For a number of reasons, you may decide that an employment relationship is no longer working, and it is time to terminate that relationship.  Regardless of the reason, there are several proactive steps that will make terminating an employee as smooth a process as possible.

Prepare Employee Documents

Upon hiring a new employee, you should create an employee personnel file and keep the following documents in it:

• Signed Employee Offer Letter.  When you hire a new employee, you should have them sign a copy of their Employee Offer Letter.  If you don’t have an Employee Handbook, this may be the only document that includes your company policies.  The signed copy of the Employee Offer Letter is proof that the employee had knowledge of your company policies.

• Signed Employee Handbook Acknowledgement(s).  An Employee Handbook contains your company policies and should be signed by each employee.  Any time you make an update to the Employee Handbook, you should review it with your employees and have them sign a new Employee Handbook Acknowledgment. 

• Screenshots of Communications Related to Employee Misconduct.  If your employee fails to perform their job or abide by your company policies, you may have written communications with them about their misconduct.  Keeping screenshots of these communications may provide useful evidence if a dispute about the reason for termination arises.

• Signed Performance Reviews.  You should hold regular performance reviews with each employee either quarterly, biannually, or annually.  Keep signed copies of each Performance Review.

If you missed this step during the onboarding process, it is never too late to create an employee personnel file and collect as many of these documents as possible.

Plan a Private Meeting

We recommend that managers have a one-on-one meeting with each of their employees on a regular basis.  If this is already established, you can plan to terminate the employee during the one-on-one meeting.

Otherwise, you can schedule an ad hoc meeting with the employee.  If this meeting will be in person, ensure you schedule the meeting in a private place at a time that would allow them to collect any personal belongings as privately as possible.

Prepare what you want to say to the employee about why you are terminating them, and if it is helpful, write notes for yourself.  You will want your reasons, to be honest, respectful, and professional.

Disable Electronic Resource Access

Immediately prior to the termination meeting, disable the employee’s access to the company’s electronic resources, including email, passwords, social media accounts, and remote log-ins.  This will prevent the employee from engaging in unwanted communication to business relationships, interfering with company files, or sending themselves confidential information.

Hold a Private Meeting

When you hold a termination meeting, you should be professional and direct.  Be honest about the reason for termination (i.e., general performance issues or why the employee was not a good fit) without getting into the details.   

During the termination meeting, ask the employee to turn in any company property that is in their possession, such as laptops, cell phones, and company credit cards.  If they do not have all company property with them, tell them the time and manner in which you plan to collect it.

Prepare Final Paycheck

Under Arizona law, if you terminate an employee, you are required to pay their final paycheck within seven working days or the end of the next pay period, whichever is sooner. 

Determine what compensation is owed to the employee.  At a minimum, you will owe their base compensation.  If the employee is due any commission or tips, be sure that those are paid out according to company policy. 

Decide Whether to Offer Severance Pay

Severance pay is extra money that an employer chooses to provide to a departing employee.  Severance pay can be whatever amount the employer chooses.  A good rule of thumb is for severance pay to equal one or two weeks of pay for each year the employee worked for your company.  You should offer severance pay if you want to encourage the employee to sign a separation agreement.

Draft a Separation Agreement (Optional)

A separation agreement spells out each party’s responsibilities upon separation and may protect the employer from certain legal liabilities.  There is no requirement that a departing employee signs a separation agreement.  However, a separation agreement can provide benefits to both the departing employee (i.e., severance pay) and the employer (i.e., a promise not to pursue certain legal claims).

If you do not opt for a separation agreement, be sure to document the date and reason for the employee’s termination in their employee personnel file.

Retain Employee Documents

After an employee is terminated you should maintain their employee personnel file and all the documents inside it for at least four years.