Performance issues are one of the most common HR challenges for small businesses.

Someone isn’t meeting deadlines. Their work isn’t at the standard you expected. They’re making repeated mistakes. A manager is frustrated and wants to know:

“What can I actually do about it?”

The answer isn’t always to start a formal performance management process.

In fact, starting with a formal process too quickly can sometimes make things worse.

For most SMEs, the better approach is to understand what is causing the problem, have a proper conversation with the employee and give them a reasonable opportunity to improve.

And with the unfair dismissal qualifying period changing from two years to six months from 1 January 2027, getting this right is becoming even more important for employers.

First, work out what the actual problem is

“Poor performance” can mean a lot of different things.

Before deciding what to do, ask yourself:

Is this capability?

The employee is struggling to do the job to the required standard.

Is this conduct?

The employee is capable of doing the job but isn’t behaving or working in the way expected.

Is there another reason?

There could be an underlying issue affecting their performance, such as health, disability, inadequate training, unclear expectations or problems with workload.

This distinction matters because the appropriate response can be very different.

Acas recommends that employers first try to understand why there is a performance problem and distinguish between capability and conduct.

Don’t assume the employee knows they’re underperforming

This sounds obvious, but it happens all the time.

A manager might think:

“I’ve told them three times that their work isn’t good enough.”

The employee might think:

“Nobody has actually told me what I’m doing wrong.”

Before you start talking about warnings or formal procedures, make sure the employee understands:

• What they’re expected to do

• What standard they’re expected to meet

• Where they’re currently falling short

• Why it matters

• What improvement would look like

The more specific you can be, the better.

“Your performance isn’t good enough” isn’t particularly useful.

“Three of the last five client reports were submitted after the agreed deadline” gives the employee something they can actually respond to.

Have the conversation early

One of the biggest mistakes managers make is waiting.

They notice a problem in January.

They hope it will improve in February.

They get increasingly frustrated in March.

By April, they’re ready to start a formal process.

Often, the problem could have been addressed much earlier with a straightforward conversation.

A regular one-to-one is a good opportunity to raise concerns before they become serious.

Acas recommends regular performance conversations, feedback and check-ins alongside more formal performance reviews.

The conversation doesn’t need to be dramatic.

Something as simple as:

“I’ve noticed that the last few reports have contained a number of errors. I’d like to understand what’s happening and see what we can do to get things back on track.”

can be much more productive than immediately reaching for a formal warning.

Ask what’s getting in the way

Before deciding that someone simply isn’t trying hard enough, find out what’s happening.

Is the employee:

• Missing training?

• Unclear about their responsibilities?

• Overloaded?

• Working with inadequate resources?

• Struggling with a particular task?

• Dealing with a health issue?

• Experiencing a workplace problem?

• Being given unrealistic objectives?

Acas recommends employers consider what support or training might help an employee improve and provide adequate resources for them to do their job.

Sometimes the performance problem is actually a management problem.

If an employee has never been properly trained, unclear expectations have been set or their workload is unreasonable, simply telling them to “improve” isn’t going to fix much.

Think about disability and reasonable adjustments

This is an area managers should never overlook.

A performance issue can sometimes be connected to a disability.

For example, an employee may be struggling with:

• Concentration

• Time management

• Communication

• Attendance

• Processing information

• Physical tasks

• Particular working environments

If a disability is involved, the employer may need to consider reasonable adjustments before deciding how to proceed.

That might mean changing working arrangements, providing equipment, adjusting targets or giving additional support, depending on the circumstances.

Acas specifically advises employers to consider reasonable adjustments where performance issues may be connected to disability.

This doesn’t mean performance standards disappear.

It means the employer needs to consider whether there is a fair and reasonable way for the employee to meet them.

Set clear objectives for improvement

If the problem continues, it’s time to become more structured.

Don’t simply tell someone:

“You need to improve.”

Agree what improvement actually means.

For example:

“All client reports should be submitted within the agreed deadline and contain no more than two minor amendments following review.”

That gives everyone something objective to work towards.

Acas recommends objectives that are specific, measurable, achievable, relevant and time-bound.

You don’t necessarily need a formal Performance Improvement Plan at this stage.

For a small business, a simple written record of the agreed expectations and review date may be enough.

When should you use a Performance Improvement Plan?

A Performance Improvement Plan, or PIP, can be useful where informal management hasn’t resolved the issue.

It should not be treated as a punishment.

A good PIP gives the employee a clear opportunity to improve by setting out:

• The areas of concern

• The required standard

• Specific objectives

• Support or training

• A reasonable timeframe

• Review dates

• What may happen if the required improvement isn’t achieved

Acas recommends PIPs as one possible step where informal measures haven’t worked.

The important word is reasonable.

A two-week deadline to completely transform someone’s performance is unlikely to be particularly helpful.

The timeframe should reflect the role and the nature of the problem.

What if they still don’t improve?

At some point, an employer may need to consider formal action.

This is where you need to distinguish performance from misconduct.

If someone can’t perform their job to the required standard despite appropriate support, that is generally a capability issue.

If someone can do the job but deliberately refuses to follow reasonable instructions or standards, that may be a conduct issue.

The distinction isn’t always straightforward, which is why employers should consider the circumstances carefully before deciding which process to use.

Acas recommends supporting employees to improve before moving towards dismissal for capability, with dismissal being a last resort.

Keep records, but don’t turn everything into paperwork

You don’t need to document every conversation between a manager and employee.

But you should keep appropriate records of significant performance discussions.

For example:

Date: 14 September
Issue discussed: Repeated missed deadlines
Expected improvement: Reports submitted within agreed deadlines
Support offered: Additional training and weekly check-ins
Review date: 28 September

This creates a useful record for both the employer and employee.

It also means that if the situation eventually becomes formal, you’re not trying to reconstruct six months of events from memory.

Acas recommends keeping written records of performance discussions and sharing relevant records with the employee.

Don’t jump straight to dismissal

This is particularly important as the unfair dismissal rules change.

From 1 January 2027, most employees will be able to bring an ordinary unfair dismissal claim after six months’ service rather than two years.

That doesn’t mean employers can’t dismiss someone for poor performance.

It means employers should get better at managing performance and making decisions based on evidence.

If an employee has:

• Been told what is expected

• Been given appropriate support

• Been given a reasonable opportunity to improve

• Had their performance reviewed

• Failed to reach the required standard

the employer is in a much stronger position than if they simply decide one day that they have “had enough”.

Acas states that dismissal for capability should only happen where appropriate support has been provided and a fair procedure has been followed.

The biggest mistake SMEs make

I think the biggest mistake is treating performance management as an HR event rather than a management responsibility.

You shouldn’t need HR to tell a manager that someone is repeatedly missing deadlines.

Managers should be having those conversations as part of normal management.

HR becomes particularly valuable when:

• The informal approach hasn’t worked

• The issue is becoming serious

• A formal process may be appropriate

• There are potential discrimination or health issues

• The employee disputes the concerns

• Dismissal is being considered

For a small business without an internal HR team, having a clear performance management framework gives managers somewhere to turn when a straightforward conversation isn’t enough.

So, what does “good” performance management look like?

For an SME, I’d keep it relatively simple:

Set expectations.

Make sure people know what good performance looks like.

Talk about problems early.

Don’t save every concern for an annual appraisal.

Listen.

Find out whether there’s a reason behind the problem.

Support improvement.

Consider training, coaching, resources and reasonable adjustments where appropriate.

Be specific.

Explain exactly what needs to change.

Keep appropriate records.

Don’t rely on memory.

Review progress.

Give people a genuine opportunity to improve.

Escalate when necessary.

If informal management hasn’t worked, consider whether a formal capability or disciplinary process is appropriate.

The FoundrKit view

Performance management doesn’t need to be complicated.

For a small business, the goal isn’t to create a mountain of forms every time someone makes a mistake.

It’s to create a culture where employees understand what is expected, managers are comfortable having difficult conversations and performance problems are dealt with early.

The upcoming changes to unfair dismissal make this even more important.

Good performance management isn’t about finding a way to dismiss someone. It’s about giving people a fair opportunity to succeed and having a sensible process when they don’t.

And if it does eventually become necessary to take formal action, you’ll be in a much better position if you’ve managed the situation properly from the beginning.

Need a better performance management framework?

FoundrKit’s Performance Management Kit provides the practical HR documents and guidance SMEs need to manage performance, capability and probation more consistently.

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