Payment of Unused Sick Leave After Resignation in the Philippines
A comprehensive legal guide (updated as of 19 June 2025)
1 │ Why the topic matters
When an employee resigns, the question “Do I get paid for my unused sick leave?” often appears together with queries on service incentive leave (SIL), final pay, and tax. The answer is nuanced: only one very small portion of leave is mandated by statute; the rest depends on company policy, a collective bargaining agreement (CBA), or custom. Yet because sick-leave balances are treated like money in the bank in many private workplaces, failure to address them correctly may result in a money-claim suit before the National Labor Relations Commission (NLRC) or an inspection case with the Department of Labor and Employment (DOLE).
2 │ Governing sources of law
| Level | Instrument | Key points on leave encashment |
|---|---|---|
| Constitution | Art. XIII, Sec. 3 | State undertakes to guarantee humane work conditions and secure workers’ rights—including just compensation and benefits. |
| Statute | Labor Code (Pres. Decree 442, as amended) Art. 95 (Service Incentive Leave) | Grants five paid leave days per year to rank-and-file employees who have rendered at least 12 months of service, convertible to cash if unused at year-end or upon separation. |
| Social Security Act (R.A. 11199) | SSS sickness benefit is an insurance benefit, separate from employer-paid leave; unused SSS eligibility is not convertible to cash. | |
| Regulations | Omnibus Rules Implementing the Labor Code (Book III, Rule IV); DOLE Labor Advisory 06-20 (Final Pay within 30 days) | Clarify coverage exemptions, conversion requirement for SIL, timetable for releasing final pay. |
| Jurisprudence | e.g., Intercontinental Broadcasting Corp. v. Pabial (G.R. No. 207279, 18 Apr 2017); Nissan (Phils.) v. Angelo (G.R. No. 209257, 20 Mar 2019) | Reiterate that SIL is statutory and must be paid upon separation; emphasize that benefits beyond SIL flow only from contract/CBA, not from law. |
| Contracts & Practice | Company handbook, individual employment contract, CBA, long-standing practice (Article 100 non-diminution) | These govern sick-leave balances in excess of SIL. Absent any of them, there is no legal obligation to pay unused sick leave. |
3 │ Statutory vs. contract-granted leave
| Feature | Service Incentive Leave (SIL) | Company-granted Sick Leave |
|---|---|---|
| Legal basis | Article 95, Labor Code | None (purely contractual) |
| Minimum entitlement | 5 paid days/year | Up to employer; common practice 10–15 days |
| Conversion to cash | Mandatory at year-end or upon separation (resignation, termination, retirement) | Only if the CBA, handbook, or custom says so |
| Coverage exemptions | Government employees, managerial employees, field personnel, workers with comparable benefits | N/A (entirely voluntary) |
| Tax rule on monetization | First ₱90,000 or 10 days (whichever is lower) of accumulated leave monetized per year is tax-exempt (NIRC Sec. 32(B)(7)(e)); excess subject to withholding | Same tax rule if the sick-leave encashment is provided by policy |
Key insight: After resignation, the only guaranteed payout is unused SIL. Sick leave is a creature of contract; absent a clear encashment clause or consistent practice, an employer may lawfully refuse payment.
4 │ When does the right to payment arise?
Resignation effective date
- Under Art. 300 [formerly 285] of the Labor Code, an employee must give 30-day notice (unless just cause exists).
- Resignation alone does not forfeit accrued statutory benefits.
Final pay timetable
- DOLE Labor Advisory 06-20: Final pay—including leave conversions—must be released within 30 calendar days from the date of effectivity of termination/resignation unless a shorter period is specified in CBA/company policy.
Condition precedent (for sick leave)
- Employee must present evidence of entitlement, e.g., payroll slip showing running leave balance, HRIS printout, or the handbook provision.
- Employer may offset loans, shortages, or property accountabilities but cannot unilaterally cancel accrued leave already earned.
5 │ How to compute
Hypothetical Facts
- • Rank-and-file employee resigned effective 30 June 2025.*
- • Salary: ₱800/day.*
- • SIL earned in 2025 (Jan-Jun): 2.5 days (pro-rated).*
- • Unused SIL from 2024 carried over: 3 days.*
- • Company policy grants 12 Sick Leave (SL) days/year, convertible upon separation.*
- • Unused SL as of 30 June 2025: 6 days.*
| Item | Days | Daily rate | Amount (₱) |
|---|---|---|---|
| SIL (unused) | 2.5 + 3 = 5.5 | 800 | 4,400 |
| Sick Leave (policy-based) | 6.0 | 800 | 4,800 |
| Total leave encashment | ₱9,200 |
Tax: Monetized leave up to ₱90,000 or 10 days per year—whichever is lower—is tax-exempt. In this example, 11.5 days were monetized in 2025; 10 days (₱8,000) are exempt, the balance ₱1,200 is taxable.
6 │ Employer defenses & employee countermeasures
| Common management stance | Possible employee response |
|---|---|
| “Sick leave is a mere privilege; we don’t pay it.” | Ask for company policy/CBA. If sick leave has consistently been monetized in past separations, invoke Article 100 (non-diminution). |
| “Balance is forfeited because you did not apply for conversion before resigning.” | For SIL, conversion is automatic; any contrary policy is void. For sick leave, check wording—if policy conditions conversion on prior application, employer may have a point. |
| “You resigned without clearance; leave credits offset shortages.” | Deductions are allowed only for proved shortages or obligations; must be reflected in quitclaim or payslip. |
7 │ Assertion & recovery of claims
- Plain request: Most disputes are resolved by sending HR a written demand citing Art. 95.
- DOLE Single-Entry Approach (SEnA): 30-day conciliation-mediation; often expedites small money claims.
- NLRC Money-Claims Case: Must be filed within 3 years from accrual (Art. 306 [291] Labor Code).
- Small Claims under Art. 129: For claims ≤ ₱5,000; handled by DOLE Regional Director.
- Quitclaim caveat: Signing a quitclaim that expressly waives leave encashment generally bars further suit unless the waiver is shown to be vitiated by fraud, mistake, or undue pressure.
8 │ Relevant jurisprudence snapshot
| Case | G.R. No. | Date | Ratio on leave pay |
|---|---|---|---|
| Intercontinental Broadcasting Corp. v. Pabial | 207279 | 18 Apr 2017 | Employers must pay accrued SIL upon separation; courts will construe doubts in favor of labor. |
| Nissan (Phils.) v. Angelo | 209257 | 20 Mar 2019 | Past practice of leave conversion ripens into a benefit protected by non-diminution. |
| Auto Bus Transport v. Bautista | 156367 | 16 May 2005 | Clarified that SIL applies even if the company grants other vacation leave; they are distinct benefits. |
| Coca-Cola Bottlers v. Del Villar | 197334 | 09 Nov 2016 | Quitclaims are valid if freely executed and reasonable; however, statutory benefits cannot be waived. |
9 │ Best-practice checklist for HR & employees
| Employer must… | Employee should… |
|---|---|
| • Publish clear leave policies and give every employee a copy. | • Keep personal records of leave balances and payslips. |
| • Reflect accrued leave in the running payroll or HRIS. | • Read handbook and CBA; know if sick leave is convertible. |
| • Release final pay within 30 days, including leave conversion, and provide a detailed breakdown. | • Demand a breakdown; question unexplained deductions. |
| • Withhold tax correctly (10-day/₱90k rule). | • Verify correct tax treatment; ask for BIR Form 2316. |
| • Refrain from unilaterally cancelling accrued leave. | • File SEnA request promptly; preserve prescriptive period. |
10 │ Frequently misunderstood points
- “Sick leave” ≠ SSS sickness benefit. The SSS benefit is a reimbursement to the employer; unused eligibility does not create a cash credit.
- Managerial employees are SIL-exempt, but if their contracts promise paid leave convertible to cash, it becomes an enforceable obligation.
- Absence of a written policy does not defeat a clearly proven long-standing practice of paying out sick leave.
- Tax-exemption ceiling applies per calendar year, not per one-time payout.
11 │ Conclusion
Upon resignation in the Philippines, an employee’s statutory right is limited to the cash equivalent of any unused Service Incentive Leave. Payment of additional unused sick leave is purely a matter of contract or established practice. Nevertheless, where such a right exists—by explicit policy, CBA clause, or consistent practice—employers must honor it and release the cash value within the 30-day period for final pay. Both sides are well-advised to keep meticulous records, understand the tax rules, and resolve disputes promptly, bearing in mind the three-year prescriptive period for money claims.
This article is for general informational purposes only and does not constitute legal advice. For specific concerns, consult a lawyer or the DOLE regional office with jurisdiction over your workplace.