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Service incentive leave

Ian Alfredo Magno /

HARMONY between labor and management, in essence, predictably translates to productivity in the workplace. However, at such times when the rapport turns sour, certain employees almost inevitably end up in a legal scuffle versus the employer. For instance, among the conspicuously familiar complaints filed by employees against their employers involve issues pertaining to illegal dismissal or constructive dismissal, among others.

In the end, as the dispute is judicially settled, satisfaction is practically obtained through the medium of a monetary award, such as damages, garnishment of debts due to employers, back pay, separation pay, 13th month pay, other differentials, and/or service incentive leave pay.

With particular emphasis on the latter, most members of the workforce do not have a clear distinction between the Service Incentive Leave (SIL) and the commonly recognized vacation leave.  Hence, what is service incentive leave?

Plainly, it is a statutorily mandated 5-day leave benefit (with pay) granted to employees by the employer pursuant to Article 95 of the renumbered Labor Code of the Philippines.  Entitlement to which necessitates that the concerned employee must have already rendered at least 12 months of service – whether continuous or broken.  Provided, furthermore, that the employer has 10 or more personnel under its employ.  At the end of the year, any unused SIL may be monetized or commuted to cash at the option of the employee.  Still yet, if not monetized, such unutilized SIL is credited to the employee’s account or carried over to the ensuing year.  Take note, it cannot be forfeited.

Thus, in the landmark case of Autobus Transport System vs. Bautista 497 Phil 863, the Honorable Supreme Court said, to wit:

“In the case of service incentive leave, the employee may choose to either use his leave credits or commute it to its monetary equivalent if not exhausted at the end of the year. Furthermore, if the employee entitled to service incentive leave does not use or commute the same, he is entitled upon his resignation or separation from work to the commutation of his accrued service incentive leave.”

Meanwhile, in actual practice, employers use differently named leave benefit types.  Seldom do they use such terminology as “service incentive leave.”  For instance, employers provide vacation leave credits among others.  This is where the apparent misconception lies.

Some employees insist that they are further entitled to the 5-day SIL on top of the existing vacation leave credits, which they are already enjoying.  However, the 2016 Handbook on Statutory Monetary Benefits by the DOLE-Bureau of Working Conditions explicitly provides for the list of employees exempted from the SIL benefit.  Among which are those “already enjoying vacation leave with pay for at least five (5) days.”   Categorically speaking, those already enjoying such benefit are precluded from claiming further and above the 5-day statutory count.  But of course, yes, it is the employer’s duty to prove that it is covered under the exemption.

Another peculiar area where an apparent misconception exists vis-à-vis computing the commutation of the SIL lies in the interpretation of the three-year prescriptive period laid down in Article 306 of the renumbered Labor Code.  Article 306 provides, thus:

“All money claims arising from employer-employee relations accruing during the effectivity of this Code shall be filed within (3) three years from the time the cause of action accrued; otherwise they shall be forever barred.”

This provision triggered a (wrong) school of thought, which advocates that for those unused SILs in any given year, the employee is required to make a demand of commutation or monetization within a period of three (3) years reckoned from the end of that particular year.  Otherwise, they shall be barred.  It ridiculously defeats the purpose of most industrious employees who intentionally spare and save their SILs to strategically accumulate the same in the hopes of having a relatively larger commutation when they eventually retire or separate from work.  It sort of disincentivizes employees who reported to work with minimized tardiness or absences through the years.  It also, in effect, discourages workers from saving their commutable SILs for the rainy days in the future, so to speak.

Such is not the intention of the law.

Hence, the critical question is “when does such cause of action accrue?”

The Supreme Court had occasion to clarify the matter in the case of Rodriguez vs. Park G.R. No. 222980 dated 20 March 2017, thus:

“… the cause of action of an entitled employee to claim his service incentive leave pay accrues from the moment the employer refuses to remunerate its monetary equivalent if the employee did not make use of said leave credits but instead chose to avail of its commutation.  Accordingly, if the employee wishes to accumulate his leave credits and opts for its commutation upon his resignation or separation from employment, his cause of action to claim the whole amount of his accumulated service incentive leave shall arise when the employer fails to pay such amount at the time of his resignation or separation from employment.

The Supreme Court went further by stating that:

“… we can conclude that the three (3)-year prescriptive period commences, not at the end of the year when the employee becomes entitled to the commutation of his service incentive leave, but from the time when the employer refuses to pay its monetary equivalent after demand of commutation or upon termination of the employee’s services, as the case may be.”

Such pronouncement by the Supreme Court vis-a-vis the rules on service incentive leave, is in keeping with the rudimentary principle that in the interpretation of the Labor Code and its implementing regulations, the workingman’s welfare should be the paramount consideration.


At this point, I am extending my gratitude to Espressini Café at the Cagayan Town Center, Cagayan de Oro City for the warm hospitality extended to this representation, with Atty. Francis Ku, Atty. Ernani Bonoan, Atty. Christian Anthony Yuson, Atty. Miguel Quilab and Atty. Luz Legara of the Atty. Francis U. Ku and Associates Law Office.  Indeed, good (yet affordable) food gets even better with great company.

(Lawyer Ian Alfredo T. Magno is based in Cagayan de Oro. E-mail:


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TREND MAKER. Mindanao Gold Star Daily was established in 1989 to set ablaze a new meaning & flame to the local newspaper business. Throughout the years it continued its focus and interest in the rural areas & pioneered the growth of countryside journalism.

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