Vacation-Leave Payout Upon Resignation in the Philippines (Private- and Public-Sector Perspectives, updated to 16 May 2025)
1. Where the right comes from
| Source of the leave credit | Minimum number of days | Enforceable right to cash conversion when you resign? | Statutory basis |
|---|---|---|---|
| Service Incentive Leave (SIL) – applies to all rank-and-file employees who have rendered ≥ 1 year, except (a) firms with < 10 employees and (b) establishments already granting the equivalent or better leaves | 5 working days per year | Yes. Any unused SIL must be “commuted to its money equivalent … at the end of the year or upon termination of employment” | Art. 95, Labor Code; Sec. 5, Rule V, Book III, Omnibus Rules (Alburo Law Offices) |
| Company-granted Vacation or Sick Leave (beyond the 5-day SIL) | Varies (purely contractual) | Only if the CBA, policy manual, employment contract, or a long and consistent company practice expressly allows conversion. Absent that, there is no statutory duty to pay them out | Standard contract law; long-established SC doctrine that benefits given by practice ripen into enforceable rights |
| Government employees’ Vacation & Sick Leave | 15 VL + 15 SL per year (accruing) | Yes. All unused credits are paid as Terminal Leave Benefits (TLB) when the employee “voluntarily separates” (resigns, retires, is dismissed, etc.) | Sec. 40, Rule 16, Omnibus Rules on Leave; CSC MC No. 41-98; CSC MC No. 02-2016 constant (0.0478087) |
2. How much—and how soon—must it be paid?
Amount SIL & other convertible credits
$$ \text{Cash equivalent} = \text{Daily Basic Wage on date of separation} \times \text{unused leave days} $$
Government TLB uses the formula:
$$ \text{TLB} = \text{Highest Monthly Salary} \times 0.0478087 \times \text{Total Leave Credits} $$
Release period for private-sector “final pay.” DOLE Labor Advisory No. 06-20 orders employers to release all monetary benefits—including SIL conversion and any convertible VL/SL—within 30 calendar days from the effective date of separation, unless a CBA or company rule is more generous. (Platon Martinez) Employers may impose a reasonable clearance process, but it cannot defeat the 30-day rule or be used to withhold benefits for unduly long periods (see Milan v. NLRC, G.R. 202961, 04 Feb 2015).
3. Tax treatment of the payout
| Type of payout | When exempt from income tax & withholding | Authority |
|---|---|---|
| Monetized unused VL (private-sector) | Exempt up to 10 days per year (treated as “de minimis” benefit). Any excess, together with monetized SL, is part of “other benefits” subject to the ₱30,000 annual fringe-benefit ceiling | BIR RR 10-2008 §2.78.1(A)(4)(a) (Bir Cdn) |
| SIL conversion | Treated as regular compensation; taxable (unless employee is a Minimum-Wage Earner) | BIR RR 2-98, as amended |
| Terminal Leave Benefit (gov’t) | Fully tax-exempt under Sec. 32(B)(7)(e) NIRC and long-standing BIR rulings |
Proper withholding should appear on the BIR Form 2316 given to the employee at year-end.
4. Key jurisprudence & administrative guidance
- Art. 95 cases – Auto-Bus Transport v. Bautista, G.R. 156367 (16 May 2005) upholds conversion of SIL even where company already granted 30-day VL—the SIL is additional.
- Company policy controls beyond SIL – Rodrigo v. U.P. (G.R. 127930, 04 Feb 1999) denied cash conversion where the CBA expressly prohibited it.
- Practice ripening into right – Supreme Steel v. Nagkakaisang Manggagawa (G.R. 190371, 17 Apr 2013) recognized VL cash conversion because the employer had consistently paid it for years.
- Clearance withholding – Milan v. NLRC (G.R. 202961, 04 Feb 2015) allows employers to require clearance, but only to the extent of verified accountabilities and without delaying beyond the 30-day advisory.
- Latest SC trend (2024-2025) – recent decisions (Manco Synthetic, G.R. 260801, 13 May 2024) reiterate that SIL pay is due even to employees found validly dismissed or who voluntarily resigned, unless validly waived after termination.
5. Practical compliance checklist
| For employers | For resigning employees |
|---|---|
| ◻ Review your handbook/CBA to be explicit about whether vacation or sick leave is convertible on separation. | ◻ Secure a copy of your leave ledger before filing resignation. |
| ◻ Compute prorated SIL up to the last day worked. | ◻ Use the HR clearance form promptly; return assets to avoid offsetting. |
| ◻ Issue the quitclaim & waiver only after paying everything due. | ◻ If payout is delayed beyond 30 days, file a request for assistance (RFA) at the DOLE Regional Office. |
| ◻ Withhold tax correctly (see §3). | ◻ Double-check that any tax on VL conversion > 10 days is reflected in BIR 2316; ask for refund if you’re a Minimum-Wage Earner. |
6. Frequently-asked questions
Can I offset my unused VL against my required 30-day notice? Only if (a) your company policy allows leave “offsetting,” and (b) management approves—it is discretionary.
I resigned after only eight months; do I still get SIL? Yes, on a pro-rata basis: Months/12 × 5 days. The Omnibus Rules do not require a full year after entitlement arises.
What if my employer has fewer than ten workers? The statutory SIL does not apply, so any payout is purely contractual. Confirm your handbook.
Does “forced leave” or “Christmas shutdown leave” eat up my SIL? Yes—if you have remaining SIL credits, the employer may charge them; otherwise, the day is unpaid unless a company policy says otherwise.
May the company require me to sign a quitclaim waiving future claims? It may present one, but the quitclaim is valid only if executed after you actually receive all amounts due. You may still question an unconscionable waiver.
7. Take-away
- Statutory right: Every rank-and-file worker (with the few exemptions noted) can demand conversion of any unused Service Incentive Leave upon resignation, and it must appear in the final pay released within 30 days.
- Everything else—vacation, sick, special leaves—is governed by contract or company practice. Make sure the rules are crystal-clear in writing to avoid disputes.
- Taxes matter: the first 10 days of monetized VL per year are tax-free; the rest (and SIL) follow normal compensation tax rules.
- Government workers enjoy a more generous regime, with every accumulated leave hour paid out on exit.
Handled correctly, vacation-leave payouts protect both the departing employee’s pocket and the employer’s compliance posture—turning a potential flashpoint into a smooth off-boarding experience.