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Updated Oct 31, 2023

6 Signs It’s Time to Terminate an Employee

Firing an employee is never easy, but here's the best way to go about it.

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Jamie Johnson, Senior Analyst & Expert on Business Operations
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Firing someone is never easy. Even when you know they’ve got to go, there’s always a chance the episode may turn sour. An ideal termination is like a no-fault divorce: Both parties simply agree things are over and walk away. 

However, as with a divorce, there may be times when breaking it off with an employee isn’t a straightforward, clean departure. It’s crucial to handle an employee termination with great care to ensure your business maintains a strong reputation within the community and to protect your organization from possible legal action stemming from wrongful termination accusations.

We’ll share six indications that it’s time to let an employee go and explain how to terminate an employee ethically, legally and thoughtfully.

TipBottom line
Hire a business lawyer to ensure you're not violating employment contracts or state laws that protect employees from illegal termination. For example, you must ensure that layoffs don't target a specific race or gender.

Signs it’s time to fire an employee

So how do you know if you should give your employee another chance or if it’s best to cut ties with that person altogether? Here are six signs that it may be time to terminate an employee. 

1. Productivity is down in the organization.

A productive business is a successful business. If your business productivity is down, it may not be because an employee is slacking. However, reduced productivity is still a strong sign that something is wrong. 

If a certain employee is constantly struggling more than others or frequently misses their deadlines, it may be a sign that they aren’t up to the job. Most companies allow for warnings and reminders in situations like this. However, if you’ve given an employee numerous chances and enacted a performance improvement plan that hasn’t panned out, it may be time to let that person go.

2. The employee is the central figure in office drama.

Some people thrive on office gossip, drama and pot stirring. This behavior creates a hostile and challenging work environment, leading to insubordination and a lack of trust. Over time, after constantly being pitted against one another, employees may have difficulty working together. 

Unfortunately, some employees enjoy starting rumors, bad-mouthing management and finding ways to cause trouble. These people are toxic to your organization and are unlikely to change, regardless of how many warnings you give them. 

Did You Know?Did you know
There are several types of toxic employees, including "bulldozers," passive-aggressive team members and complainers.

3. The employee is static and unwilling to grow.

If employees aren’t willing to train, pursue professional development or improve themselves to keep up with others, they’ll be left behind. Employees who can’t keep up will drag you down.  

If they don’t want to fix their mistakes or work to improve issues stopping them from being valuable team members, then let them go. Sometimes, people do not have the business skills needed to push your organization ahead, which means they’re holding you back.

4. Customers, vendors or co-workers are complaining.

You can’t afford to keep someone around who is creating issues for your customers and vendors. According to Dixa, 39 percent of consumers won’t frequent a business after just one bad experience, and 95 percent will share their negative experience with others. 

Most people won’t come directly to management to address a bad experience. If you hear about it, you’ve likely already lost business. You can’t let a problematic employee affect your bottom line. 

5. The employee is violating company policy.

Sometimes, employees unintentionally break the rules. However, if they’re consistently breaking rules even after being reprimanded, they just may not care. In some cases, you can institute a three-strikes policy. Other times, a single violation is enough to indicate the employee has to go. 

When it comes to criminal violations and safety offenses, no employee should be surprised that they’re getting fired. However, every employee should be well aware of your business’s policies and the penalties for breaking them. Examples of critical policy violations include weapons in the office, theft and substance abuse. 

FYIDid you know
Your disciplinary action policy should outline the steps to address misbehaviors and the disciplinary forms that will ensue.

6. The employee is frequently late or absent.

Occasional tardiness happens to everyone. However, when tardiness and workplace absenteeism happen repeatedly, you have a right to take action. While you should have a time-off policy, every absence costs you money, which hurts your business.

How to terminate an employee

Here are five steps you can take to terminate an employee. 

1. Document issues and warnings.

Before terminating an employee, you’ve likely given them ample opportunities to improve and stay with the company. It’s essential to document any issues that have arisen and how you handled them.

Every time there’s an incident, write down the date, what happened and any warnings you gave the employee. Written documentation proves you made every effort to work with the employee before firing them.  

TipBottom line
Whenever you fire or lay off an employee, you should provide them with an official termination letter that includes all documentation, payment information and next steps.

2. Decide on the terminated employee’s last day.

Once you’ve made the decision to terminate an employee, you must determine when their last day will be. The best time is usually toward the end of the day on Friday because it will be the least disruptive for them and your other employees. It also gives the person the weekend to process what happened and make plans for moving forward. 

3. Conduct a private exit interview.

Ensure you conduct the exit interview in a private location to prevent interruptions by other employees. Firing an employee is a sensitive matter, so you want to give that person the privacy and respect they deserve.  

4. Explain why you’re terminating the employee.

Bring a checklist to your exit interview to stay focused and on-topic during the meeting. Explain why you’re terminating the person, and give specific examples to support your reasoning. You should also let them know what will happen to their healthcare, 401(k) plan and any other employee benefits the company provides. 

FYIDid you know
Although you'll terminate many employee benefits immediately after firing someone, some employees, such as those being laid off, are eligible for a severance package, COBRA insurance and unemployment insurance.

5. Let the terminated employee ask questions.

Let the person you’re terminating ask questions, and answer them as honestly as possible. Everyone reacts to a termination differently, so let the person process the news how they need to. However, it’s best to avoid arguing or getting defensive. 

Justin Walker contributed to this article. 

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Jamie Johnson, Senior Analyst & Expert on Business Operations
Jamie Johnson has spent more than five years providing invaluable financial guidance to business owners, leading them through the financial intricacies of entrepreneurship. From offering investment lessons to recommending funding options, business loans and insurance, Johnson distills complex financial matters into easily understandable and actionable advice, empowering entrepreneurs to make informed decisions for their companies. As a business owner herself, she continually tests and refines her business strategies and services. Johnson's expertise is evident in her contributions to various finance publications, including Rocket Mortgage, InvestorPlace, Insurify and Credit Karma. Moreover, she has showcased her command of other B2B topics, ranging from sales and payroll to marketing and social media, with insights featured in esteemed outlets such as the U.S. Chamber of Commerce, CNN, USA Today, U.S. News & World Report and Business Insider.
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