Service incentive leave

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The Labor Code provides for service incentive leave (SIL) under Article 95, which reads:

ART. 95. Right to service incentive leave. - (a) Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.
(b) This provision shall not apply to those who are already enjoying the benefit herein provided, those enjoying vacation leave with pay at least five days and those employed in establishments regularly employing less than ten employees or in establishments exempted from granting this benefit by the Secretary of Labor after considering the viability or financial condition of such establishment.
(c) The grant of benefit in excess of that provided herein shall not be made a subject of arbitration or any court of administrative action.


Contents

Entitlement; At least one year of service

Every employee who has rendered at least one year of service shall be entitled to a yearly service incentive leave of five days with pay.[1] Service incentive leave, as provided in Art. 95 of the Labor Code, is a yearly leave benefit of five (5) days with pay, enjoyed by an employee who has rendered at least one year of service. The Supreme Court has held in several instances that "service incentive leave is clearly demandable after one year of service."[2] The Supreme Court has held in several instances that "service incentive leave is clearly demandable after one year of service."[3] The term at least 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 and paid regular holidays unless the working days in the establishment as a matter of practice or policy, or that provided in the employment contract is less than 12 months, in which case said period shall be considered as one year.[4]


Establishments or employers covered

The clear policy of the Labor Code is to grant service incentive leave pay to workers in all establishments, subject to a few exceptions.[5] Unless specifically excepted, all establishments are required to grant service incentive leave to their employees.[6] 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.[7] The exemptions provided in Section 1 of Rule V are as follows:[8]

  • Those in government and any of its political subdivisions, including government-owned and -controlled corporations.
  • Domestic helpers and persons in the personal service of another.
  • Managerial employees as defined in Book III of the Labor Code.
  • Field personnel and other employees whose performance is unsupervised by the employer including those who are engaged on task or contract basis, purely commission basis, or those who are paid in a fixed amount for performing work irrespective of the time consumed in the performance thereof. 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.[9] 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, which means that 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.[10] In order to conclude whether an employee is a field employee, it is also necessary to ascertain if actual hours of work in the field can be determined with reasonable certainty by the employer. In so doing, an inquiry must be made as to whether or not the employee’s time and performance are constantly supervised by the employer.[11] See Field personnel (Labor).
  • Those who are already enjoying the benefit provided.
  • Those enjoying vacation leave with pay of at least five (5) days.
  • Those employed in establishments regularly employing less than ten (10) employees.


SIL Commutable to cash

SIL is "commutable to its money equivalent if not used or exhausted at the end of the year."[12] The law does not prohibit its commutation.[13] SIL is a curious animal in relation to other benefits granted by the law to every employee. 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.[14]


How computed

Accrual of benefit. The Implementing Rules clearly state that entitlement to "benefit provided under this Rule shall start December 16, 1975, the date the amendatory provision of the [Labor] Code took effect."[15] Hence, entitlement to service incentive leave pay is from 16 December 1975 up to actual reinstatement.[16]

In case of illegal dismissal. It is also "commutable to its money equivalent if not used or exhausted at the end of the year." In other words, an employee who has served for one year is entitled to it. To limit the award to three years is to unduly restrict such right.[17] Since a service incentive leave is clearly demandable after one year of service -- whether continuous or broken -- or its equivalent period, and it is one of the "benefits" which would have accrued if an employee was not otherwise illegally dismissed, it is fair and legal that its computation should be up to the date of reinstatement as provided under Section 279 of the Labor Code.[18]

If not illegal dismissal. While computation for the 13th month pay should properly begin from the first day of employment, the service incentive leave pay should start a year after commencement of service, for it is only then that the employee is entitled to said benefit.[19] On the other hand, the computation for both benefits should only be up to the last day that the employee worked. To extend the period to the date of finality of the NLRC resolution would negate the absence of illegal dismissal, or to be more precise, the want of dismissal in this case. Besides, it would be unfair to require the employer to pay the dismissed employees beyond the last day of work, when they did not render any service. These benefits are given by law on the basis of the service actually rendered by the employee, and in the particular case of the service incentive leave, is granted as a motivation for the employee to stay longer with the employer. There is no cause for granting said incentive to one who has already terminated his relationship with the employer.[20]

Prescription to file money claim based on SIL

Article 291 of the Labor Code states that all money claims arising from employer-employee relationship shall be filed within three (3) years from the time the cause of action accrued; otherwise, they shall be forever barred. See Prescription of money claims (Labor). It is important, therefore, to determine when the cause of action accrues for claims of unpaid SIL.

Given the nature of SIL, as discussed above, it can be deduced that 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.[21] 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.[22]

Award of SIL not limited to 3 years.

It has been argued that since the prescriptive period is 3 years, it necessarily means that any amounts beyond 3 years is barred and may no longer be claimed. The Supreme Court, however, noted that to limit the award to three years is to unduly restrict the right to SIL. This is contrary to the ruling of the SC in Bustamante et al. vs. NLRC et al.[23] lifting the three-year restriction on the amount of backwages and other allowances that may be awarded an illegally dismissed employee.[24]


References

  1. Section 2, Rule V, Book III of the Implementing Rules and Regulations of the Labor Code
  2. JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
  3. JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
  4. Section 3, Rule V, Book III of the Implementing Rules and Regulations of the Labor Code; see also Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  5. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  6. JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
  7. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  8. Section 1, Rule V, Book III of the Implementing Rules and Regulations of the Labor Code
  9. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  10. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  11. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  12. Section 5, Rule V, Book III of the Implementing Rules and Regulations of the Labor Code
  13. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  14. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  15. Section 4, Rule V, Book III of the Implementing Rules and Regulations of the Labor Code
  16. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  17. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  18. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
  19. JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
  20. JPL Marketing Promotions vs. Court of Appeals, et al., G.R. No. 151966, 8 July 2005
  21. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  22. Auto Bus Transport Systems, Inc. vs. Bautista, G.R. No. 156367, 16 May 2005
  23. G.R. No. 111651, 28 November 1996
  24. Fernandez vs. NLRC, G.R. No. 105892, 28 January 1998
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