The state accidentally keeps overpaying employees because its legacy payroll system, which dates back to the 1970s, fails to account for last-minute payroll changes, records obtained by The Sacramento Bee show. When those erroneous payments occur, departments and their employees have to jump through extra hoops to recover those public funds.
“It is beyond a headache, it actually creates a huge annoyance for the employee,” said Russ Nichols, a longtime state government IT leader who most recently served as California’s deputy chief information officer. “For the state, it creates an immense amount of extra work.”
Last year, California clawed back over $8.5 million that departments had accidentally paid out to employees. It’s not clear exactly how much the state overpaid employees in total. Individual departments referred questions to the State Controller’s Office and a spokesperson for that office said they could not provide a sum of 2025 overpayments by publication time.
The reason for most of these erroneous payments stems from the state’s long-standing practice to pay employees in advance of the end of the monthly pay period. Overpayments and underpayments occur when changes to employees’ salaries or benefits occur after the payroll cutoff date, said Bismarck Obando, a spokesperson for the controller’s office, which is the custodian of the state’s payroll records.
While there is a wide range of situations that can lead to incorrect payments, Nichols described one scenario in which issues can arise after a state employee has a baby. Immediately after the delivery a parent would likely add their new child to their health insurance, but in most cases that process is still done manually, and it takes time to see that change reflected on an employee’s pay stub.
“It’s quite possible that my paycheck got generated before my health care deduction changed,” Nichols said. And now the state has to recover that money to account for the overpayment.
For decades, the state has tried to modernize the payroll system that is responsible for these frustrating errors, but those efforts have fallen short.
The current attempt to design a more modern system began a decade ago, and just last year, the state selected a vendor to build it. Obando said that the new payroll project will address “long-standing risks associated with the legacy system.”
Moving to biweekly pay is one way to reduce how much the state overpays employees. By processing payroll at the end of the two-week pay period — based on the actual time employees worked, instead of in anticipation of their work — the controller’s office hopes to reduce timing issues that lead to overpayments.
That effort isn’t scheduled to be complete until 2030. But when it is finished, “the California State Payroll System (CSPS) Project will eliminate human error and significantly reduce errors arising from timing issues inherent in the current state’s legacy payroll system,” Obando said in a statement.
Frustration for workers and departments alike
DeAndre Harice is one state employee who received a letter from his department that California overpaid him.
Harice, a custodian who works in an Employment Development Department office in San Bernardino, went on medical leave last spring, during which time he received two checks from the state totaling more than $2,000. He assumed that money was payment for leave he had accrued from his 15-year career with the state.
But shortly after receiving those checks, administrators informed Harice that those checks were paid to him erroneously, and he would need to pay back that money.
Since March, Harice and his union have been going back and forth with the department trying to determine why and how much the state mistakenly overpaid him. The process has been frustrating.
“The only thing I can do is hope that they don’t take money out of my check that I need to take care of my family,” Harice said.
In 2025, EDD recovered over $340,000 in overpayments made to employees. When those errors occur, the department informs the employee about the error and offers options to pay it back through cash or check, a payroll deduction or using employees’ leave to offset the overpayment.
“The department works quickly to resolve overpayments to maintain payroll accuracy and minimize disruption for employees,” EDD spokesperson Greg Lawson said in a statement. Another EDD spokesperson said that the department is working with Harice to resolve the payroll issue.
These payroll problems tend to create headaches for larger departments.
The California Department of Forestry and Fire Protection, which employs over 11,000 workers, clawed back more than $920,000 from its employees in 2025. A Cal Fire spokesperson said that the department has to recover so much money from employees because thousands of firefighters are hired each year for temporary work, and the payroll system doesn’t accurately deduct new hires’ contributions for benefits.
The California Department of Corrections and Rehabilitation recovered the largest amount of overpayments to department employees in 2025. The corrections department clawed back $3.9 million from employees through payroll deductions, the controller’s data showed. That comes out to roughly $72 in recovered funds per employee, according to the controller’s office’s latest employment figures.
Why do departments overpay employees?
Payroll at the state is complex, in part, because of the diversity of state jobs — there are over 2,600 different classifications in use — and the wide range of benefits available to workers, most of whom are represented by one of 21 bargaining units, which each have a separate contract with the state.
The payroll system was custom-built over several decades to handle the complexities of the state’s workforce, which has made it difficult to transition to a more modern technology that other large employers use, said Nichols.
Over several decades, California custom-built its current payroll system to accommodate California’s workforce, he said, and it still uses “antiquated processes,” such as paying workers once a month.
Moving from the legacy technology to a “modern payroll system,” is not a simple transition, Nichols said. The complexity stems from the fact that the project involves a significant number of stakeholders, including the 21 bargaining units and the California Public Employees’ Retirement System, and the state has convoluted human resource policies that an off-the-shelf payroll software could not accommodate, Nichols explained.
“It’s got a lot of fingers that reach into other things which make it very, very complicated,” he said.
The last failed effort to modernize the payroll system began in 2004. The state hired the vendor SAP Public Services, Inc. to build out a system to pay and manage employees over the following nine years. But when the new system was piloted with a small group of workers, it ran into payroll problems and the state suspended the project in 2013.
Last year, the state selected CGI Technologies Solutions Inc. to build the new system. Estimated to cost upward of $1.2 billion, the California State Payroll System Project is one of the state’s most costly and complex projects in its IT portfolio.
The project was the subject of a lawsuit last year by the software vendor Workday, which alleged that the state violated California procurement rules by changing the parameters of the project and failing to give the company proper notice. In October, a Sacramento Superior Court judge dismissed the lawsuit due to a lack of standing.
The controller’s office insisted that the project is currently on track. A spokesperson for California’s Department of Technology said that the project has not been delayed by protests during the procurement process.
Given the previously failed efforts to modernize the system, the likelihood it will ultimately cost taxpayers more money and that the project will impact nearly every state department, the nonpartisan Legislative Analyst’s Office recommended more lawmaker oversight of the endeavor last year.
The transition to the new payroll system, which will pay employees twice a month and ideally eliminate the potential for annoying overpayments, is still a couple of years out.
The California Department of Human Resources estimated that the transition to biweekly pay won’t occur until 2028, and only for staff at the controller’s office and CalHR initially. Employees of the other 160 departments will have to wait even longer.
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