Are Unused Sick Leaves Convertible to Cash Upon Resignation in the Philippines?

Short answer

Statutory minimum (Service Incentive Leave or “SIL”): Yes. If you’re a private-sector employee who has earned the 5-day SIL, any unused balance must be paid in cash when you resign (or otherwise separate).
Company-granted sick leave beyond SIL: It depends on your company policy, CBA, or established company practice. Philippine law doesn’t require employers to encash extra sick leave unless they promised or consistently did so.
Public sector: Governed by Civil Service rules; unused vacation and sick leave credits are generally paid as Terminal Leave Benefits upon separation, following CSC/DBM formulas.
Domestic workers (kasambahay): Covered by a separate law with a 5-day leave; unused days are not convertible to cash.

Below is the full, practical guide.

The legal backbone (private sector)

Service Incentive Leave (SIL). The Labor Code entitles employees who have rendered at least 1 year of service to 5 days of paid Service Incentive Leave per year. The Implementing Rules say unused SIL is commutable to its cash equivalent if not used by year-end. In practice, when an employee resigns, any unused SIL must be paid out as part of final pay.
Who’s covered by SIL (private sector)? SIL coverage is broad. Common carve-outs include:
- Government/GOCC employees (they’re under Civil Service rules).
- Domestic workers (now covered by the Kasambahay Law with different rules).
- Field personnel and similarly-situated workers whose performance is unsupervised (fact-specific; jurisprudence sometimes finds “drivers/collectors” not truly “field personnel” because time is still controlled).
- Employees already enjoying at least 5 days’ vacation leave with pay are considered to have met the SIL requirement (i.e., no additional SIL on top).
Sick leave vs. SIL. The Labor Code does not require employers to grant separate “sick leave” beyond SIL. Many companies voluntarily grant, say, 15 SL + 15 VL, but the law only mandates the 5-day SIL. Employers may structure SIL as part of VL/SL or as a standalone bucket.

What exactly gets paid when you resign?

1) The mandatory part: Unused SIL

If you’ve completed at least 1 year of service, you earned 5 SIL days for the year.
Any unused SIL (from prior years and the current year) is paid in cash when you resign.
Computation: (Unused SIL days) × (your basic daily wage) on separation date.
Timing: Included in final pay, which DOLE guidance expects employers to release within 30 days from separation (unless a shorter/longer timeline is in a CBA or written policy).

Pro-rata question (if you resign mid-year): The law grants 5 days per year after the first 12 months of service; it doesn’t spell out pro-rating for mid-year separation. In practice, employers either (a) grant the full 5 once you qualify for the year, or (b) pro-rate for the part of the year already served—your written policy or practice controls. If there’s a dispute, DOLE typically looks at the policy, consistent practice, and equity.

2) The discretionary part: Company-granted sick leave beyond SIL

Encashment depends on policy/CBA/practice.
- If the handbook/CBA promises encashment at year-end or upon separation → the employer must honor it.
- If the policy says “non-convertible” → the company can lawfully refuse to encash the extra sick leave (but not the 5-day SIL).
- If the company has consistently encashed extra SL for years, non-diminution of benefits may make it demandable even if unwritten.
Front-loaded leave and negative balances. If you used more sick leave than you had earned (because the company front-loaded credits), the employer cannot just deduct the “excess” from your wages without your written authorization or a lawful basis.

Special categories

A) Public sector (government/GOCCs)

Governed by Civil Service rules.
Unused vacation and sick leave credits are typically paid as Terminal Leave Benefits upon resignation/retirement, using CSC/DBM computation rules. Coordinate with your HR for the exact formula and processing timeline.

B) Domestic workers (Kasambahay Law)

The law grants 5 days leave with pay after one year of service.
Unused days are not cumulative and not convertible to cash.

Taxes on encashment

Private sector:
- SIL encashment and company-granted leave encashment paid on resignation are generally taxable compensation income and subject to withholding.
- Limited tax relief: The BIR treats monetized unused vacation leave credits up to 10 days in a year as de minimis (not taxable). Sick leave monetization generally does not enjoy this de minimis exclusion.
- Separation pay due to causes beyond the employee’s control (e.g., retrenchment, redundancy, disease) can be income-tax exempt; resignation is usually taxable.
Public sector: Terminal leave benefits have distinct rules under CSC/DBM and tax issuances; confirm with your agency’s HR/accounting.

How to check what you’re owed (private sector)

Get your leave ledger. Ask HR for your SIL balance (explicit or part of your VL/SL) and for separate sick leave balances.
Read your handbook/CBA. Look for sections on leave conversion, separation, and final pay.
Identify what’s guaranteed:
- Unused SIL → must be paid.
- Extra sick leave → see policy/CBA/practice.
Compute a ballpark figure:
- SIL payout = (Unused SIL days) × (basic daily wage).
- Extra SL payout = follow policy (% rates, caps, proof requirements).
Check taxes: Expect withholding on monetized leave, except the de minimis portion for vacation leave (up to 10 days) if applicable.
Timeline: Aim for release within 30 days of separation (unless your written policy/CBA says otherwise).
If underpaid: Use DOLE’s Single Entry Approach (SEnA) for quick conciliation; money claims generally prescribe in 3 years.

Employer compliance tips (private sector)

Put it in writing. State whether sick leave is convertible, when (year-end vs. separation), what caps apply, and what documents (e.g., medical certificate) are needed for usage (not for conversion).
Separate SIL in the ledger. Make it easy to identify the statutory 5 days so it’s always paid on separation.
Be consistent. Regularly encashing extra SL can ripen into company practice.
Mind deductions. Obtain written authorization for any deductions (e.g., front-loaded leave used in excess).
Release final pay promptly (target: within 30 days).

Practical examples

Rank-and-file employee resigns with 3 days unused SIL and 8 days company SL (policy: SL is non-convertible).

Payable: 3 days × daily wage (SIL).
Not payable: 8 SL (policy controls).
Tax: SIL encashment treated as taxable compensation.

Supervisor resigns with 2 days unused SIL and 5 days company SL (policy: “All unused VL/SL convertible at year-end or upon separation”).

Payable: 2 SIL + 5 SL (7 days) × daily wage.
Tax: Likely taxable; a portion may be de minimis only if categorized as vacation leave (up to 10 days in a year).

Kasambahay resigns with 3 days unused leave.

Not payable: Unused days not convertible under the Kasambahay Law.

FAQs

Is SIL the same as sick leave? No. SIL is the 5-day minimum legal leave (usable for vacation or sickness). Sick leave beyond SIL is contractual (policy/CBA).

I resigned at 10 months. Do I get SIL encashment? No—SIL vests after 12 months of service. Before that, there’s no SIL to convert (unless your company voluntarily grants paid leave).

My company “front-loads” 10 SL at the start of the year. I used 6, then resigned in March. Can they deduct the “excess”? Only with lawful basis and your written authorization. Check your signed policy/authorization forms.

Does “non-convertible” language in the handbook beat prior years of encashment? If the employer consistently encashed extra SL for a substantial period, employees can argue company practice and non-diminution—fact-dependent.

How soon should I receive my final pay? DOLE guidance: within 30 days from separation, unless your CBA/policy sets a different (reasonable) period.

Bottom line

Always payable on resignation: Unused SIL (the statutory 5-day minimum once earned).
May be payable: Extra sick leave—only if your handbook/CBA says so or a clear company practice exists.
Not payable (special cases): Kasambahay unused leave (by law).
Public sector: Terminal Leave Benefits apply under Civil Service rules.

If you’d like, I can turn this into a one-page checklist or compute your expected payout using your actual balances and daily rate.