SERVICE INCENTIVE LEAVE (SIL) PAY UPON RESIGNATION Philippine Legal Primer & Guide (2025 Edition)
1. Statutory Source
| Instrument | Provision | Core Rule |
|---|---|---|
| Labor Code (PD 442, as renumbered 2018) – Art. 95 → Art. 97 | “Every employee who has rendered at least one (1) year of service shall be entitled to a yearly service incentive leave of five (5) days with pay.” | Five paid leave days accrue once an employee completes 12 months of service, whether continuous or broken. |
| Implementing Rules (Book III, Rule V, §4) | SIL may be commuted to its monetary equivalent if not used by year-end or upon separation from employment. | |
| DOLE Handbook on Workers’ Statutory Monetary Benefits (2024) | Reiterates conversion formula and clarifies taxation. | |
| NIRC (Tax Code) § 32(B)(7)(e) | Monetized leave up to 10 days per year is exempt from income tax. |
2. Who Is (and Is Not) Covered
Covered once the 12-month “service requirement” is met, regardless of employment status (regular, project, seasonal, casual) unless the employee belongs to an exempt class:
- Managerial employees (§2, Rule V, Book III)
- Field personnel & those “unsupervised on fixed work hours”
- Government employees (Civil Service rules apply)
- Domestic helpers (separate SIL under Kasambahay Law)
- Establishments regularly employing ‹ 10 workers (the exemption disappears once head-count averages 10 or more in any workday of the year)
- Employees already enjoying ≥ 5 days paid vacation or sick leave over and above legally required holidays
Union CBA clause: If the collective agreement grants any five-day paid leave convertible to cash, that already satisfies Art. 95; no double benefit.
3. Accrual & Carry-Over
| Scenario | Accrual Rule | Carry-Over |
|---|---|---|
| First-time entitlement | Completes 12 months → earns 5 days immediately. | Employee may: (a) use within the year earned; or (b) carry it into the next year, compulsory conversion to cash if still unused at following 31 Dec. |
| Beyond Year 1 | Five days every succeeding 12-month period. | Same rule. No “cap” in the Code, but unused days are always paid out. |
4. Cash Conversion on Resignation
4.1 Basic Formula
SIL Pay = Daily Rate × Number of Unused SIL Days
Daily Rate means the employee’s regular daily wage on the separation date, inclusive of COLA and integration of wage orders; exclusive of overtime, premium, and 13th-month.
4.2 Piece-Rate / Commission-Based Workers
Compute an “average daily wage” =
Total earnings for last 30 actual working days ÷ actual days worked
Multiply by unused SIL days.
4.3 Pro-Rata for Incomplete Year
Although the Code is silent, DOLE’s long-standing policy (e.g., BLR Opinion 7 Jan 2022) allows pro-rating when an employee resigns before completing a new 12-month cycle:
Pro-Rated SIL = 5 days × (months of service into current year ÷ 12)
Round off to the next higher decimal typical in payroll (e.g., 2.08 → 2.1).
(Management may adopt the stricter view—no SIL until the 12th month—but courts tend to favor pro-ration as the humane interpretation.)
5. Sample Computations
| Item | Example A | Example B – Piece-Rate | Example C – Pro-Rated |
|---|---|---|---|
| Resignation date | 15 Apr 2025 | 30 Nov 2025 | 31 Mar 2025 |
| Daily wage | ₱850 | Variable | ₱700 |
| Unused SIL days | 5 (all) | 3 | (5 × 3 mos/12) = 1.25 → 1.3 |
| Average daily (piece-rate) | — | ₱980 | — |
| Pay | ₱850 × 5 = ₱4 250 | ₱980 × 3 = ₱2 940 | ₱700 × 1.3 = ₱910 |
Tax note: Example A’s ₱4 250 is tax-exempt (≤ 10 days). If unused leave exceeds 10 days, the excess is taxable.
6. Tax Treatment (Payroll & Resignation)
- During employment: Monetized SIL up to 10 days/year → tax-exempt; 11th day onward → taxable, subject to income tax & withholding.
- Upon separation: Same threshold applies. Always withhold tax on any taxable portion.
7. Jurisprudence Highlights
| Case | G.R. / Date | Doctrine |
|---|---|---|
| Auto Bus Transport v. Bautista (G.R. 156367, 16 May 2005) | Conversion of SIL is demandable upon resignation; employer must prove payment. | |
| Intercontinental Broadcasting v. Benito (G.R. 219830, 13 Dec 2017) | SIL applies to talent employees unless squarely within field-personnel exemption. | |
| BPI v. NLRC (Ilagan) (G.R. 164736, 10 Oct 2008) | Grant of 15-day vacation leave already satisfies SIL; no double recovery. | |
| Nueva Ecija I Electric Coop. v. NLRC (G.R. 186613, 23 Nov 2011) | The 3-year prescriptive period runs from each year-end when benefit should have been paid. |
8. Prescriptive Period for Claims
Art. 306 (Art. 291): Monetary claims must be filed within 3 years from accrual. Accrual occurs:
- (a) 31 Dec: employer failed to commute unused SIL of prior year; or
- (b) Separation day: unpaid conversion of unused SIL.
9. Employer Compliance Checklist
| ✔︎ | Requirement | Notes |
|---|---|---|
| Maintain SIL ledger per employee (accrual, usage, balance). | Retain records 3 yrs + 1 yr buffer. | |
| Show SIL on payslips when converted. | Art. 109/CBA transparency. | |
| Include SIL in Final Pay memo (within 30 days from resignation—DOLE LA 06-20). | Late release → nominal damages. | |
| Withhold tax correctly; issue BIR 2316. | 10-day exemption rule. |
10. Frequently Asked Questions
Can an employer oblige employees to consume SIL instead of receiving cash? Yes. The Code gives management the choice—leave-taking or conversion—but unused leave must be paid out at year-end or on separation.
Does an employee forfeit SIL if s/he resigns without notice? No. Entitlement is statutory; even employees who “abandon” are still entitled to SIL pay earned.
Is SIL pro-rated during the first year of employment? No. The first five days vest only after the 12-month service requirement. Pro-ration applies only after initial entitlement is earned.
Are maternity-leave days counted in “one year of service”? Yes. Maternity leave is a paid leave, not an absence without pay; thus, the service clock keeps running.
11. Conclusion
Service Incentive Leave is a legally mandated minimum benefit aimed at balancing work with rest. When an employee resigns, every unused SIL day converts to cash based on the final daily wage, subject only to the 10-day tax-exemption cap. Employers who ignore or miscompute this obligation risk money judgments, damages, and possible criminal sanctions under Art. 303 of the Labor Code. Sound HR practice—accurate ledgers, timely conversion, and clear payslips—is the safest shield against disputes.
Prepared 26 May 2025, in observance of Philippine labor jurisprudence and DOLE guidance current as of this date.