What is LIFO (last in, first out)?

The Last In, First Out (LIFO) method of redundancy selection involves selecting employees for termination based on their length of service, with those who have been with the company for the shortest period of time being selected first.

This method can disadvantage younger employees and may lead to accusations of age discrimination. To mitigate this risk, companies can use other methods of redundancy selection in conjunction with LIFO.

The use of LIFO has decreased significantly since the implementation of laws against age discrimination in the workplace through the Employee Equality (Age) Regulations in 2006.

What are the main advantages of the LIFO method?

The main advantages of the LIFO method of redundancy selection include:

  1. Objectivity: LIFO is a straightforward and objective method of selecting employees for redundancy, as it is based solely on length of service.
  2. Fairness: LIFO can be seen as fair, as it treats all employees who have been with the company for the same period of time equally, regardless of their job performance or other factors.
  3. Predictability: LIFO is predictable, as it is easy for employees to understand how long they have been with the company and what their chances of being selected for redundancy are.
  4. Simplicity: LIFO is easy to implement and administer, as it does not require managers to make complex judgments about employees’ performance or qualifications.
  5. Cost-effective: LIFO can be less expensive than other methods, as it does not require extensive evaluations or assessments of employees.

It is worth noting that these advantages are highly debated and there are also criticisms for this method, for example, it can lead to discrimination based on seniority rather than performance.

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What are the disadvantages of the LIFO method?

The disadvantages of the LIFO (Last-In, First-Out) method include:

  1. It can lead to higher costs for companies, as they may have to purchase new inventory to replace items that have been sold, even if those items were purchased at a higher cost.
  2. It can also lead to inventory shrinkage, as items that have been sitting in inventory for a long time may become obsolete or damaged.
  3. LIFO method may not provide an accurate picture of a company’s current inventory value, as it values the most recent purchases at the highest cost.
  4. LIFO can also create tax disadvantages, as companies may have to pay higher taxes on their income if they are using LIFO to value their inventory.
  5. It may not be suitable for all companies and industries, as it may not be the best method to reflect the true cost of goods sold.