Terminal Leave Pay: Highest Salary Rule for Retiring Government Officials

The Supreme Court has settled a recurring question for retiring government employees: when computing terminal leave pay, which salary rate should be used? In Belicena v. Secretary of Finance (G.R. No. 143190, October 17, 2001), the Court ruled that the "highest monthly salary" includes compensation received while serving in an acting capacity under a temporary designation, provided the designation was valid under the Administrative Code of 1987.

This decision clarifies the rights of government officials who have served in higher positions temporarily, ensuring they receive full credit for such service when their retirement benefits are computed.

The Facts of the Case

Antonio P. Belicena served as Acting Undersecretary of Finance when President Fidel V. Ramos designated him as Acting Secretary of Finance from May 22 to 25, 1997, while the incumbent Secretary was on official business in Hong Kong. Belicena took his oath and received one day's salary as Acting Secretary.

When Belicena retired in October 1997 after 44 years of service, a dispute arose over the computation of his terminal leave pay. The Department of Finance initially computed his benefits using his Undersecretary salary, resulting in a payment of about P2.07 million. Belicena claimed he should receive P2.52 million based on his higher salary as Acting Secretary—a difference of roughly P418,000.

The Legal Issue

The sole question before the Court was whether Belicena's "highest monthly salary" for terminal leave computation should be the rate corresponding to the position of Secretary of Finance, which he briefly held in an acting capacity.

The Court's Ruling

The Supreme Court reversed the Court of Appeals and ruled in favor of Belicena. The Court held that his designation as Acting Secretary was validly made under the provisions of the Administrative Code of 1987 (Executive Order No. 292) governing temporary designations of officers in the executive branch.

Under these provisions, the President may temporarily designate an officer already in government service to perform the functions of a position when the regularly appointed officer is unable to perform duties due to illness, absence, or any other cause, or when a vacancy exists. The person designated receives the compensation attached to the position, unless already in government service, in which case the additional compensation, together with the existing salary, shall not exceed the salary authorized by law for the position filled.

The Court noted that the President acted on a "well considered opinion" that the Secretary's absence prevented him from performing his duties, justifying the temporary designation.

The "Highest Monthly Salary" Rule

The Court applied the established rule from Paredes v. Acting Chairman (201 Phil. 644 [1982]) that the money value of terminal leave shall be computed based on the retiree's "highest rate received," which refers to the highest monthly salary.

Since Belicena validly received the Secretary's salary during his acting designation, that rate constituted his highest monthly salary for terminal leave purposes. The Court also cited the Commission on Audit's position that officials designated in an acting capacity under the Administrative Code are entitled to salary differentials, which should be included in computing terminal leave pay.

However, the Court excluded COLA (Cost of Living Allowance) and RATA (Representation and Transportation Allowance) from the computation, following its earlier ruling in Borromeo v. Civil Service Commission (199 SCRA 911 [1991]).

Practical Takeaways

• Terminal leave pay is based on the highest monthly salary received during government service, not merely the salary at the time of retirement.
• Valid temporary designations count toward the highest salary computation. If an employee is properly designated to a higher position under the Administrative Code of 1987, the salary for that position may be used as the basis.
• The designation must be valid. The President's authority to make temporary designations arises when the regular officer is unable to perform duties due to illness, absence, or similar causes, or when a vacancy exists.
• COLA and RATA are generally excluded from the computation of terminal leave pay unless a specific law or rule provides otherwise.
• Government employees should document all designations and salary rates throughout their service to ensure accurate computation of retirement benefits.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.