Service Incentive Leave (SIL) Pay in the Philippines

A comprehensive legal primer for employers, HR practitioners, and workers

1. Statutory foundation

Law / issuance	Key text	Practical effect
Labor Code (Pres. Decree 442, as renumbered Art. 95 → Art. 99 under 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.”	Creates the right to 5 days SIL and mandates its conversion to cash if not used at the end of the year or upon termination
Implementing Rules (Book III, Rule IV)	Defines “year of service,” clarifies exclusions, and states that the cash value is the employee’s “salary equivalent of five (5) days.”	Anchors computation formula (daily wage × unused SIL days)
DOLE Labor Advisory No. 6-20 (and predecessors)	Re-affirms that unused SIL must be paid even when the non-use is caused by pandemic lockdowns, shutdowns, or force majeure.	No waiver of SIL; monetary equivalent is still due
BIR RR No. 3-98, as amended	The cash conversion of SIL is one of “other benefits” exempt from income tax up to ₱90,000 per year.	No withholding tax on SIL cash-out if total 13th-month-type benefits ≤ ₱90k

Note: Certain sectors (e.g., Kasambahay Law, Batas Kasambahay) now grant separate leave benefits; where a special law grants at least five paid leave days, SIL no longer applies.

2. Coverage and exemptions

Covered employees

Any rank-and-file employee in the private sector who has completed at least 12 cumulative months of service—continuous or broken—within the same employer. (A month with ≥ 15 calendar days actually worked counts as “one month.”)

Expressly exempted

Government employees (covered by CSC rules, not the Labor Code)
Domestic helpers (now governed by R.A. 10361)
Managerial employees (those vested with the power to lay down and execute management policies and to hire/fire or effectively recommend such)
Field personnel and other employees “whose time and performance is unsupervised by the employer” (e.g., bus conductors in Auto Bus Transport Systems, Inc. v. Bautista, G.R. No. 156367, 2003, later qualified in 2009)
Workers already enjoying a leave with pay of at least five days (e.g., a CBA or company policy giving 15 VL days automatically satisfies SIL)

3. Accrual mechanics

Start of entitlement – The day after an employee completes one (1) year of service.
Pro-rating – If the employee is separated mid-year, SIL accrues at 1⁄12 of 5 days (≈ 0.4167 day) for every month of service after the first year.
Carried forward vs. paid out – By law, unused SIL must be converted to cash at the employee’s latest daily wage rate at:
- the end of the calendar year; or
- resignation, retirement, completion of contract, or dismissal, whichever occurs first.

Employers may allow—but cannot compel—an employee to carry over unused SIL into the next year. Carried-over days remain payable if still unused.

4. How to compute SIL pay

Step 1: Determine unused SIL days

Unused SIL = 5 – SIL taken

Step 2: Identify “daily wage”

Use the regular basic daily wage on the date of conversion.
Exclude cost-of-living allowance (COLA), overtime premium, night-shift differential, and “contingent” bonuses (Pakil v. CA, G.R. No. 44863).

Step 3: Multiply

SIL Pay = Unused SIL × Daily Wage

Illustrations

End-of-year conversion
Daily wage: ₱610
Leave used: 2 days

Unused SIL          = 5 – 2  = 3 days
 SIL Pay             = 3 × ₱610 = ₱1,830

Resignation on April 15 after 8 months
Monthly accrual: 0.4167 day
Months after 1-year mark: 8
Daily wage: ₱520

Prorated entitlement = 0.4167 × 8 = 3.33 days
 (Round up in favor of labor → 3.5 days)
 SIL Pay              = 3.5 × ₱520 = ₱1,820

Employers may adopt better formulas (e.g., count exact work-days instead of whole months) but never give less than the statutory minimum.

5. Jurisprudence highlights

Case	G.R. No. / Date	Doctrinal takeaway
Auto Bus Transport Systems, Inc. v. Bautista	156367, May 16 2005	Bus conductors are not field personnel; they still qualify for SIL because employer actually supervises trips.
Intercontinental Broadcasting Corp. v. Florentino	178371, Jan 28 2013	SIL is demandable even if employee did not make a prior leave request; failure to prove payment obliges employer.
Davies Paints Phil., Inc. v. Philippine Resins Industries	198183-84, Nov 9 2016	Monetary conversion is “wage” for purposes of moral damages; non-payment constitutes bad faith if deliberate.
Valino v. National Labor Relations Commission	185045, Feb 12 2020	Project workers in construction still earn SIL during project duration unless field-personnel exception applies.

6. Tax and reporting treatment

Income-tax-exempt if total “13th-month and other benefits” (13th-month, Christmas bonus, monetized leave—including SIL) ≤ ₱90,000 in the same year (BIR RR 3-98, sec. 2.78.1(B)(11)).
Reflect monetary conversion in the Alphalist (BIR Form 2316) under “non-taxable other benefits.”
Record SIL accruals and payments in the payroll register; keep vouchers for three (3) years per Art. 129.

7. Compliance pitfalls & best practices

“Non-use, no pay” is illegal. Even if an employee refuses to take leave, the cash equivalent is still due.
Weekly-paid or piece-rate workers still earn SIL; convert their weekly rate to daily by dividing by the actual days worked per week (DOLE handbook).
Compressed Workweek (e.g., 4 × 12 hours) — The “daily wage” remains the equivalent 8-hour rate unless a CBA says otherwise.
Negative amortization tricks (e.g., front-loading VL then deducting from future SIL) violate Art. 116 (prohibition on kickbacks).
Foreign entities operating a representative office in the Philippines fall under Labor Code, hence must still grant SIL to local hires.

8. Frequently-asked questions

Question	Answer
Can SIL be forfeited?	No. The Labor Code is explicit: it is either enjoyed as leave or paid in cash.
Does maternity leave affect the “one-year service” count?	Statutory maternity leave is considered service for SIL accrual; it is paid time.
Is SIL different from Vacation Leave (VL)?	VL is a company-granted benefit; SIL is statutory. A VL program of ≥ 5 days with pay absorbs the SIL, but anything less means the employer must bridge the gap.
Do trainees or probationary employees qualify?	Yes—once they complete one year of actual service (probation counts).
Is SIL convertible at “premium” (e.g., basic + allowances)?	No. Only the basic daily wage is mandated; employers may voluntarily sweeten the rate.

9. Enforcement and remedies

File a complaint or request for assistance under DOLE’s Single-Entry Approach (SEnA); SIL disputes fall within DOLE’s original jurisdiction if claim ≤ ₱5,000 per employee, else NLRC.
Prescriptive period: Three (3) years from the date each SIL pay became due (Art. 306).
Penalties for non-payment include (a) payment of deficiency, (b) legal interest (6 % p.a. from judicial or extrajudicial demand to full satisfaction), and (c) possible criminal prosecution under Art. 288.

10. Key takeaways for HR & payroll

Track SIL accruals just like you track VL/SL—dedicated ledger per employee.
Convert automatically on December 31 (or fiscal cut-off) without waiting for a request.
Use current daily wage; if wage increased during the year, cash-out at the higher rate.
Document proof of payment (signed payroll, e-payroll ACK, bank-credit slip) for each conversion.
Educate employees: SIL is an earned benefit; they need not fear reprisal for using it.

Final note

Service Incentive Leave is deceptively simple—a mere five paid days—but its mismanagement fuels a steady stream of court cases. Proper accrual tracking, prompt conversion, and transparent communication are the surest ways to turn a statutory minimum into a non-issue for both labor and management.