Computing Service Incentive Leave (SIL) for Resigned Employees in the Philippines
Comprehensive legal guide (2025 edition)
1. Statutory Framework
| Legal Source | Key Provision |
|---|---|
| Labor Code, Art. 95 | Every employee who has rendered at least one (1) year of service is entitled to five (5) days SIL with pay. |
| Implementing Rules, Book III ⇢ Rule IV | Details coverage, exemptions, accrual, and cash conversion. |
| DOLE Handbook on Workers’ Statutory Monetary Benefits (latest re‑issuance 2022) | Prescribes computation tables and examples. |
| Revenue Regulations #3‑98, §2.78.1(A)(3) (NIRC) | Up to 10 days of monetized leave credits per year are tax‑exempt. |
| Supreme Court jurisprudence | Clarifies gray areas—e.g., Auto Bus Transport Systems v. Bautista, G.R. 156367 (16 May 2005); Triumph Int’l v. Apostol, G.R. 164423‑24 (27 Feb 2007); St. Francis Square Dev’t v. CA, G.R. 178595 (22 Jan 2018). |
Why it matters on resignation: Art. 95 §2 directs payment of the cash equivalent of any unused SIL “upon separation or termination.” The same principle applies whether the separation is employer‑initiated (dismissal, redundancy) or employee‑initiated (resignation).
2. Coverage & Exclusions
| Covered (if ≥1 year service) | NOT covered (Art. 82 & Rule IV) |
|---|---|
| Rank‑and‑file employees (private sector) | Government employees (Civil Service rules apply) |
| Probationary, regular, casual, project‑based, seasonal* | Managerial employees |
| Employees of any size establishment (see note) | Field personnel, task‑based, per‑trip, or unsupervised workers |
| Employees already enjoying ≥5 days paid VL | |
| Firms with <10 data-preserve-html-node="true" employees (exempt only until head‑count reaches 10) |
*Seasonal/project workers accrue SIL while at work; silent periods are excluded.
3. Accrual Rules
- Qualifying year: First full 12‑month period (whether continuous or broken).
- Thereafter: Every succeeding year, a fresh five‑day credit vests on the anniversary date, not at calendar year‑end (unless company policy says otherwise).
- Pro‑rata formula (recognized in Auto Bus):
$$ \text{Accrued SIL days for partial year} = 5 \times \frac{\text{Months worked after last anniversary}}{12} $$
Round to four decimals during computation, then to the nearest 1/100 of a day if the CBA or policy allows; otherwise drop fractions <0.5 data-preserve-html-node="true" day.
4. Cash Conversion Upon Resignation
4.1 When to Pay
On or before the employee’s final pay release (labor‑standard deadline: 30 days from date of separation, unless company practice/CBA is shorter).
4.2 Monetary Value Formula
$$ \text{SIL Cash Equivalent} = (\text{Applicable Daily Rate} + \text{Statutory/Regular Allowances}) \times \text{Unused SIL Days} $$
Applicable Daily Rate (ADR) = Latest basic daily wage plus Cost‑of‑Living Allowance (COLA) and any daily‑rated wage adjustment regularly received. Exclude discretionary bonuses and overtime premiums.
4.3 Tax Treatment
- First 10 days of monetized leave (VL + SIL + others) per taxable year are income‑tax‑exempt.
- Excess days are subject to withholding tax on compensation.
- Include proof of tax computation in the BIR Form 2316 issued to the resigned employee.
5. Illustrative Computations
| Scenario | Facts | Step‑by‑Step | Result |
|---|---|---|---|
| A. Regular resignation mid‑year | • Hired 1 Mar 2022 • Resigned 15 Jul 2025 • ADR = ₱650 | 1. Full SIL credits already vested for the anniversaries 1 Mar 2023, 2024, 2025 → 15 days. 2. Used 7 days total. 3. Unused = 8 days. 4. Cash‑out = ₱650 × 8.00 |
₱5,200 (tax‑exempt, within 10‑day ceiling) |
| B. Project employee after first season | • Worked 1 Jan–30 Apr 2024 (120 days) • Re‑hired 1 Jan–15 Oct 2025 • ADR = ₱500 | 1. Total service ≥365 days on 31 Dec 2024 → SIL vests. 2. 2025 accrual: 5 × (9.5 mos / 12) = 3.96 days. 3. No usage. 4. Cash‑out = ₱500 × 3.96 |
₱1,980 (rounded to nearest centavo) |
| C. Employee in firm with <10 data-preserve-html-node="true" workers | • Start‑up grew to 11th worker on 1 Jun 2023 → coverage starts. • Resigned 31 Oct 2024 • ADR = ₱700 |
1. Qualifying year: 1 Jun 2023–31 May 2024. 2. 5 days vested on 1 Jun 2024. 3. Used 2 days; Unused = 3. 4. Cash‑out = ₱700 × 3 |
₱2,100 |
6. Jurisprudential Highlights
| Case | Doctrine |
|---|---|
| Auto Bus Transport Systems v. Bautista (2005) | Even after the initial 12 months, SIL accrues proportionally; employees resigning mid‑year are entitled to the fraction. |
| Triumph International v. Apostol (2007) | SIL is a demandable statutory benefit; waiver in pay‑slip or quitclaim is valid only if payment is proven. |
| St. Francis Square Dev’t v. CA (2018) | Commission‑paid field salesmen excluded as “field personnel”—no SIL entitlement. |
| Coca‑Cola FEMSA v. Laguesma (2016) | The exemption for field personnel must be proven by the employer; burden of evidence is on management. |
| Intercontinental Broadcasting Corp. v. IBC Employees Union (2016) | SIL cash conversion is distinct from CBA leave conversion; the larger benefit prevails (non‑diminution). |
7. Employer Duties & Best Practices
- Policy issuance: Integrate SIL rules in the company handbook; align any vacation‑leave conversion to avoid double counts.
- Leave ledger: Maintain running balance of accrued/used SIL per employee.
- Payslip disclosure: Show SIL credit balance at least quarterly (best practice).
- Final pay checklist: Dedicate a line item for “Unused SIL Pay” with days and rate.
- Record retention: Keep time‑keeping & payroll documents 3 years (Art. 306), matching the money‑claim prescriptive period.
8. Employee Remedies
- DOLE Single‑Entry Approach (SEnA): Free 30‑day mediation prior to filing a case.
- Regional Arbitration Branch (RAB) NLRC: File a money‑claim complaint within three (3) years from accrual (Art. 306).
- Attorney’s fees may be awarded where employee is compelled to litigate to recover SIL pay.
9. Common Pitfalls on Resignation
| Pitfall | How to Avoid |
|---|---|
| Treating SIL like vacation leave that must be approved before conversion | Remember: SIL becomes a monetary right automatically on resignation. |
| Using basic wage only in the ADR | Include COLA and other fixed daily wage supplements. |
| Denying SIL because the resigning worker is “voluntary” | Art. 95 makes no distinction; resignation or termination both trigger payment. |
| Pro‑rating only by days instead of months | Follow Auto Bus 5/12 monthly formula. |
10. Quick Compliance Checklist (for HR)
- Verify ≥1 year of cumulative service.
- Compute accrued credits (5 days/year + pro‑rated current year).
- Deduct used/paid SIL.
- Multiply balance by latest ADR + COLA.
- Determine tax‑exempt portion (≤10 days).
- Include in final pay within 30 days of exit.
- Issue BIR 2316 and quitclaim itemizing SIL payment.
11. Key Take‑Aways
- Universality: SIL is a baseline benefit; resignation does not forfeit it.
- Automatic conversion: Unused credits turn into cash at the employee’s last daily rate.
- Pro‑rata accrual: Apply the 5/12 rule up to separation date.
- Documentation is everything: Accurate leave ledgers shield employers from disputes.
- Act fast: Money‑claims prescribe in three years; employers must release final pay within 30 days.
Disclaimer
This article is for informational purposes only and does not constitute legal advice. For specific cases, consult competent counsel or the Department of Labor and Employment.