Small Business Owners: How to Terminate an Employee

small business

Termination of employment or “firing” an employee can be one of the trickiest parts of being a small business owner. While rarely pleasant, it is an integral component of maintaining a cohesive staff and ensuring smooth and productive operations. Understanding your rights, your employee’s rights, and the ramifications of a termination is extremely important to avoiding future legal problems.


  • Have an employee handbook and have each employee sign to prove that he received it. Include pertinent information such as absences, tardies, job performance, evaluations, phone use, and anything else that you can identify as a potential employee issue. For ideas and formats, do an Internet search for employee handbook templates specific to your industry.
  • Explain your expectations clearly during the final interview. Make sure potential employees know exactly what they need to do to succeed in your company and what will be grounds for termination.

New Hire

  • Establish a 90-day trial employment period. Let the employee know that his performance will be evaluated at the end of the 90 days and that employment will either be made permanent or terminated at that time.
  • Observe the employee daily in various work situations. Carefully document any issues that occur, especially absences, tardies, and disgruntled customers.


  • Type up a formal termination letter. Cite specific reasons for the termination, being as specific and objective as possible. Factual statements such as “did not complete Assignment A as scheduled” or “received multiple client complaints regarding poor customer service” is much more credible than “does not get along with other employees.” Remember, this letter may come into play again if an employee decides to claim unemployment benefits (which employers are financially responsible for) or pursues legal action against you. Employers are generally asked by state unemployment agencies to explain why an employee was terminated, and documentable facts showing that termination was due to employee misconduct or refusal to perform work can lead to denial of benefits for the employee.
  • Don’t take the terminated employee’s words or actions personally. Being let go is extremely upsetting for anyone, and there can be tears, rage, or a combination of both. Remain calm and professional and document any behavior that is extreme or threatening. Tell the employee that all of the information is in his termination letter and that you are unable to discuss the matter further. Listen compassionately for a few minutes, but let the employee know within a reasonable amount of time that the conversation is finished.

Post Termination

  • Keep past employment records easily available for employment references and unemployment claims. Be mindful that although an employee did not work out well in your company, he or she may flourish in a different environment. Be as factual as possible in job references.

Careful and detailed attention to both the hiring and termination process can save many headaches and unnecessary financial obligations for the small business owner. Professionalism, documentation, and preparation are the keys to successfully developing the right staff for your company.

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