Service Incentive Leave Entitlement Under the Philippine Labor Code

A comprehensive practitioner-oriented explainer (updated to June 2025)

1. Statutory Anchor

Provision	Text (key phrases)	Notes
Article 95 (Labor Code, as renumbered by R.A. 10151)	“Every employee who has rendered at least one (1) year of service shall be entitled to a yearly service incentive leave of five (5) days with pay.”	The core mandate—unchanged since the Code’s adoption in 1974.
Article 82 (Coverage) & Article 93 (Leaves & Holidays)	Define who is generally covered/exempt and the concept of “one-year service.”	Cross-reference for exemptions.
Omnibus Rules Implementing the Labor Code, Book III, Rule V	Flesh out coverage, accrual, commutation, and record-keeping duties.	Promulgated by DOLE, last amended 2022.
Department Advisory No. 1-20 (COVID-19)	Clarifies that time-based benefits—including SIL—continue to accrue during pandemic-related temporary closures unless exempted by specific issuances.	Illustrates the “no-work-no-pay but leave accrues” principle.

Purpose: The SIL is a minimum “personal cushion” of paid time off intended to cover vacation or illness when the employee has no separate sick-leave bank.

2. Coverage & Exemptions

Covered	Statutory / Regulatory Exemptions
All rank-and-file employees—whether monthly-paid or daily-paid—who have completed 12 months of service, regardless of status (probationary, regular, project, seasonal, casual).	1. Government and GOCC employees with original charters (Art. 94)

Domestic workers 👉 governed by R.A. 10361 (“Batas Kasambahay”)
Managerial employees (Art. 82)
Field personnel and those “unsupervised on task/piece-rate”
Already enjoying at least five (5) VL/SIL days or better (e.g., 15-day VL)
Establishments with <10 data-preserve-html-node="true" employees at any time in the year |

Practical tip: When head-count dips below ten, SIL may validly be suspended prospectively—but never clawed back for periods when head-count was ≥10.

3. “One Year of Service” Defined

Traditional counting: 12 consecutive months from date of hiring, inclusive of all days the employee was considered at work and all paid absences.
1,000-hour rule: For piece-rate/daily-paid workers, DOLE treats 1,000 actual hours worked within a 12-month window as “one year” (Book III, Rule V, §4(b)).
Service-interrupting gaps: Authorized leaves (maternity, paternity, SSS sickness, EC, quarantine) do not reset the clock; abandonment or termination does.

4. Accrual Mechanics

Timeframe	Entitlement
After the 1st work-anniversary	5 paid leave days credited in lump sum (or prorated monthly/quarterly by company policy).
Every year thereafter	Fresh 5-day credit per anniversary, regardless of whether previous SIL was exhausted/converted.
Part-year on separation	Pro-rated (e.g., 2.5 days if resigned after 6 months into accrual year).

5. Usage & Scheduling

Employee prerogative subject to reasonable company scheduling rules (e.g., advance notice, peak-season blackout).
May be split into half-days or, by practice, even hourly, as long as payroll can capture the fraction.
Employer cannot require substitution of SIL for maternity, paternity, or solo-parent leave—they are distinct statutory buckets.

6. Commutation to Cash

Scenario	Conversion Rate	Example (₱610 daily wage)
Unused SIL at year-end	Latest daily basic wage × unused days	3 days × ₱610 = ₱1,830 (tax-exempt up to ₱90,000/year ceiling under Sec. 32(B)(7)(e), NIRC).
Separation (resignation, dismissal, retrenchment)	Same as above; payable alongside final pay within 30 days (DOLE Labor Advisory 6-20).

7. Interaction with Other Leave Benefits

Vacation Leave Policy ≥ 5 Days ➔ statutory SIL deemed absorbed.
Collective Bargaining Agreement (CBA) ➔ when more generous, CBA prevails (non-diminution).
Special Paid Leaves (e.g., Magna Carta for Women, VAWC) ➔ separate and on top of SIL.
Sick Leave: If company has separate SL, SIL normally tagged “vacation”; if not, SIL can cover sick days.

8. Record-Keeping & Burden of Proof

Employers must keep payroll, payslips, and leave ledgers for at least three (3) years (Art. 309).
In disputes, employer bears the burden of proving SIL granted or paid—failure to present records yields presumption of non-payment (Auto Bus Transport Systems v. Bautista, G.R. 156367, 16 May 2005).

9. Prescription of SIL Money Claims

Three-year prescriptive window from the date each SIL should have been paid (Art. 306).
If employment is ongoing, the countdown for unused SIL converted at year-end starts after each December 31 (or fiscal cut-off chosen).
Claims filed within 3 years from termination can still reach back to any unpaid amounts inside that period.

10. Selected Supreme Court Jurisprudence

Case	G.R. No. / Date	Doctrinal Value
Auto Bus Transport Systems, Inc. v. Bautista	156367 • 16 May 2005	Employer must prove payment; SIL convertible whether or not employee asked for leave.
David v. Macasio	195466 • 02 Jul 2014	“Field personnel” exemption upheld; entitlement depends on actual supervision/control.
Rodriguez v. Park N Ride Terminal, Inc.	195543 • 26 Jan 2015	Daily-paid bus host entitled; reiterates 3-year prescription.
Intercontinental Broadcasting Corp. v. Pangan	189366 • 09 Feb 2016	Managerial employees excluded unless CBA/company policy grants; non-diminution if historically given.
AUB Case (Alliance Select Foods v. Pangilinan)	232615 • 27 Nov 2023	Establishment-size exemption (<10 data-preserve-html-node="true" workers) strictly construed; count is total workforce, not regulars only.

11. Compliance Pitfalls & Best-Practice Checklist

Risk Area	Common Mistake	Pro-Tip
Head-count test	Counting only regular employees ➔ wrongful exclusion.	Count all employees (probationary, project, agency-hired if co-employed).
Record keeping	No dedicated SIL ledger; lumped in VL.	Keep a separate column or e-file tag SIL.
Proration on separation	Forgetting to prorate partial year.	Use formula: `Last basic wage × (5 / 12) × months served after last anniversary`.
Mislabeling	Charging absences to VL then refusing cash conversion.	Deduct from SIL first (unless employee chooses otherwise) to preserve VL bank.

12. Special Topics

Teleworkers & WFH Staff: Unless classified as “field personnel” (rare for WFH), they remain entitled—physical location is irrelevant if work is supervised.
Gig/Platform Workers: If deemed employees (Four-Fold Test), SIL applies; otherwise none. Jurisprudence developing (e.g., Foodpanda Riders case, DOLE Region VII, 2022, now on appeal).
Temporary Closure / Pandemic Furlough: SIL continues to accrue; conversion obligation arises only if unused at year-end or upon separation.
Tax Treatment: Cash conversion is 13th-month-exempt but part of the ₱90k aggregate leave-benefit tax shield (BIR RR 8-2018).
Regional Wage Orders: SIL conversion uses the prevailing basic daily wage in the region at payout time, not at leave accrual.
Micro-enterprise Upgrade: When a <10 data-preserve-html-node="true"-man shop grows beyond nine, SIL accrual starts on the employee’s first anniversary after the head-count milestone.

13. Enforcement & Remedies

Single-Entry Approach (SEnA) → mandatory 30-day conciliation; SIL money claims often settle.
DOLE Routine Inspection → Labor Inspector may issue a Compliance Order with 10-day rectification period; non-compliance can trigger closure.
NLRC Money Claim → jurisdiction if accompanied by illegal dismissal or if claim > ₱5,000.
Penalties → Criminal prosecution rare; administrative fines ₱20k–₱100k per affected worker (R.A. 11058).

14. Employer Policy Template (bare-bones)

ARTICLE __: SERVICE INCENTIVE LEAVE  
1. Coverage: All rank-and-file employees who have completed twelve (12) months of service.  
2. Credit: Five (5) paid leave days each work-anniversary, credited in lump sum.  
3. Use: Minimum half-day, subject to 3-day prior notice except emergency illness.  
4. Conversion: Unused balance automatically converted to cash every December 31 at prevailing wage; reflected in the January payroll.  
5. Record: HR shall maintain a real-time SIL ledger accessible to employees upon request.

15. Key Takeaways

SIL is a floor, not a ceiling. Any company vacation-leave package ≥ 5 days with pay already satisfies it, but withdrawing or reducing such package violates the non-diminution rule.
Burden of proof sits squarely on the employer. In any dispute, document everything—absence of records almost always means liability.
Convert or carry. Unused SIL must either be rolled over or paid out; use-it-or-lose-it forfeiture clauses are invalid.
Size matters but is fluid. Falling below or climbing above the 10-employee threshold changes obligations prospectively; monitor head-count monthly.

16. Frequently-Asked Practitioner Questions (FAQ)

Question	Short Answer
Can an employee cash out SIL in advance?	Yes, if company policy allows. Statute only mandates conversion at year-end or upon separation.
Does maternity leave pause SIL accrual?	No. The one-year service clock is based on tenure, not actual days worked.
Are part-time lecturers entitled?	If employment is regular and they meet the 1-year/1,000-hour threshold, yes.
What if employee resigns July 15 with unused SIL?	Prorate credits up to July 14, convert, and pay in final pay no later than August 14.
Do we include cost-of-living allowance (COLA) in conversion?	Only basic wage is used unless company policy or CBA says otherwise.

Bottom Line

The Service Incentive Leave is a deceptively simple five-day benefit that often becomes costly when ignored. Treat it with the same rigor as social-security or tax obligations: track accrual, honor usage, convert balances, and keep impeccable records. Doing so not only keeps you compliant with Article 95, it also signals respect for employees’ well-being—the very reason the entitlement exists.