How to fix Phoenix: Put payroll back in local hands, Australian experts say

When faced with a payroll fiasco similar to Canada's situation with the Phoenix system, the Australian state of Queensland chose an expensive strategy, but one observers say was successful: they put payroll back in local hands.

Queensland Health quickly moved away from a central payroll hub after problems began

Veronica Pyke says she was overpaid when Queensland Health moved to a new payroll system. She said the people responsible for pay couldn't do anything and 'seemed exhausted' from their efforts. (Lorian Belanger/Radio-Canada)

When faced with a payroll fiasco similar to Canada's situation with the Phoenix system, the Australian state of Queensland chose an expensive strategy, but one observers say was successful: they put payroll back in local hands.

Queensland Health's story of the implementation of an IBM-provided payroll system will sound familiar to those following the saga of Phoenix in Canada. In March 2010, some 78,000 health workers had their pay stubs switched to a new system as payroll operations were centralized into a single workplace, itself with 550 employees.

It was a complex job involving five collective agreements and 24,000 separate pay rules. IBM had the contract to deliver the service.

"The idea was similar to the one in Canada, that there would be a gain in performance and speed," recalls Queensland Health executive director Michael Walsh.

But within months of the launch, the government began noticing problems — mostly overpayments to workers that nobody seemed to know how to fix.

What was not understood at the time is that the local knowledge of these people … is not knowledge that is put on paper.- Queensland Health's Michael Walsh

"As soon as I saw my first pay, I knew I had received a lot more money than I was entitled to," said Veronica Pyke, a union organizer who was then a nurse in a town more than a hundred kilometres from Brisbane, the capital of Queensland.

Pyke, who was trying to understand her pay stub, remembers the helplessness of the employees responsible for pay in her situation.

"They could not do anything," she said.

The executive director of Queensland Health says going back to local payroll teams was critical to stabilizing the payroll system. 1:31

The Phoenix system is different from the payroll product Queensland used. In a statement to CBC/Radio-Canada, IBM said the situations "are not comparable," noting that in the case of Phoenix, IBM was hired to install and customize third-party commercial payroll software that the federal government had selected.

An Australian task force set up to handle the Queensland problem sought the advice of unions, managers and consultants, and concluded they had underestimated the complexity of the task and could not standardize pay processing.

"What was not understood at the time is that the local knowledge of these people about shifts, schedules and agreements in place are not knowledge that are put on paper," Walsh said.

The result: the department doubled payroll staff from 550 to 1,100 employees, and had them manually enter changes to pay stubs with problems until they had stabilized the systems.

Even now, eight years later, the number of payroll employees stands at 800, with only 150 working in a centralized location.

The department also went back to a system where payroll officers were able to get to know the departments they were charged with handling.

"They have individual relationships, so you have a customer manager and you know that person and you can ring that payroll person," Walsh said.

"There was a really critical change back to that localized payroll."

The solution was expensive. The government estimates it has spent $1.2 billion over the past eight years to keep the system running.

In 2013, the commission of inquiry looking into Queensland's payroll problems found that its initial decision to centralize its payroll operations was "probably the most dramatic example of a failed attempt to impose a standardized solution on an extremely complicated and individualized agency."

Unless Canada handles payroll problem differently, 'the mountain will continue to grow' says payroll consultant Malcolm Thatcher. 1:22

As in Queensland, Canada had centralized its payroll operations in the lead-up to the launch of the Phoenix payroll system in 2016.

Some 550 employees at the Public Service Pay Centre in Miramichi, N.B., were tasked with the duties of 1,200 compensation advisers previously distributed across a number of federal departments.

After the Canadian government realized the scope of the problem, it began to recruit more payroll staff and opened satellite offices in other regions. Now, two years later, there are 1,465 payroll staff as well as another 207 people who worked at the client contact centres that connect people with complaints to pay advisers.

But the government continues to favour the centralization of these services, and has shown no intention of going back.

Some, including union leaders in Canada, say that is a mistake. According to internal documents obtained by the CBC, three times more federal public servants have problems with their pay when they are being processed by the Miramichi centre.

And problems remain. The number of transactions the pay centre was trying to resolve in January was at 384,000, according to the most recent tally. The target is zero.

Beth Mohle, the state secretary for the Queensland Nurses Union, said centralizing the payroll system in her home state was a mistake. (Lorian Belanger/Radio-Canada)

Problem allowed to worsen

The size and extent of Canada's pay problems is shocking to Malcolm Thatcher, a technology consultant who worked at Queensland Health.

"Not only did the [Canadian] government not take over quickly to stabilize [Phoenix], it allowed it to grow. It's very surprising," he said.

I think they've got to accept that until they do something differently, the mountain will continue to grow.- Australian payroll consultant Malcolm Thatcher

"I think decentralizing the solution will be critical for them to get on top of this," Thatcher said.

"That big mountain becomes harder and harder to climb. I think they've got to accept that until they do something differently, the mountain will continue to grow," he said.

Beth Mohle, the principal secretary of the Queensland Nurses Union, agrees.

"The people need to have people locally they can go to — a face, not just a person at the end of the phone or at the end of a computer. They need to be able to talk through these solutions, because they are incredibly complex," Mohle said.

In his fall report to Parliament, Canada's Auditor-General Michael Ferguson said it would take significantly longer and cost significantly more to repair the problem-plagued Phoenix system and clear the backlog of thousands of claims by public servants who have been underpaid, overpaid or not paid at all.

"A sustainable solution will take years and cost more than the $540 million the government expected to spend to resolve pay problems," the audit concluded.