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Frequently Asked Questions (FAQs) on Leave Monetization

What is a Monetized Leave?

The monetization of leave credits is a process where admins convert employees' unused leave credits into monetized leaves. Payroll admins covert unused leaves during the following times:

  • Start/Middle/End of the Year - Unused leaves from the previous year get monetized the following year. Payout dates depend on the company’s policies.
  • Resigned and Paid via Final Pay - Unused leaves can also be monetized once an employee resigns.

What Type of Leaves can be Monetized?

Leaves such as Vacation Leaves, Sick Leaves, Emergency Leaves, and other leaves can be converted as long as it is written in the company’s policies. It's important to note that the monetization of leaves is generally subject to the company's internal policies, and the specific terms and conditions can vary from one organization to another.

Are Leaves Taxable or Nontaxable?

Standard Policy (Based on BIR Revenue Regulations No. 5-2011)

The non-taxable treatment of monetized leave credits, as limited to vacation leaves, is provided under Revenue Regulations No. 5-2011 in the Philippines. This regulation clarifies that only monetized vacation leave credits, up to 10 days in a year, are exempt from income tax, whereas other types of monetized leave are generally subject to taxation.

  • First 10 VL = non-taxable
  • The rest = taxable

Flexible Policy

However, many companies opt for a more flexible approach. Instead, they apply the non-taxable rule to all types of unused leaves. This means that, regardless of the type of leave, the company designates the first 10 unused leave days as non-taxable.

What Basic Pay Rate is used to Convert Leaves?

Based on the DOLE Handbook on Workers Statutory Benefits, the basic pay rate used should be the current daily rate.

  • Taxable: Current Daily Rate x Number of Taxable Leaves = Taxable Monetized Leaves
  • Non-Taxable: Current Daily Rate x Number of Non-Taxable Leaves = Non-Taxable Monetized Leaves

What is the Taxation Setup of the Uploaded One-Time Adjustments?

If the monetized leave is taxable, then:

  • Applied Before Tax - Yes
  • Taxable - Yes

If the monetized leave is non-taxable, then:

  • Applied Before Tax - No
  • Taxable - No

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