Service Incentive Leave

Summary

▪ Service incentive leaves are leave credits extended to covered employees who may want to use them whenever they take a leave from work, so that they remain paid during such absence from work.

▪ There are five (5) service incentive leave credits given to an employee who has rendered at least 12 months of service.

▪ The leave credits may be used for whatever reason.

▪ The employer is required to pay the cash equivalent of the unused leave credits.

▪ The service incentive leave credits replenish yearly.

1. Concept

Service incentive leaves are five (5) leave credits with full pay given to qualified and covered employees who have rendered at least one (1) year of service.

2. Covered and excluded

The benefit applies to all employees except:

1. Government employees, whether employed by the National Government or any of its political subdivisions, including those employed in government-owned and/or controlled corporations with original charters or created under special laws;

2. Persons in the personal service of another;

3. Managerial employees, if they meet all of the following conditions:

3.1. Their primary duty is to manage the establishment in which they are employed or of a department or subdivision thereof;

3.2. They customarily and regularly direct the work of two or more employees therein; and,

3.3. They have the authority to hire or fire other employees of lower rank; or their suggestions and recommendations as to hiring, firing, and promotion, or any other change of status of other employees are given particular weight.

4. Officers or members of a managerial staff, if they perform the following duties and responsibilities:

4.1. Primarily perform work directly related to management policies of their employer;

4.2. Customarily and regularly exercise discretion and independent judgment

4.3. (a) Regularly and directly assist a proprietor or managerial employee in the management of the establishment or subdivision thereof in which he or she is employed; or (b) execute, under general supervision, work along specialized or technical lines requiring special training, experience, or knowledge; or (c) execute, under general supervision, special assignments and tasks; and,

4.4. Do not devote more than twenty percent (20%) of their hours worked in a workweek to activities which are not directly and closely related to the performance of the work described in paragraphs 5.1, 5.2, and 5.3 above;

5. Field personnel and those whose time and performance are unsupervised by the employer;

6. Those already enjoying this benefit;

7. Those enjoying vacation leave with pay of at least five (5) days; and,

8. Those employed in establishments regularly employing less than ten (10) employees.

a. Field personnel

The grant of service incentive leave has been delimited by the Implementing Rules and Regulations of the Labor Code to apply only to those employees not explicitly excluded by Section 1 of Rule V. According to the Implementing Rules, Service Incentive Leave shall not apply to employees classified as “field personnel.” The phrase “other employees whose performance is unsupervised by the employer” must not be understood as a separate classification of employees to which service incentive leave shall not be granted. Rather, it serves as an amplification of the interpretation of the definition of field personnel under the Labor Code as those “whose actual hours of work in the field cannot be determined with reasonable certainty.” (Auto Bus Transport Systems, Inc., v. Bautista, G.R. No. 156367, 16 May 2005)

The same is true with respect to the phrase “those who are engaged on task or contract basis, purely commission basis.” Said phrase should be related with “field personnel,” applying the rule on ejusdem generis that general and unlimited terms are restrained and limited by the particular terms that they follow. Hence, employees engaged on task or contract basis or paid on purely commission basis are not automatically exempted from the grant of service incentive leave, unless, they fall under the classification of field personnel. (Ibid.)

In short, in determining whether workers engaged on “pakyaw” or “task basis” is entitled to holiday and SIL pay, the presence (or absence) of employer supervision as regards the worker’s time and performance is the key: if the worker is simply engaged on pakyaw or task basis, then the general rule is that he is entitled to a holiday pay and SIL pay unless exempted from the exceptions specifically provided under Article 94 (holiday pay) and Article 95 (SIL pay) of the Labor Code. However, if the worker engaged on pakyaw or task basis also falls within the meaning of “field personnel” under the law, then he is not entitled to these monetary benefits. (Ibid.)

3. The Benefit

Once covered employees complete one (1) year of service, they are entitled to five (5) leave credits with full pay.

a. Annual or Pro Rated?

There is a lot of confusion on how service incentive leave credits are given to covered employees, particularly after they have rendered at least one (1) year of service. There are companies who give the five (5) SIL to their covered employees after their work anniversary. On the other hand, there are companies who give a fraction of the five (5) SIL to their covered employees after their work anniversary, and then issues the other SIL on a piecemeal or prorated basis.

The confusion stems from the fact that there had been no express law nor regulation illustrating how it is done. However, for those familiar with handling labor cases filed in court, labor courts (from the Labor Arbiter, NLRC, CA, to the Supreme Court no less) have constantly applied the five (5) SIL on the 1st year or work anniversary, then prorate the SIL credits for the second year. A few years ago, when DOLE started issuing its Handbook on the Statutory Monetary Benefits, this manner of computation of labor courts have also been adopted.

Consequently, the rule is that employees who have rendered at least one (1) year of service receives their five (5) service incentive leave credits. Thereafter, they will receive pro rata of the service incentive leave unless there is a stipulation in favor of the employees.

For example, employees who have rendered fourteen (14) months of service are entitled to six (6) service incentive leave credits. The first five (5) leave credits are for their anniversary or after having rendered one year of service, while the one (1) leave credit is the pro rated leave credit for the second year (12 months divided by 5 SIL = 1 SIL / 2.4 months).

Illustration:

5 SIL – 1st Year (Anniversary)

1 SIL – 2nd Year (2 months)

————————————

6 SIL – 14 months of service

While the above example is given by way of example/illustration, it should be noted that the unused leave credits should be converted to cash by the end of the work anniversary.

b. Replenishes yearly

The service incentive leave replenishes yearly. As explained earlier, after the granting of the first five (5) service incentive leave credits, the covered employees will be entitled to a new set of leave credits to be given to them on a prorated basis by default, unless there is a stipulation more favorable.

4. Interpretation of 1 year

The 1-year of service means that the covered employee has rendered service for at least twelve (12) months, whether continuous or broken, counting form the start of his employment.

a. Whether continuous or broken

The phrase “whether continuous or broken” means that the counting of the one (1) year is continuous even if the employees did not work for several weeks or months within the said year. For example, the maternity leave period availed of women employees are considered or included in the counting for the one (1) year. The same goes for paternity leave and all other kinds of applicable leaves, as well as in situations where employees are unable to work through no fault of theirs such as being hospitalized due to an illness or accident.

5. Usage

The service incentive leave is a leave credit which may be used at the discretion of the employee who may use it for sick leave, vacation leave, or for any other personal reasons. It is, for all intents and purposes, a general leave credit.

Employers are prohibited from applying leave credits without the consent of the employees. The rationale for this is that the employees may have planned or reserved such leave credits for a specific occasion, such as to attend a family celebration, graduation, a holiday trip, and so on.

6. Convertible to cash

Unused service incentive leaves are required to be converted to cash at the end of the year or upon the termination of employment due to just causes or separation from the service due to authorized causes.

8. Employment contract, company policies, CBA

The above discussion may be superseded by any stipulation favorable to the employee via an employment contract, company policies, collective bargaining agreement, or analogous thereto.

References

Book III, Presidential Decree No. 442, a.k.a. Labor Code of the Philippines

Book IIII, Omnibus Rules Implementing the Labor Code

2022 DOLE-BWC Handbook on Workers’ Statutory Monetary Benefits

/Updated: January 10, 2023

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