Service Incentive Leave (SIL) in the Philippines: 5 Days a Year

Service Incentive Leave (SIL) is the statutory paid-leave floor for private-sector employees in the Philippines. Under Article 95 of the Labor Code of the Philippines, every employee who has rendered at least one (1) year of service is entitled to five (5) days of leave with pay each year.

SIL is deliberately flexible. The law does not divide it into 'vacation' and 'sick' leave — the employee may use the five days for any purpose, whether rest, illness, or personal matters. It is a minimum benefit, not a ceiling: an employer is free to grant more.

Because it is a floor, SIL is most relevant to employees who receive no other company leave. Where an employer already grants five or more paid leave days a year (for example, a combined vacation-leave package), that benefit is deemed to absorb and satisfy the SIL requirement.

Eligibility turns on one condition: at least one year of service. 'One year of service' means service within twelve (12) months, whether continuous or broken, reckoned from the date the employee started working — including authorized absences, paid regular holidays, and weekly rest days, unless the working days in the establishment are fewer because of a regular work schedule fixed by the employer.

Importantly, the year of service does not have to be unbroken. An employee who worked across twelve months on a broken schedule can still qualify, which protects part-time and intermittent workers who accumulate twelve months of service over a longer span.

Once the one-year threshold is met, the five-day entitlement accrues each year of continued service. Newly regularized or recently hired employees who have not yet completed a year of service are not yet entitled to SIL.

Eligibility checklist

• Private-sector employee (not government, which has its own civil-service leave rules)
• Has rendered at least one year of service, continuous or broken, within 12 months
• Works in an establishment that regularly employs at least 10 workers
• Is not otherwise exempt (see the coverage table below)
• Does not already enjoy 5 or more paid leave days a year from the employer

Article 95 and its Implementing Rules list specific exemptions. The most common reason an employee does not receive SIL is that the employer already grants an equal or greater leave benefit, or that the business is small (fewer than ten workers).

The table below summarizes who is covered and who is exempt. Note that kasambahay (domestic workers) are not covered by SIL but have their own leave entitlement under Republic Act No. 10361 (the Batas Kasambahay).

SIL has a feature most company leaves do not: if the employee does not use all five days within the year, the unused balance is convertible to its money equivalent at the end of the year. This is the commutation or cash-conversion rule, and it is a right of the employee, not a discretionary perk.

The cash value of an unused SIL day is based on the employee's salary rate at the date of commutation. So unused SIL does not simply expire — it is paid out, typically with the year-end payroll run or as company policy provides.

On separation, any earned-but-unused SIL also forms part of the employee's final pay. This is a common item employers miss when computing back pay, so it is worth flagging in any separation or clearance process.

Worked example — cash conversion

• Daily rate: ₱1,000; entitlement: 5 SIL days for the year
• Days actually used during the year: 2
• Unused SIL days: 3
• Cash conversion: 3 days × ₱1,000 = ₱3,000 payable at year-end
• If the employee resigns mid-year with 2 unused earned days, those 2 days are added to final pay

Many employers grant generous vacation-leave (VL) and sick-leave (SL) packages — often 10, 12, or 15 days. Where the combined paid leave already meets or exceeds five days, that package is deemed to include SIL; the employer does not owe an extra five days on top.

The practical question is whether the company benefit is at least equivalent. If a firm grants only sick leave that requires a medical certificate, or leave that is forfeited if unused, employees may argue that the benefit is not truly equivalent to SIL — because SIL is usable for any reason and is convertible to cash. When in doubt, treat SIL as the non-negotiable floor and design VL/SL to clearly absorb it.

For payroll teams, the cleanest approach is to make the most generous of the company's paid leaves convertible to cash up to at least five days, so SIL compliance is automatic and documented.

Compliance is mostly a tracking problem. The two failure points are (1) not granting SIL to employees who have no other leave, and (2) not paying out unused days at year-end or on separation.

Build the rule into your leave ledger: accrue five days once an employee crosses one year of service, deduct as days are taken, and flag any remaining balance for cash conversion at year-end. On offboarding, route earned-but-unused SIL into the final-pay computation alongside pro-rated 13th-month pay and other amounts due.

Administration checklist

• Confirm establishment size — the under-10-worker exemption applies firm-wide
• Track each employee's first day to determine the 1-year eligibility date
• Accrue 5 SIL days per year for covered employees with no equivalent leave
• Record usage against the balance and keep the medical-certificate-free flexibility
• Convert unused SIL to cash at year-end at the current salary rate
• Include earned-but-unused SIL in final pay on resignation or termination

Orkids builds custom payroll and HR software for Philippine companies, including leave engines that encode Article 95 correctly — accruing the five-day floor, distinguishing it from company VL/SL, and automating year-end cash conversion and final-pay payouts.

Because the rules interact with 13th-month pay, separation pay, and final-pay computation, we model them as one connected ledger rather than separate spreadsheets, so an employee's unused SIL never silently disappears at year-end or on exit.

If your current system can't reliably answer 'how much unused SIL does this employee have, and what is it worth today?', that is a strong signal to upgrade the leave module.