Auditor General of Canada Karen Hogan holds a news conference in Ottawa, on Thursday, Oct. 19, 2023. THE CANADIAN PRESS/Justin Tang

By The Canadian Press

Phoenix backlog needs to be cleared to avoid errors in new system: AG report

Mar 23, 2026 | 8:03 AM

OTTAWA — Canada’s auditor general says the federal government is running out of time to clear the backlog of public service pay transactions under the old Phoenix system to avoid infecting the new system with errors.

The federal government is working to replace the error-prone Phoenix with a new system, Dayforce, and all departments and agencies are expected to move to the new platform by March 2031.

A new report from the Office of the Auditor General of Canada released Monday said the government has made “limited progress” on eliminating a backlog of pay transactions that stood at more than 233,000 and affected at least 133,000 employees as of Sept. 30, 2025.

The backlog includes all transactions that were not processed within service standards.

“This is very important because if the backlog is not cleared before the transition to Dayforce, there is a risk that existing errors will carry over and undermine the effectiveness of the new system,” said the report.

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The report said the government earlier this year shortened the timeline for bringing departments and agencies under Dayforce by about three years, which “significantly” reduced the time available to clear the backlog.

It said this was done, in part, to mitigate the “complexities and costs” of operating two pay systems at the same time for several years.

“It will be important for Public Services and Procurement Canada to identify early on, monitor regularly, and mitigate the risks that a shortened schedule could create so as to avoid pay issues similar to the ones experienced from the deployment of Phoenix,” the report said.

The Phoenix pay system, introduced in 2016, centralized pay services for most federal employees. Public servants have faced significant problems with their pay since then — such as delays in payment or being underpaid, overpaid, or not paid at all.

The report found the Treasury Board of Canada Secretariat and Public Services and Procurement Canada have been managing the transition to the new pay system well, and the project will provide value for money once implemented.

It also found that the Treasury Board of Canada Secretariat had made “slow progress” on simplifying pay rules.

The report said Public Services and Procurement Canada has been customizing Dayforce to work without simplified pay rules. It said the government has asked Dayforce to develop three custom applications that would cost the government about $4 million per year.

“Officials told us this was done so that the slow progress in simplification would not hinder the implementation of the new pay system,” the report said.

The report also said that while the government has estimated replacing Phoenix with Dayforce will cost more than $4.2 billion, preliminary estimates didn’t include costs for departments and agencies to transition to the new system.

The report said that as of September 2025, the government was developing detailed cost estimates.

In early 2023, the report said, Public Services and Procurement Canada set a target of eliminating all pay transactions that were one year old or older by March 2026. The auditor reports that, since then, the department’s internal reports through September 2025 have indicated it won’t meet the target.

More recently, the report said, the federal government has changed its approach from eliminating transactions older than one year to balancing three priorities.

They are: eliminating the backlog for the first departments and agencies to adopt Dayforce; processing all new transactions within service standards; and gradually eliminating the backlog for all other departments and agencies, starting with the oldest transactions that have the most financial impact.

The first departments and agencies expected to take on Dayforce in 2027 include the Canadian Nuclear Safety Commission, Shared Services Canada and Public Services and Procurement Canada.

The report said the government didn’t fully assess the potential downside of its plan to eliminate the overall backlog, starting with the first departments to adopt Dayforce.

It said the government should assess how the departments that are taking on Dayforce later will be affected and consider how future events — like a drop in the number of federal public servants — could affect the number of new pay transactions.

This report by The Canadian Press was first published March 23, 2026.

Catherine Morrison, The Canadian Press