An employee who was solid a year ago is now missing deadlines. Two colleagues have quietly complained about redoing their work. You have hinted at the problem twice in passing, they agreed things were busy, and nothing changed. This morning a client called about an error that should never have left the building, and you found yourself wondering how hard it would be to just let them go. That moment, and what you do in the weeks after it, is what performance management in Australia is actually about, because the employers who skip from frustration to termination are the ones who end up at the Fair Work Commission.
This guide sets out a performance management process that is fair to employees and defensible for employers: what underperformance is, what unfair dismissal law requires, the steps to manage underperformance properly, and the mistakes that turn a workplace problem into a legal one. It is written for Australian small and medium business owners and managers without internal HR. It is general information, not advice, and figures cited are current as at July 2026; check the current published amounts and seek advice on your own circumstances before acting.
What underperformance is, and what it is not
Underperformance means an employee is not meeting the requirements of the job: missed deadlines, poor quality work, failure to follow reasonable instructions or workplace policy, or behaviour that disrupts the team. The cause might be capability, unclear expectations, workload, training gaps, health, or something happening at home. The cause matters, because the fix depends on it.
The boundary cases deserve a moment, because they decide which process applies. A pattern of lateness can be a capacity issue (caring responsibilities colliding with a roster), a performance issue (disorganisation), or a conduct issue (indifference to reasonable instructions), and the right response differs for each. The diagnostic question is simple: is this about what the employee cannot do, or what they will not do? Answer it honestly before choosing the pathway, because a conduct letter sent to a capability problem reads as unfair in hindsight, and hindsight is where these documents get read.
Underperformance is not the same thing as serious misconduct. Theft, fraud, violence, or conduct that creates a serious and imminent safety risk sits in a different category with a different process, and treating genuine misconduct as a performance issue, or genuine underperformance as misconduct, is where many processes go wrong on day one. The Fair Work Act frames the question for any dismissal as one of capacity or conduct: could the employee do the job, and how did they behave? Performance management deals with the first and with the lower end of the second. If what you are actually dealing with is an allegation of serious misconduct, stop here and get advice, because summary dismissal has its own rules and its own risks.
One more distinction worth making early: a performance problem is not a restructure. If the role is no longer needed, that is a redundancy question with its own tests, and dressing a redundancy up as performance management, or performance management up as a redundancy, fails under scrutiny in both directions.
Why the process matters: unfair dismissal exposure
An employee dismissed for poor performance can generally bring an unfair dismissal claim once they have served the minimum employment period: six months, or twelve months in a small business of fewer than 15 employees. Above the high income threshold, currently $190,100 for dismissals from 1 July 2026, an employee not covered by an award or enterprise agreement loses access to the unfair dismissal jurisdiction, but award-covered employees keep it regardless of earnings. If a claim succeeds, the Commission can order reinstatement or compensation of up to 26 weeks' pay, capped at $95,050 for dismissals from 1 July 2026.
The direct financial exposure is only part of the cost. A contested claim consumes management time across months, unsettles the team, and lands on the business at the exact moment it is already short-handed. A defensible process is cheaper than a defensible settlement, every time.
What the Commission examines
Unfair dismissal turns on whether a dismissal was harsh, unjust or unreasonable, and the Fair Work Act directs the Commission to a list of factors. For a performance dismissal, the practical questions are:
- Was there a valid reason related to the employee's capacity or conduct, supported by evidence rather than impressions?
- Was the employee notified of that reason and given an opportunity to respond before the decision was made?
- Was the employee warned about the unsatisfactory performance before dismissal, in terms clear enough that a reasonable person would understand their job was at risk?
- Did the employer unreasonably refuse a support person in discussions relating to dismissal?
- The Commission also weighs the size of the business and the absence of dedicated HR expertise, which gives smaller employers some latitude on process polish, but latitude is not immunity. It forgives an imperfect letter. It does not forgive the absence of a warning.
Nothing in that list requires a lawyer or a 40-page procedure. It requires a genuine reason, communicated honestly, with a real chance to improve. That is what the six steps below are designed to produce, with evidence.
The other jurisdiction: general protections
Unfair dismissal is not the only claim a mishandled process can produce. The general protections provisions prohibit taking adverse action against an employee because they exercised a workplace right, and an employee who is put on a performance plan days after making a complaint, querying their pay or taking personal leave will see a connection, whether or not one exists. General protections claims have no compensation cap and reverse the onus, so the employer must prove the reason for its action. The protection for employers is the same discipline the rest of this guide describes: a documented performance history that began before the complaint, and reasons that stand on their own evidence. Timing that cannot be explained is timing that will be explained for you.
The Small Business Fair Dismissal Code
If your business employs fewer than 15 people by head count, counting regular and systematic casuals, the Small Business Fair Dismissal Code applies. Where a small business employer complies with the Code, the dismissal is taken to be fair. For performance dismissals, the Code requires that the employee be given a valid reason based on conduct or capacity, warned that they risk dismissal if there is no improvement, given an opportunity to respond and a reasonable chance to rectify the problem, which may include providing additional training and ensuring the employee knows the employer's job expectations.
The Fair Work Commission publishes the Code together with a checklist an employer can complete at the time of dismissal. Completing it honestly, and keeping records of each warning and conversation, is the cheapest insurance a small employer can buy. The Code is not a shortcut around process. It is a compressed version of the same process, and it still has to actually happen.
The performance management process: six steps
What follows is the process at the heart of managing performance lawfully. The steps look bureaucratic written down. In practice they are a sequence of honest conversations, each one documented, each one giving the employee a genuine chance to improve.
Step 1: Set clear expectations
Underperformance is measured against expectations, and expectations that were never communicated cannot be enforced. Every role needs a current position description, clear goals, and standards the employee has actually seen: quality, volume, deadlines, behaviour. The standards need to be concrete enough to measure. "Provide excellent customer service" is a poster; "respond to enquiries within one business day" is a standard an employee can meet or miss, and a manager can evidence either way.
If your performance management system is an annual review and nothing else, expectations drift, and the first time the employee hears the standard is the day they are told they missed it. Setting expectations is also where a workplace policy earns its keep: a documented performance management policy tells employees and managers what the process will be before anyone needs it, and a simple template for recording performance conversations makes the documentation habit cheap enough to keep.
Step 2: Address it early and informally
When performance slips, the first response is a conversation, not a letter. Name the gap specifically, ask what is behind it, and listen to the answer, because workload, unclear priorities, missing training and personal circumstances each point to different responses. If the cause is capacity, the response might be training or a mentor. If the cause is workload design, the fix belongs to the business, not the employee. If something outside work is driving the change, compassion and flexibility now often buy back a good employee later.
Agree on what will change, and make a diary note of the conversation and the agreed actions, because informal does not mean undocumented. Many performance issues end here, quickly and cheaply, when the feedback is specific, early and constructive. What kills the informal stage is vagueness: "pick things up a bit" is not feedback an employee can act on, and it is not evidence of a warning either.
Step 3: Move to a formal process when the problem persists
If informal feedback does not shift the problem, escalate deliberately. Invite the employee to a formal meeting, tell them in advance what it is about, and let them know they can bring a support person. On the law, the Commission asks whether an employer unreasonably refused a support person, so there is no obligation to insist one attends; but offering, and accommodating the request, costs the process nothing and protects it considerably. In the meeting, set out the specific performance concerns with examples, give the employee a genuine opportunity to respond, and consider what they say before deciding anything. Then confirm the outcome in writing. If the outcome is a formal warning, the letter should state the performance gap, the improvement required, the support to be provided, the timeframe, and the consequence if nothing changes, in plain words: further disciplinary action, up to and including termination of employment.
A written warning is not a punishment ritual. It is the document that later proves the employee knew their job was at risk and was given a fair chance. A warning letter that does its job contains five things:
- the specific performance concerns, with examples and dates
- the employee's response from the meeting, recorded fairly
- the improvement required, in measurable terms
- the support and timeframe being provided
- the consequence of no improvement, stated plainly
Date it, keep it, and make sure it says what you would want the Commission to read back. How many warnings are enough is a judgement, not a formula; the folk rule of "three warnings" appears nowhere in the Act. What matters is that the warning was clear, the chance was real, and the time was reasonable.
Step 4: Use a performance improvement plan properly
For sustained underperformance, a performance improvement plan gives structure to the improvement period. A useful PIP is short and concrete, and fits on two pages:
- the specific performance gaps, with examples already discussed
- the measurable standard required, tied to the role's actual requirements
- the support the business will provide: training, coaching, adjusted priorities
- scheduled review dates, with who attends
- the timeframe, and a plain statement of what happens if the standard is not met
Timeframes should fit the role; a sales cycle measured in quarters cannot be assessed in a fortnight, and a data-entry accuracy problem does not need six months. Review meetings happen on the dates set, with honest assessments recorded each time, including where performance has improved.
Used properly, a PIP is a genuine attempt to keep a trained employee. Used cynically, as paperwork generated to justify a decision already made, it reads exactly that way in a hearing room. The Commission has seen a thousand PIPs and recognises the difference between a plan designed for improvement and a plan designed for a file.
A new client came to me wanting to dismiss an employee that afternoon. The performance problem was real and had run for 2 months, but no warning had ever been put in writing. We ran a proper process instead: a formal warning, a 12-week improvement plan, and structured reviews. The eventual exit was clean and unchallenged, and the difference was only ever the process.
Step 5: Monitor, document, and follow through
Whatever stage you are at, the discipline is the same: monitor performance against the agreed standard, hold the review conversations you scheduled, and document as you go. Contemporaneous notes of real conversations beat polished retrospective summaries. If performance has improved, say so, close the process formally, and mean it; recognise the improvement and let the employee move on without the process hanging over them. A process that quietly never ends is corrosive, and an employee who improved and stayed is the best outcome performance management can produce.
Step 6: The decision point
If the timeframe expires without sustained improvement, the business faces a decision: extend the plan, redeploy the employee, or end the employment. Extension makes sense where improvement is real but incomplete; a genuine upward trend is worth more to the business than a vacancy. Redeployment makes sense where the capability mismatch is role-specific and another seat genuinely exists; moving a problem sideways into a role that does not exist just relocates the file. Termination is the remaining option when neither applies. Before any termination decision, pause and audit your own file: valid reason, clear warnings, genuine opportunity to respond, support offered, reasonable time to improve. If any element is missing, the file is telling you the process is not finished. The termination step itself, notice, final entitlements and how to run the conversation, is covered in the guide to termination of employment, and this is the point to read it before acting, not after.
Common employer mistakes
The same failures appear in claim after claim, and every one of them is avoidable:
- No early conversation. The problem is tolerated silently for a year, then dropped on the employee as a crisis.
- Vague feedback. Warnings about "attitude" with no examples, no standard and no measurable improvement.
- No real opportunity to respond. The meeting where the outcome letter was written before the employee spoke.
- Skipped warnings. A dismissal for performance where the employee can honestly say no one told them their job was at risk.
- The disappearing support person. Refusing, or just failing to mention, the employee's right to bring a support person to a formal meeting.
- Timeframes nobody could meet. An improvement period designed to be failed.
- No records. Eighteen months of conversations, none of them written down, against an applicant with a diary.
- Ploughing on through a health disclosure. When an employee raises a medical condition or mental health during the process, the ground shifts: capacity, reasonable adjustments and discrimination risk all enter the frame, and the safe move is advice before the next step, not after it.
None of these mistakes means the underlying performance concern was wrong. That is the hard lesson of the unfair dismissal jurisdiction: an employer can be right about the performance and still lose on the process.
Preventing underperformance before it starts
The cheapest performance problem is the one that never develops, and prevention is mostly structure. Where the position descriptions, contracts and policies do not exist yet, Workplace Foundations is what builds that layer. Five things do most of the work:
- Recruit against a real position description, and induct new employees into the standards, not just the systems. A structured check-in at 90 days catches mismatches while expectations are still being formed and options are still open.
- Give regular feedback, not an annual ambush. Brief check-ins, monthly or quarterly, keep expectations current and surface problems while they are small.
- Keep goals current. Roles drift; clear goals reset the standard as the business changes.
- Invest in capability. Training, coaching and a mentor for developing employees close gaps before they become conduct files.
- Watch the environment. Sustained underperformance across a team is rarely individual. Workload design, unclear priorities and poor management are organisational problems, and they carry their own obligations: the same pressures the business creates for performance are hazards it must manage under its psychosocial safety obligations.
A business that does these five things will still have performance issues. It will just have fewer of them, catch them earlier, and resolve them with less damage.
When to get help
Managing underperformance is a normal part of running a business, and a well-run informal stage needs no outside help at all. The time to get advice is when the process turns formal: before the first warning letter, before the PIP, and always before a dismissal decision. Those are the documents and decisions a claim will be built on, and getting them right the first time costs a fraction of defending them later. Brookvale HR Solutions provides structured performance management support to Australian small and medium businesses, from drafting a compliant process through to advising on individual matters, with every engagement handled personally by Daniel Holbrook. If you are partway through a difficult one now, get the next step checked before you take it.
