Managing Underperformance In The Workplace: Australian Employer’s Guide

Managing people isn’t always straightforward. From time to time, you may have an employee who isn’t meeting expectations - and it can be hard to know how to address it without creating bigger issues.

The good news is that with a calm, structured process and clear communication, most underperformance can be managed fairly and legally. This guide walks you through what underperformance looks like, the steps to take, and the legal checkpoints to keep in mind so you can protect your business and support your team.

We’ll also cover the key documents and policies that make performance management smoother, plus what to do if performance doesn’t improve.

What Is Underperformance In Australia?

Underperformance (often called poor performance) is when an employee isn’t meeting the reasonable standards of their role. It’s different from misconduct, which involves deliberate wrongdoing like theft or harassment. With underperformance, the focus is on falling short of expected outcomes or behaviours - sometimes because of skill gaps, unclear expectations, workload, or personal circumstances.

Common signs include:

• Missing targets or KPIs, or regularly failing to meet deadlines
• Work quality issues, errors, or rework
• Disengagement, poor communication, or not collaborating with the team
• Not following workplace procedures or directions
• Declining productivity or a negative impact on team morale

It’s important to diagnose the issue properly. For example, if there’s a health or workload concern, you may need to adjust duties or provide support. If expectations were never made clear, the first step is to clarify them. If the problem is conduct, you’ll follow your disciplinary process rather than a performance improvement process.

Step-By-Step Process To Manage Underperformance

Being calm, consistent and well-documented is key. A fair process not only helps your employee improve, it also reduces the risk of disputes. Here’s a practical approach that works across most workplaces in Australia.

1) Identify The Gap And Gather Evidence

Start with facts. Record what’s not meeting the mark - missed KPIs, examples of poor quality, or customer feedback. Keep emails, performance reports and dated notes. Evidence makes your feedback clear and avoids misunderstandings later.

2) Check Contracts, Awards And Policies

Review the employee’s role description and your Employment Contract. Confirm any applicable Modern Award or enterprise agreement procedures. Awards don’t usually mandate a set number of warnings, but they may set expectations around consultation or processes, so it’s worth checking. If you don’t yet have a documented performance process, capture your steps consistently and update your Workplace Policy suite to include performance management.

3) Have An Early, Private Conversation

Arrange a confidential meeting. Share concrete examples and explain where expectations aren’t being met. Ask for the employee’s perspective - there may be training needs, workload issues or personal factors at play. This is also the time to reinforce role expectations and how performance will be measured.

Offer the opportunity for a support person to attend any formal meeting - it’s a key fairness factor considered by the Fair Work Commission under section 387 of the Fair Work Act.

4) Agree On Clear Performance Targets And Support

Set specific, measurable and time-bound goals (for example, accuracy rates, response times, sales targets, or project deadlines). Confirm the resources you’ll provide, such as training, coaching, clearer workflows or reasonable adjustments. Put this in writing and share it promptly.

5) Implement A Performance Improvement Plan (PIP)

If informal steps aren’t enough, move to a written Performance Improvement Plan. A good PIP includes:

• What the issues are and when they were discussed
• SMART improvement targets and timeframes
• Support you’ll provide (training, mentoring, tools)
• How progress will be reviewed (e.g. weekly check-ins)
• Potential outcomes if targets aren’t met (such as warnings or role changes)

Document each review meeting. If you ever need to escalate, your paper trail is essential. Where concerns are serious or ongoing, you may also issue a written warning or a show cause letter to invite a formal response before making decisions.

6) Monitor Progress And Give Constructive Feedback

Stick to the review schedule. Keep feedback balanced and specific - recognise improvements, address gaps, and reset expectations if needed. If circumstances change (for example, new systems or role changes), adjust the PIP to keep it realistic.

7) Decide Next Steps

There are several possible outcomes:

• Improvement achieved: Acknowledge progress, close out the PIP, and continue normal performance reviews.
• Partial improvement: Extend the PIP with refined targets and support if reasonable.
• No satisfactory improvement: Consider formal action such as a final warning, a suitable role change, or ending employment following a fair process.

Managing Remote Or Hybrid Teams

If your team works remotely or in a hybrid setup, increase structure and clarity:

• Hold regular video check-ins and use clear, shared metrics to track progress
• Document expectations and feedback in writing after each meeting
• Make sure remote staff can access the same training, tools and support as on‑site staff

Reasonable, performance-related management is not bullying. Keep communication respectful, fact-based and consistent with your policies.

Your Legal Obligations (Fair Work, Awards And The Code)

Australian employment law gives employees protections. Managing underperformance fairly means following a process that will stand up if challenged.

Fair Process Matters

If a dismissal is later reviewed, the Fair Work Commission will consider whether there was a valid reason related to performance, whether the employee was notified of the concerns and given a chance to respond, whether they had the opportunity for a support person in meetings, and whether they had a reasonable opportunity to improve. These are some of the factors in section 387 of the Fair Work Act.

Documenting everything - from initial conversations to PIP reviews - is one of the most effective ways to demonstrate a fair process.

Small Business Fair Dismissal Code

If you have fewer than 15 employees (based on the headcount method), the Small Business Fair Dismissal Code applies. It sets out straightforward steps for small employers to follow when dismissing an employee. Compliance with the Code is a key consideration in unfair dismissal claims involving small businesses. Make sure your process and paperwork align with the Code’s requirements before making a final decision.

Modern Awards And Enterprise Agreements

Many employees are covered by a Modern Award or enterprise agreement. While Awards do not generally prescribe a fixed number of warnings, they can include consultation or dispute resolution procedures that you should follow. Always check the applicable instrument before taking formal steps.

Anti‑Discrimination And General Protections

Performance management must be free from discrimination and adverse action. Avoid decisions or comments tied to protected attributes (for example, disability, pregnancy, age, race, or carer responsibilities). Where health or mental health is relevant, consider reasonable adjustments and your broader work health obligations before moving forward.

Consumer Law And Other Laws

The Australian Consumer Law (ACL) primarily governs your conduct toward customers - things like honest advertising and fair refund practices. It generally isn’t the framework used to manage employee performance. Keep the focus on Fair Work requirements and your internal employment documents for underperformance matters.

Policies, Documents And Records You Should Have

Clear documents make expectations obvious and your process consistent. Consider putting these in place (and keeping them up to date):

• Employment Contract: Sets role duties, reporting lines, and performance expectations. Role clarity here makes performance conversations easier. You can implement updated terms using a standard Employment Contract template tailored to your business.
• Performance Management Policy: Outlines the informal steps, formal PIP, review points and potential consequences, so managers follow the same playbook.
• Disciplinary Procedure: Explains how you handle warnings, show cause processes and, where relevant, misconduct investigations.
• Workplace Policies: A centralised set of rules (for example, code of conduct, equal opportunity, WHS, leave, and remote work). A well-structured Workplace Policy suite supports consistency.
• Performance Improvement Plan (PIP) Template: A simple template helps managers set clear targets and timelines, and track review notes.
• Record-Keeping System: Store meeting invitations, notes, emails, and signed acknowledgements in one place. Dated records are crucial evidence of a fair process.

If co‑founders or directors are involved in deciding employment outcomes, make sure decision-making and delegations are clear in your internal governance documents to avoid mixed messages or inconsistent treatment.

Termination As A Last Resort

Sometimes, despite support and clear expectations, performance won’t lift to the required standard. If dismissal becomes necessary, it’s critical to follow lawful, procedurally fair steps.

When Is It Appropriate To End Employment?

Ending employment for underperformance generally requires that you had a valid reason, the employee understood the concerns, they were given reasonable time and support to improve, and you considered any response before making a decision. Keep notes of each step to show how you reached the outcome.

Warnings, Show Cause And Final Decision

Before dismissal, you’ll often issue a written warning or a show cause letter that sets out the concerns and invites a response. If your final decision is dismissal, confirm it in writing, including the reason and termination date, and set out any notice arrangements.

Notice, Final Pay And Entitlements

Comply with notice period requirements under the National Employment Standards, any applicable Award or agreement, and the contract. Where appropriate, you can provide payment in lieu of notice. Calculate outstanding entitlements accurately - for example, accrued annual leave and any other payable amounts at termination - and process them promptly in line with your obligations on final pay.

Redundancy pay is generally not applicable to performance-based terminations. Redundancy is about a role no longer being required by the business, not how the employee performed in that role. If you’re weighing options, be clear on the difference between redundancy and termination before you proceed.

Probation And Small Business Considerations

If the employee is still in their probation period, you should still act fairly and follow a clear process, but timeframes may be shorter and expectations should be made explicit early. If you’re a small business (fewer than 15 employees), ensure your process aligns with the Small Business Fair Dismissal Code and that your documents support your decision-making.

Risk Management And Disputes

Underperformance matters can escalate quickly if processes aren’t followed. Keeping your approach consistent with section 387 factors, allowing a support person in formal meetings, and ensuring your decisions aren’t discriminatory goes a long way to reducing risk. If the matter is complex (for example, medical restrictions or overlapping grievances), it’s wise to get advice before final decisions are made.

Where dismissal is appropriate, confirm the outcome in writing and provide any relevant documents. If you don’t require the employee to work their notice period, confirm whether you’re giving a payment in lieu of notice and how company property will be returned.

Key Takeaways

• Handle underperformance early, privately and with clear, evidence‑based feedback - it’s better for your team and reduces legal risk.
• Use a structured process: clarify expectations, set measurable targets, support improvement with a PIP, and keep thorough records.
• Follow your legal obligations: consider Award or agreement procedures, align with the Small Business Fair Dismissal Code if applicable, and factor in section 387 fairness elements (including a support person).
• Keep performance management free from discrimination and make reasonable adjustments where health or personal circumstances are relevant.
• If dismissal becomes necessary, issue appropriate warnings or show cause, comply with notice requirements, and process accurate final pay.
• Redundancy pay does not apply to performance-based terminations - redundancy is about the role no longer being required, not the person’s performance.
• Well-drafted documents - an Employment Contract, performance and disciplinary policies, and a consistent record-keeping system - make the whole process clearer and more defensible.

If you’d like a consultation on managing underperformance in your workplace, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.