Prorating Sick and Vacation Leave Upon Resignation in the Philippines

(A comprehensive legal-practitioner’s guide)

1. Why the Issue Matters

When a Filipino employee resigns, one of the first questions is, “What happens to my accumulated sick and vacation leave?” Although “SL” and “VL” have become staples of HR vernacular, only one type of leave is actually mandated by the Labor Code—the five-day Service Incentive Leave (SIL). Everything else is a creature of contract, company policy, or collective bargaining agreement (CBA).

Understanding exactly how to prorate, convert, tax, and release these leaves at the end of employment avoids costly money claims, DOLE complaints, and BIR assessments.

2. Statutory Framework

Source of Law	Key Provision	Relevance to Resignation
Labor Code, Art. 95	Grants 5 days SIL to employees who have rendered at least 1 year of service.	SIL may be converted to cash “if not used” at year-end or upon separation, pro-rated for service of at least one month but less than one year.
Dept. Advisory 06-2020	Requires final pay (including monetized leaves) within 30 days from resignation clearance.	Enforces prompt release of the pro-rated value.
BIR RR 06-2021	Leaves converted to cash upon separation are tax-exempt.	Employers must report under BIR Form 1604-C.
Jurisprudence (e.g., Omni Hauling v. Bon, G.R. 217893, 09 Jun 2021)	Courts treat vacation or sick leave as demandable only when promised by policy/CBA.	Absent a promise, employee cannot claim more than SIL.

Bottom line: Only SIL is compulsory; everything else depends on what the employer has committed to grant.

3. Company-Granted Sick and Vacation Leave

Source of entitlement
- Employee handbook / HR policy
- CBA provisions
- Individual employment contract
Typical structures
- Credited in full at start of calendar year (common in multinationals)
- Accrual system—e.g., 1.25 VL + 1.25 SL per month (15 days each per year)
- Earn-now-use-later vs. advanced credits

Because these are voluntarily granted, the rules on proration and forfeiture must be stated in writing; otherwise, ambiguities are resolved in favor of labor.

4. Proration Principles

Scenario	Proration Rule	Illustration
Accrual system	Earned leaves are credited monthly, therefore unearned future months are not payable.	If an employee resigns effective 15 May and earns 1 VL/month, only 4.5 VL (Jan–Apr = 4, May = 0.5) may be monetized.
Front-loaded credits with claw-back clause	Employer may deduct the unearned portion already used, if the policy expressly authorizes deduction from final pay.	15 VL loaded on 01 Jan; employee used 10 and resigns on 31 Mar. Balance earned = 3.75 (1.25 × 3). Excess 6.25 may be offset.
Front-loaded without claw-back	Silence is construed in worker’s favor: no offset, but still pro-rate the conversion of unused portion.	Same facts, resigning employee still entitled to 5 unused days; employer cannot recoup the excess 6.25.
SIL	Labor Code: 1 SIL accrues every 240 hours worked. DOLE simplifies: credit 0.4167 day per month; round up to nearest half-day.	After 7 months, employee has 2.9 ≈ 3 days payable in cash.

Tip: Always spell out (a) accrual method, (b) treatment of advanced leaves, (c) conversion formula, and (d) effect of mid-year separation.

5. Cash Conversion vs. Forfeiture

Leave Type	Convertible?	Legal Basis
SIL	Yes, must be paid upon unused balance.	Art. 95, Labor Code
VL (company benefit)	Depends on policy/CBA. If silent, conversion is standard industry practice and often recognized by courts as part of compensation.	Omni Hauling; Art. 102 (non-diminution)
SL (company)	May be forfeited unless policy provides conversion. Many firms allow conversion only if not used for X consecutive years.	Contractual
Mandatory leaves (maternity, paternity, solo-parent, violence-against-women)	Not convertible; these are “use-or-lose” entitlements.	Respective statutes

6. Computing the Monetary Value

Formula: Cash equivalent = (Unused or excess leave in days) × Daily rate (Daily rate = Basic monthly salary ÷ 22 working days)

Example

Monthly salary: ₱30,000
Resignation effective: 15 May 2025
Accrued VL: 4.5 days (per Section 4 table)
```
4.5 × 1,363.64 = ₱6,136.36```
```
Include in “Final Pay,” release not later than 14 Jun 2025 (30th day).

7. Tax Treatment

Tax-exempt: Monetized leave upon resignation, termination, or retirement (BIR RR 06-2021).
Taxable: Monetized leave while still employed and not in connection with separation.

Employers file with BIR Form 1604-C; employees need not include in income tax return.

8. Timing of Release

Requirement	Timeline
Clearance and computation	Begin immediately after notice acceptance.
Final Pay (salary, 13th-month pro-rated, monetized leaves, etc.)	Within 30 calendar days from (a) date of effectivity of resignation or (b) clearance completion, whichever is earlier (Labor Adv. 06-2020).
Certificate of Employment & BIR Form 2316	Same 30-day period.

Delays expose the employer to nominal damages and 10% legal interest per annum in money-claims cases.

9. Related Jurisprudence & DOLE Opinions

Case / Opinion	Gist
Omni Hauling Corp. v. Bon (2021)	Vacation leave granted by practice becomes enforceable; cannot be withdrawn unilaterally.
BPI Employees Union-Davao v. BPI (2017)	Cash conversion rules in policy/CBA govern; courts will not create benefits ex-nihilo.
DOLE – BLR Opinion 10-09-2020	Confirmed that advanced VL may be deducted from final pay if a written policy exists and employee consented.

10. Best-Practice Checklist for Employers

Integrate leave provisions in the employment contract or CBA.
Define accrual method, conversion formula, and offsetting of advanced credits.
Announce changes 30 days before effectivity to avoid Art. 100 (non-diminution) issues.
Automate leave tracking to generate pro-rated balances on resignation date.
Issue the detailed computation sheet to the resigning employee for transparency.

11. Practical Tips for Employees

Confirm your remaining balance with HR before filing resignation.
Use or monetize leaves strategically—unused VL is “paid vacation.”
Keep copies of the handbook and final pay computation; these are evidence in a DOLE claim.
If final pay is delayed beyond 30 days, send a demand letter then file a monetary claim with the NLRC Arbitration Branch.

12. Frequently Asked Questions

Q	A
Do I accrue SIL during probationary period?	Yes; the 1-year service requirement is counted from hiring, probation included.
Can my employer force me to use up VL during the 30-day notice?	Yes, if a written policy allows forcing leave during garden-leave; otherwise, it needs employee consent.
Are unused leaves part of separation pay?	No. Separation pay is distinct (Art. 298-299). Unused leave is an additional monetary entitlement.
Can sick leave be offset against VL or vice-versa?	Only if the policy/CBA permits cross-charging. Absent such provision, each bank stands alone.

13. Takeaways

Only the 5-day SIL is statutory. Everything else is contractual.
Proration follows the accrual method your employer uses; familiarize yourself with it.
Monetized leave on separation is tax-free and must be paid within 30 days.
Written, unambiguous policies prevent disputes and protect both sides.

Disclaimer: This article summarizes Philippine labor law as of May 25, 2025. It is not legal advice. For case-specific concerns, consult a Philippine labor-law practitioner or the Department of Labor and Employment.