1) The basic idea: “unused sick leave” is not automatically cash—unless a rule, contract, or retirement/separation framework makes it cashable

In the Philippines, whether unused sick leave (SL) becomes payable in cash upon retirement depends heavily on where you work:

Government (civil service): unused SL is typically part of “accumulated leave credits” that may be commuted into cash upon retirement/separation through terminal leave benefits (or analogous leave commutation schemes), subject to Civil Service Commission (CSC) rules and the computation method prescribed with the Department of Budget and Management (DBM) and audited under Commission on Audit (COA) rules.
Private sector: there is no general legal requirement to convert unused sick leave into cash upon retirement. Cash conversion depends on company policy, employment contract, or collective bargaining agreement (CBA)—except that Service Incentive Leave (SIL) has its own statutory rule (and SIL is not “sick leave” by default).

Because of that split, most of the “monetization and computation” law and practice you hear about for retirement is really about government terminal leave/leave commutation.

2) Key terms used in Philippine practice

a) Sick Leave (SL)

Leave granted for the employee’s sickness, injury, medical treatment, or other health-related grounds defined by rules/policy. In government, SL is a standard leave type with defined accrual and documentation requirements.

b) Leave credits / accumulated leave credits

A running balance of earned leave that remains unused. In government, this usually includes Vacation Leave (VL) and Sick Leave (SL) credits (tracked in days or hours).

c) Monetization, commutation, terminal leave pay

These terms are sometimes used loosely, but in government practice they typically refer to the cash value of unused leave credits paid upon retirement or other separation (and, in limited circumstances, during employment).

Monetization during employment: partial conversion to cash while still in service (usually more restrictive, and often focused on VL; SL monetization is commonly limited to exceptional cases).
Terminal leave benefits/pay: the lump-sum cash equivalent of accumulated leave credits upon retirement or separation (resignation, optional retirement, compulsory retirement, etc.), computed using a prescribed formula.

d) Retirement benefits vs terminal leave benefits

They are different streams of money:

Retirement benefits (e.g., GSIS, SSS/private retirement plans) are governed by retirement laws and retirement plans.
Terminal leave benefits are an employer/agency obligation based on leave credits, computed separately and funded separately.

3) Government employees: the core entitlement and where it comes from

3.1 Legal and regulatory anchors

Government leave entitlements and commutation practices are anchored in:

The Administrative Code of 1987 (Executive Order No. 292) provisions on leave for government officers and employees;
CSC rules (commonly consolidated in an Omnibus set of rules on leave, as amended);
CSC–DBM joint issuances/circulars on the computation of the money value of leave credits/terminal leave; and
COA rules/practices on audit of compensation and money claims.

The practical takeaway: your agency HR and accounting office compute terminal leave using the latest CSC/DBM-prescribed method and supporting documentation, subject to audit.

3.2 Who is typically covered

In general, terminal leave/leave commutation upon retirement applies to employees who:

Hold government plantilla positions covered by civil service rules (career service and most non-career positions that are treated as government employment for leave purposes), and
Have recorded leave credits (VL/SL or their recognized equivalents) at separation.

Usually not covered in the same way:

Job order / contract of service workers (not treated as employees with standard leave credits unless the engagement expressly provides otherwise under an applicable framework);
Some categories under separate personnel systems with their own leave/retirement rules (certain uniformed services, some government-owned or controlled entities with distinct charters, etc.), though many still have an analogous terminal leave/leave commutation mechanism.

3.3 How SL is earned and why it matters for retirement monetization

For most government employees under standard rules, SL (and VL) accrues at a rate equivalent to 15 days per year each (often expressed as 1.25 days per month each). Unused SL generally accumulates and becomes part of your total leave credits.

Important practical points:

Leave credits are often tracked in days and fractions of days or in hours (especially for flexible/shift schedules). A common conversion is 8 hours = 1 day, but agencies follow their approved work schedule rules.
Documentation for SL usage (medical certificate, etc.) affects whether past absences were correctly charged to SL and therefore affects your final balance.

4) Government employees: when unused SL becomes cash at retirement

4.1 Terminal leave is the usual route

Upon retirement (compulsory or optional) or other separation, you typically apply for terminal leave/leave commutation, and the agency pays a lump sum equivalent to the money value of the unused leave credits (including unused SL), after:

certification of final leave balances,
clearance of accountabilities,
verification of salary rate basis, and
processing of the disbursement voucher.

4.2 Can SL be monetized before retirement?

As a general policy direction in government:

VL is commonly the leave type eligible for monetization during employment (subject to thresholds and conditions).
SL is commonly treated as a contingency leave for illness and is more restricted for monetization during employment, except in specific, limited circumstances recognized by rules (often tied to serious medical need).

Regardless, upon retirement/separation, unused SL is typically included in the accumulated leave credits that are commuted to cash (terminal leave benefits), unless a special personnel system provides otherwise.

5) The standard government computation: what gets multiplied by what

5.1 The prevailing structure of the formula

Across government, the computation is built around this structure:

Terminal Leave Pay / Money Value of Leave Credits = Daily Rate × Number of accumulated leave credits (days)

Where the Daily Rate is computed from the Monthly Salary using a prescribed “working days per year” factor.

A commonly used government factor is 261 working days/year (based on a 5-day workweek). Some systems recognize different factors depending on the legally recognized workweek for pay computation (e.g., a 6-day workweek factor is sometimes seen in other contexts). Agencies follow the factor prescribed by the controlling circular for their case.

5.2 The most commonly used government daily rate expression (5-day workweek)

A widely applied expression is:

Daily Rate (DR) = Monthly Basic Salary × 12 / 261

Then:

Terminal Leave Pay (TLP) = DR × Total Leave Credits (VL + SL)

5.3 Which “salary” is used

As a rule of thumb in government computation:

The base used is typically the employee’s highest monthly basic salary received (often the salary rate as of the last day in service/retirement date), consistent with the governing CSC/DBM computation circular.
Allowances and benefits are generally not included in the base unless a specific law or rule explicitly integrates them into the “salary” base for this purpose.

Because inclusion/exclusion of particular allowances can be audit-sensitive, agencies generally stick to basic salary unless clearly authorized otherwise.

5.4 Counting leave credits: what exactly is included

The “total leave credits” for terminal leave are generally:

the final certified balances of VL and SL (plus recognized converted credits, if applicable under your system),
minus any adjustments for previously monetized portions, unrecorded absences, or required corrections.

If leave is tracked in hours, the agency converts to days (commonly by dividing by 8 hours/day, or the standard hours per workday under the approved schedule).

5.5 Worked example (government)

Assume:

Highest monthly basic salary: ₱50,000
Total accumulated leave credits at retirement (VL + SL): 180 days

Step 1: Compute Daily Rate ₱50,000 × 12 = ₱600,000 per year equivalent ₱600,000 / 261 = ₱2,298.85 per working day (rounded to centavos)

Step 2: Multiply by leave credits ₱2,298.85 × 180 = ₱413,793.10 (rounded)

So the terminal leave pay would be approximately ₱413,793.10, subject to the agency’s rounding rules and any audit adjustments.

Second example (to show fractional credits): Monthly basic salary ₱30,000, leave credits 65.5 days Daily rate = ₱30,000 × 12 / 261 = ₱1,379.31 Terminal leave pay = ₱1,379.31 × 65.5 = ₱90,344.83 (approx.)

6) Common government retirement scenarios and how they affect the leave payout

6.1 Compulsory retirement vs optional retirement

The leave commutation formula generally doesn’t change simply because retirement is compulsory (age-based) versus optional (service-based). What changes more often are:

timing of separation,
the last salary rate used (depending on effectivity of salary adjustments),
completeness of leave records and clearance timing.

6.2 Resignation, separation, or death

Many government systems allow commutation of leave credits not only upon retirement but also upon other forms of separation. If the employee dies, the money value of leave credits is typically payable to legal heirs/estate, subject to standard documentation (proof of death, heirship/settlement documents, etc.).

6.3 Pending administrative cases or accountabilities

Agencies commonly require:

clearance of money/property accountabilities, and
resolution of payroll/leave record issues

before releasing final pay components, including terminal leave pay, consistent with government accounting and audit practice.

7) Special populations and “non-standard” leave systems

7.1 Teachers and academic personnel

Public school teachers often operate under school calendars and may have special leave constructs (e.g., service credits) alongside sick leave rules. Monetization/commutation may involve:

converting eligible service credits into leave credits, or
a distinct computation pathway for certain credits.

The general retirement principle remains: what becomes payable is what is recognized as convertible leave credits under the applicable rule set.

7.2 Judiciary, constitutional commissions, and offices with special personnel rules

Some offices have internally administered leave systems (still generally anchored in civil service principles). Computation mechanics can be similar, but documentary requirements and the approving authority may differ.

7.3 Uniformed services and chartered entities

Uniformed services (and some entities with distinct charters) may have separate leave and retirement frameworks. Many still provide a terminal leave/leave commutation benefit, but the computation factor and base pay definition can differ.

8) Private sector: what the law requires (and what it does not)

8.1 Sick leave is generally not a statutory cashable benefit

In the private sector:

Philippine labor standards do not generally mandate a standalone “sick leave” benefit convertible to cash upon retirement.
If a private employer grants sick leave, whether unused SL is paid out depends on policy, contract, or CBA.

8.2 Service Incentive Leave (SIL) is the statutory exception—but it’s not “sick leave” by default

The Labor Code provides Service Incentive Leave (commonly 5 days/year) for qualifying employees. If unused, SIL is generally convertible to cash per labor standards practice.

SIL is often used by employees as a flexible leave (sick/vacation) depending on company policy, but legally it is a distinct statutory leave.

8.3 Retirement pay is separate (RA 7641 baseline)

Private sector retirement pay (statutory baseline) is separate from leave conversions. Unless the retirement plan/CBA says otherwise, unused sick leave is not automatically added to retirement pay.

8.4 Private sector computation: policy-driven

Where unused sick leave is payable (because of policy/CBA), computation usually follows payroll definitions of the employee’s daily rate and what pay components are included. Common approaches include:

Daily rate × unused SL days, using the company’s defined daily rate for that employee class (monthly-paid vs daily-paid, 5-day vs 6-day schedule, and whether the daily rate includes certain pay components).
Some CBAs pay a percentage of unused SL or impose caps.

Because this is contractual, the controlling text is the policy/CBA.

9) Tax treatment: a frequent point of confusion

9.1 Government terminal leave pay

In practice, terminal leave pay in government is often treated differently from regular wages because it is paid as a consequence of separation and is tied to accumulated leave credits. Whether it is subject to withholding and how it is reported can depend on current BIR rules and the classification used by the paying agency.

9.2 Private sector leave conversions

Cash conversion of leave in the private sector is often treated as taxable compensation unless it falls under a specific exclusion/exemption or is bundled in a qualifying exempt retirement/separation benefit structure.

Because tax treatment can change through BIR issuances and depends on classification, payroll reporting, and the nature of the benefit, agencies and employers typically follow their latest payroll tax guidance.

10) Documentation and process: what usually determines whether payment is smooth or delayed

10.1 Government (typical checklist)

Approved retirement/separation papers (retirement effectivity date is critical)
Final certification of leave credits (VL/SL balances) by HR
Service record and appointment history (for validation)
Proof of last salary rate / salary step as of separation
Clearance from money/property accountabilities
Computation worksheet per controlling CSC/DBM method
Disbursement documents and approvals

10.2 Private sector (typical checklist)

Employment contract/CBA/policy clause on sick leave payout
Leave ledger showing earned/used balances
Payroll basis for daily rate computation
Separation/retirement documents and quitclaim framework (if used)

11) Frequent issues in disputes and audits

Wrong salary base (using an outdated step, including unauthorized allowances, or using an incorrect month as “highest monthly salary”).
Wrong conversion factor (mixing government 261-day logic with private payroll logic, or using a factor inconsistent with the controlling rule).
Leave ledger errors (missing SL deductions, unposted leave, misclassified absences, incorrect hour-to-day conversions).
Previously monetized leave not deducted (double counting).
Late filing / incomplete clearance causing processing delays.
Special personnel system conflicts (teacher credits, uniformed rules, charter provisions).

12) Practical takeaways (Philippine setting)

In government, unused sick leave is usually monetized at retirement as part of terminal leave/accumulated leave credits, computed using a prescribed daily rate × leave credits formula, most commonly anchored on monthly basic salary and a 261 working-days/year factor for a 5-day workweek.
In the private sector, unused sick leave is not automatically payable upon retirement unless a policy/contract/CBA makes it payable; the statutory cashable leave baseline is generally Service Incentive Leave (SIL), not SL.
The biggest determinants of the final amount are: (1) accurate certified leave credits, (2) the correct salary base, and (3) the correct computation factor and inclusions under the controlling rules.