Problem employees can sap the enthusiasm out of even the most energetic small business owner.
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However, not dealing with them can have catastrophic consequences on employee morale and your business' bottom line. Ultimately, you have no choice but to deal with employee problems head on.
Employee problems occur because of either bad attitudes or lack of skills. If the employee's problem is lack of skills, then your choices are fairly straightforward. You can choose to offer them additional training, re-assign them to a job they are more capable of performing, or terminate their relationship with your company.
In most cases you will be able to work with the employee to find a solution that doesn't result in the loss of a job.
Bad attitude employee problems are more difficult to address. These kinds of problems manifest themselves in any number of ways including insubordination, habitual tardiness, laziness, and chronic negativity.
Your first step in dealing with these kinds of employees is a discussion with them about the problem and its root causes. This discussion should take place in private, far beyond the earshot of your other employees. Some employers even find it helpful to have these discussions at a location outside the office such as a restaurant or coffee shop.
Kindly explain the problem to the employee and invite him to offer his own assessment of the situation. Through the course of your conversation, you may learn something that sheds light on the root cause of the problem. For example, you may discover that an employee's habitual tardiness can be attributed to the fact that they are caring for a parent with Alzheimer's. Together, you might be able to find a mutually acceptable solution to the problem.
If you aren't able to make progress through conversation, your next step will be to identify your expectations for the employee and the consequences if those expectations are not met. In extreme cases, some employers even find it helpful to put these expectations and consequences in a document that is signed by the employee.
A word of warning: Bluffing is not an effective way to handle problem employees. Avoid threatening the employee with consequences that you don't intend to enforce. If the employee fails to meet your expectations, you have no choice but to follow through with the consequences, even if it results in terminating the employee.
The operative word in dealing with all employee problems is document, document, document. It is absolutely critical to document the problem as well as the steps you have taken to address the problem with the employee.
Tape recording your conversations with a problem employee is probably a little over the top, but it isn't unreasonable to write a synopsis of each conversation, detailing what was discussed and the steps the employee agreed to take to correct the problem. Likewise, employee performance reviews should reflect the employee's progress (or lack thereof).
Before firing an employee, it's always a good idea to talk to your attorney. A well-documented history will make it easier for him/her to assess the situation and give you the proper legal advice.