Firing an employee is never easy. Even so it is something you are going to have to do sooner or later if you are going to be a small business owner.
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When you terminate an employee, your goal should extend far beyond asking them to clean out their desk and collecting their key to the front door. Ideally, your goal should be to preserve the employee's dignity - and yours.
Ironically, the foundation for terminating an employee begins when you hire them. All incoming employees should receive a comprehensive employee handbook that clearly articulates your expectations and the grounds for which an employee can be terminated.
These expectations should be reinforced through periodic performance reviews so that the employee's termination does not come as a complete surprise. Incidentally, these reviews may also be useful in defending your business against wrongful termination litigation.
Laws governing the grounds for termination vary by state. Therefore, it may not be a bad idea to consult your attorney prior to initiating termination procedures. That may seem like overkill, but once the process begins emotions are unleashed that make it impossible for you to "undo" a mistake.
Also, be aware that a terminated employee may be able to collect unemployment benefits for a specified period of time after their relationship with your business has ended. This may cause you to incur out-of-pocket expenses in the form of increased unemployment insurance withholdings. For that reason (and many others), the hope of a quick financial windfall is never a good reason to fire an employee.
Firing an employee will have an unavoidable impact on your company. In the short-term, the greatest impact will be felt by your remaining employees. On a practical level, they will need to pick up the terminated employee's workload, at least until a replacement can be found to fill the vacancy.
But more than that, a firing tends to create a sense of anxiety in the workplace, even if the terminated employee was unpopular with his/her coworkers. Your employees will look to you to set the tone and lead them through the transition. You can ease their anxieties by affirming their performance and reinforcing their job security.
In the best case scenario, the terminated employee will understand why they were terminated and continue to maintain positive feeling toward your company in the future. You can encourage this by calmly articulating the reasons for their dismissal and suggesting a course of action for them as they look for a new job. At the very least you will maintain their respect and, hopefully, their business as a customer.
After the employee has been terminated, you may be contacted by another employer to provide a reference. When giving a reference, you walk a very fine line. On the one hand, you want to give a truthful assessment of the employee's service with your company. On the other hand, you want to avoid any statements that may make you liable and subject to litigation. Best advice: Talk to your lawyer to determine how much information you can safely provide.