Employees paid too much to be able to pay back net amount instead of gross sum

Changes aim to make life more affordable for workers paid incorrectly due to the beleaguered Phoenix Pay System

Prince Albert Mayor Greg Dionne stands alongside members of the Public Service Alliance of Canada, inlcuding local president Shannon Blum, during a rally to call for changes to the much-maligned Phoenix Pay System on Feb. 28, 2018. (Peter Lozinski/Daily Herald)

The union representing more than 180,000 federal employees from across Canada, including Prince Albert, is calling recently proposed legislation from the federal government a “major victory.”

On Tuesday, the federal government announced changes to tax legislation that would ease the burden on federal employees overpaid due to ongoing issues with the beleaguered Phoenix pay system.

If the proposed legislation is passed, workers who must reimburse a salary overpayment to their employers due to a system, administrative or clerical error will have to pay back only the net overpayment, instead of the gross overpayment.

Currently, employees have to pay back the gross amount, which includes EI, CPP and tax contributions taken off of their paycheque. This means workers are paying back more than they received. They can later claim those amounts on their income tax return.

Under the rules proposed Tuesday, workers will only have to pay back what they received, their pay after deductions and employers will be able to receive the EI, CPP and tax deductions back from the Canada Revenue Agency directly.

Employees and employers will be able to immediately use the proposed amendments before the legislation comes into force.

The public is invited to send comments about the proposed changes to fin.overpayments.2019.trop-payes.fin@canada.ca or mail them to:

Tax Policy Branch 
Department of Finance Canada 
90 Elgin Street 
Ottawa, Ontario 
K1A 0G5

The legislation applies to any workers who have been overpaid due to system, administrative or clerical errors, including federal public servants affected by the Phoenix pay system.

“Public service workers scored a major victory today after years of pressure. The government of Canada has finally proposed tax legislation to fix a major part of the Phoenix pay system fallout,” Public Service Alliance of Canada (PSAC) president Chris Aylward said in a written statement.

Aylward said that for three years and counting, thousands of workers across the country received overpayments because of Phoenix.

“But rather than limiting the burden of these Phoenix errors to calculating the overpayment and repaying it to the employer, the government has forced these workers to reimburse the gross amount of the overpayment (CPP payments, income tax deductions, etc…) – significantly more than the amount they received,” Aylward continued

“Not only has this been a financial burden, but it has resulted in years of tax return problems for thousands of workers. We would have preferred to have this legislation tabled years ago, but we’re pleased that it will be retroactive to 2016, the year the Phoenix crisis began. The government must now move as quickly as possible to implement the legislation.”

In their press release, the federal government acknowledged issues with Phoenix and said it will continue working on long-term and short-term solutions.

“In early 2016, the Phoenix pay system for federal public servants was implemented to replace the Government’s 40-year-old pay system,” the Department of Finance said.

“The Phoenix pay system has led to unacceptable problems for the Government’s employees, including creating situations of overpayments. The Government is doing everything it can to stabilize the pay system, and continues to work with unions to address pay issues and implement changes that provide as much flexibility as possible for employees experiencing issues with their pay.”

Budget 2018 promised funding to address payroll challenges. The federal government is currently working on replacing the system while “continuing to take action to address and rectify existing pay challenges.”

In addition to overpayments, the system also resulted in underpayments and missed payments. The uncertainty caused stress on workers, some of whom had to remove their children from certain activities or postpone vacations as they weren’t sure whether they would be paid properly or not.

PSAC has been advocating and demonstrating for some time about the shortfalls of the pay system and asking the federal government for a fix. Now, the union would like to see some compensation.

“It’s for this kind of financial and personal stress caused by Phoenix – for three years now – that it’s also important that the government move to compensate public service workers with damages,” Aylward said.