Auditor-General Karen Hogan waits to appear before the standing committee on public accounts in Ottawa on Monday.Adrian Wyld/The Canadian Press
Replacing the troubled Phoenix pay system is estimated to cost at least $4.2-billion, according to a new report from Auditor-General Karen Hogan that finds federal efforts to eliminate the backlog of longstanding pay complaints ahead of the transition are falling short.
The problems with the Phoenix pay system over the past decade have emerged as a prime example of what can go wrong with large IT projects.
A flood of complaints quickly surfaced after launch in 2016 and thousands of public servants continue to face frustration with inaccurate payments. In some cases, the backlog of complaints includes files that are as much as seven years old.
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The government has announced that it will gradually transition away from Phoenix in favour of a new pay system – called Dayforce – starting next year with three departments.
A previous target to move all federal departments to the new system by 2034 was moved up earlier this year to March 31, 2031.
During the transition, the government will be running both pay systems.
Monday’s audit report focused on a review of the planning work that is underway related to this change.
The Parliamentary Budget Officer estimated in 2019 that replacing the Phoenix pay system would cost $2.6-billion.
Monday’s Auditor-General report said Public Services and Procurement Canada (PSPC)’s preliminary estimate for the new pay system is that it will cost more than $4.2-billion.
“This estimate does not include important costs needed for all departments and agencies to transition,” the report states.
The report attributes this cost estimate for the replacement project to the department. The Auditor-General’s report does not include an independent analysis of that estimate, but expresses caution based on previous examples.
“Projects of this size, scope, and complexity of the Human Resources and Pay Transformation Project have a high risk of exceeding cost estimates, timelines, or both,” the report said.
The report said it is important that departments clear their backlog of complaints before moving to the new system so that Dayforce does not inherit the same problems.
As of Sept. 30, 2025, the backlog included 233,653 cases, of which, 155,217 involved transactions that were older than one year.
Auditors said PSPC set a target in 2023 to eliminate all pay transactions that were one year or older by March 2026.
“Since then, the department’s internal reports through September 2025 indicated it would not meet the target,” the report states.
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Previous reviews of Phoenix issues have identified the complexity of federal pay rules as a contributing factor, but Monday’s report said Treasury Board of Canada had made “slow progress” in simplifying these rules.
Examples of pay issues that can trigger problems in Phoenix include situations where a worker is temporarily “acting” in a more senior, higher-paid position; paying out unused leave when an employee leaves the public service and updating pay rates following a promotion.
The report recommends that the government mitigate potential problems with its current approach to managing the backlog, improve reporting on progress and provide estimates of the cost to transition departments and agencies to the new system.
Treasury Board and PSPC said in the report that they agreed with the Auditor General’s recommendations.
Federal ministers are scheduled to respond to the report Monday afternoon.
Joël Lightbound, Minister of Government Transformation, Public Works and Procurement, said in his department’s recent planning report that the government is planning to improve the pay system through the use of Artificial Intelligence.
“The introduction of an AI-powered virtual assistant to support case processing will improve transaction speed, increase accuracy, and reduce manual workload for compensation advisors, enabling them to concentrate on complex, human-centred cases. This modernization effort is focused on stability, reliability, and restoring confidence in core systems,” he wrote.