The federal government is making progress towards replacing the problematic Phoenix pay system with a new platform, as highlighted in a report released by Auditor General Karen Hogan on Monday. Despite the positive direction, challenges such as a backlog and increasing costs persist.
The audit revealed that the Treasury Board of Canada Secretariat (TBS) and Public Services and Procurement Canada (PSPC) are overseeing the pay transformation project in a manner that could yield benefits once fully implemented. However, the project is still in its early phases and is not projected to be completed for several more years.
One key issue raised by Hogan is the slow advancement in simplifying complex pay regulations, a lesson learned from the unsuccessful rollout of the Phoenix system in 2016. Hogan expressed concern over the lack of progress in simplifying these rules a decade later, leading to additional costs of nearly $4 million per year to customize the new Dayforce pay system.
As of September 2025, a substantial backlog of over 233,000 pay transactions affecting more than 133,000 public servants remains unresolved. Hogan cautioned that failing to address this backlog before transitioning to Dayforce could result in existing errors carrying over to the new system, compromising its effectiveness.
PSPC has altered its strategy to prioritize departments shifting to Dayforce to manage the backlog. While this approach has reduced backlogs in certain areas, auditors raised concerns that it may exacerbate delays elsewhere, noting that the decision to prioritize departments was not thoroughly evaluated.
The report also flagged deficiencies in how the government measures the timeliness of pay processing, pointing out that key delays such as the time taken for departments to provide information are excluded from current reporting rules. This incomplete data presents an inaccurate picture of the actual time employees wait to resolve pay issues.
In a response on Monday, Public Works and Procurement Minister Joël Lightbound emphasized the need for an “error-free” system before transitioning to Dayforce. He highlighted ongoing efforts to address backlogs in specific departments as a top priority, aiming for timely and accurate pay under the new system.
Concerns were also raised about the project’s cost, with initial estimates exceeding $4.2 billion, excluding individual department and agency transition expenses. The audit revealed a lack of clarity on how potential savings in the new system will be measured.
The Phoenix pay system, launched in 2016, centralized pay processing for most federal employees but resulted in widespread issues such as underpayments, overpayments, and missed paychecks. In the 2024-25 fiscal year, the system handled over $38 billion in pay for more than 430,000 current and former public servants.
Hogan emphasized the importance of addressing long-standing issues like simplifying pay rules and eliminating backlogs to prevent a recurrence of past failures as the government progresses towards Dayforce. The audit presented three recommendations for enhancing the transition from Phoenix to Dayforce, all of which were accepted by the federal government.