1) What “Service Incentive Leave” (SIL) is

Service Incentive Leave (SIL) is a statutory, minimum leave benefit under the Labor Code for qualified employees in the private sector. In simple terms, it is 5 days leave with pay per year that an eligible employee can use for personal needs, illness, errands, or rest—subject to reasonable company rules on scheduling/approval.

Think of SIL as a legal floor. Employers may grant more generous leave (vacation leave, sick leave, PTO, etc.), but they can’t go below the minimum required by law for covered employees.

2) Legal basis and key concept

The core legal rule is found in the Labor Code provision on SIL (commonly cited as Article 95 in many references).

Two ideas matter most for your topic:

Entitlement: Covered employees who have completed the qualifying service are entitled to 5 days SIL with pay each year.
Cash conversion (commutation): Unused SIL is generally convertible to cash, and this becomes especially relevant when the employee separates (resigns or is terminated), because the unused statutory SIL forms part of what is typically paid out in the final pay.

3) Who is entitled to SIL (coverage)

A. Employees generally covered

SIL is typically due to rank-and-file employees in the private sector who meet the qualifying period.

B. Common statutory exemptions (who may not be entitled)

SIL does not automatically apply to everyone. Classic exemptions include:

Government employees (covered by civil service rules, not the Labor Code SIL scheme).
Managerial employees (as defined by labor standards concepts).
Field personnel (those who regularly perform duties away from the employer’s premises whose actual hours of work cannot be determined with reasonable certainty).
Employees already enjoying at least 5 days leave with pay annually (or an equivalent benefit) under company policy, CBA, or practice—provided the benefit is truly equivalent or better.
Certain establishments/exemptions recognized in labor standards implementing guidance (the exact scope depends on classification and actual working conditions).

Because exemptions depend heavily on the facts of the job, disputes often turn on whether someone was truly managerial/field personnel, or whether the “equivalent benefit” is genuinely equivalent.

4) When SIL is earned (qualifying service and accrual)

A. The “1 year of service” requirement

As a baseline, SIL becomes due after an employee has rendered at least 1 year of service. “One year” is usually understood in labor standards as 12 months of service, and “service” typically includes time worked plus creditable service periods recognized by law or policy.

B. What happens after the first year

After the employee qualifies, SIL is due each year thereafter.

C. Pro-rating (important for resignation/termination mid-year)

A common practical question is:

If an employee resigns or is terminated mid-year, do they get a pro-rated cash equivalent of SIL?

In practice, many employers compute SIL on a pro-rated basis for the “current year” once the employee has qualified (i.e., after completing at least one year), unless a more favorable company policy exists. Pro-rating is also widely used because final pay requires a fair settlement of earned benefits up to the separation date.

However, disputes arise when employers treat SIL as “earned only at year-end.” The safer compliance posture is to treat SIL as earned over the year once eligibility exists, and to pay the unused earned portion upon separation (or earlier commutation, if applicable).

5) SIL use rules vs. cash conversion: what employers can control (and what they can’t)

A. Scheduling/approval can be regulated

Employers may implement reasonable rules: filing procedures, notice periods, blackout dates for critical operations, etc., as long as they do not defeat the right.

B. Cash conversion is not purely optional for statutory SIL

For statutory SIL, the general labor-standards principle is that unused SIL is commutable to cash. This is not the same as company “vacation leave” that may be “use-it-or-lose-it” if it is purely a discretionary benefit and not a substitute for SIL.

When a company leave benefit is in lieu of SIL, the handling of cash conversion depends on whether the company benefit is structured as the SIL compliance benefit (statutory minimum) and on the company rules—but the minimum statutory SIL value should not be lost through technicalities.

6) Cash conversion upon resignation or termination: the core rule

A. General rule

Upon resignation or termination, an employee is typically entitled to receive the cash equivalent of unused statutory SIL that has been earned and not used or previously paid.

This applies regardless of the cause of separation in most ordinary wage-and-benefit settlements, because SIL is a labor standards benefit (earned compensation substitute). Termination for cause does not automatically erase earned wage-based benefits.

B. What’s included in “unused SIL” at separation

“Unused SIL” may include:

Unused days from the current accrual year (often pro-rated up to the separation date, if the employee is already eligible).
Unused days from prior years if the employer’s system allows carry-over or the statutory SIL was not properly commuted/paid when due.

C. Key practical fork: Was SIL already commuted annually?

Many employers handle statutory SIL by commuting unused SIL at year-end (paying it out) rather than carrying it forward. If that is properly done, then at separation the employee is typically owed only:

any unused earned SIL for the ongoing year up to separation (if not yet commuted), and
any unpaid SIL from earlier periods (if there was non-payment).

7) Computing the cash equivalent (how to calculate SIL conversion)

A. Basic formula

Unused SIL days × employee’s daily pay rate = SIL cash equivalent

B. What “daily pay rate” usually means

For statutory benefits, the daily rate is generally based on the employee’s regular wage (often understood as basic pay plus wage components that are legally part of “wage,” such as COLA where applicable). Purely discretionary allowances that are not part of wage by law or policy may be excluded unless they are treated as integrated/regular wage.

Important: Payroll practice differs depending on whether the employee is:

Daily-paid, or
Monthly-paid (where a divisor is used to arrive at a daily rate).

Different lawful divisor conventions exist depending on working schedules and how the monthly wage is structured (e.g., whether monthly pay already covers rest days). Because divisor disputes are common, employers should use a divisor consistent with their wage structure and DOLE-accepted practice for that employee category.

C. Sample illustrations (conceptual)

If daily rate is ₱800 and unused SIL is 3 days: ₱800 × 3 = ₱2,400
If daily rate is derived from monthly pay using the employer’s standard divisor, compute daily first, then multiply by unused days.

8) Interaction with company leave benefits (VL/SL/PTO)

A. If the company already gives at least 5 days paid leave

If a company policy grants ≥ 5 days paid leave per year and it is treated as compliance with SIL (or clearly equivalent), the employer may argue SIL is already satisfied.

But the company should be careful:

The “equivalent benefit” should be real and usable, not illusory (e.g., not subject to impossible conditions).
If the employer’s leave policy is more generous but non-convertible, the employer may still need to ensure the statutory minimum is effectively protected (especially upon separation where wage-based entitlements are settled).

B. When company leaves are convertible upon separation

Many employers pay out unused VL (sometimes SL) upon separation as a matter of policy or CBA. That payout is separate from statutory SIL analysis, except that the employer may designate part of the VL as the SIL compliance benefit.

C. Avoiding double counting

Employers can structure policies so that “first 5 days” of the annual leave bank is treated as SIL compliance, but they must keep records to prevent both underpayment and accidental double payment.

9) Special scenarios on resignation/termination

A. Resignation (voluntary separation)

Unused earned SIL is generally included in final pay.

B. Termination (authorized or just causes)

Even when the employment ends due to termination, earned labor standards benefits (including unused earned SIL) are commonly treated as payable, unless a specific lawful set-off applies (e.g., proven debt with due process and lawful deductions).

C. AWOL / abandonment allegations

If an employer treats an employee as AWOL/abandonment, final pay disputes often arise. SIL does not disappear automatically; what matters is:

whether the employee was eligible,
how much SIL was earned/unused,
whether it had been commuted previously.

D. Probationary employees

Probationary status alone does not remove labor standards coverage. The real question is whether the employee has completed the qualifying service for SIL entitlement.

E. Project, seasonal, fixed-term employees

Eligibility depends on whether they reach the qualifying service and whether they fall into an exemption category based on actual working conditions.

10) Timing: when must SIL cash conversion be paid after separation?

In practice, the SIL cash equivalent is paid as part of final pay (also called last pay), together with:

unpaid wages,
proportionate 13th month pay (if applicable),
tax refunds/withholding adjustments (as applicable),
other due benefits under policy/CBA.

Many HR policies target release of final pay within a set internal period. Any governing timelines and documentation requirements typically come from labor guidance and company policy, but regardless of internal timelines, employers should release what is due within a reasonable time after clearance and computation to reduce exposure to complaints.

11) Documentation and proof (what matters in disputes)

For employees claiming unpaid SIL conversion

Helpful evidence includes:

payslips and payroll summaries,
leave records / HRIS screenshots,
employment contract and handbook provisions,
resignation letter / termination notice and separation date,
any year-end SIL commutation pay entries (or absence thereof).

For employers defending proper payment

Key defenses usually rely on:

records showing the employee is exempt (managerial/field personnel) based on actual duties, not just job title;
proof that the company already provides an equivalent or better benefit;
proof of year-end commutation payments;
accurate leave ledgers showing usage and remaining balance;
lawful computation method for daily rate.

Poor recordkeeping is a frequent reason employers lose SIL-related money claims.

12) Remedies and enforcement

If an employee believes SIL conversion was not paid correctly, typical escalation paths include:

internal HR resolution / correction,
filing a request for assistance or complaint with the Department of Labor and Employment,
labor claims processes for money claims (often involving the National Labor Relations Commission depending on claim type and procedure).

Outcomes usually focus on payment of the cash equivalent (and sometimes related wage differentials), anchored on records and coverage/exemption facts.

13) Compliance checklist (Philippine employer best practice)

Identify covered employees (don’t rely on titles alone).
Maintain a leave ledger per employee.
Make clear in policy whether company leave substitutes for SIL and ensure it’s at least equivalent.
Decide on handling of unused SIL:
- commute at year-end, or
- carry forward (if allowed by policy) while still protecting statutory minimum.
Upon separation, compute:
- unused earned SIL (including pro-rating where applicable),
- multiply by correct daily rate,
- include it in final pay documentation.
Keep proof of payment (payroll entry, acknowledgment, bank transfer record).

14) Key takeaways

SIL is a minimum 5-day paid leave for eligible private-sector employees.
Unused statutory SIL is generally convertible to cash, and this conversion becomes especially important upon resignation or termination as part of final pay.
Disputes commonly revolve around coverage/exemptions, pro-rating, and daily rate computation—and are usually decided by records more than arguments.