FIFO

In accounting, first in first out assumes that the earliest stock acquired is the earliest consumed, so the cost of goods sold reflects older costs and the closing inventory reflects recent ones. The alternatives are last in first out and weighted average, and the choice affects reported profit when prices are moving.

This is a finance term. It appears in HR glossaries because payroll teams work alongside finance and encounter it in cost reporting, not because it governs anything in employment. Where an HR system uses the phrase, it is borrowing the ordering principle rather than the accounting method, and the borrowed sense is what the rest of this entry covers.

An employee with leave carried forward from last year and leave accrued this year has two pools. Which one a leave application draws from decides how much lapses at the end of the year, and whether an encashment is computed on a balance that still exists.

None of these is inherently correct, and the choice interacts with carry-forward limits, lapse rules and encashment terms. What matters is that the rule is written in the leave policy in the same words the system applies. Where the policy is silent and the system consumes newest first, employees lose leave they believed they had, and they find out in the last week of the year.

Verify the leave entitlement, carry-forward and encashment position against the applicable state shops and establishments legislation and, where it applies, the leave provisions of the Occupational Safety, Health and Working Conditions Code, 2020, since the statutory floor sits underneath whatever ordering rule the policy adopts.

• Arrears. A revision effective from an earlier month can be paid as a single arrear in the current month or applied to each original month. The choice changes the period the amount is attributed to, which affects contribution computations and the tax year it falls in, and it should be a deliberate decision rather than a system default.
• Recovery of an overpayment. Where an excess payment is being recovered, applying it to the oldest overpayment first keeps the recovery schedule intelligible. Deductions are confined to permitted categories and to prescribed limits on the proportion of wages, so the schedule has to respect those limits regardless of the ordering.
• Loans and advances. Where several advances are outstanding, the order of repayment should be stated in the sanction letter, since interest and closure dates follow from it.
• Reimbursement claims against an annual limit. Claims consumed in date order against a capped entitlement is the intuitive rule, and the alternative, in which a late high-value claim exhausts a limit ahead of an earlier one, causes disputes.

A recovery schedule has to sit inside the permitted categories of deduction and the limit on total deductions as a proportion of wages, both of which come from the Code on Wages, 2019 and should be read there first.

This is the one place where an ordering rule is imposed rather than adopted. Where workers in a particular category are retrenched, the ordinary rule is last in first out: the worker most recently employed in that category is the first to go, unless the employer records reasons for departing from it.

• The rule applies within a category of workers in an establishment, so the categorisation itself matters and cannot be drawn to produce a desired outcome.
• Departing from the order is possible but requires recorded reasons, and the record is made at the time rather than constructed afterwards.
• A seniority list is the document the whole exercise depends on, and it needs to exist before the decision rather than be assembled during it.
• Re-employment obligations may arise, giving retrenched workers preference if the employer hires again for the same category.
• Notice, compensation and, above prescribed thresholds, prior permission requirements apply separately and are not affected by the order chosen.

All of this comes from the Industrial Relations Code, 2020, and no retrenchment should be planned before it has been read there: the last in first out rule, the category definition, the recorded reasons requirement, the re-employment preference, and the compensation and permission thresholds.