A practical legal article for employees, HR, and managers (private sector and government).

1) Overview: what “cash conversion of unused leave credits” means

When an employee resigns, questions often arise about whether any unused leave (vacation leave, sick leave, service incentive leave, etc.) must be paid out in cash as part of the employee’s final pay.

In the Philippines, the answer depends on (a) whether you are in the private sector or government service, (b) what kind of leave you are talking about, and (c) whether the leave is required by law or granted by company policy/contract/CBA.

A simple way to think about it:

Private sector: Only some leave types are legally cash-convertible by default (especially the statutory 5-day Service Incentive Leave), while most other leaves become cash-convertible only if your company policy/contract/CBA says so or practice has made it an obligation.
Government: Accumulated leave credits are generally paid as terminal leave benefits upon separation (including resignation), subject to Civil Service rules and agency requirements.

2) Key concept: Final pay vs. separation pay

Final pay (also called “last pay”) is what an employee is entitled to receive after employment ends. It commonly includes:

Unpaid salaries/wages up to last day
Pro-rated 13th month pay
Cash conversion/commutation of unused leave credits if due
Refund of cash bond (if any) or other balances due to employee
Tax adjustments/refund (if applicable)
Other benefits due under contract/CBA/company policy

Separation pay is different. It is typically due only in specific cases (e.g., authorized causes like redundancy/retirement) and is not automatically due for a voluntary resignation—unless a company policy/contract/CBA grants it.

This article focuses on the leave component of final pay.

3) Private sector: the legal baseline (Service Incentive Leave)

3.1 What leave is guaranteed by law?

The main “default” statutory leave for most private-sector employees is the Service Incentive Leave (SIL):

5 days with pay per year of service
For employees who have rendered at least one year of service (as defined in labor standards)

3.2 Who is commonly excluded from SIL coverage?

SIL has recognized exclusions (depending on the employee’s role and the employer’s situation), commonly including:

Government employees (covered by Civil Service rules instead)
Managerial employees (and certain officers exercising managerial prerogatives)
Field personnel (whose actual hours of work cannot be determined with reasonable certainty)
Employees already enjoying at least 5 days of paid leave (or equivalent benefit) under company policy/practice/CBA
Establishments that regularly employ fewer than 10 employees (a commonly cited statutory exclusion in labor standards discussions)
Other categories exempted under labor standards rules

Practical note: Coverage/exclusion can be fact-sensitive. If the employer labels someone “managerial” but their duties are not truly managerial, SIL coverage may still apply.

3.3 Is unused SIL convertible to cash upon resignation?

Generally, yes—unused statutory SIL is commutable to cash if it was not used, and it becomes part of what may be payable upon separation/resignation.

Important qualifiers:

The obligation attaches to statutory SIL (or its equivalent if the company grants at least 5 days paid leave already).
If your company already grants a paid leave benefit that meets/exceeds SIL, the analysis shifts to that company benefit’s conversion rules (policy/contract/practice).

4) Private sector: Vacation Leave (VL) and Sick Leave (SL) beyond SIL

4.1 Are VL and SL automatically cash-convertible by law?

For most private-sector workplaces, additional VL/SL beyond the statutory SIL are not automatically convertible to cash under a single universal rule.

Instead, payout depends on:

Written company policy/handbook
Employment contract
Collective bargaining agreement (CBA)
Established company practice (consistent, deliberate, repeated over time)
Equitable/anti-diminution principles (benefits cannot be unilaterally withdrawn if they have become a company practice or vested right)

4.2 Common policy patterns

Private employers often adopt one of these systems:

“Use it or lose it”: VL expires at year-end and is not paid out (except where prohibited by policy/practice/contract or where it effectively substitutes SIL).
Carry-over: Unused VL is carried to the next year up to a cap; payout on resignation may be allowed or disallowed.
Convertible with cap: Unused VL can be converted to cash up to a maximum number of days.
Convertible upon separation only: No yearly conversion, but the balance is paid out upon resignation/termination.
Hybrid: Some days convertible, some forfeitable, some carried.

4.3 Company practice can create a legal obligation

Even if a handbook is silent, repeated consistent payouts of unused VL upon resignation over a long period can become an enforceable company practice, making it risky for employers to suddenly stop paying without proper legal basis.

5) What about special statutory leaves (maternity, paternity, solo parent, VAWC leave, special leave for women, etc.)?

Many special leaves are designed for a specific purpose and are typically not treated as “convertible credits” like VL/SIL.

General guide:

Purpose-specific leaves (e.g., maternity, paternity, VAWC leave, special leave for women, etc.) are usually not cash-convertible unless a law/policy explicitly provides conversion or the employer voluntarily grants a convertible benefit.
SIL/VL-type leaves are the typical subject of commutation/cash conversion.

If your employer “credits” these leaves into a leave bank that becomes convertible under policy, the policy controls—but employers commonly do not do this.

6) Timing: when should the employee receive payout?

In practice, unused leave conversion—when due—is paid as part of final pay after:

Clearance procedures
Return of company property
Computation of payroll and benefits

A widely followed benchmark in Philippine practice is that final pay is released within about 30 days from separation, unless company policy/collective agreements provide a different period or there are justified delays due to clearance/accounting issues.

7) How to compute cash conversion (private sector)

7.1 Identify which leaves are payable

You must determine:

Statutory SIL earned but unused (or its equivalent)
VL/SL payable under policy/contract/CBA/practice
Any caps (e.g., “convert up to 10 days only”)

7.2 Determine the correct daily rate

Common approach:

Daily rate = basic monthly salary ÷ 26 (for many monthly-paid employees in 6-day workweek computations), or
Daily rate = basic monthly salary ÷ 22 (sometimes used in 5-day workweek settings), or
Use the employer’s established payroll divisor consistent with how leave pay is normally computed.

What matters is consistency with:

the employee’s wage structure,
the company’s payroll practice, and
labor standards principles (leave pay should reflect the employee’s normal daily pay basis).

7.3 Example computation

Assume:

Monthly basic salary: ₱26,000
Company uses divisor 26
Unused payable leave days: 7 days

Daily rate = 26,000 ÷ 26 = ₱1,000 Leave conversion pay = 7 × 1,000 = ₱7,000

(Then apply usual payroll tax/withholding rules, if any, depending on the nature of the payment and tax treatment.)

8) Tax treatment (high-level, practical)

Tax outcomes vary based on how the payout is characterized and whether it falls under exclusions or de minimis rules.

General practical points:

Leave conversion in the private sector is often treated as part of compensation income, unless it clearly falls under an exempt category or a recognized de minimis/exclusion rule.
Some monetized leave benefits may qualify as de minimis up to specific limits in certain contexts (commonly discussed in HR practice), but the details depend on current tax regulations and how the employer structures the benefit.
Government terminal leave has its own treatment often handled by agency payroll/accounting, but employees should still check how it is reported in their year-end tax documents.

Because tax rules are technical and changeable through regulations, employees should request the payslip breakdown and ask HR/accounting what tax basis was used.

9) Government employees: Terminal Leave Benefits upon resignation

9.1 The governing framework

For government employees, leave benefits and cash conversion are governed primarily by Civil Service Commission (CSC) rules and issuances, plus applicable laws/DBM rules on funding and disbursement.

Instead of the private-sector “SIL payout” discussion, government employees typically receive Terminal Leave Benefits (TLB) when they separate from service (including resignation), subject to conditions.

9.2 What are Terminal Leave Benefits?

Terminal leave is the commutation to cash of accumulated leave credits (commonly vacation and sick leave credits) upon separation from government service.

Key characteristics:

It is paid in a lump sum (or as processed by the agency).
It is usually based on the employee’s highest salary received (depending on applicable CSC/DBM rules and agency computation practice).
It is processed after clearance and submission of required documents.

9.3 Common requirements and process

While specifics vary by agency, the usual workflow includes:

File resignation (and ensure acceptance/approval where required)
Secure clearance (property, accountabilities)
HR certifies service record and leave credits (leave card)
Accounting computes terminal leave amount
Agency processes payment subject to available funds and applicable rules

9.4 How terminal leave is commonly computed (conceptually)

Government terminal leave computation generally uses:

Verified number of accumulated leave credits (VL/SL)
A salary base (often highest monthly salary)
A conversion to daily rate using an approved factor/divisor
Multiply by number of days

Agencies often use a CSC-recognized computation factor for daily rate conversion and terminal leave calculation. Employees can request the computation sheet and the issuance basis used by their HR/accounting.

10) Common problem areas and how they’re resolved

10.1 “I resigned but HR says leave credits are forfeited.”

This depends on the leave type:

Statutory SIL (private sector): forfeiture is difficult to justify if the leave was earned and not enjoyed, unless the employer can legally show the employee was excluded or already received an equivalent benefit.
Company VL/SL: may be forfeitable if policy says so and there is no contrary practice/contract/CBA.

Action steps:

Ask for the written policy basis.
Ask for your leave ledger and SIL equivalency explanation.
If unresolved, consider a formal HR appeal, then labor assistance mechanisms.

10.2 “My company says VL replaces SIL, so no payout.”

If VL validly replaces SIL (i.e., provides at least the statutory minimum benefit), the question becomes whether the VL policy provides payout upon separation. However, employers cannot use “replacement” as a way to reduce the employee below statutory minima.

10.3 “I’m a field employee—am I excluded from SIL?”

Field personnel exclusions are fact-based. The key issue is whether your actual hours of work cannot be determined with reasonable certainty. Many roles labeled “field” still have trackable hours and thus may not be excluded.

10.4 Prescription period (private sector money claims)

Money claims arising from employer-employee relations commonly have a three-year prescriptive period from the time the cause of action accrued. For leave conversion disputes, timing can matter—especially if the claim involves leave earned years ago.

11) Practical checklists

11.1 For employees (private sector)

Before your last day:

Request your leave balance breakdown (SIL vs VL/SL)
Ask for the policy/handbook provisions on conversion/forfeiture
Request a final pay computation estimate
Keep copies of:
- resignation letter and acceptance
- payslips
- handbook excerpts / policy emails
- leave requests/approvals and leave ledger

11.2 For HR/employers (private sector)

To reduce disputes:

Clearly identify which leave benefit satisfies SIL compliance
State conversion rules plainly:
- annual conversion?
- conversion upon separation?
- carry-over limits?
- forfeiture rules?
Apply policies consistently to avoid unintentionally creating a binding practice
Include leave conversion in the final pay checklist and communicate timeline

11.3 For government employees

Confirm your recorded leave credits early (months before separation if possible)
Complete clearance promptly
Request the computation basis and documents required by your agency
Keep a copy of service record/leave card certification

12) Frequently asked questions

Q: If I resigned voluntarily, do I still get paid my unused leaves? A: In the private sector, unused statutory SIL (or its equivalent) is generally the most defensible payout. For VL/SL beyond that, it depends on policy/contract/CBA/practice. In government, accumulated leave credits are typically paid as terminal leave upon separation, subject to CSC/agency processing.

Q: Can my employer force me to “use” my leave during my notice period instead of paying it? A: Employers can manage leave scheduling subject to reasonableness and policy, but forcing leave to avoid lawful payout can be challenged depending on the leave type, company rules, and whether it undermines statutory entitlements.

Q: Does clearance affect my right to leave conversion? A: Clearance usually affects the timing of release, not the existence of the right—except when the policy conditions payout on clearance completion or when there are valid offsets (e.g., unpaid accountabilities).

Q: Can my employer offset my leave conversion with debts I owe the company? A: Offsetting may be possible for legitimate, documented obligations, but it must comply with wage protection rules and due process. Always request a written breakdown.

13) Bottom line

Private sector:
- Statutory SIL (5 days/year) is the key legal anchor; unused earned SIL is generally cash-commutable when not used, including upon resignation.
- VL/SL beyond SIL depends on your handbook/policy, contract, CBA, and established practice.
Government:
- Resignation typically triggers terminal leave benefits (cash commutation of accumulated leave credits) under Civil Service rules, processed by the agency after clearance and documentation.

If you want, paste your company’s leave policy/handbook section (or tell me: private vs government, your leave balances, and what HR told you) and I’ll translate it into a clear “what you are legally entitled to” analysis and a dispute-ready demand outline.