Employee Leave Accrual After Leave Exhaustion in the Philippines — A comprehensive legal-practitioner’s overview (private-sector focus)

1. Why this topic matters

Philippine employers routinely offer leave benefits that exceed the Labor Code’s minimum five-day Service Incentive Leave (SIL). Because most companies operate on an accrual system, HR managers and employees alike need to understand what happens after credits run out:

Can the worker still accrue new leave while on exhausted status?
Is leave without pay mandatory or optional?
Will future accrual be reduced to “offset” a negative balance?
What disciplinary or payroll consequences attach to unauthorized absences?

The answers lie in statute, regulations, jurisprudence, and company policy—all of which must be read together.

2. Statutory minimum: the five-day Service Incentive Leave (Art. 95, Labor Code)

Feature	Rule	What happens after exhaustion
Who is covered	All rank-and-file employees who have rendered at least one year of service, except those already enjoying vacation leave of at least five days and field personnel paid on “pure commission” or task basis.	Once the worker consumes the 5 days within a calendar year, he/she shifts to leave without pay (LWOP) unless another statutory or company-granted leave can be tapped.
Accrual	Full five days front-loaded (not pro-rated) upon the employee’s 1st service anniversary and every January thereafter.	There is no negative balance carried to the next year. A fresh five-day grant is given on 1 January (or on the anniversary date if the employer’s policy so states).
Conversion	Any unused SIL at year-end must be converted to cash based on the salary rate at conversion time.	If the entire five-day SIL was used, nothing is converted and accrual resets.

Key point: The Labor Code does not require employers to let an employee “borrow” SIL of the following year; doing so is purely a management prerogative.

3. Statutory special leaves and their post-exhaustion rules

Leave	Statutory Basis	Credits	Post-exhaustion treatment
Sick Leave (private sector)	No general law. Most CBA or company handbook provisions borrow from the Social Security Act & ECC for sickness benefit coordination.	Typically 15–30 days per year, accruing monthly.	After exhaustion, worker may: 1) apply for Social Security sickness benefit (requires 4+ days confinement/illness); 2) continue absence as LWOP; or 3) use vacation leave if convertible.
Maternity Leave	R.A. 11210 (105-Day Expanded Maternity Leave Law)	105 paid days (120 for solo mothers).	No further statutory paid leave. Any subsequent absence is LWOP unless employer grants additional pay. Accrual of company vacation/sick leave continues while the employee is on maternity leave because the period is deemed “paid leave.”
Paternity Leave	R.A. 8187	7 paid days per childbirth (up to 4 children)	After exhaustion, the father may tap SIL or company vacation leave. Absence beyond approved leave is LWOP; it does not re-accrue paternity leave.
Solo Parent Leave	R.A. 11861 (2022 amendment)	7 paid days annually after 6 months’ service	No carry-over; no borrowing. After exhaustion, LWOP or use of other available leaves.
Violence-Against-Women Leave	R.A. 9262	10 paid days per incident	Once consumed, any further time off relating to the same incident is LWOP unless employer grants discretionary leave.
Special Leave for Women under Magna Carta (Gynecological Surgery)	R.A. 9710	Up to 60 days paid	Post-exhaustion: LWOP, possible use of company sick leave, or ECC sickness benefit.

4. Company-granted vacation and sick leave: typical accrual mechanics

Monthly Accrual (pro-rata). Example: 15 vacation-leave (VL) days credited at 1.25 days per month. Post-exhaustion effect: If an employee finishes all VL credits by, say, August, the remaining months will continue to earn 1.25 days each, but the worker cannot use them until they are earned (unless the company allows advance leave).
Front-loading. Example: The entire 15-day VL is granted on 1 January. Post-exhaustion effect: Once consumed, the employee must wait until the next grant cycle. Some firms allow negative balances (borrowed leave) that are automatically offset by the following year’s grant, provided the employee is still employed.
Earn-now, use-next-year (deferred). Used by BPOs to discourage attrition: leave accrues in Year 1 but may only be used in Year 2. Exhaustion is not an issue during Year 1 because no usage is allowed yet.

Legal parameters:

No statute compels how leave must accrue after exhaustion; DOLE only requires that existing credits (if any) be paid at separation (Art. 95 & jurisprudence).
Because additional VL/SL is a contractual benefit, the employer may validly set conditions for accrual (monthly vs lump-sum, negative-balance ceilings, forfeiture, etc.), provided rules are reasonable, clearly communicated, and applied uniformly.

5. Effect of Leave Exhaustion on Wage-related metrics

Aspect	Impact once paid leave is exhausted
13th Month Pay	LWOP days are excluded from “total basic salary earned,” so prolonged LWOP will reduce the 13th-month computation.
SSS, PhilHealth, Pag-IBIG contributions	As long as the employee remains on the payroll—even at zero pay—employer obligations continue. If LWOP is 30 days or more, employer may report the employee as “no earnings” to SSS but must still remit employer share unless employment is terminated.
Probation/Regularization clock	Authorized paid leave counts toward the 6-month probationary period; LWOP does not pause the clock unless stipulated otherwise in a valid contract.
Meal and transportation allowances	Generally not payable during LWOP unless the CBA treats them as monthly, non-dependent on workdays.

6. Discipline and due process after credits run out

Habitual absenteeism despite leave exhaustion can justify sanctions up to dismissal (e.g., International Management Services vs. Logarta, G.R. 174040, 23 Jan 2013).
DOLE and the NLRC uphold dismissals where: 1) absence is unauthorized or exceeds approved credits; 2) a return-to-work order is defied; and 3) the employee was accorded twin-notice due process.
Conversely, dismissal is illegal where the worker timely applied for leave but HR failed to process it (e.g., the “operative act” doctrine in Citytrust Banking Corp. vs. NLRC, G.R. 74430, 18 Sept 1990).

7. Interaction with the Social Security Sickness Benefit

Even when company sick leave is exhausted, an employee confined or ill for at least four (4) days may file for SSS sickness benefit. The employer must:

Advance the statutory daily sickness allowance (equal to 90 % of the employee’s average daily salary credit) within 30 days of application;
Reimburse the advanced amount from the SSS within one year;
Charge the days paid under the benefit as LWOP in payroll, not against future sick leave accrual.

8. Record-keeping and payroll compliance

Maintain separate ledgers for (a) SIL, (b) company vacation leave, (c) company sick leave, and (d) special statutory leaves. Mixing them obscures exhaustion status and invites DOLE findings of underpayment. Issue periodic leave-balance statements so employees are on notice when credits run low. At termination, pay out all unused credits at the current basic salary rate. Jurisprudence treats non-payment as an unpaid wage collectible through DOLE’s money-claims jurisdiction.

9. Government sector note (Civil Service)

Although outside the Labor Code, public-sector employees accrue 15-day VL and 15-day SL yearly (Civil Service Commission Memorandum Circular 41-98). Accrual continues even while on LWOP up to one year; beyond that, accrual is frozen. The unused balance is commutable to cash at retirement/resignation subject to CSC rules.

10. Best-practice checklist for employers

Embed clear exhaustion rules in the employee handbook—whether borrowing is allowed, and if so, up to how many days.
Automate accrual in payroll software to prevent manual errors.
Coordinate seamlessly with SSS and ECC to reduce payroll impact after sick-leave exhaustion.
Train managers on due-process steps before disciplining an employee who overstays leave.
Audit annually whether unused SIL has been fully monetized; DOLE inspectors often cite this omission.

11. FAQs

Does maternity leave “reset” SIL or vacation-leave accrual? No. Accrual runs parallel because maternity leave counts as paid service.
Can an employee insist on “no-pay leave” even if credits remain? Generally yes—management may approve LWOP for financial reasons, but cannot be forced to do so; the default is to charge available credits first.
If an employee resigns with a negative leave balance, may the company deduct it from final pay? Yes, provided there is a written authorization (Art. 113, Labor Code) or CBA clause; otherwise, deductions are disallowed.

12. Key takeaways

The only statutory accrual rule is for the five-day SIL; everything else is a matter of contract, policy, or CBA, so long as it is not less beneficial than law. Once any leave type is exhausted, subsequent accrual generally continues (unless the employee is on LWOP for 30+ days, where policy may freeze accrual). Meanwhile, actual absences become LWOP unless another leave source or government benefit applies.

Employers who document, audit, and clearly communicate these rules avoid both payroll leakages and illegal dismissal risks. Employees who track their balances avert accidental absenteeism and maximise monetization rights.

This article is for educational purposes and does not constitute legal advice. For specific cases, consult a Philippine labor-law practitioner or the DOLE.