Small business owners are no strangers to juggling multiple roles. Without an HR department to rely on, you are the HR department—responsible for hiring, managing and firing employees when necessary. It’s a skill they don’t teach in university but learning it is crucial to protect both your business and your reputation.

Letting someone go is hard- but doing it the right way makes the process smoother for both you and the employee. Here’s how to terminate an employee and handle it professionally, legally, and with confidence.

Step 1: Know Your Legal Obligations

Before anything else, check your legal responsibilities. In Australia, the Fair Work Act 2009 outlines the rules for termination, including:

  • Minimum notice periods
  • Final pay requirements (including unused leave payouts)
  • Unfair dismissal protections

If the employee has been with you for less than six months (or 12 months for a small business with fewer than 15 employees), they generally can’t claim unfair dismissal.

However, that doesn’t mean you can fire someone on a whim—there still needs to be a valid reason and a fair process.

If you’re unsure, Fair Work Ombudsman resources or an HR consultant can help you stay compliant.

Step 2: Document Performance Issues Early

Throughout the termination process, you need to keep good records. If an employee isn’t meeting expectations, start documenting:

  • Performance issues (missed deadlines, errors, behavioural concerns)
  • Any verbal or written warnings in line with your poor performance policy
  • Ongoing training efforts to help them improve
  • Clarification of the job description and role requirements

Having clear documentation ensures you’re acting fairly and reduces legal risks.

Step 3: Have a Clear and Fair Process

Firing someone should never come as a complete shock. If performance is the issue, they should have received feedback and an opportunity to improve. A simple performance improvement plan (PIP) with clear expectations and deadlines can help. If no improvement happens, you have a stronger case for dismissal.

Step 4: Plan the Conversation

When it’s time to let someone go, be prepared. Choose a private setting and a time that allows for follow-ups. This could be as part of regular check-ins or performance reviews.

Example script:
“We’ve reviewed your performance, and unfortunately, it hasn’t met the requirements of the role. We’ve decided to end your employment, effective [date]. We appreciate your contributions and want to support you in your transition.”

Keep it short—over-explaining can lead to confusion or debate.

Step 5: Provide the Next Steps

Your employee will want to know:

  • Their final pay and notice period
  • When they need to return company property (key cards, technology)
  • If you can offer them a positive reference in the future

Having these details ready makes the transition smoother.

Step 6: Manage the Exit Professionally

If they’re leaving immediately, allow them to collect their things privately. If they’re working a notice period, set clear expectations about their responsibilities.

When you’re a small business owner, you don’t have the luxury of an HR department. But by following a structured process, you can handle terminations legally, professionally, and with integrity.

Still not sure about how to terminate an employee? Need help with HR policies before you reach this point? Consider setting up basic contracts, performance review processes, and policies early to make it easier. 

For more information, check out our video below!

Please note: This video and article provide general guidance only and does not constitute legal advice. For legal or HR compliance matters, always consult a qualified professional.