Commentaries on financial audits
Opportunity to address risks before launching the government’s new pay system
Modernizing the Pay System
Report metadata
- Tabling date:
- Audited entities:
- Public Services and Procurement Canada
- Treasury Board of Canada Secretariat
- Topics:
- Employment
- Public service
- Science and technology
- Report type
- Auditor General reports
At a glance
In 2016, the Government of Canada changed how it processed pay for public servants by introducing the Phoenix pay system, centralizing pay services for most federal employees. However, once the change happened, employees began experiencing significant pay issues, including delays in pay as well as being underpaid, overpaid, or not paid at all. The federal government is now working to replace Phoenix with a new system, Dayforce, in a project led by the Treasury Board of Canada Secretariat and Public Services and Procurement Canada.
The secretariat and the department were still in the planning phase of the Human Resources and Pay Transformation Project at the end of the audit and are not expected to complete that phase until June 2027. Overall, we found that the Treasury Board of Canada Secretariat and Public Services and Procurement Canada were managing the project so they can ensure that federal public servants’ pay transactions will be accurate and on time and that the project will provide value for money once implemented. The secretariat and the department have time to adjust course as the project evolves to address emerging risks.
Following the implementation of the Phoenix pay system, the federal government identified lessons learned. Key among those lessons was that pay rules and processes should be simplified and standardized before launching a new system to avoid costly and complex system customizations. We found, however, that the Treasury Board of Canada Secretariat made slow progress in simplifying pay rules. Consequently, Public Services and Procurement Canada was proceeding with customizations to Dayforce to avoid delays in transitioning to the new system.
Public Services and Procurement Canada had made limited progress in eliminating the substantial backlog of pay transactions. As at September 30, 2025, the total backlog for departments and agencies serviced by the Public Service Pay Centre stood at over 233,000 pay transactions, impacting over 133,000 employees. 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.
In January 2026, after the end of the audit period, Public Services and Procurement Canada shortened the schedule to move departments and agencies to Dayforce by about 3 years. This was done, in part, to mitigate the complexities and costs of operating 2 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.
Key facts and findings
- In 2024–25, the federal pay system processed $38 billion in pay for over 430,000 current and former public servants.
- Vendor support for the Phoenix pay system could end as early as 2036. Public Services and Procurement Canada planned to replace Phoenix with Dayforce by 2034. After our period under audit, Public Services and Procurement Canada shortened the project schedule by 3 years.
- Public Services and Procurement Canada’s preliminary estimate for the new human resources and pay system—Dayforce—will cost more than $4.2 billion. This estimate did not include important costs needed for all departments and agencies to transition.
- Public Services and Procurement Canada is still determining how it will measure the cost savings the new human resources and pay system is supposed to achieve.
- The Treasury Board of Canada Secretariat did not yet reach a consensus with unions on simplified pay rules for Dayforce; as a result, Public Services and Procurement Canada was developing cloud extensions to ensure that the system can process government pay rules that may remain in effect without being simplified. These cloud extensions are estimated to cost at least $4 million each year.
Why we did this audit
- Accurate and timely pay depends on having a reliable and cost‑effective integrated human resources and pay system for departments.
- The simplification and standardization of pay rules and processes are important to ensuring the pay problems resulting from the Phoenix implementation are not repeated.
- To assess whether value for money is being achieved once the new pay system is implemented, cost estimates that consider the life cycle of the Human Resources and Pay Transformation Project must be detailed, and key performance indicators must be developed, tracked, and monitored.
Highlights of our recommendations
- The Treasury Board of Canada Secretariat, in coordination with Public Services and Procurement Canada, should address gaps in service standards that support timely and accurate pay and report government‑wide results in meeting the standards to help ensure the employees’ transactions are processed in a timely and accurate way.
- As Public Services and Procurement Canada develops detailed cost estimates for the Human Resources and Pay Transformation Project, the department should: include estimates of costs to transition departments and agencies to the new system and develop key performance indicators that would measure whether costs to process pay transactions with Dayforce would decrease as compared with Phoenix.
Please see the full report to read our complete findings, analysis, recommendations and the audited organizations’ responses.
Exhibit Highlights
Exhibit 1—How a change in pay is processed for an employee in a department or an agency serviced by the Public Service Pay Centre
Text version
This flow chart shows how a pay transaction is processed for an employee in a department or an agency that is serviced by the Public Service Pay Centre:
• An employee or their manager submits a pay action request form via mail, email, or fax with supporting documentation to the pay centre to have a change made to the employee’s pay.
• The employee’s department or agency enters data in the departmental human resources system, which is sent to the Phoenix pay system.
• A pay centre compensation advisor processes the pay change request and enters additional data into the Phoenix pay system.
• The Phoenix pay system calculates pay.
• The department or agency reviews pay and authorizes Public Services and Procurement Canada to issue pay.
• The employee receives an updated paycheque.
Exhibit 2—Public Services and Procurement Canada made limited progress in reducing the backlog of pay transactions
Text version
This line graph identifies the number of pay transactions in the backlog and those older than 1 year as at April 30, 2023, and September 30, 2025. It also shows that during this period, the number of transactions in the backlog and those older than 1 year each reached a peak at the same time and then decreased.
On April 30, 2023, there were 410,270 pay transactions in the backlog, of which 225,739 were older than 1 year. There were also 183,946 employees affected by the transactions.
During the period, the number of pay transactions in the backlog peaked at 447,080 and the number of transactions older than 1 year peaked at 266,434.
On September 30, 2025, there were 233,653 transactions in the backlog, of which 155,217 were older than 1 year. There were also 133,619 employees affected by the transactions, which represented a 27% reduction of employees affected compared with April 30, 2023.
The exhibit also shows a donut graph indicating the age of the backlog on September 30, 2025, as follows:
• 34% of the transactions were less than a year old
• 16% of the transactions were 1 to 2 years old
• 16% of the transactions were 2 to 3 years old
• 13% of the transactions were 3 to 4 years old
• 9% of the transactions were 4 to 5 years old
• 5% of the transactions were 5 to 6 years old
• 7% of the transactions were over 6 years old
The target to eliminate transactions older than 1 year was March 2026.
Source: OAG analysis of data from Public Services and Procurement Canada’s Case Management Tool
Exhibit 3—Public Services and Procurement Canada prioritized eliminating the backlog for departments and agencies moving to Dayforce in the first wave
| Date | Shared Services Canada backlog | Public Services and Procurement Canada backlog | Backlog of all other departments and agencies |
|---|---|---|---|
| April 1, 2025 | 4,502 | 24,176 | 277,843 |
| September 30, 2025 | 1,745 | 13,464 | 218,444 |
| Decreased transactions | 2,757 | 10,712 | 59,399 |
| Decreased percentage | 61% | 44% | 21% |
Notes:
- The target date to eliminate the backlog for Shared Services Canada and Public Services and Procurement Canada is April 1, 2027.
- We did not include the Canadian Nuclear Safety Commission pay transactions in this analysis because they are not processed by compensation advisors at Public Services and Procurement Canada and are not part of the public service pay backlog.
Source: Office of the Auditor General of Canada analysis of data from Public Services and Procurement Canada’s Case Management Tool
Related report(s)
Auditor General reports