How to Terminate an Employee: Legal Steps & Best Practices

Trying to figure out how to terminate an employee the right way without getting into legal trouble? You’re definitely not the only one. Plenty of U.S. founders, HR teams, and business owners deal with this situation every year.

Getting it wrong can cost you more than just awkward conversations, it can lead to legal issues, damage your company’s reputation, and shake up your team’s trust. That’s why understanding The Critical Importance of Proper Termination is so important.

In this article, we’ll explain when and how to let someone go, what laws you need to follow, and how to handle it with fairness and respect so your company stays protected and professional. Let’s get started.

Why might you need to terminate an employee?[toc=Reasons for Termination]

Understanding why termination happens helps employers handle it legally, document it properly, and protect overall workplace morale. With our experience helping global companies manage HR compliance, and payroll operations,

Here’s a breakdown of the most common reasons an employer might need to terminate an employee:

• Poor Performance: The employee isn’t meeting goals, deadlines, or job expectations despite feedback and support.
• Misconduct: Actions like harassment, theft, or rule violations that break company policy or trust.
• Attendance Issues: Chronic absenteeism or tardiness that disrupts team productivity.
• Business Restructuring: Layoffs due to downsizing, mergers, or cost-cutting decisions.
• Redundancy: The role is no longer needed due to automation, reorganization, or strategic changes.
• Cultural or Behavioral Issues: Repeated conflicts, lack of teamwork, poor performer or toxic criminal behavior.
• Legal or Compliance Reasons: Breach of confidentiality, fraud, or non-compliance with laws or company standards.

Now that we’ve covered why an employer might need to terminate an employee, the next step is to understand how to follow the proper guidelines, from preparation and documentation to conducting the termination meeting in a fair, compliant, and respectful way.

How should you terminate an employee step by step?[toc=How to Terminate]

Having supported employers with compliant offboarding, payroll processing, and employee documentation, we’ve outlined clear step-by-step guidelines to help you evaluate and execute employee termination the right way.

Step 1: Validate the facts and document everything

Before taking any action, make sure your records clearly support the termination.

• Gather performance reviews, written warnings, attendance logs, and the employment contract.
• Confirm that you’ve treated other employees consistently for similar issues to avoid wrongful termination claims.
• Summarize the timeline of performance or conduct issues in writing.
  If your file shows a fair, consistent process backed by evidence, you’re ready to move forward.

Step 2: Check legal risk and company compliance

Review potential legal exposure before finalizing the decision.

• Make sure the termination isn’t linked to a protected class, medical leave, or a recent complaint.
• Ensure you’re following your own company policy and state laws on final pay, notice, or separation forms.
• If anything looks unclear, have legal or HR counsel double-check it.
  This step prevents expensive missteps and keeps you compliant with labor laws.

Step 3: Decide the separation type, effective date, and eligibility

Clarify what kind of termination this is and when it takes effect.

• Identify whether it’s due to performance issues, misconduct, or business restructuring.
• Set the final workday and determine when benefits end.
• Confirm whether the employee might qualify for unemployment benefits under state rules.
  Writing these details down helps HR, payroll, and IT stay aligned.

Step 4: Prepare the termination package

Before the meeting, make sure every document is ready and accurate. This step ensures the termination is handled professionally and with zero confusion.

Create the termination letter:

Write a short, factual letter that confirms the employee’s name, position, and termination date. Include the reason for termination in neutral language, avoiding emotional or personal phrasing.

Add details about the final paycheck, continuation of benefits like COBRA, return of company property, and any severance or unemployment eligibility. Have HR or legal review it for compliance before printing.

Organize all documents:

Attach the termination letter, COBRA notice, and final pay details in one packet. Prepare a checklist for returned equipment such as laptops, phones, and access cards. Confirm with payroll that all payments are calculated correctly and ready for disbursement.

Having all paperwork finalized before the meeting ensures you deliver clear information and maintain compliance from the start.

Step 5: Set up the termination meeting

A respectful, private meeting sets the tone. The person leading the conversation should be calm, prepared, and professional.

• Have both the manager and HR representative present.
• Choose a quiet, neutral room, ideally early in the day and week.
• Plan IT access removal and company property return immediately afterward. Everyone involved should know their role and the schedule before the meeting begins.

Step 6: Conduct the termination meeting

The termination meeting is the most sensitive step. It’s where you deliver the decision face-to-face, so staying calm, clear, and respectful matters most.

• Plan the logistics carefully: Choose a private, neutral space and include an HR representative or witness. Schedule the meeting early in the week and early in the day, giving the employee time to process the news and contact HR for follow-ups. Coordinate with IT to disable access immediately afterward. A well-planned setup prevents surprises and keeps things professional.
• Be direct and concise: Start clearly, avoid small talk or vague phrasing. Say, “After reviewing your performance and previous discussions, we’ve decided to end your employment effective today.” Short, factual statements help the employee understand the situation without confusion or false hope.
• Explain the reason and show documentation: Provide context using facts, not opinions. Reference performance issues, written warnings, or policy violations that led to the decision. Have printed documentation ready, performance records, contracts, or notices. Sharing clear evidence shows fairness and helps prevent wrongful termination claims.
• Outline the next steps: Move from explanation to logistics. Inform them when to expect their final paycheck, what benefits continue, and how COBRA coverage works. Clarify how company property, laptops, access cards, or equipment, will be returned, and mention any severance if applicable. Give them a written summary for reference.
• Maintain professionalism and empathy: Stay composed and listen if the employee wishes to speak, but don’t argue or revisit the decision. End the conversation by thanking them for their work and wishing them well. A calm, empathetic tone reinforces that your organization values people, even when making difficult decisions.

Handled well, the termination meeting becomes a respectful conclusion rather than a confrontation, protecting both your company’s reputation and team morale.

Step 7: Complete offboarding immediately

Act right after the meeting to close all loops.

• Process the final pay per state rules, some require payment immediately.
• Send COBRA notices within the required timeline.
• Disable system access and confirm company property has been collected.
  Every action should be logged for compliance and documentation.

Step 8: Communicate the departure to your team

Keep it brief and professional. Recognize your team’s ability to stay focused and adapt to transitions.

• Let the team know the employee has left and outline any temporary handoffs within the department.
• Don’t share details or opinions about the termination. This avoids gossip, protects privacy, and keeps the department focused.

Step 9: Organize and file all documentation

File everything related to the termination in one secure location.

• Include the termination letter, meeting notes, final paycheck proof, and COBRA communications.
• Add copies of signed acknowledgments and property receipts.
  A complete file protects the company if wrongful termination or benefit disputes arise later.

Step 10: Review and improve your process

Reflect on what worked and what didn’t.

• Did managers follow the right steps? Was documentation solid?
• Could early coaching or clearer expectations have avoided the termination? Use each case to improve your performance management and compliance practices for the future.

Quick Script for the Termination Meeting: “We’ve decided to end your employment effective today based on documented performance issues. You’ll receive your final paycheck and COBRA information shortly. Please return all company property today, and HR will follow up with any questions. Thank you for your work, and we wish you the best in your next step.”

What are the risks when terminating an employee?[toc=Termination Risks]

Through our experience guiding companies through sensitive termination circumstances, these are the key risks every employer should plan for:

• Legal risks: Wrongful termination claims can arise from discrimination, retaliation, or contract violations. Missing final pay or COBRA deadlines also leads to penalties.
• Financial risks: Legal defense, settlements, or severance payouts can be costly, even if you’re right. HR and management also lose time handling disputes.
• Reputational risks: Mishandled terminations can hurt your employer brand and future hiring. Word spreads fast, especially online.
• Workplace risks: Sudden or unfair firings damage morale and trust. Respectful, transparent processes show fairness and protect company culture.

You might also be interested in learning how to terminate an independent contractor, Read our guide on "How to Terminate an Independent Contractor".

What are the best practices for terminating an employee?[toc=Best Practices]

Having supported companies across payroll, compliance, and workforce management, we know the best practices that ensure lawful and respectful terminations.

How do you prepare before the termination meeting?

Preparing well ensures the termination is handled lawfully and respectfully. This step is all about doing your homework before the conversation happens.

• Gather documentation: Collect all performance reviews, written warnings, attendance logs, and complaint records that support the decision.
• Review compliance: Check that the termination aligns with company policy, the employment contract, and labor laws to avoid wrongful termination claims.
• Plan logistics: Choose a private meeting space, coordinate with HR and IT for access removal and payroll processing, and prepare all necessary paperwork.
• Draft the termination letter: Keep it factual, short, and consistent with your documentation.
• Rehearse your message: Decide who will lead the meeting and what will be said.

Being fully prepared keeps the process smooth, professional, and free from legal or emotional surprises.

What should happen during the termination meeting?

The meeting itself should be short, structured, and respectful, not a debate or a surprise conversation.

• Start clearly: Get to the point right away. Notify the employee of the decision directly by saying, “We’ve decided to end your employment effective [date],” and avoid small talk.
• Explain briefly: Reference documented performance issues or policy violations without personal opinions or long explanations.
• Outline next steps: Explain final paycheck timing, benefits coverage, COBRA notifications, and how company property should be returned.
• Maintain professionalism: Stay calm, listen briefly, but don’t argue or revisit the decision.
• Close with respect: Thank the employee for their work and share a written summary for reference.

To understand more about effective offboarding and HR best practices, read our detailed article on "Offboarding Process and Best Practices for HR".

What types of termination exist?[toc=Types of Termination]

Terminations generally fall into three main categories, and understanding each helps employers stay compliant and handle exits respectfully.

Voluntary termination

This occurs when the employee chooses to leave, through resignation, retirement, or another job offer. Employers should still process the final paycheck, collect company property, and ensure a smooth offboarding to maintain goodwill and protect company data.

Involuntary termination

Here, the employer ends employment due to poor performance, policy violations, or attendance issues. This type carries greater wrongful termination risk, so employers must follow internal policies, document everything, and meet state requirements for final pay and benefits continuation.

Layoff or reduction in force (RIF)

A layoff or RIF happens for business reasons, such as restructuring, cost-cutting, or automation, rather than employee behavior. Employers should comply with the WARN Act, communicate clearly about severance, COBRA benefits, and provide support to minimize disruption and maintain trust.

If you want to learn more about the different types of employee contracts, read our article on "Types of Employment Contracts Explained".

What is the legal framework governing employee termination?[toc=Legal Framework]

Employers must comply with at-will employment rules, protected discrimination classes, documentation standards, and state-specific regulations to avoid wrongful termination claims and maintain compliance.

With our experience helping global companies manage payroll, and HR compliance and beyond, we’ve listed out these key legal pillars to help you navigate employee termination lawfully and confidently.

At-will employment vs contract employees

Before terminating an employee, determine if they are at-will or contract-based, as this defines what rules apply.

Knowing which type of employment applies determines your compliance checklist — from notice requirements to severance and documentation.

What is “at-will” in practice?

At-will employment gives employers flexibility but comes with clear limits. You can terminate an employee for valid reasons, but never illegally or without proof.

• Employers can terminate for performance issues, attendance problems, or business needs.
• You cannot terminate for unlawful reasons like discrimination, retaliation, or complaints made in good faith.
• Always keep written warnings, performance evaluations, and attendance records to prove compliance.
• Document every step leading up to termination to protect against wrongful termination claims.
• During the termination meeting, ensure your explanation matches documented facts.

What are contractual protections for non-at-will employees?

Employees with formal contracts or union agreements have stronger legal protection and require a structured process.

• You must follow the employment contract exactly, including notice periods, termination clauses, and severance agreements.
• Termination must be based on just cause, such as misconduct, violation of company policy, or poor performance.
• Any deviation from contract terms may lead to a breach of contract or wrongful termination lawsuit.
• Review all agreements with HR and legal before taking action.
• Always provide final pay, benefits details, and any COBRA notifications to remain compliant.

What discrimination and protected-class laws apply?

Protected classes are groups of people who, by law, have special protection against workplace discrimination. That means if someone falls into a protected class, because of their race, religion, gender, age, disability, or other characteristics; the law says you can’t treat them unfairly at work, whether it’s during hiring, discipline, or termination.

Common Examples of Protected Classes:

• Race or Color: Includes individuals who identify as Black, White, Asian, Latino, or any other racial or ethnic background.
• Religion: Protects people of all faiths, such as Hindu, Christian, Muslim, Jewish, and others.
• Sex/Gender: Covers male, female, transgender, non-binary, and individuals of all gender identities and expressions.
• Age: Applies to workers aged 40 or older (under the U.S. Age Discrimination in Employment Act).
• Disability: Includes those with physical disabilities, mental health conditions, or chronic illnesses.
• National Origin: Protects individuals from different nationalities or ethnic origins, such as Indian, American, French, or Mexican.
• Others: Extends to veteran or military status, pregnancy, and genetic information, ensuring equal treatment in all employment-related decisions.

Discrimination laws are rules that make it illegal to treat someone unfairly at work because they belong to a protected class, like race, gender, religion, or age. These laws cover all work decisions, hiring, pay, promotions, and especially firing.

In the United States, several key federal laws work together to prevent workplace discrimination and protect employees’ rights:

• Title VII of the Civil Rights Act of 1964: Prohibits discrimination in employment decisions based on race, color, religion, sex (including sexual orientation and gender identity), or national origin.
• Americans with Disabilities Act (ADA): Protects individuals with disabilities from being treated unfairly at work.
• Age Discrimination in Employment Act (ADEA): Safeguards employees aged 40 and over against age-based discrimination.
• Equal Pay Act: Ensures that men and women receive equal pay for equal work.

Together, protected classes identify “who” is shielded, while discrimination laws like these lay out “what” actions are illegal. The intersection of both means employers must always ensure that work decisions, especially termination, promotions, or hiring, are based on job performance and business needs, not on someone’s protected characteristic.

Documentation requirements

Thorough and accurate documentation is critical when terminating an employee to protect the employer legally and ensure a fair, transparent process. Here’s a breakdown of the essential documentation requirements:

1. Documentation Supporting the Termination Decision

Before taking action, collect all the information that supports your decision:

• Performance reviews showing consistent issues or unmet expectations.
• Written warnings and disciplinary notes with dates and incident details.
• Performance Improvement Plans (PIPs) outlining goals, timelines, and outcomes.
• Coaching records or notes from meetings addressing behavior or performance.
• Evidence of misconduct like emails, reports, or witness statements.

During termination, finalize:

• A formal termination letter summarizing reasons and effective date.
• Severance agreements (if applicable) with clear terms.
• Final paycheck acknowledgment confirming receipt of all due wages.
• COBRA notifications or benefits information for continued coverage.

2. General Documentation and Recordkeeping

After termination, maintain key records for compliance and future reference:

• Complete personnel file from hiring to termination.
• Payroll and tax records for at least 3–4 years.
• Benefits-related materials (COBRA, retirement plans) for up to 6 years.

Accurate, organized documentation not only ensures compliance with labor laws but also helps employers defend against wrongful termination claims and prove fairness if decisions are challenged.

State-specific regulations

Terminating an employee isn’t just about ending a working relationship, it’s about ensuring the process is fair, respectful, and compliant with all applicable laws.

While most US states follow the at-will employment doctrine, state-specific rules and exceptions require close attention if you want to avoid wrongful termination claims and legal pitfalls.

Exceptions to At-Will Employment

Even in at-will states, termination isn’t unrestricted. Employers cannot fire someone for:

• Discrimination: Based on race, color, sex, gender identity, sexual orientation, religion, disability, age, or national origin.
• Retaliation: For reporting misconduct, filing complaints, or joining investigations.
• Implied contracts: Verbal or written promises, policies, or handbooks that imply job security.
• Public policy: Refusing to break laws or exercising legal rights (e.g., jury duty).

• Employment Contracts and CBAs: Written contracts or union agreements may require “just cause” for termination and add more protections.

State-Specific Separation Notices

Many states require a written separation notice or termination form outlining employment dates, reason for termination, last wages, and unemployment benefits eligibility. States like California, Arizona, Illinois, and New Jersey have strict statutory notice formats.

Final Pay Requirements

Vary Widely: States set their own rules for how quickly final wages must be paid to terminated employees.

• California: Immediate payment required upon termination.
• Nevada: Must pay final wages within three days.
• Virginia, Washington, West Virginia: Next scheduled payday after separation (whether quitting or fired).

We’ve discussed how to terminate an employee and the related topics, next, let’s break down the costs of employee termination.

How much does it cost to terminate an employee?[toc=How much Cost]

With hands-on experience handling compliance, we’ve broken down the key cost factors every employer should consider.

Direct costs

• Severance pay: Often 2–4 weeks of pay per year of service, depending on company policy or contract.
• Benefits continuation: Employers must send COBRA notifications and manage coverage transitions.
• Final paycheck: Must include all due wages, unused PTO, or commissions per state law.
• Admin tasks: HR, payroll, and compliance work add time and labor costs.

Indirect costs

• Productivity loss: Remaining employees cover extra workload until the role is refilled.
• Legal risks: Wrongful termination claims can lead to legal fees or settlements.
• Reputation hit: Poorly handled firings can hurt morale and future hiring.
• Knowledge gap: The departing worker’s experience and client relationships are hard to replace.

A structured, compliant termination process helps minimize both financial impact and workplace disruption.

How can Wisemonk help with employee management and termination?[toc=How Wisemonk Helps]

Wisemonk is a leading Employer of Record (EOR) in India that enables global companies to hire, pay, and manage talent, without setting up a local entity. With deep knowledge of Indian employment laws, tax compliance, and cross-border workforce management, Wisemonk ensures your outsourcing strategy aligns with operational efficiency and global scaling.

Here’s how we support your employee management and termination needs:

• Legally hire and manage your workforce in India: We act as the legal employer for your global team, managing employment contracts, payroll, benefits, and compliance in line with Indian labor laws.
• Handle all final pay and statutory benefits: We take care of PF, ESI, gratuity, professional tax, and income tax filings, ensuring employees receive their final paycheck and benefits on time.
• Streamlined Hiring Process: Our extensive network accelerates talent acquisition, helping you quickly build a dedicated offshore development team.
• Dedicated HR Support: Our team provides ongoing assistance for operational, HR, and employee engagement needs to keep your offshore team motivated and productive.
• Support cross-border workforce operations: Whether hiring, managing, or terminating employees in India, Wisemonk keeps your global team compliant, efficient, and future-ready.

Ready to manage employee terminations smoothly and legally? Book a free consultation with us.