Below is a comprehensive discussion of Service Incentive Leave (SIL) in the Philippine setting, with a focus on how it applies to resigning employees. This article draws on the relevant provisions of the Labor Code of the Philippines, Department of Labor and Employment (DOLE) issuances, and prevailing Philippine legal doctrines.

1. Legal Basis and Definition

1.1. Relevant Law

Article 95 of the Labor Code of the Philippines is the primary statutory provision governing Service Incentive Leave. It states:

“Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.”
The implementing rules of the Labor Code and additional DOLE circulars elaborate on the coverage, conditions, and computation of SIL.

1.2. What is Service Incentive Leave?

Service Incentive Leave is a statutory benefit that entitles qualified employees to five (5) days of leave with pay every year.
It is considered a minimum labor standard that private-sector employers must provide.
If the employer already grants at least five (5) days of paid vacation leave or other forms of paid leave that can be used for any purpose (i.e., not limited to sickness or vacation), the employer may no longer be obligated to give a separate SIL.

2. Coverage and Exclusions

2.1. Covered Employees

Generally, rank-and-file employees in the private sector who have completed at least one (1) year of service are entitled to SIL.

2.2. Excluded Employees

Pursuant to Article 82 and 95 of the Labor Code and related regulations, the following are not covered by SIL provisions:

Government employees (including employees of government-owned and controlled corporations with original charters).
Managerial employees (those whose primary duty is to manage the establishment, department, or subdivision and who effectively recommend hiring, transfer, suspension, etc.).
Field personnel (those who perform their work away from the principal office with unpredictable work hours, such as outside sales personnel).
Domestic or household helpers and persons in the personal service of another (governed by a separate law – the Domestic Workers Act or “Batas Kasambahay”).
Employees already enjoying vacation leave of at least five days with pay.
Employers exempted by the DOLE in certain cases (e.g., relevant wage order exemptions, distressed establishments, etc., though these are typically subject to strict DOLE scrutiny).

3. Accrual of Service Incentive Leave

3.1. One-Year Service Requirement

An employee becomes entitled to the five days of SIL only after completing one (1) year of service.
- “One year of service” is interpreted as service within 12 months, regardless of employment status (probationary, regular, etc.), so long as the employee remains continuously employed.

3.2. Annual Entitlement and Pro-Rated Entitlement

After the first year, SIL entitlement applies every year thereafter as long as the employee remains covered.
There is no explicit pro-rating for partial years after the first year in the Labor Code. However, some companies apply pro-rated SIL in internal policies or collective bargaining agreements. Such practice is acceptable as long as it does not violate the minimum benefit standard set by law.

4. Usage and Conversion

4.1. Use of SIL

SIL is typically available for any personal reason—for rest, vacation, personal obligations, or sickness—unless company policy specifies otherwise. (Some policies call SIL a “flexible leave.”)
While the law guarantees five days per year, companies may allow carrying over unused SIL to the following year, or they may convert unused SIL to cash at the end of the year.

4.2. Cash Conversion

The Labor Code does not require automatic yearly conversion of unused SIL to cash. However, many employers do convert unused SIL into cash at the end of the year as a best practice or pursuant to internal policies or collective bargaining agreements.
Upon separation (resignation, termination, end of contract), the unused SIL must be commuted to cash if the employee is otherwise entitled (i.e., if the employee has accumulated unused leave days and is covered by the SIL rules). This is one of the most important protections for resigning or separated employees.

5. SIL for Resigning Employees

5.1. Entitlement Upon Resignation

An employee who resigns remains entitled to any unused portion of their SIL.
Even if the resignation is voluntary, the employer cannot refuse to pay the monetary equivalent of unused SIL days.

5.2. Common Questions

Do I still get SIL if I resigned before completing one full year of service?
- Generally, no, unless there is a company policy or collective bargaining agreement that grants leave benefits earlier or on a pro-rata basis. By default, the law requires one year of service before SIL entitlement vests.
How is the payout for unused SIL computed?
- The daily rate used for computing SIL is typically the employee’s latest daily wage. If an employee is monthly-paid, the daily rate is often computed as the monthly salary ÷ 26 (or the divisor consistent with company or industry practice).
When must SIL be paid out to a resigning employee?
- SIL pay is usually part of the employee’s final pay or “last pay.” Under DOLE’s rules on final pay, the employer is generally expected to release all final pay (which includes any accrued leave benefits) within 30 days from the date of finality of resignation or termination unless a shorter or longer period is agreed upon in the contract or mandated by company policy.

5.3. Documentation and Process

Upon resignation, the employer typically:
1. Calculates the total number of unused SIL days.
2. Converts these days into their monetary equivalent based on the employee’s last daily rate.
3. Includes the amount in the final pay.
Employers commonly require employees to sign quitclaims or clearance forms indicating that the SIL payout has been received. As long as the amount corresponds to correct computations, this is standard practice.

6. Computation Examples

Below is a simplified example to illustrate how SIL for resigning employees is commonly computed:

Basic Salary: PHP 20,800 monthly
Daily Rate (commonly): 20,800 ÷ 26 = PHP 800/day
Unused SIL: Suppose the employee has 3 unused SIL days.
SIL Payout: 3 days × PHP 800/day = PHP 2,400

This PHP 2,400 would then be added to the final pay calculation along with other benefits and any remaining salary.

7. Best Practices and Practical Tips

Monitor Leave Credits:
Both employers and employees should carefully track the accrual and usage of leave credits. Transparent leave records help avoid disputes during resignation or separation.
Check Company Policies:
Company handbooks or collective bargaining agreements sometimes provide for better benefits—such as more paid days or pro-rated entitlements—even before one year of service. Always verify if additional or more generous benefits are provided.
Request for Record of Leave Balances:
Before resigning, an employee may request updated leave records from the HR department to confirm the number of unused SIL days.
30-Day Notice:
Giving proper notice of resignation (usually 30 days for rank-and-file unless stated otherwise in the contract) allows for smoother final pay computations and minimizes payroll disputes.
Timely Release of Final Pay:
Under normal circumstances, employers are expected to process and release final pay and SIL benefits within 30 days of the employee’s last day of service or clearance date. If delays occur, an employee may inquire with HR or seek DOLE assistance if necessary.

8. Possible Legal Remedies in Case of Non-Payment

If an employer fails or refuses to pay an employee’s SIL pay despite clear entitlement, the employee may:

Communicate directly with HR or management to settle the discrepancy amicably.
File a complaint with the DOLE’s regional office through the Single Entry Approach (SEnA), which seeks to mediate and conciliate labor disputes quickly and at minimal cost.
As a last resort, proceed with a labor case for recovery of unpaid wages/benefits if mediation fails.

9. Key Takeaways

Minimum Benefit: Service Incentive Leave is a statutory minimum provided by Philippine law for covered employees with at least one year of service.
Annual Entitlement: Qualified employees receive five (5) days of SIL each year; any equivalent leave system that meets or exceeds this threshold satisfies the law.
Cash Conversion: While annual automatic conversion to cash is not always mandatory, unused SIL must be paid out upon separation, including resignation.
Exempt Employees: High-level managers, field personnel, domestic workers, and government employees generally fall outside SIL coverage.
Final Pay: SIL payout forms part of an employee’s final pay, which should be released promptly upon separation.

Disclaimer

The above discussion is provided for general informational purposes and does not constitute legal advice. Laws and regulations may be updated, and individual circumstances vary. For specific legal concerns regarding Service Incentive Leave or final pay issues, it is best to consult a qualified lawyer or seek assistance from the Department of Labor and Employment (DOLE).