How To Manage A Performance Improvement Plan Under Australian Employment Law

If you’re running a small business or startup, chances are you’ve had the uncomfortable experience of a team member not meeting expectations.

Maybe it’s repeated mistakes, poor customer feedback, missed deadlines, or ongoing attitude and conduct issues that are affecting the rest of the team. And because your business is small, the impact can feel immediate - one underperforming role can slow down the whole operation.

This is where a performance improvement plan (often called a “PIP”) can help. Done properly, a performance improvement plan gives your employee a clear, fair opportunity to improve - and gives you a structured process that helps reduce legal risk if performance doesn’t improve.

Below, we’ll walk you through what a performance improvement plan is, when it makes sense, how to run one in practice, and how it fits into Fair Work and broader employment law obligations in Australia.

What Is A Performance Improvement Plan (And Why Use One)?

A performance improvement plan is a structured process you use to address an employee’s underperformance.

In plain terms, it’s a written plan that sets out:

• what the performance issues are (with clear examples);
• what “good” performance looks like going forward;
• what support you’ll provide (training, coaching, resources);
• how progress will be measured; and
• what may happen if performance doesn’t improve (which can include termination).

For small businesses and startups, performance improvement plans are especially useful because they create consistency. They help you avoid “managing by vibes” (where expectations are implied, not stated) and instead move to a clear, documented process.

Is A Performance Improvement Plan Legally Required In Australia?

There’s no single rule that says you must use a performance improvement plan in every case. However, if you end up terminating an employee for poor performance, you may need to show that you acted fairly and gave the employee a reasonable opportunity to improve.

A well-run PIP is one of the most practical ways to demonstrate that.

Performance Vs Conduct: Why The Difference Matters

One common mistake we see is treating everything as “performance” when it’s actually “conduct”.

• Performance issues are about capability and output (quality of work, meeting KPIs, accuracy, speed, meeting deadlines).
• Conduct issues are about behaviour (bullying, refusing reasonable directions, dishonesty, repeated lateness, inappropriate communication).

Sometimes a PIP is still appropriate for conduct issues - but other times, you may need a different pathway (like warnings, an investigation, or disciplinary action), especially if the conduct is serious.

When Should You Put An Employee On A Performance Improvement Plan?

A performance improvement plan isn’t just for extreme situations. It’s often most effective when you use it early, before problems become entrenched or start impacting other staff.

Common situations where a PIP can be appropriate include:

• consistent failure to meet measurable targets;
• quality issues (errors, rework, customer complaints);
• time management issues affecting delivery;
• skills gaps that haven’t improved after informal coaching; or
• a role change where the employee hasn’t adapted to the new expectations.

When A PIP Might Not Be The Right Tool

There are situations where a performance improvement plan may not be the best first step, such as:

• Serious misconduct: for example theft, violence, serious bullying or safety breaches (you may need to investigate first).
• Probation management: if the employee is still on probation, you may handle underperformance differently (but you should still be fair and document decisions). In many cases, having a clear process helps - even during probation.
• Health-related capacity concerns: if performance issues are tied to illness or injury, you may need to consider medical capacity and your obligations around reasonable adjustments (where applicable).

If you’re unsure whether you’re dealing with performance, misconduct, or a health-related capacity issue, it’s worth getting advice before you kick off a formal process. The “wrong” process can create avoidable risk.

How To Create A Performance Improvement Plan: A Step-By-Step Process

A performance improvement plan should be practical and tailored to your business. It doesn’t need to be complicated - but it does need to be clear and fair.

Here’s a step-by-step approach that works well for many Australian small businesses.

1) Prepare Your Evidence And Expectations

Before you meet with the employee, get your facts straight.

• Collect examples of underperformance (dates, work outputs, customer complaints, KPIs, missed deadlines).
• Identify what expectations apply (position description, KPIs, policies, procedures, training documents).
• Consider whether expectations were clearly communicated and whether the employee was trained properly.

This step matters because a PIP should focus on observable facts - not personality, assumptions, or frustration.

2) Hold A Clear (And Respectful) Performance Meeting

A PIP should not arrive “out of the blue”. Start with a meeting where you:

• explain the performance concerns clearly;
• give specific examples;
• ask for the employee’s response and listen to it; and
• explain that you’re proposing a formal performance improvement plan.

Document that the meeting occurred and what was discussed.

In many cases, this meeting is also a good time to remind yourself whether your current Employment Contract and policies actually set the standards you expect in your workplace.

3) Draft The Performance Improvement Plan (Make It Specific)

A strong performance improvement plan usually includes:

• Role details: the employee’s position title and core duties.
• Performance concerns: list issues with examples (avoid vague statements like “bad attitude”).
• Required improvements: what must change, written as measurable outcomes.
• Support you will provide: coaching, shadowing, training, checklists, clearer processes.
• Timeframe: commonly 2-8 weeks depending on role complexity.
• Check-in schedule: weekly or fortnightly meetings, plus what will be reviewed.
• Consequences: what may happen if performance doesn’t improve (including possible termination).

If you use “KPIs”, make sure they’re achievable and linked to the role. In startups especially, targets can change quickly - so be careful about setting goals that move every week.

4) Provide A Genuine Opportunity To Improve

This is where many PIPs fall apart: businesses document expectations but don’t provide the support required for improvement.

Support could include:

• refresher training;
• job shadowing a higher performer;
• templates/checklists and clearer processes;
• weekly coaching sessions; or
• adjusting workload temporarily while the employee rebuilds capability.

A PIP should be challenging but fair. If you set the employee up to fail, it can backfire later if the process is scrutinised.

5) Run Regular Check-Ins And Keep Records

Set recurring meetings and take notes each time. Your notes should capture:

• what improvements were achieved (or not achieved);
• any new examples (good and bad);
• what support was provided; and
• the next steps before the next review.

If performance isn’t improving, you may also consider issuing a formal warning as part of the process. Having a consistent approach to documentation and warnings can make a real difference in reducing risk. (This is also where many employers use formal warnings alongside a PIP.)

6) Conclude The PIP With A Clear Outcome

At the end of the performance improvement plan timeframe, you should hold a final review meeting and decide on an outcome, such as:

• Performance improved: confirm in writing that the PIP is complete and expectations continue going forward.
• Performance partially improved: you may extend the PIP with revised goals and continued support.
• Performance not improved: you may move to further disciplinary action or termination (but take care here - process matters).

If you’re contemplating termination, it’s often worth pausing and getting advice before taking the next step, particularly where there are complicating factors (like a recent complaint, a workplace injury, pregnancy, or other protected attributes).

Legal Risks And Fair Work Considerations For Performance Improvement Plans

Most businesses use a performance improvement plan because they want a fair process and a better-performing team. But it’s also a risk management tool - and it needs to be handled carefully.

Some key legal considerations include:

Unfair Dismissal Risk (And Procedural Fairness)

If an employee later claims unfair dismissal, decision-makers often look at whether the employee was:

• told about the performance concerns clearly;
• given a reasonable opportunity to respond;
• given support and time to improve;
• warned that their job may be at risk if performance didn’t improve; and
• managed consistently and fairly.

A well-documented performance improvement plan can help show you followed a fair process.

General Protections Risk (Adverse Action)

Be careful if performance management overlaps with an employee exercising a workplace right (for example, taking sick leave, raising a complaint, or requesting flexible work).

This doesn’t mean you can’t manage performance - it means you should be extra careful about timing, documentation, and ensuring your actions are genuinely about performance.

If sick leave becomes part of the picture, it’s important to handle the situation properly and request evidence in a lawful way. This can include understanding when and how to ask for medical evidence, and what to do if patterns emerge.

Discrimination And Reasonable Adjustments

If the performance issues relate to a disability, injury, or medical condition, you may have obligations to consider reasonable adjustments in some circumstances (for example, where required under discrimination law and where the adjustment is reasonable and doesn’t impose unjustifiable hardship).

That might include modifying duties, adjusting targets, or providing extra support - depending on the circumstances.

Because this area can become complex quickly, it’s worth seeking tailored advice before assuming the issue is “just performance”.

Misconduct Or Complaints: Do You Need An Investigation Instead?

If the issue includes allegations of misconduct (for example, bullying, harassment, safety breaches, dishonesty), you may need to investigate before making decisions.

In some cases, you may also consider whether it’s appropriate to direct the employee not to attend work while you work through the process - but this needs to be approached carefully. “Standing down” without pay is only available in limited circumstances (for example, where it’s authorised by the Fair Work Act, an award or enterprise agreement, or the employment contract). If you’re considering any form of stand down, it’s worth getting advice first. For more information, the approach described in standing down guidance can be relevant depending on the circumstances and the employee’s contract/award.

What To Include In Your PIP Documents And Workplace Policies

A performance improvement plan works best when it sits within a broader, consistent employment framework. If you’re relying on “informal chats” alone, it’s easy for expectations to become unclear or inconsistent across your team.

Here are documents and systems that often support a PIP process in a small business.

Employment Contracts That Match Your Reality

If your employee’s duties, KPIs, or reporting lines aren’t clearly described anywhere, performance management becomes harder.

Having the right Employment Contract (and making sure it reflects the employee’s actual role) helps you set expectations early and reduces confusion when you later need to manage performance.

Workplace Policies And Clear Reporting Lines

A good PIP often relies on internal processes: how work is checked, how customer complaints are handled, who approves deliverables, and what “done” looks like.

If you’re scaling quickly, this is a good moment to review whether you need stronger internal policies, training materials, or a consistent probation and onboarding process.

Show Cause Letters (When Performance Is Not Improving)

If performance hasn’t improved after warnings and a PIP, many businesses move to a “show cause” step - a formal letter giving the employee a chance to explain why further action (including termination) should not occur.

This can be a helpful procedural step, but it needs to be used carefully and worded correctly. Where relevant, show cause letters can help you formalise the process and ensure the employee has a final opportunity to respond.

Termination Planning (If It Comes To That)

Not every PIP ends in termination - and ideally, many don’t. But you should still plan for the possibility, because it affects how you document the process.

If the employee is on probation, you may be weighing whether termination is appropriate at that stage. Even then, a fair and documented approach is important. This is especially relevant in early-stage businesses where roles change quickly and expectations evolve. If that’s your situation, the considerations discussed in termination during probation scenarios may be relevant.

If the employee is not on probation, notice and minimum standards may apply depending on the contract, award, and the National Employment Standards. It’s important to ensure notice, final pay and entitlements are handled correctly.

Key Takeaways

• A performance improvement plan is a structured process to address underperformance, set clear expectations, and give an employee a fair chance to improve.
• A strong PIP is specific: it identifies the issues with examples, sets measurable improvement goals, and includes support and check-in dates.
• Keep your process fair and consistent - poor documentation or unclear expectations can increase legal risk if the situation escalates.
• Be careful where performance management overlaps with sick leave, complaints, injury, or potential discrimination issues, as additional legal obligations may apply.
• If performance does not improve, your next steps may include formal warnings, a show cause process, or termination - but it’s important to handle notice, final pay and procedural fairness correctly.

If you’d like help putting together a performance improvement plan process (or advice on managing underperformance safely), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.