Claiming Unpaid Terminal Leave Pay from a Local Government Unit (LGU) in the Philippines
A practical legal guide for government workers, HR officers, and local chief executives
1. What “Terminal Leave Pay” Means
| Key points | Details |
|---|---|
| Nature | A lump-sum commutation of all unused vacation and sick leave credits accrued up to the employee’s date of separation from government service. |
| Character | Vested proprietary right. Once an employee earns leave credits, they constitute property that cannot be impaired without due process. |
| Purpose | Provides a financial cushion after separation (resignation, retirement, end of term, death, dismissal, abolition of office, etc.). |
2. Primary Legal Bases
1987 Constitution Art. IX-B §3, Art. IX-D §2(1) – recognizes payment of lawful compensation and lodges original jurisdiction over money claims against government in the Commission on Audit (COA).
Administrative Code of 1987 (E.O. 292) Book V, Title I, Subtitle A, Chap. 5, §40 – grants the right to commute leave credits upon separation and prescribes the general formula.
Civil Service Commission (CSC) Rules on Leave
- CSC Memorandum Circular (MC) No. 41-98 (as amended) – consolidated leave rules.
- CSC MC No. 14-99 – clarifies computation, documentation, and tax exemption.
Local Government Code (LGC), R.A. 7160 §325(a), §331(b), §334 – (a) personnel-services (PS) cap, (b) power to appropriate and re-align savings, (c) establishment of special trust funds for retirement and terminal leave benefits.
Department of Budget & Management (DBM) Circulars E.g., Local Budget Circular (LBC) Nos. 96-2000, 103-2013, 118-2019 – detailed funding, trust-fund creation, and PS-cap treatment for LGUs.
COA Circulars & Decisions – Prescribe documentary requirements, audit procedures, and the exclusive process for money-claim settlement.
National Internal Revenue Code, §32(B)(7)(e) – Terminal leave benefits are exempt from income tax.
3. Eligibility & Coverage
| Covered | Not Covered / Notes |
|---|---|
| • Elective & appointive local officials and employees (permanent, temporary, casual, contractual) who earn leave credits under CSC rules. | • Job-order or contract-of-service workers (no employer–employee relationship; compensated by fee) – no leave credits, hence no TLP. |
| • Heirs of a deceased LGU employee (benefit paid to legal heirs). | • Personnel of GOCCs with their own charters and leave plans – governed by respective charters. |
Effect of dismissal for cause: The Supreme Court holds that dismissal does not forfeit earned leave credits unless a statute expressly says so; however, outstanding liabilities may be offset against the pay-out.
4. How to Compute Terminal Leave Pay (TLP)
Formula (Administrative Code §40 & DBM guidance)
$$ \text{TLP} = \text{Highest Monthly Salary Received} \times 0.0478087 \times \text{Total Leave Credits} $$
Where:
- 0.0478087 converts monthly salary to daily wage and removes weekends/holidays.
- Highest salary means the latest basic salary step and tranche at separation.
Example
| Item | Value |
|---|---|
| Highest monthly basic pay | ₱35 ,000 |
| Unused leave credits | 120 days |
| TLP | 35 000 × 0.0478087 × 120 ≈ ₱200 ,168.49 |
5. Funding & Appropriations in an LGU
Mandatory Appropriation: The Sangguniang Panlalawigan/Panlungsod/Bayan must appropriate funds every budget cycle or through a supplemental budget.
Special Trust Fund: Under LGC §334, the LGU may create a Retirement and Terminal Leave (RTL) Trust Fund sourced from:
- (a) PS savings,
- (b) 20 % Development Fund, or
- (c) proceeds from asset disposal, among others.
PS Cap Exemption: DBM LBC 118-2019 confirms that terminal leave benefits are excluded from the 45/55 % PS-cap computation.
If no funds immediately available:
- LGU may resort to short-term borrowing (Sec. 123, LGC IRR) specifically for TLP/RLIP.
- Payment may be staggered, but the right to the full amount is vested; delayed payment accrues legal interest (6 % per annum per BSP Circular 799-2013, as applied in SC rulings).
6. Standard Documentary Requirements
| Document | Issuing Office |
|---|---|
| Accomplished Application for Terminal Leave | Employee / HR |
| Updated Leave Card with certified leave balances | HRMO |
| Service Record | HRMO |
| Clearance (property & money accountability) | GSO / Accounting / Treasury |
| Latest Appointment & Plantilla | HRMO |
| Certificate of Last Payment | Accounting |
| LGU Budget Utilization Request & Obligation Slip | HR / Budget |
| Disbursement Voucher & Payroll | Accounting / Mayor / Governor |
| COA Form 101 (for post-audit) | Accounting |
Tip: File as early as possible (e.g., upon resignation notice) to give the Budget Office lead time for inclusion in the supplemental budget calendar.
7. Step-by-Step Claim Process
- Internal HR Processing – verification of leave credits, completion of clearances.
- Budget Authorization – issuance of an Allotment and Obligation Slip (ALOBS) or inclusion in the next Supplemental Budget.
- Accounting & COA Review – pre-audit (where applicable) or post-audit; issuance of Advice of Allotment.
- Treasurer’s Payment – preparation of ADA or check; credit to payroll account.
- COA Post-Audit – inclusion in regular audit cycles; disallowance, if any, subject to notice.
8. What if the LGU Refuses or Delays Payment?
| Remedy | Grounds / Jurisdiction | Procedure |
|---|---|---|
| Administrative request to the Local Chief Executive (LCE) | Initial step; many cases resolved here. | File written demand; copy furnish HR & Accounting. |
| Money claim before the COA | Art. IX-D, §2(1), 1987 Constitution | File within 6 years (Art. 1145 Civil Code) from separation or from formal demand’s rejection; attach complete docs. |
| Appeal to COA Commission Proper | If disallowed/denied by COA Auditor | File within 6 months of receipt of decision (COA Rules of Procedure). |
| Petition for Certiorari (Rule 64/65, Supreme Court) | To correct grave abuse in COA decision | File within 30 days from COA’s final decision. |
| Civil Action / Mandamus (RTC or SC) | Compel LCE/Treasurer to process duly funded TLP | Must exhaust administrative remedies (COA) first, except when futile/unavailable. |
Key jurisprudence: • Asturias v. COA (G.R. 221562, 02 Jul 2018) – COA has exclusive original jurisdiction over money claims vs. LGUs. • De Jesus v. COA (G.R. 104389, 07 Aug 1992) – TLP is a demandable right; lack of funds is not a legal defense to deny the claim. • Re: Mateo (A.M. 09-8-6-SC, 13 Jun 2012) – dismissal does not forfeit leave credits.
9. Prescription & Interest
| Aspect | Rule / Source |
|---|---|
| Filing with COA | Within 6 years counted from the time the cause of action accrued (Art. 1145(1), Civil Code). |
| COA final action | Must be appealed within 6 months (COA Rules). |
| Legal interest on delayed benefit | 6 % per annum from extrajudicial demand until full satisfaction (BSP Circular 799 & SC cases). |
10. Tax & Other Deductions
- Income Tax: Exempt under NIRC §32(B)(7)(e).
- GSIS / Pag-IBIG / PhilHealth Premiums: Not deductible (already paid while in service).
- Unliquidated cash advances / disallowances / property shortages: Set-off against TLP is allowed only after final COA notice.
- Court-ordered obligations (e.g., child support, civil damages): Deductible upon proper writ.
11. Special Topics & FAQs
| Issue | Resolution |
|---|---|
| Is elective official (mayor, councilor) entitled? | Yes, if their LGU applies the CSC leave law to elective officials (many do). Otherwise, local ordinance may be required. |
| Partial monetization before retirement | Allowed up to 50 % of earned leave credits once a year (CSC MC 41-98), separate from TLP. |
| Re-employment after receiving TLP | Leave credit slate restarts at zero; previous TLP not refunded. |
| Separation pending administrative case | Processing may be suspended; if eventually exonerated, TLP is released with interest. |
| Early payment before effectivity date (e.g., resignation effective next month) | Prohibited; computation date is last day of service. |
12. Best Practices for LGUs
- Maintain real-time leave cards and digital HRIS records.
- Set up an RTL Trust Fund in the budget to avoid sudden PS spikes.
- Pre-audit big-ticket payouts (>₱100 k) with resident COA for risk management.
- Inform employees of projected TLP during HR exit briefing to manage expectations.
- Adopt local ordinance mirroring CSC & DBM rules for clarity and audit defense.
13. Checklist for Claimants
- Secure and sign Application for Terminal Leave.
- Obtain updated leave card and service record from HR.
- Clear all accountabilities (property, cash, documents).
- Submit claim dossier to HR/Budget before separation date, if possible.
- Follow up on budget inclusion or supplemental ordinance.
- Keep a dated written demand/receipt – establishes interest accrual date.
14. Conclusion
Unpaid terminal leave pay is not a gratuity but a legally demandable property right. While LGUs must observe budgetary processes and PS limitations, the constitutional and statutory framework ensures that every local official or employee who leaves government service receives the full monetary value of the leave he or she has earned—no more, no less. Understanding the substantive entitlement, the correct computation, the funding mechanisms, and the hierarchical remedies provides both employees and LGU administrators a clear roadmap to prevent disputes and, when necessary, secure payment quickly and lawfully.
(This article is for educational purposes and should not be taken as stand-alone legal advice. Consult the CSC, DBM, COA, or a qualified Philippine lawyer for case-specific guidance.)