How To Terminate an Employee

It is never easy to talk about termination of employment. Whether an employee is being fired, laid off, or resigning, the conversation is often sensitive and emotional. When handled poorly, these conversations may undermine employee morale and leave you vulnerable to litigation.

But that doesn't have to be the case. With proper planning, a successful termination can follow best practices, which can help you comply with applicable legal requirements and treat employees with kindness and respect. Here's what you may want to consider when navigating these sensitive situations.

What Is Termination of Employment?

The termination of employment means that the employee's work with a company has ended. This may happen for several reasons including but not limited to layoffs, redundancies, leaving voluntarily, or getting fired for performance issues or policy violations. Each of these circumstances may require a different approach and can present different options to the departing employee. For example, an employee who has been laid off may qualify for unemployment insurance, while someone who quit voluntarily or was fired for cause may not.

Types of Termination of Employment

Terminating employment can occur in various ways, generally falling into two main categories: voluntary and involuntary. Each is defined by who initiates the separation and the circumstances surrounding it.

Voluntary Termination

An employee deciding to leave a company on their own typically constitutes voluntary termination of employment. Voluntary termination is a type of expected turnover that may happen because the employee accepted a job offer elsewhere, retired, changed careers, or chose to leave for other reasons. The key is that it was not the company's decision.

Involuntary Termination

Involuntary termination typically means that an employer has initiated the end of the employee's time with the company. It may be due to misconduct, poor job performance, or business circumstances unrelated to the employee — such as tighter budgets that require layoffs.

Layoffs vs. Termination: Is There a Difference?

A layoff is a type of involuntary termination. Layoffs usually happen for internal company reasons, such as a budget cut or a department closure and may be subject to additional notice requirements. It is not the same as being fired or terminated for cause.

Reasons for Firing an Employee

Reasons for termination can range from unfavorable economic conditions to violations of company policy. To help ensure compliance, employers should understand the differences among the various types of termination and the applicable legal requirements.

Performance-Related Terminations

Poor job performance can be grounds for termination. For example, if an employee can't meet the job expectations or consistently demonstrates poor work quality, the business won't be able to function at peak productivity, and a decision may be made to fire the employee.

Misconduct and Policy Violations

Misconduct and policy violations such as chronic tardiness, harassment, insubordination, theft or other criminal activity, or contract violations are often considered grounds for disciplinary action up to and including termination of employment. Employers should document instances of the behavior and disciplinary action taken to be referenced should they need to defend themselves in litigation or to use during an unemployment hearing.

Types of Wrongful Discharge and Termination Policies

Termination is an uncomfortable process for everyone involved, and sometimes, a disgruntled employee may attempt to sue the company for wrongful discharge or discrimination. To help prevent this, consider clearly stating your company policies in the employee handbook and implementing those policies consistently. Take note of any specific clauses in employment contracts or collective bargaining agreements (CBAs) that may impact termination requirements.

Wrongful Termination

Terminating an employee unlawfully may result in claims of wrongful termination. Under federal and state law, employees may not be fired for:

• Reporting unsafe or illegal practices
• Reporting sexual harassment or other HR violations
• Taking protected leave

Employees may also file claims for discrimination if they believe they were hired for reasons based on their membership in a protected class, for example their age, race or religion.

Careful documentation of your reasons for termination and activities leading up to that decision can help you avoid or respond to claims of wrongful termination or discrimination. Employment practices liability insurance (EPLI) can also help offset financial liability related to costly claims.

Employment at Will

In every state except Montana, the employer/employee relationship is considered "at-will employment" unless the employee has signed an employment contract or the employment relationship is subject to a collective bargaining agreement. At-will employment means that either party has the right to end the employment relationship at any time. However, there are important exceptions: an employee may not be terminated for legally protected reasons, such as exercising a right, reporting unlawful activity, a discriminatory reason, or where a contract of employment exists.

Notice of Termination

Under at-will employment, employers are usually not required to give prior notice of termination. However, the federal WARN Act and similar state laws may require employees to be notified in advance in the event of a mass layoff or factory closure as defined under the applicable law. Some employee contracts and CBAs may include, among other protections, a clause stating a notification period before termination.

Severance Pay

Severance pay isn't required by federal law, but it can be a valuable tool for supporting employees and protecting your business. Many employers offer severance packages, especially in cases of layoffs or terminations not tied to misconduct, as a gesture of goodwill and to help ease the transition. Employment contracts and CBAs may require severance pay.

A typical severance package may include:

• A lump-sum payment based on tenure or position
• Continuation of health benefits for a set period
• Career transition resources, such as outplacement services or job search support

Providing severance can also reduce the risk of legal claims, particularly when paired with a signed release agreement. However, terms should always be reviewed by legal counsel to help ensure compliance with federal and state laws.

In addition to severance, don't overlook statutory final pay obligations. If the employee is owed unpaid wages, reimbursable expenses, or earned bonuses, those must be included in their final paycheck. Depending on your state, employees may also be entitled to payment for accrued but unused vacation, personal, or sick time. Always consult state-specific wage and hour rules to confirm deadlines and required payouts. Several jurisdictions require delivery of the final paycheck at the time of termination.

Separation of Employment Checklist and Best Practices

Terminating an employee is often a complicated, emotional process, and conversations can be challenging to navigate during this time. As you interact with departing employees and adjust your teams, you also need to verify compliance with legal requirements and ensure thorough documentation.

A separation of employment checklist can help you manage these logistics and create a respectful, consistent termination process.

1. Prepare and Document

Before proceeding, pull the employee’s personnel file and review what is there. Write down the termination date and a clear, fact-based reason for the decision — nothing more than what's needed to explain what happened.

Review the following items in the employee’s personnel file:

• Performance reviews
• Written warnings or disciplinary notes
• Attendance or time-off records
• Notes from coaching conversations or performance discussions
• Any policy violations
• A resignation letter, if applicable

If you've had formal conversations — like a performance improvement plan — include those records as well, ideally with dates and acknowledgments. The file should make it clear what happened and how the company responded. Good records show that you followed the process, treated the employee fairly, and can back up the decision if it's ever challenged.

2. Draft an Employment Separation Letter

When appropriate, provide the employee with an employment separation letter that clearly outlines the terms of their departure. The letter gives the employee a clear summary of what to expect and serves as a written record for your files. It should cover:

• The employee's name and job title
• The last day of work
• Benefits that will continue after the last day
• What they'll receive in their final paycheck
• Items to be returned to the company (to be collected at the time of termination

Consult with legal counsel before including a short explanation for the separation or any notice of severance pay or waiver requiring a signature. A clear and concise employment separation letter supports risk mitigation and can help protect both the company and the employee.

3. Notify the IT Administrator

When the termination decision is made, contact IT right away. Provide the exact date and time access should be cut off, along with which systems are involved. This may include email, network logins, shared drives, voicemail, and other systems the employee has access to.

If the employee works off-site, make sure to include things like cloud tools, remote desktop access, or any company apps on their phone or tablet. You'll also need to handle building access, like canceling any key cards or parking passes. Taking care of this right away helps keep company information secure.

4. Create a Transition Plan

Even when employees aren't meeting expectations, their absence can create disruption. Where possible, before the termination takes place, map out what they were responsible for and how those tasks will be handled in the short term.

Consider who on the team has the experience or capacity to step in and be clear about how long those temporary arrangements will last. "Business continuity is critical to both team and organizational success, so developing a clear plan to manage the transition is key," says Amanda Gee, Talent Enablement Partner at Paychex. "Refocusing the team on the path forward helps ease uncertainty and keeps people engaged in the work ahead."

If someone needs help getting up to speed, make sure that's part of the plan. Shifting work around can slow things down, so be upfront about what might change and for how long. Talk with the team members taking on extra tasks so there are no surprises. A little planning goes a long way in keeping things on track.

5. Conduct a Termination Meeting

Determining how to fire someone is one of the most challenging tasks for an HR manager. A step-by-step process can help you follow applicable legal requirements, protect the company from legal repercussions, and avoid becoming emotional. As you conduct the meeting, follow these best practices:

• Be prepared. For safety and documentation purposes, have a witness present, such as an HR representative or another supervisor.
• Be direct. Don't sugarcoat the process. After consulting with legal counsel, share with the employee that they are being terminated and review your documentation with them to help them understand the reasons that led to the decision.
• Be respectful. Remember that the employee will likely be experiencing a wide range of emotions and anxieties as they consider their financial situation, job prospects, and next steps. Be sensitive and respectful as you answer their questions and communicate specifics.
• Be supportive. In addition to sharing details and next steps, offer the employee any resources that may be available to them, such as information about unemployment insurance, job searches, and other support. Your interaction in this scenario will influence how the employee describes their experience to others, which can impact your company's overall reputation.
• Be thorough. Ask the employee to return company documents, devices, keys, ID badges, and other property. Schedule a time to follow up if any of these items are at the employee's home.
• Be concise. A termination meeting shouldn't take a lot of time. Be brief, precise, and to the point, and don't waver on your decision.

Scripts for Termination Meetings

It's never a good idea to ad-lib a complicated conversation. Using a script you have reviewed with HR or legal counsel during the termination meeting helps you cover all relevant information and remain professional.

Below is a list of considerations for what you might say during a termination meeting, along with sample phrases:

• Set expectations: "Thank you for coming in. Unfortunately, I have some bad news to share."
• Clearly state the outcome: "We're terminating you. Today is your last day with the company."
• Review reasons for the decision: "As you know, we have a zero-tolerance policy for harassment, and we have documentation of a violation." You don't have to offer a specific reason if the termination is without cause. Instead, you could say, "We're ending your employment as part of a series of layoffs."
• Communicate next steps: "You can expect your last paycheck next Friday. Here is some information about your severance payment package, COBRA, and some resources to help you begin your job search."
• Ask for company property to be returned: "Please turn in your laptop and ID badge by the end of the day."
• End the meeting: "If you have additional questions, please contact me."

Things To Avoid When Terminating an Employee

The termination meeting is not the time to chat with the employee, offer sympathy, or get caught up in an emotional exchange. The decision has been made, and the topic is not open to discussion. Avoid saying things like:

• "I understand how you feel."
• "What do you plan to do next?"
• "This is really hard for me."
• "I'm sorry." (Unless the termination is a result of downsizing or layoffs)
• "You have always had a problem with your temper." (This is a character judgment, not a documented offense)

Every step of the termination process should be carefully planned in compliance with all legal requirements. Avoid the following mistakes that could create problems:

• Don't hold a termination meeting without a witness. Have an HR representative or other neutral third party in the meeting to help keep the discussion on track and serve as a witness. This helps to ensure that the meeting is fair and unbiased.
• Don't make it about you. The employee is already going to have a difficult time. Don't make it worse by explaining how hard it is for you or how you wish it could be different.
• Don't drag the meeting out. Keep the termination meeting short and to the point. Don't get caught up in emotions or allow the employee to bargain with you for an alternative outcome.
• Don't hold a termination meeting without documentation. To avoid a potential wrongful termination suit, always document the specific reasons for the termination and review them with the employee.

6. Provide Support and Resources

Once you have communicated with the separating employee, end the employment termination meeting by offering support and resources. For example, offer job search assistance if available, provide unemployment insurance guidance, explain how benefits will work, and review their severance package if they are receiving one. Try to end positively, thank them for their contributions, and offer encouragement.

"Employers can support exiting employees by providing a clear plan outlining what to expect after separation," says Gee. "That includes final pay details, benefit timelines, and how to return company property. Clear communication here helps reduce confusion and stress during an already difficult time."

Employees who were part of your group health plan and are terminated for reasons other than gross misconduct may be eligible for COBRA continuation coverage. COBRA gives terminated employees the right to pay premiums and remain in the group health plan for a limited time as they make other health insurance arrangements.

As the employer, you are responsible for informing both the employee and the plan administrator of their COBRA eligibility. Be sure you understand any state continuation benefits regulations or special circumstances that may apply (for example, an employee who is disabled during the coverage period may qualify for an extension of COBRA benefits).

7. Conduct an Exit Interview With Resigning Employees

An exit interview provides an opportunity to review final details, this includes reviewing the last paycheck, payout of any unused vacation, and what to expect with extended benefits. It's best to schedule this right away so the employee can wrap things up before leaving.

Before they go, confirm that their mailing address, phone number, and email are up to date. Let them know you may need to send important documents later, like a Form W-2 or IRS Form 8889 for HSA contributions. If they move, ask that they notify you. Explaining why this matters helps the employee understand you're looking out for their interests too.

8. Communicate With the Team

Managers should also discuss what has happened with the departing employee's team. Give them an opportunity to ask questions but always protect the departing employee's privacy by not sharing specific details.

"When an employee leaves, the rest of the team may feel anything from frustration to relief," says Gee. "It's important to acknowledge these reactions without oversharing, then focus on what comes next."

Instead, focus on the next steps, like whether the position will be refilled or whether duties will be redistributed among the team.

9. Keep Employee Records

Employers have to follow recordkeeping requirements set by federal, state, and local laws and consider best practices. Make sure you know what's required in each jurisdiction where your business has employees. Federal laws such as the Age Discrimination in Employment Act (ADEA), enforced by the Equal Employment Opportunity Commission (EEOC), and the Fair Labor Standards Act (FLSA) include key requirements.

To stay organized and compliant, consider the following best practices:

• Keep employee records in a secure, centralized HR system that only the right people can access. It makes backups easier and helps protect files if something unexpected, like a storm or system failure, disrupts your operations.
• Separate certain types of records. For example, medical information should never be stored with general personnel files. Maintain separate folders, whether digital or paper, for sensitive documents.
• Limit access to employee files. Only individuals with a legitimate business reason should be allowed to view them.

A well-kept personnel file can serve as key evidence if your business faces a legal issue. It should show things like performance evaluations, raises, written warnings, and any formal recognition the employee received while on the job.

The True Costs of Employment Separation

Letting someone go isn't just a personnel decision — it comes with real financial and operational consequences. Understanding both the direct and indirect costs can help your business plan ahead and minimize disruption.

The Direct Costs of Terminating an Employee

Even when the decision is necessary, there are immediate costs tied to ending an employee's time with your company. These may include:

• Severance pay: While not always required or provided, severance may often be provided in involuntary separations. It's typically based on length of service or company policy and can be a significant upfront expense.
• Recruiting and hiring a replacement: Finding someone new takes time and money. Costs may include advertising, recruiter fees, onboarding, and background checks.
• Payout of unused time off: Depending on your state's laws, you may need to compensate employees for unused vacation, PTO, or sick leave.
• Administrative time and legal review: HR, payroll, and legal teams may need to spend time helping to ensure compliance, updating records, and reviewing paperwork.

The Indirect Costs of Terminating an Employee

Some of the most significant costs aren't visible on a balance sheet, but they can have lasting effects on your team and operations. These may include:

• Lost productivity: Work slows down while tasks are redistributed or left unassigned. Remaining employees may struggle to cover the gaps.
• Strain on your team: When someone leaves, others often take on extra responsibilities. That can lead to burnout, frustration, or even more turnover.
• Loss of institutional knowledge: A long-time employee often carries insights that aren't written down. Their departure can interrupt workflows and cause setbacks.
• Morale and culture concerns: How termination is handled sends a message. If not managed carefully, it can affect trust, engagement, and overall morale.
• Training and ramp-up time: New hires typically need weeks or months to get fully up to speed. That learning curve adds hidden cost and delay.

Ensure Successful Employee Terminations

Each employment termination circumstance is unique but often follows a similar process. A successful employee termination is conducted legally and respectfully. This meeting may be the last experience the employee has as a team member with your company, so help them leave feeling respected and valued.

To provide the best possible experience, plan the meeting, use a checklist, and communicate strategically. How you handle termination can influence your company's reputation and may also affect the outcome of a wrongful termination suit, so take time to understand all the legal ramifications and follow best practices in every meeting.