If you employ workers in the Philippines, the statutory floor for paid annual leave is narrower than in most APAC markets — just five days per year under the Labor Code. That single provision, called Service Incentive Leave (SIL), trips up multinational employers who assume Philippine workers receive the same 15–20 day baseline as their counterparts in Australia, the UK, or the EU.

This guide explains how Service Incentive Leave actually works in 2026: who qualifies, what employers must pay, when unused leave converts to cash, and where company-specific vacation leave fits on top of the statutory minimum. The facts here come directly from Presidential Decree No. 442 (the Labor Code of the Philippines) and DOLE guidance.

Key Takeaways

Service Incentive Leave is 5 days of paid leave per year after one year of service.
Eligibility is governed by Article 285 of the Labor Code (formerly Article 95 / 274) and DOLE Department Advisory No. 01-21.
Unused SIL must be converted to cash at the end of the year — it is not a “use it or lose it” entitlement.
SIL applies regardless of establishment size, except for government employees and employers already providing equivalent or better benefits.
Many Philippine companies offer separate vacation leave (VL) and sick leave (SL) — typically 10–15 days each — on top of SIL through company policy or a CBA.

What Is Service Incentive Leave?

Service Incentive Leave is the Philippines’ statutory paid annual leave entitlement. It gives every covered employee five days of leave that can be used for any purpose — vacation, illness, personal matters — once the employee has rendered one year of service.

Unlike annual leave in many other jurisdictions, SIL is not a “vacation-only” benefit. The employee chooses how to use it, and the employer cannot restrict the reason. If the employee does not use the days during the year, the employer is required to pay them out in cash.

Legal Basis

The entitlement sits in Article 285 of the Labor Code (renumbered from the original Article 95 under DOLE Department Advisory No. 01-21). The implementing rules are issued by the Department of Labor and Employment (DOLE), and enforcement is handled through DOLE regional offices and the National Labor Relations Commission.

Who Is Entitled to SIL?

Coverage under Article 285 is broad. Every employee in the private sector qualifies for SIL once they reach one year of service, with a small list of statutory exceptions.

Eligible Employees

Full-time employees in any private establishment, regardless of headcount.
Part-time employees who have rendered at least one year of service.
Probationary, project, and seasonal employees who accumulate at least 12 months of cumulative service with the same employer.
Employees paid by piece, task, or output, provided they have worked for at least one year.

Not Covered

The Labor Code carves out a handful of categories from the SIL requirement:

Government employees, who are covered by the Omnibus Rules on Leave administered by the Civil Service Commission. These rules are more generous — typically 15 days of vacation leave and 15 days of sick leave per year.
Managerial employees and members of a managerial staff, as defined in the Labor Code.
Field personnel whose hours of work cannot be determined with reasonable certainty.
Domestic workers (kasambahay), who have a separate paid leave entitlement under the Domestic Workers Act (Republic Act 10361).
Employers already providing similar or better benefits, such as companies with a CBA or company policy granting at least five days of paid leave a year.

What Counts as One Year of Service

The “one year of service” threshold means 12 months of work with the same employer, whether continuous or broken, including authorised absences and paid regular holidays. An employee who reaches their first anniversary mid-year becomes entitled to a full five days from that point — not a pro-rated portion based on the months remaining.

Employer Obligations Under the Labor Code

If you employ private-sector workers in the Philippines, the Labor Code imposes five concrete obligations once an employee passes the one-year mark.

Grant five days of paid SIL per year of service, on top of regular weekly rest days and the 12 regular holidays.
Pay the employee’s daily rate during SIL — the same rate the employee would have earned on a normal working day.
Convert unused SIL to cash at the end of the calendar year (or the end of the company’s leave year) at the employee’s current daily rate.
Not deduct pay for SIL days taken within the statutory five-day allotment.
Maintain accurate records of SIL accrual, days taken, and cash conversions for each covered employee. DOLE labour inspectors can request these records during routine inspections.

Calculating SIL Pay

The pay for an SIL day is the employee’s regular daily wage, computed from the basic monthly salary. For a monthly-paid employee, the conventional formula DOLE accepts is:

Daily Rate = (Monthly Basic Salary × 12) ÷ Number of Working Days in a Year

The “number of working days in a year” depends on the work schedule — common factors are 261, 313, or 365 days, set out in DOLE’s Handbook on Workers’ Statutory Monetary Benefits. For example, a monthly-paid employee on a 5-day work week earning ₱30,000 a month has a daily rate of (₱30,000 × 12) / 261 ≈ ₱1,379. One day of SIL pay equals one day at that rate.

Cash Conversion of Unused SIL

Cash conversion is what makes Philippine SIL different from most other jurisdictions’ annual leave regimes. Under Article 285, any unused SIL at the end of the year is commutable to its money equivalent.

How the Conversion Works

The conversion uses the employee’s current daily rate at the time of conversion, not the rate when the leave accrued.
It applies to whatever portion of the five days remains unused, including fractions.
Conversion is a statutory right — the employer cannot opt out, and an employee cannot validly waive it.
On termination or resignation, any unused SIL accrued during the year of separation must also be paid out.

This rule effectively means SIL operates like a wage premium for employees who do not take leave: they are paid for the days regardless. It also creates a clear accounting trail that DOLE inspectors look for.

SIL vs Company Vacation Leave and Sick Leave

A common source of confusion — both for new hires and HR teams expanding into the Philippines — is that SIL is not the same as vacation leave (VL) or sick leave (SL). Most established Philippine employers offer all three.

Leave type	Source	Typical days	Paid?
Service Incentive Leave	Labor Code (statutory)	5	Yes
Vacation Leave (VL)	Company policy / CBA	10–15	Yes
Sick Leave (SL)	Company policy / CBA	10–15	Yes
Maternity leave	RA 11210 (Expanded Maternity Leave Act)	105 days	Yes (SSS)
Paternity leave	RA 8187	7 days	Yes

Where a company already provides at least five paid leave days through VL, SL, or another mechanism, the Labor Code allows that to substitute for SIL — there is no requirement to stack five additional days on top. What is not allowed is offering fewer than five paid days a year.

For a broader view of how Philippine entitlements compare with other markets in the region, see our guides on annual leave in Australia and annual leave in New Zealand.

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Common Pitfalls for Employers

DOLE labour inspections and NLRC complaints surface the same SIL mistakes repeatedly. Most are bookkeeping errors rather than deliberate underpayment, but the back-pay exposure is real.

1. Treating SIL as a Vacation-Only Benefit

SIL can be used for any reason. An employer who refuses to grant SIL because the employee “already used sick days” is misapplying the law. SIL is a separate, general-purpose entitlement.

2. Failing to Convert Unused SIL to Cash

The most common DOLE finding in SIL cases is non-conversion of unused days. Employers sometimes treat unused SIL as forfeited — but cash conversion is mandatory under Article 285. An employee who worked the full year without taking SIL is owed five days of pay.

3. Misclassifying Employees as Field Personnel or Managers

The “field personnel” and “managerial employee” exclusions are narrow. Sales staff with regular reporting requirements are typically not field personnel. Supervisors who do not have authority to hire, fire, or discipline are typically not managers under the Labor Code definition. Misclassification to avoid SIL is a frequent NLRC complaint.

4. Ignoring Service Time for Project and Seasonal Workers

Cumulative service with the same employer counts toward the one-year threshold, even if the worker has been hired under successive project or seasonal contracts. Resetting the clock with each new contract is not a defence against an SIL claim.

5. Not Maintaining Records

Article 109 and DOLE’s general labour standards require employers to keep payroll and leave records for three years. If a former employee files an SIL underpayment complaint, the burden of producing accurate records sits with the employer. Missing records typically lead to a presumption in favour of the employee.

How to Stay Compliant

A simple compliance loop covers the Labor Code requirements:

Track service start dates for every covered employee and flag the one-year anniversary.
Accrue SIL from the anniversary date — most payroll systems prorate 5 days across the remaining months or grant the full balance on day one.
Apply leave taken against the SIL balance. If the employee has VL or SL credits, decide upfront which bucket gets used first and document it in the policy.
Reconcile balances at year-end and convert unused days to cash on the next regular payroll run.
Pay out remaining SIL on termination, resignation, or end of project assignment.

Spreadsheets work for very small teams, but they break quickly once you have employees on different anniversary dates, mixed VL/SL/SIL policies, and currency conversions for offshore-managed payroll.

FAQ

Can unused SIL be carried forward to the next year?

No. Under Article 285, unused SIL must be converted to cash at the end of the year. It does not roll forward unless the employer’s policy explicitly allows accumulation on top of the statutory cash conversion — which is rare in practice.

Is SIL the same as vacation leave in the Philippines?

No. SIL is the statutory minimum of five days. Vacation leave is a separate, voluntary benefit offered by many companies, typically 10–15 days per year. Most established Philippine employers provide VL and SL on top of SIL.

Are part-time employees entitled to SIL?

Yes. Part-time employees who have rendered at least one year of cumulative service with the same employer are entitled to the same five days of SIL. The entitlement is not pro-rated based on hours worked.

Do probationary employees get SIL?

A probationary employee becomes entitled to SIL only after completing one year of service. Most Philippine probation periods last six months, so SIL typically begins six months after regularisation.

Does SIL apply to employees in BPOs and call centres?

Yes. The Labor Code applies to all private-sector establishments, including business process outsourcing companies. BPO employees are entitled to SIL under the same rules as any other private employee, unless they fall within the managerial or field personnel exclusions.

Can an employer require employees to use SIL on specific days?

The Labor Code does not prohibit employers from scheduling SIL — for example, during a plant shutdown — but a unilateral schedule must be reasonable and ideally documented in the company handbook or CBA. Forced use during disciplinary suspensions is not permitted.

Sources

Presidential Decree No. 442 (Labor Code of the Philippines) — Article 285 (formerly Article 95 / 274) on Service Incentive Leave.
Department of Labor and Employment (DOLE) — Service Incentive Leave guidance and Department Advisory No. 01-21 on Labor Code renumbering.
DOLE Handbook on Workers’ Statutory Monetary Benefits (latest edition) — daily rate factors and SIL computation examples.
Republic Act No. 11210 (Expanded Maternity Leave Act) and Republic Act No. 8187 (Paternity Leave Act) — separate paid leave entitlements that sit alongside SIL.

For more APAC leave-law context, compare these rules with our breakdown of carrying over annual leave in Australia, where carry-over is permitted but cash conversion is restricted.

How Leave Balance Helps

Tracking five days of SIL alongside company VL, SL, maternity, paternity, and solo-parent leave for every employee — and converting unused SIL to cash at year-end — is fiddly to manage in spreadsheets once you grow past a handful of staff. Leave Balance handles the accrual, balance tracking, and year-end reconciliation automatically, with a flat-rate price that doesn’t scale with headcount. Approvals happen in Slack or Microsoft Teams, so requests don’t get lost in email.