When times are hard, you can’t afford to be soft. If an underperforming employee is dragging down your business, now’s the time to take action. 

Unfortunately, many small employers have a tough time letting people go, even at the expense of their business.  But to keep your business healthy, you have two choices: either get underperformers up to speed, or terminate them.

Luckily, both processes start at the same place.

There is a right way and a wrong way to let people go. Do it the right way, and you give workers a chance to turn things around, while protecting your business. Do it the wrong way, and you set yourself up for a potential wrongful termination lawsuit. 

A Must: Communication and Documentation

Managing performance is a process. It involves clear, multi-step communication and detailed documentation.

Many entrepreneurs cultivate a “family” feel to their business, which can inspire employee loyalty and effort. But it also makes it difficult to critique sub-par performance.

No matter how small or informal your company is, it’s only fair to let workers know what’s expected. That’s why employee handbooks, job descriptions, and performance reviews are such useful tools. Yet many small employers shy away from using them—something I encourage you to reconsider.  

In the meantime, if you have a problem employee, you must sit him down and tell him what he’s doing wrong. Plan this carefully and objectively; be factual and specific.

Frame your expectations in terms of quantifiable goals. For example, rather than tell an employee he’s “taking too long” to complete reports, specify they need to be turned around within X days. Now the employee has something to shoot for and you have something to measure. Be sure to schedule a follow-up evaluation.

Important: make sure the employee knows he’s being warned.  Document your expectations; have the employee sign your document. Now you have proof that you provided advance notice, which may protect you against potential legal action.

Making the Cut

If an employee does not improve performance during the probationary period, you have no choice but to terminate him. Get that in writing, too, in the form of a signed severance agreement.

How do you get an employee to sign the agreement? Offer a severance package. You agree to pay the employee X dollars over X amount of time; he agrees not to pursue accusations of wrongful termination. (For a sample severance agreement, call me at 800-818-0150 or email Ray@ProPres.com.)

How much do you offer? Whatever seems fair and reasonable, and whatever you feel good about offering.

Once the employee signs the agreement, he has fixed number of days in which to recant. Withhold payment until after this period. Spread the payments out over time, and it will discourage your ex-employee from a future change of heart.

The point is to make the termination as painless as possible for both of you. Letting an employee go is never easy, but sometimes it is the right thing to do—provided you do it the right way. 

Biography

Ray Silverstein, a recognized small business expert, is president of PRO (www.propres.com), a nationwide network of small business peer groups. Ray is also the author of “The Best Secrets of Great Small Businesses” (www.bestsmallbizsecrets.com).