LIFO - What Is The Meaning Of LIFO And Its Importance | HRMantra Hr Software

LIFO - What Is The Meaning Of LIFO And Its Importance | HRMantra Hr Software

 5-6 minutes

Definition of LIFO

LIFO, which is The Last In, First Out method is a way of deciding which employees should be laid-off based on the assumption that who has served the amount of time should be the first ones to be selected out.

However, LIFO-based redundancy selection carries some danger for employers. These can be avoided using LIFO together with criteria of skills or performance.

The key factor, both in the case of using the LIFO solely or with other measures, is that of employee''s length of service.

Employees with the length of time in service take backseats while employees with top scores are attributed the length of time spent.

Table of Content

• LIFO Definition
• Legal Concerns related to LIFO
• LIFO vs FIFO
• LIFO and Gender Discrimination
• LIFO and Cost Reduction Imperatives
• Applying LIFO as a Tiebreaker
• Conclusion
• FAQs

Legal Concerns related to LIFO

There are legal problems with LIFO since the criteria used must be ""reasonable"" and capable of verification to ensure fairness.

It must be pointed out that LIFO can, effectively, indirectly result in age discrimination since length of service usually goes to younger workers.

But that necessarily needs not be so. To substantiate that the age profile in respect of those selected for overt repetitiveness is not noticeably different from the age profile of the workforce, we would need evidence.

Even if a business is unable to meet a requirement, it may be able to defend its case by proving that the LIFO rules amounted to objective justification and that they had a legitimate aim.

LIFO vs FIFO

Another option that is available to LIFO is FIFO, i.e. ""first in, first out"". This method prioritizes people who are longer serving employees over those with the least amount of time.

But, the method has its dangers in application.

By an organization resorting to such a method, it would have a relatively disproportionately higher effect on employees who most probably would have been employed at an earlier date, depending on the age composition of the organization. Age discrimination may be an issue here.

LIFO and Gender Discrimination

Almost similar to younger workers who have shorter service, women do have shorter services due to interruptions in their career. Therefore, aside from the risks of discrimination on age, there might as well be a risk for discrimination on the ground of sex.

LIFO and Cost Reduction Imperatives

Another set of arguments that can be identified is the need for the reduction of cost.

Younger persons may, by virtue of their experience, be able to benefit from remuneration for repetitive work, in which case some cost reduction can accrue to the employer.

It should be clear that in this case cost considerations alone cannot justify the discrimination. There have to be a number of factors to consider when a work practice is to be introduced with the intent of cost reduction.

Supervisors should document their cycles.

More to that, despite potential cost savings associated with LIFO, there are also tax savings for hiring employees. Young employees are usually paid wages. Provide more value for their cost.

This can also be used as a means of breaking a tie in cases of equal seniority, and the courts may be more disposed to view the use of LIFO in this light because as a discriminatory measure, it is proportionate when used in this manner only.

Note: Though last in first out appears to be straightforward but it''s an unwise (and senseless) selection of employees under reverse sense of redundancy.

Final Thoughts

LIFO is such a thing, which affects more to the younger generation than the experienced one. So, it''s entirely the responsibility of CEO to take care that it doesn''t have any impact on work of the younger''s in any case.

LIFO, if applied alone as the picking method, not only can this be a rough move in that valuable skills are lost in organizations but also lead to age discrimination lawsuits. The discrimination risks linked to LIFO can be reduced when it is combined with measures, however this is a disadvantage to it because it alienates its nature of simplicity. Redundancy practices are experienced when an organization is doing badly and it has to become shaped so as it can get over the issues.

To make sure that its workforce does not lack behind the skills and competencies needed to deal with any challenge, it is firstly important to retain the talents instead of losing them all to LIFO.

LIFO should be thought over a thousand times before making the move of removal of the employees.

FAQ''s

What are some of the benefits and weaknesses of LIFO?

LIFO helps companies operating in an environment to fairly present the cost. But, at times, it gives a drawback to the accounting process. If the company adopts the method of LIFO, the inventory will be valued at prices.

Is LIFO used in India?

LIFO is not an acceptable method for tax considerations in India, depending on other bases which may lead to a difference between the accounting records and tax return amounts.

Why is LIFO preferable over FIFO?

Accounting stock investments, in general, follow the FIFO method when prices are increasing. On the other hand, LIFO accounting is more suitable when prices are in a downward trend because it involves selling the expensive items first.

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