Service Incentive Leave Entitlement after Resignation
A Comprehensive Guide under Philippine Labor Law
1. Statutory Foundation
| Provision | Key Point |
|---|---|
| Article 95, Labor Code (renumbered by D.O. No. 202-17) | Grants every employee who has rendered at least one (1) year of service five (5) Service Incentive Leave (SIL) days with pay every year. |
| Rule I, Book III, Implementing Rules | Details coverage/exemptions and conversion of unused SIL to cash “upon separation from the company.” |
| Labor Advisory No. 06-20 (Final Pay Advisory, 2020) | Lists SIL conversion as a mandatory component of final pay, payable within 30 days from date of separation, whether the exit is resignation, termination, or retirement. |
2. Who must receive SIL conversion on resignation?
| Covered | Exempt (no SIL) |
|---|---|
| Rank-and-file employees (regular, casual, project, seasonal, fixed-term) who have completed one year of service, even with breaks not exceeding the permitted limit under Art. 295 [c]). | a. Government employees b. Managerial employees c. Field personnel and those paid on “task or purely commission basis” whose time and performance are unsupervised d. Domestic helpers (they enjoy a separate five-day leave under the Kasambahay Law which is not convertible to cash) e. Workers in micro-establishments that consistently employ fewer than 10 employees f. Firms already granting ≥ 5 days paid vacation leave annually (the statutory SIL is deemed included in that grant) |
Tip: The “<10 data-preserve-html-node="true" employees” exemption applies only for as long as head-count actually remains below ten. Hitting the 10-employee threshold at any time in the year obliges the employer to begin accruing SIL from that point forward.
3. Accrual and Usage Mechanics
Entire 5-day credit vests after one year.
- Auto Bus Transport Systems, Inc. v. Bautista, G.R. No. 156367 (2005 & clarified 2017) held the leave accrues proportionately during the first 12 months but is exercisable only after the first year.
Successive years ➔ An additional five days vests on each anniversary date.
Proration when employment ends mid-year:
$$ \text{Prorated SIL days}=\frac{\text{length of service in months during current year}}{12}\times 5 $$
Carry-over / cash conversion
- Unused balance is added to the next year or converted to cash at the employee’s option or at year-end pursuant to company policy.
- Conversion rate always = employee’s last daily basic wage + statutory COLA (if any), but excluding non-integrated allowances (URSUMCO v. Acibo, G.R. No. 186439, 15 Jan 2014).
4. Entitlement upon Resignation
| Step | Employer Obligation | Timeline |
|---|---|---|
| 1 | Compute total unused SIL credits (current year + carried-over) | As soon as clearance processing commences |
| 2 | Multiply by the employee’s last daily rate (basic + COLA) | |
| 3 | Release the amount together with other final pay items (last salary, pro-rated 13th-month pay, etc.) | Within 30 days from date of effectivity of resignation (DOLE Advisory 06-20) |
Formula:
$$ \text{SIL Pay}= \text{Unused SIL days} \times \text{Daily Wage} $$
5. Prescription of Money Claims
Auto Bus clarified that the three-year prescriptive period (Art. 306) starts only when:
- The employee demands payment and the employer refuses or
- The employee is separated, whichever first occurs.
Thus, a resigned worker may validly file a money-claim case for unpaid SIL within three (3) years counted from the date the final pay should have been released.
6. Tax Treatment and Government Contributions
| Item | Subject to Withholding Tax? | Basis |
|---|---|---|
| SIL conversion | Yes (ordinary income) | SIL is compensation income, hence part of taxable final pay (rev. regs. 2-98, as amended). |
| SSS, PhilHealth, Pag-IBIG contributions | No additional contributions required on separation pay items, but SIL pay forms part of the final month’s compensation for purposes of computing the last regular contributions. |
7. Common Issues & Jurisprudential Doctrines
| Issue | Doctrine / Case Law |
|---|---|
| “No policy, no pay” argument | Statutory SIL is a labor-standard benefit; company policy cannot remove it (Art. 169, non-diminution; People’s Broadcasting Service v. Secretary of DOLE, G.R. No. 179652, 6 Mar 2012). |
| Offsetting absences with SIL | Allowed only with employee consent; employer cannot unilaterally treat all incurred absences as SIL used. |
| Conversion delayed vs. withheld | Delay beyond 30 days ≠ automatic moral damages, but may justify nominal damages for violation of Art. 95 (see Auto Bus, 2017 resolution). |
| Company grants 15 VL days | The first 5 days satisfy SIL. Conversion of the excess 10 days depends entirely on company policy/CBAs; but the statutory 5 must still be honored if unused. |
| Fixed-term employee resigns after 8 months | Not entitled—one full year prerequisite not met (unless employer’s policy is more generous). |
| Project employees repeatedly rehired | Each completed year within or across projects entitles them to SIL; separation between projects counts toward service if break is <6 data-preserve-html-node="true" months and there’s pervasive control (D.M. Consunji v. Jaka, G.R. No. 201603, 18 Oct 2022). |
8. Employer Sanctions for Non-Compliance
- Money claims ➔ NLRC / DOLE Regional Arbitration Branch may award unpaid SIL + legal interest (currently 6% p.a.).
- Criminal liability ➔ Art. 303 fine/penalty (rarely pursued).
- Labor inspections ➔ Assessment of deficiencies and possible stoppage orders for repeated violations.
9. Practical Guide for Employees Who Resign
- File a written resignation indicating last working day.
- Submit clearance requirements promptly to avoid processing delays.
- Request a statement of account or “computation sheet” of final pay.
- If payment is not released within 30 days, send a written demand; lack of reply strengthens any later complaint.
- File a complaint (NLRC RAB) for money claims within 3 years.
10. Checklist for Employers
- ☐ Verify each resigning employee’s length of service and unused SIL.
- ☐ Compute conversion using last basic daily wage + COLA.
- ☐ Release within 30 days (keep proof of payment).
- ☐ Reflect in the BIR Form 2316 and final payroll.
- ☐ Maintain records for 3 years (Art. 308).
Key Take-Aways
Even after voluntarily resigning, a Philippine employee keeps the statutory right to encash every unused Service Incentive Leave day at the rate of their final salary. The employer’s duty to pay is automatic, non-waivable, and must be fulfilled within 30 days of separation, or risk statutory penalties and litigation. The three-year clock for filing monetary claims starts only when the employer fails to pay on demand or upon separation, whichever comes first.
Keep this guide handy—understanding the mechanics of SIL conversion ensures a smooth, lawful, and mutually respectful end to the employment relationship.