LIFO Definition
LIFO, The Last In, First Out method, is a way of selecting employees for redundancy based on the assumption that those who have served the amount of time should be selected first.
However, relying on LIFO as the sole criterion, for redundancy selection can pose risks for employers. These risks can be mitigated by using LIFO in conjunction with criteria such as skills or performance.
Whether used alone or in combination with measures the key factor for LIFO is an employee’s length of service.
Employees with the amount of service time are selected for redundancy or assigned the highest score, while those who have been with the company longer are selected last.
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Legal Concerns associated with LIFO
Legal concerns may arise when using LIFO as a selection method. To ensure fairness the criteria used should be “reasonable” and capable of verification.
It’s important to note that LIFO may indirectly lead to age discrimination since younger workers typically have length of service.
However, it may not always be the case. We would need evidence to demonstrate that the age profile of those selected for overt repetitiveness is not significantly different from the age profile of individuals in the workforce.
If a business is unable to meet requirements, it may still be able to defend its position by demonstrating that the LIFO rules were objectively valid and served a purpose.
LIFO vs FIFO
An alternative to LIFO is FIFO, which stands for “first in, first out.” This approach prioritizes individuals with tenure over those with the shortest. However, implementing FIFO comes with its risks.
Depending on the age demographics within a business, using the method may disproportionately impact workers who are more likely to have joined the company earlier.
This could potentially lead to age discrimination concerns.
LIFO and Gender Discrimination
Just as younger employees tend to have tenure women often have tenures due to career breaks. Consequently, apart from age discrimination risks there can also be cases of gender discrimination.
LIFO and Cost Reduction Imperatives
Another argument that can be made is the necessity of cost reduction.
Younger individuals, due to their experience, may be eligible for compensation for repetitive work which can result in cost savings for employers.
However, it is important to note that cost considerations alone cannot justify discrimination. Employers must consider factors when deciding to implement a work practice with the aim of minimizing costs.
Bosses need to keep a record of their cycles.
Moreover, while the cost savings associated with LIFO can be beneficial there are also tax savings when employing workers. Younger workers are generally paid wages. Provide more value for their cost.
Using LIFO as a Tiebreaker
In cases of a tie, Last In, First Out can be used as a way to break it. The courts are more likely to view the use of LIFO in this manner because as a discriminatory measure it is more proportional when applied solely for this purpose.
Note: While last in first out may seem straightforward it is an imprudent (and senseless) approach to selecting employees based on redundancy.
Final Thoughts
LIFO is something that affects the younger generation more than experienced ones. Therefore, it is solely the duty of CEO to make sure it won’t affect younger’s work in any case.
LIFO, if used exclusively as the selection method, such a blunt tactic cannot result in businesses losing valuable skills but also lead to age discrimination claims.
The risks of discrimination associated with LIFO can be mitigated by integrating it alongside measures though this compromises its advantage of simplicity.
Redundancy practices occur when an organization is in trouble and needs to restructure itself to overcome challenges.
To ensure that its workforce is equipped with the skills and capabilities to tackle challenges it is essential to prioritize retaining valuable talents rather than losing them due to LIFO practices.
Employers should carefully consider before implementing a Last In, First Out (LIFO) approach, for making redundancy decisions.
Frequently Asked Questions;
What are the advantages and disadvantages of using LIFO?
Answer: The LIFO strategy allows companies operating in an environment to accurately represent costs. However, this accounting method comes with a drawback. When a company follows the LIFO approach the ending inventory is valued at prices.
Is LIFO used in India?
Answer: LIFO is not considered for tax purposes in India, which can lead to discrepancies between accounting records and tax returns.
Why is LIFO better than FIFO?
Answer: When it comes to accounting stock investments FIFO is generally a method, during periods of rising prices. On the hand LIFO accounting is more suitable when prices fall because it involves selling the expensive items first.