I. Executive summary

SIL is a statutory minimum of five (5) days of leave with pay for every year of service.
Entitlement starts only after completing at least one (1) year of service. There is no legal requirement to “accrue monthly” before the first anniversary (employers may do so as a benefit).
Pro-rating happens mainly when an employee separates in the middle of a year (or when a company policy credits SIL proportionately during the year).
Cash conversion: Unused SIL is commutable to cash at the end of the year or upon separation.
Coverage has exceptions (e.g., managerial employees are covered, but field personnel, workers on purely commission/task basis, government employees, and domestic workers under their own law have different or separate rules).

II. Legal basis and nature of SIL

Labor Code, Article on Service Incentive Leave (SIL) (as amended and implemented by the DOLE rules): grants five (5) days SIL with pay per year to qualified employees.
Purpose and usage: SIL may be used as vacation or sick leave at the employee’s option, unless a more favorable company/CBA policy says otherwise.
Substitution principle: Employers that already grant at least five (5) days of paid leave (whether labeled SL/VL or a single bucket) are deemed compliant with the minimum SIL.

Practical effect: If your company already gives 10 VL + 10 SL with pay, you don’t add a separate 5 SIL. If you give 0, you must at least give 5 SIL.

III. Coverage and key exclusions

Covered: In general, all rank-and-file and managerial employees in the private sector who meet the service requirement, unless they fall under exclusions.

Common exclusions (no SIL under the Labor Code SIL rule):

Field personnel and other employees whose time or performance is unsupervised by the employer.
Employees engaged on purely commission, task, or fixed-amount basis (when similarly unsupervised), subject to the factual nature of their work.
Government employees (they are under civil service rules, not the Labor Code).
Those already enjoying at least five (5) days of paid leave by virtue of company policy or CBA (substitution).
Domestic workers (kasambahay) follow the Domestic Workers Act (separate regime: at least 5 days leave with pay after one year, typically not cumulative and not convertible to cash, unless a more favorable benefit applies).

Note: The applicability of “field personnel/commission basis” is highly fact-specific. Titles don’t control—actual work conditions do.

IV. When SIL accrues

First eligibility: An employee becomes entitled to 5 paid days after completing 1 year of service.
- “One year of service” generally counts authorized absences and paid regular holidays and excludes leaves without pay. Work need not be perfectly continuous; breaks authorized by the employer or the law typically don’t defeat the one-year count.
Succeeding years: For every year of service thereafter, the employee is entitled to another 5 days.
- Many employers credit the 5 days at the start of each calendar year or on the service anniversary date. The law allows flexibility as long as the minimum 5 with pay per year is assured.
Carry-over and conversion:
- Unused SIL is commutable to cash (either at year-end or upon separation).
- Employers may allow carry-over beyond the 5-day minimum, but the law’s core requirement is 5 days with pay per year plus the commutation of the unused balance according to policy and practice consistent with the rules.

V. What “pro-rated SIL” really means (and when it applies)

Legally, there is no requirement to pro-rate SIL before the first anniversary; entitlement springs after completing one year. Pro-rating arises in two practical settings:

A. Pro-rating upon separation during the year

If an employee has already become entitled to SIL (i.e., passed the first year) and resigns or is terminated in the middle of a later year, the pro-rated entitlement for the current year is computed proportionally to service rendered in that year, less SIL already used.

General formula (year of separation):

Pro-rated SIL entitlement for current year
= 5 days × (Number of months of service completed in the current year ÷ 12)
  – SIL already used in the current year

Count a whole month for each month with at least a minimum number of workdays as per company policy (many use any month with at least one day of service; set and apply the rule consistently).
If the result is fractional, see Rounding Rules below.

B. Pro-rating under a company policy that credits SIL monthly

Some employers voluntarily accrue SIL monthly (e.g., 5 ÷ 12 = 0.4167 day per month) to make usage smoother. This is more favorable than the statutory minimum and is valid. In this approach, a new hire may accrue a fraction each month even before the first anniversary—but that’s policy-based, not mandated by law.

VI. Daily pay rate for SIL and cash conversion

When an SIL day is taken or converted to cash, the payable amount is the employee’s applicable daily wage (i.e., basic daily rate at the time of leave/conversion). Typical practice:

Monthly-paid employees:
- Daily equivalent commonly computed as Monthly Rate ÷ 26 (the standard factor historically used in DOLE examples), though some companies use ÷ 22 for a strict five-day workweek policy. Apply your policy consistently and align it with your payroll basis and written rules.
Daily-paid employees:
- Use the actual daily rate on the day of leave/cash conversion.
Exclusions from “basic wage”: Generally exclude allowances and monetary benefits that are not part of the basic wage (e.g., meal/transport allowance, discretionary bonuses), unless your policy or CBA says otherwise.

Tip: Put the wage divisor (26 vs 22) and treatment of premiums/allowances in writing to avoid disputes. Follow one method consistently.

VII. Step-by-step computations (worked examples)

Example 1 — Simple cash conversion at year-end

Status: Monthly-paid employee, ₱30,000 monthly rate, 26 divisor, entitled to SIL.
Unused SIL at year-end: 3.0 days.
Daily equivalent = 30,000 ÷ 26 = ₱1,153.85
Cash conversion = 3.0 × 1,153.85 = ₱3,461.55

Example 2 — Separation mid-year (pro-rating)

Status: Employee passed first anniversary in prior year. Separates August 15. No SIL used this year.
Months of service in current year up to separation: Jan–Jul = 7 full months (treat Aug as full month only if your policy counts any month with service days; assume no for conservatism).
Pro-rated entitlement = 5 × (7 ÷ 12) = 2.9167 days
Rounding: If company rounds to nearest 0.5 day, entitlement = 3.0 days.
Daily equivalent (assume ₱25,000 ÷ 26 = ₱961.54)
Cash conversion = 3.0 × 961.54 = ₱2,884.62

Example 3 — With usage during the year

Facts as Example 2 but employee already used 1.0 day SIL in May.
Pro-rated entitlement = 2.9167 – 1.0 = 1.9167 days → rounded by policy (e.g., 2.0 days).
Cash conversion = 2.0 × 961.54 = ₱1,923.08

Example 4 — Monthly accrual by company policy (beyond the minimum)

Company credits 0.4167 day per month (5 ÷ 12), beginning on date of hire.
New hire on April 10: If policy counts any month with service as a creditable month, Apr–Dec = 9 months.
Accrued SIL by Dec 31 = 0.4167 × 9 = 3.7503 days → round per policy.

Reminder: Example 4 is policy-based generosity. The law only requires entitlement after one year.

VIII. Rounding rules and timekeeping

The law does not dictate rounding. Adopt a clear, written, neutral rule, e.g.:

Round to the nearest half-day (0.5).
Convert days to hours for hourly timekeeping (e.g., 1 SIL day = 8 hours under an 8-hour schedule), then round to the nearest hour.
Apply the same rule to all employees similarly situated.

IX. Treatment of special schedules and non-workdays

Rest days/holidays: If an SIL day coincides with a regular holiday, handle overlap per policy (e.g., allow re-booking or pay the higher of the two). The Labor Code’s holiday pay is separate from SIL.
Compressed workweek/Flexible time: Convert SIL to hours so employees on 10-hour days or 4-day weeks receive an equivalent paid time off value. Document the conversion (e.g., “1 SIL day = 8 hours”).
Absence without leave (AWOL)/LWOP: Unpaid leaves generally do not accrue SIL; they may reduce the count toward “one year of service” depending on duration and policy.

X. Special categories and gray areas

Probationary employees: Eligible to earn SIL once they hit one year of service (probationary time counts toward the year if the employee continues).
Project/seasonal employees: If the nature of the engagement means less than one year total service (or service is broken by long gaps without employment), SIL may not vest. For multi-season engagements that aggregate to at least a year of service, entitlement may arise (fact-based).
Managerial/supervisory employees: Covered by SIL (they are not automatically excluded).
Field personnel/commission-based: May be excluded if work is genuinely unsupervised and fits the regulatory definitions; this is case-specific.
Domestic workers (kasambahay): Governed by their own statute (at least 5 days paid leave after one year; typically not cumulative and not convertible to cash unless a better policy applies).

XI. Documentation and payroll compliance checklist

Written policy that:
- States the crediting schedule (anniversary vs calendar; monthly accrual if any).
- Defines pro-rating on separation and the rounding rule.
- Identifies the daily wage divisor and what counts as “basic wage.”
- Clarifies carry-over versus cash conversion at year-end and at separation.
Accrual ledger (by employee): beginning balance, credits, usage, ending balance.
Payslip disclosure: show SIL usage and conversions where practicable.
Consistent treatment among similarly situated employees to avoid disputes.

XII. Quick reference formulas

Daily rate (monthly-paid):

Daily Equivalent = Monthly Rate ÷ 26 (or ÷ 22 per policy; be consistent)

Pro-rated SIL in year of separation:

Pro-rated SIL = 5 × (Months of service in current year ÷ 12) – SIL used

Cash conversion:

Cash Pay = Unused/Pro-rated SIL (days) × Daily Equivalent

XIII. Practical cautions

No monthly accrual is legally required before the first year; that’s a benefit if you offer it.
Write down your divisor and rounding rule; apply them uniformly.
Assess exclusions carefully (especially “field personnel” and “pure commission”)—these are factual determinations.
Local ordinances/CBA/company policies can be more favorable; the most beneficial rule to the employee prevails.
Laws and DOLE issuances evolve; keep your policy reviewed periodically.

This material provides a practical legal framework for computing pro-rated SIL in the Philippines. For high-stakes decisions, audit your policy against the latest DOLE regulations, jurisprudence, and any applicable CBA.