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 long-standing 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 seven years old.
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.
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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 under way 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’s preliminary estimate for the new pay system is that it will cost more than $4.2-billion. The report said the estimate does not include important costs needed for all departments and agencies to transition.
“I do expect that the actual cost of making this transition will be higher than what’s currently estimated. The $4.2-billion is a preliminary estimate. It’s rough,” Ms. Hogan told reporters at a news conference.
The Auditor-General’s report does not include an independent analysis of the department’s 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.
In a 2018 report, then-auditor-general Michael Ferguson described the original rollout of the Phoenix system as “an incomprehensible failure.”
Monday’s 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.
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 after a promotion.
“The need to simplify and standardize pay rules before introducing a new system was a core lesson learned from the transition to the Phoenix pay system,” Ms. Hogan said in a statement. “It is concerning to me that, a decade later, there has been little progress made to simplify these rules.”
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.
Joël Lightbound, Minister of Government Transformation, Public Works and Procurement, released a statement that pledged to address the report’s concerns. The minister’s statement focused on the backlog and did not mention the cost estimate.
“The transition to Dayforce is being approached carefully. Lessons from past challenges are being applied. Governance has been strengthened through independent oversight and a more rigorous internal challenge function,” he said.
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At a news conference later in the day, the minister was asked to explain the cost estimate and why it had not previously been released by the government.
“As for the detailed costing of the transition, this is being worked on at the officials level right now,” he told reporters.
Nathan Prier, president of the Canadian Association of Professional Employees union, said in a statement that the government’s plan, which includes increased use of artificial intelligence, will only exacerbate the existing issues.
“The AG has just confirmed what public servants already know: Phoenix continues to do untold damage as the cost to taxpayers continues to rise,” he said.