How to Manage an Underperforming Employee in Australia

Managing an underperforming employee in Australia means having a clear, documented process that gives the person a genuine chance to improve. Most small businesses either avoid the conversation too long or jump straight to termination without following the right steps. Both create problems. Here is how to do it properly.

Performance issues are the most common reason small business owners pick up the phone to us. And almost every time, the same thing has happened: the problem has been going on for months, nothing has been documented, and now the business owner wants to end the employment.

By that point, the options are limited. Not impossible, but harder and riskier than they needed to be.

The good news is that a clear process, followed consistently, protects both the employee and the business. Here is what that process looks like.

What does Fair Work expect?

Under the Fair Work Act 2009 (Cth), employees who have completed the minimum employment period (one year for small businesses with fewer than 15 employees, six months for others) have unfair dismissal protections. To dismiss someone for poor performance without it becoming an unfair dismissal claim, you need to show:

• The employee was clearly told what was expected of them
• They were given a genuine opportunity to improve
• There was a fair process, including the opportunity to respond
• The decision to dismiss was reasonable given the circumstances

(Fair Work Ombudsman — Unfair Dismissal)

The process, step by step

1. Have the initial conversation early. The moment you notice a performance problem, address it. A direct, private conversation that names the issue, explains the impact, and sets clear expectations. Document it. This is not a formal warning, it is a coaching conversation. But it needs to happen and it needs to be noted.
2. Set clear, measurable expectations. Vague feedback does not help anyone. “Your work is not good enough” is not an expectation. “Client reports are due by Friday at 5pm and must include the four sections we discussed” is. Be specific about what good looks like.
3. Put it in writing. After the initial conversation, send a follow-up email summarising what was discussed, what is expected, and the timeframe. This creates a record and ensures there is no ambiguity about what was agreed.
4. Implement a Performance Improvement Plan if needed. For ongoing or serious performance issues, a formal Performance Improvement Plan (PIP) sets out the specific areas for improvement, the support you will provide, measurable targets, and a review timeframe, typically 30 to 90 days.
5. Review and respond to progress. Meet regularly during the review period. Document what is improving and what is not. Give genuine feedback and provide the support you committed to. A PIP is not just a paper trail for dismissal. It is a real attempt to fix the problem.
6. Make a decision. At the end of the review period, you have the information to make a decision. Has performance improved? Is it sustainable? If not, you now have a documented process that shows you followed a fair procedure.

The mistakes most small businesses make

• Waiting too long to address the issue and then acting suddenly
• Having conversations but not documenting them
• Setting expectations that are vague or inconsistent
• Skipping the PIP and going straight to dismissal
• Not giving the employee a fair chance to respond before making a decision

“The businesses that end up in front of the Fair Work Commission are rarely the ones that did the wrong thing deliberately. They are usually the ones who did not follow a process at all.”

What about small businesses with fewer than 15 employees?

Small businesses with fewer than 15 employees have access to a simplified unfair dismissal process under the Small Business Fair Dismissal Code. This does not mean the process is less important. It means the code provides a specific framework you should follow. (Fair Work Ombudsman — Small Business Fair Dismissal Code)

When should I get HR support?

As soon as you identify a performance issue you are not sure how to handle. The earlier you get advice, the more options you have. Jigsaw HR works with businesses across Australia and New Zealand on exactly these situations. We can help you structure the conversation, draft the documentation, and guide you through the process from start to finish.