How To Run A Compliant Performance Improvement Process In Australia

When someone on your team isn’t meeting expectations, it can quickly become one of the most stressful parts of running a small business.

You might be thinking: Do I have to start a performance improvement process? What should it look like? How do I do it fairly without creating legal risk?

A well-run performance improvement process isn’t about “building a case” against an employee. Done properly, it’s a practical management tool that helps you:

• set clear standards and expectations
• give the employee a genuine opportunity to improve
• document what’s happening (so decisions are consistent and defensible)
• reduce the risk of disputes, unfair dismissal claims, or general workplace conflict

Below, we’ll walk you through how to implement a compliant performance improvement process that makes sense for a small business in Australia - including the steps to take, what to document, and common mistakes to avoid.

Note: This article provides general information only and doesn’t constitute legal advice. Because employment obligations can vary depending on awards, contracts, and the circumstances, consider getting advice for your specific situation.

What Is A Performance Improvement Process (And When Should You Use One)?

A performance improvement process is a structured way of addressing underperformance at work. It usually involves:

• identifying the performance issues
• setting clear expectations and improvement goals
• supporting the employee with training, tools, and feedback
• reviewing progress against an agreed timeline
• setting consequences if improvement doesn’t occur

In a small business, this process doesn’t need to be complicated - but it does need to be consistent, fair, and properly documented.

Underperformance vs Misconduct: Why The Difference Matters

Before you start, it’s important to work out what you’re actually dealing with.

• Underperformance is about ability, skill, output, quality, or reliability (for example, missing deadlines, not meeting sales targets, repeated errors).
• Misconduct is about behaviour that breaches workplace rules or expectations (for example, serious rudeness, theft, bullying, safety breaches).

Sometimes these overlap. For example, repeated lateness could be a performance issue, misconduct, or both depending on context and any workplace policies you have in place.

If you’re dealing with serious allegations or you’re not sure what category the issue falls into, it may be safer to pause and get advice before you choose your pathway (performance management vs disciplinary action).

When Should You Start A Performance Improvement Process?

As a general guide, it makes sense to begin a performance improvement process when:

• you have identified a clear gap between expectations and actual performance
• the employee has been made aware of the issue (at least informally)
• the issue is ongoing or repeated (not a one-off mistake)
• it’s reasonable to think the employee could improve with the right direction and support

Starting early is usually better than waiting until you’re frustrated. If you let problems run for months without addressing them, it can be harder to show that you acted fairly later on.

What Makes A Performance Improvement Process “Compliant” In Australia?

In Australia, the legal risk around performance management often comes from process - not just the final outcome.

You generally want a process that aligns with:

• the Fair Work Act and the “unfair dismissal” framework (where it applies)
• any applicable modern award or enterprise agreement
• your employment contract and workplace policies
• anti-discrimination laws and general protections laws
• work health and safety obligations (including psychological safety)

That’s why documentation, consistency, and procedural fairness are so important.

Procedural Fairness: The Core Idea To Build Around

Even if you’re confident the performance issues are real, a compliant performance improvement process should still give the employee:

• clear information about what’s not meeting expectations
• a chance to respond and explain what’s happening
• support and time to improve (where reasonable)
• fair warnings about what could happen if improvement doesn’t occur
• a consistent approach compared to how you treat others

For many small businesses, this is also the difference between an employee improving and an employee feeling ambushed.

Be Careful About “Performance” Issues That Are Actually Workplace Issues

Sometimes “poor performance” is caused (or contributed to) by factors you control, such as:

• unclear role expectations or shifting priorities
• lack of training or onboarding
• unreasonable workloads or understaffing
• poor systems, tools, or supervision
• workplace conflict or a bullying complaint

If you jump straight to warnings without checking these factors, you risk both an unfair outcome and a legal dispute.

Step-By-Step: How To Run A Performance Improvement Process In A Small Business

Below is a practical framework you can adapt to your business. The goal is to be structured enough to be fair and defensible, but not so rigid that it becomes unworkable for a small team.

1) Prepare Before You Speak To The Employee

Start by getting clear on what the issue is and what “good” looks like.

• What tasks or outcomes are falling short?
• What evidence do you have (examples, dates, output data, customer complaints, error rates)?
• What expectations were communicated (job description, KPIs, training documents, prior feedback)?
• Is the issue within the employee’s control?
• Is there anything going on that might require a different approach (e.g. medical issues, family violence, mental health concerns)?

This is also the time to check the employee’s contract and any applicable workplace rules. If you don’t already have a tailored Employment Contract, you’ll often find performance management becomes harder because expectations, duties, and processes aren’t clearly documented from the start.

2) Hold An Initial Performance Meeting (And Keep It Calm)

Meet privately, give the employee enough time to discuss the issue, and keep your tone professional.

In that meeting, you should usually:

• explain what you’ve observed (stick to facts and examples)
• explain why it matters (quality, client impact, team workload, compliance)
• ask for their perspective (there may be reasons you don’t know)
• confirm the expectations going forward
• explain that you’ll be implementing a performance improvement process

It’s often helpful to have a second person present (for example, another manager) as a note-taker, particularly if the situation is sensitive.

3) Put A Clear Plan In Writing (Your PIP)

Many businesses use a PIP (Performance Improvement Plan). This doesn’t have to be a formal template, but it should be written and specific.

Your written plan should usually cover:

• The performance concerns: specific, factual, and objective where possible.
• The expected standard: what the role requires (and where that requirement comes from).
• Improvement goals: what the employee needs to achieve to be back on track.
• Timeframes: when you will review progress (the right period will depend on the role, the issue, and what support or training is needed).
• Support: training, coaching, check-ins, resources, adjusted duties, shadowing, etc.
• Check-in schedule: weekly or fortnightly meetings, with clear agendas.
• Consequences: what may happen if targets aren’t met (for example, formal warning, role change, or termination).

Make sure it’s realistic. If targets are impossible, it undermines the fairness of the process.

4) Provide Genuine Support (Not Just Pressure)

A compliant performance improvement process isn’t just about monitoring - it’s also about enabling improvement.

Depending on the situation, support might include:

• refresher training (systems, customer service, safety, product knowledge)
• clear written procedures or checklists
• adjusted workload or additional supervision for a short period
• mentoring from a senior staff member
• reasonable adjustments if disability or health issues are involved

As a practical tip: if your expectations require new skills, build training time into the plan so the employee can realistically reach the standard.

5) Run Regular Review Meetings And Document Them

During the improvement period, hold your check-ins and keep brief notes.

Each review meeting should cover:

• what has improved (be specific)
• what hasn’t improved (be specific)
• what the employee says is working or not working
• any updated support or adjustments
• what happens next (including the next review date)

After each meeting, send a short follow-up email summarising what was discussed. This is one of the simplest ways to maintain a clear record.

6) If Performance Improves, Confirm It And Close The Process

When the employee meets the expected standard, close the process properly.

• confirm in writing that they have met the required improvement goals
• outline what “maintaining the standard” looks like going forward
• keep your records in case issues arise again later

This step matters because it reinforces expectations and helps rebuild trust after a difficult period.

7) If Performance Doesn’t Improve, Escalate Fairly

If performance doesn’t improve, you should avoid jumping straight from “informal chats” to termination without clear warnings and documentation.

Escalation steps often include:

• a formal written warning (or final written warning, depending on the circumstances)
• an extension of the PIP (only if genuinely helpful and reasonable)
• a discussion about role suitability or redeployment (if available)
• termination for poor performance (where justified and lawfully managed)

Be careful about any termination decision. Depending on the employee’s eligibility and your business size, termination can raise issues such as unfair dismissal risk, general protections risk, or adverse action allegations. If you’re at this stage, it’s wise to get advice before you take the final step.

Common Mistakes Small Businesses Make (And How To Avoid Them)

Small business owners are often juggling sales, clients, rosters, and cash flow - so performance management can end up being rushed or inconsistent.

Here are the mistakes we most commonly see, and what to do instead.

Using Vague Feedback Like “You Need To Do Better”

Vague feedback makes it hard for the employee to improve, and hard for you to prove fairness.

Do this instead: link feedback to measurable outcomes or observable behaviours (for example, “3 client files had missing documentation this week” rather than “your admin is messy”).

Skipping Documentation Because It Feels Awkward

If things escalate, your notes and emails become crucial context.

Do this instead: write short, factual summaries after meetings. Keep them neutral and professional.

Setting Unrealistic Timeframes Or Targets

Short timeframes can look unfair, especially if the employee needs training or if performance issues are tied to workload or systems.

Do this instead: choose a timeline that matches the role and the issue, and record why you chose it.

Changing The Employee’s Role Without Agreement

Sometimes employers try to “fix” performance by changing duties, location, or hours. But changes to core terms can create contractual and Fair Work issues if not handled properly.

Do this instead: check the employment contract and talk through proposed changes. If you need to formalise changes, document them clearly so expectations are aligned. If you’re considering broader changes, it can be worth reading up on changing employment contracts first.

Accidentally Creating A Psychological Safety Issue

A performance improvement process should never involve humiliation, aggressive “ambush” meetings, or public criticism.

Do this instead: keep meetings private, stay respectful, and focus on outcomes. If mental health is raised, take it seriously and consider whether adjustments or support are needed.

What Policies And Documents Help Support A Performance Improvement Process?

A performance improvement process works best when it sits inside a broader set of clear documents and workplace practices.

These are some of the most useful documents and tools for Australian small businesses.

Employment Contracts With Clear Duties And Standards

One of the easiest ways to reduce confusion is to ensure the contract is clear on role expectations, standards, and workplace policies. If you’re hiring (or re-documenting existing arrangements), a tailored Employment Contract is a strong foundation.

Workplace Policies (Especially Conduct, Leave, And Device Use)

Policies make expectations easier to point to - and easier to enforce consistently.

Depending on your business, you may want policies covering:

• code of conduct
• bullying and harassment
• disciplinary processes and performance management
• leave and attendance
• IT and communications (including email, messaging apps, and devices)

If technology use is part of the performance issue (such as misuse of phones during work time), a clear mobile phone policy can make your expectations much easier to enforce fairly.

Show Cause Letters For Serious Or Escalating Issues

In some situations - particularly where you are considering termination - you may choose to give the employee a formal opportunity to respond to the concerns before a final decision is made.

This is sometimes done via a show cause letter. If that’s relevant to your situation, a structured approach matters, and you may find it helpful to review the typical structure of show cause letters.

Clear Termination Processes (If It Comes To That)

Termination is not the outcome you want from a performance improvement process - but if it becomes necessary, the details matter (notice, final pay, risk management, records).

Even the notice component alone can be tricky if you’re not sure what applies. If you’re working through this, it helps to understand notice periods in an employment context so you can compare that against what you’re required to provide as an employer under the Fair Work framework and any applicable award or contract terms.

Key Takeaways

• A performance improvement process is a structured way to address underperformance by setting clear expectations, providing support, and reviewing progress over time.
• A “compliant” performance improvement process in Australia is built around procedural fairness: clarity, opportunity to respond, genuine support, reasonable timeframes, and clear warnings.
• The process should be documented at each stage, including written expectations, review meeting notes, and follow-up emails.
• Underperformance and misconduct are different issues and may require different approaches, so it’s important to classify the problem correctly early on.
• Strong foundations (like an Employment Contract and practical workplace policies) make performance management easier, more consistent, and less risky.
• If performance doesn’t improve and termination becomes a possibility, getting advice before taking final steps can help reduce legal risk and avoid costly disputes.

If you’d like help setting up a compliant performance improvement process (or reviewing your employment contracts and policies), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.