OTTAWA -- The federal government offered a temporary glimmer of hope Friday to employees suffering through serious pay issues as it moved ahead in talks with civil service unions toward a settlement for the "undue stress and hardships" caused by its troubled Phoenix pay system.

Figures released by Public Services and Procurement Canada (PSPC), which oversees the beleaguered system, suggest a long-awaited reprieve from the ever-growing backlog of problems created since Phoenix was brought online just over two years ago.

There were about 626,000 transactions awaiting processing at the government's pay centre in Miramichi, N.B., as of Feb. 21, the department said on its web-based pay dashboard.

But while that's fewer than the peak of 633,000 problem pay files reached in January, the decline may be short-lived, PSPC warned.

"This decrease is promising," it said. "But with additional work left to do on overpayments and collective agreements, a continual decline is not expected until later this spring."

The latest backlog figures were released just days after Ottawa said it would no longer try to recover money overpaid to its employees until all of their outstanding pay issues have been resolved, and only if their paycheques were correct for at least three two-week pay periods.

The government had blamed recent escalations in the backlog at least partly on a shift of pay centre employees to deal with changes brought about after the ratification of several civil service contracts, which required complex pay rate adjustments and calculations of retroactive back pay.

More than half of all federal employees have experienced pay problems ranging from being underpaid or overpaid or not paid at all since Phoenix was brought online just over two years ago, the government said.

Last month's federal budget allocated $16 million over two years to the search for a Phoenix replacement, but that could be years away. In the meantime, federal employees continue to struggle with a pay system that has repeatedly failed.

The budget also opened the door to compensating civil servants for what it called the "real mental and emotional stress" caused by Phoenix.

Talks between the government and the unions that represent its workers over damages "have been advancing" since then, said the Public Service Alliance of Canada, although neither the unions nor Treasury Board Secretariat have revealed details of those discussions.

"For two years, our members have lived in fear every pay day; they have had their lives turned upside down; and through it all they have continued to show up to work and deliver the services Canadians depend on," said PSAC national president Robyn Benson.

"An agreement on damages won't solve everything, but it is an important part of making our members whole."

It is so far estimated that the total cost of the debacle, from the creation of Phoenix to dealing with its problems, will reach or exceed $1 billion by the end of this year. When it was first adopted, the previous Conservative government had predicted the system would save taxpayers $70 million annually.