Service Incentive Leave (SIL) for Project-Based Employees in the Philippines
A detailed guide for HR practitioners, contractors, and workers
1. Statutory Foundation
| Provision | Key Points |
|---|---|
| Labor Code, Art. 95 (formerly 94) | • Grants every covered employee five (5) days of paid Service Incentive Leave per year. • Unused balance is convertible to cash at the end of the year or upon termination. |
| Labor Code, Art. 294-295 (formerly 280-281) | Defines regular, project, seasonal, and casual employment. A project employee is hired for a specific undertaking “the completion or termination of which has been determined at the time of engagement.” |
| Implementing Rules & Regs. (Book III, Rule V) | Lists those excluded from SIL: managerial staff, field personnel, domestic helpers, employees in establishments with <10 data-preserve-html-node="true" workers, and those already enjoying ≥5-day paid leave. |
Bottom line: Project-based status is not an automatic ground for exclusion; the employee must fall under one of the specific exceptions enumerated above.
2. Coverage of Project Employees
Typical industries Construction, IT/software sprints, special marketing campaigns, filming/production, and portions of BPO/KPO operations.
Duration threshold *An employee must complete at least 12 months of aggregate service—whether continuous or broken—within the same employer to earn the full 5-day SIL. • For projects that end before the 12-month mark, the worker still accrues pro-rated SIL (⅟12 day for every month of service). • If rehired on successive projects, previous service counts toward the 12-month qualification, provided no final pay―including SIL conversion―was issued in between.
“Field personnel” test • DOLE and jurisprudence interpret field personnel narrowly: the employee must (a) perform work away from the principal place of business and (b) have no definite work hours and little supervision. • A project site with timekeeping (e.g., biometrics, daily logs signed by a foreman) defeats the field-personnel exemption—thus SIL applies.
3. Jurisprudential Highlights
| Case | G.R. No. / Date | Take-Away |
|---|---|---|
| Auto Bus Transport Systems v. Bautista | G.R. 156367, May 16 2005 | Company may not deduct the cost of SIL from a driver’s commissions; SIL is separate from “no-work-no-pay” days. |
| Jaka Food Processing v. Pacot | G.R. 151378, Mar 10 2005 | Even employees validly terminated for project completion are entitled to any unpaid SIL. |
| Davidson Hotel Company v. Pangilinan | G.R. 162634, Apr 11 2005 | Conversion of unused SIL is demandable money claim; 3-year prescriptive period applies. |
| Hua Hin-DACON Corp. v. Santos | G.R. 236141, Sept 29 2021 | Project workers in construction who clock in/out daily are not field personnel; SIL must be paid. |
| Nippon Paint Phils. v. Galeno | G.R. 239851, Mar 15 2023 | Re-engagement across multiple projects without settling SIL each time results in cumulative accrual. |
4. Computation & Conversion
Accrual
$$ \text{Accrued SIL (days)} = \frac{\text{Months of service in year}}{12} \times 5 $$
Daily rate basis • Use the current basic daily wage plus COLA at the time of conversion. • Hazard pay, OT, and service charges are excluded unless already integrated into the basic wage.
Timing of payment • End-of-year cash conversion is mandatory unless a CBA or company policy allows carry-over (carry-over cannot exceed 5 days). • Upon termination, convert all unused SIL immediately, regardless of cause (completion, redundancy, authorized cause, or resignation).
5. Record-Keeping & Compliance Tips
| Requirement | Best Practice |
|---|---|
| Payroll records (Art. 109) | Keep daily time records (DTR) per project, specifying hours and site address. |
| Leave ledger | Maintain a column for beginning balance, accrual, usage, and conversion for each worker. |
| Posting/Policy | Include SIL policy in employment contracts or project agreements to avoid disputes. |
| Upon project close-out | Issue a “Certificate of SIL Conversion” together with the quitclaim. |
| Retention | Keep records 3 years; DOLE can assess anytime within that period. |
Non-compliance can result in:
- • Money claims before the NLRC (Art. 224) • DOLE compliance orders and possible closure for repeated infractions • Criminal liability under Art. 303-304 (penal sanctions for willful refusal to pay benefits)*
6. Frequently Asked Questions
| Question | Short Answer |
|---|---|
| Does the five-day SIL replace vacation or sick leave? | No. If the company already grants ≥5 days of paid vacation/sick leave, the statutory SIL is deemed satisfied. |
| Are “project consultants” or independent contractors entitled? | No. Only employees enjoy SIL. Status is resolved by control test, not by the contract label. |
| Is SIL waived by a lump-sum “all-in” project fee? | Waiver is invalid. Employers must show separate payment or explicit inclusion backed by payroll proof. |
| Can SIL be offset against a worker’s absences? | Yes, if the absence is with pay and the employee elects to charge it to SIL. Otherwise, SIL remains intact. |
| What if an employee works <1 data-preserve-html-node="true" year and resigns? | He/she receives pro-rated SIL for months actually served. |
7. Checklist for Employers Before Project Handover
- ☐ Confirm each employee’s aggregate service months across sub-projects.
- ☐ Compute unused SIL and prepare payroll vouchers.
- ☐ Issue SIL conversion certificate and secure receipt.
- ☐ File BIR Form 2316 reflecting SIL cash payment (for tax exemption up to ₱90,000 separation benefits).
- ☐ Archive DTRs, payslips, and quitclaims for at least 3 years.
8. Practical Take-Aways
- Project-based employees are presumed covered by SIL unless they squarely fall into one of the narrow statutory exclusions.
- Treat each project completion as an interim separation for SIL conversion purposes; this avoids cumulative liability later.
- Clear documentation—especially timekeeping at the site—helps show that workers are not “field personnel,” establishing entitlement and guiding correct computation.
- Claims prescribe three (3) years from the date each SIL pay became due, so periodic settlement is sound risk management.
9. Recommended Clauses for Project Contracts
“Service Incentive Leave. The Employee shall be entitled to Service Incentive Leave pursuant to Article 95 of the Labor Code, as amended. Five (5) days of SIL shall accrue after twelve (12) months of service or pro-rated for shorter periods. Any unused balance at project completion shall be converted to cash and paid together with final wages.”
Include a parenthetical stating that the parties acknowledge the employee is not field personnel and therefore covered, or document otherwise if the statutory criteria are truly met.
Conclusion
Service Incentive Leave is statutorily mandated, simple in concept but often mishandled where project employment is prevalent. The safe harbor: apply SIL by default, maintain meticulous records, and convert balances promptly. Doing so aligns with both the letter and spirit of Philippine labor standards—protecting workers and shielding employers from avoidable disputes.