Are you giving the right Employee Leave Benefits?

Labor Law 6 min read , November 16, 2020

In this post, you’re going to learn what the law says about leave benefits so you can create legally compliant leave policies and you can answer employee questions about leaves with confidence.

The biggest problem I see right now is that business owners and managers have no idea what the law actually requires from them. Nobody has told them what the standard is, and they see different companies having different policies from each other. Worse, they panic when employees demand different things. Irate employees say things like, “In my old company, we used to have 15 days VL… why are you trying to cheat me by offering me 7 instead?”

Without the proper orientation, I could imagine the manager’s panic while grasping for answers. This results in resentment and conflict in the workplace because the employees think they should be entitled to more, while managers suspect that they may be giving too much already. Therefore, a proper orientation in what is proper will smoothen out a lot of the friction in this area.

Here are the three things you need to know to understand Leaves as told by the Labor Code.

1. The right standard

The law requires all employers to give 5 leaves to employees per year. The technical term for this leave benefit is Service Incentive Leave (or SIL as lawyers and HR people refer to it). Its found under Article 95 of the Labor Code. This is a paid leave so they get their day’s wages even if they’re lounging on the beach! If they don’t avail of the leaves, they can demand to convert their equivalent into cash at the end of the year.

2. When is it applicable?

I can already hear employees saying, “Whoa, that sounds so awesome!” Wait… not all employees get to enjoy these. There are pre-requisites before employees can avail of them:

  • The person involved is your employee. This means we are not talking about agency people, independent contractors or consultants. These should be full-on employees;
  • Employee is covered by the application of labor standards. There are certain classes which are exempted from this (managerial, field personnel, government workers… etc. I’ll cover this in a separate post);
  • If you have less than 10 employees, this is optional;
  • They should have served with your business for a minimum of 1 year. This includes the probationary period.

3. But I am a generous boss

What if you want to give more? 5 days seems so little.

Well, that’s no problem. The law says that these are just the minimum benefits. Therefore, you can add as much as you want to, or create combinations and rules around it as it suits you. This is you exercising your Management Prerogative.

I’d like to give an example of how additional leaves may be treated. Some businesses divide the leaves into Vacation Leaves (VL), Sick leaves (SL) and Emergency Leaves (EL). The distinction between them is the process of how to avail of them. Let me give you an example:

If you want to take a vacation leave, file it at least 5 days in advance so your manager can find someone to fill in the open shift. For sick leaves which cannot be predicted, be sure to text us an hour before your shift if you can’t make it, and send over a medical certificate the day you report for work. For emergency leaves, it may work the same way as sick leaves. Your call on what’s convenient for you and your team.

Oh, and you can increase the number of VL’s and SL’s. Some clients have 7 days VL and 7 days SL per year. And sometimes, they choose to consider them as cumulative, therefore, if you don’t avail of certain leaves at the end of the year, they can carry over to the following year. Some employees can therefore take a month long overseas tour at some point in the future. The exception is if the other leaves are required under a Collective Bargaining Agreement with a Union, but that’s a whole other discussion.

Bottom line: there are an infinite number of combinations and conditions you can attach to your leave policy, but the bottom line for all businesses is that the minimum should be 5 days, and if not availed by the end of the year, you have to pay them its equivalent.

Some questions I get from Clients and Students

You may ask, “Attorney, I’m already giving more than the 5 days. Since 5 is the minimum, are you saying I can reduce the leaves I’m already giving?”

Not so fast. In this case, we’ll run into the legal doctrine called “Company Practice”. This states that if you’ve already been giving a certain benefit, it may have hardened into a company practice, which cannot be taken away because it may result in diminution of benefits which is a mortal sin under the Labor Code. Consult with your legal team before taking anything away or read my post about that.

Or, you may be allergic to numbers and you despise computations. “Attorney, I haaaaaaate the additional work of calculating the 5 days equivalent. Anything I can do to avoid that?”

To people of this disposition, I offer the following suggestion: force them to avail of the leaves. That way, everyone is happy. Employees get paid leaves and you don’t have the hassle of reconciling this at the end of the year.

Companies can hold a team meeting and say, “Guys, you need to pick out when you will be taking your vacations. At least 5 days please (if you give them more than 5 days).” Viola. You no longer have anything to encash at the end of the year because they’ve already availed of the SIL.

Or, another way of doing it is that the first 5 leaves they take for the year, regardless of whether they are VL or SL will be considered the SIL availment. Same end result.

Or you can be creative and say, “Attorney, can I implement birthday leaves? Or town fiesta leaves?”

To this, I say, “Sure, whatever floats your boat !” It all depends on your company culture. If you want to emphasize or celebrate these, then go ahead. Anything to boost employee morale but at the same time makes business sense is A-OK with me. Just be sure to credit the first 5 leaves as the SIL to ease your calculation woes.

Finally, you may be asking, “Attorney, if the employee resigns or is terminated, how do we treat the SIL? Should we give it?”

The way I see it, SIL’s are considered earned by the mere fact that the person is employed because the law requires it. But you may compute the proportionate amount of SIL’s the employee is entitled to depending on when he or she leaves. Consider this example from the DOLE 2016 handbook:

Illustration: An employee was hired on 1 January 2000 and resigned on 1 March 2001. Assuming that he/she has not used or commuted any of his/her accrued SIL, he/she is entitled to the conversion of his/her accrued SIL, upon his/her resignation, as follows:

SIL earned as of 31 December 2000: 5 days

Proportionate SIL for January and February 2001 (2/12) x 5 days: 0.833 day

Total accrued SIL as of 1 March 2001: 5.833 days

Once you compute this amount, the treatment is the same as if it were unpaid salaries. The employee  has the right to it. Therefore, when the employee leaves within the year, regardless whether it was a resignation or termination, the proportionate SIL equivalent should be given as part of the last pay. In case you’re confused by this part, ask your legal and accounting team to help you sort it out.

Let’s wrap it up

So, to recap, here’s what you need to know about SIL:

  1. Minimum under the law is 5 days of paid leave, after they serve for a year;
  2. If they don’t avail of the 5 days, you should pay them the cash equivalent at the end of the year;
  3. If you’re already giving other leaves (VL, SL, EL, etc.), just make sure you are maintaining the minimum 5 and do with the
    rest as you think is appropriate.

So, does reading this give you fresh ideas on how to improve or change your Leave Policies at work? Let us know in the comments.