved pay transactions persists, with over 233,000 transactions affecting more than 133,000 public servants still pending as of September 2025. Hogan cautioned that failing to address this backlog before transitioning to Dayforce could result in existing errors carrying over to the new system, potentially undermining its effectiveness.
To address the backlog, PSPC has shifted focus to prioritize departments transitioning to Dayforce first. While this approach has reduced backlogs in some areas, concerns were raised about potential delays in other departments due to this prioritization strategy not being fully evaluated.
The report also highlighted deficiencies in how the government measures pay processing timeliness, noting that key delays such as the time taken for departments to provide information are excluded from current reporting rules. This incomplete measurement presents an inaccurate picture of the actual wait times for employees to resolve pay issues.
In January 2026, after the audit period, the department accelerated the rollout timeline by approximately three years, aiming to replace Phoenix with Dayforce across departments and agencies by March 2031 instead of 2034. While this change is intended to streamline operations and reduce costs, it was cautioned that the shortened timeline may limit testing, backlog clearance, and departmental preparedness for the transition.
Minister of Public Works and Procurement, Joël Lightbound, emphasized the need for an “error-free” system before transitioning to Dayforce, highlighting the government’s incremental approach to addressing backlogs in key departments as a priority to ensure timely and accurate pay processing.
Concerns were also raised about the project’s cost, initially estimated at over $4.2 billion, excluding individual department and agency transition expenses. The government has yet to determine how savings in the new system will be measured.
The Phoenix pay system, implemented in 2016, centralized pay processing for most federal employees but was plagued by issues such as underpayments, overpayments, and missed paychecks. In the 2024-25 fiscal year, the system processed over $38 billion in pay for more than 430,000 current and former public servants.
Hogan stressed the importance of addressing long-standing issues, such as simplifying pay regulations and resolving backlogs, to prevent a recurrence of past failures as the government progresses towards Dayforce. The audit made three recommendations for enhancing the transition from Phoenix to Dayforce, all of which were accepted by the federal government.
