Walking the Tightrope: Balancing Employee Welfare and Underperformance in Small Businesses
Managing a small business means wearing many hats, and one of the trickiest is balancing employee welfare with the need to address underperformance. When your team is small, every person counts. But how do you support your people while protecting your business?
The Challenge: Compassion vs. Capability
In small businesses, relationships are often close knit. You know your team personally, and that makes conversations about poor performance emotionally difficult. But ignoring the issue can lead to burnout, resentment, and lost revenue.
What the Law Says: Employment Rights Act 1996
Under Section 98(2)(a) of the Employment Rights Act, employers can dismiss for lack of capability (under-performance) but only if they follow a fair and reasonable process. This includes:
- Investigating the issue
- Communicating concerns clearly
- Offering support and time to improve
- Reviewing progress
- Providing a right to appeal
Failing to do so could result in an unfair dismissal claim, especially if the employee has more than two years’ service.
Tips for Managing Underperformance with Care
Here’s how to approach performance issues while maintaining a supportive culture:
1. Start with Empathy
- Have a private conversation.
- Ask open questions to understand the root cause.
- Avoid assumptions. Performance issues may stem from health, stress, or unclear expectations.
2. Document Everything
- Keep records of meetings, feedback, and support offered.
- Use objective data (missed deadlines, quality issues) to guide the conversation.
3. Use a Capability Process
- Avoid jumping straight to disciplinary action.
- Follow a structured capability procedure aligned with ACAS guidelines.
4. Offer Support
- Provide training, mentoring, or counselling.
- Make reasonable adjustments if health or disability is a factor.
5. Set Clear Goals
- Agree on measurable performance targets.
- Schedule regular reviews and check-ins.
6. Know When to Escalate
- If performance doesn’t improve despite support, consider formal steps.
- Ensure any dismissal is legally justified and procedurally sound.
Building a Culture That Supports Both
A strong performance management system doesn’t just protect your business, it boosts morale and wellbeing. Encourage open communication, celebrate achievements, and offer growth opportunities.
📋 Free Download: Performance Review Checklist
To help you manage performance fairly and consistently, we’ve created a Performance Review Checklist you can use in your business. This is available on the free downloads tab https://hr4businessltd.co.uk/free-resources/
What’s Included:
- Pre-review preparation steps
- Key questions to ask during the review
- Goal setting and improvement planning
- Follow-up and documentation guidance
Need help implementing a performance management process that works for your business? Contact HR4Business Ltd for tailored support and expert advice.