If there’s one issue that makes business owners and managers break into a sweat, it’s handling an underperforming employee—especially when they’ve already been warned or coached and still aren’t meeting expectations. The fear of doing or saying the wrong thing and triggering a legal headache is real. But let me reassure you: you can address performance issues directly and effectively—without putting your company at legal risk.

I’ve spent the past 17 years helping businesses navigate this exact challenge through smart HR strategy and outsourced support. As the owner of an HR and payroll outsourcing firm here in Colorado, I’ve worked with companies across industries that needed to take action but weren’t sure how to protect themselves in the process. If that sounds familiar, you’re not alone—and you’re in the right place.

What Types of Performance Issues Need to Be Addressed?

Employee performance problems can take many forms, and they don’t always involve clear-cut violations or misconduct. Often, it’s a pattern of behavior that slowly begins to impact productivity, morale, or customer service—and that’s when managers realize something has to change.

Here are some common examples I see across businesses of all sizes:

• Chronic tardiness or absenteeism: The employee is frequently late, calls out without notice, or doesn’t follow your time-off policy—causing disruption to the team and operations.
• Repeated mistakes or low-quality work: Despite training and support, the employee consistently turns in incomplete, inaccurate, or substandard work that others have to fix.
• Failure to meet goals or deadlines: They miss important deliverables, fall behind on assigned tasks, or don’t hit their performance metrics.
• Lack of accountability: The employee avoids responsibility, blames others, or doesn’t follow through on commitments—making it harder for the rest of the team to function.
• Unprofessional conduct: They may not be violating formal policies, but they show poor judgment in how they interact with coworkers, clients, or supervisors.
• Resistance to feedback or improvement: After multiple check-ins, the employee is unwilling or unable to change behavior, often responding with defensiveness or disengagement.

These types of issues, while sometimes subtle at first, can quickly snowball into much bigger problems—especially if they go unaddressed. That’s why it’s so important to step in early, document thoroughly, and handle the situation with both professionalism and legal caution.

The Risk of Mishandling Performance Issues

When a good employee starts falling short—or when a bad hire slips through the cracks—the natural impulse is often to “wait and see.” But inaction can be just as risky as overreacting. Poor performance that’s left unchecked doesn’t just hurt morale and productivity—it can also lead to legal exposure if you eventually terminate the employee without a clear, well-documented process.

I’ve seen companies get hit with wrongful termination claims, discrimination accusations, and unemployment disputes—all because the process for documenting performance issues was vague or inconsistent.

Step One: Define Expectations and Track Behavior

Before you address the performance issue directly, make sure you’ve clearly defined what success looks like in the role. That means job descriptions, performance goals, and metrics should be documented and acknowledged by the employee. You can’t correct what you haven’t clearly established.

Then, track the specific problems you’ve observed. Be objective and fact-based—avoid vague comments like “poor attitude” or “not a team player.” Instead, note missed deadlines, customer complaints, or specific policy violations. This kind of documentation becomes your foundation for the entire improvement process.

Step Two: Have the Hard Conversation—But Do It Right

The conversation itself should be respectful, focused, and structured. I always advise clients to:

• Schedule a private, uninterrupted meeting
• Stick to the facts, not emotions or assumptions
• Give the employee a chance to respond
• Set clear expectations for what needs to change—and by when

It’s helpful to follow up in writing with a summary of the discussion, including action items and any formal performance improvement plan (PIP) you’re implementing. This not only helps the employee but also protects your company in case you need to escalate things later.

Step Three: Create a Written Performance Improvement Plan (PIP)

A solid PIP outlines:

• The specific performance issues
• Measurable goals the employee must meet
• A defined timeline for improvement (typically 30, 60, or 90 days)
• The resources or support available to help
• The consequences of failing to improve (including possible termination)

I recommend getting a signed acknowledgment from the employee to confirm they understand the plan. This becomes your legal shield down the line.

Step Four: Monitor Progress and Provide Feedback

Performance management isn’t a “set it and forget it” exercise. You or a supervisor should meet regularly with the employee during the PIP timeline to review progress, offer feedback, and document the results.

If the employee improves, fantastic. If not, you’ll have a clear record of your efforts, which will be critical if you need to move to termination.

How HR Outsourcing Helps You Stay Protected

This is where HR outsourcing can make all the difference—especially if you don’t have a full-time HR team or legal department on staff.

Here’s how my team supports clients in this exact situation:

• We create compliant documentation (PIPs, warning letters, exit memos)
• We provide coaching for managers on how to conduct tough conversations
• We track legal guidelines around termination, discrimination, and protected classes
• We ensure consistency across departments so no one feels unfairly targeted
• We advise on severance, final paychecks, and unemployment claims when termination becomes necessary

Outsourced HR partners like mine keep you compliant, calm, and in control. You don’t have to be an employment law expert—we bring that knowledge to your team so you can focus on making smart, confident decisions.

Why Compliance Can’t Be an Afterthought

Even if you’re in an at-will employment state like Colorado, how you terminate someone still matters. Courts and agencies like the EEOC (Equal Employment Opportunity Commission) will look at whether your decision was based on clear performance records—or if it could have been influenced by bias, retaliation, or inconsistency.

A well-documented PIP, fair process, and consistent standards are your best defense.

And when you outsource your HR, you gain a neutral third party that can provide unbiased guidance and reduce the perception of internal favoritism or poor management.

Final Thoughts

Addressing poor employee performance is never easy—but it’s absolutely necessary if you want to maintain a strong, productive culture. With the right approach and the right support, you can take action confidently and compliantly.

If your business is growing and you’re not sure your current HR setup is enough to protect you, consider outsourcing. It’s not just about cost savings—it’s about risk management, consistency, and peace of mind.

I’ve helped businesses avoid lawsuits, reduce turnover, and build healthier teams through proactive performance management—and I’d be happy to help you do the same.

Written by Ellen Westbrook, a Stanford University graduate with a bachelor’s degree in human resources and psychology. I’m the owner of a successful HR and payroll outsourcing firm in Colorado and a writer and editor for HR Costs. With 17 years of experience, I specialize in employment law compliance, payroll tax management, and helping businesses improve efficiency through outsourced HR support.